<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 21, 1998.
THIS REGISTRATION STATEMENT HAS NOT BEEN MADE EFFECTIVE. INFORMATION CONTAINED
HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 20-F
(MARK ONE)
[X] REGISTRATION STATEMENT PURSUANT TO SECTION 12(B)
OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[_] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended:
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from to
COMMISSION FILE NUMBER:
EMBRATEL PARTICIPACOES S.A.
(Exact name of Registrant as specified in its charter)
EMBRATEL HOLDING COMPANY
(Translation of Registrant's name into English)
THE FEDERATIVE REPUBLIC OF BRAZIL
(Jurisdiction of incorporation or organization)
SCN-QUADRA CN2, LOTE F, 2(degrees) ANDAR, SALA 204
BRASILIA-DF, BRAZIL
(Address of principal executive offices)
SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE
ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
<S> <C>
Preferred Shares, without par
value.......................... New York Stock Exchange*
</TABLE>
- --------
* Not for trading, but only in connection with the listing of American
Depositary Shares on the New York Stock Exchange
SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE
ACT: None
SECURITIES FOR WHICH THERE IS A REPORTING OBLIGATION PURSUANT TO SECTION 15(D)
OF THE ACT: None
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the last fiscal year covered by
this Registration Statement: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes No X
Indicate by check mark which financial statement item the registrant has
elected to follow.
Item 17 Item 18 X
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT.
THIS PRELIMINARY REGISTRATION STATEMENT ON FORM 20-F HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") BUT HAS NOT BEEN
DECLARED EFFECTIVE AND IS SUBJECT TO COMMENT BY THE COMMISSION.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
PRESENTATION OF INFORMATION................................... ii
GLOSSARY OF TERMS............................................. v
EXCHANGE RATES................................................ viii
PART I
ITEM 1. Description of Business....................................... 1
ITEM 2. Description of Property....................................... 24
ITEM 3. Legal Proceedings............................................. 25
ITEM 4. Control of Registrant......................................... 25
ITEM 5. Nature of Trading Market...................................... 26
ITEM 6. Exchange Controls and Other Limitations Affecting Security
Holders....................................................... 28
ITEM 7. Taxation...................................................... 29
ITEM 8. Selected Financial Data....................................... 34
ITEM 9. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 37
ITEM 9A. Quantitative and Qualitative Disclosures about Market Risk.... 50
ITEM 10. Directors and Officers of Registrant.......................... 51
ITEM 11. Compensation of Directors and Officers........................ 52
ITEM 12. Options to Purchase Securities from Registrant or
Subsidiaries.................................................. 52
ITEM 13. Interest of Management in Certain Transactions................ 52
PART II
ITEM 14. Description of Securities to be Registered.................... 53
PART III
ITEM 15. Defaults upon Senior Securities............................... 66
ITEM 16. Changes in Securities and Changes in Security for Registered
Securities.................................................... 66
PART IV
ITEM 17. Consolidated Financial Statements............................. 66
ITEM 18. Consolidated Financial Statements............................. 66
ITEM 19. Consolidated Financial Statements and Exhibits................ 66
</TABLE>
i
<PAGE>
PRESENTATION OF INFORMATION
OVERVIEW
Embratel Participacoes S.A. (the "Registrant"), a corporation organized
under the laws of the Federative Republic of Brazil ("Brazil"), was formed
upon the reorganization of Telecomunicaoes Brasileiras S.A.--Telebras
("Telebras"), a corporation organized under the laws of Brazil that, together
with its operating subsidiaries (the "Telebras System"), was the primary
supplier of public telecommunications services in Brazil. On May 22, 1998, the
shareholders of Telebras approved the restructuring of the Telebras System to
form, in addition to Telebras, twelve new telecommunications companies (the
"New Holding Companies") by means of a procedure under Brazilian corporate law
called cisao or "split-up". The New Holding Companies were allocated virtually
all of the assets and liabilities of Telebras, including the shares held by
Telebras of the operating subsidiaries of the Telebras System. The New Holding
Companies, together with their respective subsidiaries, comprise (a) three
regional fixed-line operators, (b) eight regional cellular operators and (c)
one domestic and international long-distance operator. The restructuring of
the Telebras System into the New Holding Companies and their respective
subsidiaries is referred to in this Registration Statement on Form 20-F (the
"Registration Statement") as the "Breakup" of Telebras. See "Description of
Business--Background" and "--The Company."
The Registrant is one of the New Holding Companies formed upon the Breakup
of Telebras. In the Breakup, all of the share capital of Empresa Brasileira de
Telecomunicacoes ("Embratel") held by Telebras (representing 98.7% of the
total share capital of Embratel) was transferred to the Registrant. Embratel
is the primary provider of domestic and international long-distance telephone
services in Brazil, as well as other telecommunications services such as data
communication, text, sound and image transmission, and internet services.
The Registrant's principal assets are the shares of its operating subsidiary
Embratel. The Registrant relies almost exclusively on dividends from Embratel
to meet its needs for cash, including for the payment of dividends to its
shareholders. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
As used herein, the "Company" refers to the Registrant and its consolidated
subsidiary Embratel.
PRESENTATION OF FINANCIAL INFORMATION
FINANCIAL STATEMENTS AND MINORITY INTERESTS
The audited consolidated balance sheets included herein as of December 31,
1996 and 1997 and the related consolidated statements of income, cash flows
and changes in shareholders' equity for each of the years ended December 31,
1995, 1996 and 1997 (including the notes thereto, the "Consolidated Financial
Statements") are the consolidated financial statements of the Registrant. The
portion of equity and income attributable to shareholders other than Telebras
at December 31, 1997 is reflected as "minority interests" in the Consolidated
Financial Statements. At December 31, 1997, such minority shareholders owned
1.7% of the share capital of Embratel. Approximately 60% of the minority
interests in Embratel are held by institutional shareholders, including
pension funds, mutual funds and telecommunications companies. These
shareholders obtained their interests in Embratel in auctions held in April
1988, December 1991, and February 1997, whereby Companhia Vale do Rio Doce
S.A., Banco do Brasil S.A. and Centrais Eletricas Brasileiras S.A., then
state-owned companies that formerly held interests in Embratel, sold their
interests to the public. The remainder of the minority interests is held by
Camara de Liquidacao e Custodia, a clearing house of the Rio de Janeiro Stock
Exchange.
FORMATION OF REGISTRANT
The formation of the Registrant through the spin-off from Telebras has been
accounted for as a reorganization of entities under common control in a manner
similar to a pooling of interests. The assets and liabilities of the
Registrant that were spun off from Telebras were transferred at their indexed
historical cost. See Notes 2 and 28 to the Consolidated Financial Statements.
ii
<PAGE>
At the May 22, 1998 Telebras shareholders' meeting, the shareholders
approved a specific structure for the shareholders' equity of each New Holding
Company, which included an allocation of a portion of the retained earnings of
Telebras. In this manner, the balances of capital, reserves and retained
earnings, together with the corresponding assets and liabilities, for the
formation of the Registrant were established. Telebras retained within its own
shareholders' equity sufficient retained earnings from which to pay certain
dividends and other amounts. Telebras allocated to each New Holding Company
the balance of its retained earnings in proportion to the total net assets
allocated to each such Company. This value of allocated retained earnings does
not represent the historical retained earnings of the New Holding Companies
and resulted in a decrease of R$210,432,000 in relation to the Company's
historical retained earnings. See Note 28 to the Consolidated Financial
Statements. Allocated retained earnings and future retained earnings will be
the basis from which future dividends will be payable.
EFFECTS OF INFLATION
The Consolidated Financial Statements contained herein were prepared in
accordance with generally accepted accounting principles in Brazil ("Brazilian
GAAP") and are presented in Brazilian reais. Pursuant to Brazilian GAAP, the
Consolidated Financial Statements and the other financial information
presented herein recognize certain effects of changes in the purchasing power
of Brazilian currency due to inflation and, unless otherwise specified, have
been indexed and expressed in constant reais of December 31, 1997 purchasing
power by using the daily changes or the monthly average values of the Unidade
Fiscal de Referencia (the Tax Reference Unit or the "UFIR") through December
31, 1995.
Until December 31, 1995, the relevant inflation index selected by the
Comissao de Valores Mobiliarios (the Brazilian Securities Commission or "CVM")
and the one used for the constant currency method under Brazilian GAAP was the
UFIR. Since January 1, 1996, the CVM has no longer required that the constant
currency method of accounting be used in the preparation of the consolidated
financial statements of publicly traded Brazilian companies. Restatement in
constant currency is now optional and any general price index may be used. The
Brazilian Institute of Accountants has recommended that the Indice Geral de
Precos--Mercado (the General Prices Index-Market or the "IGP-M") be used for
this purpose. The Company's management believes that the IGP-M is the most
appropriate measure of the general price inflation in Brazil and has elected
the IGP-M for purposes of preparing its consolidated financial statements in
accordance with the constant currency method as of January 1, 1996. See Note
2a to the Consolidated Financial Statements.
In July 1997, the three-year cumulative inflation rate for Brazil fell below
100%; however, for accounting purposes, the constant currency method has
continued to be applied. The Brazilian Institute of Accountants has not yet
published definitive rules regarding when the constant currency method of
accounting may no longer be used to prepared consolidated financial
statements. If the Brazilian Institute of Accountants determines that the
constant currency method may no longer be used to prepare consolidated
financial statements beginning January 1, 1998, the restated balances of
nonmonetary assets and liabilities of the Company as of December 31, 1997 will
become the new basis for accounting and income statement items will no longer
be restated for inflation.
CURRENCY TRANSLATIONS
All references herein to (i) the "real", "reais" or "R$" are to Brazilian
reais (plural) and to the Brazilian real (singular), the official currency of
Brazil and (ii) "U.S. dollars", "dollars" or "US$" are to United States
dollars. As of July 1, 1994, the denomination of the Brazilian currency unit
was changed to the real from the cruzeiro real (each real being equal to 2,750
cruzeiros reais at such time). All amounts in cruzeiros reais have been
restated in reais in this Registration Statement. Certain amounts herein may
not sum due to rounding.
This Registration Statement contains translations of certain real amounts
into U.S. dollars solely for the convenience of the reader. These translations
should not be construed as representations that the real amounts actually
represent such U.S. dollar amounts or could be or could have been converted
into U.S. dollars at the rate indicated. Unless otherwise indicated, such U.S.
dollar amounts have been translated from reais at the commercial buying rate
for the purchase of U.S. dollars (the "Commercial Market Rate") published by
Banco Central do Brasil (the "Central Bank of Brazil") for December 31, 1997,
which was R$1.1164 to US$1.00. The
iii
<PAGE>
noon buying rate in New York City for cable transfers in reais as certified by
the Federal Reserve Bank of New York has not been consistently reported for
Brazilian currency during the periods for which data are presented in this
Registration Statement. See "Exchange Rates" for information regarding rates
of exchange.
MARKET INFORMATION
Upon the Breakup of Telebras, holders of common and preferred Telebras
shares ("Telebras Common Shares" and "Telebras Preferred Shares" and,
together, "Telebras Shares") were deemed under Brazilian law to own, in
addition to such Telebras Shares, one common or preferred share, as
applicable, of each New Holding Company for each such Telebras Share held by
them. Following the Breakup, the Telebras Common Shares and the common shares
of the New Holding Companies have been traded as a unit on the Bolsa de
Valores de Sao Paulo (the "Sao Paulo Stock Exchange"), the Bolsa de Valores do
Rio de Janeiro (the "Rio de Janeiro Stock Exchange") and the seven other
Brazilian stock exchanges (together with the Sao Paulo Stock Exchange and the
Rio de Janeiro Stock Exchange, the "Brazilian Stock Exchanges"). Similarly,
the Telebras Preferred Shares and the preferred shares of the New Holding
Companies have been traded as a unit on the Brazilian Stock Exchanges.
Telebras American Depositary Shares ("Telebras ADSs"), each originally
representing 1,000 Telebras Preferred Shares, have continued to trade on the
New York Stock Exchange, Inc. (the "NYSE"), except that since the Breakup,
each Telebras ADS has represented 1,000 Telebras preferred shares and deemed
ownership of 1,000 preferred shares of each of the New Holding Companies. On
September 21, 1998, the common shares and preferred shares of each New Holding
Company are expected to commence trading separately on the Brazilian Stock
Exchanges. It is expected that during or before October 1998, American
Depositary Shares representing preferred shares of each New Holding Company
will be issued and will commence trading separately on the NYSE. See "Nature
of Trading Market" and "Description of Securities to be Registered--
Description of American Depositary Receipts in respect of Preferred Shares."
References herein to the "Preferred Shares" and "Common Shares" are to the
preferred shares and common shares, respectively, of the Registrant.
References to the American Depositary Shares or "ADSs" are to American
Depositary Shares, each representing 1,000 Preferred Shares, of the
Registrant. The ADSs will be evidenced by American Depositary Receipts
("ADRs").
iv
<PAGE>
GLOSSARY OF TERMS
The following explanations are not intended as technical definitions, but to
assist the general reader to understand certain terms as used in this
Registration Statement.
Access charge: Amount paid per minute charged by network operators for the
use of their network by other network operators. Also known as an
"interconnection charge" or "network usage charge".
Access gates: The points of interface between the network equipment (either
dedicated or switched) and the transmission media that connect network
equipment to the end user. The quantity of service is directly related to the
quantity of network access gates.
AMPS (Advanced Mobile Phone Service): An analog cellular telephone service
standard utilizing the 850 MHz band, in use in North America, parts of South
America, Australia and various other areas.
Analog: A mode of transmission or switching which is not digital, e.g., the
representation of voice, video or other modulated electrical audio signals
which are not in digital form.
Analog network: A network using analog technology with circuit switching,
capable of connecting one user with all the users, but with limited
transmission capacity.
ATM (Asynchronous Transfer Mode): A broadband switching technology that
permits the use of one network for different kinds of information (e.g.,
voice, data and video).
Automatic international roaming: A service which permits a subscriber to use
his or her cellular phone on a foreign cellular operator's network. The
subscriber may receive calls made to the subscriber's regular cellular number
(such calls are "automatically" passed to the foreign operator's network).
Band A Operator: A former Telebras cellular operating subsidiary that has
been granted a concession to provide cellular telecommunications services in a
particular area within a radio spectrum frequency range referred to by Anatel
as "Band A".
Band B Operator: A cellular operator that has been granted a concession to
provide cellular telecommunications services in a particular area within a
radio spectrum frequency range referred to by Anatel as "Band B".
Base station: In cellular mobile telecommunications, a radio
transmitter/receiver that maintains communications with the cellular
telephones within a given cell. Each base station in turn is interconnected
with other base stations and with the public switched telephone network.
Broadband services: Services characterized by a transmission speed of 2
Mbit/s or more. According to international standards, these services are
divided into two categories: (i) Interactive services, including
videotelephone/videoconferencing (both point-to-point and multipoint);
videomonitoring; interconnection of local networks; file transfer; CAD;
highspeed fax; e-mail for moving images or mixed documents; broadband
videotext; video on demand; retrieval of sound programs or fixed and moving
images; and (ii) Broadcast services, such as sound programs, television
programs (including high-definition TV and pay TV) and selective document
acquisition.
CATV (Cable television): Cable or fiber-based distribution of TV programs.
CDMA (Code Division Multiple Access): A standard of digital cellular
technology.
Cell: The geographic area covered by a single base station in a cellular
mobile phone system.
v
<PAGE>
Cell splitting: The process of dividing cells into smaller coverage areas by
reducing the power output and the antenna height of the base station
transmitter. Cell splitting increases capacity in a particular area by
allowing for the further reuse of frequencies by a mobile communications
system.
Cellular service: A mobile telephone service provided by means of a network
of interconnected low-powered base stations, each of which covers one small
geographic cell within the total cellular system service area.
Channel: One of a number of discrete frequency ranges utilized by a base
station.
Digital: A mode of representing a physical variable such as speech using
digits 0 and 1 only. The digits are transmitted in binary form as a series of
pulses. Digital networks allow for higher capacity and higher flexibility
through the use of computer-related technology for the transmission and
manipulation of telephone calls. Digital systems offer lower noise
interference and can incorporate encryption as a protection from external
interference.
Digital penetration: The substitution of equipment capable of transmitting
digital signals for equipment limited to analog transmission.
Exchange: See Switch.
Frame relay: A data transmission service using fast protocols based on
direct use of transmission lines.
Internet: A collection of interconnected networks spanning the entire world,
including university, corporate, government and research networks from around
the globe. These networks all use the IP (Internet Protocol) communications
protocol.
ISDN (Integrated Services Digital Network): A system in which several
services (e.g., speech and data) may be simultaneously transmitted end-to-end
in digital form.
Leased high-speed data communication: The digital exchange of information at
speeds exceeding 64Kbps transmitted through mediums that are leased to users
for their exclusive use.
Local loop: The system used to connect the subscriber to the nearest switch.
It generally consists of a pair of copper wires, but may also employ fiber-
optic circuits, microwave links or other technologies.
Manual international roaming: A service that permits a subscriber to use his
or her cellular phone on a foreign cellular operator's network. The subscriber
may only receive calls made to a temporary number issued to the subscriber by
the foreign operator for use while roaming.
Microcells: A small cell covered by a low-power base station. Microcells can
cover small areas such as a single building.
Network: An interconnected collection of elements. In a telephone network,
these consist of switches connected to each other and to customer equipment.
The transmission equipment may be based on fiber optic or metallic cable or
point-to-point radio connections.
Network usage charge: Amount paid per minute charged by network operators
for the use of their network by other network operators. Also known as an
"access charge" or "interconnection charge".
Optical fiber: A transmission medium which permits extremely high
capacities. It consists of a thin strand of glass that provides a pathway
along which waves of light can travel for telecommunications purposes.
vi
<PAGE>
Packet-switched data communication services: Data services based on
parceling or breaking the data stream into packets and switching the
individual packets. Information transmitted is segmented into cells of a
standardized length, which are then transmitted independently of one another,
allowing maximization of available capacity and usage of a single transmission
path for multiple communications. The cells are then reassembled upon reaching
their destination.
PBX (Private Branch Exchange): Telephone switchboard for private use, but
linked to the national telephone network.
Penetration: The measurement of the take-up of services. As of any date, the
penetration is calculated by dividing the number of subscribers by the
population to which the service is available and multiplying the quotient by
100.
Private leased circuits: Voice, data or image transmission mediums leased to
users for their exclusive use.
PSTN (Public Switched Telephone Network): The public telephone network that
delivers basic telephone service and, in certain circumstances, more advanced
services.
Repeaters: A device that amplifies an input signal for retransmission.
Roaming: A function that enables cellular subscribers to use their cellular
phone on networks of operators other than the one with which they signed their
initial contract.
Satellite services: Satellites are used, among other things, for links with
countries that cannot be reached by cable or to provide an alternative to
cable and to form closed user networks.
SDH (Synchronous Digital Hierarchy): A hierarchical set of digital transport
structures, standardized for the transport of suitably adapted payloads over
physical transmission networks.
Sectorization: The process of dividing cells into sectors by using
directional antennae at the base station. Sectorization reduces co-channel
interference which permits smaller cells and increases network capacity.
Switch: These are used to set up and route telephone calls either to the
number called or to the next switch along the path. They may also record
information for billing and control purposes.
TDMA (Time Division Multiple Access): A standard of digital cellular
technology.
Universal service: The obligation to supply basic service to all users
throughout the national territory at reasonable prices.
Value Added Services: Value Added Services provide additional functionality
to the basic transmission services offered by a telecommunications network.
vii
<PAGE>
EXCHANGE RATES
There are two legal foreign exchange markets in Brazil--the commercial rate
exchange market (the "Commercial Market") and the floating rate exchange
market (the "Floating Market"). 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. Purchases and sales 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. As used herein, the "Commercial Market
Rate" for any day is the commercial selling rate for Brazilian currency into
U.S. dollars, as reported by the Central Bank of Brazil. As used herein, the
"Floating Market Rate" is the prevailing selling rate for Brazilian currency
into U.S. dollars which applies to transactions to which the Commercial Market
Rate does not apply, as reported by the Central Bank of Brazil. 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 freely negotiated but are strongly influenced by the Central Bank of
Brazil.
On July 1, 1994 the real replaced the cruzeiro real as the unit of Brazilian
currency, with each real being equal to 2,750 cruzeiro reais. The issuance of
reais was initially subject to quantitative limits backed by a corresponding
amount of U.S. dollars in resources, but the Federal Government subsequently
expanded those quantitative limits and allowed the real to float, with parity
between the real and the U.S. dollar (R$1.00 to US$1.00) as a ceiling. On
March 6, 1995, the Central Bank of Brazil announced that it would intervene in
the market and buy or sell U.S. dollars, and established a trading band (faixa
de flutuacao) for the Commercial Market Rate (which is defined through
auction) within which the exchange rate between the real and the U.S. dollar
could fluctuate. The Central Bank of Brazil 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 of Brazil 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 of Brazil 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 of
Brazil 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 U.S.
dollars in electronic auctions. On February 18, 1997, the band was reset by
the Central Bank of Brazil to float between R$1.05 and R$1.14 per US$1.00. On
May 5, 1998, the band was reset by the Central Bank of Brazil to float between
R$1.12 and R$1.22. As of September 11, the trading band has not been reset by
the Central Bank of Brazil. There can be no assurance that the band will not
be altered in the future or that the real will maintain its current exchange
rate in future periods.
The following table sets forth the Commercial Market Rate expressed in reais
per U.S. dollar for the periods and dates indicated. Prior to July 14, 1994,
The Federal Reserve Bank of New York did not publish a noon buying rate for
customs purposes in the City of New York for cable transfers in the Brazilian
real and its predecessor currencies (the "Noon Buying Rate").
<TABLE>
<CAPTION>
COMMERCIAL MARKET RATE:
NOMINAL REAIS PER US$1.00(1)
-----------------------------------
YEAR ENDED DECEMBER 31, LOW HIGH AVERAGE(2) PERIOD-END
- ----------------------- ------ ------ ---------- ----------
<S> <C> <C> <C> <C>
1993....................................... 0.0044 0.1186 0.0369 0.1186
1994....................................... 0.1204 0.9815 0.6754 0.8490
1995....................................... 0.8340 0.9726 0.9227 0.9726
1996....................................... 0.9726 1.0394 1.0080 1.0394
1997....................................... 1.0395 1.1164 1.0555 1.1164(3)
1998 (through September 11)................ 1.1165 1.1793 1.1519 1.1793
</TABLE>
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Source: Central Bank of Brazil
viii
<PAGE>
(1) Amounts expressed in nominal reais have been translated from the
predecessor Brazilian currencies in effect during the relevant period at
the rates of exchange at the times the successor currencies became the
lawful currency of Brazil.
(2) Represents the average of the month-end exchange rates during the relevant
period.
(3) The Noon Buying Rate on December 31, 1997 was R$1.1165 per U.S. dollar.
ix
<PAGE>
PART I
ITEM 1: DESCRIPTION OF BUSINESS
BACKGROUND
TELEBRAS AND THE TELEBRAS SYSTEM
Until 1972, telephone services in Brazil were provided by more than 900
independent companies, which supplied non-integrated basic telephone services.
Telebras was incorporated on November 9, 1972, pursuant to special
legislation, for the principal purposes of (i) acting as a holding company for
operating companies providing public telecommunications services in Brazil and
(ii) implementing the policies of the federal government of Brazil (the
"Federal Government") in the modernization and expansion of the Brazilian
telecommunications system. Between 1972 and 1975, Telebras, through its
subsidiaries, acquired almost all the other telephone companies in Brazil.
Telebras and its operating subsidiaries are referred to collectively herein as
the "Telebras System." Only four operating companies remained outside the
Telebras System, representing approximately 9% of all lines in service in
Brazil at December 31, 1997. Telebras is controlled by the Federal Government
of Brazil and the operations of the Telebras System are subject to regulation
by the Federal Government. The operating subsidiaries of Telebras were
controlled by the Federal Government until August 4, 1998. See "--Regulatory
Reform and Privatization."
At December 31, 1997, Telebras, through 28 operating subsidiaries, was the
primary supplier of public telecommunications services in Brazil. Embratel
owned and operated all of the interstate and international telephone
transmission facilities in Brazil. Through the other 27 operating
subsidiaries, the Telebras System was the primary provider of local and
intrastate telecommunications service and the leading provider of cellular
mobile telephone service. The Telebras System also provided
telecommunications-related services such as data communication, sound and
image transmission and other value-added services throughout Brazil. On
January 30, 1998, each of the operating subsidiaries other than Embratel and
Companhia Telefonica da Borda do Campo-CTBC spun off its cellular telephone
operations as of January 1, 1998 into a separate company.
In 1997, Telebras was the second-largest company in Brazil as measured by
gross revenues of R$20.7 billion.
REGULATORY REFORM AND PRIVATIZATION
Beginning in 1995, the Federal Government undertook a comprehensive reform
of Brazilian regulation of the telecommunications industry. In August 1995,
the federal Constitution was amended to permit the Federal Government to grant
concessions to private companies to provide telecommunications services. In
July 1997, the federal Congress adopted Law No. 9,472 of July 16, 1997, the
Lei Geral de Telecomunicacoes (the "Telecommunications Law"), which provided
for the establishment of a new regulatory framework, the introduction of
competition and the privatization of the Telebras System. The
Telecommunications Law established an independent regulatory agency called
Agencia Nacional de Telecomunicacoes ("Anatel"), which has begun to adopt a
series of regulatory enactments that implement the provisions of the
Telecommunications Law (together with the regulations, decrees, orders and
plans issued by the President of Brazil on telecommunications, the
"Telecommunications Regulations"). See "--Regulation."
On May 22, 1998, in preparation for the privatization of the Telebras
System, the Telebras System was restructured to form, in addition to Telebras,
the twelve New Holding Companies. Virtually all of the assets and liabilities
of Telebras were allocated to the New Holding Companies, which, together with
their respective subsidiaries, now comprise (a) three regional fixed-line
operators, (b) eight regional cellular operators and (c) one domestic and
international long-distance operator (the Company). Prior to the Breakup of
the Telebras System, Embratel provided all interstate telephone service and
the other subsidiaries of Telebras provided fixed-line and cellular service in
their respective territories, which, subject to limited exceptions,
corresponded to the separate Brazilian states. Following the Breakup, each of
the eight cellular operators provides cellular telephone service on Band A in
one of eight cellular regions into which Brazil has been divided for purposes
of cellular telephony and each of the three fixed-line operators provides
local fixed-line telephone service and intra-regional long-distance fixed-line
telephone service in one of three regions into which Brazil has been divided
for purposes
1
<PAGE>
of fixed-line telephone service (each a "Region"). Embratel provides domestic
long-distance telephone service (including intra-regional and interregional
long-distance telephone service) throughout Brazil. Two of the three fixed-
line Regions encompass several states, so the fixed-line operators now provide
interstate telephone services within their Regions, which were exclusively
provided by Embratel prior to the Breakup, while Embratel is now authorized to
provide long-distance services within the states, which it did not provide
prior to the Breakup. In addition to changes in the nature of telephone
services provided by Embratel, the manner in which revenues received by the
fixed-line operators for international and domestic long-distance calls are
divided between such fixed-line operators and the Company has also changed.
See "--Division of Revenues and Access Fees."
On July 29, 1998, the Federal Government sold to twelve buyers (the "New
Controlling Shareholders") its rights to receive shares of the twelve New
Holding Companies upon the distribution of such shares. The total
consideration to be paid to the Federal Government for the twelve New Holding
Companies is R$22.1 billion. In connection with this sale, the Federal
Government assigned to the New Controlling Shareholders substantially all its
economic and voting rights with respect to the New Holding Companies and, as a
consequence, the New Controlling Shareholders now control the New Holding
Companies. Following the distribution of the shares of the New Holding
Companies, Telebras is expected to be delisted from the New York Stock
Exchange and liquidated.
The New Controlling Shareholder of the Registrant is MCI WORLDCOM, Inc.,
through its subsidiary Startel Participacoes Ltda. ("MCI WORLDCOM"). For a
description of the business activities of MCI WORLDCOM, see "Control of
Registrant." MCI WORLDCOM is the entity resulting from the merger of MCI
Communications Corporation ("MCI") and WorldCom, Inc. on September 14, 1998.
In August 1998, MCI agreed to pay R$2.65 billion for the Federal Government's
stake in the Registrant, R$1.06 billion of which was paid on August 4, 1998
and the remainder of which is scheduled to be paid in two equal installments
over the next two years. The entire proceeds of the sale of the Federal
Government's stake in the Registrant will be retained by the Federal
Government.
On August 20, 1998, Brazil's Minister of Communications determined that
Telebras would be dissolved and liquidated. The Minister announced that
Telebras will prepare, within the next twelve months, a liquidation plan to be
submitted to a shareholders' meeting convened to approve the dissolution of
Telebras and its subsequent liquidation.
The adoption of the Telecommunications Law and Telecommunications
Regulations has led, and the privatization of the Telebras System will lead,
to sweeping changes in the operating, regulatory and competitive environment
for Brazilian telecommunications. The changes include (i) the establishment of
an independent regulator and the development of comprehensive regulation of
the telecommunications sector, (ii) the Breakup of Telebras, (iii) the sale of
a controlling interest in the Registrant to one or more new investors and (iv)
the introduction of competition in the provision of all telecommunications
services. All of these developments will materially affect the Company and the
other New Holding Companies, and the Company cannot predict the effects of
these changes on its business, financial condition, results of operations or
prospects. The extensive changes in the structure and regulation of the
Brazilian telecommunications industry must also be carefully considered in
reviewing historical information and in evaluating the future financial and
operating performance of the Company.
THE COMPANY
The Registrant is one of the New Holding Companies formed on May 22, 1998 as
part of the Breakup of Telebras. At June 30, 1998, the Registrant held 98.7%
of the total and voting share capital of Embratel. Embratel was founded in
1965 to provide domestic and international long-distance telephone service and
is currently the only provider of such services in Brazil. See "Presentation
of Information--Overview." As of result of the Breakup of Telebras on May 22,
1998 and the privatization of the New Holding Companies on July 29, 1998, the
Company is in default under a substantial portion of the credit agreements to
which it is a party. The Company is currently in negotiations with the
appropriate creditors with respect to the indebtedness in default. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Defaults upon Senior
Securities."
2
<PAGE>
The Company's business consists principally of providing intra-regional
long-distance, interregional long-distance and international long-distance
telephone service as well as data communication, text, telex, sound and image
transmission, internet services and mobile satellite and maritime
communication. The Company operates under a concession (the "Concession")
granted by Anatel on June 2, 1998. The Concession expires December 31, 2005.
The Company's Concession has been granted under the Public Regime. For a
description of the Public Regime, see "--Regulation--Concessions and
Licenses." The Company, together with the three regional fixed-line companies,
is one of four companies in Brazil operating under Public Regime concessions.
Under the Public Regime, the Company is required to perform certain
obligations, including principally obligations concerning the continuous
provision of service throughout the country ("universal service"), quality of
service, and network expansion and modernization. Anatel has the power, if
certain of these obligations are not met, to impose penalties including
revocation of the Company's Concession. See "--Regulation--Obligations of
Telecommunications Companies."
The Company's network connects all of the regional fixed-line and cellular
operators in Brazil, which in turn own and operate telecommunications networks
within their Regions. The Company is currently the sole owner and operator of
domestic long-distance and international long-distance telephone transmission
facilities in Brazil and its network extends to all 26 states of Brazil and
the Federal District. In 1997, the Company's network carried 13,694 million
minutes of domestic long-distance traffic and 1,254 million minutes of
international long-distance traffic. Of the 1,254 million minutes of
international traffic, 777 million minutes were incoming international calls
and 477 million minutes were outgoing international calls. In 1997, the
Company's incoming international traffic increased by 21.4% and outgoing
international traffic increased by 24.5% compared with 1996.
Following the privatization, the competitive environment in which the
Company operates will change. The Company will face new competitors and be
authorized to offer certain services it is currently prohibited from
providing. Following the privatization, Anatel is required to issue two new
licenses to a single new entrant for the provision of interregional long-
distance and international long-distance service in competition with the
Company. In addition, Anatel is required to authorize the Company to compete
with the three regional fixed-line companies in the provision of full intra-
regional long-distance service within their Regions, including the provision
of certain services that had exclusively been provided by the fixed-line
companies. See "--Competition" and "--Regulation."
The Company's business, financial condition, results of operations and
prospects depend in part on the performance of the Brazilian economy. See "--
Brazilian Economic Environment."
The Company's headquarters are located at SCN-Quadra CN2, Lote F, 2(degrees)
Andar, Sala 204, Brasilia-DF, 70710-500, Brazil, and its telephone number is
55-21-519-8182.
SERVICES
DOMESTIC LONG-DISTANCE SERVICE
Prior to the Breakup of the Telebras System, Embratel provided all
interstate telephone service and the other subsidiaries of Telebras provided
fixed-line and cellular service within their respective territories, which,
subject to limited exceptions, corresponded to the separate Brazilian states.
Following the Breakup, each of the eight cellular operators provides cellular
telephone service on Band A in one of eight cellular regions into which Brazil
has been divided for purposes of cellular telephony and each of the three
fixed-line operators provides local fixed-line telephone service and intra-
regional long-distance fixed-line telephone service in one of three Regions
into which Brazil has been divided for purposes of fixed-line telephone
service. Embratel provides domestic long-distance telephone service (including
intra-regional and interregional long-distance telephone service) throughout
Brazil. Two of the three fixed-line Regions encompass several states, so the
fixed-line operators will provide interstate telephone services within their
Regions, which were exclusively provided by Embratel prior to the Breakup,
while Embratel will be authorized to provide long-distance services within the
states, which it did not provide prior to the Breakup. Embratel relies upon
the fixed-line telephone companies and the cellular operators to carry most
calls between end users and Embratel's network. The fixed-line telephone
companies and the cellular operators, which previously were affiliates of
Embratel, may become competitors of Embratel.
3
<PAGE>
Before the Breakup and privatization, the Company was the exclusive provider
of interstate long-distance service under Brazilian law. Under the regulatory
regime in effect before the Breakup and privatization, each cellular and
fixed-line company generally operated within one of the 26 states of Brazil or
the Federal District and Embratel had the exclusive right to carry calls
between any two cellular or fixed-line companies. As such, Embratel's
exclusive interstate long-distance telephone service accounted for 47.2% and
49.8% of the Company's total operating revenues during 1996 and 1997,
respectively.
The table below sets forth interstate long-distance telephone traffic
carried by the Company for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1993 1994 1995 1996 1997
----- ----- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Total interstate long-distance telephone
traffic (millions of minutes)........... 8,927 8,413 10,757 12,275 13,694
Growth in interstate long-distance
telephone traffic (% per annum)......... 6.6 (5.6) 27.9 14.1 11.6
Number of fixed-line and cellular access
lines in use(in millions)............... 11.6 13.1 14.9 17.8 21.7
Total interstate long-distance traffic
per fixed-line and cellular access line
in use (minutes)........................ 771.8 644.4 723.2 690.2 632.1
</TABLE>
The Company's traffic volume has increased in all periods since 1993 except
1994. The decrease in 1994 was principally a result of a change in the way
traffic volume was calculated between the Company and the fixed-line
operators. In 1995, improved economic conditions brought about by the Federal
Government's Real Plan led to a sharp increase in interstate long-distance
telephone usage. In 1996 and 1997, reductions in tariff rates and the
continuing stabilization of the Brazilian economy spurred interstate long-
distance telephone traffic growth, although the rate of growth stabilized from
the peak experienced in 1995.
Following the Breakup and privatization, the Company's domestic long-
distance telephone service consists of two types of service: (i) interregional
long-distance telephone service and (ii) intra-regional long-distance
telephone service.
Interregional long-distance telephone service consists of all calls that
originate within one of the three fixed-line Regions and terminate in another
of the three fixed-line Regions, and all calls carried by the Company that
originate in one cellular region and terminate in another cellular region. The
Company is currently the sole provider of interregional long-distance
telephone service, although it is anticipated that following the Breakup
Anatel will license a new entrant to provide such service in competition with
the Company. See "--Competition" and "--Regulation--Concessions and Licenses."
Intra-regional long-distance telephone service consists of all calls that
originate in one local calling area within a fixed-line Region and terminate
in another local calling area within the same fixed-line Region. A local
calling area is generally equivalent to a municipality and there are usually
several local calling areas within an area code. Since the Breakup and
privatization, the Company is authorized to provide such intra-regional long-
distance telephone service. This represents an extension of the service the
Company may offer, since the Company was formerly restricted to providing
interstate long-distance service. See"--Competition" and "--Regulation--
Concessions and Licenses."
INTERNATIONAL LONG-DISTANCE SERVICES
At present, the Company is the sole provider of international long-distance
telephone services in Brazil. It is anticipated that Anatel will soon license
a new entrant to provide such services in competition with the Company. See
"--Competition" and "--Regulation--Concessions and Licenses." The Company's
international long-distance telephone services generated 15.4% and 16.2% of
the Company's total gross operating revenues during 1996 and 1997,
respectively.
Revenues generated by international long-distance telephone services are
primarily derived from (i) other international telecommunications operators
for incoming calls carried through the Company's network once in Brazil and
(ii) charges for international outgoing calls originating in Brazil. A portion
of the revenues received by the Company from the regional fixed-line and
cellular operators for international outgoing calls must be paid
4
<PAGE>
to other international operators on whose networks such calls are carried once
outside of Brazil. Of the Company's 1997 outgoing international long-distance
telephone traffic, 36.1% was traffic to North America, 30.1% was traffic to
Europe, 19.8% was traffic to other South American countries and 8.1% was
traffic to Asia. Of the Company's 1997 incoming international long-distance
telephone traffic, 63.8% was traffic from North America, 16.9% was traffic
from Europe, 9.9% was traffic from other South American countries and 8.4% was
traffic from Asia.
The Company's international long-distance telephone traffic, which is
measured in minutes in both the outgoing and incoming directions, is shown in
the table below for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1993 1994 1995 1996 1997
----- ----- ----- ------- -------
<S> <C> <C> <C> <C> <C>
Outgoing international traffic
(millions of minutes)................. 163.5 199.0 319.3 382.9 476.9
Growth in outgoing international
traffic (% per annum)................. (0.5)% 21.7% 60.5% 19.9% 24.5%
Incoming international traffic
(millions of minutes)................. 373.7 407.1 495.4 639.8 776.7
Growth in incoming international
traffic (% per annum)................. 13.1% 8.9% 21.7% 29.2% 21.4%
Total international traffic (millions
of minutes)........................... 537.2 606.1 814.7 1,022.7 1,253.6
Percentage of international calls (in
minutes) billed in Brazil............. 30.4% 32.8% 39.2% 37.4% 38%
Ratio of incoming traffic to outgoing
traffic............................... 2.29 2.05 1.55 1.67 1.63
</TABLE>
For a description of the new model for the division of revenues between the
Company and the regional fixed-line operators, see "--Division of Revenues and
Access Fees."
DATA COMMUNICATION SERVICES
The Company provides data communication services, including leased high-
speed data communication service, satellite data communication, packet-
switched data communication, frame relay and message-handling systems. Data
communication services accounted for approximately 27.0% and 24.3% of the
Company's total gross operating revenues during each of 1996 and 1997,
respectively. The Company owns its own microwave and fiber optic data
transmission network. The packet-switched networks of the regional fixed-line
companies, which are low-speed, are connected to the Company's low-speed
network. However, the Company is the only provider of high-speed packet-
switched data communication services using frame relay technology. The Company
is currently constructing a metropolitan area fiber optic network in major
cities with greater access capacity than currently available networks and is
expanding its fiber optic network throughout Brazil in order to increase the
quality of services currently provided. The Company also uses its satellite
system to provide additional data communication services. Unlike domestic and
international long-distance telephone services, the Company bills customers
directly for the utilization of data communication services.
The three principal customer groups that use the Company's data
communication services are financial institutions, governmental entities and
large corporations. Financial institutions primarily use such services for
banking operations, telecommuting and inter-office communication. Governmental
entities primarily use such services for data processing, legal and other
databases and voice, data and image integration. Large corporations primarily
use such services for e-mail, data processing, voice, data and image
integration and billing and administration.
OTHER SERVICES
In addition to telephone and data communication services, the Company
provides other services, including text, telex, sound and image transmission,
internet services and mobile satellite and maritime communications. These
additional services accounted for 10.4% and 9.7% of the Company's total gross
operating revenues during 1996 and 1997, respectively.
TAXES ON TELECOMMUNICATIONS SERVICES
The cost of all telecommunications services to the customer includes a
variety of taxes. The Company deducts the amount of such taxes to present net
operating revenue. The principal tax is a state value-added tax,
5
<PAGE>
the Imposto sobre Circulacao de Mercadorias e Servicos--ICMS, which the
Brazilian states impose at varying rates on revenues from the provision of
telecommunications services. The rate in most states is 25% for domestic
telecommunications services and zero for international telecommunications
services.
Other taxes include two federal social contribution taxes, the Programa de
Assistencia aos Servidores de Empresas Publicas--PASEP and Contribuicao para
Financiamento da Seguridade Social--COFINS, imposed at a combined rate of
2.65% on gross operating revenues.
DIVISION OF REVENUES AND ACCESS FEES
Domestic long-distance telephone calls and international long-distance
telephone calls originating in Brazil begin on the network of one of the
fixed-line or cellular companies of the Telebras System and are switched to
the Company's network for transport. In the past, revenues from domestic and
international long-distance calls were divided between the Company and the
fixed-line companies. Under this system, each fixed-line company billed its
customers for all domestic and international long-distance telephone calls and
retained a percentage of the revenues (such percentage was set by the Ministry
of Communications) from all such calls, transferring the remainder of the
revenues to the Company. This percentage varied among the fixed-line companies
but was the same for domestic and international long-distance calls. As of
March 31, 1998, the fixed-line companies transferred an average of 33% of the
total revenue from such calls to the Company.
As part of the liberalization of the telecommunications sector, the division
of revenues system applicable to the fixed-line companies and Embratel was
eliminated as of April 1, 1998 and replaced by a new system which has
historically applied to the cellular companies and Embratel. Under the new
system, the Company receives 100% of the revenues from fixed-line (i)
interregional long-distance calls, (ii) certain intra-regional long-distance
calls and (iii) international long-distance calls that it carries, but is
required to pay certain per-minute interconnection charges to the regional
fixed-line companies for the use of their networks in originating and/or
completing such calls. In addition to such charges, the Company is required to
pay a supplemental per-minute charge, the Parcela Adicional de Transicao (the
"PAT"), until June 30, 2001. See "--Regulation--Rate Regulation." Furthermore,
until the fixed-line companies complete their intra-regional long-distance
network, such companies may lease transmission facilities from Embratel to
carry some interstate calls within their respective regions. The Company does
not expect that implementation of this new system will have a material impact
on its net income. However, it is expected that the allocation to the Company
of 100% of the revenues generated by fixed-line (i) interregional long-
distance calls, (ii) certain intra-regional long-distance calls and (iii)
international long-distance calls that it carries will cause operating
revenues to increase substantially. This increase is expected to be offset by
increased cost of services expenses resulting from the network usage charges
and PAT paid to the fixed-line companies.
Embratel's remuneration with respect to domestic and international long-
distance calls originating on a cellular operator's network was not affected
by the April 1998 changes to the division of revenues system applicable to
Embratel and the fixed-line companies. Embratel will continue to receive from
the cellular operators the revenues relating to cellular long-distance calls
and will continue to pay per-minute interconnection charges to the cellular
operators for connection to and use of their networks in originating and/or
completing such calls.
BILLING AND ADMINISTRATION
The Company uses its own proprietary billing and collection system called
Faturamento e Cobranca ("FTC") developed to bill services which are collected
directly by the Company from the customer. FTC has four main functions: (i)
customer registration; (ii) customer information consultation; (iii) accounts
payable management; and (iv) billing and collection.
The Company does not bill traditional telephone services to end-customers
directly. At present, the regional fixed-line companies and the cellular
companies bill customers for all domestic and international long-distance
calls, collect payments from customers and transfer to the Company payments
for all interregional, certain intra-regional and all international long-
distance calls carried by the Company. The Company then pays the fixed-line
and cellular companies the interconnection charge applicable to such calls.
See "--Division of Revenues and Access Fees." The Company maintains records of
all calls from and to the fixed-line and cellular telephone
6
<PAGE>
networks and sends this information to the relevant fixed-line company or
cellular company for inclusion in its own billing and collection process. The
Company and the respective regional fixed-line company or cellular company
jointly reconcile billing amounts. To date, the Company has not encountered
significant problems reconciling billing amounts and receiving payments from
the regional fixed-line companies or the cellular companies. All of the other
telecommunications and telecommunications-related services provided by the
Company, including "800" and "900" telephony, are billed directly by the
Company. Following the Breakup, the Company will be permitted, if it chooses,
to bill domestic and international long-distance customers directly.
RATES
RATE REGULATION AND POLICY
Rates for telecommunications services provided by the Company are subject to
the final approval of Anatel, to which the Company submits requests for rate
adjustments. See "--Regulation--Rate Regulation."
Beginning in December 1993, the Federal Government commenced an economic
stabilization program (the "Real Plan") intended to reduce inflation by
reducing certain public expenditures, collecting liabilities owed to the
Federal Government, increasing tax revenues, continuing a privatization
program and introducing a new currency, the real, on July 1, 1994, based on a
new unit of accounts, the Unidade Real de Valor introduced earlier in the
year. The Company's rates were effectively indexed for inflation in May and
June of that year, but no further rate increases were granted to the Company
until December 1995. Consequently, despite the considerable decrease in the
rate of inflation resulting from the implementation of the Real Plan, average
real rates were eroded by inflation throughout the second half of 1994 and
most of 1995. Average real rates declined further during this period as a
result of reductions in measured local telephone service rates and
international telephone rates in November 1994.
In December 1995 and January 1996, the Company was permitted to implement
rate increases for domestic long-distance service. In April and May of 1997,
rates were adjusted to correspond to the costs of the respective services,
substantially lowering the amount of revenues retained by the fixed-line
companies (and thereby increasing the amount of revenues paid by the fixed-
line companies to Embratel) pursuant to the division of revenues system that
was in place prior to April 1, 1998.
DOMESTIC LONG-DISTANCE RATES
Rates for domestic long-distance calls, including intra-regional long-
distance and interregional long-distance, are computed on the basis of the
time of day and day of the week when the calls are made, the call's duration,
the distance covered and whether special services, such as operator
assistance, are used. The rates for domestic long-distance calls are
established by Anatel and are uniform throughout Brazil. Domestic long-
distance rates are divided into five distance and location components: 0 to 50
kilometers; 50 to 100 kilometers; 100 to 300 kilometers; over 300 kilometers
and special metropolitan area rates.
Domestic long-distance rates remained unchanged from July 1994 to December
1995, when rates were increased by 22.2%. However, in May 1997, the basic rate
was returned to the December 1995 level and a new system was introduced under
which charges are applied every tenth of a minute after the first minute. The
combined effect of these measures resulted in a rate reduction estimated at
approximately 32%. The following table illustrates the Company's domestic
long-distance rates for the periods indicated in constant reais of December
1997 purchasing power.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(IN R$)
<S> <C> <C> <C> <C> <C>
Domestic long-distance rates(1):
0 to 50 km........................................... 0.79 0.46 0.46 0.42 0.32
50 to 100 km......................................... 1.32 0.78 0.76 0.70 0.54
100 to 300 km........................................ 1.98 1.18 1.16 1.07 0.81
over 300 km.......................................... 2.65 1.57 1.53 1.40 1.08
</TABLE>
- --------
(1) Rates for a domestic long-distance call, three minutes in duration between
the hours of 9 a.m. and 12 p.m. and 2 p.m. and 6 p.m. (peak hours) on
weekdays, net of value-added taxes.
7
<PAGE>
INTERNATIONAL RATES
Rates charged for outgoing international calls vary depending on the time of
day and day of the week when the calls are made, the call's duration, the
country of destination and whether special services, such as operator
assistance, are used. Rates for international long-distance service are
established by Anatel and are uniform throughout Brazil.
The Company has substantially reduced rates for outgoing international calls
in recent years. This has been in part in response to considerable competition
from companies outside Brazil known as telephone service resellers. Resellers
provide customers with the number of an automated callback system located in a
country with lower international rates, allowing calls to be charged outside
of Brazil. In order to compete more effectively, the Company has reduced the
cost of outgoing calls to levels similar to those charged by resellers. See
"--Competition." Between 1992 and 1995, the cost to the customer of a three-
minute call to the United States decreased by approximately 50%. This decrease
reflected rate reductions in August 1993 and November 1994 and a reduction in
the rate of the state value-added tax in April 1994 from 25% to 13% in almost
all states. The decrease in the state value-added tax alone resulted in an
average reduction of 14% in the cost of a three-minute call to the United
States. In September 1996, the value-added tax rate on international calls was
eliminated. See "--Services--Taxes on Telecommunications Services." Finally,
in April 1997, the rates charged for calls to the United States decreased an
additional 30%. As a result of the foregoing measures, the average cost of a
three-minute call to the United States decreased from R$13.06 in 1992 to
R$3.30 in April 1997, representing a total decrease of approximately 75%.
Between 1992 and 1995, the cost of a three-minute call to Western Europe and
Portugal decreased approximately 51% and 22%, respectively. This was the
result of rate reductions in August 1993 and November 1994, as well as the
state value-added tax decreases mentioned above. In April 1997, the rates
applicable to calls to Europe generally decreased an additional 24% and the
rates applicable to calls to Portugal decreased an additional 22%. The rate
and tax reductions led to a decrease in the average cost to the customer of a
three-minute call to Europe, except calls to Portugal, from R$14.14 in 1992 to
R$5.27 in April 1997. This represented a decrease of approximately 63%. The
average cost to the customer of a similar call to Portugal was reduced from
R$9.86 in 1992 to R$5.17 in April 1997, representing a decrease of
approximately 48%.
The following table illustrates international rates for the periods
indicated in constant reais of December 31, 1997 purchasing power.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------
1993 1994 1995 1996 1997
----- ---- ---- ---- ----
(IN R$)
<S> <C> <C> <C> <C> <C>
International rates(1):
United States....................................... 13.58 6.60 5.39 4.93 3.05
Mercosur(2)......................................... 12.26 7.20 5.88 5.39 4.00
Western Europe(3)................................... 17.89 8.47 6.92 6.34 5.08
</TABLE>
- --------
(1) Rate for international calls, three minutes in duration between the hours
of 5 a.m. and 8 p.m. on weekdays, net of value-added taxes.
(2) Includes Argentina, Chile, Paraguay and Uruguay.
(3) Includes Andorra, Austria, Belgium, Denmark, Finland, France, Germany,
Holland, Ireland, Italy, Lichtenstein, Norway, Spain, Sweden, Switzerland
and the United Kingdom.
Revenues from international service also reflect payments under
approximately 230 bilateral agreements between the Company and foreign
telecommunications administrations or private carriers, which are influenced
by the guidelines of the international Tariff and Trade Regulations and cover
virtually all international calls to and from Brazil. These agreements set
forth the settlement rates of payment by the Company to foreign carriers for
the use of their facilities in connecting international calls billed in Brazil
and by foreign carriers to the Company for the use of its facilities in
connecting international calls billed abroad. The settlement rates of
8
<PAGE>
payment under such agreements are negotiated with each foreign carrier.
Settlements among carriers are normally made monthly on a net basis.
The major bilateral agreements with carriers in the United States include
American Telephone and Telegraph Company ("AT&T"), Sprint International and
subsidiaries of MCI WORLDCOM. The Company's service agreement with AT&T has
been in force since October 1, 1969, but the terms governing the amounts
payable by each party have been renegotiated from time to time. The service
agreements with the other United States carriers have similar terms. Amounts
payable to the Company in respect of calls billed by United States carriers
have historically exceeded amounts payable to United States carriers in
respect of calls billed by the Company. As a result, the Company receives
substantial monthly settlement payments from United States carriers. In
January 1990, the Company sold to a small number of institutional investors,
the right to receive a portion of future net settlement payments under the
service agreement with AT&T, over a period of approximately 120 months. At
December 31, 1997, the amount remaining to be paid to the purchasers out of
future net settlement payments was approximately US$14,582,000.
Various factors could affect the amount of net settlement payments from
United States carriers to the Company in future years. These include increases
in the proportion of outgoing as opposed to incoming calls. From 1990 to 1993
the percentage of international telephone calls billed as outgoing compared to
the percentage billed as incoming decreased steadily due to increasing
competition from international resellers. For a description of resellers, see
"--Competition." Decreases in the Company's rates in 1993 and 1994 and in the
average rate of state value-added tax on international calls have decreased
the cost to the consumer of outgoing international calls to levels similar to
those charged by resellers, resulting in an increase in the percentage of
total calls billed as outgoing in 1994 and 1995. Calls billed by United States
carriers currently exceed calls billed by the Company.
Net settlement payments from United States carriers could also be affected
by decreases in the rates paid by such carriers. There is currently
considerable pressure to reduce such rates in the United States. In
particular, the United States Federal Communications Commission (the "FCC")
has instituted rulemaking proceedings to modify United States regulation of
international accounting rates that United States carriers use to settle
accounts with foreign telecommunications carriers, in order to promote lower,
more cost-based rates for international services. The FCC has stated that it
may take regulatory action if United States carriers are unable to negotiate
lower rates with foreign carriers. There can be no assurance that the FCC will
not adopt regulations that would result in reductions in the rates charged by
the Company under its service agreements with United States carriers.
DATA COMMUNICATION RATES
The majority of revenues from data communication are provided by monthly
line rental charges for private leased circuits. The balance consists mainly
of nominal charges to customers for access to the only national data
transmission network and measured charges based on the amount of data
transmitted. In April 1997, the Ministry issued new rates for line rental
charges for private leased circuits, representing a 42% reduction. The
following table sets forth the Company's monthly line rental charges for
private leased circuits service for the periods indicated in constant reais of
December 31, 1997 purchasing power. The Company's rates during these periods
correspond to the maximum rates approved by the Ministry.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
(IN R$)
<S> <C> <C> <C> <C> <C>
Monthly line rental per
leased circuit(1):
9,600 bits/second capacity.. 5,349.11 3,561.41 2,989.46 2,239.21 750.00
64,000 bits/second
capacity................... 11,066.73 9,087.80 8,264.69 3,234.43 2,028.75
2,048,000 bits/second
capacity................... 60,387.25 49,588.90 52,977.76 38,813.10 25,731.20
</TABLE>
- --------
(1) Monthly rates for distances between 300 and 500 kilometers, net of value-
added taxes, for the three principal bandwidths.
9
<PAGE>
NETWORK AND FACILITIES
The Company provides domestic and international telecommunications services
through its basic network, submarine cables, terrestrial fiber, microwave
trunks, switches and satellites. The Company's present long-distance
infrastructure consists of approximately 232,533 microwave channel kilometers
and 415,761 fiber kilometers, of which approximately 70% are digital and
approximately 30% are analog. A significant portion of international traffic
is carried by satellites of the International Telecommunications Satellite
Organization System ("Intelsat"). Intelsat is an international organization
with 142 members, and the Company owns 2.1% of its capital stock. Over 200
countries and territories use the Intelsat system and are interlinked by its
25 satellites located over oceans throughout the world. The Company is
presently focused on making improvements to the switches and other equipment
in its domestic and international infrastructure. See "--Capital
Expenditures."
DOMESTIC NETWORK
The basic network accounts for 89% of the Company's technical fixed assets.
The basic network encompasses a terrestrial network connecting the major
Brazilian cities over 23,976 kilometers, four satellites, Brasilsat A2, B1 and
B2 in operation and B3 which will begin operations in 1998, and 80 earth
stations. As of December 31, 1997, the Company's long-distance network
includes 808,900 trunks in 41 transit exchanges located in 28 cities. The
Company's switching capacity is 100% digital.
The following table sets forth certain details regarding the microwave
network and satellite system of the Company.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1994 1995 1996 1997
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Terrestrial network:
Fiber lines (kilometers)................... 23,687 23,804 23,804 23,804 23,976
Optical fiber (kilometers)................. 838 887 2,203 6,988 9,300
Satellite system:
Number of earth stations................... 63 64 69 73 80
</TABLE>
The following table sets forth certain details regarding the principal fiber
optic lines which constitute the Company's basic network.
<TABLE>
<CAPTION>
TRANSMISSION RATE
LENGTH (KM) (MBITS/SEC)
----------- -----------------
<S> <C> <C>
Sao Paulo--Rio de Janeiro......................... 405 565
Rio de Janeiro--Fortaleza......................... 3,463 2,500
Rio de Janeiro--Belo Horizonte.................... 465 565
Belo Horizonte--Brasilia.......................... 812 2,500
</TABLE>
The Company's domestic telecommunications system serves the needs of Brazil
through the basic network and additional networks oriented to each type of
service including the National Telephone Network, the National Telex Network,
the TRANSDATA (leased high-speed data communication service) and RENPAC
(packet-switched data communications) networks, the Multi-Digital data
communication network, the National Television Network and the National
Coastline Station Network.
The Company currently owns and operates an earth station in Guaratiba,
located in the state of Rio de Janeiro. This station, activated in 1985,
accesses the Brasilsat A2, B1 and B2 satellites and will access the B3
satellite once it is operational. These satellites cover the entire territory
of Brazil, Argentina, Uruguay and Paraguay and were launched by Arianespace
S.A. The satellites are maintained and monitored by the Company through its
earth station in Guaratiba.
INTERNATIONAL NETWORK
Switches. The Company currently owns two automatic and one operator-assisted
international digital switches located in Rio de Janeiro and Sao Paulo. The
combined capacity of these switches is approximately 32,600 channels.
10
<PAGE>
Satellites. The Company currently utilizes satellite channels using earth
telecommunications stations. The Company owns and operates two earth station
complexes, one located in Tangua (in the state of Rio de Janeiro) and one
located in Morungaba (in the state of Sao Paulo). These earth stations,
activated in 1969 and 1986, respectively, access Intelsat satellites
positioned over the Atlantic Ocean with coverage of the entire American
continent, Western Europe, Africa and the Middle East. Communications with
remote locations in the Far East are first routed by submarine cable to an
earth station in Sintra, Portugal, and subsequently to the Intelsat satellite
located over the Indian Ocean with a radius covering the Far East and
Australia. The Company also owns a 35% interest in an antenna located at the
Sintra earth station, in association with Companhia Portuguesa Radio Marconi
S.A. The Company is currently responsible for telemetry, tracking, controlling
and monitoring the Intelsat satellites from its control station in Tangua.
International maritime communications are handled by INMARSAT's
(International Maritime Satellite Organization) satellite system. The
Company's segment is comprised of one earth station also located at Tangua
which connects to a satellite stationed over the Atlantic Ocean. Brazil owns
1.7% of the capital stock of this organization of 55 countries.
Terrestrial Network. The Company's international terrestrial network is
composed of fiber optic digital cables, and digital and analog radio
connections linking Brazil to Uruguay, Bolivia, Paraguay and Argentina.
Submarine Cables. The primary submarine cables in operation are Americas I,
which links Brazil with the United States, and Unisur, which links Brazil with
Uruguay and Argentina. Submarine cable connections with Europe are made
through the United States via Americas I and then to Europe via Columbus II.
Two additional major submarine cables are under construction, one directly
to Europe, Atlantis 2, that will also communicate with Argentina, and Americas
II, which will complete a second link between Brazil and the United States. In
addition, the Company has participations in various submarine cables operating
throughout the world.
QUALITY OF SERVICE
The Company has at times experienced quality of service problems, including
busy circuits and failure to complete international and domestic long-distance
calls. In 1997, maximum busy circuit rates during peak periods (as a
percentage of calls attempted) was 7.5%, and direct dial call completion rates
during peak periods (as a percentage of calls attempted) was 54.3%. Customers
were also unable to access an international operator in 1997 in a significant
number of cases. In 1997, international operator availability (as a percentage
of calls attempted) was 89.2%. In addition, Embratel's network connects
regional fixed-line operators, regional cellular operators and foreign
operators, and the quality of service provided by Embratel may be
significantly affected by the quality of the network on which calls originate
or terminate. For a discussion of future quality of service requirements, see
"--Regulation--Obligations of Telecommunications Companies--Quality of
Service--General Plan on Quality."
As part of Embratel's Concessions and pursuant to the General Plan on
Universal Service and the General Plan on Quality Embratel will be required to
provide and maintain full-service public telephones available 24 hours a day
with domestic and international direct-dial capability in certain remote areas
of Brazil by December 31, 1999. In addition, Embratel will be required to
respond to repair requests for such public telephones within eight hours by
December 31, 1999. See "--Regulation--Obligations of Telecommunications
Companies--Network Expansion--General Plan on Universal Service" and "--
Quality of Service--General Plan on Quality." At present, management is
seeking clarification from Anatel with regard to the number of public
telephones Embratel will have to provide and maintain in order to comply with
such requirements.
COMPETITION
The Company is currently the exclusive provider of domestic and
international long-distance services in Brazil, although it is subject to
indirect competition from a number of sources. Since 1995, Brazil has adopted
11
<PAGE>
sweeping regulatory changes intended to foster competition in the provision of
telecommunications services. See "--Background--Privatization and Regulatory
Reform" and "--Regulation." Under the Telecommunications Law and
Telecommunications Regulations, Anatel is required, promptly after the
privatization, to open local, intra-regional long-distance, interregional
long-distance and international long-distance telephone services to
competition by granting licenses to new entrants. Anatel is required to
authorize three new entrants to provide local telephone service and intra-
regional long-distance telephone service, with each of the three new entrants
receiving licenses to provide such services in a single fixed-line Region, in
addition to authorizing one new entrant to provide interregional long-distance
telephone service and international long-distance telephone service by
granting licenses to provide such services throughout Brazil. In addition,
Anatel is required to authorize the Company to provide full intra-regional
long-distance telephone service, which includes any calls between local
calling areas in addition to interstate telephone service within each Region.
These licenses will be issued in the Private Regime and, as a result, the
licensees will not be subject to the same obligations to which concessionaires
operating in the Public Regime are subject. See "--Regulation--Concessions and
Licenses." Beginning in 2002, Anatel may grant an unlimited number of
additional licenses for the provision of local, intra-regional long-distance,
interregional long-distance and international long-distance telephone
services. See "--Regulation--Concessions and Licenses."
As a result of the issuance of new licenses after privatization, the Company
will face competition in the provision of interregional and international
long-distance services and the Company will be authorized to provide full
intra-regional long-distance service as a competitor of the regional fixed-
line companies.
In recent years, the Company has experienced considerable competition for
the provision of international long-distance service from companies outside
Brazil known as telephone service resellers. Resellers provide customers with
the number of an automated callback system located in countries with lower
international rates, generally the United States. Use of such callback systems
allow international long-distance calls to originate in Brazil, yet be charged
outside of Brazil, generally at rates significantly below those charged by the
Company. As a result of such competition, the percentage of international
telephone calls billed as outgoing compared to calls billed as incoming
decreased steadily from 1990 to 1993. See "--Services--International Long-
Distance Services" and "--Rates--International Rates."
The identity of new entrants and the scope of increased competition, and any
corresponding adverse effect on the Company's results, will depend on a
variety of factors. Among such factors are the business strategies and
financial and technical capabilities of potential competitors, prevailing
market conditions at the time competition is permitted, applicable Brazilian
regulations with respect to new entrants and the Company, as well as the
effectiveness of the Company's efforts to prepare for increased competition.
The telecommunications industry is subject to rapid and significant changes in
technology. Continuing technological advances in telecommunications make it
impossible to predict the extent of the Company's future competition. There
can be no assurance that the technologies presently employed by the Company
will not become outdated or subject to competition from new technologies in
the future, or that the Company will be able to acquire on reasonable terms,
new technologies necessary to compete in changed circumstances.
The Company is subject to comprehensive regulations that limit its ability
to set tariffs for its various services, and that may limit its ability to
respond to potential or actual competition. Such regulations may limit the
Company's ability to confront competition. See "--Regulation."
EMPLOYEES
As of February 28, 1998, the Company had 10,269 full-time employees.
Approximately 47% of the Company's employees are employed in repair,
engineering, operations and maintenance, physical plant and other similar
positions, 24% in administrative positions, 20% in customer service, and sales
and marketing positions, and 9% in management positions. Approximately 66% of
all employees are members of state labor unions associated either with the
Federacao Nacional dos Trabalhadores em Telecomunicacoes--Fenattel
("Fenattel") or with the Federacao Interestadual dos Trabalhadores em
Telecomunicacoes--Fittel ("Fittel"). The Company
12
<PAGE>
enters new collective labor agreements every year with the local unions. The
collective agreements currently in force expire on November 30, 1998.
The Company's management considers the relations of the Company with its
work force to be satisfactory. The Company has never experienced a work
stoppage that had a material effect on its operations.
The Company has established a pension fund, Fundacao Embratel de Seguridade
Social--Telos ("Telos"), the purpose of which is to supplement government-
provided retirement benefits. The Company makes monthly contributions to Telos
currently equal to 19.8% of the aggregate salary and seniority-based bonus of
each employee who is a Telos member. Each employee member also makes a monthly
contribution to Telos based on age and salary. Members of Telos generally
qualify for full pension benefits after reaching age 58 and having completed
at least 35 years of service for men and 30 years of service for women. Telos
operates independently from the Company, and its assets and liabilities are
fully segregated from those of the Company. See Note 21 to the Consolidated
Financial Statements.
RESEARCH AND DEVELOPMENT
Until the Breakup of Telebras, the Company and the other companies of the
Telebras System were required to contribute to the research and development
center operated by Telebras (Centro de Pesquisa e Desenvolvimento da Telebras
or the "Center") and also conducted their own independent research and
development. The Company had aggregate expenditures in respect of research and
development activities of R$20.0 million, R$18.0 million and R$16.0 million
for 1995, 1996 and 1997, respectively.
Following the Breakup of Telebras, the Center will become a private,
independently administered non-profit foundation financed with resources from
the public and private sector and will continue to develop communications
technology. Pursuant to a three-year contract the Company signed in May 1998
with the Center, the Company will be required to contribute up to R$57 million
during the three years ending May 2001 to the Center. During the effectiveness
of this agreement, the Company has access to telecommunications software
developed by the Center and other technological services provided by the
Center such as equipment testing and consulting and training services. Each of
the other New Holding Companies has entered into a similar contract with the
Center which entitles it to equal access to such services and requires it to
make contributions to the Center based on its revenues and its anticipated
need for such services. It is possible that the Center will also provide such
services to third parties on a fee-for-service basis. In addition, the Company
will continue to conduct its own independent research and development. The
Company does not independently develop new telecommunications hardware and
depends upon the manufacturers of telecommunications products for the
development of new hardware.
CAPITAL EXPENDITURES
The Company's priorities include expanding and modernizing its entire
domestic and international long-distance network, improving overall quality
and increasing the digitalization of the system as a whole.
Prior to the Breakup of Telebras, capital expenditures were planned and
allocated on a system-wide basis and were subject to approval by the Ministry
of Communications. In addition, the budget for capital expenditures of the
Telebras System was included in the annual budget of the Federal Government
and had to be approved by the federal Congress. In 1995, the Federal
Government instituted a broad investment program for public and private
businesses in the communications and postal sectors for the years 1995 through
2003 (Programa de Recuperacao e Expansao dos Sistemas de Telecomunicacoes e
Postal--PASTE). The Telebras System was required to conform its annual capital
expenditure budget to the guidelines set by PASTE.
Since the privatization of Telebras, none of these requirements has applied.
See "--Regulation." The Company is now permitted to determine its own capital
expenditure budget, subject to compliance with certain obligations to expand
services under the Concessions. See "--Regulation--Obligations of
Telecommunications
13
<PAGE>
Companies." In addition, the financing of capital expenditures is no longer
carried out on a system-wide basis and the Company is required to obtain its
own financing. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
The 1998 annual capital expenditure budget for the Telebras System includes
capital expenditures of the Company. The Company anticipates that capital
expenditures for the first eight months of 1998 will be R$621 million, 83% of
which is expected to be funded with internally generated funds from operations
and 17% of which is expected to be funded from its existing sources of
financing. The Company expects, however, that as a result of the privatization
of Telebras all capital expenditures will be subject to revision by management
and the new controlling shareholders of the Company.
The following table sets forth, in constant reais of December 31, 1997
purchasing power, the Company's capital expenditures for each year in the
three-year period ended December 31, 1997 and projected capital expenditures
of 1998.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1996 1997 1998(1)
----- ----- ----- --------
(IN MILLIONS OF R$)
<S> <C> <C> <C> <C>
Maintenance of operating equipment................ 41 34 40 24
Exchanges......................................... 21 38 108 48
Transmission...................................... 416 650 531 355
Data and other specialized network................ 69 90 112 102
Labor and other costs............................. 110 103 92 59
Miscellaneous..................................... 47 27 34 33
----- ----- ----- -----
Total capital expenditures........................ 704 942 918 621
===== ===== ===== =====
</TABLE>
- --------
(1) Budgeted capital expenditures until August, 1998.
REGULATION
GENERAL
The Company's business, including the services it provides and the rates it
charges for telecommunications services, is regulated by Anatel pursuant to
the Telecommunications Law, the Telecommunications Regulations and the
Concession granting the Company the right to provide certain
telecommunications services, subject to certain obligations contained in the
Telecommunications Regulations and the Concession (the "List of Obligations").
BACKGROUND
From 1962 until 1967, the Brazilian telecommunications sector was regulated
by the Conselho Nacional de Telecomunicacoes (the "National Council of
Telecommunications"), and from 1967 until 1997 by the Ministry of
Communications, pursuant to Law No. 4,117 of August 27, 1962, as well as
certain regulations issued pursuant thereto from 1962 to 1996.
In August 1995, the Brazilian Congress amended the Brazilian Constitution to
allow the restructuring of the telecommunications sector. On July 19, 1996,
the Congress passed Law 9,295, the Lei Minima (the "Minimum Law"), to regulate
cellular and satellite services. The Minimum Law began the process of opening
up the cellular market to competition. The Minimum Law was largely replaced by
the Telecommunications Law, although current cellular concessions granted to
the former Telebras companies ("Band A Operators") and the private companies
that were authorized to compete with the Band A Operators (the "Band B
Operators") contain certain provisions derived from the Minimum Law. In July
1997, the Congress passed the Telecommunications Law, which replaced Law 4,117
and became the main basis for regulation of the telecommunications sector,
except for regulation of broadcasting, which was not addressed by the
Telecommunications Law.
14
<PAGE>
REGULATORY AGENCY--ANATEL
The Telecommunications Law provides a framework for telecommunications
regulation. Article 8 of the Telecommunications Law established Anatel to
develop regulations and to enforce such regulations. The specific functions of
Anatel were set forth by the President of Brazil in Decree No. 2338 of October
7, 1997, the Regulamento da Agencia Nacional de Telecomunicacoes (the "Anatel
Decree"). Pursuant to the Telecommunications Law and the Anatel Decree, Anatel
replaces the Ministry of Communications as the regulatory agency for the
telecommunications sector. Anatel, unlike the Ministry of Communications, is
an independent regulatory agency. Anatel is administratively independent,
financially autonomous and not hierarchically subordinated to any organ of the
Brazilian Government, including the Ministry of Communications, in the area of
telecommunications regulation. While independent, Anatel does maintain a close
working relationship with the Ministry of Communications and informs the
Ministry of its activities. Article 19, Section XXIX of the Telecommunications
Law requires Anatel to submit an annual report summarizing its activities to
the Ministry of Communications.
Anatel is managed by a five-member Conselho Diretor ("Board of Directors"),
headed by an executive president. The directors of Anatel are nominated by the
President of Brazil, subject to approval by the Senate. Each director serves
for a single fixed term of 5 years; directors may not be reappointed. In order
further to ensure Anatel's independence, the first directors have been
appointed for different terms, from 3 to 7 years, so that only one director's
mandate will expire per year, ensuring a staggered appointment of directors in
the future. The directors may not exercise any other professional, business
(other than university professor), union or political function, nor may they
hold a significant interest, whether direct or indirect, in any company
related to telecommunications.
Anatel is financed through the Fundo de Fiscalizacao das Telecomunicacoes
("Fistel"). Fistel is a fund administered by Anatel and its funds are
currently the sole source of financing for Anatel's activities. Fistel
receives the proceeds of, among other things, a tax imposed on concessionaires
and fees charged for licenses and concessions.
Any proposed regulation of Anatel is subject to a period of public comment,
including public hearings. Anatel's actions may ultimately be challenged in
Brazilian courts.
CONCESSIONS AND LICENSES
Companies wishing to offer telecommunications services to consumers are
required to apply to Anatel for a concession or license. Concessions and
licenses (autorizacoes) are granted for services in the public regime ("Public
Regime") and services in the private regime ("Private Regime"). The Public
Regime is differentiated from the Private Regime primarily by the obligations
imposed on the companies in the Public Regime rather than the type of services
offered by those companies. There are only four companies in the Public
Regime: Embratel and the three regional fixed-line companies. All other
telecommunications companies, including other companies providing the same
telecommunications services as the four companies in the Public Regime,
operate in the Private Regime.
Fixed-line Services--Public Regime. There are four providers of services in
the Public Regime: Embratel and the three regional fixed-line companies. These
four companies are the primary providers of the following fixed-line-based
services to the general public: local, intra-regional long-distance,
interregional long-distance and international long-distance. Each of these
four companies holds a concession, as required by the Telecommunications Law.
Each Public Regime concession is a specific grant of authority that allows the
concessionaire to offer a wide variety of telecommunications services but
specifically prohibits the concessionaire from offering certain
telecommunications services and imposes certain obligations on the
concessionaire concerning network expansion and modernization, quality and
continuity of service. The main restriction is that, until December 31, 2001,
the regional fixed-line companies will be prohibited from offering
interregional and international long-distance service, while Embratel will be
prohibited from offering local
15
<PAGE>
service unless certain obligations are met as described below. After the
privatization process is complete, Embratel will gain the right to offer full
intra-regional long-distance service, which includes carrying calls between
local calling areas within a fixed Region, which are currently restricted to
the three regional fixed-line companies. See "--Obligations of
Telecommunications Companies--Public Regime--Service Restrictions."
Concessions for Embratel and the three regional fixed-line companies are
granted for a fixed number of years, subject to certain obligations, with the
possibility of full renewal or revocation. See "--Obligations of
Telecommunications Companies--Public Regime Service Restrictions." The initial
concessions for Embratel and the regional fixed-line companies have been
granted until 2005. After 2005, the concessions may be renewed for a period of
20 years. The current concessions granted to the four companies in the Public
Regime have not required the payment of a fee. While terms for the grant of
concessions to new entrants have not yet been determined by Anatel, Embratel
and the three regional fixed-line companies are required to pay renewal fees
every two years after 2005 equal to 2% of annual net revenues from the
provision of fixed-line telecommunications services in the prior year
(excluding taxes and social contributions) during the 20-year renewal period.
Fixed-line Services--Private Regime. Licenses will be granted to new
competitors wishing to offer fixed-line-based services, including local,
intra-regional long-distance, interregional long-distance and international
long-distance, in the Private Regime. Licensees will not be subject to the
same obligations concerning network expansion and modernization, quality and
continuity of service to which concessionaires providing fixed-line-based
services in the Public Regime are subject although individual licenses may
contain certain related obligations. After the privatization process for
Embratel and the three regional fixed-line companies is complete, Anatel is
required to authorize three new entrants to provide local telephone service
and intra-regional long-distance telephone service, with each of the three new
entrants receiving two licenses to provide such services in a single fixed-
line Region, in addition to authorizing one new entrant to provide
interregional long-distance telephone service and international long-distance
telephone service by granting two licenses to provide such services throughout
Brazil. The bidding requirements are expected to contain certain minimum
technical and financial standards. The effective result of the license auction
will be that two companies compete in each of the markets for local service
(one regional fixed-line concessionaire and one licensee), four companies
compete in the markets for intra-regional long-distance service (one incumbent
regional fixed-line company, Embratel, and two licensees), and two companies
compete in the markets for interregional long-distance and international long-
distance (Embratel and one licensee). See "--Competition."
Until December 31, 2001, the four existing Public Regime concessionaires and
the new Private Regime licensees will be the only companies authorized to
offer local, intra-regional long-distance, interregional long-distance and
international long-distance services. Beginning January 1, 2002, the
Telecommunications Regulations require Anatel to end this period of
exclusivity and authorize new licensees wishing to offer such services. See
"--Competition."
OBLIGATIONS OF TELECOMMUNICATIONS COMPANIES
Providers of telecommunications services are subject to certain obligations
contained in the List of Obligations of their concessions and licenses. The
four providers of telecommunications services in the Public Regime are subject
to a set of special restrictions regarding the services they may offer,
contained in the Plano Geral de Outorgas ("General Plan of Concessions and
Licenses"), and special obligations regarding service quality, network
expansion and modernization contained primarily in the Plano Geral de
Qualidade ("General Plan on Quality") and the Plano Geral de Universalizacao
("General Plan on Universal Service"). These restrictions and obligations are
also contained in the concessions of the four companies, particularly in the
List of Obligations.
Public Regime--Service Restrictions. Under the General Plan on Concessions
and Licenses, Embratel and the regional fixed-line companies are prohibited
from offering certain basic fixed-line telecommunications
16
<PAGE>
services until they fulfill the list of obligations as described below.
Embratel is prohibited from offering local or cellular services and the three
regional fixed-line companies are prohibited from offering cellular,
interregional long-distance and international long-distance services. After
the privatization is effected, Embratel will gain the right to offer full
intra-regional long-distance service, which includes carrying calls between
local calling areas within a fixed-line Region, as a competitor to the
regional fixed-line companies.
The General Plan of Concessions and Licenses provides certain incentives to
encourage Embratel and the three regional fixed-line companies to fulfill the
service quality, network expansion and modernization obligations contained in
the List of Obligations quickly. Under the General Plan of Concessions and
Licenses, the progress of Embratel and the regional fixed-line companies
towards attaining their List of Obligations will be officially measured
annually by Anatel. Two measuring dates, December 31, 2001 and December 31,
2003 (the "2001 Targets" and the "2003 Targets") are of particular importance.
See tables in "--Network Expansion--General Plan on Universal Service" and
"Quality of Service--General Plan on Quality." In the period before the 2001
Targets are measured, Anatel will regularly monitor the progress of Embratel
and the regional fixed-line companies and communicate with them. If they fail
to meet the 2001 Targets, Anatel may, at its discretion, revoke their
concessions. If they meet the 2001 Targets, they may continue to operate. In
the period before the 2003 Targets are measured, Anatel will regularly monitor
the progress of the four companies and communicate with them. If Embratel and
the regional fixed-line companies meet the 2003 Targets, the restrictions on
the services the four companies may offer will be eliminated and the companies
will be allowed to apply for licenses to offer any other service. In addition,
if, in its review for the 2001 Targets, Anatel finds that any of the four
companies has met the 2003 Targets, Anatel will immediately eliminate the
restrictions on the telecommunications services that company may offer and
will eliminate the restrictions on the geographical territory in which that
company may operate. Anatel may also eliminate the restrictions on a date
other than the official measuring dates of December 31, 2001 and December 31,
2003 if it finds that a company has met the 2003 Targets. Failure to meet the
2003 Targets could result in revocation of the Concession.
In order to attract new entrants and ensure competition, there are also
certain restrictions on alliances, joint ventures, mergers and acquisitions
involving Public Regime concessionaires, including:
. A concessionaire is prohibited from holding 20 percent or more of the
equity in any other concessionaire
. Concessionaires offering different services in the Public Regime in
either the same or different regions are prohibited from offering services
jointly
. Concessionaires offering the same service in the Public Regime in
different regions are prohibited from offering services jointly
. Mergers between fixed-line regional companies and cellular companies are
prohibited
. Companies offering telephony services are prohibited from offering cable
television
Anatel has not yet determined whether the restrictions under its control
will expire in the future or under what conditions they would expire.
Network Expansion--General Plan on Universal Service. Under the General Plan
on Universal Service, the regional fixed-line companies are required to expand
switched, fixed-line service to cover the entire national territory of Brazil
in accordance with the List of Obligations. Embratel is also subject to the
universal service requirement of providing access to direct-dial domestic and
international long-distance service by installing public telephones in remote
regions and isolated communities. Since universal service requirements are
restricted to the provision of switched, fixed-line basic telephony services,
formal universal service requirements do not apply to cellular companies,
although the cellular companies are subject to certain similar requirements
under the cellular List of Obligations and certain cellular regulations,
including obligations to expand their networks and to provide cellular
services without pricing discrimination within customer categories.
17
<PAGE>
Universal service will be financed through two primary mechanisms: (a) the
normal capital expenditure budgets of Embratel and the regional fixed-line
companies, and (b) a universal service fund.
Embratel and the three regional fixed-line companies are themselves
responsible for financing their universal service obligations of network
expansion from their own revenues. No subsidies or other supplemental
financing are anticipated to finance the network expansion obligations
contained in the List of Obligations. However, the General Plan on Universal
Service allows Anatel to waive the network expansion requirements once a
company succeeds in meeting the 2001 Target for maximum waiting time for
installation of a line of four weeks. If any of the three regional fixed-line
companies fails to meet its obligations in its Region, Anatel may grant
licenses to competing companies to provide the service and may compel the
regional fixed-line company to make its network available for the competitor's
use.
The Telecommunications Law also provides for a universal service fund to
contribute to the costs of providing universal service. While the exact nature
of the universal service fund is not yet known, a bill has been submitted to
the Federal Congress that states that if a company, after meeting its
universal service obligations, finds that it cannot operate a certain service
in a certain region at a profit, the company may apply to receive a subsidy
(for costs beyond those necessary to meet its obligations) from the universal
service fund to ensure that it covers its costs in providing the service.
The following table sets forth the network expansion and modernization
obligations of the Company as stated in the List of Obligations for the period
1999-2005 and the Company's status with respect to each obligation as of
December 31, 1997.
NETWORK EXPANSION AND MODERNIZATION
<TABLE>
<CAPTION>
COMPANY STATUS
AS OF BY DECEMBER 31,
DECEMBER 31, ----------------------------------
1997 1999 2000 2001 2002 2003 2004 2005
-------------- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Full-Service Public telephone
availability/1/
in areas with no fixed
switched service that are
located 30 km from the
nearest fixed and a
population of at least:...... 0 1000 -- 600 -- 300 -- 100
State capitals connected by
fiber-optic cable
(% of capitals)............. 55.6 74 77.8 -- -- 100 -- --
</TABLE>
- --------
1Public telephones available 24 hours a day with domestic and international
long-distance direct-dial capability.
With respect to certain of these requirements, the Company is discussing
with Anatel meeting the obligations by using alternative technologies that
feature equivalent performance parameters but are less costly, such as
providing satellite links to certain state capitals rather than installing
fiber-optic cable.
Quality of Service--General Plan on Quality. The General Plan on Quality
contains a series of service quality obligations that are incorporated into
the List of Obligations for Embratel and each regional fixed-line company.
These include attainment of certain targets such as reducing average dial tone
delay, achievement of certain call completion rates for local, intra-regional
long-distance, and interregional and international long-distance calls,
reducing average operator assistance delay, reducing trouble reports per 100
lines, reducing average time of repair, reducing average time of installation,
increasing billing accuracy, and achieving certain customer satisfaction
levels for public payphones, residential telephony and nonresidential
telephony.
18
<PAGE>
The following table sets forth the quality of service obligations of the
Company as stated in the List of Obligations for the period 1999-2005 and the
Company's status with respect to each obligation as of December 31, 1997.
QUALITY OF SERVICE
<TABLE>
<CAPTION>
COMPANY STATUS
AS OF BY DECEMBER 31,
DECEMBER 31, ----------------------------------
1997 1999 2000 2001 2002 2003 2004 2005
-------------- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Maximum busy circuit rate
during peak periods/1/ (% of
calls attempted)............ 7.5 6 -- 5 -- 4 -- --
Direct-Dial domestic call
completion rate during peak
periods (% of calls
attempted).................. 54.3 60 -- 65 -- 70 -- --
Operator availability/2/ (%
of calls attempted)......... 89.2 92 -- 93 -- 94 -- 95
Public telephone repair
response speed (% within 8
hours)...................... 0 95 -- 96 -- 97 -- 98
</TABLE>
- --------
1For domestic long-distance calls.
2Only for international calls.
Failure to meet both network expansion and modernization obligations and the
quality of service obligations in the List of Obligations may result in fines
and penalties of up to R$50,000,000 as well as potential revocation of the
Company's Concession. The Company's ability to meet the obligations in the
List of Obligations will depend upon certain factors outside its control.
While there can be no assurances, the Company believes that it will be able to
meet these requirements.
Interconnection. Interconnection is mandatory between all telecommunications
networks upon request by any party. Interconnection tariffs are subject to a
price-cap established by Anatel. Rates below the applicable price-cap may be
negotiated between the parties. If a company offers an interconnection tariff
below the price-cap, it must offer that price to any other requesting party on
a non-discriminatory basis.
Anatel has stated that it does not expect to grant parties requesting
interconnection the right to co-locate their equipment at this time, but may
do so in the future. Co-location means that a party requesting interconnection
may place its switching equipment in or near the local exchange of the network
operator whose network the requesting party wishes to use and connect to the
network at this point of presence. Co-location is currently a matter for
negotiation between the parties.
Anatel does not currently mandate unbundling of network elements and
services by the providers of such elements and services, although Anatel has
stated that it plans to review the issue on a regular basis and may introduce
unbundling in the future. In an unbundled regime, every network operator is
required to provide a detailed list of network services and elements which may
be purchased by a party requesting interconnection and the requesting party
then has the right to select and purchase a subset of the network elements and
services available.
Number Portability. Number portability is the ability of a customer to move
to a new home or office or switch service providers while retaining the same
telephone number. Full number portability is mandatory within a local area.
RATE REGULATION
General. In May 1997, a tariff rebalancing was implemented pursuant to which
monthly subscription charges and measured service charges for all customers
increased, while domestic long distance and international long-distance rates
were lowered. In addition, the previous mechanism for financing the
installation of new lines (auto-financing), which required customers to
purchase shares of Telebras, was eliminated and replaced with a flat
installation charge. As of April 1, 1998, the regime used to divide domestic
and international long-distance revenues between Embratel and the fixed-line
companies was replaced with a network usage charge for interconnection such as
already existed for use of cellular networks by the fixed-line companies and
for use of
19
<PAGE>
the fixed networks by cellular operators. In addition to the network usage
charge, Embratel is also required to pay a supplemental per-minute charge
called Parcela Adicional de Transicao ("PAT") that supplements the network
usage charge. Embratel is the only company that is required to pay PAT
charges. Embratel will be required to pay PAT charges for three years, after
which time the PAT charges will be phased out.
Price-Caps. Concessions with the regional fixed-line companies and Embratel,
including the Concession with the Company, provide for a price-cap mechanism
to set and adjust rates on an annual basis. The price-cap mechanism consists
of a maximum amount, or price-cap, stipulated by Anatel, that may be charged
for a particular service and on a weighted average rate for a basket of basic
services. The services include all of the services in the basic service plan,
such as installation charges, monthly subscription fees, local, intra-regional
long-distance, interregional long-distance and international long-distance
service, as well as public telephone service and interconnection charges,
including network usage fees. The main baskets for the regional fixed-line
companies are for local services, including installation charges, the monthly
subscription fee, and measured usage charges, and for interconnection
services, including network usage fees and equipment rental charges. The main
baskets for Embratel are intra-regional long-distance, interregional long-
distance, international long-distance and interconnection.
The initial price-cap established by Anatel in the Concession is based on
the previously existing tariffs. The initial price-cap will be adjusted on an
annual basis under a formula contained in the Concession. The formula allows
two adjustments to the price-cap. First, the price-cap is revised upward to
reflect increases in inflation by multiplying the price-cap by (1+1(y)), where
y represents the rate of inflation as measured by the Indice Geral de Precos-
Disponibilidade Interna ("IGP-DI"), an inflation index developed by the
Fundacao Getulio Vargas, a private Brazilian economic research organization.
Second, the inflation-adjusted price-cap is adjusted downward to ensure
productivity gains by multiplying the inflation-adjusted price-cap by (1-X),
where X represents a set productivity factor (the "X-factor").
In order to provide an incentive to Embratel and the regional fixed-line
companies to increase their efficiency and to reward consumers of
telecommunications services, Anatel applies an X-factor representing annual
productivity adjustments to the tariffs of Embratel and the regional, fixed-
line companies. In the period April 1, 1998 to December 31, 2005, the tariffs
of Embratel and the regional fixed-line companies will be adjusted downward as
follows:
X-FACTOR ANNUAL PRODUCTIVITY ADJUSTMENTS
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 2003 2004 2005
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed-line companies--local and intra-
regional long-distance............... 0% 0% 0% 0% 0% 2% 2% 4%
Fixed-line companies--interconnec-
tion................................. 10% 10% 10% 10% 10% 15% 15% 15%
Embratel-domestic long-distance....... 2% 2% 2% 4% 4% 4% 5% 5%
Embratel-international long-distance.. 5% 5% 5% 5% 5% 7% 7% 10%
</TABLE>
The price-cap covers a basket of basic services. While the weighted average
tariff for the entire basket may not exceed the price-cap, the tariffs for
individual services within the basket may be increased. The Company may
increase the tariff for any individual service by up to 5%, subject to a
downward adjustment for inflation effects already captured in the annual
upward adjustments of the overall price-cap for the basket, so long as it
adjusts other prices downward to ensure that the weighted average tariff does
not exceed the price-cap.
The Company may also offer alternative plans in addition to the basic
service plan. For instance, a customer might wish to choose an alternative
plan that allows unlimited calling for a set fee rather than pay the per
minute fee under the basic service plan. Alternative plans must be submitted
to Anatel for approval, but are not currently subject to a price-cap.
For information on the Company's current tariffs and service plans, see "--
Rates."
20
<PAGE>
Domestic Long-Distance Rates. Direct-dial domestic long-distance tariffs are
calculated per minute for the first minute and per tenth of a minute for every
minute thereafter based on the distance a call must travel, duration of a call
the time of day and the day of the week. As part of the April 1997 tariff
rebalancing, domestic long-distance tariffs were substantially reduced, with
an effective reduction of approximately 32%. There are currently 20 domestic
long-distance tariffs, based on combinations of five distance categories and
four day/time categories.
For a breakdown of the Company's current domestic long-distance tariffs, see
"--Rates--Domestic Long-Distance Rates."
International Long-Distance Rates. Direct-dial international long-distance
tariffs are calculated on a per minute basis based primarily on the distance a
call must travel, the time of day and the day of the week. There are currently
18 international long-distance tariffs, based on combinations of nine country
groups and two day/time categories.
For a breakdown of the Company's current international long-distance
tariffs, see "--Rates--International Rates."
Network Usage Charges. Other telecommunications companies wishing to
interconnect with and use the Company's network must pay certain fees,
primarily a network usage fee. The network usage fee is subject to a price-cap
stipulated by Anatel. The price-cap for the network usage fee specified by
Anatel varies from company to company based on the underlying cost
characteristics of each company's network. The fee is charged on a per
distance and/or per minute of use basis which represents an average charge for
a basket of network elements and services.
BRAZILIAN POLITICAL ENVIRONMENT
The Brazilian political environment was marked by high levels of uncertainty
after the country returned to civilian rule in 1985, ending 20 years of
military government. The death of a President-elect in 1985 and the
resignation of another President in the midst of impeachment proceedings in
1992, as well as rapid turnover at and immediately below the cabinet level,
adversely affected the implementation of consistent economic and monetary
policies, including consistent policies in the areas of government-owned
enterprises and telecommunications.
Mr. Fernando Henrique Cardoso, the Finance Minister at the time of
implementation of Brazil's latest economic stabilization plan (the "Real
Plan"), was elected President of Brazil in October 1994 and took office in
January 1995. He has generally sought to continue the economic stabilization
and liberalization policies he had developed as Finance Minister from May 1993
through April 1994. Although some important groups remain opposed to
significant elements of his program and the implementation of policies of
economic stabilization and liberalization is subject to significant
compromises and accommodations, President Cardoso is the leader of a coalition
of political parties that represents a majority of the federal Congress. His
party controls the state governments of the states of Sao Paulo, Rio de
Janeiro and Minas Gerais, and his policies have broad political support.
Elections will be held in October of 1998 in which the President, Vice-
President, state Governors and the members of the Chamber of Deputies, as well
as one third of the members of the Senate, will be elected. The outcome of
these elections could have a strong impact on whether the economic reforms of
the Cardoso administration can continue. Although the Brazilian Constitution
was amended in June, 1997 so as to permit President Cardoso to run for a
second term in office, there can be no assurance that President Cardoso will
be re-elected and, more generally, there can be no assurance that the
political consensus in favor of the economic reform program pursued by the
Cardoso administration can or will be sustained following the elections.
21
<PAGE>
BRAZILIAN ECONOMIC ENVIRONMENT
The financial condition and results of operations of the Company are
dependent on general economic conditions in Brazil, and in particular on (i)
economic growth and its impact on demand for telecommunications services, (ii)
the cost and availability of financing and (iii) exchange rates between
Brazilian and foreign currencies.
For many years, the Brazilian economy was extremely volatile, and the
Federal Government implemented a succession of programs intended to stabilize
the economy and provide a basis for sustainable, non-inflationary growth. The
Company was affected by economic instability and by such programs in a variety
of ways, particularly when they have resulted in contractions in demand or
very high real interest rates or prevented the Company from raising rates to
keep pace with the rate of inflation.
Until the introduction of the Real Plan, measures by the Federal Government
intended to influence the course of Brazil's economy, such as changes in
monetary, credit, tariff and other policies, were frequent and occasionally
drastic. See "Exchange Controls and Other Limitations Affecting Security
Holders." In particular, actions to control inflation, interest rates or
consumption, included freezing bank accounts, imposing capital controls,
introducing high tariffs and other strong measures. Changes in policy, social
instability and other political and economic developments, and the Brazilian
government's responses to such developments, not infrequently have had a
material adverse effect on the Company's business, financial condition and
results of operations.
Beginning in December 1993, the Federal Government introduced the Real Plan,
an economic stabilization program intended to reduce the rate of inflation by
reducing certain public expenditures, collecting liabilities owed to the
Federal Government, increasing tax revenues, continuing to privatize
government-owned entities and introducing a new currency. The real was
introduced as Brazil's currency on July 1, 1994, based on a new unit of
account, the URV, introduced earlier in the year. Since taking office in
January 1995, President Cardoso has continued to implement the Real Plan. The
real generally appreciated through January 1995 and thereafter gradually
declined in value against the dollar, reaching R$1.1164 to US$1.00 at December
31, 1997. Under the Real Plan, the rate of inflation has decreased
significantly and there has been sustained growth in real gross domestic
product. See "--Inflation and Devaluation." Notwithstanding the success of the
Real Plan in lowering inflation and stabilizing the Brazilian economy, the
Real Plan also led to an economic slowdown, a rise in unemployment in some
regions and specific sectors of the economy, and adversely impacted certain
sectors of the economy.
Beginning in August 1998, following the devaluation of the Russian Ruble,
Brazil has experienced substantial capital outflows, significant declines in
its stock markets and speculative attacks on the Brazilian currency. In
response, the Federal Government has raised interest rates and stated that it
will continue to support the value of the real and to abide by the principles
inherent in the Real Plan. Previously in the fourth quarter of 1997 Brazil
experienced a financial crisis following the financial and economic crisis in
Asia. In response, the Federal Government adopted several economic measures to
protect the Real Plan and the stability of the Brazilian currency. These
measures included (i) an increase in interest rates, including a near doubling
of short-term interest rates, (ii) an increase in certain tax rates, (iii) a
reduction in Federal Government spending for 1998 and (iv) restrictions on
imports. Government policies to control inflation and to reduce budget and
trade deficits could also result in further actions that could slow or halt
Brazilian economic growth. It is not possible to foresee how measures like
these will affect the business, financial condition and results of operations
of the Company.
Brazil's trade deficit for 1997 increased to US$8.37 billion compared to
US$5.54 billion for 1996. There can be no assurance that the Brazilian
government will not introduce credit restrictions to subdue domestic demand in
order to reduce the trade deficit, nor that any such credit restrictions will
not have a material adverse effect on the business, operations, financial
condition or results of operations of the Company. A continuing increase in
the trade deficit would substantially reduce Brazil's approximately US$50.8
billion of reserves at December 31, 1997 and could negatively affect Brazil's
economic development as a whole.
22
<PAGE>
PRIVATIZATION
The Federal Government, directly or through various state-owned enterprises,
owns many companies and controls a major portion of activities in the oil and
gas sectors. Most of the energy production and postal services companies are
directly or indirectly controlled by the Federal Government.
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
Real Plan contemplated constitutional amendments which would permit private
participation in the state-controlled petroleum and telecommunications sectors
and in other areas that had constitutionally mandated monopolies, such as
pipeline distribution of gas and the shipping industry. These amendments were
approved by Congress in 1995. A council directly subordinate to the President,
the Conselho Nacional de Privatizacao (the "Privatization Council") and Banco
Nacional de Desenvolvimento Economico e Social (the "National Development
Bank" or "BNDES") are responsible for administering the privatization program.
As of December 31, 1996, a total of 52 state enterprises or divisions
thereof had been privatized, and several minority interests held by Federal
Government companies had been sold for nominal consideration totaling US$13.7
billion (including payment made in Brazilian currency and payment made by
means of qualified debt instruments issued to the Federal Government, its
agencies and state-controlled companies). To date, the privatizations have,
for the most part, been effected through share auctions conducted on Brazil's
stock exchanges. Although the majority of such share auctions have been
successful, there have been instances in which a share auction has failed due
to a lack of bidders. Privatization revenues for 1997 exceeded $26.0 billion.
Some of the Brazilian states, such as Sao Paulo, Minas Gerais, Pernambuco,
Paraiba and Maranhao are also conducting privatization programs in relation to
state services.
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.
DEVELOPMENTS IN OTHER EMERGING MARKET COUNTRIES; BRAZILIAN AUSTERITY PROGRAM
The Brazilian securities markets are, to varying degrees, influenced by
economic and market conditions in other emerging market countries. Although
economic conditions are different in each country, investors' reactions to
developments in one country can have an effect on the securities of issuers in
other countries, including Brazil. For example, since the fourth quarter of
1997, the international financial markets have experienced significant
volatility, and a large number of financial market indices, including those in
Brazil, have declined significantly. The current market volatility in Latin
American and other emerging market countries' securities markets has also been
attributed, at least in part, to the effects of the Asian economic crisis.
There can be no assurance that the Brazilian securities markets will not
continue to be affected negatively by events elsewhere, especially in emerging
markets, or that such events will not adversely affect the value of the ADSs.
In reaction to the growing market volatility in Asia, the Federal Government
implemented several measures intended to curtail the outflow of foreign
investment, as Central Bank reserves were reduced from U.S.$61.2 billion in
September 1997 to U.S.$52.9 billion by the end of October 1997. On October 30,
1997, the Central Bank raised the benchmark interest rate from 20.7% to 43.4%
in order to retain investment funds in the country. On November 10, 1997 the
Federal Government presented a series of fiscal measures aimed at reducing the
budget deficit and bolstering economic conditions. The measures included
certain tax increases, eliminations of budget expenses and reductions in
available fiscal incentives. The package of measures was intended to produce a
savings of R$20 billion, due to the decrease in expenses and the increase in
revenue. These fiscal measures have been substantially implemented.
Constitutional reforms affecting civil servants and social security have also
23
<PAGE>
been accelerated and may result in lower government deficits. However, there
can be no assurance that such measures will be successful in protecting the
Federal Government's present currency exchange rate policy and price stability
program.
Additionally, the decrease in economic activity caused by the increase in
interest rates and the fiscal measures may have substantial negative effects
on companies doing business in Brazil. Projected GDP growth for Brazil for
1998 has been reduced from approximately 4% to approximately 1%. It is
expected that these events may have the effect of reducing the purchasing
power of Brazilian consumers in general. Since the increase in interest rates,
the Central Bank has gradually reduced its benchmark interest rate, setting
its rates at 40.9% on December 1, 1997, at 38.0% on January 2, 1998, at 34.5%
on January 29, 1998, at 28.0% on March 5, 1998, at 21.8% on May 20, 1998, at
21.0% on June 25, 1998 and at 19.75% on July 29, 1998. There can be no
assurance that a decrease in interest rates will not cause further investment
outflows.
Events in Asia also may affect the competitiveness of Brazilian exports. In
addition, the proceeds from scheduled privatizations may not reach expected
levels, in which case the current account deficit would cause a deterioration
in foreign reserves, adversely affecting the currency exchange rate policy.
INFLATION AND DEVALUATION
Brazil experienced extremely high and generally unpredictable rates of
inflation and of devaluation of Brazilian currency for many years until the
implementation of the Real Plan. Inflation itself, as well as certain
governmental measures to combat inflation, and public speculation about
possible future actions have also historically contributed to economic
uncertainty in Brazil and to heightened volatility in the Brazilian securities
markets. The following table sets forth Brazilian inflation, as measured by
the UFIR for 1995 and the IGP-M for 1996-1998, and the devaluation of the
Brazilian currency against the U.S. dollar for the periods shown.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, FIRST QUARTER SECOND QUARTER
-------------- ENDED MARCH 31, ENDED JUNE 30,
1995 1996 1997 1998 1998
---- ---- ---- --------------- --------------
(IN PERCENTAGES)
<S> <C> <C> <C> <C> <C>
Inflation (UFIR for 1995; IGP-M
for 1996-1998)................. 22.5 9.2 7.8 1.3 1.8
Devaluation (Brazilian currency
vs. US$)....................... 15.0 6.9 7.4 1.9 3.6
</TABLE>
Since the introduction of the Real Plan in July 1994, the rate of inflation
has decreased considerably. As measured by the IGP-M, the rate of inflation
was 7.8% for 1997 and 1.3% for the first quarter of 1998. Despite this
reduction, the rate of inflation remains high compared to other countries, and
the potential for distortions or dislocations attributable to changing prices
continues to exist. The exchange rate between the real and the U.S. dollar has
also been relatively stable since early July 1994, compared to prior periods,
although the potential for devaluation or volatility persists. See "Exchange
Rates."
ITEM 2: DESCRIPTION OF PROPERTY
The principal properties of the Company consist of its basic network,
satellite earth stations, nodes, terrestrial and submarine cables, switches
and certain real estate. At December 31, 1997, the net book value of the
Company's property, plant and equipment was approximately R$6,503.8 million.
The Company's properties are located throughout Brazil, providing both the
necessary infrastructure of a nationwide long-distance telecommunications and
a support network. As of May 1, 1998, the Company owned approximately 62 sites
related to its telecommunications operations used for network equipment of
various types, such as telephone exchanges, transmission stations, microwave
radio equipment and digital switching nodes. The Company conducts a majority
of its management activities from Rio de Janeiro, and owns and leases office
space in such other cities as Rio de Janeiro, Sao Paulo, Porto Alegre, Belo
Horizonte, Curitiba, Brasilia, Salvador, and Belem.
24
<PAGE>
The Company considers it network facilities to be adequate to its
international long-distance and domestic long-distance businesses as currently
operated and contemplated. For a description of the Company's equipment see
"Description of Business--Network and Facilities."
ITEM 3: LEGAL PROCEEDINGS
The Breakup of Telebras is subject to several lawsuits in which the
plaintiffs have requested, and in certain cases obtained, preliminary
injunctions against the Breakup. All of these preliminary injunctions have
been quashed by decisions of the relevant Federal Court, although several of
such decisions are currently on appeal. If any such appeal is successful, the
shareholders of Telebras will be required to reapprove the Breakup or other
legislative actions may be required.
The lawsuits to which the Breakup has been subjected are based on a number
of legal theories, the principal among which are that (i) Brazil's
Constitution requires that the creation of the twelve New Holding Companies be
specifically authorized by the Telecommunications Law--the Breakup is not so
authorized; (ii) the shareholders' meeting of Telebras held on May 22, 1998
which approved the Breakup was not properly convened; (iii) national
sovereignty will be threatened if the country's telecommunications companies
are controlled by foreign entities; and (iv) the Telecommunications Law
requires that certain matters, such as the entry of new competitors and the
administration of development and technology funds, be regulated prior to the
Breakup and privatization either by an executive order of the President or by
an act of Congress. If any of the plaintiffs in the above-described lawsuits
ultimately prevails, the Breakup will have to be reinitiated. This could
require, depending upon the prevailing plaintiff's theory, any combination of
(i) amendment of the Telecommunications Law, (ii) reconvening the May 22, 1998
Telebras shareholders' meeting and (iii) the passing of additional laws by
Congress or Issuance of executive orders by the President. It is theoretically
possible under Brazilian law for a court to require that the Breakup be
unwound, although the Company believes that this would not be likely to occur.
The Company is a party to certain legal proceedings arising in the normal
course of business. The Company has provided for or deposited in court amounts
to cover its estimated losses due to adverse legal judgments. In the opinion
of management, such actions, if decided adversely to the Company, would not
have a material adverse effect on the Company's business, financial condition
or results of operations.
Telebras, the legal predecessor of the Registrant, is a defendant in a
number of legal proceedings and subject to other claims and contingencies.
Under the terms of the Breakup, liability for any claims arising out of acts
committed by Telebras prior to the effective date of the Breakup remains with
Telebras, except for labor and tax claims (for which Telebras and the New
Holding Companies are jointly and severally liable by operation of law) and
any liability for which specific accounting provisions have been assigned to
the Registrant or one of the other New Holding Companies. Creditors of
Telebras may challenge this allocation of liability until September 14, 1998.
Management of the Company believes that the chances of any such claims
materializing and having a material adverse financial effect on the Company
are remote.
Although Embratel is considered to be the surviving entity of Telebras for
financial reporting purposes under U.S. GAAP, Embratel will not be liable for
any claims arising out of acts committed by Telebras except for such claims as
have been assigned to it under the terms of the Breakup and except for labor
and tax claims as discussed above.
ITEM 4: CONTROL OF REGISTRANT
Of the Registrant's two classes of capital stock outstanding, only the
Common Shares have full voting rights. The Preferred Shares have voting rights
under limited circumstances. See "Description of Securities to be Registered--
Capital Stock--Voting Rights." MCI WORLDCOM owns 51.8% of the Common Shares.
Accordingly, MCI WORLDCOM has the ability to control the election of the
Registrant's Board of Directors and the direction and future operations of the
Company.
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The following table sets forth information concerning the ownership of the
Common Shares by MCI WORLDCOM and by the Registrant's officers and directors
as a group. The Company is not aware of any other shareholder owning more than
10.0% of the Common Shares.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
COMMON OUTSTANDING
NAME OF OWNER SHARES OWNED COMMON SHARES
------------- -------------- -------------
<S> <C> <C>
MCI WORLDCOM..................................... 64,405,151,125 51.79%
All directors and executives officers as a group
(5 persons)..................................... 5 0.00%
</TABLE>
The following is a brief description of the business activities of MCI
WORLDCOM.
MCI WORLDCOM. MCI WORLDCOM is a global telecommunications company with
revenue of more than $30 billion and established operations in over 65
countries encompassing the Americas, Europe and the Asia-Pacific regions. MCI
WORLDCOM is a premier provider of facilities-based and fully integrated local,
long distance, international and Internet services. MCI WORLDCOM's global
networks, including its state-of-the-art pan-European network and transoceanic
cable systems, provide end-to-end high-capacity connectivity to more than
35,000 buildings worldwide.
ITEM 5: NATURE OF TRADING MARKET
There has never been a trading market for the Preferred Shares, the Common
Shares or the ADSs.
The preferred shares of each of the New Holding Companies, including the
Preferred Shares, have been traded together with the preferred shares of
Telebras as a unit on the Brazilian Stock Exchanges since the Breakup of the
Telebras System. Additionally, Telebras ADSs, each representing 1,000 Telebras
preferred shares and, since the Breakup, each also representing deemed
ownership of 1,000 preferred shares of each of the New Holding Companies, have
continued to trade on the NYSE.
On September 21, 1998, common shares and preferred shares of each New
Holding Company, including the Preferred Shares, will commence trading
separately on the Brazilian Stock Exchanges. It is expected that during or
before October 1998 American Depositary Shares representing preferred shares
of each New Holding Company will be issued and commence trading separately on
the NYSE. The ADSs, each representing 1,000 Preferred Shares of the
Registrant, will be issued to the holders of Telebras ADSs pursuant to a
Deposit Agreement (the "Deposit Agreement") among the Registrant, The Bank of
New York, as Depositary (the "Depositary"), and the holders of the ADSs from
time to time. See "Description of Securities to be Registered--Description of
American Depositary Receipts in respect of Preferred Shares."
Application to list the Preferred Shares on the Brazilian Stock Exchanges
has been granted subject to distribution of the Preferred Shares, and trading
on the Brazilian Stock Exchanges is expected to commence on September 21,
1998. Application has been made to list the ADSs on the NYSE upon issuance
under the symbol EMT. Prices at which the Preferred Shares and the ADSs may
trade cannot be predicted. There can be no assurance that an active trading
market for the Preferred Shares in Brazil or for the ADSs in the United States
or elsewhere will develop or be sustained.
TRADING ON THE BRAZILIAN STOCK EXCHANGES
Of Brazil's nine stock exchanges, the Sao Paulo Stock Exchange and the Rio
de Janeiro Stock Exchange are the most significant. During 1997, the Sao Paulo
Stock Exchange accounted for approximately 93% of the trading value of equity
securities on all Brazilian stock exchanges, and the Sao Paulo Stock Exchange
and the Rio de Janeiro Stock Exchange together accounted for approximately 99%
of the trading value of equity securities on all Brazilian stock exchanges.
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Each Brazilian stock exchange is a non-profit entity owned by its member
brokerage firms. Trading on each exchange is limited to member brokerage firms
and a limited number of authorized non-members. The Sao Paulo Stock Exchange
and the Rio de Janeiro Stock Exchange have two open outcry trading sessions
each day, from 10:00 a.m. to 1:00 p.m. and from 2:00 p.m. to 5:00 p.m. Trading
is also conducted during this time on an automated system on the Sao Paulo
Stock Exchange and on the National Electronic Trading System ("SENN"), a
computerized system that links the Rio de Janeiro Stock Exchange
electronically with the seven smaller regional exchanges. Market makers exist
on the Sao Paulo Stock Exchange, but are only authorized to make markets in
options for stock indices which are traded on that exchange and to engage in
transactions on META (Mercado de Empresas Teleassistidas), an electronic
trading system operating at the Sao Paulo Stock Exchange and permitting
trading in the securities of companies registered for that purpose. These
companies must appoint the market makers authorized to deal in their
securities. There are no specialists or market makers for the Company's shares
on the Sao Paulo Stock Exchange. The Comissao de Valores Mobiliarios (the
Brazilian Securities Commission or "CVM") and each of the Brazilian stock
exchanges have discretionary authority to suspend trading in shares of a
particular issuer under certain circumstances. Trading in securities listed on
the Brazilian stock exchanges may be effected off the exchanges in certain
circumstances, although such trading is very limited.
Settlement of transactions is effected three business days after the trade
date without adjustment of the purchase price for inflation. Payment for
shares is made through the facilities of separate clearinghouses for each
exchange, which maintain accounts for member brokerage firms. The seller is
ordinarily required to deliver the shares to the exchange on the second
business day following the trade date. The clearinghouse for the Sao Paulo
Stock Exchange is Calispa S.A., which is owned by the member brokerage firms.
The clearinghouse for the Rio de Janeiro Stock Exchange is CLC-Camara de
Liquidacao e Custodia S.A., which is 99% owned by that exchange.
At December 31, 1997, the aggregate market capitalization of the 536
companies listed on the Sao Paulo Stock Exchange was approximately R$285.0
billion. Substantially the same securities are listed on the Sao Paulo Stock
Exchange and on the Rio de Janeiro Stock Exchange. Although all the
outstanding shares of an exchange-listed company may trade on a Brazilian
stock exchange, in most cases less than half of the listed shares are actually
available for trading by the public, the remainder being held by small groups
of controlling persons that rarely trade their shares. This is particularly
true in the case of mixed-capital companies, such as the Company before the
privatization, of which more than half of the voting shares must by law be
owned by Brazilian governmental entities. For this reason, data showing the
total market capitalization of Brazilian stock exchanges tends to overstate
the liquidity of the Brazilian equity securities market.
Although the Brazilian equity market was Latin America's largest in terms of
market capitalization, it is relatively small and illiquid compared to major
world markets. In 1997, the combined daily trading volumes on these two
exchanges averaged approximately R$945.4 million. In 1997, the five most
actively traded issues represented approximately 72.9% of the total trading in
the cash market on the Sao Paulo Stock Exchange and approximately 50.5% of the
total trading in the cash market on the Rio de Janeiro Stock Exchange.
Trading on Brazilian stock exchanges by non-residents of Brazil is subject
to certain limitations under Brazilian foreign investment legislation. See
"Description of Securities to be Registered."
REGULATION OF BRAZILIAN SECURITIES MARKETS
The Brazilian securities markets are regulated by the CVM, which has
authority over stock exchanges and the securities markets generally, and by
the Central Bank of Brazil, which has, among other powers, licensing authority
over brokerage firms and regulates foreign investment and foreign exchange
transactions. The Brazilian securities market is governed by Law No. 6,385
dated December 7, 1976, as amended (the "Brazilian Securities Law"), and the
Brazilian Corporation Law.
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<PAGE>
Under the Brazilian Corporation Law, a company is either public, a
"companhia aberta," such as the Company, or private, a "companhia fechada."
All public companies are registered with the CVM and are subject to reporting
requirements. A company registered with the CVM may have its securities traded
either on the Brazilian stock exchanges or in the Brazilian over-the-counter
("Brazilian OTC") market. The shares of a public company, including the
Company, may also be traded privately, subject to certain limitations. To be
listed on the Brazilian stock exchanges, a company must apply for registration
with the CVM and the stock exchange where the head office of the company is
located. Once this stock exchange has admitted a company to listing and the
CVM has accepted its registration as a public company, its securities may be
traded on all other Brazilian stock exchanges.
Trading in securities on the Brazilian stock exchanges may be suspended at
the request of a company in anticipation of a material announcement. Trading
may also be suspended on the initiative of a Brazilian stock exchange or the
CVM, among other reasons, based on or due to a belief that a company has
provided inadequate information regarding a material event or has provided
inadequate responses to inquiries by the CVM or the relevant stock exchange.
The Brazilian Securities Law provided for, among other things, disclosure
requirements, restrictions on insider trading and price manipulation, and
protection of minority shareholders. However, the Brazilian securities markets
are not as highly regulated and supervised as the United States securities
markets or markets in certain other jurisdictions.
ITEM 6: EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
There are no restrictions on ownership of Preferred Shares or Common Shares
of the Registrant by individuals or legal entities domiciled outside Brazil.
Until the Registrant was privatized, it was subject to provisions of
Brazilian corporate law applicable to mixed-capital companies under Brazilian
law. These provisions ceased to apply after the Registrant was privatized. As
a mixed-capital company, the Registrant was not subject to bankruptcy and the
Federal Government was contingently liable for the obligations of the
Registrant for so long as its assets were encumbered and attached. However,
substantial limitations applied to the attachment or sale of assets of the
operating subsidiaries of the Registrant that were used to provide
telecommunications services pursuant to the Company's concession. Similarly,
the sale of shares representing voting control of operating subsidiaries
providing public telecommunications services was subject to government
authorization. The sale of preferred shares of operating subsidiaries, or of
assets not used to provide telecommunications services, was not subject to
these restrictions.
The right to convert dividend payments and proceeds from the sale of shares
into foreign currency and to remit such amounts outside Brazil is subject to
restrictions under foreign investment legislation which generally requires,
among other things, that the relevant investments have been registered with
the Central Bank of Brazil. Such restrictions on the remittance of foreign
capital abroad may hinder or prevent Banco Itau S.A. (the "Custodian"), as
custodian for the Preferred Shares represented by ADSs, or holders who have
exchanged ADRs for Preferred Shares from converting dividends, distributions
or the proceeds from any sale of such Preferred Shares, as the case may be,
into U.S. dollars and remitting such U.S. dollars abroad. Holders of ADSs
could be adversely affected by delays in, or refusal to grant any, required
government approval for conversions of Brazilian currency payments and
remittances abroad of the Preferred Shares underlying the ADSs.
Under Annex IV to Resolution No. 1,289 of the National Monetary Council, as
amended (the "Annex IV Regulations"), qualified foreign investors (which
principally include foreign financial institutions, insurance companies,
pension and investment funds, charitable foreign institutions and other
institutions that (i) seek to invest in financial markets and (ii) meet
certain minimum capital and other requirements) registered with the CVM and
acting through authorized custody accounts managed by local agents may buy and
sell shares on Brazilian stock exchanges without obtaining separate
Certificates of Registration for each transaction. Investors
28
<PAGE>
under the Annex IV Regulations are also entitled to favorable tax treatment.
See "Taxation--Brazilian Tax Considerations." Resolution No. 1,927 of the
National Monetary Council, which is the restated and amended Annex V to
Resolution No. 1,289 of the National Monetary Council (the "Annex V
Regulations"), provides for the issuance of depositary receipts in foreign
markets in respect of shares of Brazilian issuers. The ADS program will be
approved under the Annex V Regulations by the Central Bank of Brazil and the
CVM prior to the issuance of the ADSs. Accordingly, the proceeds from the sale
of ADSs by ADR holders outside Brazil are free of Brazilian foreign investment
controls and holders of the ADSs will be entitled to favorable tax treatment.
See "Taxation--Brazilian Tax Considerations."
A Certificate of Registration will be issued in the name of the Depositary
with respect to the ADSs prior to their issuance and will be maintained by the
Custodian on behalf of the Depositary. Pursuant to the Certificate of
Registration, the Custodian and the Depositary are able to convert dividends
and other distributions with respect to the Preferred Shares represented by
ADSs into foreign currency and remit the proceeds outside Brazil. In the event
that a holder of ADSs exchanges such ADSs for Preferred Shares, such holder
will be entitled to continue to rely on the Depositary's Certificate of
Registration for five business days after such exchange, following which such
holder must seek to obtain its own Certificate of Registration with the
Central Bank of Brazil. Thereafter, any holder of Preferred Shares may not be
able to convert into foreign currency and remit outside Brazil the proceeds
from the disposition of, or distributions with respect to, such Preferred
Shares, unless such holder (i) qualifies under the Annex IV Regulations or
(ii) obtains its own Certificate of Registration, and in the case of (ii), it
will be subject to less favorable Brazilian tax treatment than a holder of
ADSs. See "Taxation--Brazilian Tax Considerations."
Under current Brazilian legislation, the Federal Government may impose
temporary restrictions on remittances of foreign capital abroad in the event
of a serious imbalance or an anticipated serious imbalance of Brazil's balance
of payments. For approximately six months in 1989 and early 1990, the Federal
Government froze all dividend and capital repatriations held by the Central
Bank of Brazil that were owed to foreign equity investors, in order to
conserve Brazil's foreign currency reserves. These amounts were subsequently
released in accordance with Federal Government directives. The imbalance in
Brazil's balance of payments increased during 1997, and there can be no
assurance that the Federal Government will not impose similar restrictions on
foreign repatriations in the future.
ITEM 7: TAXATION
The following summary contains a description of the principal Brazilian and
U.S. federal income tax consequences of the acquisition, ownership and
disposition of Preferred Shares or ADSs, but it does not purport to be a
comprehensive description of all the tax considerations that may be relevant
to a decision to purchase Preferred Shares or ADSs. The summary is based upon
the tax laws of Brazil and regulations thereunder and on the tax laws of the
United States and regulations thereunder as in effect on the date hereof,
which are subject to change. This summary is also based upon the
representations of the Depositary and on the assumption that each obligation
in the Deposit Agreement relating to the ADRs and any related documents will
be performed in accordance with its terms. PROSPECTIVE PURCHASERS OF PREFERRED
SHARES OR ADSs SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX
CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF PREFERRED SHARES
OR ADSs.
Although there is at present no income tax treaty between Brazil and the
United States, the tax authorities of the two countries have had discussions
that may culminate in such a treaty. No assurance can be given, however, as to
whether or when a treaty will enter into force or how it will affect the U.S.
holders of Preferred Shares or ADSs. Prospective holders of Preferred Shares
or ADSs should consult their own tax advisors as to the tax consequences of
the acquisition, ownership and disposition of the Preferred Shares or ADSs in
their particular circumstances.
29
<PAGE>
BRAZILIAN TAX CONSIDERATIONS
The following discussion summarizes the principal Brazilian tax consequences
of the acquisition, ownership and disposition of Preferred Shares or ADSs by a
holder that is not domiciled in Brazil for purposes of Brazilian taxation and,
in the case of a holder of Preferred Shares, that has registered its
investment in Preferred Shares with the Central Bank of Brazil as a U.S.
dollar investment (in each case, a "non-Brazilian holder"). It is based on
Brazilian law as currently in effect. Any change in such law may change the
consequences described below. The following discussion summarizes the
principal tax consequences applicable under current Brazilian law to non-
Brazilian holders of Preferred Shares or ADSs; it does not specifically
address all of the Brazilian tax considerations applicable to any particular
non-Brazilian holder, and each non-Brazilian holder should consult his or her
own tax advisor concerning the Brazilian tax consequences of an investment in
Preferred Shares or ADSs.
TAXATION OF DIVIDENDS
Dividends, including dividends paid in kind, paid by the Registrant (i) to
the Depositary in respect of the Preferred Shares underlying the ADSs or (ii)
to a non-Brazilian holder in respect of Preferred Shares will generally not be
subject to Brazilian withholding tax in the case of distributions of profits
earned as from January 1, 1996. Stock dividends relating to profits generated
prior to December 31, 1995 are not subject to withholding tax in Brazil unless
the stock is redeemed by the Company within five years from such distribution
or the non-Brazilian holder sells the stock in Brazil within such five-year
period.
Brazil has entered into tax treaties with several countries. However, there
is currently no tax treaty between the United States and Brazil. The only
Brazilian tax treaty now in effect that, if certain conditions are met, would
reduce the generally applicable rate of the withholding tax on dividends below
15% is the treaty with Japan, which would reduce such rate to 12.5% under the
circumstances stated in such treaty.
TAXATION OF GAINS
Gains realized outside Brazil by a non-Brazilian holder on the disposition
of ADSs to another non-Brazilian holder are not subject to Brazilian tax.
The withdrawal of Preferred Shares in exchange for ADSs is not subject to
Brazilian tax. The deposit of Preferred Shares in exchange for ADSs is not
subject to Brazilian tax provided that the Preferred Shares are registered
under the Annex IV Regulations. In the event the Preferred Shares are not so
registered, the deposit of Preferred Shares in exchange for ADSs may be
subject to Brazilian capital gains tax at the rate of 10% or 15% as described
below. On receipt of the underlying Preferred Shares, a non-Brazilian holder
who qualifies under the Annex IV Regulations will be entitled to register the
U.S. dollar value of such shares with the Central Bank of Brazil as described
below under "--Registered Capital."
Non-Brazilian holders are not subject to tax in Brazil on gains realized on
sales of Preferred Shares that occur abroad or on the proceeds of a redemption
of, or a liquidating distribution with respect to, Preferred Shares. As a
general rule, non-Brazilian holders are subject to a withholding tax imposed
at a rate of 15% on gains realized on sales or exchanges of Preferred Shares
that occur in Brazil to or with a resident of Brazil outside of a Brazilian
stock exchange. Non-Brazilian holders are generally subject to a withholding
tax at a rate of 10% on gains realized on sales or exchanges in Brazil of
Preferred Shares that occur on a Brazilian stock exchange but will not be
subject to tax if either such a sale is made within five business days of the
withdrawal of such Preferred Shares in exchange for ADSs and the proceeds
thereof are remitted abroad within such five-day period, or such a sale is
made under the Annex IV Regulations by certain qualified institutional non-
Brazilian holders that register with the CVM. Gains realized by an investor
under the Annex IV Regulations are not subject to tax, provided certain
conditions are met. The "gain realized" is the difference between the amount
in Brazilian currency realized on the sale or exchange and the acquisition
cost, measured in Brazilian currency without any correction for inflation, of
the shares sold. The "gain realized" as a result of a transaction with respect
to shares
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<PAGE>
registered as an investment with the Central Bank of Brazil (and not subject
to the Annex IV Regulations) will be calculated based on the foreign currency
amount registered with the Central Bank of Brazil. There can be no assurance
that the current preferential treatment for holders of ADSs and non-Brazilian
holders of Preferred Shares under the Annex IV Regulations will not be
changed. Reductions in the tax rate provided for by Brazil's tax treaties do
not apply to tax on gains realized on sales or exchanges of Preferred Shares.
Any exercise of preemptive rights relating to the Preferred Shares or ADSs
will not be subject to Brazilian taxation. Any gain on the sale or assignment
of preemptive rights relating to the Preferred Shares by the Depositary will
not be subject to Brazilian taxation.
DISTRIBUTIONS OF INTEREST ON NET WORTH
In accordance with Law No. 9,249, dated December 26, 1995, Brazilian
corporations may make payments to shareholders characterized as distributions
of interest on the Company's net worth. Such interest is limited to the
Federal Government's long-term interest rate (the "TJLP") as determined by the
Central Bank of Brazil from time to time (10.63% per annum for the three month
period starting June 1, 1998), and cannot exceed the greater of (i) 50% of net
income (before taking such distribution and any deductions for income taxes
into account) for the period in respect of which the payment is made or (ii)
50% of retained earnings.
Distributions of interest on net worth in respect of the Preferred Shares
paid to shareholders who are either Brazilian residents or non-Brazilian
residents, including holders of ADSs, are subject to Brazilian withholding tax
at the rate of 15% (except for interest due to the Federal Government, which
is exempt from tax withholding) and shall be deductible by the Registrant for
purposes of the Corporate Income Tax ("IRPJ") and Social Contribution on
Profit ("CSLL") (both of which are levied on the Registrant's profits) as long
as the payment of a distribution of interest is approved in the Registrant's
annual shareholders' meeting. The amount of distributions of interest on net
worth will be determined by the Board of Directors of the Registrant. No
assurance can be given that the Board of Directors of the Registrant will not
determine that future distributions of profits will be made by means of
interest on net worth instead of by means of dividends.
Under Brazilian law and regulations, the amount paid to shareholders as
interest on net worth (net of any withholding tax) may be treated as payment
in lieu of the Mandatory Dividend and Preferred Dividend (as defined under
"Description of Securities to be Registered--Capital Stock--Dividends"). In
addition, any Brazilian corporation distributing interest on net worth is
obligated to distribute to shareholders an amount sufficient to ensure that
the net amount received (after payment of withholding taxes) is at least equal
to the Mandatory Dividend.
Distributions of interest on net worth in respect of the Preferred Shares,
including to holders of ADSs, may be converted into U.S. dollars and remitted
outside of Brazil to U.S. holders, subject to relevant exchange restrictions.
See "Description of Securities to be Registered--Capital Stock--Payment of
Dividends" and "--Description of American Depositary Receipts in respect of
Preferred Shares--Dividends, Other Distributions and Rights."
OTHER BRAZILIAN TAXES
There are no Brazilian inheritance, gift or succession taxes applicable to
the ownership, transfer or disposition of Preferred Shares or ADSs by a non-
Brazilian holder except for gift and inheritance taxes which are levied by
some States in Brazil on gifts made or inheritances bestowed by individuals or
entities not resident or domiciled in Brazil or in the relevant State to
individuals or entities that are resident or domiciled within such State in
Brazil. There are no Brazilian stamp, issue, registration, or similar taxes or
duties payable by holders of Preferred Shares or ADSs.
Pursuant to Decree 2,219, dated May 2, 1997, a financial transaction tax
(the "IOF") may be imposed on the conversion into Brazilian currency of the
proceeds of a foreign investment in Brazil (including investments
31
<PAGE>
in Preferred Shares and ADSs and investments made under the Annex IV
Regulations) and may also be imposed upon the conversion of Brazilian currency
into foreign currency (e.g., for purposes of paying dividends and interest).
The IOF tax rate is currently 0%. Although the Minister of Finance has the
legal power to increase the rate to a maximum of 25%, any such increase will
be applicable only to transactions occurring after such increase becomes
effective.
On January 24, 1997, a temporary tax was enacted. The Contribuicao
Provisoria sobre Movimentacao Financeira ("CPMF Tax"), which was created by
Constitutional Amendment No. 12 of August 16, 1996 and regulated by Law No.
9,311 of October 24, 1996, is levied on debits on bank accounts and certain
other payments made by a bank, at a rate of 0.2%, which may be raised at any
time to 0.25%. The CPMF Tax was initially scheduled to be collected until
February 22, 1998; the CPMF Tax was subsequently extended until January 27,
1999 by Law No. 9,539 of December 12, 1997.
REGISTERED CAPITAL
The amount of an investment in Preferred Shares held by a non-Brazilian
holder who qualifies under the Annex IV Regulations and obtains registration
with the CVM, or by the Depositary representing such holder, is eligible for
registration with the Central Bank of Brazil; such registration (the amount so
registered is referred to as "Registered Capital") allows the remittance
outside Brazil of foreign currency, converted at the Commercial Market Rate,
acquired with the proceeds of distributions on, and amounts realized with
respect to disposition of, Preferred Shares. The Registered Capital for each
Preferred Share purchased in the form of an ADS, or purchased in Brazil, and
deposited with the Depositary in exchange for an ADS, will be equal to its
purchase price (in U.S. dollars). The Registered Capital for a Preferred Share
that is withdrawn upon surrender of an ADS will be the U.S. dollar equivalent
of (i) the average price of the Preferred Share on the Brazilian stock
exchange on which the greatest number of Preferred Shares was sold on the day
of withdrawal, or (ii) if no Preferred Shares were sold on that day, the
average price on the Brazilian stock exchange on which the greatest number of
Preferred Shares were sold in the fifteen trading sessions immediately
preceding such withdrawal. The U.S. dollar value of the Preferred Shares is
determined on the basis of the average Commercial Market Rates quoted by the
Central Bank of Brazil on such date (or, if the average price of Preferred
Shares is determined under clause (ii) of the preceding sentence, the average
of such average quoted rates on the same fifteen dates used to determine the
average price of the Preferred Shares).
A non-Brazilian holder of Preferred Shares may experience delays in
effecting such registration, which may delay remittances abroad. Such a delay
may adversely affect the amount, in U.S. dollars, received by the non-
Brazilian holder.
U.S. FEDERAL INCOME TAX CONSIDERATIONS
The statements regarding U.S. tax law set forth below are based on U.S. law
as in force on the date of this Registration Statement, and changes to such
law subsequent to the date of this Registration Statement may affect the tax
consequences described herein. This summary describes the principal tax
consequences of the ownership and disposition of Preferred Shares or ADSs, but
it does not purport to be a comprehensive description of all of the tax
consequences that may be relevant to a decision to hold or dispose of
Preferred Shares or ADSs. This summary applies only to purchasers of Preferred
Shares or ADSs who will hold the Preferred Shares or ADSs as capital assets
and does not apply to special classes of holders such as dealers in securities
or currencies, holders whose functional currency is not the U.S. dollar,
holders of 10% or more of the shares of the Registrant, tax-exempt
organizations, financial institutions, holders liable for the alternative
minimum tax, securities traders who elect to account for their investment in
Preferred Shares or ADSs on a mark-to-market basis, and persons holding
Preferred Shares or ADSs in a hedging transaction or as part of a straddle or
conversion transaction.
Each holder should consult such holder's own tax advisor concerning the
overall tax consequences to it, including the consequences under foreign,
state and local laws, of an investment in Preferred Shares or ADSs.
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In this discussion, references to "ADSs" also refer to Preferred Shares,
references to a "U.S. holder" are to a holder of an ADS (i) that is a citizen
or resident of the United States of America, (ii) that is a corporation
organized under the laws of the United States of America or any state thereof,
or (iii) that is otherwise subject to U.S. federal income taxation on a net
basis with respect to the ADS.
For purposes of the U.S. Internal Revenue Code of 1986, as amended (the
"Code"), holders of ADRs will be treated as owners of the ADSs represented by
such ADRs.
TAXATION OF DIVIDENDS
A U.S. holder will recognize ordinary dividend income for U.S. federal
income tax purposes in an amount equal to the amount of any cash and the value
of any property distributed by the Registrant as a dividend to the extent that
such distribution is paid out of the Registrant's current or accumulated
earnings and profits ("e&p"), as determined for U.S. federal income tax
purposes, when such distribution is received by the Custodian or by the U.S.
holder, in the case of a holder of Preferred Shares. To the extent that such a
distribution exceeds the Registrant's e&p, it will be treated as a non-taxable
return of capital, to the extent of the U.S. holder's tax basis in the ADS (or
Preferred Shares, as the case may be), and thereafter as capital gain. The
amount of any distribution will include the amount of Brazilian tax withheld
on the amount distributed and the amount of a distribution paid in reais will
be measured by reference to the exchange rate for converting reais into U.S.
dollars in effect on the date the distribution is received by the Custodian,
or by a U.S. holder, in the case of a holder of Preferred Shares. If the
Custodian (or U.S. holder, in the case of a holder of Preferred Shares), does
not convert such reais into U.S. dollars on the date it receives them, it is
possible that the U.S. holder will recognize foreign currency loss or gain,
which would be ordinary loss or gain, when the reais are converted into U.S.
dollars. Dividends paid by the Registrant will not be eligible for the
dividends received deduction allowed to corporations under the Code.
Distributions out of e&p with respect to the ADSs generally will be treated
as dividend income from sources outside of the United States and generally
will be treated separately along with other items of "passive" (or, in the
case of certain U.S. holders, "financial services") income for purposes of
determining the credit for foreign income taxes allowed under the Code.
Subject to certain limitations, the Brazilian withholding tax paid in
connection with any distribution with respect to the ADSs may be claimed as a
credit against the U.S. federal income tax liability of a U.S. holder if such
U.S. holder elects for that year to credit all foreign income taxes, or such
Brazilian withholding tax may be taken as a deduction. Under new rules enacted
by Congress in 1997 and other guidance recently released by the U.S. Treasury,
foreign tax credits will not be allowed for withholding taxes imposed in
respect of certain short-term or hedged positions in securities or in respect
of arrangements in which a U.S. holder's expected economic profit, after non-
U.S. taxes, is insubstantial. U.S. holders should consult their own tax
advisors concerning the implications of these rules in light of their
particular circumstances.
Distributions of additional shares to holders with respect to their ADSs
that are made as part of a pro rata distribution to all shareholders of the
Registrant generally will not be subject to U.S. federal income tax.
A holder of an ADS that is a foreign corporation or non-resident alien
individual (a "non-U.S. holder") generally will not be subject to U.S. federal
income tax or withholding tax on distributions with respect to ADSs that are
treated as dividend income for U.S. federal income tax purposes, and generally
will not be subject to U.S. federal income tax or withholding tax on
distributions with respect to ADSs that are treated as capital gain for U.S.
federal income tax purposes unless such holder would be subject to U.S.
federal income tax on gain realized on the sale or other disposition of ADSs,
as discussed below.
TAXATION OF CAPITAL GAINS
Upon the sale or other disposition of an ADS, a U.S. holder will recognize
gain or loss for U.S. federal income tax purposes in an amount equal to the
difference between the amount realized in consideration for the disposition of
the ADS (excluding the amount of any distribution paid to the Custodian but
not distributed by the Custodian prior to the disposition) and the U.S.
holder's tax basis in the ADS. Such gain or loss generally
33
<PAGE>
will be subject to U.S. federal income tax and will be treated as capital gain
or loss. Under recently enacted legislation, long-term capital gains
recognized by an individual holder generally are subject to a maximum rate of
20 percent in respect of property held for more than one year, effective for
amounts properly taken into account on or after January 1, 1998. The
deductibility of capital losses is subject to certain limitations. Gain
realized by a U.S. holder on a sale or disposition of ADSs generally will be
treated as U.S. source income. Consequently, in the case of a disposition of
Preferred Shares in Brazil (which, unlike a disposition of ADSs, would be
taxable in Brazil), the U.S. holder might not be able to use the foreign tax
credit for Brazilian tax imposed on gain.
A non-U.S. holder will not be subject to U.S. federal income tax or
withholding tax on gain realized on the sale or other disposition of an ADS
unless (i) such gain is effectively connected with the conduct by the holder
of a trade or business in the United States, or (ii) such holder is an
individual who is present in the United States of America for 183 days or more
in the taxable year of the sale and certain other conditions are met.
U.S. BACKUP WITHHOLDING AND INFORMATION REPORTING
The information reporting requirements of the Code generally will apply to
distributions to a U.S. holder. Distributions to non-U.S. holders generally
will be exempt from information reporting and backup withholding under current
law but a non-U.S. holder may be required to establish its non-U.S. status in
order to claim such exemption.
ITEM 8: SELECTED FINANCIAL DATA
GENERAL
The table set forth below presents selected financial information for the
Company at and for the periods indicated. The information as of December 31,
1996 and 1997 and for the three year period ended December 31, 1997 is derived
from and should be read in conjunction with, and is qualified in its entirety
by reference to, the Consolidated Financial Statements and the notes thereto
included elsewhere in this Registration Statement. The Consolidated Financial
Statements have been audited by KPMG Peat Marwick, independent auditors, and
their report on such Consolidated Financial Statements appears elsewhere in
this Registration Statement. The Consolidated Financial Statements are
prepared in accordance with Brazilian GAAP, which differ in certain material
respects from generally accepted accounting principles in the United States
("U.S. GAAP"). See Note 29 to the Consolidated Financial Statements for a
summary of the differences between Brazilian GAAP and U.S. GAAP and a
reconciliation to U.S. GAAP of the Company's shareholders' equity at December
31, 1996 and 1997 and net income from continuing operations for the years
ended December 31, 1996 and 1997. In addition, under U.S. GAAP, Embratel is
considered to be the continuing entity of the Telebras System for financial
reporting purposes. As a result, all operations of Telebras and its
subsidiaries, except for Embratel, are considered to be discontinued
operations. See Note 29 to the Consolidated Financial Statements, which also
includes condensed financial statement schedules of the Company prepared in
accordance with Brazilian GAAP, in a U.S. GAAP reporting format, reflecting
discontinued operations. All other selected financial information has been
derived from the Company's accounting records.
The Consolidated Financial Statements included herein reflect the accounts
of the Registrant and its subsidiary, Embratel. The portion of equity and
income attributable to shareholders other than Telebras at December 31, 1997
is reflected as "minority interests" in the Consolidated Financial Statements.
At December 31, 1997, such minority shareholders owned 1.7% of the share
capital of Embratel.
The formation of the Registrant through the spin-off from Telebras has been
accounted for as a reorganization of entities under common control in a manner
similar to a pooling of interests. The assets and liabilities of Telebras that
were spun-off from Telebras were transferred at their indexed historical cost.
See Notes 2 and 28 to the Consolidated Financial Statements.
Certain of the constant real-denominated information herein has been
translated into U.S. dollars using the December 31, 1997 Commercial Market
Rate published by the Central Bank of Brazil of R$1.1164 to US$1.00.
34
<PAGE>
These translations are presented solely for the convenience of the reader and
should not be construed as implying that local currency amounts represent, or
could have been, or could be, converted into U.S. dollars at such rates or any
rate.
The Consolidated Financial Statements and, unless otherwise specified, all
financial information included in this Registration Statement, have been
restated to recognize certain effects of inflation and expressed in constant
reais of December 31, 1997 purchasing power. Such restatement has been
effected in accordance with Brazilian GAAP using the integral restatement
method (correcao integral) required by the CVM to be used for financial
statements of public corporations through December 31, 1995. Inflationary
gains or losses on monetary assets and liabilities have been allocated to
their corresponding income or expense caption in the income statement.
Inflationary gains or losses without a corresponding income or expense caption
have been allocated to other net operating income (expense). See Note 2a to
the Consolidated Financial Statements.
Until December 31, 1995, the relevant inflation index selected by the CVM
and the one used for the constant currency method under Brazilian GAAP was the
UFIR. Since January 1, 1996, the CVM has no longer required that the constant
currency method of accounting be used in preparation of the financial
statements of publicly traded Brazilian companies. Restatement in constant
currency is now optional and any general price index may be used. The
Brazilian Institute of Accountants has recommended that the IGP-M be used for
this purpose. The Company's management believes that the IGP-M is the most
appropriate measure of inflation in Brazil and has elected to use the IGP-M
for purposes of preparing its Consolidated Financial Statements in accordance
with the constant currency method as of January 1, 1996.
In July 1997, the three-year cumulative inflation rate for Brazil fell below
100%; however, for accounting purposes, the constant currency method has
continued to be applied. The Brazilian Institute of Accountants has not yet
published definitive rules regarding when the constant currency method of
accounting may no longer be used to prepare financial statements. If the
Brazilian Institute of Accountants determines that the constant currency
method may no longer be used to prepare financial statements beginning January
1, 1998, the restated balances of nonmonetary assets and liabilities of the
Company as of December 31, 1997 will become the new basis for accounting, and
income statement items will no longer be restated for inflation.
35
<PAGE>
SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1997
----------- ----------- ----------- ----------- ------------ ----------------
INCOME STATEMENT DATA (IN THOUSANDS
(CONTINUING OPERATIONS, OF U.S. DOLLARS,
UNLESS OTHERWISE (IN THOUSANDS OF CONSTANT REAIS OF DECEMBER 31, 1997, EXCEPT PER
STATED): EXCEPT PER SHARE DATA) SHARE DATA)(1)
<S> <C> <C> <C> <C> <C> <C>
Brazilian GAAP
Net operating revenue
from telecommunications
services:.............. R$1,858,720 R$1,831,940 R$1,721,196 R$2,087,630 R$ 2,212,956 US$1,982,225
Cost of services........ (975,452) (1,134,074) (1,142,720) (1,145,613) (1,097,563) (983,127)
----------- ----------- ----------- ----------- ------------ ------------
Gross profit............ 883,268 697,866 578,476 942,017 1,115,393 999,098
Operating expenses:
Selling expense........ (160,151) (159,791) (147,556) (160,243) (219,308) (196,442)
General and
administrative
expense............... (243,711) (297,109) (245,372) (237,216) (213,617) (191,345)
Other net operating
income (expense)...... (148,482) (66,113) 36,400 (47,812) (84,621) (75,798)
----------- ----------- ----------- ----------- ------------ ------------
Operating income before
interest............... 330,924 174,853 221,948 496,746 597,847 535,513
Interest income........ 132,456 70,037 54,992 86,622 97,809 87,611
Interest expense....... (30,014) 131,162 -- (30,723) (40,110) (35,928)
----------- ----------- ----------- ----------- ------------ ------------
Operating income........ 433,366 376,052 276,940 552,645 655,546 587,196
Write off of property
and equipment from
physical inventory(2).. -- -- (94,298) (13,386) (17,246) (15,448)
Net other nonoperating
income (expense)....... (57,790) 76,709 (53,221) (82,576) (123,878) (110,962)
----------- ----------- ----------- ----------- ------------ ------------
Income before taxes and
other charges.......... 375,576 452,761 129,421 456,683 514,422 460,786
Income and social
contribution taxes..... 290,774 27,242 54,661 (13,861) 1,016 910
----------- ----------- ----------- ----------- ------------ ------------
Income before employees'
profit share and
minority interests..... 666,350 480,003 184,082 442,822 515,438 461,696
Employees' profit
share.................. -- -- (21,766) (22,642) (30,622) (27,430)
----------- ----------- ----------- ----------- ------------ ------------
Income before minority
interests.............. 666,350 480,003 162,316 420,180 484,816 434,266
Minority interests(3)... (8,379) (6,036) (2,041) (5,253) (6,061) (5,429)
----------- ----------- ----------- ----------- ------------ ------------
Net income.............. R$ 657,971 R$ 473,967 R$ 160,275 R$ 414,927 R$ 478,755 US$ 428,837
=========== =========== =========== =========== ============ ============
U.S. GAAP:(4)
Operating income from continuing operations.................. R$180,704 R$515,237 US$461,517
=========== ============ ============
Income from continuing operations............................ 350,939 564,559 505,696
Income from discontinued operations(5)....................... 1,976,441 3,127,941 2,801,810
----------- ------------ ------------
Net income................................................... 2,327,380 3,692,500 3,307,506
=========== ============ ============
Net income per thousand shares--basic(6)
Common shares:
Continuing operations..................................... 1.09 1.76 1.58
Discontinued operations................................... 6.17 9.75 8.73
----------- ------------ ------------
Total.................................................. 7.26 11.51 10.31
=========== ============ ============
Preferred shares:
Continuing operations..................................... 1.09 1.76 1.58
Discontinued operations................................... 6.17 9.75 8.73
----------- ------------ ------------
Total.................................................. 7.26 11.51 10.31
=========== ============ ============
BALANCE SHEET DATA
(CONTINUING
OPERATIONS):
Brazilian GAAP
Property, plant and
equipment, net......... R$5,941,515 R$6,205,214 R$6,246,882 R$6,319,963 R$ 6,469,263 US$5,794,754
Total assets............ 7,133,636 7,195,043 7,407,176 7,809,883 8,102,487 7,257,692
Loans and financing--
current portion........ 80,530 87,798 135,122 150,692 108,406 97,103
Loans and financing--
noncurrent portion..... 534,939 440,418 402,311 448,578 471,468 422,311
Shareholders' equity ... 5,139,708 5,564,947 5,936,299 5,879,183 6,010,302 5,383,646
U.S. GAAP
Property, plant and equipment, net........................... 5,649,204 5,976,570 5,353,431
Total assets................................................. 7,570,111 7,994,787 7,161,221
Loans and financing--current portion......................... 137,109 487,190 436,394
Loans and financing--noncurrent portion...................... 448,578 79,825 71,502
Shareholders' equity......................................... 5,260,031 5,593,285 5,010,108
</TABLE>
<TABLE>
<CAPTION>
MAY 22, 1998
----------------
<S> <C>
NEW HOLDING COMPANY--BRAZILIAN GAAP SHAREHOLDERS' EQUITY(7)
<CAPTION>
(IN THOUSANDS OF
CONSTANT REAIS)
<S> <C>
Share capital................................................. 2,134,427
Income reserves............................................... 2,336,988
Retained earnings............................................. 1,570,235
-----------
Total Shareholders' equity................................. R$6,041,650
===========
</TABLE>
36
<PAGE>
- --------
(1) The translation of Brazilian real amounts into U.S. dollar amounts is
unaudited and included solely for the convenience of the reader. Such U.S.
dollar amounts have been translated from reais at the Commercial Market
Rate published by the Central Bank of Brazil for December 31, 1997 which
was R$1.1164 to US$1.00. This translation should not be construed as a
representation that the real amounts actually represent such U.S. dollar
amounts or could be converted into U.S. dollars at the rate indicated.
(2) Physical inventories of property and equipment performed in 1995, 1996 and
1997 resulted in write-offs of R$94,298 thousand, R$13,386 thousand and
R$17,246 thousand, respectively, in relation to equipment which had been
removed from service before it was fully depreciated. The inventory counts
disclosed the need for the write-offs by identifying differences between
equipment in service as physically identified and that which was recorded
in the accounting records.
The physical inventory in 1995 resulted in an adjustment which was unusually
large as this was the first such inventory to have been performed in a
number of years. As management was unable to determine how much of the
adjustment related to previous years, the entire adjustment was recorded as
a charge against 1995 earnings. See Note 15(e) to the Consolidated Financial
Statements.
(3) Minority interests represent the portion of net income attributable to
shareholders other than Telebras.
(4) Under US GAAP, Embratel is considered to be the continuing entity of the
Telebras System for financial reporting purposes. As a result, all
operations of Telebras and its subsidiaries, except for Embratel, are
considered to be discontinued operations.
(5) The discontinued operations pertain to the operations of Telebras (other
than Embratel) in connection with the restructuring of the Telebras
System. See Notes 28 and 29 to the Consolidated Financial Statements for
additional discussion, including Condensed Financial Statement schedules
prepared in accordance with Brazilian GAAP, in a US GAAP reporting format,
reflecting discontinued operations.
(6) Reflects net income per thousand shares of the Registrant. The Registrant
was not formed until subsequent to December 31, 1997. Accordingly, the
equity structure utilized for the earnings per share computations is that
of the Registrant as of May 22, 1998 (the date of its formation). At the
date of formation, the Registrant had 124,351,903 thousand Common Shares
(net of 17,128 thousand common shares in treasury) and 196,311,647
thousand Preferred Shares outstanding (exclusive of 13,718,350 thousand
Preferred Shares resulting from the settlement in April 1998 with
Telebras). See Note 28(a) to the Consolidated Financial Statements.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128 "Earnings per Share." This new statement became effective for
consolidated financial statements for periods ending after December 15,
1997, and provides computation, presentation and disclosure requirements for
earnings per share.
Since the preferred and common stockholders have different dividend, voting
and liquidation rights, Basic and Diluted earnings per share have been
calculated using the "two-class" method. The "two-class" method is an
earnings allocation formula that determines earnings per share for preferred
and common stock according to the dividends to be paid as required by the
Company's by-laws and participation rights in undistributed earnings. Basic
earnings per share is computed by dividing income available to common and
preferred shareholders by the weighted-average number of common and
preferred shares outstanding, respectively, during the period. The weighted-
average number of Common and Preferred Shares used in computing basic
earnings per share for 1997 was 124,351,903 thousand and 196,311,647
thousand, respectively. There were no common stock equivalents outstanding
during the year ended December 31, 1997.
(7) On May 22, 1998 the shareholders of Telebras approved Telebras' division
into the New Holding Companies, whereby existing shareholders received
shares in the New Holding Companies in proportion to their holdings in
Telebras. In addition to approving the allocation of assets and
liabilities to the New Holding Companies at the May 22, 1998 meeting, the
shareholders also approved a specific structure for the shareholders'
equity of each New Holding Company which included an allocation of a
portion of the retained earnings of Telebras. Consequently, the amounts of
the balances of capital, reserves and retained earnings were established.
For US GAAP purposes, the "retained earnings" allocated from Telebras would
be referred to as Distributable Capital as this amount represents capital
allocated from Telebras. See Note 28 to the Consolidated Financial
Statements.
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the consolidated financial condition and results
of operations of the Company for the years ended December 31, 1995, 1996 and
1997 should be read in conjunction with the Consolidated Financial Statements
of the Company and the Notes thereto included elsewhere in this Registration
Statement. The Consolidated Financial Statements have been prepared in
accordance with Brazilian GAAP, which differs in certain significant respects
from U.S. GAAP. Note 29 to the Consolidated Financial Statements provides a
description of the principal differences between U.S. GAAP and Brazilian GAAP
as they relate to the Company, and a reconciliation to U.S. GAAP of net income
for the years ended December 31, 1995, 1996 and 1997 and total shareholders'
equity at December 31, 1996 and 1997.
FORMATION OF THE REGISTRANT AND PRESENTATION OF FINANCIAL INFORMATION
On May 22, 1998, in preparation for the privatization of the Telebras
System, the Telebras System was restructured to form, in addition to Telebras,
the twelve New Holding Companies. The restructuring of the Telebras System was
accomplished by means of a procedure under Brazilian law called cisao or
"split-up". Virtually all the assets and liabilities of Telebras were
allocated to the New Holding Companies which, together with their respective
subsidiaries, comprise (a) three regional fixed-line operators, (b) eight
regional cellular operators and (c) one domestic and international long-
distance operator. The Registrant is one of the New Holding Companies that was
formed on May 22, 1998 as part of the Breakup of Telebras. In the Breakup,
certain assets and liabilities of Telebras, including 98.7% of the total share
capital of Embratel, were transferred to the Registrant.
37
<PAGE>
The Consolidated Financial Statements included herein reflect the accounts
of the Registrant and its subsidiary, Embratel. The portion of equity and
income attributable to the shareholders other than Telebras at December 31,
1997 is reflected as "minority interests" in the Consolidated Financial
Statements. At December 31, 1997, such minority shareholders owned 1.7% of the
share capital of Embratel.
The formation of the Registrant through the spin-off from Telebras has been
accounted for as a reorganization of entities under common control in a manner
similar to a pooling of interests. The assets and liabilities of Telebras that
were spun-off from Telebras were transferred at their indexed historical cost.
See Notes 2 and 28 to the Consolidated Financial Statements.
At the May 22, 1998 Telebras shareholders' meeting, the shareholders
approved a specific structure for the shareholders' equity of each New Holding
Company, which included an allocation of a portion of the retained earnings of
Telebras. In this manner, the balances of capital, reserves and retained
earnings, together with the corresponding assets and liabilities, for the
formation of the Registrant were established. Telebras retained within its own
shareholders' equity sufficient retained earnings from which to pay certain
dividends and other amounts. Telebras allocated to each New Holding Company
the balance of its retained earnings in proportion to the total net assets
allocated to each such Company. This value of allocated retained earnings does
not represent the historical retained earnings of the New Holding Companies
and resulted in a decrease of R$210,432,000 in relation to the Company's
historical retained earnings. See Note 28 to the Consolidated Financial
Statements. Allocated retained earnings and future retained earnings will be
the basis from which future dividends will be payable.
EFFECTS OF INFLATION, DEVALUATION AND INTEREST RATES
In accordance with Brazilian GAAP, the Consolidated Financial Statements
recognize certain effects of inflation and restate data from prior periods in
constant reais of December 31, 1997 purchasing power. Such restatement has
been effected using the integral restatement method (correcao integral), which
was required by the CVM to be used for financial statements of public
corporations through December 31, 1995. See "Selected Financial Data." In
periods of inflation, monetary assets generate inflationary loss and monetary
liabilities generate inflationary gain, due to the decline in purchasing power
of the currency. In the Consolidated Financial Statements, inflationary gains
or losses on monetary assets and liabilities have been allocated to their
corresponding income or expense captions in the income statement. Inflationary
gains or losses without a corresponding income or expense caption have been
allocated to other net operating income (expense). See Note 2a to the
Consolidated Financial Statements.
Until December 31, 1995, the relevant inflation index selected by the CVM
and the one used for the constant currency method under Brazilian GAAP was the
UFIR. Since January 1, 1996, the CVM has no longer required that the constant
currency method of accounting be used in preparation of the financial
statements of publicly traded Brazilian companies. Restatement in constant
currency is now optional and any general price index may be used. The
Brazilian Institute of Accountants has recommended that the IGP-M be used for
this purpose. The Company's management believes that the IGP-M is the most
appropriate measure of inflation in Brazil and has elected to use the IGP-M
for purposes of preparing its Consolidated Financial Statements in accordance
with the constant currency method as of January 1, 1996.
In July 1997, the three-year cumulative inflation rate for Brazil fell below
100%; however, for accounting purposes, the constant currency method has
continued to be applied. The Brazilian Institute of Accountants has not yet
published definitive rules regarding when the constant currency method of
accounting may no longer be used to prepare financial statements. If the
Brazilian Institute of Accountants determines that the constant currency
method may no longer be used to prepare financial statements beginning January
1, 1998, the restated balances of nonmonetary assets and liabilities of the
Company as of December 31, 1997 will become the new basis for accounting, and
income statement items will no longer be restated for inflation.
Substantially all of the Company's revenues from international operations
are denominated in U.S. dollars or other foreign currencies or equivalents,
while the majority of its costs, other than payments to other
38
<PAGE>
international operators and interest paid on foreign denominated debt, are
denominated in reais. The Company's results of operations are therefore
affected by the relative movements of real inflation and exchange rates.
Period to period comparisons of the Company's international incoming traffic
revenues, as restated in constant reais, have been significantly affected by
the real appreciation of the real against the U.S. dollar. If foreign currency
international incoming traffic revenues for any periods being compared are the
same, but between the periods the rate of devaluation of the reais has been
slower than the rate of Brazilian inflation (i.e., the real has appreciated in
real terms), the related revenues expressed in constant reais will decline
from one period to the next. Conversely, if the rate of devaluation has
exceeded the rate of inflation, such revenue expressed in constant reais will
increase from one period to the next. The Company does not currently hedge
against such foreign currency fluctuations.
The Company's financial condition and results of operations may be affected
by changes in market rates of interest (primarily the London Interbank Offered
Rate (LIBOR) and medium- and long-term U.S. interest rates). The Company is
exposed to interest rate risk as a consequence of its floating rate debt and
limited floating rate interest earning assets. At December 31, 1997,
approximately 40.9% of the Company's interest bearing liabilities bore
interest at floating rates. The Company has not entered into derivative
contracts or made other arrangements to hedge against this risk. Accordingly,
should market interest rates rise (principally LIBOR and U.S. medium- and
long-term interest rates), the Company's financing expenses will increase.
CERTAIN TAXES
Revenues from telephone services are subject to taxes that are deducted in
arriving at net operating revenues. The principal such tax is a value-added
tax, the Imposto Sobre Circulacao de Mercadorias e Servicos ("ICMS"), on gross
operating revenues from the provision of telecommunications services. This
value-added tax is imposed at varying rates by each Brazilian state. The ICMS
rate for telephone services (expressed as a percentage of gross operating
revenues) in most states is 25.0%, except that for international long-distance
services the maximum rate was reduced to 13.0% in most states in April 1994
and then to zero in September 1996. Federal social contribution taxes,
including the Programa de Assistencia aos Servidores de Empresas Publicas
("PASEP") and Contribucao para Financiamento da Seguridade Social ("COFINS"),
are imposed at a combined rate of 2.65% on gross operating revenues. The
average rate of all such taxes, as a percentage of gross operating revenues,
was 22.1% 20.6% and 19.2% in 1995, 1996 and 1997, respectively. See
"Description of Business--Services--Taxes on Telecommunications Services."
Generally, a reduction in the tax rate results in an increase in traffic
volume, and conversely, an increase in the tax rate results in a decrease in
traffic volume. The Company's results of operations are therefore affected by
movements in the rate of taxes imposed on its gross operating revenues. The
composition of operating revenues by category of service for the three-year
period ended December 31, 1997 is presented in the Consolidated Financial
Statements and in the discussion below before deduction of taxes.
The Company does not withhold for Brazilian income tax from amounts paid to
foreign communications companies. In addition, the Company does not pay income
tax with respect to its foreign source operating income. The Company believes
that both these practices are in accordance with Brazilian law and regulation
and these practices have never been challenged by the Brazilian tax
authorities. If the Brazilian tax authorities were successfully to challenge
these practices, the Company's total liability would be approximately R$830
million. Management continually monitors and is evaluating its position with
respect to these tax contingencies to determine if there have been changes,
which could result in an unfavorable outcome to the Company. See Note 20 to
the Consolidated Financial Statements.
POLITICAL, ECONOMIC, REGULATORY AND COMPETITIVE FACTORS
The following discussion should be read in conjunction with the "Description
of Business" section included elsewhere in this Registration Statement. As set
forth in greater detail below, the Company's financial condition and results
of operations are significantly affected by Brazilian telecommunications
regulation,
39
<PAGE>
including regulation of tariffs. See "Description of Business--Regulation."
The Company's financial condition and results of operations also have been,
and are expected to continue to be, affected by the political and economic
environment in Brazil. See "Description of Business--Brazilian Political
Environment" and "--Brazilian Economic Environment." In particular, the
Company's financial performance will be affected by (i) national economic
growth and its impact on demand for telecommunications services, (ii) the cost
and availability of financing and (iii) the exchange rates between Brazilian
and foreign currencies. In addition, the Presidential and Congressional
elections to be held in October 1998 could have a significant impact on
whether the economic stabilization and liberalization policies of the current
administration can or will be sustained following the elections.
The Company's results of operations have been, and will continue to be,
affected in large part by the regulatory framework of the Brazilian
telecommunications sector. See "Description of Business--Rates" and "--
Regulation--Rate Regulation." Rates for domestic and international long-
distance service will be set annually by Anatel based on a formula contained
in the Company's Concession. This formula currently provides that domestic
long-distance rates will be reduced by 2% for each of the years 1998 through
2000 and by a further 4% in each of 2001 and 2002. Similarly, international
long-distance rates are expected to be reduced by 5% in each of the years 1998
through 2002. Such rate reductions will also be subject to upward adjustments
to reflect any increases in inflation. See "Description of Business--
Regulation--Rate Regulation." The Company believes that these rate reductions
will be principally offset by increases in long-distance telephone traffic,
cost-cutting measures and latent demand for telephone services in Brazil.
In April and May 1997, a tariff rebalancing was implemented pursuant to
which certain rates were adjusted and the percentage of revenues retained by
the fixed-line companies for domestic and international long-distance calls
pursuant to the division of revenues system in place prior to April 1998 was
lowered. The principal rate increases occurred with respect to monthly
subscription charges and local measured service charges. These increases were
partially offset by a decrease in domestic long-distance and international
long-distance rates. The monthly subscription charge increased from R$3.73 to
R$13.82 and the local measured service charge increased from R$0.05 per pulse
to R$0.08 per pulse. Average domestic long-distance and international long-
distance rates were reduced by approximately 16.7% and 17%, respectively. If
the tariff rebalancing had been effective as of January 1, 1997, the
composition of the Company's net operating revenues would have been
significantly affected and its total net operating revenues would have been
higher. Pro forma information reflecting the April and May 1997 rate changes
as if they had been in effect from January 1, 1997 has not been presented
because management believes that it is not possible to quantify with any
reasonable degree of certainty the influence on volume of telephone use that
would have been caused by such changes in the first quarter of 1997.
Until April 1, 1998, revenues for fixed-line domestic and international
long-distance calls were divided between the Company and the regional fixed-
line companies. Under this system, each fixed-line company billed its
customers for all domestic and international long-distance telephone calls and
retained a percentage of the revenues (such percentage was set by the Ministry
of Communications) from all such calls, transferring the remainder of the
revenue to the Company. This percentage varied by regional fixed-line company.
As of March 31, 1998, the regional fixed-line companies transferred an average
of 33% of the total revenue from such calls to Embratel.
As part of the liberalization of the Brazilian telecommunications sector,
this revenue-sharing system was eliminated as of April 1, 1998 and replaced by
a new system which has historically applied to the cellular companies and
Embratel. Under the new system, the Company receives 100% of the revenues from
fixed-line (i) interregional long-distance calls, (ii) certain intra-regional
long-distance calls and (iii) international long-distance calls that it
carries, but must pay certain per-minute interconnection charges to the
regional fixed-line companies for connection to and use of their networks in
originating and/or completing such calls. In addition, until June 30, 2001,
the Company must pay a supplemental per-minute charge for such
interconnection, the Parcela Adicional Temporaria (the "PAT"). Furthermore,
until the fixed-line companies complete their intra-regional long-distance
network, such companies may lease transmission facilities from Embratel to
carry some interstate
40
<PAGE>
calls within their respective regions. The Company does not expect that
implementation of this new system will have a material impact on its net
income. However, it is expected that the allocation to the Company of 100% of
the revenues generated by fixed-line (i) interregional long-distance calls,
(ii) certain intra-regional long-distance calls and (iii) international long-
distance calls that it carries will cause operating revenues to increase
substantially. This increase is expected to be offset by increased cost of
services expenses resulting from the network usage charges and PAT paid to the
fixed-line companies.
Following the privatization of the telecommunications sector, the Company,
currently the exclusive provider of domestic and international long-distance
services in Brazil, will face increased competition from new entrants.
However, the Company will be authorized to provide full intra-regional long-
distance service as a competitor of the regional fixed-line companies. The
Company anticipates that, as a consequence of the competition, prices for
long-distance service will decline and its operating margins may diminish. The
exact identity of new entrants, the scope of increased competition and any
adverse effects on the Company's results and market share will depend on a
variety of factors that cannot now be assessed with precision and that are
beyond the Company's control. See Note 28b to the Consolidated Financial
Statements.
YEAR 2000 COMPLIANCE
Year 2000 compliance is the ability of computer hardware and software to
respond to the problems posed by the fact that computer programs traditionally
have used two digits rather than four to define the applicable year. As a
consequence, any of the Company's computer programs that has date-sensitive
software may recognize a date using "00" as the year 1900 rather than 2000.
This could result in a system failure or miscalculations causing disruption of
operations, including temporary inability to process transactions, send
invoices or engage in normal business activities.
Since 1997, the Company has been implementing a year 2000 program intended
to ensure that its systems, infrastructure, networks and applications are year
2000 compliant. This program includes creating an inventory of the Company's
hardware, software and equipment, assessing the impact of the year 2000
problem on such hardware, software and equipment, implementing any necessary
remedial changes, testing those changes and formulating contingency plans. The
Company's main corporate applications are currently in the remediation phase
and approximately 50% of application code has been made year 2000 compliant.
The Company expects the remaining code to be year 2000 compliant by December
1998. The operating system utilized by the Company's central computer system
was recently upgraded to OS/390, which is year 2000 compliant.
The Company's year 2000 program also covers its telecommunications systems
and infrastructure. In this regard, the Company has been in contact with each
of its telecommunications equipment suppliers regarding the implementation of
year 2000 solutions. The Company is scheduled to commence testing of all of
its telecommunications systems in December 1998, although some of the
Company's suppliers have requested that it postpone testing until 1999. The
Company believes that most of its network infrastructure is already year 2000
compliant and that the remainder of its network infrastructure will be made
year 2000 compliant by means of software and firmware upgrades prior to
December 30, 1998. Although the Company expects to incur costs associated with
addressing problems arising from the year 2000 issue, management believes the
cost of evaluating and addressing the year 2000 issue will not be material.
The Company may, however, be affected by year 2000 problems to the extent that
other entities not affiliated with the Company, including the other New
Holding Companies, international carriers and local banks, are unsuccessful in
achieving year 2000 compliance. Despite the preventative measures taken by the
Company, no assurances can be given that the year 2000 issue will not have an
adverse affect on the financial condition and results of operations of the
Company. As of August 30, 1998, the Company had not determined its most
probable worst case scenarios in relation to the year 2000 issue or formulated
contingency plans in respect of such scenarios. However, the Company expects
to formulate and test various contingency plans prior to the year 2000. The
Company expects that the remaining cost of year 2000 compliance will be
approximately R$14 million.
41
<PAGE>
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
The following table sets forth, for each of the periods indicated, selected
components of the Company's results of operations in constant reais of
December 31, 1997 and as a percentage of net operating revenues, as well as
the percentage change of each from the prior year.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERCENTAGE CHANGE
------------------------------------------------------- --------------------------
1995 % 1996 % 1997 % 1995 VS.1996 1996 VS. 1997
------------ --- ------------ --- ------------ --- ------------ -------------
(IN THOUSANDS OF CONSTANT REAIS OF DECEMBER 31, 1997, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net operating revenues.. R$ 1,721,196 100% R$ 2,087,630 100% R$ 2,212,956 100% 21.3% 6.0%
Cost of services........ (1,142,720) (66) (1,145,613) (55) (1,097,563) (50) 0.3 (4.2)
Operating expenses...... (356,528) (21) (445,271) (22) (517,546) (23) 24.8 16.0
------------ --- ------------ --- ------------ --- ------ ------
Operating income before
interest............... 221,948 13 496,746 24 597,847 27 123.8 20.4
Net interest income..... 54,992 3 55,899 3 57,699 3 1.7 3.2
Write off of permanent
assets from physical
inventory.............. (94,298) (5) (13,386) (1) (17,246) (1) (85.8) 28.8
Net other nonoperating
expense................ (53,221) (3) (82,576) (4) (123,878) (6) 55.2 50.1
------------ --- ------------ --- ------------ --- ------ ------
Income before taxes and
other charges.......... 129,421 7 456,683 22 514,422 23 252.9 12.6
Income and social
contribution taxes..... 54,661 3 (13,861) (1) 1,016 -- (125.3) (107.3)
------------ --- ------------ --- ------------ --- ------ ------
Income before employees'
profit share and
minority interests..... 184,082 11 442,822 21 515,438 23 (140.6) 16.4
Employees' profit
share.................. (21,766) (1) (22,642) (1) (30,622) (1) 4.0 35.2
------------ --- ------------ --- ------------ --- ------ ------
Income before minority
interests.............. 162,316 9 420,180 20 484,816 22 158.9 15.4
Minority interests...... (2,041) -- (5,253) -- (6,061) -- 157.3 15.4
------------ --- ------------ --- ------------ --- ------ ------
Net income.............. R$ 160,275 9 R$ 414,927 20 R$ 478,755 22 158.9 15.4
============ === ============ === ============ === ====== ======
</TABLE>
NET OPERATING REVENUES
The Company's net operating revenues consist of gross operating revenues
from domestic and international long-distance telecommunications services,
data communication services and other telecommunications services, net of
sales taxes collected with respect to such services. See "--Certain Taxes."
The Company's net operating revenues increased 6.0% to R$2,213 million in 1997
from R$2,088 million in 1996, which in turn represented an increase of 21.3%
from R$1,721 million in 1995. The increase in net operating revenues in 1997
was attributable primarily to a 11.6% and 22.6% increase in domestic and
international long-distance traffic volume, respectively. The increase in net
operating revenues in 1996 was attributable primarily to a 13.5% and 25.4%
increase in domestic and long-distance traffic volume, respectively, and a
22.2% increase in domestic long- distance rates.
The table below sets forth, for each of the periods indicated, the principal
components of the Company's net operating revenues, in constant reais of
December 31, 1997 and as a percentage of those revenues, and the percentage
change of each from the prior year.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERCENTAGE CHANGE
----------------------------------------------------------------- ----------------------------
1995 1996
1995 % 1996 % 1997 % VS.1996 VS. 1997
------------- ------ ------------- ------ ------------- ------ ------------- --------------
(IN THOUSANDS OF CONSTANT REAIS OF DECEMBER 31, 1997, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Domestic long-distance.. R$1,127,294 65% R$1,239,927 59% R$ 1,366,622 62% 9.9% 10.2%
International long-
distance............... 367,943 21 405,317 19 443,987 20 10.2 9.5
Data communication...... 504,277 29 709,834 34 665,707 30 40.7 (6.2)
Other(1)................ 209,937 12 273,778 13 266,076 12 30.4 (2.9)
------------- ----- ------------- ----- ------------- ----- ---------- ----------
Gross operating
revenues.............. 2,209,451 -- 2,628,856 -- 2,742,392 -- 19.0 4.3
Taxes on operating
revenues............... (488,255) (27) (541,226) (25) (529,436) (24) 10.8 (2.2)
------------- ----- ------------- ----- ------------- ----- ---------- ----------
Total................. R$1,721,196 100% R$2,087,630 100% R$2,212,956 100% 21.3% 6.0%
============= ===== ============= ===== ============= ===== ========== ==========
</TABLE>
- --------
(1) Includes text transmission, sound and image transmission, internet
services, leased analog lines and certain mobile satellite communication
services.
42
<PAGE>
Domestic long-distance telephone service. Revenues from domestic long-
distance telephone service increased 10.2% to R$1,366.6 million in 1997 from
R$1,239.9 million in 1996, which in turn represented a 9.9% increase from
R$1,127.3 million in 1995. In 1997, the increase in revenues was mainly due to
a 11.6% increase in volume and a 25.4% increase in the amount of revenues
received from the fixed-line companies pursuant to the Telebras revenue-
sharing system that was terminated on April 1, 1998. See "Description of
Business--Division of Revenues and Access Fees" and "Regulation--Rate
Regulation." This increase was offset in part by a 18.2% tariff rebalancing
reduction in rates in May 1997 and the implementation of a new billing system
pursuant to which calls are billed in 6-second increments instead of in full
minute increments. The combined effect of these measures resulted in a rate
reduction of approximately 32%. The increase in revenues in 1996 was
principally due to an increase in traffic volume of 13.5% and a rate increase
of approximately 22.2%. See "Description of Business--Rates--Domestic Long-
Distance Rates."
International long-distance telephone service. Revenues from international
long-distance telephone service increased 9.5% to R$444.0 million in 1997 from
R$405.3 million in 1996, which in turn represented an increase of 10.2% from
R$367.9 million in 1995. The increase in revenues in 1997 was attributable to
a 22.6% increase in traffic volume and a 35.5% increase in the amount of
revenues received from the fixed-line companies pursuant to the Telebras
revenue sharing system that was terminated on April 1, 1998, partially offset
by a decrease in average rates used to settle payments among foreign operators
and a 14.5% reduction in the average rate for outgoing international calls.
The increase in revenues from international long-distance telephone service in
1996 was attributable to an increase in traffic volume of 25.4%, offset in
part by a 22% decrease in the average rate for outgoing international calls.
See "Description of Business--Rates--International Rates."
Data communication services. Revenues from data communication services
(approximately 91% and 9% of which are derived from domestic and international
transmission, respectively), decreased 6.2% to R$665.7 million in 1997 from
R$709.8 million in 1996, which in turn represented a 40.7% increase from
R$504.3 million in 1995. The decrease in 1997 was primarily attributable to a
42% decrease in average monthly line rental charges for private leased
circuits, offset in part by a 62.4% increase in traffic volume on the Domestic
Packet-Switched Data Communications Center (RENPAC) and an increase in the
number of leased circuits on the High Speed Data Communications Center
(TRANSDATA). The increase in revenues in 1996 was primarily a result of a 111%
increase in traffic volume on Renpac and a 97.7% increase in the number of
leased circuits on Transdata, offset in part by a reduction in rates for most
of the Company's data communication services.
Other telecommunications services. Revenues from other telecommunications
services (which includes revenues from text, sound and image transmission,
internet services, leased analog lines and certain mobile satellite
communication services) decreased 2.9% to R$266.1 million in 1997 from R$273.8
million in 1996, which in turn represented an increase of 30.4% from R$209.9
million in 1995. The decrease in revenues in 1997 was due primarily to a
significant decrease in demand for leased analog lines and mobile satellite
communication services as a result of increasing competition from digital
services and to a 50.4% decline in telex transmission services, offset in part
by a 107.1% increase in revenues from internet services. The increase in
revenues in 1996 as compared to 1995 reflects primarily an increase in rates
for text, sound and image transmission and the introduction of internet
services during the second half of 1995, partially offset by a decrease in
revenues from leased analog lines and mobile satellite communication services.
COST OF SERVICES
Cost of services are those directly related to the provision of
telecommunications services and includes depreciation and amortization
expenses, personnel expenses for network maintenance and expenses related to
third party services and other costs of service. Cost of services decreased
4.2% to R$1,097.6 million in 1997 from R$1,145.6 million in 1996, which in
turn represented an increase of 0.3% from R$1,142.7 million in 1995. The
decrease in recorded cost of services for 1997 was primarily due to a decrease
in personnel expenses as a result of the implementation in 1996 of the
Company's voluntary resignation incentive program. The slight increase in 1996
was mainly due to an increase in personnel expenses.
43
<PAGE>
The table below sets forth, for the periods indicated, the components of
cost of services in constant reais of December 31, 1997 and the percentage
change of such expenses from the prior year.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERCENTAGE CHANGE
----------------------------------- ---------------------------
1995 1996 1997 1995 VS. 1996 1996 VS. 1997
----------- ----------- ----------- ------------- -------------
(IN THOUSANDS OF CONSTANT REAIS OF DECEMBER 31, 1997)
<S> <C> <C> <C> <C> <C>
Depreciation and
amortization........... R$ 637,517 R$ 618,512 R$ 659,233 (3.0)% 6.6%
Personnel............... 392,312 413,478 313,506 5.4 (24.2)
Third party
services(1)............ 77,285 81,030 101,526 4.8 25.3
Other(2)................ 35,606 32,593 23,298 (8.5) (28.5)
----------- ----------- -----------
Total cost of
services......... R$1,142,720 R$1,145,613 R$1,097,563 0.3 (4.2)
=========== =========== ===========
</TABLE>
- --------
(1) Third party services includes expenses relating to the maintenance of the
Company's network and equipment, insurance costs, transportation costs and
electricity expense.
(2) Other includes rental payments and certain municipal tax expense.
Depreciation and amortization expenses. Depreciation and amortization
expenses were R$659.2 million, R$618.5 million and R$637.5 million in 1997,
1996 and 1995, respectively. Although the Company made capital investments to
expand and improve its network during this three-year period, depreciation and
amortization expenses remained relatively constant due to the write-off of
certain obsolete assets, principally telex and analog equipment, during such
period. Management believes that the Company's total depreciation expense may
increase in 1998 and thereafter as a consequence of a possible reduction in
the remaining estimated useful lives of the Company's property, plant and
equipment. Management is currently reviewing such estimated useful lives in
light of the advent of competition in the Brazilian long distance market. One
of the anticipated effects of such competition is the potential requirement to
accelerate the rate of depreciation and replacement of the Company's existing
analog equipment. In the first quarter of 1998, for example, the Company's
Board of Directors approved a reduction in the estimated useful life of
equipment with a net book value of approximately R$200 million at December 31,
1997. As of June 30, 1998, R$70.8 million of such equipment had been removed
from service. The change in the estimated useful life of this equipment and
its expected replacement during 1998 will result in approximately R$147
million of additional 1998 depreciation expenses.
Personnel expenses. Personnel expenses decreased 24.2% to R$313.5 million in
1997 from R$413.5 million in 1996, which in turn represented a 5.4% increase
from R$392.3 million in 1995. The significant decrease in payroll expenses in
1997 reflected a 6.9% reduction in the number of the Company's employees
resulting from the implementation in 1996 of the Company's voluntary
resignation incentive program. The increase in 1996 was mainly due to an
increase in payroll expense resulting from the payment of a one-time bonus in
December 1996, partially offset by a 7.4% reduction in the number of the
Company's employees.
The Company's voluntary resignation incentive program was launched in 1996
and offered a variety of incentives to encourage certain employees to take
early retirement. A total of 882 employees (who exercised an option to resign
or take early retirement by the deadline of December 31, 1996) left the
Company through the program from January to May 1997 (when the program was
terminated), at a total cost of R$39 million plus certain fringe benefit
payments (including TELOS, medical, dental and life insurance) estimated to be
R$23.5 million. Substantially all expenses associated with the program were
incurred in 1996.
Third party services. Expenses related to third party services increased
25.3% to R$101.5 million in 1997 from R$81.0 million in 1996. This increase
was primarily attributable to higher network and equipment maintenance
expenses. In 1996, expenses related to third party services did not materially
increase from R$77.3 million in 1995.
Other. Other costs of service decreased 28.5% to R$23.3 million in 1997 from
R$32.6 million in 1996, which in turn represented an 8.5% decrease from R$35.6
million in 1995. The decreases in 1997 and 1996 were primarily due to lower
rental payments for facilities and office space as a result of an internal
reorganization of
44
<PAGE>
the Company whereby a customer service department was created. Upon such
reorganization, expenses relating to rent for facilities dedicated to the
newly created customer service department were allocated under operating
expenses. See "Operating expenses--Selling expense."
OPERATING EXPENSES
The Company's operating expenses increased 16% to R$516,452 million in 1997
from R$445,271 million in 1996, which in turn represented a 25% increase from
R$356,528 million in 1995.
The table below sets forth, for the periods indicated, the components of
operating expenses in constant reais of December 31, 1997 and the percentage
change of such expenses from the prior year.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERCENTAGE CHANGE
------------------------------- ---------------------------
1995 1996 1997 1995 VS. 1996 1996 VS. 1997
---------- --------- --------- ------------- -------------
(IN THOUSANDS OF CONSTANT REAIS OF DECEMBER 31, 1997)
<S> <C> <C> <C> <C> <C>
Selling expense(1)...... R$147,556 R$160,243 R$219,308 8.5% 36.9%
General and
administrative
expense................ 245,372 237,216 213,617 (3.3) (9.9)
Other net operating
(income) expense(2).... (36,400) 47,812 84,621 231.3 77.0
---------- --------- ---------
Total operating
expenses........... R$ 356,528 R$445,271 R$517,546 25.0 16.0
========== ========= =========
</TABLE>
- --------
(1) Selling expense includes personnel expenses relating to the Company's
sales network, payments to other telecommunications providers for certain
services and advertising expense.
(2) Other net operating expense includes certain federal social contribution
taxes, provisions for contingencies, expenses related to the
implementation of a voluntary resignation incentive program in 1996 and
fines and expenses recovered. See Note 8 to the Consolidated Financial
Statements.
Selling expense. Selling expenses increased 36.9% to R$219.3 million in 1997
from R$160.2 million in 1996, which in turn represented an 8.5% increase from
R$147.6 million in 1995. The increases in 1997 and 1996 were primarily due to
higher payments to other telecommunications providers and an increase in costs
relating to the use of certain data equipment. The increases also reflected an
internal reorganization at the Company whereby employees in technical support
and administrative positions were transferred to a newly created customer
service department. Such reorganization represented an initiative by the
Company to become more customer-oriented and improve the quality of customer
services in preparation for the entry of competition following the
privatization of the Registrant.
General and administrative expense. General and administrative expenses
decreased 9.9% to R$213.6 million in 1997 from R$237.2 million in 1996, which
in turn represented a 3.3% decrease from R$245.4 million in 1995. The decrease
in 1997 reflected a decrease of approximately R$15 million in expenses for
third party services.
Other net operating income (expense). Other net operating expenses increased
77.0% to R$84.6 million in 1997 from R$47.8 million in 1996, which in turn
represented a 231.3% increase from R$36.4 million of net other operating
income in 1995. The increase in 1997 was principally due to the reversal of a
R$42.9 million COFINS-related tax credit taken in 1995, the accrual of R$16.1
million in related penalties and the establishment of a R$18.8 million
provision for potential worker claims relating to electricity exposure. The
increase in 1996 was mainly due to the recognition of R$62.5 million in
expenses related to the implementation of the Company's voluntary resignation
incentive program and the non-recurrence of the R$42.9 million COFINS-related
tax credit recorded in 1995. See Note 20 to the Consolidated Financial
Statements. The 1995 COFINS-related tax credit was taken as a consequence of a
decision of the Brazilian Supreme Court declaring unconstitutional a number of
tax increases relating to a predecessor tax of COFINS, and several 1995
federal court decisions allowing set off of overpaid COFINS taxes against
other federal taxes. The Company reversed this credit in 1997, notwithstanding
the continuing validity of the Supreme Court's decision, in order to resolve a
related dispute with the taxing authorities.
NET INTEREST INCOME (EXPENSE)
Net interest income (expense) represents the net effect of interest income,
interest expense, foreign exchange gain and loss and gain and loss on net
monetary position arising from the effect of inflation on the net balance of
monetary assets and liabilities. Net interest income increased 3.2% to R$57.7
million in 1997 from
45
<PAGE>
R$55.9 million in 1996, which in turn represented a 1.6% increase from R$55.0
million in 1995. During the three-year period, interest income increased due
to an increase in the Company's level of investments and interest-bearing
deposits at the Central Bank. These increases in interest income were
partially offset by an increase in the Company's effective cost of
indebtedness as a result of the real devaluating at a faster rate than the
rate of inflation. In 1995, the excess of the inflation rate over the
devaluation rate resulted in inflationary gains that completely offset the
Company's interest expense in that year.
WRITE-OFF OF PROPERTY AND EQUIPMENT FROM PHYSICAL INVENTORY
Write-offs of equipment as a result of physical inventories were R$94.3
million, R$13.4 million and R$17.2 million in 1995, 1996 and 1997,
respectively. The equipment write-off in 1995 resulted from the performance of
a detailed physical inventory of equipment in 1995 for the first time in a
number of years. As a consequence of this physical inventory it was discovered
that equipment had been removed from service without the records of the
Company being updated. As management was unable to determine how much of the
adjustment related to previous years, the entire adjustment was recorded as a
charge against 1995 earnings. Since 1995, the Company has performed annual
physical inventories of equipment resulting in the smaller 1996 and 1997
write-offs. The Company has adopted measures to further improve controls over,
and to facilitate the recording of, physical inventories, including the
attachment of bar code tags to all inventoried equipment and the
implementation of a comprehensive set of procedures to track and coordinate
the movement of the Company's equipment. See Note 15(e) to the Consolidated
Financial Statements.
NET OTHER NONOPERATING EXPENSE
Net other nonoperating expense increased 50.0% to R$123.9 million in 1997
from R$82.6 million in 1996, which in turn represented a 55.2% increase from
R$53.2 million in 1995. See Note 7 to the Consolidated Financial Statements.
Net nonoperating expense in 1997 was comprised principally of R$108.6 million
in telex equipment write-offs and R$43.8 million in miscellaneous other write-
offs, offset in part by R$36.9 million in proceeds from asset disposals. The
telex equipment write-off, which comprised the entire remaining book value of
the Company's telex equipment, resulted from a 71% increase in the cost of
leasing the dedicated lines required for the provision of telex services at
the end of 1996. Management believed that market conditions would not allow
this additional cost to be passed on to telex consumers and, as a result,
expected the line of business to become unprofitable. The amount of the 1997
telex write off (and the smaller telex equipment write offs taken in 1995 and
1996 discussed below) was determined by providing in full against the
remaining net book value of the equipment at the time it was removed from
service.
The R$43.8 million in miscellaneous write-offs in 1997 related to the
removal from service of analog equipment prior to the end of its useful life
as a result of the Company's replacing such equipment with digital equipment.
As of December 31, 1997 all of the Company's telephone switching equipment and
70% of its long-distance transmission equipment was digital. The Company
intends to accelerate the rate of replacement of its remaining analog
transmission equipment if it can thereby achieve operating efficiencies that
surpass the cost of such replacement. In the first quarter of 1998, the
Company's Board of Directors approved the replacement of approximately R$200
million of such equipment (at December 31, 1997 net book values) during 1998.
Such equipment is comprised of analog radio transmission equipment, multiplex
transmission equipment and transdata equipment. The reduction in the estimated
useful life of this equipment and its replacement will give rise to
approximately R$147 million of additional depreciation expense during 1998.
See "--Cost of services--Depreciation and amortization expenses."
Net nonoperating expense in 1996 was comprised principally of R$46 million
in telex equipment writeoffs, a R$20.6 million write-off of an analog
submarine cable and R$33 million in miscellaneous other write-offs, partially
offset by the proceeds from asset disposals. Net non-operating expense in 1995
principally reflected R$67.9 million in telex equipment write-offs, partially
offset by R$11.3 million in proceeds from asset disposals. The 1995 and 1996
telex equipment write offs were the result of rapidly declining customer
demand for telex
46
<PAGE>
services. The number of telex terminals in service in Brazil decreased 23% in
1995 to 48,000 terminals at year end and 40% in 1996 to 28,000 terminals at
year end. These decreases, which reflected a significant decline in demand,
allowed the Company to concentrate its telex switching operations in a few of
the larger cities in Brazil and, consequently, remove from service a
substantial portion of its older equipment.
The R$33 million in miscellaneous write-offs in 1996 related to the removal
from service of analog equipment prior to the end of its useful life as a
result of the Company's replacing such equipment with digital equipment. An
analog submarine cable was written off as a result of a decision of the
consortium that owned and operated the cable to remove it from service and
rely entirely on a recently completed digital cable. The consortium approved
the removal of the cable in December 1996, and the cable was subsequently
removed from service in January 1997.
The amount of the write offs in each year were equal to the book value of
the equipment removed from service in such year.
INCOME AND SOCIAL CONTRIBUTION TAXES
The Company recorded a net tax credit of R$54.7 million in 1995, a net tax
charge of R$13.9 million in 1996 and a net tax credit of R$1.0 million in
1997. The aggregate effective rate of income and social contribution taxes was
(42.2%), 4.3% and 0.7% in 1995, 1996 and 1997, respectively. See Note 8 to the
Consolidated Financial Statements.
EMPLOYEES' PROFIT SHARE
All Brazilian companies are required under Brazilian law to compensate
employees, in addition to their salary and benefits, with profit sharing. The
amount of such profit sharing is determined by negotiation between the Company
and the labor unions representing the employees. For state owned companies,
such profit sharing payments are limited to 25% of total proposed dividends.
Telebras has established two additional limits. In addition to the 25% limit
imposed on all state owned companies, companies in the Telebras System must
limit employees' share of profits to the lower of (i) the aggregate of the
employees' annual compensation and (ii) 50% of the Company's net income
adjusted for dividends. Following the privatization of the Company, employee
profit share will be limited only by the 25% of dividends limit and will be
renegotiated by the Company and the unions representing its employees. The
Company's employees' profit share was R$21.8 million, R$22.6 million and
R$30.6 million in 1995, 1996 and 1997, respectively.
NET INCOME
Net income increased 15.4% to R$478.8 million in 1997 from R$414.9 million
in 1996, which in turn represented a 158.9% increase from R$160.3 million in
1995. The increases in 1996 and 1997 were attributable primarily to increased
revenues from domestic and international long-distance service and successful
cost management.
LIQUIDITY AND CAPITAL RESOURCES
The Registrant is a holding company and its principal assets are the shares
of its operating subsidiary Embratel. The Registrant relies almost exclusively
on dividends from Embratel to meet its needs for cash, including for the
payment of dividends to its shareholders. Under Law No. 6,404 of December 15,
1976, as amended (the "Brazilian Corporation Law"), dividends may be paid only
out of retained earnings or accumulated profits in any given fiscal year. See
"Description of Securities to be Registered--Capital Stock--Dividends."
Management believes that the Registrant's shareholding in Embratel is
sufficient to allow the Registrant to control the payment of dividends by
Embratel. The Registrant currently is able to nominate and elect all the
members of the boards of directors of Embratel. However, under Brazilian law
and the regulations of the Brazilian Securities Commission, persons holding
more than 10% of the voting stock of a company (a percentage that may decrease
up to 5% in the case of listed companies) may require the company to adopt
cumulative voting.
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Management believes that, based on current holdings in its operating
subsidiary, if cumulative voting were required, the Registrant would still be
able to control the payment of dividends by Embratel which, with respect to
the Mandatory Dividend, could be limited only under very strict circumstances:
Board members, even if elected by one specific shareholder, have fiduciary
duties toward the Company and all its shareholders. The minority voting
shareholders of Embratel elect one member of the Audit Committee of Embratel.
The remaining members of the Audit Committee are selected by the controlling
shareholder.
The Company's principal liquidity and capital resource requirements are to
finance capital expenditures and investments related to the expansion,
improvement and maintenance of its property, plant and equipment.
Historically, the Company has financed its capital expenditures and
investments with internally generated funds and indebtedness.
The Company made capital expenditures of R$704 million, R$942 million and
R$918 million in 1995, 1996 and 1997, respectively. The principal expenditures
related primarily to the expansion and modernization of the Company's
transmission network. See "Description of Business--Capital Expenditures." In
addition, the Company paid dividends of R$165.2 million, R$87.1 million and
R$234.2 million in 1995, 1996 and 1997, respectively.
The Company anticipates that capital expenditures for the first eight months
of 1998 will be R$621 million, 83% of which is expected to be funded with
internally generated funds from operations. See "Description of Business--
Capital Expenditures." The Company expects to finance its capital
expenditures, debt service obligations and dividend payments from internally
generated funds and from its existing sources of debt financing.
The Company's primary source of funds is cash generated from operations. Net
cash flow generated by operating activities was R$938.3 million, R$1,378.3
million and R$1,211.7 million in 1995, 1996 and 1997, respectively.
The Company's total long-term indebtedness was R$402.2 million, R$448.6
million and R$471.5 million as of December 31, 1995, 1996 and 1997,
respectively. The increase in long-term indebtedness in 1996 as compared to
1995 reflected additional loans and financing required for the acquisition of
the Brasilsat B3 satellite and for the installation of the fiber optic cable
system. R$108.4 million and R$80.0 million of the Company's debt matures in
1998 and 1999, respectively.
At December 31, 1997, the Company had available approximately U.S.$50.0
million in committed lines of credit for long-term financing. All of the
Company's long-term indebtedness at December 31, 1997 was denominated in
foreign currencies, 98% of which is in U.S. dollars. The effective cost to the
Company of borrowing in foreign currencies depends principally on the exchange
rate between the real and the currencies in which its borrowings are
denominated. The Company does not hedge its obligations under its foreign
currency-denominated indebtedness. Foreign currency denominated debt bears
fixed interest rates varying from 5.71% per annum to 10.14% per annum and
variable interest rates varying from 0.25% to 3.30% per annum over LIBOR. The
LIBOR rate at December 31, 1997 was 5.84% per annum. See Note 19a to the
Consolidated Financial Statements. The Company's foreign currency-denominated
debt is evidenced by credit agreements that contain certain restrictions and
covenants, including negative pledge provisions, prohibitions on the reduction
of capital, prohibitions on mergers and consolidations and prohibitions on the
selling, transferring or otherwise disposing of all or substantially all of
its assets.
Certain of the Company's credit agreements also contain covenants
restricting, among other things, (i) the ability of Telebras to dispose of all
or a substantial part of its assets or to cease to control a company that was
an operating subsidiary of the Telebras System and (ii) the ability of the
Federal Government to dispose of its controlling interest in the Telebras
System. The Breakup of Telebras on May 22, 1998, the privatization of the New
Holding Companies on July 29, 1998 and the announced liquidation of Telebras
constitute events of default under such credit agreements. In addition, most
of the Company's other credit agreements include cross-default
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provisions and cross-acceleration provisions that would permit the holders of
such indebtedness to declare the indebtedness to be in default and to
accelerate the maturity thereof if a significant portion of the principal
amount of the Company's debt is in default or accelerated. The total amount of
the Company's outstanding debt as of December 31, 1997 which is currently or
is expected to be in default is R$462.2 million. The Company is currently in
negotiations with the appropriate creditors with respect to this indebtedness.
Although none of the Company's creditors have notified the Company that they
intend to pursue their rights and remedies with respect to these defaults,
there can be no assurance that the Company will be able to obtain waivers or
that the creditors will not exercise their rights and remedies under the
credit agreements.
The Company's three principal categories of indebtedness at December 31,
1997 were the following:
Financial institutions (R$408.5 million). Borrowings from financial
institutions consist of various unsecured medium- and long-term loans,
generally in foreign currencies. The policy of the Company is to avoid
relying on short-term real-denominated bank borrowings because of their
high cost.
Supplier credits (R$63.0 million). Supplier credits are available for
purchases of imported equipment, principally fiber optic transmission
equipment. A portion of the supplier credits, amounting to R$5.0 million at
December 31, 1997, is guaranteed by Telebras.
Interest accrued (R$12.9 million). Refers to interest accrued on all of
the above-mentioned loans and financings.
For detail of the composition of, and changes in the Company's debt, see
Note 19 to the Financial Statements.
RECONCILIATION TO U.S. GAAP
The Company prepares its consolidated financial statements in accordance
with Brazilian GAAP, which differs in significant respects from U.S. GAAP. The
principal differences between Brazilian GAAP and U.S. GAAP as they affected
the Company's results of operations are: (i) under Brazilian GAAP, loans and
financing balances in default are not always classified as current liabilities
while under U.S. GAAP, loans and financings in default or expected to be in
default within a year of the balance sheet date are classified as current
obligations unless creditors have provided the Company waivers for such
defaults; a substantial portion of the Company's outstanding debt at December
31, 1997 is in default as a result of the Breakup of the Telebras System and
the Company's privatization (see "--Liquidity and Capital Resources"); (ii)
under Brazilian GAAP, interest on loans to finance construction in progress is
capitalized at the rate of 12% per annum of the total value of construction in
progress, regardless of the amount of interest actually incurred on such loans
while under U.S. GAAP interest is capitalized at the interest rate of the debt
incurred up to the lower of the amount of construction in progress and the
total loans incurred; (iii) until December 31, 1993 capitalized interest under
Brazilian GAAP was not added to individual assets but was capitalized
separately and amortized over a time period different from the estimated
useful lives of the related assets while under U.S. GAAP capitalized interest
is added to the cost of individual assets and is amortized over their
estimated useful lives; (iv) the write-off of certain impaired, long-lived
assets under U.S. GAAP; (v) adjustments to the Company's provision for pension
and other post-retirement benefits resulting from the application of SFAS 87--
"Employer's accounting for pensions" and SFAS 106--"Employer's accounting for
post retirement benefits other than pensions" as required under U.S. GAAP;
(vi) under Brazilian GAAP, the deferred tax liability arising from the
indexation of assets and liabilities for financial reporting purposes was
recorded against retained earnings while under U.S. GAAP such effects would be
charged to income and social contribution taxes in the statement of income and
(vii) under Brazilian GAAP, proposed dividends are accrued for in the
consolidated financial statements in anticipation of their approval at the
shareholders' meeting while under U.S. GAAP, dividends are not accrued until
they are formally declared. The Company's income from continuing operations
under U.S. GAAP would have been R$350.9 million and R$564.6 million for the
years ended December 31, 1996 and 1997, respectively. In addition, under US
GAAP, Embratel is considered to be the continuing entity of the Telebras
System for financial reporting purposes. As a result, all operations of
Telebras and its subsidiaries, except for Embratel, are considered to be
discontinued
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operations. Income from discontinued operations under U.S. GAAP amounted to
R$1976.4 million and R$3,127.9 million for the years ended December 31, 1996
and 1997, respectively. See Note 29 to the Consolidated Financial Statements,
which also includes condensed financial statement schedules of the Company
prepared in accordance with Brazilian GAAP, in a U.S. GAAP reporting format,
reflecting discontinued operations.
RECENT RESULTS
The Company had consolidated net operating revenues of R$1,182.4 million in
the first six months of 1998, which represented a 9.3% increase from R$1,081.4
million in the first six months of 1997. The Company had consolidated net
income of R$249.2 million in the first six months of 1998, which represented a
17.5% increase from R$213.5 million in the first six months of 1997. Such
amounts are unaudited, have been determined in accordance with the Brazilian
Corporation Law and standards issued by the CVM and have not been indexed for
inflation occurring after December 31, 1995 or expressed in constant reais.
Accordingly, such amounts are not comparable to the amounts included in the
Consolidated Financial Statements, which have been so indexed and expressed.
The growth in consolidated net operating revenues during the first six
months of 1998 and the increase over the first six months of 1997 reflect
principally increases in the volume of long-distance calls due to increases in
the number of fixed-line, cellular and other telephone customers in Brazil.
Consolidated net income grew more rapidly than consolidated net operating
revenues primarily because of the nonrecurrence of significant writeoffs of
certain equipment, such as telex facilities due to obsolescence.
Results for the first six months of 1998 are not necessarily indicative of
results for any other period or for the full year. Management believes that
the material adjustments that would be required to reconcile the first half of
1998 net income figure given above to U.S. GAAP are comparable in nature to
those discussed in Note 29 to the Consolidated Financial Statements, except
that indexation for inflation subsequent to December 31, 1995 and through
December 31, 1997 would be required under U.S. GAAP and the cessation of
indexation as from January 1, 1998 will eliminate the need for the recognition
of an additional charge to income under U.S. GAAP for the deferred income tax
effects of indexation for financial reporting purposes.
ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in both foreign currency
exchange rates and interest rates. The Company is exposed to foreign exchange
rate risk because certain of its costs are denominated in currencies
(primarily the U.S. dollar) other than those in which it earns revenues
(primarily the real). Similarly, the Company is subject to market risk
deriving from changes in interest rates which may affect the cost of its
financing. The Company does not use derivative instruments, such as foreign
exchange forward contracts, foreign currency options, interest rate swaps and
forward rate agreements, to manage these market risks, nor does it hold or
issue derivative or other financial instruments for trading purposes
EXCHANGE RATE RISK
The Company has exchange rate exposure with respect to the U.S. dollar and,
to a lesser extent, other currencies. Approximately R$670 million of the
indebtedness of the Company, which includes R$580 million in loans and R$90
million in accounts payable to international operators, is denominated in U.S.
dollars, and approximately R$100 million of the Company's indebtedness is
indexed to other foreign currencies which include French Francs, Deutsch Marks
and Japanese Yen. The potential immediate loss to the Company that would
result from a hypothetical 10% change in foreign currency exchange rates would
be approximately R$77 million. In addition, if such a change were to be
sustained, the Company's cost of financing would increase in proportion to the
change. This sensitivity analysis assumes an unfavorable 10% fluctuation in
all of the exchange rates affecting all the foreign currencies in which the
indebtedness described above are denominated and does
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not take into account the offsetting effect of such a change on the Company's
foreign-currency denominated revenues (principally payments from international
operators). Since consistently and simultaneously unfavorable movements in all
relevant exchange rates are unlikely, this assumption may overstate the impact
of exchange rate fluctuations on the Company's results of operations.
INTEREST RATE RISK
At December 31, 1997, the Company had approximately R$580 million in loans
and financing outstanding, of which approximately R$343 million bore interest
at fixed interest rates and approximately R$237 million bore interest at
floating rates of interest (primarily LIBOR-based). Embratel invests its
excess liquidity (R$755 million at December 31, 1997) mainly in short-term
instruments. The potential loss to the Company over one year that would have
resulted from a hypothetical, instantaneous and unfavorable change of 100
basis points in the interest rates applicable to financial assets and
liabilities on December 31, 1997 would be approximately R$10 million. The
above sensitivity analyses are based on the assumption of an unfavorable 100
basis point movement of the interest rates applicable to each homogenous
category of financial assets and liabilities and sustained over a period of
one year. A homogenous category is defined according to the currency in which
financial assets and liabilities are denominated and assumes the same interest
rate movement within each homogenous category (e.g. U.S. dollars). As a
result, the Company's interest rate risk sensitivity model may overstate the
impact of interest rate fluctuations for such financial instruments as
consistently unfavorable movements of all interest rates are unlikely. See
Notes 19 and 24 to the Consolidated Financial Statements.
ITEM 10: DIRECTORS AND OFFICERS OF REGISTRANT
BOARD OF DIRECTORS
The Registrant is administered by a Board of Directors (Conselho de
Administracao) and a Board of Executive Officers (Diretoria). The Board of
Directors is comprised of five members serving for a term of three years. The
Board of Directors holds a regular meeting once a month and holds special
meetings when called by the Chairman or by two members of the Board of
Directors.
The following are the current members of the Board of Directors and their
respective positions. Unless otherwise indicated, all current members were
appointed in August 1998.
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
Luis Fernando Motta Rodrigues Chairman
Dilio Sergio Penedo Director
Lidio Lins Neto Director
Paulo Roberto Guerra de Oliveira Director
Francisco dos Santos Pires Albu-
querque Director
</TABLE>
Set forth below are brief biographical descriptions of the Directors.
Luis Fernando Motta Rodrigues, 36 years old, has served as Chairman of the
Board of Directors since August 1998. In addition, he has served as President
of MCI do Brasil, MCI Solutions Ltda. ("MCI"), Startel Participacoes Ltda. and
President of the Administrative Board of Empresa Brasileira de
Telecomunicacoes S.A.--Embratel ("Embratel"), the operating subsidiary of the
Company. Before working for MCI, he served various positions at Embratel in
the operational and commercial areas of its international office. He holds a
degree in telecommunications engineering from the Fluminense Federal
University, Niteroi, RJ.
Dilio Sergio Penedo, 56 years old, has served as a member of the Board of
Directors since May 1998. He served as General Area Manager for South America
at SAFT, a company of the Alcatel Alsthom Group; President of Nife--Argentina;
Superintendent Director of Indesul--Saft Equipamentos Eletronicos; and
Superintendent Director of Nife Brasil--Sistemas Eletricos. In addition, he
served as President of the Company from 1995 to 1998. He holds a degree in
electrical engineering from the Catholic University of Rio de Janeiro.
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Lidio Lins Neto, 34 years old, has served as a member of the Board of
Directors since August 1998. In addition, he has served as accountant
responsible for the accounting and fiscal areas of MCI do Brasil. He currently
serves as manager responsible for the accounting and financial areas of MCI do
Brasil. He holds an accounting degree from Faculdade Celso Lisboa, Rio de
Janeiro.
Paulo Roberto Guerra de Oliveira, 47 years old, has served as a member of
the Board of Directors since August 1998. He served as Senior
Telecommunications Engineer at MCI do Brasil. He currently serves as manager
of operations at MCI do Brasil. He holds a degree in telecommunication and
electronic engineering from Sociedade Educacional Professor Nuno Lishoa, Rio
de Janeiro.
Francisco dos Santos Pires Albuquerque, 58 years old, has served as a member
of the Board of Directors since August 1998. He served as Development Director
of Embratel, the operational subsidiary of the Company, from 1990 to 1995 and
Executive Vice-President of Telerj from 1995 to 1997. In addition to his
position as a member of the Board of Directors of the Company, he has also
served as Superintendent Director of Telos-- Fundacao Embratel de Seguridade
Social (Embratel Social Security Foundation). He holds an engineering degree
from Pontifical Catholic University of Rio de Janeiro.
An extraordinary general meeting of shareholders has been called for the
election of Michael J. Rowny and Dan Crawford as directors. Mr. Rowny would
serve as Chairman of the Board of Directors. Messrs. Lidio Lins Neto and Paulo
Roberto Guerra de Oliveira would resign their directorships immediately prior
to the election. Mr. Rowny is an Executive Vice President of MCI WORLDCOM and
has served as Chief Financial Officer of MCI. Mr. Crawford is a Senior Vice
President of MCI WORLDCOM.
BOARD OF EXECUTIVE OFFICERS
The Board of Executive Officers consists of one President and one Vice-
President elected by the Board of Directors for a term of three years. An
Executive Officer may be removed from office at any time. The President must
be chosen from among the members of the Board of Directors.
The following are the Executive Officers and their respective positions. All
current members were appointed in August 1998.
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<C> <S>
Luis Fernando Motta Rodrigues President and Investor Relations Director
Dilio Sergio Penedo Vice-President
</TABLE>
Brief biographical descriptions of the Executive Officers are set forth
above.
ITEM 11: COMPENSATION OF DIRECTORS AND OFFICERS
For the year ended December 31, 1997, the aggregate amount of compensation
paid by the Registrant's subsidiaries to all directors and executive officers
of the Registrant's subsidiaries as a group was approximately R$1.0 million.
For the year ended December 31, 1997, the aggregate amount set aside or
accrued by the Registrant's subsidiaries to provide pension, retirement or
similar benefits for officers and directors of the Registrant's subsidiaries
was approximately R$225.3 thousand. The Registrant did not have any officers
or directors for the year ended December 31, 1997 because it was not formed
until May 22, 1998 as part of the Breakup of Telebras.
ITEM 12: OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
None.
ITEM 13: INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
None.
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PART II
ITEM 14: DESCRIPTION OF SECURITIES TO BE REGISTERED
CAPITAL STOCK
Set forth below is a brief summary of the material provisions of the
Preferred Shares and Common Shares, the By-laws and the Brazilian Corporation
Law. This description is qualified by reference to the By-laws, which have
been filed (together with an English translation) as an exhibit to this
Registration Statement, and to the Brazilian Corporation Law. A copy of the
By-laws (together with an English translation) is available for inspection at
the principal office of the Depositary Information on the trading market for
the Preferred Shares is set forth under "Nature of Trading Market" and
information on ownership of the Registrant's shares is set forth under
"Control of Registrant."
GENERAL
The capital stock of the Registrant is comprised of Preferred Shares and
Common Shares, all without par value. At May 22, 1998, there were 210,029,997
thousand outstanding Preferred Shares and 124,351,903 thousand outstanding
Common Shares. The Company's share capital may be increased only by a
shareholder vote.
The Preferred Shares are non-voting except under limited circumstances and
are entitled to a preferential, noncumulative dividend and to priority over
the Common Shares in the case of liquidation of the Registrant.
Under the Brazilian Corporation Law, the number of non-voting shares or
shares with limited voting rights, such as the Preferred Shares, may not
exceed two-thirds of the total number of shares. The Federal Government was
required by law prior to the privatization to own more than 50% of the voting
stock of the Registrant.
The majority of the members of the Board of Directors will be elected by the
controlling shareholders of Common Stock of the Registrant. Board members,
even if elected by one specific shareholder, have fiduciary duties towards the
Company and all its shareholders.
DIVIDENDS
Pursuant to its By-laws, the Registrant is required to distribute as
dividends in respect of each fiscal year ending on December 31, to the extent
amounts are available for distribution, an aggregate amount equal to at least
25% of Adjusted Net Income (as defined below) on such date (the "Mandatory
Dividend"). The annual dividend distributed to holders of Preferred Shares
(the "Preferred Dividend") has priority in the allocation of Adjusted Net
Income. Remaining amounts to be distributed are allocated first to the payment
of a dividend to holders of Common Shares in an amount equal to the Preferred
Dividend and the remainder is distributed equally among holders of Preferred
Shares and Common Shares. Under the Brazilian Corporation Law, a company is
permitted to suspend the Mandatory Dividend in respect of common shares and
preferred shares not entitled to a fixed or minimum dividend if its Board of
Directors and Audit Committee report to the shareholders' meeting that the
distribution would be incompatible with the financial circumstances of such
company and the shareholders ratify this conclusion at the shareholders'
meeting. In this case, (i) the Board of Directors must forward to the CVM
within five days of the shareholders' meeting an explanation justifying the
information transmitted at the meeting and (ii) the profits which were not
distributed for such reason are to be recorded as a special reserve and, if
not absorbed by losses in subsequent fiscal years, are to be paid as dividends
as soon as the financial situation of such company permits. The Preferred
Shares of the Registrant are entitled to a minimum dividend and thus the
Mandatory Dividend may be suspended only with respect to the Common Shares.
See "--Priority and Amount of Preferred Dividends." Dividends may be paid by
the Registrant out of retained earnings or accumulated profits, in any given
fiscal year.
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For the purposes of the Brazilian Corporation Law, accumulated profits are
defined as net income after income tax and social contribution for such fiscal
year, net of any accumulated losses from prior fiscal years and any amounts
allocated to founders' shares, income bonds, employees' and management's
participation in a company's profits.
At each annual shareholders' meeting, the Board of Directors is required to
recommend how net profits for the preceding fiscal year are to be allocated.
Under the Brazilian Corporation Law, the Registrant is required to maintain a
statutory reserve, to which it must allocate 5% of net profits for each fiscal
year until the amount of such reserve equals 20% of the Registrant's paid-in
capital (the "Statutory Reserve"). Net losses, if any, may be charged against
the statutory reserve.
The Brazilian Corporation Law also provides for two additional discretionary
allocations of net profits that are subject to approval by shareholders at the
annual shareholders' meeting. First, a percentage of net profits may be
allocated to the contingency reserve for anticipated losses that are deemed
probable in future years (the "Contingency Reserve"). Any amount so allocated
in a prior year must be either (i) reversed in the fiscal year in which the
loss was anticipated if such loss does not in fact occur or (ii) written off
in the event that the anticipated loss occurs. Second, if the amount of
Unrealized Revenue exceeds the sum of (i) the statutory reserve, (ii) the
Contingency Reserve and (iii) retained earnings, such excess may be allocated
to the reserve (the "Unrealized Revenue Reserve"). Such allocations may not
hinder the payment of dividends on the Preferred Shares. "Unrealized Revenue"
is defined under the Brazilian Corporation Law as the sum of (i) the share of
equity earnings of affiliated companies which is not paid as cash dividends
and (ii) profits from installment sales to be received after the end of the
next succeeding fiscal year.
For the purposes of the Brazilian Corporation Law, and in accordance with
the Registrant's By-Laws, the "Adjusted Net Income" is an amount equal to the
Registrant's net profit adjusted to reflect allocations to and from (i) the
Statutory Reserve; (ii) the Contingency Reserve and (iii) the Unrealized
Revenue Reserve.
The amounts available for distribution are determined on the basis of
Consolidated Financial Statements prepared in accordance with the Brazilian
Corporation Law, which differ from consolidated financial statements, such as
the Consolidated Financial Statements included herein, that are prepared using
the constant currency method according to Brazilian GAAP.
In order to allow the payment of dividends after the Breakup, the
shareholders of Telebras approved, as a part of the Breakup, the allocation of
a proportional part of the retained earnings and reserves of Telebras
transferred to the Registrant as retained earnings of the Registrant. These
earnings and reserves (which amount to R$3,918.7 million) are available for
payment of future dividends by the Registrant, if so decided by the
shareholders, although the Registrant is not legally obligated to do so.
PRIORITY AND AMOUNT OF PREFERRED DIVIDENDS
The Registrant's By-laws provide for a minimum dividend for the Preferred
Shares equal to 6% of the amount obtained by dividing the total share capital
by the total number of shares of the Company. As a result of such provision,
holders of Preferred Shares are entitled to receive in any year distributions
of cash dividends prior to the holders of Common Shares receiving any
distribution of cash dividends in such year. In addition, distributions of
cash dividends in any year are made (i) first, to the holders of Preferred
Shares, up to the amount of the Preferred Dividend of the Preferred Shares for
such year, (ii) then, to the holders of Common Shares, until the amount
distributed in respect of each Common Share is equal to the amount distributed
in respect of each Preferred Share, and (iii) thereafter, to the Common Shares
and Preferred Shares on a pro rata basis. If the Mandatory Dividend in any
year is less than or equal to the Preferred Dividends payable to the holders
of Preferred Shares in such year, the holders of Common Shares will not be
entitled to receive any cash dividends from the Registrant in such year,
unless the holders of Common Shares approve dividends in excess of the
Preferred Dividend. In such circumstances, however, holders of Preferred
Shares will be entitled to the amount available for payment of dividends up to
an aggregate amount equal to the Preferred Dividends plus, in the event
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<PAGE>
the Preferred Dividend is higher than the amount available for payment of
dividends for such year, any retained earnings from previous years may be used
to make up for such shortfall. If the minimum dividend is not paid for a
period of three years, holders of Preferred Shares shall be entitled to full
voting rights until such time as the minimum dividend is paid in full for any
year.
PAYMENT OF DIVIDENDS
The Registrant is required by law and its By-laws to hold an annual
shareholders' meeting by April 30 of each year at which, among other things,
an annual dividend may be declared by decision of the shareholders on the
recommendation of the Executive Officers, as approved by the Board of
Directors. The payment of annual dividends is based on the Consolidated
Financial Statements prepared for the fiscal year ending December 31. Under
the Brazilian Corporation Law, dividends are required to be paid within 60
days following the date the
dividend is declared to shareholders of record on such declaration date,
unless a shareholders' resolution sets forth another date of payment, which
must occur prior to the end of the fiscal year in which such dividend was
declared. A shareholder has a three-year period from the dividend payment date
to claim dividends in respect of its shares, after which the Registrant has no
liability for such payment. Because the Registrant's shares are issued in
book-entry form, dividends with respect to any share are automatically
credited to the account holding such share and no action is required on the
part of the shareholder. The Registrant is not required to adjust the amount
of paid-in capital for inflation. Annual dividends may be paid to shareholders
on a pro rata basis according to the date when the subscription price is paid
to the Registrant.
Shareholders who are not residents of Brazil must register with the Central
Bank of Brazil in order for dividends, sales proceeds or other amounts with
respect to their shares to be eligible to be remitted outside of Brazil.The
Preferred Shares underlying the ADSs are held in Brazil by the Custodian, as
agent for the Depositary, which is the registered owner of the Registrant's
shares. See " --Description of American Depositary Receipts in respect of
Preferred Shares."
Payments of cash dividends and distributions, if any, will be made in
Brazilian currency to the Custodian on behalf of the Depositary, which will
then convert such proceeds into U.S. dollars and will cause such U.S. dollars
to be delivered to the Depositary for distribution to holders of ADRs. In the
event that the Custodian is unable to convert immediately the Brazilian
currency received as dividends into U.S. dollars, the amount of U.S. dollars
payable to holders of ADRs may be adversely affected by devaluations of the
Brazilian currency that occur before such dividends are converted and
remitted. Dividends in respect of the Preferred Shares paid to resident and
non-resident shareholders, including holders of ADSs, are not currently
subject to Brazilian withholding tax. See "Taxation--Brazilian Tax
Considerations."
VOTING RIGHTS
Each Common Share entitles the holder thereof to one vote at meetings of
shareholders of the Registrant. Preferred Shares do not entitle the holder to
vote except as set forth below. Holders of Preferred Shares are entitled to
attend or to address meetings of shareholders.
One of the three members of the permanent Audit Committee of the Registrant
and his or her alternate are elected by majority vote of the holders of
Preferred Shares present at the annual meeting of shareholders at which
members of the Audit Committee are elected.
Brazilian Corporation Law provides that certain non-voting shares, such as
the Preferred Shares, acquire voting rights in the event the Registrant fails
for three consecutive fiscal years to pay the Preferred Dividend to which such
shares are entitled until such payment is made.
The Preferred Shares are entitled to full voting rights with respect to (i)
the approval of any long-term contract between the Company and its affiliates,
on the one hand, and any controlling shareholder of the Company, such
shareholder's affiliates and related parties, on the other hand and (ii)
resolutions modifying
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certain provisions of the By-laws. The Preferred Shares are entitled to full
voting rights with respect to any resolution submitted to the shareholders'
meetings for the delisting ("going private") or during liquidation of the
Registrant.
Any change in the preference, benefits, conditions of redemption and
amortization of the Preferred Shares, or the creation of a class of shares
having priority or preference over the Preferred Shares, would require the
approval of holders of a majority of the outstanding Preferred Shares at a
special meeting of holders of Preferred Shares. Such a meeting would be called
by publication of a notice in the Gazeta Mercantil and the Diario Oficial da
Uniao at least thirty days prior to the meeting but would not generally
require any other form of notice.
In any circumstances in which holders of Preferred Shares are entitled to
vote, each Preferred Share will entitle the holder thereof to one vote.
PREEMPTIVE RIGHTS
Each shareholder of the Registrant has a general preemptive right to
subscribe for shares in any capital increase, in proportion to its
shareholding. A period of 30 days following the publication of notice of the
capital increase is allowed for exercise of the right, and the right is
negotiable. However, a shareholders' meeting is authorized to eliminate
preemptive rights with respect to the issuance of new shares, debentures,
warrants and founders' shares convertible into new shares up to the limit of
the authorized share capital, provided that the distribution of these
securities is effected (i) on a stock exchange or in a public offering, (ii)
through an exchange of shares in a public offering the purpose of which is to
acquire control of another company or (iii) through the use of certain tax
incentives.
In the event of a capital increase which would maintain or increase the
proportion of capital represented by Preferred Shares, holders of ADSs, or of
Preferred Shares, would have preemptive rights to subscribe only to newly
issued Preferred Shares. In the event of a capital increase which would reduce
the proportion of capital represented by Preferred Shares, holders of ADSs, or
of Preferred Shares, would have preemptive rights to subscribe to Preferred
Shares, in proportion to their shareholdings and to Common Shares only to the
extent necessary to prevent dilution of their interest in the Registrant.
Preemptive rights to purchase shares may not be offered to U.S. holders of
ADSs unless a registration statement under the Securities Act is effective
with respect to the shares underlying such rights, or an exemption from the
registration requirements of the Securities Act is available. Consequently,
holders of ADSs who are U.S. persons or are located in the United States may
be restricted in their ability to participate in the exercise of preemptive
rights. See "--Description of American Depositary Receipts in respect of
Preferred Shares--Dividends, Other Distributions and Rights."
RIGHT OF REDEMPTION
Neither the Common Shares nor the Preferred Shares are redeemable, subject
to the right of a dissenting shareholder to seek redemption upon a decision
made at a shareholders' meeting by shareholders representing over 50% of the
voting shares (i) to change the preference of the Preferred Shares or to
create a class of shares having priority or preference over the Preferred
Shares, (ii) to modify the mandatory distribution of dividends, (iii) to
change the corporate purposes of the Registrant, (iv) to dissolve or liquidate
the Registrant, (v) to transfer all of the shares of the Registrant to another
company in order to make the Registrant a wholly-owned subsidiary of such
company (incorporacao de acoes), (vi) to approve the acquisition of another
company, the price of which exceeds certain limits set forth in the Brazilian
Corporation Law and (vii) to merge or consolidate the Registrant with another
company, if certain liquidity standards provided in the Brazilian Corporation
Law are not met. The right to redemption lapses 30 days after publication of
the minutes of the relevant shareholders' meeting or, whenever the resolution
requires the approval of the holders of Preferred Shares by vote taken in a
special meeting of a majority of the holders of Preferred Shares affected by
the resolution, within 30 days from the publication of the minutes of such
special meeting. The Registrant would be entitled to reconsider any action
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giving rise to redemption rights within 10 days following the expiration of
such rights if the redemption of shares of dissenting shareholders would
jeopardize the financial stability of the Registrant.
Unless otherwise provided in the By-laws (which is not the case with the
Registrant), shares are redeemable at their book value, determined on the
basis of the last annual balance sheet approved by the shareholders. If the
shareholders' meeting giving rise to redemption rights occurs more that 60
days after the date of the last annual balance sheet, a shareholder may demand
that its shares be valued on the basis of a new balance sheet that is as of a
date within 60 days of such shareholders' meeting.
FORM AND TRANSFER
Shares of the Registrant are maintained in book-entry form with a transfer
agent (the "Transfer Agent") and the transfer of such shares is made in
accordance with the applicable provisions of the Brazilian Corporation Law,
which provides that a transfer of shares is effected by an entry made by the
Transfer Agent on its books, debiting the share account of the seller and
crediting the share account of the purchaser, against presentation of a
written order of the seller, or judicial authorization or order, in an
appropriate document which remains in the
possession of the Transfer Agent. The Preferred Shares underlying the ADS will
be registered on the Transfer Agent's records in the name of the Depositary.
Transfers of shares by a foreign investor are made in the same way and
executed by such investor's local agent on the investor's behalf except that,
if the original investment was registered with the Central Bank of Brazil
pursuant to the Annex IV Regulations, the foreign investor should also seek
amendment, if necessary, through its local agent, of the certificate of
registration to reflect the new ownership.
Each of the Sao Paulo Stock Exchange and the Rio de Janeiro Stock Exchange
operates a central clearing system. A holder of shares of the Registrant may
choose, at its discretion, to participate in these systems and all shares
elected to be put into the system will be deposited in custody with the
relevant stock exchange (through a Brazilian institution duly authorized to
operate by the Central Bank of Brazil having a clearing account with the
relevant stock exchange) and the fact that such shares are subject to custody
with the relevant stock exchange will be reflected in the Registrant's
register of shareholders. Each participating shareholder will, in turn, be
registered in the register of beneficial shareholders of the Registrant
maintained by the relevant stock exchange and will be treated in the same way
as registered shareholders.
DESCRIPTION OF AMERICAN DEPOSITARY RECEIPTS IN RESPECT OF PREFERRED SHARES
The following is a summary of the material provisions of the deposit
agreement (the "Deposit Agreement"), dated as of July 27, 1998 among the
Registrant, the Depositary, and the registered holders (the "Owners") and
beneficial owners from time to time of ADSs (the "Beneficial Owners"),
pursuant to which the ADSs representing Preferred Shares are to be issued.
This summary is subject to and qualified in its entirety by reference to the
Deposit Agreement, including the form of ADRs. Terms used in this description
and not otherwise defined shall have the meanings set forth in the Deposit
Agreement. A copy of the Deposit Agreement has been filed as an exhibit to
this Registration Statement. Copies of the Deposit Agreement are available for
inspection at the Corporate Trust Office of the Depositary, currently located
at 101 Barclay Street, New York, NY 10286, and at the office of the agent of
the Custodian, currently located at the principal Sao Paulo, Brazil office of
Banco Itau. The Depositary's principal executive office is located at 1 Wall
Street, New York, NY 10015.
AMERICAN DEPOSITARY RECEIPTS
ADRs evidencing ADSs are issuable by the Depositary pursuant to the Deposit
Agreement. Each ADR is in registered form and evidences a specified number of
ADSs, each ADS representing 1,000 Preferred Shares, or evidence of the right
to receive 1,000 Preferred Shares deposited with the Custodian and registered
in the name of the Depositary or its nominee (together with any additional
Preferred Shares at any time deposited or deemed
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deposited under the Deposit Agreement and any and all other securities, cash
and other property received by the Depositary or the Custodian in respect of
such Preferred Shares and at such time held under the Deposit Agreement, the
"Deposited Securities"). Only persons in whose names ADRs are registered on
the books of the Depositary are treated by the Depositary and the Registrant
as Owners.
DEPOSIT, TRANSFER AND WITHDRAWAL
The By-laws provide that ownership of capital generally must be evidenced
only by a record of ownership maintained by the Registrant or an accredited
intermediary, such as a bank, acting as a registrar for the shares. Currently,
such function is performed by the Registrant as registrar (the "Registrar").
Accordingly, all references to the deposit, surrender and delivery of the
Preferred Shares refer only to book-entry transfers of the Preferred Shares in
Brazil. See "--Capital Stock" for a description of the characteristics and
rights of the Preferred Shares. All references to the deposit, surrender and
delivery of the ADS or the ADRs refer not only to the physical transfer of any
certificates representing such ADRs but also to any book-entry transfers.
The Preferred Shares represented by ADSs were deposited pursuant to the
Deposit Agreement by book-entry transfer to an account of the Custodian and
registered in the name of the Custodian. The Depositary is the holder of
record on the books of the Custodian of all such Preferred Shares.
The Depositary has agreed, subject to the terms and conditions of the
Deposit Agreement, that upon delivery (including by book-entry credit) to the
Custodian of the Preferred Shares (or evidence of rights to receive Preferred
Shares) and pursuant to appropriate instruments of transfer in a form
satisfactory to the Custodian, the Depositary will, upon payment of the fees,
charges and taxes provided in the Deposit Agreement, execute and deliver at
its Corporate Trust Office to, or upon the written order of, the person or
persons named in the notice of the Custodian delivered to the Depositary or
requested by the person depositing such Preferred Shares with the Depositary,
an ADR or ADRs, registered in the name or names of such person or persons, and
evidencing any authorized number of ADSs requested by such person or persons.
The Depositary will refuse to accept Preferred Shares for deposit whenever
it is notified in writing that such deposit would result in any violation of
applicable laws.
Upon surrender at the Corporate Trust Office of the Depositary of an ADR for
the purpose of withdrawal of the Deposited Securities represented by the ADSs
evidenced by such ADR, and upon payment of the fees of the Depositary,
governmental charges and taxes provided in the Deposit Agreement, and subject
to the terms and conditions of the Deposit Agreement, the By-laws, the
Deposited Securities and applicable law, the Owner of such ADR will be
entitled to book-entry credit with the Registrar together with physical
delivery (if physical delivery is permitted under the By-laws), to him or upon
his order, as permitted by applicable law, of the amount of Deposited
Securities at the time represented by the ADS or ADSs evidenced by such ADR.
Any forwarding of share certificates (if any), other securities, property,
cash and other documents of title for such delivery will be at the risk and
expense of the Owner.
Subject to the terms and conditions of the Deposit Agreement and any
limitations that may be established by the Depositary and unless requested by
the Registrant to cease doing so, the Depositary may execute and deliver ADRs
prior to the receipt of Preferred Shares (a "Pre-Release"), may deliver
Preferred Shares upon the receipt, and cancellation of ADRs which have been
Pre-Released, whether or not such cancellation is prior to the termination of
such Pre-Release or the Depositary knows that such ADR has been Pre-Released,
and may receive ADRs in lieu of Preferred Shares in satisfaction of a Pre-
Release.
Each Pre-Release must be (a) preceded or accompanied by a written
representation and agreement from the person to whom the ADRs are to be
delivered (the "Pre-Release") that the Pre-Release or its customer (i) owns
the Preferred Shares or ADRs to be remitted, as the case may be, (ii) assigns
all beneficial right, title and interest in such Preferred Shares or ADRs, as
the case may be, to the Depositary for the benefit of the Owners and (iii)
agrees in effect to hold such Preferred Shares or ADRs, as the case may be,
for the account of the Depositary
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until delivery of the same upon Depositary's request, represented by ADSs
outstanding (without giving effect to ADSs evidenced by ADRs outstanding as a
result of the Pre-Release) (b) at all times fully collateralized with cash or
U.S. government securities, (c) terminable by the Depositary on not more than
five business days' notice and (d) subject to such further indemnities and
credit regulations as the Depositary deems appropriate. The Depositary will
set limits with respect to Pre-Release transactions to be entered into
hereunder with any particular Pre-Releasee on a case by case basis as the
Depositary deems appropriate. The collateral referred to in clause (b) above
shall be held by the Depositary for the benefit of the Owners as security for
the performance of the Pre-Releasee's obligations to the Depositary in
connection with a Pre-Release transaction, including the Pre-Releasee's
obligation to deliver Preferred Shares or ADRs upon termination of a Pre-
Release transaction.
The Depositary will also limit the number of ADRs involved in such Pre-
Release transactions so that Preferred Shares not deposited but represented by
ADSs outstanding at any time as a result of Pre-Releases will not normally
exceed thirty percent (30%) of the Preferred Shares deposited under the
Deposit Agreement, but the Depositary reserves the right to disregard such
limit from time to time as it deems appropriate and may, with the prior
written consent of the Registrant, change such limit for purposes of general
application. The Depositary may retain for its own account any compensation
received by it in connection with the foregoing. Neither the Registrant nor
the Custodian shall incur any liability to Owners of ADRs as a result of such
transactions.
DIVIDENDS, OTHER DISTRIBUTIONS AND RIGHTS
The Depositary is required to convert, as promptly as practicable and, in
any event, within one business day of its receipt thereof, into U.S. dollars,
all cash dividends or other distributions, net proceeds from the sale of
securities, property or rights, denominated in any currency other than U.S.
dollars that it receives in respect of the deposited Preferred Shares if
permitted under applicable laws and the Depositary determines that such
conversion into U.S. dollars and transfer to the United States can be effected
on a reasonable basis. If at the time of conversion, the resulting U.S.
dollars can, pursuant to applicable law, be transferred out of Brazil for
distribution, the Depositary will as promptly as practicable distribute the
amount received to the Owner entitled thereto in proportion to the number of
ADSs evidenced by such Owner's ADRs without regard to any distinctions among
Owners on account of exchange restrictions or otherwise. The amount
distributed will be reduced by any amounts to be withheld by the Registrant,
the Depositary or the Custodian, including amounts on account of any
applicable taxes and certain other expenses. For further details about
applicable taxes, see "Taxation."
If such conversion, transfer or distribution can be effected only with the
approval or license of any government or agency thereof, the Depositary will
file as promptly as practicable such application for approval or license;
however, the Depositary will be entitled to rely upon Brazilian local counsel
in such matters, which counsel will be instructed to act as promptly as
possible. If, pursuant to applicable law, any foreign currency received by the
Depositary or the Custodian cannot be converted to U.S. dollars, or if any
approval or license of any government or agency thereof that is required for
such conversion is denied or, in the opinion of the Depositary, cannot be
promptly obtained at a reasonable cost, the Depositary will, (a) as to the
portion of the foreign currency that is convertible into U.S. dollars, make
such conversion and (i) if permitted by applicable law, transfer such U.S.
dollars to the United States and distribute them to the Owners entitled
thereto or (ii) to the extent that such transfer is not permitted, hold such
U.S. dollars for the benefit of the Owners entitled thereto, uninvested and
without liability for interest thereon and (b) as to the nonconvertible
balance, if any, (i) if requested in writing by an Owner, distribute or cause
the Custodian to distribute the foreign currency (or an appropriate document
evidencing the right to receive such foreign currency) received by the
Depositary or the Custodian to such Owner and (ii) the Depositary shall hold
or will cause the Custodian to hold any amounts of nonconvertible foreign
currency not distributed pursuant to the immediately preceding subclause (i)
uninvested and without liability for the interest thereon for the respective
accounts of the Owners entitled to receive the same.
If the Registrant declares a dividend in, or free distribution of,
additional Preferred Shares with respect to the Preferred Shares represented
by the ADSs, the Depositary may, or will if the Registrant so requests,
distribute as promptly as practicable to the Owners of outstanding ADRs
entitled thereto, in proportion to the number of
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ADSs evidenced by their respective ADRs, additional ADRs evidencing an
aggregate number of ADSs that represents the number of Preferred Shares
received as such dividend or free distribution, subject to the terms and
conditions of the Deposit Agreement with respect to the deposit of Preferred
Shares and the issuance of ADSs evidenced by ADRs, including the withholding
of any tax or other governmental charge and the payment of fees of the
Depositary.
The Depositary may withhold any such distribution of ADRs if it has not
received satisfactory assurances from the Registrant that such distribution
does not require registration under the Securities Act or is exempt from
registration under the provisions of such Act. In lieu of delivering ADRs for
fractional ADSs in the event of any such dividend or free distribution, the
Depositary will sell the amount of Preferred Shares represented by the
aggregate of such fractions and distribute the net proceeds in accordance with
the Deposit Agreement. If additional ADRs are not so distributed, each ADS
will thereafter also represent the additional Preferred Shares distributed
upon the Deposited Securities represented thereby.
If the Registrant offers, or causes to be offered, to the holders of
Preferred Shares any rights to subscribe for additional Preferred Shares or
any rights of any other nature, the Depositary, after consultation with the
Registrant, will have discretion as to the procedure to be followed in making
such rights available to Owners or in disposing of such rights for the benefit
of such Owners and making the net proceeds available to such Owners. If, by
the terms of such rights offering or for any other reason, it would be
unlawful for, the Depositary to either make such rights available to any
Owners or dispose of such rights and make the net proceeds available to such
Owners, then the Depositary will allow the rights to lapse. If at the time of
the offering any rights, the Depositary determines in its discretion that it
is lawful and feasible to make such rights available to all or certain Owners,
the Depositary may, and at the request of the Company will, distribute to any
Owners to whom it determines the distribution to be lawful and feasible, in
proportion to the number of ADSs held by such Owner, warrants or other
instruments therefor in such form as it deems appropriate.
If the Depositary determines that it is not lawful or feasible to make such
rights available to all or certain Owners, it may, and at the request of the
Registrant, will use its best efforts that are reasonable under the
circumstances to, sell the rights, warrants or other instruments in proportion
to the number of ADSs held by the Owners to whom it has determined it may not
lawfully or feasibly make such rights available, and allocate net proceeds of
such sales for the account of such Owners otherwise entitled to such rights,
warrants or other instruments, upon an averaged or other practical basis
without regard to any distinctions among such Owners because of exchange
restrictions or the date of delivery of any ADR or ADRs or otherwise. The
Depositary will not be responsible for any failure to determine that it may be
lawful or feasible to make such rights available to Owners in general or any
Owner or Owners in particular.
In circumstances in which rights would not otherwise be distributed, if an
Owner requests the distribution of warrants or other instruments in order to
exercise the rights allocable to the ADSs of such Owner, the Depositary will
promptly make such rights available to such Owner upon written notice from the
Registrant to the Depositary that (a) the Registrant has elected in its sole
discretion to permit such rights to be exercised and (b) such Owner has
executed such documents as the Registrant has determined in its sole
discretion are reasonably required under applicable law. Upon instruction
pursuant to such warrants or other instruments to the Depositary from such
Owner to exercise such rights, upon payment by such Owner to the Depositary
for the account of such Owner of an amount equal to the purchase price of the
Preferred Shares to be received in exercise of the rights, and upon payment of
the fees of the Depositary as set forth in such warrants or other instruments,
the Depositary will, on behalf of such Owner, exercise the rights and purchase
the Preferred Shares, and the Registrant will cause the Preferred Shares so
purchased to be delivered to the Depositary on behalf of such Owner. As agent
for such Owner, the Depositary will cause the Preferred Shares so purchased to
be deposited, and will execute and deliver ADRs to such Owner, pursuant to the
Deposit Agreement. Such a disposal of rights may reduce the Owners'
proportionate equity interest in the Registrant.
The Depositary will not offer rights to Owners having an address of record
in the United States unless a registration statement under the Securities Act
is in effect with respect to such rights and the Securities to which
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such rights relate or unless the offering and sale thereof to such Owners are
exempt from registration under the Securities Act; however, the Registrant
will have no obligation to file a registration statement under the Securities
Act to make available to Owners any rights to subscribe for or to purchase any
of the Securities.
Whenever the Depositary receives any distribution other than cash, Preferred
Shares of rights in respect of the Deposited Securities, the Depositary will,
as promptly and practicable, cause the securities or property received by it
to be distributed to the Owners entitled thereto, after deduction or upon
payment of any fees and expenses of the Depositary or any taxes or other
governmental charges, in proportion to their holdings, respectively, in any
manner that the Depositary may deem equitable and practicable for
accomplishing such distribution; provided, however, that if in the opinion of
the Depositary such distribution cannot be made proportionately among the
Owners entitled thereto, or if for any other reason (including, but not
limited to, any requirement that the Registrant or the Depositary withhold an
amount on account of taxes or other governmental charges or that such
securities must be registered under the Securities Act, in order to be
distributed to Owners) the Depositary deems such distribution not to be
feasible, the Depositary may, after consultation with the Registrant, adopt
such method as it may deem equitable and practicable for the purpose of
effecting such distribution, including, but not limited to, the public or
private sale of the securities or property thus received, or any part thereof,
and the net proceeds of any such sale (net of the fees and expenses of the
Depositary) will be distributed by the Depositary to the Owners entitled
thereto as in the case of a distribution received in cash.
In connection with any distribution to Owners, the Registrant will remit to
the appropriate governmental authority or agency all amounts (if any) required
to be withheld by the Registrant and owing to such authority or agency by the
Registrant; and the Depositary and the Custodian will remit to the appropriate
governmental authority or agency all amounts (if any) required to be withheld
and owing to such authority or agency by the Depositary or Custodian. If the
Depositary determines that any distribution of property other than cash
(including Preferred Shares and rights to subscribe therefor) is subject to
any tax or governmental charge that the Depositary is obligated to withhold,
the Depositary may, by public or private sale, dispose of all or a portion of
such property in such amounts and in such manner as the Depositary deems
necessary and practicable to pay such taxes or governmental charges, and the
Depositary will distribute the net proceeds of any such sale or the balance of
any such property after deduction of such taxes or governmental charges to the
Owners entitled thereto in proportion to the number of ADSs held by them,
respectively.
Upon any change in nominal or par value, or split-up, consolidation or any
other reclassification of Deposited Securities, or upon any recapitalization,
reorganization, merger or consolidation or sale of assets affecting the
Registrant or to which it is a party, any Preferred Shares or other securities
that will be received by the Depositary or the Custodian in exchange for, in
conversion of, or in respect of Deposited Securities will be treated as new
Deposited Securities under the Deposit Agreement, and ADSs will thenceforth
represent, in addition to the existing Deposited Securities, the right to
receive the new Deposited Securities so received in exchange or conversion,
unless additional ADRs are delivered pursuant to the following sentence. In
any such case the Depositary may, and will if the Company so requests, execute
and deliver additional ADRs as in the case of a distribution in Preferred
Shares, or call for the surrender of outstanding ADRs to be exchanged for new
ADRs specifically describing such new Deposited Securities.
RECORD DATES
Whenever any cash dividend or other cash distribution shall become payable,
or whenever any distribution other than cash shall be made, or whenever rights
shall be issued with respect to the Deposited Securities, or whenever for any
reason the Depositary causes a change in the number of Preferred Shares that
are represented by each ADS or whenever the Depositary shall receive notice of
any meeting of holders of Preferred Shares or other Deposited Securities, or
whenever the Depositary shall find it necessary or convenient, the Depositary
will fix a record date, which date shall, to the extent practicable, be either
the same date as the record date fixed by the Registrant or, if different from
the record date fixed by the Registrant, fixed after consultation with the
Registrant, (a) for the determination of the Owners who will be (i) entitled
to receive such dividend, distribution of rights, or the net proceeds of the
sale thereof, or (ii) entitled to give instructions for the exercise of voting
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rights at any such meeting, or (b) on or after which such ADS will represent
the changed number of Preferred Shares, all subject to the provisions of the
Deposit Agreement.
VOTING OF THE DEPOSITED SECURITIES
Preferred Shares do not entitle the holders thereof to vote on any matter
presented to a vote of shareholders of the Registrant except as set forth
under "--Capital Stock--Voting Rights." With respect to the circumstances set
forth thereunder and if, in the future, the terms of the Preferred Shares
should be revised or amended so as to provide for voting rights, or should the
Preferred Shares obtain voting rights pursuant to the Brazilian Corporation
Law or through any change in the laws, rules, or regulations applicable to
such shares or through any change in interpretation of such laws, the
following shall apply.
As soon as practicable after receipt of notice of any meeting or
solicitation of consents or proxies of holders of Preferred Shares or other
Deposited Securities, if requested in writing by the Registrant, the
Depositary will, as soon as practicable thereafter, mail to all Owners a
notice, the form of which notice will be in the sole
discretion of the Depositary, containing (a) the information included in such
notice of meeting received by the Depositary from the Registrant (or a summary
in English of the notice of such meeting), (b) a statement that the Owners as
of the close of business on a specified record date will be entitled, subject
to any applicable provision of Brazilian law, the By-laws and the provisions
of the Deposited Securities, to instruct the Depositary as to the exercise of
the voting rights, if any, pertaining to the Preferred Shares or other
Deposited Securities represented by their respective ADSs and (c) a statement
as to the manner in which such instructions may be given, including an express
indication that instructions may be given or deemed given in accordance with
the last sentence of this paragraph if no instruction is received, to the
Depositary to give a discretionary proxy to a person designated by the
Registrant. Upon the written request of an Owner on such record date, received
on or before the date established by the Depositary for such purpose, the
Depositary will endeavor, insofar as practicable, to vote or cause to be voted
the amount of Preferred Shares or other Deposited Securities represented by
the ADSs evidenced by such ADRs in accordance with the instructions set forth
in such request. The Depositary may not itself exercise any voting discretion
over any Preferred Shares. If the Depositary does not receive instructions
from an Owner on or before the date established by the Depositary for such
purpose, the Depositary will deem such Owner to have instructed the Depositary
to give a discretionary proxy to a person designated by the Registrant to vote
the underlying Preferred Shares, provided that no such discretionary proxy
will be given with respect to any manner as to which the Registrant informs
the Depositary that (i) the Registrant does not wish such proxy given, (ii)
substantial opposition exists or (iii) the rights of holders of Preferred
Shares will be materially and adversely affected. Under Brazilian law the
Depositary may vote the Preferred Shares or other Deposited Securities
represented by ADSs and evidenced by ADRs in accordance with the instructions
of the Owners even if those instructions differ among such Owners.
Owners are not entitled to attend meetings of shareholders. An Owner wishing
to do so must cancel its ADRs and obtain delivery of the underlying shares,
registered in the name of such Owner, prior to the record date for attendance
at such meeting.
REPORTS AND OTHER COMMUNICATIONS
The Depositary will make available for inspection by Owners at its Corporate
Trust Office any reports and communications, including any proxy soliciting
material, received from the Registrant, which are both (a) received by the
Depositary as the holder of the Deposited Securities and (b) made generally
available to holders of such Deposited Securities by the Registrant. The
Depositary will also send to Owners copies of such reports when furnished by
the Registrant pursuant to the Deposit Agreement. Any such reports and
communications furnished to the Depositary by the Registrant will be furnished
in English, to the extent that such materials are required to be translated
into English pursuant to any regulations of the Commission.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of the ADRs and any provision of the Deposit Agreement may at any
time and from time to time be amended by agreement between the Registrant and
the Depositary in any respect which they may deem
62
<PAGE>
necessary or desirable. Any amendment that imposes or increases any fees or
charges (other than taxes and other governmental charges, registration fees,
cable, telex or facsimile transmission costs, delivery costs or other such
expenses), or which otherwise prejudices any substantial existing rights of
Owners, will not take effect as to the outstanding ADRs until the expiration
of 30 days after notice of such amendment has been given to the Owners of
outstanding ADRs. Every Owner and Beneficial Owner at the time such amendment
becomes effective will be deemed, by continuing to hold such ADR, to consent
and agree to such amendment and to be bound by the Deposit Agreement as
amended thereby. In no event will any amendment impair the right of any Owner
to surrender his ADR and receive therefor the Preferred Shares and other
property represented thereby, except to comply with mandatory provisions of
applicable law.
The Depositary will at any time at the direction of the Registrant terminate
the Deposit Agreement by mailing notice of such termination to the Owners then
outstanding at least 30 days prior to the date fixed in such notice for such
termination. The Depositary may likewise terminate the Deposit Agreement by
mailing notice of such termination to the Registrant and the Owners, if at any
time after 60 days have expired after the Depositary shall have delivered
written notice of its election to resign to the Registrant, a successor
depositary shall not have been appointed and accepted its appointment, in
accordance with the terms of the Deposit Agreement. If any ADRs remain
outstanding after the date of termination, the Depositary thereafter will
discontinue the registration of transfer of ADRs, will suspend the
distribution of dividends to the holders thereof and will not give any further
notices or perform any further acts under the Deposit Agreement, except for
(1) the collection of dividends and other distributions pertaining to the
Deposited Securities, (2) the sale of rights and other property and (3) the
delivery of Preferred Shares, together with any dividends or other
distributions received with respect thereto and the net proceeds of the sale
of any rights or other property, in exchange for surrendered ADRs (after
deducting, in each case, the fees of the Depositary for the surrender of an
ADR and other expenses set forth in the Deposit Agreement and any applicable
taxes or governmental charges).
At any time after the expiration of one year from the date of termination,
the Depositary may sell the Deposited Securities then held thereunder and hold
uninvested the net proceeds of such sale, together with any other cash,
unsegregated and without liability for interest, for the pro rata benefit of
the Owners that have not theretofore surrendered their ADRs, such Owners
thereupon becoming general creditors of the Depositary with respect to such
net proceeds. After making such sale, the Depositary will be discharged from
all obligations under the Deposit Agreement, except to account for net
proceeds and other cash (after deducting, in each case, the fee of the
Depositary and other expenses set forth in the Deposit Agreement for the
surrender of an ADR and any applicable taxes or other governmental charges)
and certain indemnification obligations. Upon termination of the Deposit
Agreement, the Registrant will also be discharged from all obligations
thereunder, except for certain obligations to the Depositary.
CHARGES OF DEPOSITARY
The Depositary will charge (to the extent permitted by applicable law) any
party depositing or withdrawing Preferred Shares or any party surrendering
ADRs or to whom ADRs are issued (including, without limitation, issuance
pursuant to a stock dividend or stock split declared by the Company or an
exchange of stock regarding the ADRs or Deposited Securities or a distribution
of ADRs pursuant to the Deposit Agreement), whichever is applicable: (1) taxes
and other governmental charges, (2) such registration fees as may from time to
time be in effect for the registration of transfers of Preferred Shares
generally on the register of the Registrant or the Registrar and applicable to
transfers of Preferred Shares to the name of the Depositary or its nominee or
the Custodian or its nominee on the making of deposits or withdrawals under
the Deposit Agreement, (3) such cable, telex and facsimile transmission
expenses as are expressly provided in the Deposit Agreement to be at the
expense of persons depositing Preferred Shares or Owners, (4) such expenses as
are incurred by the Depositary in the conversion of foreign currency pursuant
to the Deposit Agreement, (5) a fee not in excess of $5.00 per 100 ADSs (or
portion thereof) for the execution and delivery of ADRs pursuant to the
Deposit Agreement and the surrender of ADRs pursuant to the Deposit Agreement,
and (6) a fee for the distribution of proceeds of sales of securities or
rights pursuant to the Deposit Agreement, such fee (which may be deducted from
such proceeds)
63
<PAGE>
being in an amount equal to the lesser of (i) the fee for issuance of ADSs
referred to above which would have been charged as a result of the deposit of
such securities (for purposes of this clause treating all such securities as
if they were Preferred Shares) or Preferred Shares received in exercise of
rights distributed to them pursuant to the Deposit Agreement, but which
securities or rights are instead sold by the Depositary and the net proceeds
distributed and (ii) the amount of such proceeds.
The Depositary, pursuant to the Deposit Agreement, may own and deal in any
class of securities of the Company and its affiliates and in ADRs.
LIABILITY OF OWNERS OR BENEFICIAL OWNERS FOR TAXES OR OTHER CHARGES
If any tax or other governmental charge shall become payable by the
Custodian, the Depositary or its nominee with respect to any ADR or any
Deposited Securities represented by the ADSs evidenced by such ADR, such tax
or other governmental charge will be payable by the Owner or Beneficial Owner
of such ADR. The Depositary may refuse to effect registration of transfer of
such ADR or any split-up or combination thereof or any withdrawal of Deposited
Securities underlying such ADR until such payment is made, and may withhold
any dividends or other distributions or may sell for the account of such Owner
or Beneficial Owner any part or all of the Deposited Securities underlying
such ADR and may apply such dividends or distributions or the proceeds of any
such sale in payment of any such tax or other governmental charge (and any
taxes or expenses arising out of such sale) and the Owner or Beneficial Owner
of such ADR will remain liable for any deficiency.
LIMITATION ON EXECUTION, DELIVERY, TRANSFER AND SURRENDER OF ADRS
The ADRs are transferable on the books of the Depositary, provided that the
Depositary may close the transfer books after consultation with the Registrant
to the extent practicable at any time or from time to time when deemed
expedient by it in connection with the performance of its duties or at the
request of the Registrant.
As a condition precedent to the execution and delivery, registration of
transfer, split-up, combination or surrender of any ADR, the delivery of any
distribution thereon or the withdrawal of Deposited Securities, the
Depositary, the Registrant, the Custodian or the Registrar may require payment
from the depositor of Preferred Shares or the presenter of the ADR of a sum
sufficient to reimburse it for any tax or other governmental charge and any
stock transfer or registration fee with respect thereto (including any such
tax, charge or fee with respect to Preferred Shares being deposited or
withdrawn) and payment of any other applicable fees provided for in the
Deposit Agreement. The Depositary may refuse to deliver ADRs, register the
transfer of any ADR or make any distribution of, or related to, the Preferred
Shares until it has received such proof of citizenship, residence, exchange
control approval, compliance with all applicable laws or regulations, or other
information as it may reasonably deem necessary or proper. The delivery,
transfer, registration of transfer, split-up, combination and surrender of
ADRs generally may be suspended or refused during any period when the transfer
books of the Depositary, the Registrant or the Registrar are closed or if any
such action is deemed necessary or advisable by the Depositary or the
Registrant, at any time or from time to time.
The Depositary will keep books, at its Corporate Trust Office, for the
registration and transfer of ADRs, which at all reasonable times will be open
for inspection by the Owners, provided that such inspection will not be for
the purpose of communicating with Owners in the interest of a business or
object other than the business of the Registrant or a matter related to the
Deposit Agreement or the ADRs.
The Depositary may upon notice to the Registrant appoint one or more co-
transfer agents reasonably acceptable to the Registrant for the purpose of
effecting transfers, combinations and split-ups of ADRs at designated transfer
offices on behalf of the Depositary. In carrying out its functions, a co-
transfer agent may require evidence of authority and compliance with
applicable laws and other requirements by Owners or persons entitled to ADRs
and will be entitled to protection and indemnity to the same extent as the
Depositary.
64
<PAGE>
LIMITATION OF LIABILITY
Neither the Depositary nor the Registrant nor any of their respective
directors, employees, agents or affiliates will be liable to any Owners or
Beneficial Owners of ADRs if by reason of any provision of any present or
future law or regulation of the United States, Brazil or any other country, or
of any other governmental or regulatory authority or stock exchange, or by
reason of any provision, present or future, of the By-laws, or by reason of
any act of God or war or other circumstance beyond its control, the Depositary
or the Registrant or any of their respective directors, employees, agents, or
affiliates shall be prevented, delayed or forbidden from, or be subject to any
civil or criminal penalty on account of, doing or performing any act or thing
which by terms of the Deposit Agreement it is provided will be done or
performed; nor will the Depositary or the Registrant incur any liability to
any Owner or Beneficial Owner of any ADR by reason of any nonperformance or
delay, caused as aforesaid, in the performance of any act or thing which by
the terms of the Deposit Agreement it is provided will or may be done or
performed, or by reason of any exercise of, or failure to exercise, any
discretion provided for under the Deposit Agreement. Where, by the terms of a
distribution pursuant to the Deposit Agreement, or an offering or distribution
pursuant to the Deposit Agreement, or for any other reason, the Depositary is
prevented or prohibited from making such distribution or offering available to
Owners, and the Depositary is prevented or prohibited from making such
distribution or offering on behalf of such Owners and making the net proceeds
available to such Owners, then the Depositary, after consultation with the
Registrant, will not make such distribution or offering, and will allow the
rights, if applicable, to lapse.
The Registrant and the Depositary assume no obligation nor will they be
subject to any liability under the Deposit Agreement to Owners or Beneficial
Owners of ADRs, except that they agree to perform their respective obligations
specifically set forth under the Deposit Agreement without negligence or bad
faith.
GOVERNING LAW
The Deposit Agreement is governed by the laws of the State of New York.
65
<PAGE>
PART III
ITEM 15: DEFAULTS UPON SENIOR SECURITIES
The Company is party to certain credit agreements that contain covenants
restricting, among other things, (i) the ability of Telebras to dispose of all
or a substantial part of its assets or to cease to control a company that was
an operating subsidiary of the Telebras System and (ii) the ability of the
Federal Government to dispose of its controlling interest in the Telebras
System. The Breakup of Telebras on May 22, 1998, the privatization of the New
Holding Companies on July 29, 1998 and the announced liquidation of Telebras
constitute events of default under such credit agreements. In addition, most
of the Company's other credit agreements include cross-default provisions and
cross-acceleration provisions that would permit the holders of such
indebtedness to declare the indebtedness to be in default and to accelerate
the maturity thereof if a significant portion of the principal amount of the
Company's debt is in default or accelerated. The total amount of the Company's
outstanding debt as of December 31, 1997, which is currently, or is expected
to be in default is R$462.2 million. The Company is currently in negotiations
with the appropriate creditors with respect to this indebtedness. Although
none of the Company's creditors have notified the Company that they intend to
pursue their rights and remedies with respect to these defaults, there can be
no assurance that the Company will be able to obtain waivers or that the
creditors will not exercise their rights and remedies under the credit
agreements.
ITEM 16: CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED
SECURITIES
Not applicable.
PART IV
ITEM 17: CONSOLIDATED FINANCIAL STATEMENTS
The Registrant has responded to Item 18 in lieu of responding to this Item.
ITEM 18: CONSOLIDATED FINANCIAL STATEMENTS
Reference is made to pages F-1 through F-44.
ITEM 19: CONSOLIDATED FINANCIAL STATEMENTS AND EXHIBITS
(a) The following Consolidated Financial Statements are filed as part of
this Form 20-F:
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1996 and 1997
Consolidated Statements of Income for the Years Ended December 31, 1995,
1996 and 1997
Consolidated Statements of Cash Flows for the Years Ended December 31,
1995, 1996 and 1997
Consolidated Statements of Changes in Shareholders' Equity for the Years
Ended December 31, 1995, 1996 and 1997
Notes to the Consolidated Financial Statements
(b) Exhibits
1.1 Charter of the Registrant
1.2 Charter of the Registrant (English translation)
2.1 Deposit Agreement dated as of July 27, 1998 among the Registrant,
The Bank of New York, as Depositary, and Owners and Beneficial
Owners of American Depositary Receipts issued thereunder
66
<PAGE>
10.1 Standard Concession Agreement for Domestic Long-Distance, Switched,
Fixed-Line Telephone Service (Embratel)
10.2 Standard Concession Agreement for Domestic Long-Distance, Switched,
Fixed-Line Telephone Service (Embratel) (English translation)
10.3 Standard Concession Agreement for International Long-Distance,
Switched, Fixed-Line Telephone Service (Embratel)
10.4 Standard Concession Agreement for International Long-Distance,
Switched, Fixed-Line Telephone Service (Embratel) (English
translation)
23.1 Consent of KPMG Peat Marwick.
67
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant certifies that it meets all of the requirements for
filing this registration statement on Form 20-F and has duly caused this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized.
Embratel Participacoes S.A.
/s/ Luis Fernando Motta Rodrigues
By: _________________________________
Name: Luis Fernando Motta Rodrigues
President and Director of
Title: Investor Relations
/s/ Dilio Sergio Penedo
By: _________________________________
Name: Dilio Sergio Penedo
Title: Vice President
Dated: September 21, 1998
68
<PAGE>
EMBRATEL PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 28)
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
CONTENTS
<TABLE>
<S> <C>
Independent Auditors' Report.................................. F-2
Consolidated Balance Sheets................................... F-3
Consolidated Statements of Income............................. F-4
Consolidated Statements of Cash Flows......................... F-5
Consolidated Statements of Changes in Shareholders' Equity.... F-6
Notes to the Consolidated Financial Statements................ F-7 through F-45
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders Embratel Participacoes S.A.
We have audited the accompanying consolidated balance sheets of Embratel
Participacoes S.A. as of December 31, 1996 and 1997, and the related
consolidated statements of income, cash flows and changes in shareholders'
equity for each of the years in the three-year period ended December 31, 1997.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Brazil, which do not differ in any material respects from
generally accepted auditing standards in the United States of America. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Embratel
Participacoes S.A. as of December 31, 1996 and 1997, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with accounting principles generally
accepted in Brazil, including continued recognition of the effects of changes
in the purchasing power of the Brazilian currency as discussed in Note 2.
Generally accepted accounting principles in Brazil vary in certain respects
from generally accepted accounting principles in the United States of America.
Application of generally accepted accounting principles in the United States
of America would have affected results of operations for each of the years in
the two-year period ended December 31, 1997 and shareholders' equity as of
December 31, 1996 and 1997 to the extent summarized in Note 29 of the
consolidated financial statements.
July 17, 1998
Brasilia, Brazil
KPMG Peat Marwick
F-2
<PAGE>
EMBRATEL PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 28)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
(IN THOUSANDS OF CONSTANT BRAZILIAN REAIS--R$ OF
DECEMBER 31, 1997 AND THOUSANDS OF US DOLLARS--US$)
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------
1996 1997 1997
NOTE R$ R$ US$
---- --------- --------- ---------
UNAUDITED
(NOTE 2B)
<S> <C> <C> <C> <C>
Current assets:
Other cash and cash equivalents:
Deposits with Banco do Brasil............. 24 647,006 694,699 622,267
Other cash and cash equivalents........... 10 58,260 60,037 53,777
Accounts receivable:
Trade, net................................ 11 303,765 247,004 221,251
Trade receivables from related parties.... 24 139,861 222,271 199,096
Deferred and recoverable taxes............ 12 150,794 198,259 177,588
Other assets:
Other accounts receivable from related
parties.................................. 24 4,710 7,062 6,326
Loans and financing receivable from
related parties.......................... 24 12,795 4,994 4,473
Other..................................... 13 64,725 79,944 71,609
--------- --------- ---------
Total current assets..................... 1,381,916 1,514,270 1,356,387
--------- --------- ---------
Noncurrent assets:
Other assets.............................. 13 57,021 47,798 42,814
--------- --------- ---------
Permanent assets:
Investments............................... 14 50,983 71,156 63,737
Property, plant and equipment, net........ 15 6,319,963 6,469,263 5,794,754
--------- --------- ---------
Total permanent assets................... 6,370,946 6,540,419 5,858,491
--------- --------- ---------
Total assets............................... 7,809,883 8,102,487 7,257,692
========= ========= =========
Current liabilities:
Payroll and related accruals.............. 16 106,759 113,574 101,732
Accounts payable and accrued expenses..... 17 450,247 430,158 385,308
Taxes other than income taxes............. 18 23,164 44,864 40,186
Proposed dividends:
Dividends and interest on own capital
payable to Telebras...................... 24 231,300 292,191 261,726
Dividends payable to others............... 2,928 3,890 3,484
Income taxes.............................. 8 6,203 22,577 20,223
Loans and financing....................... 19 150,692 108,406 97,103
Provisions for contingencies.............. 20 15,373 11,019 9,870
Other liabilities:
Payable to related parties................ 24 10,090 10,760 9,638
Other..................................... 41,147 38,598 34,575
--------- --------- ---------
Total current liabilities................ 1,037,903 1,076,037 963,845
--------- --------- ---------
Noncurrent liabilities:
Income taxes.............................. 8 240,423 314,786 281,965
Loans and financing....................... 19 448,578 471,468 422,311
Deferred income........................... 84,412 97,211 87,075
Other liabilities......................... 44,964 56,597 50,696
--------- --------- ---------
Total noncurrent liabilities............. 818,377 940,062 842,047
--------- --------- ---------
Minority interests......................... 2 74,420 76,086 68,154
--------- --------- ---------
Shareholders' equity:
Capital and reserves...................... 4,257,623 4,229,635 3,788,638
Retained earnings......................... 1,621,560 1,780,667 1,595,008
--------- --------- ---------
Total shareholders' equity............... 22 5,879,183 6,010,302 5,383,646
--------- --------- ---------
Total liabilities and shareholders'
equity.................................... 7,809,883 8,102,487 7,257,692
========= ========= =========
</TABLE>
See the accompanying notes to the consolidated financial statements
F-3
<PAGE>
EMBRATEL PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 28)
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS OF CONSTANT BRAZILIAN REAIS--R$ OF
DECEMBER 31, 1997 AND THOUSANDS OF US DOLLARS--US$)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------------------------
1995 1996 1997 1997
NOTE R$ R$ R$ US$
----- ---------- ---------- ---------- ---------
UNAUDITED
(NOTE 2B)
<S> <C> <C> <C> <C> <C>
Net operating revenue
from telecommunication
services:
Services provided to
third parties......... 4 981,172 1,290,061 1,089,464 975,874
Services provided to
the Telebras operating
companies............. 4, 24 740,024 797,569 1,123,492 1,006,351
---------- ---------- ---------- ---------
1,721,196 2,087,630 2,212,956 1,982,225
---------- ---------- ---------- ---------
Cost of services:
Provided by third
parties .............. 5 (1,131,137) (1,135,944) (1,093,413) (979,410)
Provided by the
Telebras operating
companies ............ 5, 24 (11,583) (9,669) (4,150) (3,717)
---------- ---------- ---------- ---------
(1,142,720) (1,145,613) (1,097,563) (983,127)
---------- ---------- ---------- ---------
Gross profit............. 578,476 942,017 1,115,393 999,098
Operating expenses:
Selling expense........ (147,556) (160,243) (219,308) (196,442)
General and
administrative
expense............... (245,372) (237,216) (213,617) (191,345)
Other net operating
income (expense)...... 6 36,400 (47,812) (84,621) (75,798)
---------- ---------- ---------- ---------
Operating income before
interest................ 221,948 496,746 597,847 535,513
Interest income........ 54,992 86,622 97,809 87,611
Interest expense....... -- (30,723) (40,110) (35,928)
---------- ---------- ---------- ---------
Operating income......... 276,940 552,645 655,546 587,196
Write-off of property and
equipment from physical
inventory............... 15 (94,298) (13,386) (17,246) (15,448)
Net other nonoperating
expense................. 7 (53,221) (82,576) (123,878) (110,962)
---------- ---------- ---------- ---------
Income before taxes and
other charges........... 129,421 456,683 514,422 460,786
Income and social
contribution taxes...... 8 54,661 (13,861) 1,016 910
---------- ---------- ---------- ---------
Income before employees'
profit share and
minority interests...... 184,082 442,822 515,438 461,696
Employees' profit share.. (21,766) (22,642) (30,622) (27,430)
---------- ---------- ---------- ---------
Income before minority
interests............... 162,316 420,180 484,816 434,266
Minority interests....... 2 (2,041) (5,253) (6,061) (5,429)
---------- ---------- ---------- ---------
Net income............... 160,275 414,927 478,755 428,837
========== ========== ========== =========
</TABLE>
See the accompanying notes to the consolidated financial statements.
F-4
<PAGE>
EMBRATEL PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 28)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS OF CONSTANT BRAZILIAN REAIS--R$ OF DECEMBER 31, 1997 AND
THOUSANDS OF US DOLLARS--US$)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------------------
1995 1996 1997 1997
R$ R$ R$ US$
-------- --------- --------- ---------
UNAUDITED
(NOTE 2B)
<S> <C> <C> <C> <C>
CASH PROVIDED BY OPERATIONS:
Net income......................... 160,275 414,927 478,755 428,837
Adjustments to reconcile net income
to cash provided by operating
activities:
Depreciation and amortization..... 676,195 640,067 673,305 603,105
Minority interests................ 2,041 5,253 6,061 5,429
Losses on disposal and write-offs
of permanent assets.............. 165,686 112,981 169,627 151,941
Allowance for doubtful accounts... (2,222) - (1,337) (1,198)
Decrease in income tax rate....... 159,752 34,233 2,917 2,613
(Increase) decrease in trade
accounts receivables............. 25,847 5,142 (24,312) (21,777)
(Increase) decrease in other
accounts receivable from related
parties.......................... (1,179) 3,081 (2,352) (2,107)
Decrease in loans and financing
receivable from related parties.. 37,998 10,698 7,801 6,988
(Increase) decrease in other
current assets................... (136,910) 36,306 (15,219) (13,632)
(Increase) decrease in other
noncurrent assets................ (15,812) (941) 9,223 8,261
Increase (decrease) in payroll and
related accruals................. (5,860) 25,002 6,815 6,104
Increase (decrease) in accounts
payable and accrued expenses..... 135,012 85,386 (20,089) (17,994)
Increase (decrease) in taxes other
than income taxes................ (4,497) 2,620 21,700 19,437
Increase (decrease) in payable to
related parties.................. 259 (969) 670 600
Increase (decrease) in other
current liabilities.............. (13,399) 303 (2,549) (2,283)
Increase (decrease) in accrued
interest......................... 2,822 (1,207) (724) (649)
Decrease in income taxes.......... (263,393) (51,310) (118,658) (106,287)
Decrease in provisions for
contingencies.................... (9,852) (13,952) (4,354) (3,900)
Increase in deferred income....... 20,942 63,470 12,799 11,465
Increase in other noncurrent
liabilities...................... 4,556 7,209 11,633 10,420
-------- --------- --------- ---------
938,261 1,378,299 1,211,712 1,085,373
-------- --------- --------- ---------
CASH FLOW FROM INVESTING ACTIVITIES:
Additions to investments........... (6,130) (1,260) (20,173) (18,070)
Additions to property, plant and
equipment......................... (704,327) (941,864) (918,054) (822,334)
Capitalized interest............... (27,075) (13,341) (7,998) (7,164)
Proceeds from asset disposals...... 11,303 9,079 36,883 33,037
-------- --------- --------- ---------
(726,229) (947,386) (909,342) (814,531)
-------- --------- --------- ---------
CASH FLOW FROM FINANCING ACTIVITIES:
Loans repaid....................... (72,168) (76,982) (105,955) (94,908)
New loans obtained................. 78,563 140,026 87,283 78,183
Dividends paid:
Dividends paid to Telebras........ (162,990) (85,921) (231,300) (207,186)
Dividends paid to others.......... (2,168) (1,143) (2,928) (2,621)
-------- --------- --------- ---------
(158,763) (24,020) (252,900) (226,532)
-------- --------- --------- ---------
Increase in cash and cash
equivalents........................ 53,269 406,893 49,470 44,310
Cash and cash equivalents at
beginning of year.................. 245,104 298,373 705,266 631,734
-------- --------- --------- ---------
Cash and cash equivalents at end of
year............................... 298,373 705,266 754,736 676,044
======== ========= ========= =========
</TABLE>
See the accompanying notes to the consolidated financial statements.
F-5
<PAGE>
EMBRATEL PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 28)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS OF CONSTANT BRAZILIAN REAIS--R$ OF DECEMBER 31, 1997)
<TABLE>
<CAPTION>
CAPITAL
AND RETAINED
RESERVES EARNINGS TOTAL
--------- --------- ---------
<S> <C> <C> <C>
Balances at December 31, 1994................. 4,120,432 1,371,614 5,492,046
Fiscal incentive investments.................. 13,508 - 13,508
Interest on construction in progress.......... 122,840 - 122,840
Change in tax rates........................... 128,440 31,312 159,752
Net income.................................... -- 160,275 160,275
Realization of reserves....................... (124,464) 124,464 -
Appropriations:
Transfers to reserves........................ 123,629 (123,629) -
Dividends.................................... - (87,064) (87,064)
Minority interest movements.................. (1,120) 1,383 263
--------- --------- ---------
Balances at December 31, 1995................. 4,383,265 1,478,355 5,861,620
Fiscal incentive investments.................. 47 - 47
Interest on construction in progress.......... 142,823 - 142,823
Change in tax rates........................... (52,278) 86,511 34,233
Reversal of revaluation of permanent assets:
Permanent assets............................. (262,867) - (262,867)
Tax effects of reversal...................... 80,319 80,319
Net income.................................... - 414,927 414,927
Realization of unrealized income.............. (57,490) 57,490
Deferred tax on full indexation............... - (163,203) (163,203)
Appropriations:
Transfers to reserves........................ 21,884 (21,884) -
Dividends.................................... - (234,228) (234,228)
Minority interest movements.................. 1,920 3,592 5,512
--------- --------- ---------
Balances at December 31, 1996................. 4,257,623 1,621,560 5,879,183
Fiscal incentive investments.................. 904 - 904
Interest on construction in progress.......... 102,160 - 102,160
Change in tax rates........................... - 2,917 2,917
Net income.................................... - 478,755 478,755
Realization of unrealized income.............. (156,810) 156,810 -
Deferred tax on full indexation............... - (138,120) (138,120)
Appropriations:
Transfers to reserves........................ 25,408 (25,408) -
Interest on own capital...................... - (160,000) (160,000)
Dividends.................................... - (159,891) (159,891)
Minority interest movements.................. 350 4,044 4,394
--------- --------- ---------
Balances at December 31, 1997................. 4,229,635 1,780,667 6,010,302
========= ========= =========
</TABLE>
See the accompanying notes to the consolidated financial statements.
F-6
<PAGE>
EMBRATEL PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 28)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS OF DECEMBER 31,
1997)
1. OPERATIONS AND BACKGROUND
Beginning in 1995, the Federal Government of Brazil (the "Federal
Government") undertook a comprehensive reform of the Brazilian regulation
of the telecommunications industry. In July 1995, the Federal Congress
adopted a General Telecommunications Law providing for the privatization of
Telecomunicacoes Brasileiras S.A. ("Telebras") which, through its 28
operating subsidiaries, was the primary supplier of public
telecommunications services in Brazil.
In preparation of the privatization of the Telebras system, the operating
companies have been divided into twelve separate groups, (a) three regional
fixed line operators, (b) eight regional cellular operators and (c) one
national long-distance operator, Empresa Brasileira de Telecomunicacoes
S.A.--Embratel, using a procedure under Brazilian corporate law called a
cisao or spin-off. As part of this process, Embratel Participacoes S.A.
(the "Holding Company") was formed.
Embratel Participacoes S.A. was formed on May 22, 1998, through the spin-
off of certain assets and liabilities of Telebras, including 98.7% of the
share capital of Empresa Brasileira de Telecomunicacoes S.A.--Embratel
("Embratel"). Until August 4, 1998, the Company was controlled by the
Federal Government (see Note 28).
The Company provides international and domestic long-distance
telecommunications services in Brazil. These services include data
communication, text and sound and image transmission and are performed
under the terms of a concession to be granted by the Federal Government
which will expire on December 31, 2005 and may be renewed for a further
term of 20 years.
The Company's business, including the services it may provide and the rates
it charges, is regulated by the Agencia Nacional de Telecomunicacoes
("Anatel"), the regulatory authority for the Brazilian telecommunications
industry pursuant to Law No. 9,472 of July 16, 1997 and the related
regulations, decrees, orders and plans.
2. PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements present the consolidated financial
condition and results of operations of Embratel Participacoes and its
subsidiary, Embratel (the "Company"). The formation of the Holding Company
has been accounted for as a reorganization of entities under common control
in a manner similar to a pooling of interests. The portion of equity and
net income attributable to shareholders other than Telebras at December 31,
1996 and 1997, and for each of the years in the three year period ended
December 31, 1997 is reflected as "minority interests" in the consolidated
financial statements. At December 31, 1997, such minority shareholders
owned 1.7% of the share capital of Embratel.
The consolidated financial statements were prepared on a fully indexed
basis to recognize the effects of changes in the purchasing power of the
Brazilian currency during the periods presented.
A. FULL INDEXATION TO DECEMBER 31, 1997
The principal criteria adopted to prepare the fully indexed consolidated
financial statements, which are restated from amounts recorded in
Embratel's statutory accounting records maintained in accordance with the
practices described in Note 3, are as follows:
i. Inflation restatement index
The consolidated financial statements were indexed and expressed in
currency of constant purchasing power of December 31, 1997 by using the
monthly average values of the Fiscal Reference Unit ("UFIR') through
December 31, 1995 and the retail price index ("IGP-M') of the Getulio
Vargas Foundation in 1996 and 1997 following the cessation of the
widespread use of the UFIR which resulted from the change in Brazil's
corporate law.
F-7
<PAGE>
EMBRATEL PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 28)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS OF DECEMBER 31,
1997)
Inflation for the three year period ended December 31, 1997, as measured by
the UFIR and the IGP-M, was as follows:
<TABLE>
<CAPTION>
ANNUAL INFLATION
PERIOD INDEX %
------ ----- ----------------
<S> <C> <C>
Year ended December 31, 1995.......................... UFIR 22.5
Year ended December 31, 1996.......................... IGP-M 9.2
Year ended December 31, 1997.......................... IGP-M 7.7
</TABLE>
Management believes that these indices are appropriate indications of
general price level inflation to be used under Brazilian and US GAAP for
the years indicated.
In July 1997, the three-year cumulative inflation rate for Brazil fell
below 100%. However, for accounting purposes, the constant currency method
continued to be applied through December 31, 1997. The Brazilian Institute
of Accountants has not yet published definitive rules regarding when the
constant currency method of accounting may no longer be used to prepare
consolidated financial statements. If the Brazilian Institute of
Accountants determines that the constant currency method may no longer be
used to prepare consolidated financial statements beginning January 1,
1998, the restated balances of nonmonetary assets and liabilities of the
Company as of December 31, 1997 will become the new basis for accounting,
and consolidated statement of income items will no longer be restated for
inflation.
ii. Consolidated statements of income
Items in the consolidated statements of income are adjusted to the balance
sheet date by:
. allocating inflationary holding gains or losses on interest bearing
monetary assets and liabilities to their corresponding interest income
and expense captions; and,
. allocating inflationary holding gains and losses from other monetary
items to their corresponding income or expense captions. Amounts without
a corresponding income or expense caption were allocated "other net
operating income."
iii. Deferred income tax effects of indexation adjustments in 1996 and 1997
As a result of legislation mandating the discontinuation of the indexation
system for Brazilian corporate law and most fiscal purposes as from January
1, 1996, the indexation of assets and liabilities for financial reporting
purposes herein is not permitted for tax purposes. Accordingly, a deferred
tax liability arises for the excess of net assets shown for financial
reporting purposes over the tax basis of these net assets. The charge
relating to the additional deferred tax liabilities of R$163,203 and
R$138,120 in 1996 and 1997, respectively, was recorded directly against
retained earnings.
B. TRANSLATION OF CONSTANT BRAZILIAN REAL AMOUNTS INTO U.S. DOLLAR AMOUNTS
The translation of Brazilian Real amounts into U.S. dollar amounts is
unaudited and included solely for the convenience of readers outside of
Brazil and has been performed using the closing selling exchange rate
published by the Central Bank of Brazil of R$1.1164 to US$1.00 as of
December 31, 1997. This translation should not be construed as a
representation that Brazilian Real amounts could be converted to U.S.
dollars at this or any other rate.
C. PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include the financial records of
the Holding Company and its subsidiary, Embratel. All material intercompany
accounts and transactions have been eliminated.
F-8
<PAGE>
EMBRATEL PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 28)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS OF DECEMBER 31,
1997)
3. SUMMARY OF THE PRINCIPAL ACCOUNTING PRACTICES
A. CASH EQUIVALENTS
Cash equivalents are considered to be all highly liquid temporary cash
investments with original maturity dates of three months or less.
B. TRADE ACCOUNTS RECEIVABLE
Accounts receivable from affiliate operating companies and other customers
are calculated at the tariff rate on the date the services were rendered
and discounted to their present value at the balance sheet date by applying
the interest rate published by the National Association of Investment
Bankers ("ANBID'). Trade accounts receivable also include services provided
to customers up to the balance sheet date but not yet invoiced.
C. ALLOWANCE FOR DOUBTFUL ACCOUNTS
Provision is made for Trade accounts receivable for which recoverability is
considered improbable.
D. FOREIGN CURRENCY TRANSACTIONS
Transactions in foreign currency are recorded at the prevailing exchange
rate at the time of the related transactions. Foreign currency denominated
assets and liabilities are translated using the exchange rate at the
balance sheet date. Exchange differences are recognized in the statement of
income as they occur.
E. INVENTORIES
Inventories are stated at the lower of indexed cost or replacement value
and are included within other assets on the Balance Sheet. Cost of
inventories is determined principally on the average cost basis.
F. INVESTMENTS
Shares in the Intelsat and Inmarsat communication satellites are recorded
at indexed cost.
Other investments are recorded at indexed cost less a provision for losses
when considered necessary.
G. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at indexed cost. Improvements to
existing property are capitalized while maintenance and repair costs are
charged to expense as incurred. Materials allocated to specific projects
are added to construction-in-progress. The residual value of old or
obsolete equipment is written off at the time the equipment is retired from
service, substantially all of which occurs in the year in which it is
identified as requiring replacement. Depreciation is provided using the
straight-line method based on the estimated useful lives of the underlying
assets as determined by the public telecommunications service regulators.
The principal depreciation rates are shown in Note 15(b).
Interest, calculated monthly at a rate of 12% per annum on construction-in-
progress, is capitalized as part of property, plant and equipment until the
asset is placed in service.
H. ACCOUNTS PAYABLE
Accounts payable to suppliers are discounted to their present value using
the ANBID interest rate.
I. VACATION PAY ACCRUAL
Cumulative vacation pay due to employees is accrued as earned.
F-9
<PAGE>
EMBRATEL PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 28)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS OF DECEMBER 31,
1997)
J. INCOME AND SOCIAL CONTRIBUTION TAXES
Income and social contribution taxes comprise federal income tax and social
contribution tax. Deferred taxes are provided on temporary differences.
K. LOANS AND FINANCING
Loans and financing include accrued interest to the balance sheet date.
L. PROVISIONS FOR CONTINGENCIES
Provisions for contingencies are based on legal advice and management's
opinion as to the likely outcome of the outstanding matters at the balance
sheet date.
M. REVENUE RECOGNITION
Revenues for all services are recognized when the service is provided.
Revenues from international and domestic long-distance services consist
mainly of charges to the state operating companies, whose customer is
billed for the call, in accordance with the revenues sharing system as well
as charges to major governmental and private customers for its other
services.
Revenues from international services also include revenues earned under
bilateral agreements between Embratel and foreign telecommunications
administrations or private operators, which are influenced by the
guidelines of the International Tariff and Trade Regulations and cover
virtually all international calls to and from Brazil. These agreements
govern the ratio of payment by Embratel to the foreign entities for the use
of their facilities in connecting international calls billed in Brazil and
by the foreign entity to Embratel for the use of its facilities in
connecting international calls billed abroad (see Note 24).
N. INTEREST INCOME (EXPENSE)
Interest income represents interest earned and gains and losses on
investments after adjusting for the effects of inflation as measured by the
variation in the inflation index and exchange gains and losses.
Interest expense represents interest incurred and gains and losses on loans
and financing after adjusting for the effects of inflation as measured by
the variation in the inflation index and net exchange gains of R$1,935,
R$13,449 and R$49,315 in 1995, 1996 and 1997, respectively.
O. VOLUNTARY RESIGNATION INCENTIVE PROGRAM
The R$62,493 cost of the 1996 voluntary resignation incentive program
relating to all employees of Embratel who exercised an option to resign or
to take early retirement by the deadline of December 31, 1996, was expensed
in 1996. At December 31, 1997, amounts of R$3,816 classified within other
current liabilities and R$4,429 classified within other noncurrent
liabilities were still outstanding, relating to the Company's commitment to
continue making monthly payments to the Telos pension fund and to the
Company health care plan to up to a maximum of 60 and 18 months,
respectively, from the date the employee left the Company.
P. RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as incurred. Total
research and development costs were R$19,950, R$17,987 and R$15,978 in
1995, 1996 and 1997, respectively.
F-10
<PAGE>
EMBRATEL PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 28)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS OF DECEMBER 31,
1997)
Q. RETIREMENT BENEFITS
Embratel sponsors a separate entity that provides pensions and other post-
retirement benefits for its employees. Current costs are determined
actuarially and are recorded on the accrual basis.
R. EMPLOYEE'S PROFIT SHARE
Embratel has made a provision for granting employees the right to a share
of the profits in accordance with the requirements of regulations
applicable to companies owned by the Federal Government.
S. SEGMENT INFORMATION
Embratel operates in the segment of long-distance and international
telecommunications, data transmission and other services. All of the
company's revenue originates from services provided within Brazil.
T. EARNINGS PER THOUSAND SHARES
Earnings per thousand shares information has not been presented as the
capital structure of Embratel Participacoes S.A. was not in place at
December 31, 1997.
U. USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
Brazilian and US GAAP requires management to make estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements, and the reported amounts of revenues and expenses during the
period reported. Actual results could differ from those estimates.
V. MINORITY INTERESTS
Minority interests reflected in the balance sheets at December 31, 1996 and
1997 and in the consolidated statements of income for the years ended
December 31, 1995, 1996 and 1997 relate to the interests of shareholders
other than Telebras in the Company.
4. NET OPERATING REVENUE FROM TELECOMMUNICATIONS SERVICES
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Gross operating revenue:
Voice................................... 1,127,294 1,239,927 1,366,622
Data.................................... 451,070 644,022 608,913
Text.................................... 86,393 69,041 34,176
Other................................... 93,589 174,703 204,308
--------- --------- ---------
Total domestic............................ 1,758,346 2,127,693 2,214,019
--------- --------- ---------
Voice................................... 367,943 405,317 443,987
Data.................................... 53,207 65,812 56,794
Text.................................... 12,442 10,804 5,699
Other................................... 17,513 19,230 21,893
--------- --------- ---------
Total international....................... 451,105 501,163 528,373
--------- --------- ---------
Total gross operating revenue............. 2,209,451 2,628,856 2,742,392
Value added and other indirect taxes...... (488,255) (541,226) (529,436)
--------- --------- ---------
Net operating revenue..................... 1,721,196 2,087,630 2,212,956
========= ========= =========
Revenue from telecommunications services
provided to the Telebras operating
companies................................ 740,024 797,569 1,123,492
Revenue from telecommunications services
provided to third parties................ 981,172 1,290,061 1,089,464
</TABLE>
F-11
<PAGE>
EMBRATEL PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 28)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS OF DECEMBER 31,
1997)
The only customer who contributed more than 10% of gross operating revenues
was Telecomunicacoes de Sao Paulo S.A. ("Telesp"), specifically in relation
to its fixed-line operations. Gross operating revenues derived from Telesp
amounted to R$299,984, R$308,591 and R$410,542 in 1995, 1996 and 1997,
respectively (see Notes 24 and 28b).
5. COST OF SERVICES
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Depreciation and amortization.................. 637,517 618,512 659,233
Personnel...................................... 392,312 413,478 313,506
Third party services........................... 77,285 81,030 101,526
Other.......................................... 35,606 32,593 23,298
--------- --------- ---------
1,142,720 1,145,613 1,097,563
========= ========= =========
</TABLE>
6. OTHER NET OPERATING INCOME (EXPENSE)
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Taxes other than income taxes.................. -- -- (58,904)
Provision for contingencies (Note 20).......... -- -- (18,776)
Fines and expenses recovered................... 51,822 5,459 6,002
Municipal and State taxes on property and
vehicles...................................... (2,200) (2,564) (13,086)
Provision for losses with tax incentives....... (6,582) -- --
Voluntary resignation incentive program........ -- (62,493) --
Other.......................................... (6,640) 11,786 143
------- ------- --------
36,400 (47,812) (84,621)
======= ======= ========
7. NET OTHER NON OPERATING INCOME (EXPENSE)
<CAPTION>
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Net book value of permanent asset write-offs... (71,388) (99,595) (152,381)
Proceeds from asset disposals.................. 11,303 9,079 36,883
Other.......................................... 6,864 7,940 (8,380)
------- ------- --------
(53,221) (82,576) (123,878)
======= ======= ========
</TABLE>
Write-offs of permanent assets are primarily related to the write-off of
telex equipment totaling R$67,918, R$45,990 and R$108,568 in 1995, 1996 and
1997 respectively and the write-off of a submarine cable in the amount of
R$20,623 in 1996 due to technology substitution.
8. INCOME AND SOCIAL CONTRIBUTION TAXES
Brazilian income taxes are comprised of Federal income tax and the social
contribution tax. In 1995, 1996 and 1997 the rates for income tax were 43%,
25% and 25%, respectively, and social contribution tax were 9.09%, 7.41%
and 8.00%, respectively. As a result of legislation enacted in 1996 the
social contribution tax was no longer deductible for its own computation
basis, nor was it deductible for income tax purposes. The changes produced
a combined statutory rate of 48.18%, 30.56% and 33.00% in 1995, 1996 and
1997, respectively.
Deferred taxes are provided on temporary differences which include the
effects of indexation adjustments that will not give rise to deductions
when subsequently depreciated, amortized or disposed of.
F-12
<PAGE>
EMBRATEL PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 28)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS OF DECEMBER 31,
1997)
In prior years, the indexation adjustments to permanent assets and
shareholders' equity in accordance with the tax law gave rise to a tax
deductible expense if the indexation of equity exceeded the indexation of
permanent assets, and to taxable income called inflationary profit, if the
indexation of permanent assets exceeded that of equity. In the latter case,
payment of the related tax liability could be deferred until it had been
deemed to have been realized either through depreciation or disposal of the
permanent assets in existence at the time the liability was recorded
subject to a minimum realization rate of 10% per annum (5% per annum prior
to 1995).
In 1997, Embratel elected to prepay income taxes on inflationary profit
that it had previously deferred. Brazilian companies making such a
prepayment in relation to 1997 were entitled to a 50% discount on the
payment of income tax. The result for Embratel was a gain of R$ 3,152 in
1997 from the reduction of its deferred tax liabilities.
At December 31, 1997 Embratel had tax loss carryforwards totaling R$
410,228 for income tax purposes, to offset against future taxable income,
for which the future benefits have been fully recognized as deferred tax
assets. The offset of accumulated tax losses is restricted to 30% of
taxable profits of subsequent periods, but the losses have no expiration
date.
The following is an analysis of income tax (charge) credit:
<TABLE>
<CAPTION>
1995 1996 1997
-------- ------- ------
<S> <C> <C> <C>
Social contribution charge........................ (11,912) (28,760) (3,228)
Federal income tax credit......................... 180,220 14,237 3,161
-------- ------- ------
168,308 (14,523) (67)
Effect of rate changes on deferred tax............ (113,647) 662 -
Early payment incentives.......................... - - 1,083
-------- ------- ------
Total tax (charge) credit......................... 54,661 (13,861) 1,016
======== ======= ======
</TABLE>
The following is a reconciliation of the amount calculated by applying the
combined statutory tax rates to the reported income before taxes and the
reported income tax expense:
<TABLE>
<CAPTION>
1995 1996 1997
------- -------- --------
<S> <C> <C> <C>
Income before taxes and other charges as
reported in the accompanying consolidated
financial statements......................... 129,421 456,683 514,422
======= ======== ========
Tax charge at the combined statutory rate..... (62,355) (139,562) (169,760)
Permanent additions:
Non-deductible expenses..................... (17,706) (4,718) (8,343)
Permanent exclusions:
Foreign income.............................. 208,948 117,064 109,929
Capitalized interest........................ 9,439 3,180 1,927
Other....................................... 13,865 8,574 11,311
Other items:
Effect of rate changes on deferred tax...... (97,530) 1,153 -
Early payment incentives.................... - - 3,152
Interest on own capital..................... - - 52,800
Other....................................... - 448 -
------- -------- --------
Income tax (charge) credit as reported in the
accompanying consolidated financial
statements................................... 54,661 (13,861) 1,016
======= ======== ========
Effective tax rate............................ 42.2% (3.0)% 0.2%
======= ======== ========
</TABLE>
F-13
<PAGE>
EMBRATEL PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 28)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS OF DECEMBER 31,
1997)
The composition of deferred tax assets and liabilities, based on temporary
differences is as follows:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
DEFERRED TAX ASSETS:
Provisions for contingencies............................... 26,437 31,099
Tax loss carry forwards.................................... 104,507 102,557
Additional indexation expense from 1990.................... 3,043 1,412
Other...................................................... 3,511 6,103
------- -------
Total (Note 12)............................................ 137,498 141,171
======= =======
DEFERRED TAX LIABILITIES:
Total ....................................................... 246,626 337,363
======= =======
Current.................................................... 6,203 22,577
Non current................................................ 240,423 314,786
</TABLE>
All of the deferred tax liabilities relate to the difference between the
tax basis of permanent assets, which was not indexed for inflation
subsequent to December 31, 1995, and the reporting basis, which includes
indexation through December 31, 1997.
9. CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Income and social contribution tax paid................ 26,375 46,109 70,078
Interest paid.......................................... 48,894 49,621 50,320
Cash paid against provisions for contingencies......... -- 13,952 23,130
Non cash transactions:
Fiscal incentive investments......................... 13,508 47 904
</TABLE>
10. CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Cash........................................................... 627 528
Bank accounts.................................................. 57,633 59,509
------ ------
58,260 60,037
====== ======
</TABLE>
11. TRADE RECEIVABLES, NET
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Accrued amounts............................................. 264,862 186,473
Billed amounts.............................................. 40,240 60,531
Allowance for doubtful accounts............................. (1,337) -
------- -------
303,765 247,004
======= =======
</TABLE>
12. DEFERRED AND RECOVERABLE TAXES
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Tax deducted at source....................................... 8,963 24,232
Social contribution tax recoverable.......................... 2,256 9,948
Deferred tax assets.......................................... 137,498 141,171
Sales and other taxes........................................ 2,077 22,908
------- -------
150,794 198,259
======= =======
</TABLE>
F-14
<PAGE>
EMBRATEL PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 28)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS OF DECEMBER 31,
1997)
13. OTHER ASSETS
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Other debtors............................................... 96,803 88,673
Maintenance inventories..................................... 6,433 9,790
Prepayments................................................. 1,534 10,696
Other....................................................... 16,976 18,583
------- -------
121,746 127,742
======= =======
Current..................................................... 64,725 79,944
Noncurrent.................................................. 57,021 47,798
The majority of other debtors in both 1996 and 1997 relate to tax
incentives, legal deposits and advances made to employees and suppliers.
14. INVESTMENTS
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Shares in Intelsat and Inmarsat communication satellites.... 49,180 58,895
Other investments........................................... 1,803 12,261
------- -------
50,983 71,156
======= =======
</TABLE>
15. PROPERTY, PLANT AND EQUIPMENT, NET
A. COMPOSITION:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
INDEXED COST:
Construction-in-progress........................... 863,205 1,073,261
Automatic switching equipment...................... 1,621,745 1,648,399
Transmission and other equipment................... 4,466,554 4,549,867
Buildings and underground ducts.................... 1,256,828 1,350,017
Other.............................................. 2,142,751 2,200,432
---------- ----------
Total............................................ 10,351,083 10,821,976
---------- ----------
ACCUMULATED DEPRECIATION:
Automatic switching equipment...................... (730,638) (844,907)
Transmission and other equipment................... (1,845,658) (1,976,231)
Buildings and underground ducts.................... (540,268) (585,362)
Other.............................................. (914,556) (946,213)
---------- ----------
Total............................................ (4,031,120) (4,352,713)
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, NET................... 6,319,963 6,469,263
========== ==========
</TABLE>
Transmission and other equipment include: aerial, underground and
building cables, private automatic exchanges, generating equipment and
furniture.
Other property, plant and equipment include: underground cables,
submarine cables, computer equipment, vehicles, land and other assets.
Within "Other property, plant and equipment' the book value of land is
R$166,490 and R$175,732 in 1996 and 1997, respectively.
F-15
<PAGE>
EMBRATEL PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 28)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS OF DECEMBER 31,
1997)
B. DEPRECIATION RATES
The annual depreciation rates applied to property, plant and equipment are
as follows:
<TABLE>
<CAPTION>
%
<S> <C>
Automatic switching equipment.................................. 7.69
Transmission and other equipment............................... 10.00
Buildings and underground ducts ............................... 4.00
Other.......................................................... 5.00-20.00
</TABLE>
C. RENTALS
Embratel rents equipment and premises through a number of operating
agreements that expire at different dates. The value of the total annual
rental expenses under these agreements and the future commitments under
non-cancelable rental agreements are minimal.
D. REVALUATION
On December 31, 1990 Embratel recorded an appraisal write-up of part of its
property, plant and equipment. The corresponding credit was shown as a
capital reserve which was amortized on the same basis as the revalued
assets. The unamortized balance of the revaluation reserve, together with
the related provision for deferred taxes, were reversed during 1996
following the recommendations of the Comissao de Valores Mobiliarios
("CVM"- a public organization that sets accounting and disclosure standards
for Brazilian listed companies). This reversal had no impact on net income.
E. PHYSICAL INVENTORY ADJUSTMENTS
Physical inventories of property and equipment performed in 1995, 1996 and
1997 resulted in write-offs of R$94,298, R$13,386 and R$17,246,
respectively, in relation to equipment which had been removed from service
before it was fully depreciated. The inventory counts disclosed the need
for the write-offs by identifying differences between equipment in service
as physically identified and that which was recorded in the accounting
records.
The physical inventory in 1995 resulted in an adjustment which was
unusually large as this was the first such inventory to have been performed
in a number of years. As management was unable to determine how much of the
adjustment related to previous years, the entire adjustment was recorded as
a charge against 1995 earnings.
16. PAYROLL AND RELATED ACCRUALS
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Wages and salaries........................................... 28,531 37,871
Accrued social security charges.............................. 72,464 67,971
Accrued benefits............................................. 5,764 7,732
------- -------
106,759 113,574
======= =======
17. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Suppliers.................................................... 162,094 155,743
Payable to international operators........................... 209,491 190,789
Customer deposits............................................ 27,891 69,051
Other accrued expenses....................................... 50,771 14,575
------- -------
450,247 430,158
======= =======
18. TAXES OTHER THAN INCOME TAXES
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Value added taxes............................................ 18,627 12,599
Taxes on operating revenues.................................. 4,537 32,265
------- -------
23,164 44,864
======= =======
</TABLE>
F-16
<PAGE>
EMBRATEL PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 28)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS OF DECEMBER 31,
1997)
19. LOANS AND FINANCING
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Loans and financing.......................................... 585,687 567,015
Accrued interest............................................. 13,583 12,859
------- -------
599,270 579,874
======= =======
</TABLE>
<TABLE>
<CAPTION>
LENDERS INTEREST MATURITY 1996 1997
------- ------------ -------- ------- -------
<S> <C> <C> <C> <C>
Banco Real............................. 6.49% 2003 19,863 16,754
BBL.................................... 9.65% 2005 19,144 16,774
Credit Lyonnais........................ 7.00% 2008 129,437 121,503
EDC.................................... 6.00% 2006 17,730 16,780
Eximbank............................... 7.79% 2007 177,053 185,191
Lloyds Bank PLC........................ 6.93% 2005 21,839 27,786
NEC do Brasil S.A. .................... 8.00% 2003 68,717 77,041
Nissho Iwai............................ 8.75% 2005 20,380 22,063
PEFCO.................................. 10.14% 2005 6,677 5,874
------- -------
480,840 489,766
Other.................................. 5.71 to 6.5% Various 118,430 90,108
------- -------
599,270 579,874
======= =======
</TABLE>
<TABLE>
<S> <C> <C>
Current...................................................... 150,692 108,406
Noncurrent................................................... 448,578 471,468
</TABLE>
Unused commitments for long-term financing amounted to R$50,000 as of
December 31, 1997.
A. LOANS AND FINANCING
Loans and financing comprise credits from various banks and suppliers of
telecommunications equipment, to be repaid in periodic installments.
Foreign currency denominated debt bears fixed interest rates varying from
5.71% per annum to 10.14% per annum and variable interest rates varying
from 0.25% to 3.30% per annum over LIBOR. The LIBOR rate at December 31,
1997 was 5.84% per annum.
Of the total loans and financing, R$350,039 and R$253,999 in 1996 and 1997,
respectively, have been guaranteed by the Federal Government and R$11,911
and R$7,799 in 1996 and 1997, respectively, by Telebras. In addition,
R$23,643 and R$16,279 in 1996 and 1997, respectively, of amounts payable
(classified within other liabilities) were secured by future income arising
in the United States of America.
B. REPAYMENT SCHEDULE
Noncurrent debt is scheduled to be repaid as follows:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
1998......................................................... 67,947 -
1999......................................................... 68,455 80,002
2000......................................................... 64,504 76,061
2001......................................................... 60,696 72,264
2002......................................................... 56,162 70,286
2003 and after............................................... 130,814 172,855
------- -------
448,578 471,468
======= =======
</TABLE>
F-17
<PAGE>
EMBRATEL PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 28)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS OF DECEMBER 31,
1997)
C. CURRENCY ANALYSIS
Total debt is denominated in the following currencies:
<TABLE>
<CAPTION>
EXCHANGE RATE AT
DECEMBER 31, 1997 1996 1997
----------------- ------- -------
(UNITS OF ONE
BRAZILIAN REAL)
<S> <C> <C> <C>
U.S. dollar................................ 1.116400 548,062 518,522
Japanese yen............................... 0.008574 4,648 3,291
German mark................................ 0.623235 824 9,884
French franc............................... 0.186284 45,736 48,177
------- -------
599,270 579,874
======= =======
</TABLE>
In addition to loans and financing, Embratel has accounts payable in
foreign currency totaling R$209,491 and R$190,289 at December 31, 1996 and
1997, respectively. Embratel does not hedge its foreign currency
liabilities.
D. CREDIT AGREEMENT DEFAULTS
The Company is party to certain credit agreements that contain covenants
restricting, among other things, (i) the ability of Telebras to dispose of
all or a substantial part of its assets or to cease to control a company
that was an operating subsidiary of the Telebras System and (ii) the
ability of the Federal Government to dispose of its controlling interest in
the Telebras System. The Breakup of Telebras on May 22, 1998 and the
privatization of the Company constituted, an event of default under such
credit agreements. In addition, most of the Company's other credit
agreements include cross-default provisions and cross-acceleration
provisions that would permit the holders of such indebtedness to declare
the indebtedness to be in default and to accelerate the maturity thereof if
a significant portion of the principal amount of the Company's debt is in
default or accelerated. A substantial portion (R$462,161) of the Company's
outstanding debt is currently in default or expected to be in default as a
result of the privatization. The Company is currently in negotiations with
the appropriate creditors with respect to this indebtedness.
The consolidated financial statements do not include any adjustments
relating to the recoverability of assets and classification of liabilities
that might be necessary should the Company be unable to renegotiate its
credit agreements. The Company believes that once the privatization is
finalized, the Company's creditors will renegotiate the terms of these
credit agreements and/or provide appropriate waivers regarding such
defaults.
20. CONTINGENCIES
The Company is a party to certain legal proceedings arising in the normal
course of business, including civil, administrative, tax, social security
and labor proceedings. The Company has provided for amounts to cover its
estimated losses due to adverse legal judgments. In the opinion of
management, such actions, if decided adversely to the Company, would not
have a material adverse effect on the Company's business, consolidated
financial condition or results of operations.
Telebras, the legal predecessors of the Company, is a defendant in a number
of legal proceedings and subject to other claims and contingencies. Any
claims against Telebras which are not satisfied by Telebras could result in
claims against the Company or the Holding Company. Management of the
Company believes that the chances of any such claims materializing and
having a material adverse financial effect on the Company are remote.
F-18
<PAGE>
EMBRATEL PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 28)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS OF DECEMBER 31,
1997)
Labor claims
The provision for labor claims amounted to R$15,373 and R$11,019 at
December 31, 1996 and 1997, respectively. These amounts represent
management's estimate of the most probable loss in relation to numerous
suits filed by current and former employees. An analysis of the movement on
the provision is as follows:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Beginning balance......................................... 29,325 15,373
Provision charged to other operating expenses (Note 6).... -- 18,776
Payments.................................................. (13,952) (23,130)
------- -------
15,373 11,019
======= =======
</TABLE>
Tax contingencies
FINSOCIAL and COFINS taxes
A predecessor tax to COFINS, called FINSOCIAL, was originally introduced
at a rate of 0.5% and was subsequently increased in stages to a rate of
2.0% on gross operating revenues. The timing of these increases was
successfully challenged in court by a number of Brazilian companies, giving
rise to tax credits on account of past overpayments which could be
compensated against current payments of the similar tax, COFINS. The
Company recorded a credit for the overpaid FINSOCIAL tax in 1995 after a
High Court ruling had been published decreeing the unconstitutionality of
the FINSOCIAL rate increases. The Company realized this credit by
offsetting overpaid FINSOCIAL taxes against current liabilities to COFINS.
Embratel recognized a gain of R$42.9 million in 1995.
In 1997 Embratel was questioned by the COFINS authorities alleging that
it had underpaid the COFINS tax in prior years as a result of taking the
FINSOCIAL credit. Embratel and its lawyers are defending this claim, but,
because the existence of this dispute was making it difficult for Embratel
to obtain tax clearance certificates it required (in order to be able to
participate in public bids as a supplier to government entities, import
equipment which is tax exempt and record real estate transactions in the
public registry), management decided to pay the offset tax in 48 monthly
installments. This gave rise to an additional charge of R$58.9 million in
1997. In April, 1998, as a result of obtaining an initial favorable
decision in legal proceedings initiated by the Company to prove the
unconstitutionality of charging COFINS for telecommunications services,
Embratel suspended its payment of installments under the aforementioned
agreement.
Withholding tax on remittances to foreign communications companies
The Company regularly makes payments to foreign communications companies to
complete international calls that originate in Brazil and terminate in a
foreign country. Brazilian income tax law generally requires Brazilian
recipients of services from foreign companies to withhold 15% from payments
to such foreign companies for such services. However, based on decisions in
1952 of both the Brazilian Finance Ministry and the Taxpayers' Council, the
Company has never withheld Brazilian income tax from such payments.
Brazil is a signatory to the International Telecommunications Agreement of
1989, known as the Melbourne Treaty, in which the members agreed, amongst
other things, not to tax payments of this nature. For this treaty to have
legal effect in Brazil, presidential approval is required. Although there
has been no indication that such presidential approval will not be granted,
it has not been granted to date.
F-19
<PAGE>
EMBRATEL PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 28)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS OF DECEMBER 31,
1997)
Should a retroactive presidential decree not be signed, the income tax
authorities may reconsider their earlier decisions exempting payments to
foreign communications companies from Brazilian income tax. If the
authorities were to challenge this exemption and determine that their
earlier decisions are no longer applicable to the Company, then they may
claim unpaid taxes together with interest and penalties of approximately
R$530 million through 1997 and additional amounts in 1998. Based on the
decisions in 1952 of both the Brazilian Finance Ministry and the Taxpayers'
Council to exempt the withholding of Brazilian income tax from payments to
foreign communications companies, the Company has never withheld Brazilian
income tax from such payments. Accordingly, the accompanying consolidated
financial statements do not include any provision for such taxes.
Management continually monitors and is evaluating its position with respect
to this tax contingency to determine if there have been changes, which
could result in an unfavorable outcome to the Company.
Income tax on net foreign source operating income
On January 1, 1996 a new Brazilian law came into effect requiring that
foreign source investment income and capital gains as well as profits from
subsidiary companies located outside Brazil be subject to income tax. The
Company believes that the foreign source operating income of Embratel is
not subject to tax because the new law does not cover income from
telecommunications services. Additionally, the Company believes that it is
exempt in accordance with a specific exemption granted to foreign source
telecommunications income before the advent of the new law. If the Company
should be challenged by the fiscal authorities, it may be liable to
additional income tax which, together with interest and penalties for late
payment, would have amounted to a liability of approximately R$300 million
at December 31, 1997, for which no provision has been made in the
accompanying financial statements. Management continually monitors and is
evaluating its position with respect to this tax contingency to determine
if there have been changes, which could result in an unfavorable outcome to
the Company.
Other taxes
The determination of the manner in which federal, state and municipal taxes
apply to the operations of Embratel is subject to varying interpretations
due to the unique nature of its operations. Management believes that its
interpretation of Embratel's tax obligations is substantially in compliance
with current legislation. Accordingly, any changes in the tax treatment of
its operations will be the result of new legislation or interpretive
rulings of the tax authorities which will not have any retroactive impact.
Other litigation
Management believes it has meritorious defenses to all lawsuits and legal
proceedings in which Embratel is a defendant. Based on its evaluation of
such matters, and after consideration of reserves established, management
believes that the resolution of such matters will not have a material
adverse effect on the Company's consolidated financial position or results
of its operations.
21. PROVISION FOR PENSIONS
Embratel sponsors a defined benefit pension plan and a post retirement
benefit plan, both managed by the Fundacao Embratel de Seguridade Social
("Telos'). Approximately 97% of Embratel's employees are covered by these
plans.
The pension benefit is generally defined as the difference between (i) 90%
of the retiree's average salary during the last 36 months indexed to the
date of retirement and (ii) the value of the retirement pension paid by the
Brazilian social security system. For retired employees the initial pension
payment is subsequently
F-20
<PAGE>
EMBRATEL PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 28)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS OF DECEMBER 31,
1997)
adjusted upwards to recognize cost of living increases and productivity
awards granted to active employees. In addition to the pension supplements,
post retirement health care and life insurance benefits are provided to
eligible pensioners and their dependents.
Contributions to the plans are based on actuarial studies prepared by
independent actuaries under Brazilian regulations. The actuarial studies
are revised periodically to identify whether adjustments to the
contributions are necessary. A summary of the plans, in compliance with
accounting principles generally accepted in Brazil, is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Accumulated pension and other post retirement
benefit obligations.............................. 412,003 496,104 592,307
Other obligations................................. 50,602 65,606 78,810
------- ------- -------
Total obligations................................. 462,605 561,710 671,117
======= ======= =======
Combined plan assets:
Interest bearing deposits....................... 237,411 311,266 362,613
Stocks and shares............................... 200,650 224,088 296,619
Investment properties........................... 104,350 82,880 75,110
Loans to beneficiaries.......................... 27,898 31,764 33,055
Other investments............................... 13,140 21,480 31,311
------- ------- -------
Total plan assets............................... 583,449 671,478 798,708
======= ======= =======
Employer's contributions for the plans during the
year............................................. 42,350 62,229 61,687
======= ======= =======
</TABLE>
The Company is negotiating with the Brazilian pensions regulators
(Secretaria de Previdencia Complementar) and the government state companies
secretariat to increase the funding of the Telos pension fund. An actuarial
study has determined that an additional contribution of R$213,000 is
required including R$106,000 relating to an income tax dispute of the
pension fund. If the tax dispute is decided in favor of Telos, then only an
additional R$107,000 will be required. It is management's intention to pay
the additional amount over 20 years. There can be no assurance that these
negotiations will continue or result in payment to Telos under the
aforementioned terms. This potential additional payment has not been
recognized as a liability at December 31, 1997.
22. SHAREHOLDERS' EQUITY
The consolidated financial statements reflect the shareholders' equity of
the Company, after segregating as minority interests the participation of
minority shareholders in the Company at the historical percentages
applicable to shareholders other than Telebras. The shareholders' equity
has been segregated between capital, reserves and retained earnings.
F-21
<PAGE>
EMBRATEL PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 28)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS OF DECEMBER 31,
1997)
23. ALLOCATION OF INFLATIONARY GAINS AND LOSSES
For the purposes of presenting the accompanying consolidated financial
statements in the fully indexed form, realized inflationary gains and
losses on non-interest-bearing assets and liabilities have been allocated
to the following statement of income captions:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Gross operating revenue (21,412) (17,550) (19,804)
Taxes on operating revenues....................... 3,838 1,801 1,616
Cost of services ................................. 21,266 6,717 5,952
Selling expense................................... 2,196 823 2,097
General and administrative expense................ 10,781 3,290 6,762
Other net operating income (expense).............. (9,340) 4,229 (5,590)
------- ------- -------
Total............................................ 7,329 (690) (8,967)
======= ======= =======
</TABLE>
The above gains and losses were generated from the following balance sheet
accounts or sub-accounts:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Cash and cash equivalents......................... (3,511) (920) (1,119)
Accounts receivable............................... (21,006) (17,400) (19,804)
Other receivables................................. (8,240) (3,173) (1,767)
Indexation adjustments............................ (9,965) 2,761 (8,561)
Other assets...................................... (4,251) (1,451) (3,030)
Payroll and related accruals...................... 15,658 6,524 6,400
Accounts payable and accrued expenses............. 22,408 6,781 10,691
Income and other taxes payable.................... 3,885 1,837 1,745
Other liabilities................................. 12,351 4,351 6,478
------- ------- -------
7,329 (690) (8,967)
======= ======= =======
</TABLE>
24. TRANSACTIONS WITH RELATED PARTIES
The principal related party transactions take place with the operating
subsidiaries of Telebras. Embratel provides domestic and international
long-distance telecommunications services to the customers of the local
operating companies. However, all charges to customers are billed by the
local operating companies, who transfer part of the charges to Embratel. As
a result Embratel normally has a receivable position with each of the local
operating companies.
Before the Breakup and privatization, the Company was the exclusive
provider of interstate long-distance service under Brazilian law. Under the
regulatory regime in effect before the Breakup and privatization, each
cellular and fixed-line company generally operated within one of the 26
states of Brazil or the Federal District and Embratel had the exclusive
right to carry calls between any two cellular or fixed-line companies. As
such, Embratel's exclusive interstate long-distance telephone service
accounted for 47.2% and 49.8% of the Company's total operating revenues
during 1996 and 1997, respectively.
Embratel must pay a network usage fee if it accesses end customers via the
network of a fixed-line telecommunications company. In practical terms,
even though the network usage fee includes the costs of a variety of
network elements and services, the network usage fee primarily reflects the
use of certain facilities
F-22
<PAGE>
EMBRATEL PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 28)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS OF DECEMBER 31,
1997)
of the fixed-line company for which Embratel does not have adequate
substitutes, particularly the local loop between local exchanges and end
customers.
Until April 1, 1998, revenues for domestic and international long-distance
calls were divided between the Company and the regional fixed-line
companies. Under this system, each regional fixed-line company billed its
customers for all domestic and international long-distance telephone calls
and retained a fixed percentage of the revenue, transferring the remainder
of the revenue to the Company. The fixed percentage varied by regional
fixed-line company. As of March 31, 1997, the regional fixed-line companies
transferred an average of 33% of the total revenue for such calls to
Embratel.
As part of the liberalization of the Brazilian telecommunications sector,
this system was eliminated as of April 1, 1998. Under the new system, the
Company receives 100% of the revenues from domestic and international long-
distance calls and pays certain per-minute interconnection charges to the
regional fixed-line companies for connection to and use of their networks.
In addition, until June 30, 2001, the Company must pay a supplemental per-
minute charge for such interconnection, the Parcela Adicional Temporaria
(the "PAT"). The Company does not expect that implementation of this new
system will have a material impact on its net income. However, it is
expected that the allocation to the Company of 100% of the revenues
generated by long distance calls will cause operating revenues to increase
substantially. This increase is expected to be offset by increased cost of
services resulting from the network usage charges and PAT paid to the
fixed-line companies.
Following the privatization of the telecommunications sector, the Company,
currently the exclusive provider of domestic and international long-
distance services in Brazil, will face increased competition from new
entrants. However, the Company will be authorized to provide full intra-
regional long-distance service as a competitor of the regional fixed-line
companies. The Company anticipates that, as a consequence of the
competition, prices for long-distance service will decline and its
operating margins may diminish. The exact identity of new entrants, the
scope of increased competition and any adverse effects on the Company's
results and market share will depend on a variety of factors that cannot
now be assessed with precision and that are beyond the Company's control
(see Note 28b).
Additionally, as a result of telephone calls to and from the service areas
of other telephone operators, Embratel has receivable and payable positions
with other telecommunications service providers in Brazil within the
Telebras group of companies relating to charges for the use of the networks
belonging to those telecommunications service providers.
F-23
<PAGE>
EMBRATEL PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 28)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS OF DECEMBER 31,
1997)
The balances at December 31, 1996 and 1997 with related parties were as
follows:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Cash and cash equivalents:
Deposits with Banco do Brasil S.A........................ 647,006 694,699
Accounts receivable:
Trade accounts receivable from local operating compa-
nies.................................................... 139,861 222,271
Other accounts receivable................................ 4,710 7,062
Loans and financing receivable........................... 12,795 4,994
Accounts payable:
Dividends and interest on own capital payable to
Telebras................................................ 231,300 292,191
Other.................................................... 10,090 10,760
</TABLE>
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- ---------
<S> <C> <C> <C>
Revenues earned:
Services provided to the operating companies.... 740,024 797,569 1,123,492
Cost of services:
Provided by the Telebras operating companies.... 11,583 9,669 4,150
</TABLE>
The principal other related parties are the Federal Government, both
through its holding company, Telebras, and through Banco do Brasil S.A.,
and the state operating companies.
Deposits with Banco do Brasil S.A. are overnight interest bearing deposits.
There are no restrictions on withdrawal of funds.
Revenues from telephone calls made by government bodies and related
organizations have not been provided because details of the type of
telephone user are not maintained by Embratel.
Until the breakup of Telebras, Embratel and the other companies of the
Telebras system each contributed to the research and development center
operated by Telebras (Centro de Pesquisa e Desenvolvimento da Telebras) and
also conducted their own independent research and development operations.
Embratel contributed 1.14%, 0.85% and 0.67% in 1995, 1996 and 1997,
respectively, of its net revenues to the research and development center
operated by Telebras. The total costs charged to Embratel by Telebras as
described above for the years ended December 31, 1995, 1996, and 1997 were
R$19,617, R$17,743 and R$15,042, respectively, out of total research and
development expenditures of R$19,950, R$17,987 and R$15,978, respectively.
Following the spin-off from Telebras, a private independently administered
research and development center was established. Pursuant to a three year
contract signed in May 1998 between Embratel and Telebras, Embratel is
obligated to contribute up to R$57 million during the three years ending
May 2001 on research and development to this center.
The Company believes that all the costs of doing business are reflected in
the consolidated financial statements and that no additional expenditures
will be incurred as a result of the cessation of the activities previously
performed by Telebras.
F-24
<PAGE>
EMBRATEL PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 28)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS OF DECEMBER 31,
1997)
25. COMMITMENTS
At December 31, 1997, the Company had the following capital expenditure
commitments, which are related primarily to optical fiber, satellite and
telephone cables:
<TABLE>
<CAPTION>
CONTRACTED
EXPECTED YEAR OF EXPENDITURE ----------
<S> <C>
1998......................................................... 693,000
1999......................................................... 358,000
2000......................................................... 97,000
2001......................................................... 72,000
2002......................................................... 72,000
</TABLE>
26. INSURANCE
At December 31, 1997, in the opinion of the Company's management, all
significant and high risk assets and obligations were insured.
27. FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES
Estimated fair values of Embratel's financial assets and liabilities have
been determined using available market information and appropriate
valuation methodologies. However, considerable judgement was required in
interpreting market data to produce the estimated fair values. Accordingly,
the estimates presented below are not necessarily indicative of the amounts
that could be realized in a current market exchange. The use of different
market assumptions and/or estimation methodologies may have a material
effect on the estimated fair values.
The fair value information as of December 31, 1996 and 1997 presented below
is based on pertinent information available to management as of those
dates. Although management is not aware of any factors that would
significantly affect the estimated fair value amounts at December 31, 1996,
such amounts have been indexed to December 31, 1997 and current estimates
of fair values may differ significantly from the amounts shown.
Where no comparison of book versus fair value is presented for a financial
asset or liability line item in the schedule below, no significant
difference in value is believed to exist.
<TABLE>
<CAPTION>
1996 1996 1997 1997
BOOK FAIR BOOK FAIR
VALUE VALUE VALUE VALUE
------- ------- ------- -------
<S> <C> <C> <C> <C>
Assets:
Deferred and recoverable taxes............. 150,794 114,164 198,259 160,768
Liabilities:
Income and other taxes..................... 276,596 221,373 382,227 377,154
Loans and financing........................ 599,270 547,155 579,874 597,861
</TABLE>
Cash, cash equivalents, accounts receivable, other current assets, accounts
payable and accrued expenses
The carrying value of cash, cash equivalents, accounts receivable, other
current assets, accounts payable and accrued expenses are a reasonable
estimate of their fair value. Cash equivalents are represented principally
by short-term investments, their fair values, and that of other short-term
investments and bank deposits not meeting the definition of cash
equivalents, were estimated using rates currently offered for deposits of
similar maturities.
F-25
<PAGE>
EMBRATEL PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 28)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS OF DECEMBER 31,
1997)
Loans and financing
Interest rates that are currently available to Embratel for issuance of
debt with similar terms and maturities were used to estimate fair value.
Taxes recoverable and payable
Market value was calculated by discounting future expected cash flows
according to the TJLP interest rate (a Brazilian benchmark long-term
interest rate).
28. EVENTS SUBSEQUENT TO DECEMBER 31, 1997
A. INCORPORATION OF EMBRATEL PARTICIPACOES S.A. (REGISTRANT)
On May 22, 1998 the shareholders of Telebras approved Telebras division
into twelve new holding companies using a procedure under Brazilian
corporate law called a cisao ("spin-off'), whereby existing shareholders
received shares in the new companies in proportion to their holdings in
Telebras. The new companies contain the assets and liabilities previously
recorded in the accounts of Telebras, except for the following, which will
remain on the books of Telebras and not be allocated to the new holding
companies:
. approximately R$98,000 of net assets which have been attributed to a
newly constituted research foundation that will take over the activities
previously performed by the Telebras Campinas Research and Development
Center; and
. R$370,000 of net assets that will provide the funds required to
liquidate Telebras, including approximately R$132,000 of retroactive
dividends to be paid to the holders of new shares issued in April 1998,
as a result of the resolution of the disputed capital increase of 1990,
approximately R$50,000 of indemnity payments to employees and
approximately R$87,000 of expenses arising out of the privatization
process.
In addition to approving the allocation of assets and liabilities to the
new holding companies at the May 22, 1998 meeting, the shareholders also
approved a specific structure for the shareholders' equity of each new
holding company, which included an allocation of a portion of the retained
earnings of Telebras. Consequently, the amounts of the balances of capital,
reserves and retained earnings, together with the corresponding assets and
liabilities for the formation of Embratel Participacoes S.A. were
established. After Telebras retained within its own shareholders' equity
sufficient retained earnings from which to pay dividends on its 1997
earnings and in settlement of dividends as a result of settlement of the
1990 disputed share increase, Telebras allocated to each New Holding
Company the balance of its retained earnings in proportion to the allocated
total net assets. This value of allocated retained earnings does not
represent the historical retained earnings of the Holding Companies and
resulted in a decrease of R$210,432 in relation to the Company's historical
retained earnings. These values are shown in the "Spin-off from Telebras"
column in the following table. The first column summarizes the December 31,
1997 consolidated historical balances of the Company, and the "Holding
Company Consolidated Statement" column summarizes the consolidated balance
sheet of Embratel Participacoes S.A. after the spin-off.
As a result of the legal structure of the spin-off and as allowed under
Brazilian GAAP, a company formed as a result of a cisao will have such
retained earnings in its balance sheet as the parent company shareholders'
resolution adopting the cisao allocates from the parent company to the new
company. Accordingly, upon formation, Embratel Participacoes S.A.'s legal
capital structure was defined by the
F-26
<PAGE>
EMBRATEL PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 28)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS OF DECEMBER 31,
1997)
resolutions approved by the Telebras shareholders' meeting of May 22, 1998
so that its shareholders' equity of R$6,041,650 includes retained earnings
of R$1,570,235 The allocated retained earnings and future retained earnings
will be the basis from which future dividends will be payable.
The "Adjustments and Elimination" column presents the elimination of the
Holding Company's investment in the operating company.
<TABLE>
<CAPTION>
DECEMBER HOLDING
31, 1997 ADJUSTMENTS COMPANY
HISTORICAL SPIN-OFF AND CONSOLIDATED
BALANCES FROM TELEBRAS ELIMINATIONS STATEMENT
---------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equiva-
lents................. 754,736 32,263 -- 786,999
Intercompany receiv-
ables................. 222,271 -- -- 222,271
Other intercompany re-
ceivables............. 12,056 -- -- 12,056
Other current assets... 525,207 -- -- 525,207
--------- --------- ---------- ---------
Total current assets.. 1,514,270 32,263 -- 1,546,533
Other noncurrent as-
sets.................. 47,798 -- -- 47,798
Investment in subsidi-
ary................... 71,156 6,010,302 (6,010,302) 71,156
Property, Plant and
Equipment, net........ 6,469,263 -- -- 6,469,263
--------- --------- ---------- ---------
Total Permanent As-
sets................. 6,540,419 6,010,302 (6,010,302) 6,540,419
--------- --------- ---------- ---------
Total Assets........... 8,102,487 6,042,565 (6,010,302) 8,134,750
========= ========= ========== =========
Liabilities:
Loans and financing.... 108,406 -- -- 108,406
Dividends payable to
Telebras.............. 292,191 -- -- 292,191
Other.................. 675,440 -- -- 675,440
--------- --------- ---------- ---------
Total current liabili-
ties................. 1,076,037 -- -- 1,076,037
Loans and financing.... 471,468 -- -- 471,468
Other.................. 468,594 -- -- 468,594
--------- --------- ---------- ---------
Total noncurrent lia-
bilities............. 940,062 -- -- 940,062
Minority interests..... 76,086 -- -- 76,086
--------- --------- ---------- ---------
Share capital.......... -- 2,134,427 -- 2,134,427
Capital and reserves... 4,229,635 -- (4,229,635) --
Income reserves........ -- 2,336,988 -- 2,336,988
Retained earnings...... 1,780,667 1,570,235 (1,780,667) 1,570,235
--------- --------- ---------- ---------
Total Shareholders'
equity............... 6,010,302 6,041,650 (6,010,302) 6,041,650
Funds for capitaliza-
tion.................. -- 915 -- 915
--------- --------- ---------- ---------
Total liabilities and
shareholders' equity.. 8,102,487 6,042,565 (6,010,302) 8,134,750
========= ========= ========== =========
</TABLE>
F-27
<PAGE>
EMBRATEL PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 28)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS OF DECEMBER 31,
1997)
The formation of the Holding Company has been accounted for as a
reorganization of entities under common control in a manner similar to a
pooling of interests. Brazilian corporate and tax law allows state-
controlled companies that are participating in the government's
privatization program a three-month delay between the accounting base date
for a spin-off and the date on which the shareholders' meeting approves the
spin-off, including the related accounting basis for the net assets to be
spun off. Furthermore, as allowed by Brazilian corporate law, the amount
shown in the "Spin-off from Telebras" column as "Investment in subsidiary"
was determined based on the balance sheet of that subsidiary as of
December 31, 1997. As a result, the consolidated financial statements of
the Holding Company for 1998 will include the results of operations and
changes in financial condition of the subsidiary from January 1, 1998 and
the effects of the cash allocated from Telebras as of March 1, 1998.
The capital stock of the Holding Company is comprised of preferred shares
and common shares, all without par value. At May 22, 1998, there were
210,029,997 thousand outstanding preferred shares (inclusive of 13,718,350
thousand preferred shares resulting from the settlement in April 1998 with
Telebras as discussed below) and 124,351,903 thousand outstanding common
shares (net of 17,128 thousand common shares in treasury). The capital may
be increased only by a decision taken at a shareholders' meeting or by the
Board of Directors in connection with the capitalization of profits or
reserves previously allocated to capital increases at a shareholders'
meeting.
The preferred shares are non-voting except under limited circumstances and
are entitled to a preferential, noncumulative dividend and to priority over
the common shares in the case of liquidation of the Holding Company.
Under the Brazilian Corporation Law, the number of non-voting shares, such
as the preferred shares, may not exceed two-thirds of the total number of
shares.
Dividends
Pursuant to its By-laws, the Registrant is required to distribute as
dividends in respect of each fiscal year ending on December 31, to the
extent amounts are available for distribution, an aggregate amount equal to
at least 25% of Adjusted Net Income (as defined) on such date (the
"Mandatory Dividend"). The annual dividend distributed to holders of
preferred shares (the "Preferred Dividend") has priority in the allocation
of Adjusted Net Income. Remaining amounts to be distributed are allocated
first to the payment of a dividend to holders of Common Shares in an amount
equal to the Preferred Dividend and the remainder is distributed equally
among holders of preferred shares and common shares.
For purposes of Brazilian Corporation Law, and in accordance with Embratel
Participacoes S.A.'s By-laws, the "Adjusted Net Income" is an amount equal
to Embratel Participacoes S.A.'s net profits adjusted to reflect
allocations to or from (i) the statutory reserve, (ii) a contingency
reserve for anticipated losses, if any, and (iii) an unrealized revenue
reserve, if any.
On June 7, 1990 the Board of Directors of Telebras authorized an increase
in the Company's share capital by public offer. During the offer period the
CVM initiated an investigation as to whether Brazilian securities law and
regulations regarding the correct pricing of the new shares issued had been
violated because the shares were issued at a discount to equity value per
share. After its investigation the CVM notified the Federal Prosecutor's
Office that it believed no violation occurred since the price was
established in line with market prices for Telebras shares traded on the
Brazilian stock exchanges. The Federal Prosecutor decided to pursue the
issue through judicial channels, in spite of the CVM's conclusions, because
of its concern that the value of the Federal Government's shareholding may
have been adversely affected. A high court ruling
F-28
<PAGE>
EMBRATEL PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 28)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS OF DECEMBER 31,
1997)
was favorable to Telebras, but the Federal Prosecutor had appealed the
decision to the Supreme Court. During 1998, this investigation was
concluded resulting in Telebras issuing 13,718,350 thousand shares of
preferred stock and transfering the $R68 million in other funds to share
capital.
B. REGULATORY ENVIRONMENT
As of April 1, 1998 the Revenue Sharing System used to divide interstate
and international long-distance revenues between Embratel and the local
fixed telephone operators was replaced with a network usage fee for the
interconnection based on the terms of an interconnection agreement with the
Company which became effective in April 1998.
The terms of this interconnection agreement, particularly pricing and
technical requirements, will affect the Company's results of operations,
its competitive environment and its capital expenditure policies. The
Company does not expect the terms of the interconnection agreement to have
a material impact on net income initially as increased revenues under the
new structure are expected to be offset by a supplemental per-minute charge
called Parcela Adicional de Transicao ("PAT") that supplements the network
useage charge. The PAT is to be charged at rates which will vary between
regions and is intended to neutralize the impact of the new structure on
the combined net income of the operating companies within each of the new
fixed-line regions. Under the current regulatory framework, all
telecommunications service providers must provide interconnection services
on a non-discriminatory basis. Subject to certain requirements, providers
are free to negotiate the terms of interconnection but, in the event the
parties fail to reach an agreement, Anatel will establish the terms of
interconnection.
Under the General Plan on Concessions and Licenses, the fixed-line
companies and the Company are prohibited from offering certain basic fixed-
line telecommunications services until they fulfill certain specified
obligations. The Company is prohibited from offering local or cellular
services and the regional fixed-line companies are prohibited from offering
cellular, interregional long-distance and international long-distance
services. After the privatization is effected, the Company will be allowed
to enter the market for full intra-regional long-distance service within
their regions, including any calls between local calling areas, as a
competitor to the regional fixed-line companies once the privatization of
Telebras is completed.
C. CHANGE IN CONTROL (UNAUDITED)
On July 29, 1998, the Federal Government sold to twelve buyers (the "New
Controlling Shareholders") its rights to receive shares of the twelve New
Holding Companies upon the distribution of such shares. In connection with
this sale, the Federal Government assigned to the New Controlling
Shareholders substantially all its economic and voting rights with respect
to the New Holding Companies and, as a consequence, effective August 4,
1998, the New Controlling Shareholders control the New Holding Companies.
29. SUMMARY OF THE DIFFERENCES BETWEEN BRAZILIAN AND U.S. GAAP
Embratel's accounting policies comply with generally accepted accounting
principles in Brazil ("Brazilian GAAP"). Accounting policies which differ
significantly from generally accepted accounting principles in the United
States of America ("US GAAP") are described below:
A. DIFFERENT CRITERIA FOR CAPITALIZING AND AMORTIZING CAPITALIZED INTEREST
Until December 31, 1993, capitalized interest was not added to the
individual assets in property, plant and equipment, instead it was
capitalized separately and amortized over a time period different from the
useful lives of the related assets. Under US GAAP, capitalized interest is
added to the individual assets and is
F-29
<PAGE>
EMBRATEL PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 28)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS OF DECEMBER 31,
1997)
amortized over their useful lives. Also, under Brazilian GAAP as applied to
companies in the telecommunications industry, interest attributable to
construction-in-progress is computed at the rate of 12% per annum of the
balance of construction-in-progress and that part which relates to interest
on third party loans is credited to interest expense based on actual
interest costs with the balance relating to its own capital being credited
to capital reserves.
Under US GAAP, in accordance with the provisions of SFAS No. 34,
("Capitalization of Interest Costs") interest incurred on borrowings is
capitalized to the extent that borrowings do not exceed construction-in-
progress. The credit is a reduction of interest expense. Under US GAAP, the
amount of interest capitalized excludes the monetary gain associated with
the borrowings and the foreign exchange gains and losses on foreign
currency borrowings. The US GAAP differences between the accumulated
capitalized interest on disposals and in accumulated amortization on
disposals relate to the differences between capitalized interest and
related accumulated amortization under Brazilian GAAP and US GAAP which is
included in the net book value of disposed property, plant and equipment.
The effects of these different criteria for capitalizing and amortizing
capitalized interest are presented below:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
CAPITALIZED INTEREST DIFFERENCE
US GAAP Capitalized Interest:
Interest which would have been capitalized and credited to income under US GAAP.. 35,387 48,472
(Being interest incurred on loans from the Company's parent and from third
parties, except in years where total loans exceeded total construction in
progress, when capitalized interest is reduced proportionately)
Add US GAAP difference in accumulated capitalized interest on disposals........... 101,415 50,196
-------- --------
136,802 98,668
-------- --------
Less Brazilian GAAP Capitalized Interest:
Interest capitalized and credited to income under Brazilian GAAP................. (12,357) (4,529)
(Up to the limit of interest incurred on loans obtained for financing capital
investments)
Interest capitalized and credited to reserves under Brazilian GAAP (Difference
between total capitalized interest and interest capitalized and credited to
income)......................................................................... (142,823) (102,160)
-------- --------
Total capitalized interest under Brazilian GAAP (12% per annum, applied monthly
to the balance of construction-in-progress)..................................... (155,180) (106,689)
-------- --------
US GAAP Difference............................................................... (18,378) (8,021)
======== ========
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
AMORTIZATION OF CAPITALIZED INTEREST DIFFERENCE
Amortization under Brazilian GAAP................................................. 119,533 137,322
-------- --------
Amortization under US GAAP........................................................ (39,087) (41,109)
US GAAP difference in accumulated amortization on disposals....................... (101,415) (50,196)
-------- --------
(140,502) (91,305)
-------- --------
US GAAP Difference................................................................ (20,969) 46,017
======== ========
</TABLE>
F-30
<PAGE>
EMBRATEL PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 28)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS OF DECEMBER 31,
1997)
B. REVERSAL OF FIXED ASSET REVALUATION
Brazilian GAAP permits appraisal write-ups on fixed assets under certain
circumstances; US-GAAP requires fixed assets to be carried at fully indexed
historical cost less accumulated depreciation and amortization.
Accordingly, the portion of depreciation and amortization expense related
to such write-ups must be adjusted in calculating US GAAP income.
During the year ended December 31, 1996, Embratel wrote-off the appraisal
write-ups on fixed assets against the revaluation reserve and the related
deferred taxes.
C. REVERSAL OF PROPOSED DIVIDENDS AND INTEREST ON CAPITAL
Under Brazilian GAAP, proposed dividends and proposed interest on capital,
net of income taxes are accrued for in the consolidated financial
statements in anticipation of their approval at the shareholders' meeting.
Under US GAAP, dividends are not accrued until they are formally declared.
D. ASSETS PRESENTED AT NET REALIZABLE VALUE
Non interest bearing investments with fixed maturities are not discounted
to their present value under Brazilian GAAP. Such discounting is required
under US GAAP to eliminate the effects of implicit interest rates.
E. PENSION AND OTHER POST-RETIREMENT BENEFITS
Embratel provides for the costs of pensions and other post-retirement
benefits based on a fixed percentage of remuneration, as recommended
annually by Telos' actuaries and certified by independent actuaries. For
purposes of the US GAAP reconciliations, the provisions of SFAS 87--
Employers' accounting for pensions--and SFAS 106--Employers' accounting for
post retirement benefits other than pensions have been applied. The
provisions of SFAS 87 were applied with effect from January 1, 1991 because
it was not feasible to apply them from the effective date specified in the
standard. As a result, R$73,743 of the transition liability was transferred
directly to shareholders' equity at the implementation date.
F. ITEMS POSTED DIRECTLY TO SHAREHOLDERS' EQUITY ACCOUNTS
Under Brazilian GAAP various items are posted directly to shareholders'
equity accounts, which under US GAAP would be posted to the income
statement. Examples include capitalized interest, the effects of
adjustments to tax rates and fiscal incentive investment credits received.
The posting of such items to shareholders' equity in the subsidiary
companies gives rise to consolidation adjustments in the consolidated
statements of changes in shareholders' equity. Since the original postings
by the subsidiaries to their equity accounts would, under US GAAP, be made
directly to the income statement, these consolidation adjustments must be
included in the reconciliation of net income in accordance with US GAAP.
The effects of changes in income tax rates posted directly to shareholders'
equity accounts arises from applying increases or decreases in tax rates to
the deferred tax liability relating to the special reserve described in
Note 22.
G. EARNINGS PER SHARE
Under Brazilian GAAP, net income per share is calculated on the number of
shares outstanding at the balance sheet date. Since the Capital structure
of the new Holding Company was not in place at December 31, 1997, earnings
per share is not presented under Brazilian GAAP.
F-31
<PAGE>
EMBRATEL PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 28)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS OF DECEMBER 31,
1997)
In these consolidated financial statements, information is disclosed per
lot of one thousand shares, because this is the minimum number of shares
that can be traded on the Brazilian stock exchanges. Each American
Depositary Share ("ADS") is equivalent to one thousand shares.
As discussed in Note 1, the Company was not formed until subsequent to
December 31, 1997. For US GAAP purposes, the equity structure utilized for
earnings per share computations is that of the new entity formed in May
1998. The New Holding Company's equity structure has been used for all
years presented. At the date of formation, the Company had 124,351,903
thousand common shares (net of 17,128 thousand common shares in treasury)
and 196,311,647 thousand preferred shares outstanding (exclusive of the
13,718,350 thousand preferred shares resulting from the settlement in April
1998 with Telebras).
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128 "Earnings Per Share". This statement is effective for 1997, and
provides computation, presentation and disclosure requirements for US GAAP
basic and diluted earnings per share.
Since the preferred and common stockholders have different dividend, voting
and liquidation rights, Basic earnings per share has been calculated using
the "two-class" method for US GAAP purposes. The "two-class" method is an
earnings allocation formula that determines earnings per share for
preferred and common stock according to the dividends to be paid as
required by the Company's by-laws and participation rights in undistributed
earnings.
Basic earnings per common share is computed by reducing net income by
distributable and undistributable net income available to preferred
shareholders and dividing net income available to common shareholders by
the weighted-average number of common shares outstanding during the period.
Net income available to preferred shareholders is the sum of the preferred
stock dividends up to a minimum of 6% of adjusted net income (as defined in
the Company's by-laws) (distributable net income) and the preferred
shareholders' portion of undistributed net income. Undistributed net income
is computed by deducting preferred stock dividends and common stock
dividends from net income. Undistributed net income is shared equally by
the preferred and common shareholders on a pro rata basis. Common stock
dividends are calculated as up to 25% of adjusted net income or an amount
equal to the preferred stock dividend, whichever is less.
The Company's preferred shares are non-voting except under certain limited
circumstances and are entitled to a preferential, noncumulative dividend
and to priority over the common shares in the event of liquidation of the
Company. The preferred shareholders were entitled to a non-cumulative
dividend of R$0.73 and R$0.50 per preferred share on 1996 and 1997 net
income from continuing operations, respectively. The preferred shareholders
would share equally in the undistributed earnings of the Company in the
amount of R$0.36 and R$1.26 per preferred share on 1996 and 1997 net income
from continuing operations, respectively.
The weighted-average number of common and preferred shares used in
computing basic earnings per share for 1997 was 124,351,903 thousand and
196,311,647 thousand, respectively. There were no common stock equivalents
outstanding under the new capital structure; accordingly diluted earnings
per share is not presented.
In April 1998, resolution was reached on the disputed capital increase of
1990 (see Note 28a). In connection with the resolution, the Company issued
13,718,350 thousand shares of preferred stock. For Brazilian GAAP and US
GAAP, such shares are considered outstanding when issued.
F-32
<PAGE>
EMBRATEL PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 28)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS OF DECEMBER 31,
1997)
H. IMPAIRMENT OF LONG-LIVED ASSETS
For US GAAP, effective January 1, 1996 the Company adopted SFAS 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of". In accordance with this standard, the Company
periodically evaluates the carrying value of long-lived assets to be held
and used, when events and circumstances warrant such a review. The carrying
value of long-lived assets is considered impaired when the anticipated
undiscounted cash flow from such assets is separately identifiable and is
less than their carrying value. In that event, a loss is recognized based
on the amount by which the carrying value exceeds the fair market value of
the assets.
Brazilian GAAP does not require cash flow computations in order to
determine potential asset impairment.
The following are the components of the 1996 US GAAP impairment charge of
R$119,447:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
US GAAP impairment charge................................. 119,447 --
Brazilian GAAP write-offs:
Telex equipment......................................... -- 108,568
Analog switching equipment.............................. -- 8,600
Other................................................... -- 2,279
------- -------
119,447 119,447
======= =======
</TABLE>
A reduction in demand for telex services, followed at the end of 1996 by a
steep increase in the charge from the local fixed-line companies for the
special dedicated lines required by Embratel for the performance of this
service resulted in the 1996 US GAAP impairment charge. A review of future
expected cash flows following this cost increase resulted in the need for
an impairment charge for US GAAP purposes equal to the residual value of
the equipment. Introduction of more modern switching equipment lead to the
impairment charge for older analog switching equipment. For Brazilian GAAP
purposes the equipment was written off in 1997 when the equipment
upgrade/replacement was approved by the Company.
Under US GAAP, impairment charges would be included as a charge in arriving
at operating income.
I. DISCLOSURE REQUIREMENTS
US GAAP disclosure requirements differ from those required by Brazilian
GAAP. However, in these financial statements, the level of disclosure has
been expanded to comply with US GAAP.
J. INCOME TAXES
Embratel fully accrues for deferred income taxes on temporary differences
between tax and accounting basis. The existing policies for providing for
deferred taxes are substantially in accordance with SFAS 109--Accounting
for income taxes, except in connection with the deferred income tax effects
of indexation adjustments in 1996 and 1997 (see note 2(a)(iii)). Under US
GAAP the deferred tax effects of the 1996 and 1997 indexation for financial
reporting purposes would be charged to income and social contribution taxes
in the statement of income. For purposes of cash flow statement
presentation, under US GAAP, the change in deferred income taxes would be
presented as a non cash item within operating activities.
F-33
<PAGE>
EMBRATEL PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 28)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS OF DECEMBER 31,
1997)
K. INTEREST INCOME (EXPENSE)
Brazilian GAAP requires interest to be shown as part of operating income.
Under US GAAP interest income (expense) would be shown after operating
income.
L. EMPLOYEES' PROFIT SHARE
Brazilian GAAP requires employees' profit share to be shown as an
appropriation of net income for the year. Under US GAAP employee profit
sharing would be included as an expense in arriving at operating income.
M. PERMANENT ASSETS
Brazilian GAAP has a class of assets called permanent assets. This is the
collective name for all assets on which indexation adjustments were
calculated in the corporate and fiscal law accounts of Brazilian companies.
Under US GAAP the assets in this classification would be non current
assets.
Losses on disposals of permanent assets were R$154,383, R$103,902 and
R$132,744 in 1995, 1996 and 1997, respectively. Such losses were included
in non-operating expenses for Brazilian GAAP. Under US GAAP, such losses
would have reduced operating income.
N. PRICE-LEVEL ADJUSTMENTS AND THE US GAAP PRESENTATION
The effects of price-level adjustments have not been eliminated in the
reconciliation to US GAAP nor has Embratel reflected monetary gains or
losses associated with the various US GAAP adjustments separately
identified, because the application of inflation restatement as measured by
the UFIR and the IGP-M represents a comprehensive measure of the effect of
price level changes in the Brazilian economy. As such, it is considered a
more meaningful presentation than historical cost-based reporting for both
Brazilian and US accounting purposes.
O. DEFERRED TAXES
The deferred tax adjustments represent the tax effects of taxable US GAAP
pre-tax adjustments and include the negative effect of R$46,455 in 1996 and
R$0 in 1997 arising from enacted changes in the income tax rates.
Additionally, for US GAAP deferred tax assets and liabilities are
classified as current or non-current based on the classification of the
asset or liability attributing to the temporary difference.
P. COFINS TAX ACCRUAL
In 1997 Embratel accrued R$58,904 under Brazilian GAAP relating to a COFINS
tax dispute. Under US GAAP, the amount does not meet the SFAS 5 "Accounting
for Contingencies" criteria for accrual at December 31, 1997.
Q. DISCONTINUED OPERATIONS OF TELEBRAS
Under Brazilian law, Embratel is not the legal successor to Telebras.
Accordingly, under Brazilian GAAP, the Company has only presented the net
assets, results of operations and cash flows of Embratel. Under Brazilian
GAAP, the net assets, results of operations and cash flows of Telebras have
not been presented.
Under US GAAP, the Company and management of Telebras concluded that, due
to Embratel's position as the only long-distance carrier providing services
to all other Telebras subsidiaries, the significance of its revenues and
net assets, its low minority ownership and the lack of material effect of
the spin-off on Embratel, it is the appropriate entity to be considered as
the continuing entity within the Telebras group for U.S. financial
reporting purposes. As a result, all operations of Telebras and its
subsidiaries, except for Embratel, are considered to be discontinued
operations for U.S. reporting requirements.
F-34
<PAGE>
EMBRATEL PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 28)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS OF DECEMBER 31,
1997)
The following schedules present, in a U.S. GAAP reporting format, the
Brazilian GAAP condensed financial position, results of operations and cash
flows of Embratel as the continuing entity with all other Telebras group
operations presented as discontinued operations:
CONDENSED CONSOLIDATED BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1997
R$ R$
---------- ----------
(IN THOUSANDS OF
CONSTANT BRAZILIAN
REAIS--R$ OF DECEMBER
31, 1997)
<S> <C> <C>
Current assets............................................ 1,381,916 1,514,270
Noncurrent assets......................................... 57,021 47,798
Permanent assets.......................................... 6,370,946 6,540,419
Net assets of discontinued operations..................... 25,575,173 28,137,880
---------- ----------
Total assets.............................................. 33,385,056 36,240,367
========== ==========
Current liabilities....................................... 1,037,903 1,076,037
Noncurrent liabilities.................................... 818,377 940,062
Minority interests........................................ 74,420 76,086
---------- ----------
Shareholders' equity
Capital and reserves.................................... 26,334,000 28,267,000
Retained earnings....................................... 5,120,356 5,881,182
---------- ----------
Total shareholders' equity (1) and (2).................. 31,454,356 34,148,182
---------- ----------
Total liabilities and shareholders' equity................ 33,385,056 36,240,367
========== ==========
</TABLE>
- --------
(1) As a result of the spin-off in 1998, shareholders' equity will be reduced
by an amount equal to the net assets of discontinued operations.
(2) The presentation of "Shareholders' equity" is consistent with the
presentation of the published consolidated financial statements of
Telebras, from which the accompanying financial information was extracted,
except for an additional provision for doubtful accounts of R$99,192 in
1997, additional provisions for the Telepar supplementary pension plan of
R$11,077 in 1997, additional depreciation in Embratel of R$34,529 in 1997,
the write-off of a submarine cable with a book value of R$20,623 in 1996
rather than 1997 and the resulting offsetting effect of deferred income
taxes and minority interests of R$(1,750), R$8,728 and R$54,530 in 1995,
1996 and 1997. The additional provisions resulted from a reevaluation of
the Company's probable losses in relation to trade accounts receivable at
December 31, 1997 and from a subsequent pension amendment provided to the
Company by its actuary to update information previously submitted to the
Company. The additional depreciation charge in 1997 and the write-off of
the submarine cable in 1996 were the correction of previously reported
amounts.
F-35
<PAGE>
EMBRATEL PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 28)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS OF DECEMBER 31,
1997)
CONDENSED CONSOLIDATED INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
R$ R$ R$
---------- ---------- ----------
(IN THOUSANDS OF CONSTANT
BRAZILIAN REAIS--R$ OF
DECEMBER 31, 1997)
<S> <C> <C> <C>
Net operating revenue from
telecommunications services.............. 1,721,196 2,087,630 2,212,956
Cost of services.......................... (1,142,720) (1,145,613) (1,097,563)
---------- ---------- ----------
Gross profit.............................. 578,476 942,017 1,115,393
Operating expenses:
Selling expense......................... (147,556) (160,243) (219,308)
General and administrative expense...... (245,372) (237,216) (213,617)
Other net operating income.............. 36,400 (47,812) (84,621)
---------- ---------- ----------
Operating income from continuing
operations before interest............... 221,948 496,746 597,847
Interest income........................... 54,992 86,622 97,809
Interest expense.......................... -- (30,723) (40,110)
---------- ---------- ----------
Operating income from continuing
operations............................... 276,940 552,645 655,546
Write-off of property and equipment from
physical inventory....................... (94,298) (13,386) (17,246)
Net nonoperating expense.................. (53,221) (82,576) (123,878)
---------- ---------- ----------
Income before taxes and other charges..... 129,421 456,683 514,422
Income and social contribution taxes...... 54,661 (13,861) 1,016
---------- ---------- ----------
Income from continuing operations before
employees' profit share.................. 184,082 442,822 515,438
Employees' profit share................... (21,766) (22,642) (30,622)
---------- ---------- ----------
Income from continuing operations before
minority interests....................... 162,316 420,180 484,816
Income attributable to minority
interests................................ (2,041) (5,253) (6,061)
---------- ---------- ----------
Net income from continuing operations..... 160,275 414,927 478,755
Income attributable to discontinued
operations............................... 796,275 2,525,878 3,062,600
---------- ---------- ----------
Net income (1)............................ 956,550 2,940,805 3,541,355
========== ========== ==========
</TABLE>
- --------
(1) The presentation of "Net income" is consistent with the presentation of
the published consolidated financial statements of Telebras, from which
the accompanying financial information was extracted, except for an
additional provision for doubtful accounts of R$99,192 in 1997, additional
provisions for the Telepar supplementary pension plan of R$11,077 in 1997,
additional depreciation in Embratel of R$34,529 in 1997, the write-off of
a submarine cable with a book value of R$20,623 in 1996 rather than 1997
and the resulting offsetting effect of deferred income taxes and minority
interests of R$(1,750), R$8,728 and R$54,530 in 1995, 1996 and 1997. The
additional provisions resulted from a reevaluation of the Company's
probable losses in relation to trade accounts receivable at December 31,
1997 and from a subsequent pension amendment provided to the Company by
its actuary to update information previously submitted to the Company. The
additional depreciation charge in 1997 and the write-off of the submarine
cable in 1996 were the correction of previously reported amounts.
F-36
<PAGE>
EMBRATEL PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 27)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED CONSOLIDATED CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
R$ R$ R$
---------- ---------- ----------
(IN THOUSANDS OF CONSTANT
BRAZILIAN REAIS--R$ OF
DECEMBER 31, 1997)
<S> <C> <C> <C>
CASH PROVIDED BY OPERATIONS:
Income from continuing operations......... 160,275 414,927 478,755
Adjustments to reconcile net income from
continuing operations to cash provided by
continuing operating activities.......... 777,986 936,372 732,957
---------- ---------- ----------
Net cash provided by continuing
operations................................ 938,261 1,378,299 1,211,712
Net cash provided by discontinued
operations................................ 4,151,739 5,692,701 6,996,288
---------- ---------- ----------
Net cash provided by operations--Telebras.. 5,090,000 7,071,000 8,208,000
---------- ---------- ----------
Net cash flow from investing activities--
continuing operations..................... (726,229) (947,386) (909,342)
Net cash flow from investing activities--
discontinued operations................... (4,311,771) (5,569,614) (6,811,658)
---------- ---------- ----------
Net cash flow from investing activities--
Telebras.................................. (5,038,000) (6,517,000) (7,721,000)
---------- ---------- ----------
Net cash flow from financing activities--
continuing operations..................... (158,763) (24,020) (252,900)
Net cash flow from financing activities--
discontinued operations................... 404,763 2,297,020 128,900
---------- ---------- ----------
Net cash flow from financing activities--
Telebras.................................. 246,000 2,273,000 (124,000)
---------- ---------- ----------
Net cash flows--Telebras................... 298,000 2,827,000 363,000
Less: Net cash flows from discontinued
operations................................ (244,731) (2,420,107) (313,530)
---------- ---------- ----------
Increase in cash and cash equivalents from
continuing operations..................... 53,269 406,893 49,470
Cash and cash equivalents at beginning of
year...................................... 245,104 298,373 705,266
---------- ---------- ----------
Cash and cash equivalents at end of year... 298,373 705,266 754,736
========== ========== ==========
</TABLE>
The principal elements of the discontinued operations, in accordance with
Brazilian GAAP, are presented below:
<TABLE>
<CAPTION>
1995 1996 1997
--------- ---------- ----------
<S> <C> <C> <C>
Net operating revenues........................ 8,417,804 11,675,370 13,982,044
Net income.................................... 796,275 2,525,878 3,062,600
Current assets................................ -- 5,608,084 6,362,927
Property, plant and equipment................. -- 34,644,414 38,106,208
Total assets.................................. -- 40,685,494 45,070,259
Current liabilities........................... -- 4,412,291 4,471,122
Total liabilities (including funds for
capitalization).............................. -- 10,153,914 9,127,967
Minority interests............................ -- 4,956,407 7,804,412
Net assets of discontinued operations......... -- 25,575,173 28,137,880
</TABLE>
In connection with the April, 1998 resolution reached on the disputed
capital increase discussed in note 28a, R$132,000 of dividends are to be paid
to the holders of the new shares. For Brazilian GAAP purposes, the historical
consolidated financial statements of Embratel have not reflected the R$132,000
as accrued dividends since such dividends are obligations of Telebras. For
U.S. reporting purposes, Telebras is presented as discontinued operations of
Embratel, accordingly such dividends have been accrued as of December 31, 1997
since the settlement in April 1998 resulted in the final determination of the
dividend obligation prior to finalizing the accompanying consolidated
financial statements.
F-37
<PAGE>
EMBRATEL PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 27)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
R. LOANS AND FINANCING
For US GAAP, loans and financing balances in default or expected to be in
default within a year of the balance sheet date would be classified as
current obligations unless creditors had provided the Company waivers for
such defaults. For Brazilian GAAP, loans and financing balances in
technical default are not always classified as current liabilities. A
substantial portion (R$462,161) of the Company's outstanding debt at
December 31, 1997 is currently in default as a result of the privatization
and accordingly, for US GAAP, would be classified as current liabilities.
S. RETAINED EARNINGS
For Brazilian GAAP, a company formed as a result of a cisao may have
retained earnings in its balance sheet if the parent company shareholders'
resolution adopting the cisao allocates retained earnings from the parent
company to the new company. Under US GAAP, "retained earnings" allocated in
the cisao would not be considered historical retained earnings as such
amount would represent capital allocated from the parent company and would
be described as "distributable capital." As a result of the May 22, 1998
spin off, the Company will have US GAAP distributable capital of
R$1,570,235.
F-38
<PAGE>
EMBRATEL PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 28)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS OF DECEMBER 31,
1997)
The following reconciliations have been segregated between continuing and
discontinued operations to disclose the discontinued operation with more
prominence.
NET INCOME RECONCILIATION OF THE DIFFERENCES BETWEEN US AND BRAZILIAN GAAP
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Income as reported.................................... 414,927 478,755
Add (deduct):
Different criteria for:
Capitalized interest.............................. (18,378) (8,021)
Amortization of capitalized interest.............. (20,969) 46,017
Impairment of long lived assets:
SFAS 121 impairment adjustment.................... (119,447) 119,447
Pension and other post retirement benefits:
SFAS 87 adjustment................................ (56,154) (24,233)
SFAS 106 adjustment............................... (13,897) (14,458)
Reversal of COFINS tax accrual...................... -- 58,904
Items posted directly to shareholders' equity
accounts:
Deferred tax effect of the non deductibility of
the indexation increments to shareholders' equity
................................................. (163,203) (138,120)
Effects of changes in income tax rates............ 83,081 2,917
Fiscal incentive investments...................... 47 904
Interest on construction in progress.............. 142,823 102,160
Deferred tax effect of the above adjustments........ 101,299 (58,627)
Effect of minority interest in the above
adjustments........................................ 810 (1,086)
--------- ---------
US GAAP income from continuing operations............. 350,939 564,559
========= =========
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Income from discontinued operations (Telebras and all
subsidiaries except Embratel)........................ 2,525,878 3,062,600
Add (deduct):
Different criteria for:
Capitalized interest.............................. (472,622) (512,979)
Amortization of capitalized interest.............. 237,969 246,983
Amortization of contribution to plant expansion... 96,000 121,000
Reversal of fixed assets revaluation................ -- --
Donations and subsidies for investment.............. -- (97,000)
Assets presented at net realizable value:
Investments discounted to present value........... 14,000 10,000
Pension and other post retirement benefits:
SFAS 87 adjustment................................ (225,846) (191,767)
SFAS 106 adjustment............................... (121,103) (134,542)
Items posted directly to shareholder's equity
accounts:
Fiscal incentive investments...................... (47) 16,096
Interest on construction in progress.............. 460,177 434,840
Effects of changes in income tax rates............ (40,081) (2,917)
Other consolidation adjustments................... 40,000 84,000
Deferred tax on full indexation................... (708,797) (651,880)
Deferred tax effects of above adjustments........... 225,896 447,984
Effect of minority interest on the above
adjustments........................................ (54,983) 295,523
--------- ---------
US GAAP income from discontinued operations........... 1,976,441 3,127,941
========= =========
</TABLE>
F-39
<PAGE>
EMBRATEL PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 28)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS OF DECEMBER 31,
1997)
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Total net income (Telebras--consolidated)............ 2,940,805 3,541,355
Add (deduct):
Different criteria for:
Capitalized interest............................. (491,000) (521,000)
Amortization of capitalized interest............. 217,000 293,000
Amortization of contribution to plant expansion.. 96,000 121,000
Reversal of fixed assets revaluation............... -- --
Donations and subsidies for investment............. -- (97,000)
Assets presented at net realizable value:
Investments discounted to present value.......... 14,000 10,000
SFAS 121 adjustment.............................. (119,447) 119,447
Pension and other post retirement benefits:
SFAS 87 adjustment............................... (282,000) (216,000)
SFAS 106 adjustment.............................. (135,000) (149,000)
Reversal of COFINS tax accrual..................... -- 58,904
Items posted directly to shareholder's equity
accounts:
Fiscal incentive investments..................... -- 17,000
Interest on construction in progress............. 603,000 537,000
Effects of changes in income tax rates........... 43,000 --
Other consolidation adjustments.................. 40,000 84,000
Deferred tax on full indexation.................. (872,000) (790,000)
Deferred tax effects of above adjustments.......... 327,195 389,357
Effect of minority interest on the above
adjustments....................................... (54,173) 294,437
--------- ---------
US GAAP total net income(1).......................... 2,327,380 3,692,500
========= =========
</TABLE>
- --------
(1) The presentation of the U.S. GAAP adjustments to the total net income of
the Company, including discontinued operations, is consistent with the
presentation in the published consolidated financial statements of
Telebras except for (1) reversal of a COFINS tax accrual of R$58,904
recorded during 1997 under Brazilian GAAP relating to a COFINS tax dispute
which for U.S. GAAP purposes does not meet the SFAS 5 criteria for
accrual, and (2) the write-off in 1996 rather than 1997 of a submarine
cable with a book value of R$20,623, discussed in Note 7 to the financial
statements.
NET INCOME PER THOUSAND SHARES IN ACCORDANCE WITH US GAAP
<TABLE>
<CAPTION>
1996 1997
----------- -----------
Basic:
<S> <C> <C>
Common shares:
Continuing operations............................ 1.09 1.76
Discontinued operations.......................... 6.17 9.75
----------- -----------
Total............................................ 7.26 11.51
=========== ===========
Weighted average (thousand) common shares
outstanding....................................... 124,351,903 124,351,903
Preferred shares:
Continuing operations............................ 1.09 1.76
Discontinued operations.......................... 6.17 9.75
----------- -----------
Total............................................ 7.26 11.51
=========== ===========
Weighted average (thousand) preferred shares
outstanding....................................... 196,311,647 196,311,647
</TABLE>
F-40
<PAGE>
EMBRATEL PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 28)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS OF DECEMBER 31,
1997)
NET EQUITY RECONCILIATION OF THE DIFFERENCES BETWEEN US AND BRAZILIAN GAAP
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Total shareholders' equity as reported............. 5,879,183 6,010,302
Add (deduct):
Different criteria for:
Capitalized interest........................... (943,276) (951,297)
Amortization of capitalized interest........... 412,587 458,608
Reversal of proposed dividends and net interest
on capital...................................... 234,228 296,081
Reversal of dividend distribution tax............ -- 23,810
Impairment of long-lived assets:
SFAS 121 adjustment............................ (119,447) --
Pension and other post retirement benefits:
SFAS 87 adjustment............................. (483,705) (507,938)
SFAS 106 adjustment............................ (151,557) (166,015)
Reversal of COFINS tax accrual................... -- 58,904
Deferred tax effects of the above adjustments.... 424,181 365,555
Effect of minority interest on the above
adjustments..................................... 7,837 5,275
---------- ----------
5,260,031 5,593,285
US GAAP net assets of discontinued operations...... 25,115,899 26,511,145
---------- ----------
US GAAP shareholders equity (Telebras--
consolidated)(1).................................. 30,375,930 32,104,430
========== ==========
</TABLE>
- --------
(1) The presentation of the U.S. GAAP adjustments to the total net equity of
the Company, including discontinued operations, is consistent with the
presentation in the published consolidated financial statements of
Telebras except for (1) reversal of a COFINS tax accrual of R$58,904
recorded during 1997 under Brazilian GAAP relating to a COFINS tax dispute
which for U.S. GAAP purposes does not meet the SFAS 5 criteria for
accrual, (2) recognition of accrued dividends of R$132,000 relating to the
disputed capital increase discussed above and in Note 28a, and (3) the
write-off in 1996 rather than 1997 of a submarine cable with a book value
of R$20,623, discussed in Note 7 to the financial statements.
Upon consummation of the spin-off in 1998, US GAAP shareholders equity will
be reduced by the net book value of the net assets of discontinued operations
(R$26,511,145 as of December 31, 1997).
<TABLE>
<S> <C> <C>
US GAAP Supplementary information (Continuing
Operations):
Operating income from continuing operations..... 180,704 515,237
========== ==========
Total assets ................................... 7,570,111 7,994,787
========== ==========
Property, plant and equipment................... 9,407,807 9,870,680
Accumulated depreciation........................ (3,758,603) (3,894,110)
---------- ----------
Net property, plant and equipment............... 5,649,204 5,976,570
========== ==========
</TABLE>
The deferred tax effect of the US GAAP adjustments relating to continuing
operations noted above of R$424,181 in 1996 and R$365,555 in 1997 would
principally be classified as non-current on the balance sheet.
F-41
<PAGE>
EMBRATEL PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 28)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS OF DECEMBER 31,
1997)
STATEMENTS OF CHANGES IN TOTAL SHAREHOLDERS' EQUITY (TELEBRAS--CONSOLIDATED) IN
ACCORDANCE WITH US GAAP
YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
CAPITAL
AND RETAINED
RESERVES EARNINGS TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
Balances at December 31, 1995.............. 24,188,000 2,482,550 26,670,550
Expansion plan contributions:
Received.................................. 2,074,000 -- 2,074,000
Deferred credits.......................... (301,000) -- (301,000)
Reversal of reserves....................... (243,000) 243,000 --
Sale of treasury shares.................... 1,000 -- 1,000
Net income................................. 2,327,380 2,327,380
Transfers to reserves...................... 1,134,000 (1,134,000) --
Dividends paid............................. -- (396,000) (396,000)
---------- ---------- ----------
Balances at December 31, 1996.............. 26,853,000 3,522,930 30,375,930
Expansion plan contributions
Received.................................. 1,188,000 -- 1,188,000
Transferred to minority shareholders...... (2,373,000) -- (2,373,000)
Reversal of reserves....................... (82,000) 82,000 --
Sale of treasury shares.................... 1,000 -- 1,000
Net income................................. -- 3,692,500 3,692,500
Transfers to reserves...................... 1,997,000 (1,997,000) --
Dividends paid............................. -- (648,000) (648,000)
Dividends payable.......................... -- (132,000) (132,000)
---------- ---------- ----------
Balances at December 31, 1997.............. 27,584,000 4,520,430 32,104,430
========== ========== ==========
</TABLE>
F-42
<PAGE>
EMBRATEL PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 28)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS OF DECEMBER 31,
1997)
30. ADDITIONAL DISCLOSURES REQUIRED BY US GAAP
A. PENSION AND POST-RETIREMENT BENEFITS
If Embratel had reported its net pension cost, net periodic post retirement
benefit cost, the funded status of its pension and other post retirement
benefits plans in accordance with accounting principles and actuarial
assumptions generally accepted in the United States of America, the
disclosures required would have been as follows:
Pension benefits
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Components of net pension cost:
Service cost-benefits earned during the period..... 62,362 59,257
Interest on projected benefit obligation........... 73,554 75,354
Actual return on plan assets....................... (54,056) (46,507)
Unrecognized net (gain) loss....................... 25,066 (12,840)
Unrecognized net liability at transition........... 34,599 34,599
--------- ---------
Total pension cost................................. 141,525 109,863
Less: employee contributions....................... (30,831) (30,853)
--------- ---------
Net pension cost................................... 110,694 79,010
========= =========
Funded status:
Accumulated benefit obligation:
Vested........................................... 484,226 512,793
Non vested....................................... 557,286 590,164
--------- ---------
Total............................................ 1,041,512 1,102,957
========= =========
Projected benefit obligation....................... 1,274,997 1,371,407
Fair value of plan assets.......................... (557,790) (651,843)
--------- ---------
Projected obligation in excess of plan assets...... 717,207 719,564
Unrecognized net gain.............................. 154,694 141,971
Unrecognized net liability at transition........... (388,196) (353,597)
--------- ---------
Accrual required at December 31 under US GAAP...... 483,705 507,938
========= =========
The actuarial assumptions used were as follows:
Discount rate for determining projected benefit
obligations....................................... 6.00% 6.00%
Rate of increase in compensation levels............ 3.25% 3.25%
Expected long-term rate of return on plan assets... 6.00% 6.00%
</TABLE>
The above are real rates over inflation as measured by the Fiscal Reference
Unit (UFIR) through December 31, 1995 and the IGP-M subsequently.
F-43
<PAGE>
EMBRATEL PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 28)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS OF DECEMBER 31,
1997)
Amortization of the unrecognized liability at transition: 17.22 years
commencing on January 1, 1991.
OTHER POST-RETIREMENT BENEFITS
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Components of net periodic post-retirement benefit cost:
Service cost-benefits earned during the period......... 9,001 9,023
Interest on projected benefit obligation............... 12,372 13,349
Actual return on plan assets........................... (4,795) (2,997)
Amortization of:
Unrecognized net gain................................ 5,008 1,994
------- -------
Net post-retirement benefit cost....................... 21,586 21,369
======= =======
Funded status:
Accumulated post-retirement benefit obligations:
Retirees and dependents.............................. 55,062 54,976
Fully eligible active plan participants.............. 28,311 30,010
Other active plan participants....................... 131,233 148,670
------- -------
214,606 233,656
Fair value of plan assets.............................. (27,875) (34,461)
------- -------
Obligation in excess of plan assets.................... 186,731 199,195
Unrecognized net gain.................................. (35,174) (33,180)
------- -------
Accrual required at December 31 under US GAAP.......... 151,557 166,015
======= =======
</TABLE>
There was no unrecognized liability at transition.
Health care cost trend rates of increase were projected at annual rates
excluding inflation ranging from 6.48% in 1998 to 2.00% in 2047. The effect
of a one percent annual increase in the assumed health care cost trend
rates would increase the accumulated post-retirement benefit obligation at
December 31, 1997 by R$50,361 and the aggregate of service and interest
cost components by R$5,826. Measurement of the accumulated post-retirement
benefit obligation was based on the same assumptions as were used in the
pension calculations.
The funded status of the pension and post retirement plans under Brazilian
and US GAAP differ. Benefit obligations differ because they have been
prepared using different actuarial assumptions permitted under Brazilian
and US GAAP.
The net assets of the plans differ under Brazilian and US GAAP principally
due to the accrual of income tax contingencies of the pension fund for US
GAAP purposes in the amount of R$90,691 and R$106,205 in 1996 and 1997,
respectively.
B. CONCENTRATIONS OF RISKS
Embratel is prohibited from investing its surplus cash balances in
financial instruments other than government securities controlled by the
Central Bank of Brazil or the Federally owned bank, Banco do Brasil S.A.
Embratel's main customers are the related party telephone operating
companies. During the years covered by the accompanying consolidated
financial statements there were 27 such operating companies, with each
usually covering a single Brazilian state. This resulted in Embratel's
credit risk with respect to customer
F-44
<PAGE>
EMBRATEL PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 28)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS OF DECEMBER 31,
1997)
accounts being diversified. Of the operating companies only
Telecomunicacoes de Sao Paulo S.A.--TELESP accounted for more than 10% of
Embratel's revenues during the year ended December 31, 1997.
In conducting its business Embratel is fully dependent on its long-distance
and international telecommunications concession granted by the federal
government of Brazil.
Approximately 97% of Embratel's employees are members of state labor
unions, with whom it enters new collective agreements every year. The
collective agreements currently in force expire on November 30, 1998.
There is no concentration of available sources of labor, services,
concessions or rights, other than those mentioned above, that could, if
suddenly eliminated, severely impact Embratel operations.
C. NEW ACCOUNTING PRONOUNCEMENTS
SFAS NO. 130, "REPORTING COMPREHENSIVE INCOME"
SFAS No. 130 establishes the standards for reporting and displaying
comprehensive income and its components (revenues, expenses, gains and
losses) as part of a full set of financial statements. This statement
requires that all elements of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements.
SFAS NO. 131, "DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION"
SFAS No. 131 establishes the standards for the manner in which public
enterprises are required to report financial and descriptive information
about their operating segments. The standard defines operating segments as
components of an enterprise for which separate financial information is
available and evaluated regularly as a means for assessing segment
performance and allocating resources to segments. A measure of profit or
loss, total assets and other related information are required to be
disclosed for each operating segment. In addition, this standard requires
the annual disclosure of: information concerning revenues derived from the
enterprise's products or services; countries in which it earns revenues or
holds assets, and major customers.
SFAS NO. 132, "EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER
POSTRETIREMENT BENEFITS"
SFAS No. 132 revises and standardizes employers' disclosures about pension
and other postretirement benefit plans. It does not change the measurement
or recognition of those plans.
The Company will comply with the requirements of SFAS No. 130, 131 and 132
in 1998.
F-45
<PAGE>
EMBRATEL PARTICIPACOES S.A.
EXHIBIT VOLUME
SEPTEMBER 21, 1998
<PAGE>
EMBRATEL PARTICIPACOES S.A.
EXHIBIT INDEX
Exhibit
Number
1.1 Charter of the Registrant
1.2 Charter of the Registrant (English translation)
2.1 Deposit Agreement dated as of July 27, 1998 among the Registrant,
The Bank of New York, as Depositary, and Owners and Beneficial
Owners of American Depositary Receipts
10.1 Standard Concession Agreement for Domestic, Long-Distance, Switched,
Fixed-Line Telephone Service (Embratel)
10.2 Standard Concession Agreement for Domestic Long-Distance, Switched,
Fixed-Line Telephone Service (Embratel) (English translation)
10.3 Standard Concession Agreement for International Long-Distance,
Switched, Fixed-Line Telephone Service (Embratel)
10.4 Standard Concession Agreement for International Long-Distance,
Switched, Fixed-Line Telephone Service (Embratel) (English
translation)
23.1 Consent of KPMG Peat Marwick
<PAGE>
EXHIBIT 1.1
ESTATUTO SOCIAL
DA
EMBRATEL PARTICIPACOES S.A.
CAPITULO I
DAS CARACTERISTICAS DA COMPANHIA
Art. 1 - EMBRATEL PARTICIPACOES S.A. e uma sociedade anonima,
vinculada ao Ministerio das Comunicacoes, controladora da empresa atuante na
Regiao IV a que se refere o Plano Geral de Outorgas aprovado pelo Decreto n
(degrees) 2.534, de 02 de abril de 1998, nomeadamente Empresa Brasileira de
Telecomunicacoes S.A. - EMBRATEL.
Paragrafo Unico - A Companhia se rege pela Lei das Sociedades por
Acoes, pelas disposicoes especiais de lei federal, pela legislacao de
telecomunicacoes, pelo presente Estatuto, pelas leis e usos do comercio e demais
dispositivos legais aplicaveis.
Art. 2 - A Companhia tem por objeto:
I. exercer o controle da Empresa Brasileira de Telecomunicacoes
S.A. - EMBRATEL;
II. promover, realizar ou orientar a captacao, em fontes internas
e externas, de recursos a serem aplicados pela Companhia ou
pela EMBRATEL ou suas demais controladas;
III. promover e estimular atividades de estudos e pesquisas visando
ao desenvolvimento do setor de servicos de telecomunicacoes de
longa distancia em ambito nacional e internacional, incluindo
servicos de transmissao de voz, textos, dados, imagens e
telematica;
IV. executar, atraves da EMBRATEL ou outras sociedades controladas
ou coligadas, servicos de telecomunicacoes de longa distancia
em ambito nacional e internacional, incluindo servicos de
transmissao de voz, textos, dados, imagens e telematica;
V. promover, estimular e coordenar, atraves de suas sociedades
controladas ou coligadas, a formacao e o treinamento do
pessoal necessario ao setor de servicos de telecomunicacoes de
longa distancia em ambito nacional e internacional, incluindo
servicos de transmissao de voz, textos, dados, imagens e
telematica;
VI. realizar ou promover importacoes de bens e servicos para a
<PAGE>
2
EMBRATEL ou suas demais sociedades controladas e coligadas;
VII. exercer outras atividades afins ou correlatas ao seu objeto
social; e
VIII. participar do capital de outras sociedades.
Art 3 - A Companhia tem sede no Distrito Federal, podendo criar e
extinguir, por decisao do Conselho de Administracao, filiais, agencias e
sucursais, escritorios, departamentos e representacoes em qualquer ponto do
territorio nacional e no exterior.
Art. 4 - O prazo de duracao da Companhia e indeterminado.
CAPITULO II
DO CAPITAL SOCIAL
Art 5 - O capital social subscrito, totalmente integralizado, e de
R$ 2.134.427.124,47 (dois bilhoes, cento e trinta e quatro milhoes, quatrocentos
e vinte e sete mil, cento e vinte e quatro reais e quarenta e sete centavos),
representado por 334.399.027.592 (trezentos e trinta e quatro bilhoes, trezentos
e noventa e nove milhoes, vinte e sete mil, quinhentos e noventa e duas) acoes,
sendo 124.369.030.532 (cento e vinte e quatro bilhoes, trezentos e sessenta e
nove milhoes, trinta mil, quinhentos e trinta e dois) ordinarias nominativas e
210.029.997.060 (duzentos e dez bilhoes, vinte e nove milhoes, novecentos e
noventa e sete mil e sessenta) preferenciais nominativas, todas sem valor
nominal.
Art. 6 - A Companhia esta autorizada a aumentar seu capital social,
mediante deliberacao da Assembleia Geral, ate o limite de 700.000.000.000
(setecentos bilhoes) de acoes, ordinarias ou preferenciais.
Paragrafo Unico - Dentro do limite do capital autorizado de que
trata o caput deste artigo, a Assembleia Geral pode aprovar a outorga de opcao
de compra de acoes a seus administradores, empregados e a pessoas naturais que
prestem servicos a Companhia ou a empresas por ela controladas.
Art.7 - O capital social e representado por acoes ordinarias e
preferenciais, sem valor nominal, nao havendo obrigatoriedade, nos aumentos de
capital, de se guardar proporcao entre elas, observadas as disposicoes legais e
estatutarias.
Art. 8 - Por deliberacao da Assembleia, pode ser excluido o direito
de preferencia para emissao de acoes, debentures conversiveis em acoes e bonus
de subscricao cuja colocacao seja feita mediante:
<PAGE>
3
I. subscricao publica ou venda em bolsa de valores;
II. permuta por acoes em oferta publica de aquisicao de controle,
nos termos dos arts. 257 e 263 da Lei das S/A;
III. gozo de incentivos fiscais, nos termos de lei especial.
Art 9 - A cada acao ordinaria corresponde o direito a um, voto nas
deliberacoes da Assembleia Geral.
Art. 10 - As acoes preferenciais nao tem direito a voto, exceto na
hipotese do paragrafo unico do art. 13 deste estatuto, sendo a elas assegurada
prioridade no reembolso de capital, sem premio, e no pagamento de dividendos
minimos, nao cumulativos, de 6% (seis por cento) ao ano, sobre o valor
resultante da divisao do capital subscrito pelo numero total de acoes da
Companhia.
Paragrafo Unico - As acoes preferenciais adquirirao o direito a voto
se a Companhia, por um prazo de 3 (tres) anos consecutivos, deixar de pagar os
dividendos minimos a que fazem jus nos termos do caput deste artigo.
Art. 11 - As acoes da Companhia serao escriturais, sendo mantidas
em conta de deposito, em instituicao financeira, em nome de seus titulares, sem
emissao de certificados.
CAPITULO III
DA ASSEMBLEIA GERAL
Art. 12 - A Assembleia Geral e o orgao superior da Companhia, com
poderes para deliberar sobre todos os negocios relativos ao objeto social e
tomar as providencias que julgar convenientes a defesa e ao desenvolvimento da
Companhia.
COMPETENCIA PRIVATIVA
Art. 13 - Compete privativamente A Assembleia Geral:
I. reformar o Estatuto Social;
II. autorizar a emissao de debentures e de debentures conversiveis
em acoes ou vende-las, se em tesouraria, bem como autorizar a
venda de debentures conversiveis em acoes de sua titularidade
de emissao de empresa controlada, podendo delegar ao Conselho
de Administracao a deliberacao sobre a epoca e as condicoes de
vencimento, amortizacao ou resgate, a epoca e as condicoes de
pagamento dos juros, da participacao nos lucros e de premio de
reembolso, se houver e o modo
<PAGE>
4
de subscricao ou colocacao bem como o tipo de debentures;
III. deliberar sobre a avaliacao de bens com que o acionista
concorrer para a formacao do capital social;
IV. deliberar sobre transformacao, fusao, incorporacao e cisao da
Companhia, sua dissolucao e liquidacao, eleger e destituir
liquidantes e julgar-lhes as contas;
V. autorizar a prestacao de garantias pela Companhia a obrigacoes
de terceiros, nestes nao incluidas as sociedades
controladoras;
VI. suspender o exercicio dos direitos do acionista que deixar de
cumprir obrigacoes impostas pela lei ou pelo Estatuto;
VII. eleger ou destituir, a qualquer tempo, os membros do Conselho
de Administracao e os membros do Conselho Fiscal;
VIII. fixar a remuneracao, global ou individual, dos membros do
Conselho de Administracao, da Diretoria e do Conselho Fiscal;
IX. tomar, anualmente, as contas dos administradores e deliberar
sobre as demonstracoes financeiras por eles apresentadas;
X. deliberar sobre promocao de acao de responsabilidade civil a
ser movida pela Companhia contra os administradores, pelos
prejuizos causados ao seu patrimonio, na conformidade do
disposto no art. 159 da Lei das S/A;
XI. autorizar a alienacao, no todo ou em parte, das acoes de
sociedade controlada;
XII. deliberar sobre o aumento do capital social por subscricao de
novas acoes;
XIII. autorizar a renuncia a direitos de subscricao de acoes ou
debentures conversiveis em acoes de empresa controlada;
XIV. deliberar sobre a emissao de quaisquer outros titulos ou
valores mobiliarios, no Pais ou no exterior;
XV. autorizar a permuta de acoes ou outros valores mobiliarios;
XVI. resolver sobre a emissao de acoes e bonus de subscricao dentro
dos
<PAGE>
5
limites do capital autorizado, observadas as disposicoes
legais e estatutarias;
XVII. aprovar previamente a celebracao de quaisquer contratos de
longo prazo entre a Companhia ou suas controladas, de um lado,
e o acionista controlador ou sociedades controladas,
coligadas, sujeitas a controle comum ou controladoras deste
ultimo, ou que de outra forma constituam partes relacionadas a
Companhia, de outra parte, salvo quando os contratos
obedecerem a clausulas uniformes.
Paragrafo Unico - Sem prejuizo do disposto no ss. 1 do art. 115 da
Lei n 6.404/76, os titulares de acoes preferenciais terao direito a voto nas
deliberacoes assembleares referidas no inciso XVII deste artigo, assim como
naquelas referentes a alteracao ou revogacao dos seguintes dispositivos
estatutarios:
I. inciso XVII do art. 13;
II. paragrafo unico do art. 14; e
III. art. 46.
Art. 14 - A Assembleia Geral sera convocada pelo Conselho de
Administracao, cabendo ao Presidente consubstanciar o respectivo ato, ou na
forma prevista no Paragrafo unico do art. 123 da Lei n 6.404/76.
Paragrafo Unico - Nas hipoteses do art. 136 da Lei n 6.404/76, a
primeira convocacao da Assembleia Geral sera feita com 30 (trinta) dias de
antecedencia, no minimo, e com antecedencia minima de 10 (dez) dias, em segunda
convocacao.
Art. 15 - A Assembleia Geral sera instalada pelo Presidente da
Companhia, que procedera a eleicao da mesa Diretora, composta de um presidente
e um secretario, escolhidos dentre os acionistas presentes.
Art. 16 - Dos trabalhos e deliberacoes da Assembleia Geral sera
lavrada ata, assinada pelos membros da mesa e pelos acionistas presentes, que
representem, no minimo, a maioria necessaria para as deliberacoes tomadas.
ss. 1 - A ata sera lavrada na forma de sumario dos fatos, inclusive
dissidencias e protestos.
ss. 2 - Salvo deliberacao em contrario da Assembleia, as atas
serao publicadas com omissao das assinaturas dos acionistas.
Art. 17 - Anualmente, nos quatro primeiros meses subsequentes ao
termino
<PAGE>
6
do exercicio social, a Assembleia Geral se reunira, ordinariamente, para:
I. tomar as contas dos administradores; examinar, discutir e
votar as demonstracoes fmanceiras;
II. deliberar sobre a destinacao do lucro liquido do exercicio e
a distribuicao de dividendos;
III. eleger os membros do Conselho Fiscal e, quando for o caso, os
membros do Conselho de Administracao.
Art. 18 - A Assembleia Geral se reunira, extraordinariamente,
sempre que os interesses da Companhia o exigirem.
CAPITULO IV
DA ADMINISTRACAO DA COMPANHIA
SECAO I
ORGAOS DA ADMINISTRACAO
CONSELHO E DIRETORIA
Art. 19 - A Administracao da Companhia sera exercida pelo Conselho
de Administracao e pela Diretoria.
ss. 1 - 0 Conselho de Administracao, orgao de deliberacao colegiada,
exercera a administracao superior da Companhia.
ss. 2 - A Diretoria e orgao executivo da administracao da
Companhia, atuando cada um de seus membros segundo a respectiva competencia.
ss. 3 As atribuicoes e poderes conferidos por lei a cada um dos
orgaos da administracao nao podem ser outorgados a outro orgao.
SECAO II
DO CONSELHO DE ADMINISTRACAO
Art. 20 - Compete ao Conselho de Administracao:
I. fixar a politica geral dos negocios da Companhia e acompanhar
sua execucao;
II. convocar a Assembleia Geral;
<PAGE>
7
III. aprovar e submeter a Assembleia Geral as demonstracoes
financeiras o Relatorio da Administracao da Companhia, nelas
incluidas as demonstracoes consolidadas;
IV. eleger e destituir, a qualquer tempo, os diretores da
Companhia, fixando-lhes as atribuicoes, observadas as
disposicoes legais e estatutarias;
V. aprovar, mediante proposta da Diretoria, a indicacao ou
destituicao de titular da Auditoria Interna;
VI. aprovar os planos gerais da Companhia;
VII. resolver sobre as condicoes de emissao de debentures, por
delegacao da Assembleia Geral;
VIII. aprovar o Regimento da Companhia, definindo sua estrutura
organizacional e especificando as atribuicoes de cada diretor,
observadas as disposicoes legais e estatutarias;
IX. autorizar a alienacao dos bens imoveis da Companhia;
X. fiscalizar a gestao dos diretores da Companhia, examinar, a
qualquer tempo, os livros da Companhia, solicitar informacoes
sobre contratos celebrados ou em via de celebracao ou sobre
quaisquer outros atos;
XI. escolher e destituir os auditores independentes;
XII. aprovar e alterar o Regimento Interno do Conselho;
XIII. conceder licenca e ferias aos membros do Conselho, indicando o
respectivo substituto;
XIV. aprovar a participacao da Companhia no capital de outras
empresas ou a cessacao dessa participacao, inclusive a
constituicao de empresas subsidiarias;
XV. autorizar a aquisicao de acoes de emissao da Companhia, para
efeito de cancelamento ou permanencia em tesouraria e
posterior alienacao;
XVI. autorizar a emissao de notas promissorias comerciais
("commercial
<PAGE>
8
papers");
XVII. executar outras atividades que lhe sejam cometidas pela lei,
pelo Estatuto, pela Assembleia Geral ou pelo Ministerio das
Comunicacoes.
Art. 21 - 0 Conselho de Administracao sera composto de 5 (cinco)
membros, ai incluidos um representante dos acionistas minoritarios eleito na
forma do art. 239 da Lei n 6.404/76 e outro representante do Ministro de Estado
do Planejamento e Orcamento.
Paragrafo Unico - Eleitos pela Assembleia Geral, os membros do
Conselho de Administracao terao mandato de 3 (tres) exercicios anuais,
considerando-se exercicio anual o periodo compreendido entre 2 (duas)
Assembleias Gerais Ordinarias.
Art. 22 - Os membros do Conselho de Administracao, a excecao dos
representantes dos acionistas minoritarios e do representante do Ministro de
Estado do Planejamento e Orcamento, serao indicados pelo Ministro de Estado das
Comunicacoes, dentre brasileiros de notorios conhecimentos e experiencia,
idoneidade moral e reputacao ilibada, cabendo a um destes a presidencia do
Conselho.
Art. 23 - 0 substituto eventual do Presidente do Conselho de
Administracao sera escolhido pelo proprio Conselho de Administracao, entre os
seus membros que integrem a Diretoria.
Paragrafo Unico - No caso de ausencias ou impedimentos que obstem a
tomada de deliberacao, os Conselheiros presentes poderao convocar membros da
Diretoria para compor o Conselho.
Art. 24 - 0 Conselho de Administracao reunir-se-a, ordinariamente,
uma vez por mes e, extraordinariamente, mediante convocacao do Presidente ou
de 2 (dois) Conselheiros, lavrando-se ata de suas deliberacoes.
Art. 25 - 0 Conselho de Administracao deliberara por maioria de
votos, presente a maioria de seus membros, tendo o Presidente, alem do voto
comum, o de qualidade e cabendo-lhe baixar os atos que consubstanciem essas
deliberacoes, quando for o caso.
SECAO III
DA DIRETORIA
<PAGE>
9
Art. 26 - A Diretoria sera composta de 1 (um) Presidente e 1 (um)
Vice Presidente.
Paragrafo Unico - Os membros do Conselho de Administracao, ate o
maximo de 1/3 (um terco), poderao ser eleitos para cargos de Diretores.
Art. 27 - Cabera ao Conselho cie Administracao eleger os membros da
Diretoria, escolhendo obrigatoriamente o seu Presidente entre os membros do
Conselho.
Art. 28 - E de 3 (tres) exercicios anuais o mandato da Diretoria,
podendo seus membros ser reeleitos ou destituidos, a qualquer tempo.
Paragrafo Unico - Para os efeitos deste artigo, considera-se como
exercicio anual o periodo compreendido entre duas assembleias gerais ordinarias.
Art. 29 - Em suas ausencias e impedimentos, o Presidente sera
substituido pelo Vice-Presidente, independentemente de qualquer designacao e o
Vice-Presidente sera substituido pelo Presidente.
Art. 30 - Compete a Diretoria Colegiada:
I. estabelecer politicas especificas e diretrizes decorrentes
da orientacao geral dos negocios fixada pelo Conselho de
Administracao;
II. aprovar convenios entre empresa controlada e entidades
prestadoras de servicos de telecomunicacoes e submeter a
Assembleia Geral, atraves do Conselho de Administracao, os
contratos referidos no art. 13, XVII, zelando para que as
sociedades controladas tambem o facam;
III. apreciar o orcamento e os planos gerais da Companhia,
submetendo-os a aprovacao do Conselho de Administracao;
IV. aprovar as propostas de sociedade controlada relativas a
estrategia corporativa, as diretrizes gerais para a
organizacao, as diretrizes corporativas para o desenvolvimento
da estrategia de mercado e de rede, e ao plano de
investimentos e orcamento;
V. apresentar periodicamente ao Conselho de Administracao a
evolucao geral dos negocios da Companhia;
VI. aprovar a agenda de propostas da Companhia e de sociedade
controlada, para negociacao com o orgao regulador;
VII. resolver sobre a participacao da Companhia no capital de
empresas concessionarias de servicos de telecomunicacoes, de
acordo com as
<PAGE>
10
atividades e areas de concessao da Companhia, ouvido
previamente o orgao regulador;
VIII. indicar os representantes da Companhia na administracao das
empresas de que participe;
IX. submeter ao Conselho de Administracao proposta de indicacao ou
destituicao de titular da Auditoria Interna;
X. propor os criterios de remuneracao dos Diretores, dos membros
do Conselho de Administracao e dos membros do Conselho Fiscal
de sociedade controlada;
XI. propor ao Conselho de Administracao a alienacao dos bens
imoveis da Companhia e autorizar a alienacao dos demais bens
do ativo permanente, exceto quaisquer titulos ou valores
mobiliarios, no Pais ou no exterior;
XII. aprovar proposta ao Conselho de Administracao do Regimento da
Companhia com a respectiva estrutura organizacional e opinar
quanto a de controlada;
XIII. autorizar a pratica de atos gratuitos razoaveis, em beneficio
dos empregados ou da comunidade, tendo em vista as
responsabilidades sociais da Companhia;
XIV. apreciar o Balanco Geral e demais demonstracoes financeiras e
o Relatorio Anual da Companhia, bem como a proposta de
destinacao de resultado, submetendo-os ao Conselho Fiscal,
aos Auditores Independentes e ao Conselho de Administracao;
XV. resolver sobre representacoes da Companhia em qualquer ponto
do territorio nacional e, ouvido o Conselho de Administracao,
no exterior;
XVI. submeter ao Ministro das Comunicacoes, para cada exercicio
social, ouvido o Conselho de Administracao, o plano de
aplicacao de recursos;
XVII. definir a competencia do Presidente, do Vice-Presidente e de
empregados para:
a) praticar atos que constituam ou alterem obrigacoes da
Companhia, bem como aqueles que desonerem terceiros para
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11
com ela;
b) autorizar dispensas de licitacao e de aplicacao de
multas ou outras penalidades;
c) autorizar o pagamento de multas imputadas a Companhia,
bem como indagar as causas e estabelecer as medidas
administrativas que se fizerem necessarias;
(d) aprovar aquisicoes;
(e) aprovar propostas de progressao de empregados.
XVIII.aprovar proposta ao Conselho de Administracao do plano de
cargos e salarios, do regulamento de pessoal, do quadro de
pessoal e do plano de beneficios e vantagens da Companhia;
XIX. aprovar e submeter ao Ministro das Comunicacoes o seu Plano de
Cooperacao Internacional e o de sociedade controlada;
XX. decidir sobre a operacionalizacao e a implementacao de seus
planos e programas relativos as atividades de treinamento e
administracao de recursos humanos;
XXI. aprovar a contratacao de seguros de interesse da Companhia;
XXII. aprovar tabelas e respectivos reajustamentos das remuneracoes
e dos beneficios concedidos aos empregados e seus dependentes;
XXIII. aprovar a abertura de contas em instituicoes financeiras e a
contratacao de emprestimos pela Companhia, no Pais e no
exterior, obedecida a legislacao em vigor;
XXIV. aprovar a constituicao de onus reais sobre bens da Companhia,
para concessao de garantia em operacoes de credito da
Companhia,
XXV. deliberar sobre financiamentos, emprestimos e concessao de
avais, fiancas e outras garantias semelhantes e repasse de
recursos a sua empresa controlada;
XXVI. aprovar proposta, a ser submetida a Agencia Nacional de
Telecomunicacoes - ANATEL, de reajuste das tarifas e precos
dos
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12
servicos de telecomunicacoes, de acordo com as atividades e
areas de concessao da Companhia;
XXVIII.aprovar normas para concessao, com interveniencia da
Companhia, de emprestimos aos empregados por instituicoes
financeiras;
XXIX. deliberar sobre outros assuntos julgados como de competencia
coletiva da Diretoria, ou a ela atribuidos pelo Conselho de
Administracao.
COMPETENCIA DOS DIRETORES
Art. 31 - E a seguinte a competencia especifica de cada um dos
membros da Diretoria:
I - DO PRESIDENTE:
1. representar a Companhia em juizo ou fora dele, perante
controladas, os acionistas e o publico em geral, podendo
nomear procuradores e designar propostos;
2. exercer supervisao sobre todas as atividades da Empresa;
3. manter o Ministro das Comunicacoes e o Conselho de
Administracao permanentemente informados dos negocios da
Companhia e de controladas;
4. delegar competencia ao Vice-Presidente e a empregados para a
pratica de atos especificos;
5. baixar os atos que consubstanciem as resolucoes da Diretoria,
ou delas decorram;
6. designar representantes da Companhia nas assembleias de
sociedade controlada e de outras de cujo capital participe;
7. determinar a publicacao do Relatorio Anual das Atividades da
Companhia;
8. dirigir as atividades referentes ao gerenciamento da
regulamentacao, orientacao juridica e auditoria;
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13
9. convocar as reunioes de Diretoria;
10. deliberar sobre pedidos de colocacao de empregados da
Companhia a disposicao do Ministerio das Comunicacoes, do
orgao regulador, de empresa controlada ou de orgaos ou
entidades cujo atendimento seja obrigatorio por lei ou decreto
federal, vedada a disposicao em quaisquer outros casos, salvo
afastamento, por no maximo 2 (dois) anos, sem onus para a
Companhia, cabendo a deliberacao neste caso a Diretoria
Colegiada;
11. acompanhar o cumprimento das diretrizes governamentais
relacionadas a atuacao da Companhia e de sua controlada;
12. decidir sobre materia especifica de sua area de competencia,
em conformidade com as politicas e diretrizes estabelecidas
pela Diretoria Colegiada, ressalvados os casos previstos no
art. 30;
13. praticar atos de urgencia "ad referendum" da Diretoria.
II - DO VICE-PRESIDENTE
1. substituir o Presidente em suas ausencias e impedimentos;
2. auxiliar o Presidente no desempenho das suas funcoes;
3. dirigir as atividades de coordenacao do planejamento e
desenvolvimento empresarial, no ambito da Companhia e de sua
controlada;
4. avaliar o desempenho das sociedades controladas;
5. administrar a participacao acionaria da Companhia em suas
controladas;
6. elaborar o Relatorio Anual das Atividades da Companhia;
7. decidir sobre materia especifica de sua area de competencia,
em conformidade com as politicas e diretrizes estabelecidas
pela Diretoria Colegiada, ressalvados os casos previstos no
art. 30;
8. executar outras atividades delegadas pelo Presidente.
SECAO IV
DISPOSICOES COMUNS AOS ADMINISTRADORES
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14
Art. 32 - Aos administradores da Companhia e vedado pertencer, sob
qualquer forma ou titulo, aos quadros dirigentes ou de empregados de empresas
fabricantes, fornecedoras de material, executoras de obras ou prestadoras de
servicos publicos de telecomunicacoes, exceto quando se tratar de empresa do
Sistema TELEBRAS.
Paragrafo Unico - E vedado aos administradores que integrem a
administracao ou o quadro de pessoal de outra empresa do Sistema TELEBRAS a
acumulacao de remuneracao, ressalvados casos especiais aprovados pelo Ministro
das Comunicacoes, ou de rateio, ou complementacao de remuneracao.
Art. 33 - Alem dos casos de morte, renuncia, destituicao e outros
previstos em lei, dar-se-a a vacancia do cargo quando o administrador deixar de
assinar o termo de investidura no prazo de 30 (trinta) dias de eleicao ou deixar
o exercicio da funcao por mais de 30 (trinta) dias consecutivos ou 90 (noventa)
intercalados durante o prazo do mandato, tudo sem justa causa, a juizo do
Conselho de Administracao.
ss. 1 - Ocorrendo a vacancia de cargo de conselheiro, a substituicao
se fara segundo o disposto no art. 23 deste Estatuto, ate a realizacao da
primeira Assembleia que eleger o novo titular para completar o mandato em curso.
ss. 2 - No caso de vacancia de 2/3 (dois tercos) dos cargos do
Conselho de Administracao os membros remanescentes convocarao imediatamente a
Assembleia Geral.
ss. 3 - No caso de vacancia de cargo da Diretoria, o Conselho
promovera a eleicao do substituto para completar o mandato do substituido.
ss. 4 - A renuncia ao cargo de administrador e feita mediante
comunicacao escrita ao orgao a que o renunciante integrar, tornando-se eficaz, a
partir desse momento, perante a Companhia e, perante terceiros, apos o
arquivamento do documento de renuncia no registro do comercio e sua publicacao.
Art. 34 - A remuneracao dos administradores sera fixada pela
Assembleia Geral, global ou individualmente.
Paragrafo Unico - 0 empregado da Companhia ou de empresa do Sistema
TELEBRAS eleito administrador da Companhia podera optar por seu saleiro,
segundo criterios definidos pelo Conselho de Administracao.
CAPITULO V
CONSELHO FISCAL
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15
Art. 35 - 0 Conselho Fiscal e o orgao de fiscalizacao da
administracao da Companhia, devendo funcionar permanentemente.
Art. 36 - 0 Conselho Fiscal sera composto de 3 (tres) membros
efetivos e 3 (tres) suplentes, acionistas ou nao, eleitos pela Assembleia Geral,
sendo um dos membros efetivos e respectivo suplente indicados pelo Ministro da
Fazenda, como representantes do Tesouro Nacional, nao computados os eleitos
pelas acoes ordinarias minoritarias e pelas acoes preferenciais.
ss. 1 - Eleitos pela Assembleia Geral Ordinaria, os membros do
Conselho Fiscal terao o mandato de 1 (um) exercicio anual, assim considerado o
periodo compreendido entre 2 (duas) Assembleias Gerais Ordinarias, podendo ser
reeleitos.
ss. 2 - Os membros do Conselho Fiscal, em sua primeira reuniao,
elegerao o seu Presidente, a quem cabera dar cumprimento as deliberacoes do
orgao.
ss. 3 - O Conselho Fiscal podera solicitar a Empresa a designacao
de pessoal qualificado para secretaria-lo e prestar-lhe apoio tecnico.
Art. 37 - Ao Conselho Fiscal compete:
I. fiscalizar os atos dos administradores e verificar o
cumprimento dos seus deveres legais e estatutarios;
II. opinar sobre o relatorio anual da administracao, fazendo
constar do seu parecer as informacoes complementares que
julgar necessarias ou uteis a deliberacao da Assembleia
Geral;
III. opinar sobre as propostas dos orgaos da administracao, a
serem submetidas a Assembleia Geral, relativas a modificacao
do capital social, emissao de debentures ou bonus de
subscricao, planos de investimento ou orcamentos de capital,
distribuicao de dividendos, transformacao, incorporacao,
fusao ou cisao;
IV. denunciar aos orgaos de administracao e, se estes nao tomarem
as providencias necessarias para a protecao dos interesses da
Companhia, a Assembleia Geral, os erros, fraudes ou crimes que
descobrir e sugerir providencias uteis a Companhia;
V. convocar a Assembleia Geral Ordinaria, se os orgaos da
administracao retardarem por mais de 1 (um) mes essa
convocacao, e a extraordinaria, sempre que ocorrerem motivos
graves ou urgentes, incluindo na ordem do dia das assembleias
as materias que considerar necessarias;
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16
VI. analisar, ao menos trimestralmente, o balancete e demais
demonstracoes financeiras elaboradas periodicamente pela
Companhia;
VII. examinar as demonstracoes financeiras do exercicio social e
sobre elas opinar;
VIII. exercer as atribuicoes previstas em lei ou definidas pela
Assembleia Geral, no caso de liquidacao da Companhia.
Art.38 - O Conselho Fiscal se reunira, ordinariamente, uma vez por
mes e, extraordinariamente, quando necessario.
ss. 1 - As reunioes serao convocadas pelo Presidente da Companhia ou
por qualquer dos membros do Conselho.
ss. 2 - O Conselho se manifesta por maioria de votos, presente a
maioria dos seus membros.
Art. 39 - Os membros do Conselho Fiscal serao substituidos, em suas
faltas e impedimentos, pelo respectivo suplente.
Art. 40 - Alem dos casos de morte, renuncia, destituicao e outros
previstos em lei, dar-se-a a vacancia do cargo quando o membro do Conselho
Fiscal deixar de comparecer, sem justa causa, a 2 (duas) reunioes consecutivas
ou 3 (tres) intercaladas, no exercicio anual.
ss. 1 - Ocorrendo a vacancia do cargo de membro do Conselho, a
substituicao se fara na forma do disposto no art. 39 deste Estatuto.
ss. 2 - Vagando mais da metade dos cargos e nao havendo suplentes a
convocar, a Assembleia Geral sera convocada para eleger os seus substitutos.
Art. 41 - A remuneracao dos membros do Conselho Fiscal sera fixada
pela Assembleia Geral Ordinaria que os eleger, e nao podera ser inferior, para
cada membro em exercicio, a um decimo da que, em media, for atribuida a cada
membro da Diretoria, nao computada a participacao nos lucros.
ss. 1 - A remuneracao sera paga de forma como o for aos membros da
Diretoria.
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17
ss. 2 - O suplente em exercicio fara jus a remuneracao do efetivo,
no periodo em que ocorrer a substituicao, contado mes a mes.
CAPITULO VI
DO EXERCICIO SOCIAL E DAS DEMONSTRACOES FINANCEIRAS
Art. 42 - O exercicio social tera a duracao de 12 (doze) meses,
iniciando-se a 1 (primeiro) de janeiro de cada ano e terminando no ultimo dia do
mes de dezembro.
Art. 43 - Juntamente com as demonstracoes financeiras, os orgaos da
administracao da Companhia apresentarao a Assembleia Geral Ordinaria proposta
sobre a participacao dos empregados nos lucros, nas bases e condicoes
autorizadas pelo Conselho de Coordenacao e Controle das Empresas Estatais - CCE,
e sobre a destinacao do lucro liquido do exercicio.
ss. 1 - Os lucros liquidos terao a seguinte destinacao:
a) 5% (cinco por cento) para a reserva legal, ate atingir 20% (vinte
por cento) do capital social integralizado;
b) 25% (vinte e cinco por cento) do lucro liquido ajustado na forma
dos incisos II e III do art. 202 da Lei n 6.404/76 serao
obrigatoriamente distribuidos como dividendo minimo obrigatorio a
todos os acionistas, respeitado o disposto no artigo seguinte, sendo
este valor aumentado ate o montante necessario para o pagamento do
dividendo prioritario das acoes preferenciais.
ss. 2 - O saldo do lucro liquido nao alocado ao pagamento do
dividendo minimo obrigatorio ou ao dividendo prioritario das acoes preferenciais
sera destinado a uma reserva suplementar para expansao dos negocios sociais, que
nao podera ultrapassar 80% (oitenta por cento) do capital social. Atingido este
limite, cabera a Assembleia Geral deliberar sobre o saldo, procedendo a sua
distribuicao aos acionistas ou ao aumento do capital social.
Art. 44 - O valor correspondente ao dividendo minimo obrigatorio
sera destinado prioritariamente ao pagamento do dividendo prioritario das acoes
preferenciais ate o limite da preferencia; a seguir, serao pagos aos titulares
de acoes ordinarias ate o mesmo limite das acoes preferenciais; o saldo, se
houver, sera rateado por todas as acoes, em igualdade de condicoes.
ss. 1 - Os valores dos dividendos ou dos lucros ou dos resultados,
que sao devidos ao Tesouro Nacional e aos demais acionistas, sofrerao incidencia
de encargos financeiros equivalentes a Taxa Referencial (TR), a partir da data
do encerramento do exercicio social e ate a data do seu efetivo recolhimento ao
Tesouro Nacional e a
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18
distribuicao aos demais acionistas.
ss. 2 - Salvo deliberacao em contrario da Assembleia Geral, os
dividendos serao pagos "pro rata" dia, subsequente ao da realizacao do capital.
ss. 3 - Os orgaos da administracao poderao pagar ou creditar juros
sobre o capital proprio nos termos do ss.7 do artigo 9 da Lei 9.249/95, de
26/12/95 e legislacao e regulamentacao pertinentes, ate o limite dos dividendos
minimos obrigatorios de que trata o artigo 202, da Lei 6404/76, os quais serao
imputados a esses mesmos dividendos, mesmo quando incluidos no dividendo minimo
das acoes preferenciais.
ss. 4 - Os dividendos nao reclamados no prazo de 3 (tres) anos
reverterao em favor da Companhia.
CAPITULO VII
DA LIQUIDACAO DA COMPANHIA
Art. 45 - A Companhia entrara em liquidacao nos casos previstos em
lei, ou por deliberacao da Assembleia Geral, que estabelecera a forma da
liquidacao, elegera o liquidante e instalara o Conselho Fiscal, para o periodo
da liquidacao, elegendo seus membros e fixando-lhes as respectivas remuneracoes.
CAPITULO VIII
DISPOSICOES GERAIS E TRANSITORIAS
Art. 46 - A aprovacao, pela Companhia, atraves de seus
representantes, de operacoes de fusao, cisao, incorporacao ou dissolucao de suas
controladas sera precedida de analise economico-financeira por empresa
independente, de renome internacional, confirmando estar sendo dado tratamento
equitativo a todas as sociedades interessadas, cujos acionistas terao amplo
acesso ao relatorio da citada analise.
Art. 47 - Vindo a Companhia a ser desestatizada, nos termos dos
artigos 188 a 195 da Lei n 9.472 de 16 de julho de 1997, e sem prejuizo de
outras modificacoes que venham a ser deliberadas apos a referida desestatizacao:
I - estarao revogados de pleno direito:
a) o art. 21 (no tocante a eleicao de membros do Conselho
de Administracao na forma do art. 239 da Lei no.
6.404/76 e por indicacao
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19
dos Ministros de Estado das Comunicacoes e do
Planejamento e Orcamento);
b) o art. 22;
c) os incisos XVI, XVII, letra "b" (esta ultima quanto a
dispensa de licitacao) e XIX (quanto a submissao ao
Ministro das Comunicacoes do Plano de Cooperacao
Internacional) do art. 30;
d) o art. 31, inciso I, numeros 3 (quanto a referencia ao
Ministro das Comunicacoes) e 10;
e) o art. 32 e seu Paragrafo unico;
f) o Paragrafo unico do art. 34;
g) o art. 43 (no tocante a referencia ao CCE); e
h) os ss.ss. l e 2 do art. 44.
II - o Conselho Fiscal passara a ser composto de 3 (tres) a 5
(cinco) membros efetivos e igual numero de suplentes, deixando
de vigorar a referencia constante do artigo 36 a indicacao de
Conselheiro Fiscal pelo Ministro da Fazenda, e mantendo-se o
seu carater permanente.
Confere com o original lavrado em livro proprio.
- ------------------------
Raimunda Nonata Pires
Secretaria
Visto do advogado:
<PAGE>
EXHIBIT 1.2
CHARTER OF
EMBRATEL PARTICIPACOES S.A.
CHAPTER I
CHARACTERISTICS OF THE COMPANY
Art. 1 - EMBRATEL PARTICIPACOES S.A., a corporation, is subject to the
jurisdiction of the Ministry of Communication and is the controlling shareholder
of Empresa Brasileira de Telecomunicacoes S.A. EMBRATEL, which provides
services in Region IV, as referred to in the General Concession Plan approved
by Decree No. 2,534 of April 2, 1998.
Sole Paragraph - The Company is governed by the Corporation Law, special
provisions of federal law, telecommunications legislation, this Charter,
commercial law and practices and other applicable legal provisions.
Art. 2 - The purposes of the Company are:
I. to exercise control over Empresa Brasileira de Telecomunicacoes
S.A. EMBRATEL;
II. to promote, carry out or direct the acquisition of funds from
external and internal sources to be used by the Company, by
EMBRATEL or by its other subsidiaries;
III. to promote and foster study and research activities aimed at the
development of the international and domestic long distance
telecommunications services sector, including voice, text, data,
images and telematics transmission services;
IV. to provide, through EMBRATEL or other subsidiaries or affiliates,
international and domestic long distance telecommunications
services sector including voice, text, data, images and
telematics transmission services;
V. to promote, foster, and coordinate, through its subsidiaries or
affiliates, the education and training of the personnel in the
sector of international and domestic long distance
telecommunications services, including voice, text, data, images
and telematics transmission services;
VI. to carry out and promote the importation of goods and services
for EMBRATEL or its other subsidiaries or affiliates;
VII. to carry out other activities that are similar or related to its
corporate purposes; and
VIII. to invest in shares of other companies.
<PAGE>
2
Art. 3 - The principal office of the Company is situated in the Federal
District, and the Company may, by decision of the Board of Directors, open or
close subsidiaries, agencies, branches, offices, departments and representative
offices anywhere in Brazil or abroad.
Art. 4 - The duration of the Company is indefinite.
CHAPTER II
CORPORATE CAPITAL
Art. 5 - The corporate capital, fully subscribed and paid in, is
R$2,134,427,124.47 (two billion, one hundred thirty four million, four hundred
twenty seven thousand, one hundred and twenty four reais and forty seven
centavos), represented by 334,399,027,592 (three hundred thirty four billion,
three hundred ninety nine million, twenty seven thousand, five hundred and
ninety two) shares, consisting of 124,369,030,532 (one hundred twenty four
billion, three hundred sixty nine million, thirty thousand, five hundred and
thirty two) registered common shares and 210,029,997,060 (two hundred ten
billion, twenty nine million, nine hundred ninety seven thousand and sixty)
registered preferred shares, all without par value.
Art. 6 - The Company is authorized to increase its capital, by decision of
the Meeting of Shareholders, up to 700,000,000,000 (seven hundred billion)
shares of common or preferred stock.
Sole Paragraph - Within the limit on the authorized capital provided for
herein, the Meeting of Shareholders may grant stock purchase options to its
managers and employees and to individuals who perform services on behalf of the
Company or its subsidiaries.
Art. 7 - The corporate capital is represented by common and preferred
shares, without par value, and the Company is not required to maintain the
proportions of common and preferred shares when the corporate capital is
increased, subject to applicable law and this Charter.
Art. 8 - The shareholders may decide to eliminate preemptive rights to
subscribe to shares, convertible debentures and subscription rights that are to
be:
I. placed by public issue or sale on a stock exchange;
II. exchanged for shares in a public offer for acquisition of control, as
provided in Arts. 257 and 263 of the Corporation Law; or
III. issued to take advantage of tax incentives, as provided by special
law.
Art. 9 - Each common share is entitled to one vote at meetings of
shareholders.
Art. 10 - Preferred shares are not entitled to voting rights except as
provided in the sole paragraph of Art. 13 of this Charter but are entitled to
priority in the repayment
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3
of corporate capital, without premium, and in the payment of minimum non-
cumulative dividends of 6% (six percent) per year, on the amount computed by
dividing the corporate capital by the total number of shares of the Company.
Sole Paragraph - Preferred shares will become entitled to vote if the
Company fails to pay the minimum dividends as provided herein for a period of 3
(three) consecutive years.
Art. 11 - Shares of the Company shall be in book entry form, shall be held
on deposit, with a financial institution in the names of the owners and shall
not be certificated.
CHAPTER III
MEETINGS OF SHAREHOLDERS
Art. 12 - The Meeting of Shareholders is the highest body of the Company,
with the power to make decisions regarding all matters related to the corporate
purposes and to take the steps that is deems advisable for the protection and
development of the Company.
EXCLUSIVE POWERS
Art. 13 - Only the Meeting of Shareholders shall have the power:
I. to amend this Charter;
II. to authorize the issuance of debentures or convertible
debentures, or sell them from treasury, or to authorize the sale
of convertible debentures of subsidiaries owned by the Company;
the Meeting of Shareholders may delegate to the Board of
Directors the power to decide on maturity and repayment and
redemption terms, the interest terms and timing of interest
payments, equity participations, and redemption premiums, if any,
and the method of subscription or placement, as well as the type
of debentures;
III. to consider appraisals of assets being contributed by
shareholders to the Company's capital;
IV. to decide on changes of corporate form, mergers, consolidations
and split-ups of the Company and its dissolution and liquidation,
and to appoint liquidators, remove them from office and approve
their accounts;
V. to authorize the issuance of guaranties by the Company of
obligations of third parties other than its subsidiaries;
VI. to suspend the rights of shareholders who do not comply with
obligations imposed by law or this Charter;
VII. to elect members of the Board of Directors and members of the
Statutory Audit Committee and remove them from office at any
time;
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4
VIII. to decide on the aggregate or individual compensation of the
members of the Board of Directors, the Executive Officers, and
the members of the Statutory Audit Committee;
IX. to receive the annual accounts from management and decide on the
financial statements that they submit;
X. to decide on the institution by the Company of proceedings
against members of management for damages caused to its assets,
as provided in Art. 159 of the Corporation Law;
XI. to authorize the disposition, in whole or in part, of shares of a
subsidiary;
XII. to decide on increases in capital through the issuance of new
shares;
XIII. to authorize waivers of rights to subscribe to shares or
convertible debentures of its subsidiaries;
XIV. to decide on the issuance of any other instruments or securities,
in Brazil or abroad;
XV. to authorize the exchange of shares or other securities;
XVI. to decide on the issuance of shares and subscription rights
within the limits of the authorized capital, as provided by law
and in this Charter; and
XVII. to approve before execution any long-term contracts between the
Company or its subsidiaries, on the one hand, and the controlling
shareholder or subsidiaries, affiliates, entities under common
control or controlling shareholders of the latter, or companies
that are otherwise related parties with respect to Company, on
the other hand, except when the contracts consist of standard
forms.
Sole Paragraph - Without prejudice to the provisions of (S) 1 of Art. 115
of Law No. 6,404/76, preferred shareholders shall have the right to vote on
decisions taken at Meetings of Shareholders of the kind referred to in item XVII
of this article, as well as those relating to the amendment or revocation of the
following provisions of this Charter:
I. item XVII of Art. 13;
II. the sole paragraph of Art. 14; and
III. Art. 46.
Art. 14 - Meetings of Shareholders shall be called by the Board of
Directors, and minutes of meetings shall be approved by the Chairman or as
provided in the Sole Paragraph of Art. 123 of Law No. 6,404/76.
Sole Paragraph - In the cases provided for in Art. 136 of Law No. 6,404/76,
the first notice of the Meeting of Shareholders shall be given at least 30
(thirty) days in advance and the second notice shall be given at least 10 (ten)
days in advance.
<PAGE>
5
Art. 15 - The Meeting of Shareholders shall be opened by the President of
the Company and shall proceed to the election of the officers of the meeting,
consisting of a chairman and a secretary selected from among the shareholders
present at the meeting.
Art. 16 - Minutes of Meetings of Shareholders shall be prepared and shall
be signed by the officers and by shareholders present at the meeting who
represent at least the minimum required for the decisions made.
(S) 1 - The minutes shall be prepared in summary factual form and shall
reflect dissenting opinions and protests.
(S) 2 - Unless the meeting decides to the contrary, the minutes shall be
published without the signatures of the shareholders.
Art. 17 - An Annual Meeting of Shareholders shall be held within four
months of the end of each fiscal year for the purpose of:
I. receiving the accounts of management and reviewing, discussing
and voting on the financial statements;
II. deciding on the allocation of the net profits for the fiscal year
and the distribution of dividends; and
III. electing the members of the Statutory Audit Committee and, when
applicable, the members of the Board of Directors.
Art. 18 - A Special Meeting of Shareholders shall held whenever the
interests of the Company so require.
CHAPTER IV
MANAGEMENT OF THE COMPANY
SECTION I
MANAGEMENT BODIES
BOARD OF DIRECTORS
Art. 19 - The Company shall be managed by the Board of Directors and by the
Executive Officers.
(S) 1 - The Board of Directors, acting as a collegiate body, shall be
responsible for managing the policies of the Company.
(S) 2 - The Board of Executive Officers is the executive body for corporate
management, with each Executive Officer acting in accordance with his or her
powers.
(S) 3 - The authority and powers conferred by law upon each of the
management bodies may not be granted to any other body.
<PAGE>
6
SECTION II
BOARD OF DIRECTORS
Art. 20 - The Board of Directors shall:
I. set the general business policy of the Company and ensure the
execution thereof;
II. call Meetings of Shareholders;
III. approve and submit to the Meeting of Shareholders the financial
statements and the report of management, including the
consolidated financial statements;
IV. elect the Company's Executive Officers and remove them from
office at any time, and establish their powers, in accordance
with applicable law and the provisions of this Charter;
V. approve, on the basis of a recommendation of the Board of
Executive Officers, the appointment or removal from office of the
Internal Auditor;
VI. approve the general plans of the Company;
VII. decide on the terms for the issuance of debentures, by delegation
of the Meeting of Shareholders;
VIII. approve the Internal Regulations of the Company, define its
organizational structure and specify the powers of each Executive
Officer, in accordance with applicable law and the provisions of
this Charter;
IX. authorize disposals of real property of the Company;
X. supervise the management of the Company by the Executive
Officers; examine the Company's books at any time; and request
information regarding contracts that have been concluded or that
are in the process of being concluded, or any other documents;
XI. appoint the independent auditors and remove them from office;
XII. approve or amend the Internal Regulations of the Board;
XIII. grant leaves of absence and vacations to members of the Board,
indicating the respective alternates;
XIV. approve equity investments by the Company in other companies and
disposals thereof, including the formation of subsidiaries;
XV. authorize purchases of shares of the Company for cancellation or
retention in treasury and subsequent disposal;
XVI. authorize the issuance of commercial paper; and
XVII. carry out other activities assigned to it by law, by this
Charter, by the Meeting of Shareholders or by the Ministry of
Communications;
<PAGE>
7
Art. 21 - The Board of Directors shall be composed of 5 (five) members,
including a representative of minority shareholders elected in accordance with
Art. 239 of Law No. 6,404/76 and a representative of the Minister of State for
Planning and Budget.
Sole Paragraph - The members of the Board of Directors shall be elected by
the Meeting of Shareholders for a term of 3 (three) years, a year consisting of
the period between 2 (two) Annual Meetings of Shareholders.
Art. 22 - The members of the Board of Directors, except the representatives
of minority shareholders and of the Minister of State for Planning and Budget,
shall be appointed by the Minister of State for Communications and shall be
Brazilians of recognized knowledge and experience, moral integrity, and
unblemished reputation, one of whom shall be designated as Chairman of the
Board.
Art. 23 - The alternate Chairman of the Board, if any, shall be selected by
the Board of Directors itself from among its members who are also Executive
Officers.
Sole Paragraph - In the event of absences or abstentions that prevent a
decision from being made, the Board members present at the meeting may call upon
on Executive Officers to join the Board.
Art. 24 - The Board of Directors shall hold a regular meeting once a month
and shall hold special meetings when they are called by the Chairman or by 2
(two) members of the Board of Directors, and minutes of meetings shall be
prepared.
Art. 25 - The Board of Directors shall act by majority vote, with a
majority of the members present; the Chairman shall have a casting vote in
addition to his regular vote, and he shall be responsible for approving the
minutes of meetings, as necessary.
SECTION III
BOARD OF EXECUTIVE OFFICERS
Art. 26 - The Board of Executive Officers shall consist of 1 (one)
President and 1 (one) Vice President.
Sole Paragraph - Up to 1/3 (one third) of the members of the Board of
Directors may be elected as Executive Officers.
Art. 27 - The Executive Officers shall be elected by the Board of
Directors; the President must be chosen from among the members of the Board.
Art. 28 - The term of the Board of Executive Officers shall be 3 (three)
years, and the Executive Officers shall be eligible for reelection and may be
removed from office at any time.
Sole Paragraph - For the purposes of this article, a year shall consist of
the period between two Annual Meetings of Shareholders.
<PAGE>
8
Art. 29 - In the event of absences or impediments, the President shall be
automatically replaced by the Vice President, and the Vice President shall be
replaced by the President.
POWERS
Art. 30 - The Board of Executive Officers shall have the power:
I. to establish specific policies and guidelines within the general
business policies established by the Board of Directors;
II. to approve agreements between its subsidiaries and entities that
provide telecommunications services and to submit to the Meeting
of Shareholders, through the Board of Directors, contracts of the
kind referred to in Art. 13, XVII, and to ensure that its
subsidiaries do the same;
III. to evaluate the budget and general plans of the Company and
submit the budget and plans to the Board of Directors for
approval;
IV. to approve proposals of its subsidiaries relating to corporate
strategy, general organizational guidelines, corporate guidelines
for developing market and network strategies, capital investment
plans and budgets;
V. to report periodically to the Board of Directors on the general
progress of the Company's business;
VI. to approve lists of proposals of the Company and its subsidiaries
for negotiations with the regulatory agency;
VII. to decide on investments by the Company in telecommunications
services concessionaires, in accordance with the activities and
concession areas of the Company, after consultation with the
regulatory agency;
VIII. to appoint representatives of the Company to participate in the
management of companies in which it has invested;
IX. to submit to the Board of Directors proposals regarding the
appointment or removal from office of the Internal Auditor;
X. to propose compensation criteria for the executive officers,
members of the boards of directors and members of statutory audit
committees of its subsidiaries;
XI. to make proposals to the Board of Directors regarding disposals
of real property of the Company, and to authorize the disposal of
other permanent assets, with the exception of instruments or
securities, in Brazil or abroad;
<PAGE>
9
XII. to approve proposals of the Board of Directors regarding the
Internal Regulations of the Company and the related
organizational structure, and to express views on those of the
Company's subsidiaries;
XIII. to authorize reasonable contributions for the benefit of
employees or the community, bearing in mind the Company's social
responsibilities;
XIV. to evaluate the balance sheet and the other financial statements
and the Company's Annual Report, and to make recommendations
regarding distributions of profits, submitting them to the
Statutory Audit Committee, the Independent Auditors and the Board
of Directors;
XV. to decide on representative offices of the Company anywhere in
Brazil or abroad, after consultation with the Board of Directors;
XVI. to submit to the Minister of Communications an investment plan
for each fiscal year, after consultation with the Board of
Directors;
XVII. to define the powers of the President, Vice President and
employees:
a) to take actions that create or amend obligations of the
Company, and those that release third parties;
b) to authorize exemptions from bidding rules and the
application of fines or other penalties;
c) to authorize the payment of fines imposed on the Company,
and to investigate the causes and implement any necessary
administrative measures;
d) to approve purchases; and
e) to approve proposals relating to promotions of employees;
XVIII. to approve proposals to the Board of Directors regarding the
chart of staff positions and salaries, work rules, the workforce
chart, and the Company's employee benefits plan;
XIX. to approve and submit to the Ministry of Communications the
Company's International Cooperation Plan and those of its
subsidiaries;
XX. to decide on the structuring and implementation of training and
human resources management plans and programs;
XXI. to approve purchases of insurance for the Company;
<PAGE>
10
XXII. to approve pay schedules and adjustments and benefits granted to
employees and their families;
XXIII. to approve the opening of accounts with financial institutions
and borrowings by the Company, in Brazil or abroad, in accordance
with applicable law;
XXIV. to approve the creation of liens on property of the Company to
secure financings of the Company;
XXV. to decide on financings, borrowings, and the granting of
sureties, bonds and other similar guaranties and the relending of
funds to its subsidiaries;
XXVI. to approve proposals, to be submitted to the National
Telecommunications Agency ANATEL (Agencia Nacional de
Telecomunicacoes ANATEL), for the adjustment of tariffs and
prices for cellular mobile communications services in the
concession areas of the Company;
XXVII. to approve rules for the extension of loans to employees by
financial institutions with the participation of the Company;
XXVIII. to decide on other matters deemed to be under the collective
jurisdiction of the Board of Executive Officers, or matters
referred by the Board of Directors.
POWERS OF THE MEMBERS OF THE EXECUTIVE OFFICERS
Art. 31 - The specific powers of each member of the Board of Executive
Officers are as follows:
I - PRESIDENT:
1. to represent the Company in court or otherwise, vis-a-vis its
subsidiaries, the shareholders and the general public, with power to
appoint attorneys in fact or name representatives;
2. to supervise the Company's activities;
3. to keep the Minister of Communications and the Board of Directors
informed at all times on the business of the Company and its
subsidiaries;
4. to delegate authority to the Vice President and to employees to carry
out specific actions;
5. to draw up documents that reflect the decisions of the Board of
Executive Officers or that derive from those decisions;
6. to appoint persons to represent the Company at meetings of
shareholders of subsidiaries and of other companies in which it has an
equity interest;
<PAGE>
11
7. to authorize the publication of the Annual Report on the Company's
Activities;
8. to direct activities related to the management of regulations, legal
advice and auditing;
9. to call meetings of the Board of Executive Officers;
10. to decide on requests to second employees of the Company to the
Ministry of Communications, the regulatory agency, subsidiaries, or
bodies or entities entitled by law or federal decree to request
secondment (secondment being prohibited in all other cases unless the
employee leaves the Company's employ), for a maximum of 2 (two) years,
without cost to the Company, such cases to be decided on by the Board
of Executive Officers;
11. to supervise compliance with governmental guidelines related to the
activities of the Company and its subsidiaries;
12. to decide on matters within his jurisdiction, in accordance with the
policies and guidelines established by the Board of Executive
Officers, with the exception of the cases referred to in Art. 30; and
13. to carry out emergency actions referred to him by the Board of
Executive Officers.
II - VICE PRESIDENT:
1. to replace the President in the event of absence or impediment;
2. to assist the President in the performance of his duties;
3. to direct the coordination of business planning and development for
the Company and its subsidiaries;
4. to evaluate the performance of its subsidiaries;
5. to administer the Company's shareholdings in its subsidiaries;
6. to draft the Annual Report on the Company's Activities;
7. to decide on matters within his jurisdiction, in accordance with the
policies and guidelines established by the Board of Executive
Officers, with the exception of the cases referred to in Art. 30; and
8. to carry out other tasks delegated to him by the President.
SECTION IV
PROVISIONS COMMON TO MEMBERS OF MANAGEMENT
Art. 32 - Members of the Company's management are prohibited from
belonging, in any manner whatsoever, to the management or staffs of
manufacturing companies,
<PAGE>
12
equipment suppliers, contractors or service providers, other than TELEBRAS
System companies.
Sole Paragraph - Members of management who are also part of the management
or staff of other TELEBRAS System companies are prohibited from receiving double
compensation, with the exception of special cases approved by the Minister of
Communications, or pro rata apportionment or supplemental compensation.
Art. 33 - Besides cases of death, resignation and removal from office and
other cases provided for by law, a position shall be deemed vacant when a member
of management fails to take office within 30 (thirty) days after his election or
fails to perform his duties for more than 30 (thirty) consecutive days or a
total of 90 (ninety) days during the term of office without just cause in the
opinion of the Board of Directors.
(S) 1 - Board vacancies shall be filled as provided in Art. 32 of this
Charter until the next Meeting of Shareholders, at which time a new member shall
be elected to complete the current term.
(S) 2 - If 2/3 (two thirds) of the positions of the Board positions become
vacant, the remaining members shall immediately call a Meeting of Shareholders.
(S) 3 - In the event of a vacancy in an Executive Officer position, the
Board shall elect a replacement to complete the member's term.
(S) 4 - Resignation from a management position shall be accomplished by
written notice to the body to which the resigning party belongs and shall be
effective vis-a-vis the Company at that time, and vis-a-vis third parties after
the notice of resignation is filed with the commercial registry and published.
Art. 34 - The compensation of members shall be determined in the aggregate
or individually by the Meeting of Shareholders.
Sole Paragraph - An employee of the Company or of a TELEBRAS System company
who is elected as a member of management of the Company may opt to continue to
be paid his salary, in accordance with criteria established by the Board of
Directors.
CHAPTER V
STATUTORY AUDIT COMMITTEE
Art. 35 - The Statutory Audit Committee is the body that audits the
management of the Company, and it shall function on a permanent basis.
Art. 36 - The Statutory Audit Committee shall be composed of 3 (three)
regular members and 3 (three) alternates, who need not be shareholders, elected
by the Meeting of Shareholders; one of the regular members and his alternate
shall be named by the
<PAGE>
13
Minister of Finance, as representative of the National Treasury, in addition to
those elected by minority shareholders of common and by the preferred shares.
(S) 1 - The members of the Statutory Audit Committee shall be elected at
the Annual Meeting of Shareholders for a term of 1 (one) year, consisting of the
period between two Annual Meetings of Shareholders, and they shall be eligible
for reelection.
(S) 2 - At the first meeting of the members of the Statutory Audit
Committee, they shall elect a Chairman, who shall be responsible for
implementing the decisions of the committee.
(S) 3 - The Statutory Audit Committee may ask the Company to appoint
qualified personnel to act as secretary and to provide technical support.
Art. 37 - The duties of the Statutory Audit Committee shall be:
I. to audit the actions of management and verify compliance with the
requirements of law and this Charter;
II. to provide opinions regarding the annual report of management,
indicating any additional information that it deems necessary or
useful for the Meeting of Shareholders;
III. to provide opinions regarding the proposals of the management
bodies to be submitted to the Meeting of Shareholders, regarding
changes to the corporate capital, the issuance of debentures or
subscription rights, capital investment plans and budgets,
distributions of dividends, changes in corporate form,
consolidations, mergers or split-ups;
IV. to report to the management bodies and, if the latter do not take
the necessary steps to protect the interests of the Company, to
the Meeting of Shareholders, on any errors, frauds, or crimes
that it discovers and to recommend necessary steps to the
Company;
V. to call the Annual Meeting of Shareholders if the management
bodies delay in calling it for more than 1 (one) month, and to
call a special meeting if serious or urgent reasons exist,
including in the agendas of the meetings the matters that it
deems necessary;
VI. to analyze, not less frequently than quarterly, the interim
balance sheet and other financial statements prepared
periodically by the Company;
VII. to examine the financial statements for the fiscal year and
provide an opinion regarding them; and
VIII. to carry out the duties stipulated by law or defined by the
Meeting of Shareholders in the event of the liquidation of the
Company.
Art. 38 - The Statutory Audit Committee shall hold a regular meeting once a
month and shall hold special meetings as necessary.
<PAGE>
14
(S) 1 - Meetings shall be called by the President of the Company or by any
member of the Committee.
(S)2 - The Committee shall act by majority vote, with a majority of the
members present.
Art. 39 - Each member of the Statutory Audit Committee shall be replaced,
in the event of absence or impediments, by the respective alternate member.
Art. 40 - Besides cases of death, resignation and removal from office and
other cases provided for by law, a position shall be deemed vacant when a member
of the Statutory Audit Committee fails, without just cause, to attend 2 (two)
consecutive meetings or a total of 3 (three) meetings during a year.
(S) 1 - Vacancies shall be filled as provided in Art. 39 of this Charter.
(S) 2 - If more than half of the positions become vacant and there are no
alternates to meet, a Meeting of Shareholders shall be called to elect
replacements.
Art. 41 - The compensation of the members of the Statutory Audit Committee
shall be determined by the Meeting of Shareholders that elects them, and it
shall not be less, for each active member, than one tenth, on average, of the
compensation of each Executive Officer, not including profit sharing.
(S) 1 - The compensation shall be paid in the same manner as that of the
Executive Officers.
(S) 2 - Active alternate members shall be entitled to compensation during
the periods in which they act as replacements, counting from month to month.
CHAPTER VI
FISCAL YEAR AND FINANCIAL STATEMENTS
Art. 42 - The fiscal year shall have a duration of 12 (twelve) months,
beginning on the 1st (first) of January of each year and ending on the last day
of December.
Art. 43 - Along with the financial statements, the management bodies of the
Company shall submit to the Meeting of Shareholders proposals regarding the
employees' share in the profits, on the terms and conditions authorized by the
Council for Coordination and Supervision of State-Owned Companies CCE (Conselho
de Coordenacao e Controle das Empresas Estatais CCE), and regarding the
distribution of the net profits for the year.
(S) 1 - The net profits shall be allocated as follows:
a) 5% (five percent) to the legal reserve, up to 20% (twenty
percent) of the paid-in capital; and
<PAGE>
15
b) 25% (twenty five percent) of the net profits adjusted in
accordance with items II and III of Art. 202 of Law No. 6,404/76
shall be distributed as minimum mandatory dividends to all
shareholders, in accordance with the provisions of the following
article, and this amount shall be increased until it equals the
amount to be paid as preferred dividends on the preferred shares.
(S) 2 - The balance of the net profits not allocated to the payment of the
minimum mandatory dividend or the preferred dividends on preferred shares shall
be allocated to an additional reserve for expansion of the Company's businesses,
which may not exceed 80% (eighty percent) of the corporate capital. Once this
limit is reached, the Meeting of Shareholders shall allocate the balance,
proceeding with distributions to the shareholders or an increase in the
corporate capital.
Art. 44 - The minimum mandatory dividend amount shall be allocated first to
payment of the preferred dividends on preferred shares, up to the preferred
limit, and thereafter by payments to the holders of common shares up to the same
limit as the preferred shares. The balance, if any, shall be paid pro rata to
all the shares on equal terms.
(S) 1 - Amounts owed to the National Treasury and the remaining
shareholders as dividends or profits or earnings shall bear interest at a rate
equal to the Reference Rate (Taxa Referencial TR), beginning at the close of the
fiscal year and ending on the date of actual payment to the National Treasury
and distribution to the remaining shareholders.
(S) 2 - Unless otherwise decided by the Meeting of Shareholders, the
dividends shall be paid pro rata on a daily basis counting from the date shares
are paid in.
(S) 3 - The management bodies are authorized to pay or credit interest on
capital as provided in (S) 7 of Article 9 of Law 9,249/95 of 12/26/95 and
applicable law and regulations, up to the limit of the minimum mandatory
dividends provided for in Article 202 of Law 6,406/76, which shall be credited
against said dividends, even when included in the minimum dividend for preferred
shares.
(S) 4 - Dividends not claimed within 3 (three) years shall revert to the
Company.
CHAPTER VII
LIQUIDATION OF THE COMPANY
Art. 45 - The Company shall be liquidated in the cases provided for by law,
or by decision of the Meeting of Shareholders, which shall determine the manner
of liquidation, shall select the liquidator, and shall install a Statutory Audit
Committee for the period of the liquidation, elect its members and determine
their compensation.
CHAPTER VIII
GENERAL AND TRANSITORY PROVISIONS
<PAGE>
16
Art. 46 - Approval by the Company, through its representatives, of mergers,
split-ups, consolidations, or dissolutions of its subsidiaries shall be preceded
by an economic-financial analysis performed by an independent company of
recognized international standing, to confirm that all of the companies involved
are being treated equitably; the shareholders of the companies involved shall
have full access to the report on the analysis.
Art. 47 - If government control of the Company is relinquished as provided
in Arts. 188 to 195 of Law No. 9,472 of July 16, 1997, and without prejudice to
any other modifications that may be decided after the aforementioned
privatization:
I - the following shall be automatically revoked:
a) Art. 21 (regarding the election of the members of the Board of
Directors in accordance with Art. 239 of Law No. 6,404/76 and by
appointment of the Minister of State for Communications and the
Minister for Planning and Budget);
b) Art. 22;
c) items XVI, XVII(b) (the latter regarding exemptions from bidding) and
XIX (regarding submission of the International Cooperation Plan to the
Minister of Communications) of Art. 30;
d) Art. 31, item 1, numbers 3 (regarding the reference to the Minister of
Communications) and 10;
e) Art. 32 and its Sole Paragraph;
f) the Sole Paragraph of Art. 34;
g) Art. 43 (regarding the reference to the CCE); and
h) (S)(S) 1 and 2 of Art. 44.
II. - The Statutory Audit Committee shall then be composed of 3
(three) to 5 (five) regular members and an equal number of alternates,
the reference in Art. 36 to the appointment of a member of the
Committee by the Minister of Finance shall cease to have effect, and
the permanent character of the Committee shall be maintained.
<PAGE>
EXHIBIT 2.1
- --------------------------------------------------------------------------------
EMBRATEL PARTICIPACOES S.A.
AND
THE BANK OF NEW YORK
As Depositary
AND
OWNERS AND BENEFICIAL OWNERS OF
AMERICAN DEPOSITARY RECEIPTS
Deposit Agreement
Dated as of July 27, 1998
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
PARTIES............................................................ 1
RECITALS........................................................... 1
ARTICLE 1
DEFINITIONS
SECTION 1.01. American Depositary Shares.............. 1
SECTION 1.02. Beneficial Owner ....................... 2
SECTION 1.03. Business Day ........................... 2
SECTION 1.04. Commission ............................. 2
SECTION 1.05. Company ................................ 2
SECTION 1.06. Custodian .............................. 2
SECTION 1.07. Deposit Agreement ...................... 2
SECTION 1.08. Depositary; Corporate Trust
Office ................................ 2
SECTION 1.09. Deposited Securities ................... 2
SECTION 1.10. Dollars; Reais ......................... 3
SECTION 1.11. Foreign Currency ....................... 3
SECTION 1.12. Foreign Registrar ...................... 3
SECTION 1.13. Owner .................................. 3
SECTION 1.14. Pre-Release ............................ 3
SECTION 1.15. Receipts ............................... 3
SECTION 1.16. Registrar .............................. 3
SECTION 1.17. Regulation S ........................... 3
SECTION 1.18. Securities Act of 1933 ................. 3
SECTION 1.19. Shares ................................. 3
ARTICLE 2
FORM OF RECEIPTS, DEPOSIT OF SHARES, EXECUTION AND
DELIVERY, TRANSFER AND SURRENDER OF RECEIPTS
SECTION 2.01. Form of Transferability of
Receipts .............................. 4
SECTION 2.02. Deposit of Shares ...................... 5
SECTION 2.03. Execution and Delivery of
Receipts .............................. 6
SECTION 2.04. Transfer of Receipts;
Combination and Split-up
of Receipts .......................... 7
SECTION 2.05. Surrender of Receipts and
Withdrawal of Shares .................. 7
-i-
<PAGE>
SECTION 2.06. Limitations on Execution and
Delivery, Transfer and
Surrender of Receipts ................. 9
SECTION 2.07. Lost Receipts, etc. .................... 10
SECTION 2.08. Cancellation and Destruction
of Surrendered Receipts ............... 10
SECTION 2.09. Pre-release of Receipts ................ 10
SECTION 2.10. Maintenance of Records ................. 11
ARTICLE 3
CERTAIN OBLIGATIONS OF OWNERS OF RECEIPTS
SECTION 3.01. Filing Proofs, Certificates
and Other Information ................. 12
SECTION 3.02. Liability of Owner or
Beneficial Owner for Taxes ............ 12
SECTION 3.03. Warranties on Deposit of
Shares ................................ 13
SECTION 3.04. Disclosure of Interests ................ 13
ARTICLE 4
THE DEPOSITED SECURITIES
SECTION 4.01. Cash Distributions ..................... 14
SECTION 4.02. Distributions Other Than
Cash, Shares or Rights ................ 15
SECTION 4.03. Distributions in Shares ................ 16
SECTION 4.04. Rights ................................. 16
SECTION 4.05. Conversion of Foreign
Currency .............................. 18
SECTION 4.06. Fixing of Record Date .................. 20
SECTION 4.07. Voting of Deposited
Securities ............................ 20
SECTION 4.08. Changes Affecting Deposited
Securities ............................ 22
SECTION 4.09. Reports ................................ 22
SECTION 4.10. Lists of Owners ........................ 23
SECTION 4.11. Withholding ............................ 23
ARTICLE 5
THE DEPOSITARY, THE CUSTODIANS AND THE COMPANY
SECTION 5.01. Maintenance of Office and
Transfer Books by the
Depositary ............................ 24
-ii-
<PAGE>
SECTION 5.02. Prevention or Delay in
Performance by the
Depositary or the Company ............. 25
SECTION 5.03. Obligations of the Depositary,
the Custodian and the Company ......... 25
SECTION 5.04. Resignation and Removal of
the Depositary ........................ 27
SECTION 5.05. The Custodian .......................... 27
SECTION 5.06. Notices and Reports .................... 28
SECTION 5.07. Distribution of Additional
Shares, Rights, etc. .................. 29
SECTION 5.08. Indemnification ........................ 29
SECTION 5.09. Charges of Depositary .................. 30
SECTION 5.10. Exclusivity ............................ 31
ARTICLE 6
AMENDMENT AND TERMINATION
SECTION 6.01 Amendment .............................. 32
SECTION 6.02 Termination ............................ 32
ARTICLE 7
MISCELLANEOUS
SECTION 7.01. Counterparts ........................... 33
SECTION 7.02. No Third Party Beneficiaries ........... 34
SECTION 7.03. Severability ........................... 34
SECTION 7.04. Binding Effect on Owners
and Beneficial Owners ................. 34
SECTION 7.05. Notices ................................ 34
SECTION 7.06. Governing Law .......................... 35
SECTION 7.07. Headings ............................... 35
TESTIMONIUM ....................................................... 36
SIGNATURES ........................................................ 36
EXHIBIT A
FORM OF RECEIPT
-iii-
<PAGE>
DEPOSIT AGREEMENT
DEPOSIT AGREEMENT, dated as of July 27, 1998, among EMBRATEL
PARTICIPACOES S.A., a sociedade anonima de economia mista (a limited liability
company) organized under the laws of the Federative Republic of Brazil (herein
called the Company), THE BANK OF NEW YORK, a New York banking corporation
(herein called the Depositary), and all Owners and Beneficial Owners from time
to time of American Depositary Receipts issued hereunder.
W I T N E S S E T H
WHEREAS, the Company desires to provide, as hereinafter set forth in
this Deposit Agreement, for the deposit of Shares (as hereinafter defined) of
the Company from time to time with the Depositary or with the Custodian (as
hereinafter defined), as agent of the Depositary for the purposes set forth in
this Deposit Agreement, for the creation of American Depositary Shares
representing the Shares so deposited and for the execution and delivery of
American Depositary Receipts evidencing the American Depositary Shares; and
WHEREAS, the American Depositary Receipts are to be substantially in
the form of Exhibit A annexed hereto, with appropriate insertions, modifications
and omissions, as hereinafter provided in this Deposit Agreement;
NOW, THEREFORE, in consideration of the premises, it is agreed by
and between the parties hereto as follows:
ARTICLE 1
DEFINITIONS
The following definitions shall for all purposes, unless otherwise
clearly indicated, apply to the respective terms used in this Deposit Agreement:
SECTION 1.01. American Depositary Shares. The term "American
Depositary Shares" shall mean the securities representing the interests in the
Deposited Securities and evidenced by the Receipts issued hereunder. Each
American Depositary Share shall represent 1,000 Shares, until there shall occur
a distribution upon Deposited Securities covered by Section 4.03 or a change in
Deposited Securities covered by Section 4.08 or otherwise with respect to which
additional Receipts are not executed and delivered, and thereafter American
Depositary Shares shall evidence the
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amount of Shares or Deposited Securities specified in such Sections.
SECTION 1.02. Beneficial Owner. The term "Beneficial Owner" shall be
any person who has a beneficial interest in any American Depositary Share.
SECTION 1.03. Business Day. The term "Business Day" shall mean any
day on which both banks in Brazil and banks in New York, New York are not
required or authorized by law to close.
SECTION 1.04. Commission. The term "Commission" shall mean the
Securities and Exchange Commission of the United States or any successor
governmental agency in the United States.
SECTION 1.05. Company. The term "Company" shall mean Embratel
Participacoes S.A., incorporated under the laws of Brazil, and its successors.
SECTION 1.06. Custodian. The term "Custodian" shall mean the
principal Sao Paulo, Brazil office of Banco Itau, as agent of the Depositary for
the purposes of this Deposit Agreement, and any other firm or corporation which
may hereafter be appointed by the Depositary pursuant to the terms of Section
5.05, as substitute or additional custodian or custodians hereunder, as the
context shall require and shall also mean all of them collectively.
SECTION 1.07. Deposit Agreement. The term "Deposit Agreement" shall
mean this Deposit Agreement, including the Exhibits hereto, as the same may be
amended from time to time in accordance with the provisions hereof.
SECTION 1.08. Depositary; Corporate Trust Office. The term
"Depositary" shall mean The Bank of New York, a New York banking corporation,
and any successor as depositary hereunder. The term "Corporate Trust Office",
when used with respect to the Depositary, shall mean the office of the
Depositary which at the date of this Deposit Agreement is 101 Barclay Street,
New York, New York 10286.
SECTION 1.09. Deposited Securities. The term "Deposited Securities"
as of any time shall mean Shares at such time deposited or deemed to be
deposited (including as contemplated under Section 2.09) under this Deposit
Agreement and any and all other securities, property and cash received or deemed
to be received by the Depositary or the Custodian in respect or in lieu of such
deposited Shares
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and at such time held hereunder, subject as to cash to the provisions of
Section 4.05.
SECTION 1.10. Dollars; Reais. The term "Dollars" shall mean United
States dollars. The term "Reais" shall mean the lawful currency of Brazil.
SECTION 1.11. Foreign Currency. The term "Foreign Currency" shall
mean currency other than Dollars.
SECTION 1.12. Foreign Registrar. The term "Foreign Registrar" shall
mean the entity that presently carries out the duties of registrar for the
Shares or any successor as registrar for the Shares and any other appointed
agent of the Company for the transfer and registration of Shares.
SECTION 1.13. The term "Owner" shall mean the person in whose name a
Receipt is registered on the books of the Depositary maintained for such
purpose.
SECTION 1.14. Pre-Release. The term "Pre-Release" shall have the
meaning set forth in Section 2.09.
SECTION 1.15. Receipts. The term "Receipts" shall mean the American
Depositary Receipts issued hereunder evidencing American Depositary Shares, as
the same may be amended from time to time in accordance with the provisions
hereof.
SECTION 1.16. Registrar. The term "Registrar" shall mean any bank or
trust company having an office in the Borough of Manhattan, The City of New
York, which shall be appointed to register Receipts and transfers of Receipts as
herein provided.
SECTION 1.17. Regulation S. The term "Regulation S" shall mean Rules
901 through 904, inclusive, under the Securities Act of 1933, as such Rules may
from time to time be amended.
SECTION 1.18. Securities Act of 1933. The term "Securities Act of
1933" shall mean the United States Securities Act of 1933, as from time to time
amended.
SECTION 1.19. Shares. The term "Shares" shall mean shares of the
Company's non-voting preferred stock, without par value, in registered form,
heretofore validly issued and outstanding and fully paid, nonassessable and free
of any pre-emptive rights of the holders of outstanding Shares or hereafter
validly issued, subscribed and
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outstanding and fully paid, nonassessable and free of any pre-emptive rights of
the holders of outstanding Shares or interim certificates representing such
Shares.
ARTICLE 2
FORM OF RECEIPTS, DEPOSIT OF SHARES, EXECUTION AND
DELIVERY, TRANSFER AND SURRENDER OF RECEIPTS
SECTION 2.01. Form and Transferability of Receipts. Definitive
Receipts shall be engraved or printed or lithographed on steel-engraved borders
or such other form as may be acceptable to the New York Stock Exchange and shall
be substantially in the form set forth in Exhibit A annexed to this Deposit
Agreement, with appropriate insertions, modifications and omissions, as
hereinafter provided. No Receipt shall be entitled to any benefits under this
Deposit Agreement or be valid or obligatory for any purpose, unless such Receipt
shall have been executed by the Depositary by the manual signature of a duly
authorized signatory of the Depositary; provided, however, that such signature
may be a facsimile if a Registrar for the Receipts shall have been appointed and
such Receipts are countersigned by the manual signature of a duly authorized
officer of the Registrar. Receipts may be issued in denominations of any whole
number of American Depositary Shares. The Depositary shall maintain books on
which each Receipt so executed and delivered as hereinafter provided and the
transfer of each such Receipt shall be registered. Receipts bearing the
facsimile signature of a duly authorized signatory of the Depositary who was at
any time a proper signatory of the Depositary shall bind the Depositary,
notwithstanding that such signatory has ceased to hold such office prior to the
execution and delivery of such Receipts by the Registrar or did not hold such
office on the date of issuance of such Receipts.
The Receipts may be endorsed with or have incorporated in the text
thereof such legends or recitals or modifications not inconsistent with the
provisions of this Deposit Agreement or with any provisions of the Company's
charter or Brazilian law as may be reasonably required by the Depositary in
order to comply with any applicable law or regulations thereunder or with the
rules and regulations of any securities exchange upon which American Depositary
Shares may be listed or to conform with any usage with respect thereto, or to
indicate any special limitations or restrictions to which any particular
Receipts are subject by reason of the date of issuance of the underlying
Deposited Securities or otherwise.
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Title to a Receipt (and to the American Depositary Shares evidenced
thereby), when properly endorsed or accompanied by proper instruments of
transfer, shall be transferable by delivery with the same effect as in the case
of a negotiable instrument; provided, however, that the Depositary and the
Company, notwithstanding any notice to the contrary, may treat the Owner thereof
as the absolute owner thereof for the purpose of determining the person entitled
to distribution of dividends or other distributions or to any notice provided
for in this Deposit Agreement and for all other purposes.
SECTION 2.02. Deposit of Shares. Subject to the terms and conditions
of this Deposit Agreement, Shares, or evidence of rights to receive Shares to
the extent permitted by Section 2.09, may be deposited by book-entry delivery
thereof to any Custodian hereunder, accompanied by any appropriate instrument or
instruments of transfer, or endorsement, in form satisfactory to the Custodian,
together with all such certifications as may be required by the Depositary, the
Custodian or the Company in accordance with the provision of this Deposit
Agreement, and, if the Depositary requires, together with a written order
directing the Depositary to execute and deliver to, or upon the written order
of, the person or persons stated in such order, a Receipt or Receipts for the
number of American Depositary Shares representing such deposit. No Share shall
be accepted for deposit unless accompanied by evidence satisfactory to the
Depositary that any necessary approval has been granted by the governmental body
or bodies in Brazil which is or are then regulating currency exchange. If
required by the Depositary, Shares presented for deposit at any time, whether or
not the transfer books of the Company or the Foreign Registrar, if applicable,
are closed, shall also be accompanied by (i) an agreement or assignment, or
other instrument satisfactory to the Depositary, which will provide for the
prompt transfer to the Custodian of any dividend, or right to subscribe for
additional Shares or to receive other property which any person on whose name
the Shares are or have been recorded may thereafter receive upon or in respect
of such deposited Shares, or in lieu thereof, such agreement of indemnity or
other agreement as shall be satisfactory to the Depositary and (ii) if the
Shares are registered in the name of the person on whose behalf they are
presented for deposit, a proxy or proxies entitling the Custodian to vote such
deposited Shares for any and all purposes until the Shares are registered in the
name of the Custodian or its nominees.
At the request and risk and expense of any person proposing to
deposit Shares, and for the account of such
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person, the Depositary may receive certificates for Shares to be deposited,
together with the other instruments herein specified, for the purpose of
forwarding such Share certificates to the Custodian for deposit hereunder.
Upon each delivery to a Custodian of Shares to be deposited
hereunder, together with the other documents above specified, such Custodian
shall, as soon as transfer and recordation can be accomplished, present such
evidence or ownership to the Company or the Foreign Registrar, if applicable,
for transfer and recordation of the Shares being deposited in the name of the
Depositary or its nominee or such Custodian or its nominee at the cost and
expense of the person making such deposit (or for whose benefit such deposit is
made) and shall obtain evidence satisfactory to it of such registration.
Deposited Securities shall be held by the Depositary or by a
Custodian for the account and to the order of the Depositary or at such other
place or places as the Depositary shall determine.
SECTION 2.03. Execution and Delivery of Receipts. Upon receipt by
any Custodian of any deposit pursuant to Section 2.02 hereunder (and in
addition, if the transfer books of the Company or the Foreign Registrar, if
applicable, are open, the Depositary may in its sole discretion require a proper
acknowledgment or other evidence from the Company or the Foreign Registrar, as
the case may be, that any Deposited Securities have been recorded upon the books
of the Company or the Foreign Registrar, if applicable, in the name of the
Depositary or its nominee or such Custodian or its nominee), together with the
other documents required as above specified, such Custodian shall notify the
Depositary of such deposit and the person or persons to whom or upon whose
written order a Receipt or Receipts are deliverable in respect thereof and the
number of American Depositary Shares to be evidenced thereby. Such notification
shall be made by letter or, at the request, risk and expense of the person
making the deposit, by cable, telex or facsimile transmission. Upon receiving
such notice from such Custodian, or upon the receipt of Shares by the
Depositary, the Depositary, subject to the terms and conditions of this Deposit
Agreement, shall, as promptly as practicable, execute and deliver at its
Corporate Trust Office, to or upon the order of the person or persons entitled
thereto, a Receipt or Receipts, registered in the name or names and evidencing
any authorized number of American Depositary Shares requested by such person or
persons, but only upon payment to the Depositary of the fees of the Depositary
for the execution and delivery of such
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<PAGE>
Receipt or Receipts as provided in Section 5.09, and of all taxes and
governmental charges and fees, if any, payable in connection with such deposit
and the transfer of the Deposited Securities. The Depositary shall not issue
Receipts except in accordance with this Section 2.03 and Sections 2.04, 2.07,
2.09, 4.03, 4.04 and 4.08.
SECTION 2.04. Transfer of Receipts; Combination and Split-up of
Receipts. The Depositary, subject to the terms and conditions of this Deposit
Agreement, shall register transfers of Receipts on its transfer books from time
to time, upon any surrender of a Receipt, by the Owner in person or by a duly
authorized attorney, properly endorsed or accompanied by proper instruments of
transfer, and duly stamped as may be required by the laws of the State of New
York and of the United States of America. Thereupon the Depositary shall execute
a new Receipt or Receipts and deliver the same to or upon the order of the
person entitled thereto.
The Depositary, subject to the terms and conditions of this Deposit
Agreement, shall upon surrender of a Receipt or Receipts for the purpose of
effecting a split-up or combination of such Receipt or Receipts, execute and
deliver a new Receipt or Receipts for any authorized number of American
Depositary Shares requested, evidencing the same aggregate number of American
Depositary Shares as the Receipt or Receipts surrendered.
The Depositary may appoint, upon at least 20 days' written notice to
the Company, one or more co-transfer agents, reasonably acceptable to the
Company, for the purpose of effecting transfers, combinations and split-ups of
Receipts at designated transfer offices on behalf of the Depositary. In carrying
out its functions, a co-transfer agent may require evidence of authority and
compliance with applicable laws and other requirements by Owners or persons
entitled to Receipts and will be entitled to protection and indemnity to the
same extent as the Depositary.
SECTION 2.05. Surrender of Receipts and Withdrawal of Shares. Upon
surrender at the Corporate Trust Office of the Depositary of a Receipt for the
purpose of withdrawal of the Deposited Securities represented by the American
Depositary Shares evidenced by such Receipt, and upon payment of the fee of the
Depositary for the surrender of Receipts as provided in Section 5.09 and payment
of all taxes and governmental charges, if any, payable in connection with such
surrender and withdrawal of the Deposited Securities, and subject to the terms
and conditions of this Deposit Agreement and the Company's
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<PAGE>
Charter, the Owner of such Receipt shall be entitled to delivery, to him or upon
his order, of the amount of Deposited Securities at the time represented by the
American Depositary Shares evidenced by such Receipt. Delivery of such Deposited
Securities may be made by (a) (i) the delivery of certificates in the name of
such Owner or as ordered by him or certificates properly endorsed or accompanied
by proper instruments of transfer to such Owner or as ordered by him, or (ii)
book-entry transfer of the Shares represented by such Receipt to an account in
the name of such Owner or as ordered by him, and (b) delivery of any other
securities, property and cash to which such Owner is then entitled in respect of
such Receipts to such Owner or as ordered by him. Such delivery shall be made,
as promptly as practicable, as hereinafter provided.
A Receipt surrendered for such purposes may be required by the
Depositary to be properly endorsed in blank or accompanied by proper instruments
of transfer in blank, and if the Depositary so requires, the Owner thereof shall
execute and deliver to the Depositary a written order directing the Depositary
to cause the Deposited Securities being withdrawn to be delivered to or upon the
written order of a person or persons designated in such order. Thereupon the
Depositary shall, as promptly as practicable, direct the Custodian to deliver at
the Sao Paulo office of such Custodian, subject to Sections 2.06, 3.01 and 3.02
and to the other terms and conditions of this Deposit Agreement and the
Company's Charter, to or upon the written order of the person or persons
designated in the order delivered to the Depositary as above provided, the
amount of Deposited Securities represented by the American Depositary Shares
evidenced by such Receipt, except that the Depositary may make delivery to such
person or persons at the Corporate Trust Office of the Depositary of any
dividends or distributions with respect to the Deposited Securities represented
by the American Depositary Shares evidenced by such Receipt, or of any proceeds
of sale of any dividends, distributions or rights, which may at the time be held
by the Depositary.
At the request, risk and expense of any Owner so surrendering a
Receipt, and for the account of such Owner, the Depositary shall direct the
Custodian to forward any cash or other property (other than rights) comprising,
and forward a certificate or certificates and other proper documents of title
for, the Deposited Securities represented by the American Depositary Shares
evidenced by such Receipt to the Depositary for delivery at the Corporate Trust
Office of the Depositary. Such direction shall be given by letter
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<PAGE>
or, at the request, risk and expense of such Owner, by cable, telex or
facsimile transmission.
Neither the Depositary nor the Custodian shall deliver Shares, by
physical delivery, book entry or otherwise (other than to the Company or its
agent as contemplated by Section 4.08), or otherwise permit Shares to be
withdrawn from the facility created hereby, except upon the receipt and
cancellation of Receipts.
SECTION 2.06. Limitations on Execution and Delivery, Transfer and
Surrender of Receipts. As a condition precedent to the execution and delivery,
registration of transfer, split-up, combination or surrender of any Receipt, the
delivery of any distribution thereon, or withdrawal of any Deposited Securities,
the Company, Depositary, Custodian or Registrar may require payment from the
depositor of Shares or the presenter of the Receipt of a sum sufficient to
reimburse it for any tax or other governmental charge and any stock transfer or
registration fee with respect thereto (including any such tax, charge or fee
with respect to Shares being deposited or withdrawn) and payment of any fees of
the Depositary as provided in Section 5.09, may require the production of proof
satisfactory to it as to the identity and genuineness of any signature and may
also require compliance with such reasonable regulations the Depositary may
establish consistent with the provisions of this Deposit Agreement, including,
without limitation, this Section 2.06.
The delivery of Receipts against deposits of Shares generally or
against deposits of particular Shares may be suspended, or the transfer of
Receipts in particular instances may be refused, or the registration of transfer
of outstanding Receipts or the combination or split-up of Receipts generally may
be suspended, during any period when the transfer books of the Depositary are
closed, or if any such action is deemed necessary or advisable by the Depositary
or the Company at any time or from time to time because of any requirement of
law or of any government or governmental body or commission, or under any
provision of this Deposit Agreement, or for any other reason, subject to the
provisions of the following sentence. Notwithstanding any other provision of
this Deposit Agreement or the Receipts, the surrender of outstanding Receipts
and withdrawal of Deposited Securities may be suspended only for (i) temporary
delays caused by closing the transfer books of the Depositary or the Company or
the deposit of Shares in connection with voting at a shareholders' meeting, or
the payment of dividends, (ii) the payment of fees, taxes and similar charges,
(iii) compliance with any U.S. or foreign laws or
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governmental regulations relating to the Receipts or to the withdrawal of the
Deposited Securities, or (iv) any other reason that may at any time be specified
in paragraph I(A)(1) of the General Instructions to Form F-6, as from time to
time in effect, or any successor provision thereto. Without limitation of the
foregoing, the Depositary shall not knowingly accept for deposit under this
Deposit Agreement any Shares required to be registered under the provisions of
the Securities Act of 1933, unless a registration statement is in effect as to
such Shares. The Depositary will comply with written instructions of the Company
that the Depositary shall not accept for deposit hereunder any Shares identified
in such instructions at such times and under such circumstances as may
reasonably be specified in such instructions in order to facilitate the
Company's compliance with the securities laws in the United States.
SECTION 2.07. Lost Receipts, etc. In case any Receipt shall be
mutilated, destroyed, lost or stolen, the Depositary shall execute and deliver a
new Receipt of like tenor in exchange and substitution for such mutilated
Receipt upon cancellation thereof, or in lieu of and in substitution for such
destroyed, lost or stolen Receipt. Before the Depositary shall execute and
deliver a new Receipt in substitution for a destroyed, lost or stolen Receipt,
the Owner thereof shall have (a) filed with the Depositary (i) a request for
such execution and delivery before the Depositary has notice that the Receipt
has been acquired by a bona fide purchaser and (ii) a sufficient indemnity bond
and (b) satisfied any other reasonable requirements imposed by the Depositary.
SECTION 2.08. Cancellation and Destruction of Surrendered Receipts.
All Receipts surrendered to the Depositary shall be cancelled by the Depositary.
The Depositary is authorized to destroy Receipts so cancelled, subject to
Section 2.10.
SECTION 2.09. Pre-Release of Receipts. The Depositary may issue
Receipts against rights to receive Shares from the Company (or any agent of the
Company recording Share ownership). No such issue of Receipts will be deemed a
"Pre-Release" subject to the restrictions of the following paragraph.
Unless requested by the Company to cease doing so, the Depositary
may, notwithstanding Section 2.03 hereof, execute and deliver Receipts prior to
the receipt of Shares pursuant to Section 2.02 ("Pre-Release"). The Depositary
may, pursuant to Section 2.05, deliver Shares upon the
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receipt and cancellation of Receipts which have been Pre-Released, whether or
not such cancellation is prior to the termination of such Pre-Release or the
Depositary knows that such Receipt has been Pre-Released. The Depositary may
receive Receipts in lieu of Shares in satisfaction of a Pre-Release. Each
Pre-Release will be (a) preceded or accompanied by a written representation and
agreement from the person to whom Receipts are to be delivered (the
"Pre-Releasee") that the Pre-Releasee, or its customer, (i) owns the Shares or
Receipts to be remitted, as the case may be, (ii) assigns all beneficial right,
title and interest in such Shares or Receipts, as the case may be, to the
Depositary for the benefit of the Owners, and (iii) agrees in effect to hold
such Shares or Receipts, as the case may be, for the account of the Depositary
until delivery of the same upon the Depositary's request, (b) at all times fully
collateralized with cash or U.S. government securities, (c) terminable by the
Depositary on not more than five (5) business days notice, and (d) subject to
such further indemnities and credit regulations as the Depositary deems
appropriate. The number of American Depositary Shares which are outstanding at
any time as a result of Pre-Releases will not normally exceed thirty percent
(30%) of the American Depositary Shares outstanding (without giving effect to
American Depositary Shares evidenced by Receipts outstanding as a result of
Pre-Release); provided, however, that the Depositary reserves the right to
disregard such limit from time to time as it deems appropriate and may, with the
prior written consent of the Company, change such limit for purposes of general
application. The Depositary will also set limits with respect to the number of
Pre-Released Receipts involved in transactions to be done hereunder with any one
person on a case by case basis as it deems appropriate. The collateral referred
to in clause (b) above shall be held by the Depositary for the benefit of the
Owners as security for the performance of the obligations to deliver Shares or
Receipts set forth in clause (a) above (and shall not, for the avoidance of
doubt, constitute Deposited Securities hereunder).
The Depositary may retain for its own account any compensation
received by it in connection with the foregoing.
SECTION 2.10. Maintenance of Records. The Depositary agrees to
maintain or cause its agents to maintain records of all Receipts surrendered and
Deposited Securities withdrawn under Section 2.05, substitute Receipts delivered
under Section 2.07, and of cancelled or destroyed Receipts under Section 2.08,
in keeping with procedures ordinarily followed by stock transfer agents located
in The
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City of New York or as required by the laws or regulations governing the
Depositary. Prior to destroying any such records, the Depositary will notify the
Company and will turn such records over to the Company upon its request.
ARTICLE 3
CERTAIN OBLIGATIONS OF OWNERS OF RECEIPTS
SECTION 3.01. Filing Proofs, Certificates and Other Information. Any
person presenting Shares for deposit or any Owner of a Receipt may be required
from time to time to file with the Depositary or the Custodian such proof of
citizenship or residence, exchange control approval, legal or beneficial
ownership of Receipts, Deposited Securities or other securities, compliance with
all applicable laws or regulations or terms of this Deposit Agreement or the
Receipts, or such information relating to the registration on the books of the
Company or the Foreign Registrar, if applicable, to execute such certificates
and to make such representations and warranties, as the Depositary may deem
necessary or proper. The Depositary may withhold the delivery or registration of
transfer of any Receipt or the distribution of any dividend or sale or
distribution of rights or of the proceeds thereof or the delivery of any
Deposited Securities until such proof or other information is filed or such
certificates are executed or such representations and warranties made. The
Depositary shall from time to time advise the Company of the availability of any
such proofs, certificates or other information and shall provide copies thereof
to the Company as promptly as practicable upon request by the Company, unless
such disclosure is prohibited by law.
SECTION 3.02. Liability of Owner or Beneficial Owner for Taxes. If
any tax or other governmental charge shall become payable by the Custodian or
the Depositary with respect to any Receipt or any Deposited Securities
represented by any Receipt, such tax or other governmental charge shall be
payable by the Owner or Beneficial Owner of such Receipt to the Depositary. The
Depositary may refuse to effect any transfer of such Receipt or any combination
or split-up thereof or any withdrawal of Deposited Securities represented by
American Depositary Shares evidenced by such Receipt until such payment is made,
and may withhold any dividends or other distributions, or may sell for the
account of the Owner or Beneficial Owner thereof any part or all of the
Deposited Securities represented by the American Depositary Shares evidenced by
such Receipt, and may apply such dividends or other distributions or the
proceeds of any
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such sale in payment of such tax or other governmental charge (and any taxes or
expenses arising out of such sale and the Owner or Beneficial Owner of such
Receipt shall remain liable for any deficiency.
SECTION 3.03. Warranties on Deposit of Shares. Every person
depositing Shares under this Deposit Agreement shall be deemed thereby to
represent and warrant that such Shares and each certificate therefor are validly
issued, fully paid, nonassessable and free of any preemptive rights of the
holders of outstanding Shares and that the person making such deposit is duly
authorized so to do. Every such person shall also be deemed to represent that
(i) the Shares presented for deposit are not, and the Receipts issuable upon
such deposit will not be, restricted securities within the meaning of Rule
144(a)(3) under the Securities Act of 1933, and (ii) the deposit of such Shares
and the sale of Receipts evidencing American Depositary Shares representing such
Shares by that person are not otherwise restricted under the Securities Act of
1933. Such representations and warranties shall survive the deposit of Shares
and issuance of Receipts.
SECTION 3.04. Disclosure of Interests. To the extent that provisions
of or governing any Deposited Securities (including the Company's Charter or
applicable law) may require the disclosure of beneficial or other ownership of
Deposited Securities, other Shares and other securities to the Company and may
provide for blocking transfer and voting or other rights to enforce such
disclosure or limit such ownership, the Depositary shall use its best efforts
that are reasonable under the circumstances to comply with Company instructions
as to Receipts in respect of any such enforcement or limitation, and Owners and
Beneficial Owners shall comply with all such disclosure requirements and
ownership limitations and shall cooperate with the Depositary's compliance with
such Company instructions.
The Depositary and the Company hereby confirm to each other that,
for as long as this Deposit Agreement is in effect, they shall furnish to the
Comissao de Valores Mobiliarios (the "CVM") and the Central Bank of Brazil any
information and documents related to the Receipts and the Depositary's
obligations hereunder as may be requested by such authorities from time to time,
whether such information and documents are requested from the Depositary or the
Company. In the event that the Depositary or the Custodian shall be advised (in
writing) by reputable independent Brazilian counsel that the Depositary or
Custodian reasonably could be subject to criminal or material, as
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reasonably determined by the Depositary, civil liabilities as a result of the
Company having failed to provide such information or documents reasonably
available only through the Company, the Depositary has the right to immediately
resign as Depositary and will not be subject to any liability hereunder for such
resignation or such determination, except that (i) the Depositary shall
promptly, but in no event later than three business days, if permitted by
applicable law, duly assign, transfer and deliver all right, title and interest
in and to the Deposited Securities held on account or on behalf of Owners to the
Company or its nominee and (ii) to the extent reasonably requested by the
Company and not prohibited by applicable law, the Depositary shall provide the
Company or any successor depositary hereunder with access, during normal
business hours, to such records as may be reasonably necessary to enable the
Company or such successor depositary to fulfill the obligations that the
Depositary would have had hereunder but for such resignation. Upon effectiveness
of such resignation the Depositary shall otherwise be discharged from all of its
obligations under this Deposit Agreement. In the event that the Depositary
resigns pursuant to this paragraph either (i) the Company will appoint a new
depositary, in which case the Company will assume the obligations stated as the
obligations of the Depositary under Section 5.04 herein or (ii) if the Company
fails to appoint a new depositary within 60 days of such resignation, this
Deposit Agreement shall be terminated in accordance with Section 6.02 herein and
the Company or its designated agent will assume the obligations stated as the
obligations of the Depositary in such section.
ARTICLE 4
THE DEPOSITED SECURITIES
SECTION 4.01. Cash Distributions. Whenever the Depositary, or on its
behalf, its agent, shall receive any cash dividend or other cash distribution on
any Deposited Securities, the Depositary shall, or shall cause its agent, as
promptly as practicable (and in any event within one Business Day) after its
receipt of such dividend or distribution (unless otherwise prohibited or
prevented by law), subject to the provisions of Section 4.05, to convert such
dividend or distribution into Dollars and shall, as promptly as practicable,
distribute the amount thus received (net of the expenses of the Depositary as
provided in Section 5.09) to the Owners entitled thereto, in proportion to the
number of American Depositary Shares representing such Deposited Securities held
by them respectively;
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provided, however, that in the event that the Company or the Depositary shall be
required to withhold and does withhold from such cash dividend or such other
cash distribution an amount on account of taxes, the amount distributed to the
Owner of the Receipts evidencing American Depositary Shares representing such
Deposited Securities shall be reduced accordingly. The Depositary shall
distribute only such amounts as can be distributed without distributing to any
Owner a fraction of one cent and any balance that is not so distributed shall be
held by the Depositary (without liability for the interest thereon) and shall be
added to and be part of the next sum received by the Depositary for distribution
to the Owners of Receipts then outstanding. The Company or its agent will remit
to the appropriate governmental agency in Brazil all amounts withheld and owing
to such agency. The Depositary will forward to the Company or its agent in a
timely manner such information from its records as the Company may reasonably
request to enable the Company or its agent to file necessary reports with
governmental agencies, and the Depositary or the Company or its agent may file
any such reports necessary to obtain benefits under the applicable tax treaties
for the Owners.
SECTION 4.02. Distributions Other Than Cash, Shares or Rights.
Subject to the provisions of Section 4.11 and 5.09, whenever the Depositary
shall receive any distribution other than a distribution described in Sections
4.01, 4.03 or 4.04, the Depositary shall, as promptly as practicable, cause the
securities or property received by it to be distributed to the Owners entitled
thereto, in proportion to the number of American Depositary Shares representing
such Deposited Securities held by them respectively, in any manner that the
Depositary may deem equitable and practicable for accomplishing such
distribution; provided, however, that if in the opinion of the Depositary such
distribution cannot be made proportionately among the Owners entitled thereto,
or if for any other reason (including, but not limited to, any requirement that
the Company or the Depositary withhold an amount on account of taxes or other
governmental charges or that such securities must be registered under the
Securities Act of 1933 in order to be distributed to Owners) the Depositary
deems such distribution not to be feasible, the Depositary may, after
consultation with the Company, adopt such method as it may deem equitable and
practicable for the purpose of effecting such distribution, including, but not
limited to, the public or private sale of the securities or property thus
received, or any part thereof, and the net proceeds of any such sale (net of the
fees of the Depositary as provided in Section 5.09 and any expenses in
connection with such sale) shall be distributed by the Depositary to
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the Owners entitled thereto as in the case of a distribution received in cash
pursuant to Section 4.01; provided, however, no distribution to Owners pursuant
to this Section 4.02 shall be unreasonably delayed by any action of the
Depositary or any of its agents.
SECTION 4.03. Distributions in Shares. If any distribution upon any
Deposited Securities consists of a dividend in, or free distribution of, Shares,
the Depositary may or shall, if the Company shall so request, distribute, as
promptly as practicable, to the Owners of outstanding Receipts entitled thereto,
in proportion to the number of American Depositary Shares representing such
Deposited Securities held by them respectively, additional Receipts evidencing
an aggregate number of American Depositary Shares representing the amount of
Shares received as such dividend or free distribution, subject to the terms and
conditions of the Deposit Agreement with respect to the deposit of Shares and
the issuance of American Depositary Shares evidenced by Receipts, including the
withholding of any tax or other governmental charge as provided in Section 4.11
and the payment of the fees of the Depositary as provided in Section 5.09. In
lieu of delivering Receipts for fractional American Depositary Shares in any
such case, the Depositary shall sell the amount of Shares represented by the
aggregate of such fractions and distribute the net proceeds, all in the manner
and subject to the conditions described in Section 4.01; provided, however, no
distribution to Owners pursuant to this Section 4.03 shall be unreasonably
delayed by any action of the Depositary or any of its agents. If additional
Receipts are not so distributed, each American Depositary Share shall
thenceforth also represent the additional Shares distributed upon the Deposited
Securities represented thereby. In addition, the Depositary may withhold any
distribution of Receipts under this Section 4.03 if it has not received
satisfactory assurances from the Company that such distribution does not require
registration under the Securities Act or is exempt from registration under the
provisions of such Act; provided that, in any such event, the Depositary may
sell the Shares distributed upon the Deposited Securities and distribute the net
proceeds, all in the manner and subject to the conditions described in Section
4.01.
SECTION 4.04. Rights. In the event that the Company shall offer or
cause to be offered to the holders of any Deposited Securities any rights to
subscribe for additional Shares or any rights of any other nature, the
Depositary, after consultation with the Company, shall have discretion as to the
procedure to be followed in making such rights available to any Owners or in
disposing of such
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rights on behalf of any Owners and making the net proceeds available to such
Owners or, if by the terms of such rights offering or for any other reason it
would be unlawful for the Depositary either to make such rights available to any
Owners or dispose of such rights and make the net proceeds available to such
Owners, then the Depositary shall allow the rights to lapse. If at the time of
the offering of any rights the Depositary determines in its discretion that it
is lawful and feasible to make such rights available to all or certain Owners
but not to other Owners, the Depositary may, and at the request of the Company
shall, distribute to any Owner to whom it determines the distribution to be
lawful and feasible, in proportion to the number of American Depositary Shares
held by such Owner, warrants or other instruments therefor in such form as it
deems appropriate.
In circumstances in which rights would otherwise not be distributed,
if an Owner requests the distribution of warrants or other instruments in order
to exercise the rights allocable to the American Depositary Shares of such Owner
hereunder, the Depositary will promptly make such rights available to such Owner
upon written notice from the Company to the Depositary that (a) the Company has
elected in its sole discretion to permit such rights to be exercised and (b)
such Owner has executed such documents as the Company has determined in its sole
discretion are reasonably required under applicable law.
If the Depositary has distributed warrants or other instruments for
rights to all or certain Owners, then upon instruction from such an Owner
pursuant to such warrants or other instruments to the Depositary from such Owner
to exercise such rights, upon payment by such Owner to the Depositary for the
account of such Owner of an amount equal to the purchase price of the Shares to
be received upon the exercise of the rights, and upon payment of the fees of the
Depositary and any other charges as set forth in such warrants or other
instruments, the Depositary shall, on behalf of such Owner, exercise the rights
and purchase the Shares, and the Company shall cause the Shares so purchased to
be delivered to the Depositary on behalf of such Owner. As agent for such Owner,
the Depositary will cause the Shares so purchased to be deposited pursuant to
Section 2.02 of this Deposit Agreement, and shall, pursuant to Section 2.03 of
this Deposit Agreement, execute and deliver Receipts to such Owner. In the case
of a distribution pursuant to this paragraph, such Receipts shall be legended in
accordance with applicable U.S. laws, and shall be subject to the appropriate
restrictions on sale, deposit, cancellation, and transfer under such laws.
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If the Depositary determines that it is not lawful or feasible to
make such rights available to all or certain Owners, it may, and at the request
of the Company will use its best efforts that are reasonable under the
circumstances to, sell the rights, warrants or other instruments in proportion
to the number of American Depositary Shares held by the Owners to whom it has
determined it may not lawfully or feasibly make such rights available, and
allocate the net proceeds of such sales (net of the fees of the Depositary as
provided in Section 5.09, any expenses in connection with such sale and all
taxes and governmental charges payable in connection with such rights and
subject to the terms and conditions of this Deposit Agreement) for the account
of such Owners otherwise entitled to such rights, warrants or other instruments,
upon an averaged or other practical basis without regard to any distinctions
among such Owners because of exchange restrictions or the date of delivery of
any Receipt or otherwise. Such proceeds shall be distributed as promptly as
practicable in accordance with Section 4.01 hereof.
If a registration statement under the Securities Act of 1933 is
required with respect to the securities to which any rights relate in order for
the Company to offer such rights to Owners and sell the securities represented
by such rights, the Depositary will not offer such rights to Owners having an
address in the United States (as defined in Regulation S) unless and until such
a registration statement is in effect, or unless the offering and sale of such
securities and such rights to such Owners are exempt from registration under the
provisions of such Act.
The Depositary shall not be responsible for any failure to determine
that it may be lawful or feasible to make such rights available to Owners in
general or any Owner in particular.
SECTION 4.05. Conversion of Foreign Currency. Whenever the
Depositary or the Custodian shall receive Foreign Currency, by way of dividends
or other distributions or the net proceeds from the sale of securities, property
or rights, and if at the time of the receipt thereof the Foreign Currency so
received can, pursuant to applicable law, be converted on a reasonable basis
into Dollars and the resulting Dollars transferred to the United States, the
Depositary or the Custodian shall convert or cause to be converted as promptly
as practicable (and in any event within one Business Day of its or its agent's
receipt of such Foreign Currency), by sale or in any other manner that it may
determine in accordance with applicable law, such Foreign Currency into Dollars.
If, at the time of
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conversion of such Foreign Currency into Dollars, such Dollars can, pursuant to
applicable law, be transferred outside of Brazil for distribution to Owners
entitled thereto, such Dollars shall be distributed as promptly as practicable
to the Owners entitled thereto or, if the Depositary shall have distributed any
rights, warrants or other instruments which entitle the holders thereof to such
Dollars, then to the holders of such rights, warrants and/or instruments upon
surrender thereof for cancellation. Such distribution or conversion may be made
upon an averaged or other practicable basis without regard to any distinctions
among Owners on account of exchange restrictions, the date of delivery of any
Receipt or otherwise and shall be net of any expenses of conversion into Dollars
incurred by the Depositary as provided in Section 5.09.
If such conversion, transfer or distribution can be effected only
with the approval or license of any government or agency thereof, the Depositary
shall file as promptly as practicable such application for approval or license;
however, the Depositary shall be entitled to rely upon Brazilian local counsel
in such matters, which counsel shall be instructed to act as promptly as
possible.
If at any time Foreign Currency received by the Depositary or the
Custodian is not, pursuant to applicable law, convertible, in whole or in part,
into Dollars, or if any approval or license of any government or agency thereof
which is required for such conversion is denied or in the opinion of the
Depositary cannot be promptly obtained, the Depositary shall, (a) as to that
portion of the Foreign Currency that is convertible into Dollars, make such
conversion and, if permitted by applicable law, transfer such Dollars to the
United States for distribution to Owners in accordance with the first paragraph
of this Section 4.05 or, if such transfer is not so permitted, hold such Dollars
uninvested and without liability for interest thereon for the respective
accounts of the Owners entitled to receive the same, and (b) as to the
nonconvertible balance, if any, (i) if requested in writing by an Owner,
distribute or cause the Custodian to distribute the Foreign Currency (or an
appropriate document evidencing the right to receive such Foreign Currency)
received by the Depositary or Custodian to such Owner and (ii) the Depositary
shall hold or shall cause the Custodian to hold any amounts of nonconvertible
Foreign Currency not distributed pursuant to the immediate preceding subclause
(i) uninvested and without liability for interest thereon for the respective
accounts of the Owners entitled to receive the same.
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SECTION 4.06. Fixing of Record Date. Whenever any cash dividend or
other cash distribution shall become payable or any distribution other than cash
shall be made, or whenever rights shall be issued with respect to the Deposited
Securities, or whenever for any reason the Depositary causes a change in the
number of Shares that are represented by each American Depositary Share, or
whenever the Depositary shall receive notice of any meeting of holders of Shares
or other Deposited Securities, or whenever the Depositary shall find it
necessary or convenient, the Depositary shall fix a record date, which date
shall, to the extent practicable, be either (x) the same date as the record date
fixed by the Company, or (y) if different from the record date fixed by the
Company, be fixed after consultation with the Company (a) for the determination
of the Owners who shall be (i) entitled to receive such dividend, distribution
or rights or the net proceeds of the sale thereof or (ii) entitled to give
instructions for the exercise of voting rights at any such meeting, or (b) on or
after which each American Depositary Share will represent the changed number of
Shares. Subject to the provisions of Sections 4.01 through 4.05 and to the other
terms and conditions of this Deposit Agreement, the Owners on such record date
shall be entitled, as the case may be, to receive the amount distributable by
the Depositary with respect to such dividend or other distribution or such
rights or the net proceeds of sale thereof in proportion to the number of
American Depositary Shares held by them respectively and to give voting
instructions and to act in respect of any other such matter. The Company agrees
to provide the Depositary with 10 days' prior notice of any meeting of
shareholders or of the Board of Directors of the Company, the agenda for which
includes authorization for the declaration of a dividend; provided, however,
that if the date for any such meeting is fixed less than 10 days prior to such
meeting or the Company does not know, 10 days prior to such meeting, that a
dividend may be declared at any such meeting, then the Company shall give such
notice to the Depositary as promptly as practicable after such date is fixed or
the Company learns that a dividend may be declared.
SECTION 4.07. Voting of Deposited Securities. At any time that the
Depositary has the right to vote the Shares represented by the American
Depositary Shares, the Depositary will comply with the following provisions.
As soon as practicable after receipt of notice of any meeting or
solicitation of consents or proxies of holders of Shares or other Deposited
Securities, if requested in writing by the Company, the Depositary shall, as
soon as practicable thereafter, mail to the Owners a
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notice, the form of which notice shall be in the sole discretion of the
Depositary, which shall contain (a) such information as is contained in such
notice of meeting (or if requested by the Company a summary of such information
provided by the Company), (b) a statement that the Owners as of the close of
business on a specified record date will be entitled, subject to any applicable
provision of Brazilian law and of the Charter of the Company, to instruct the
Depositary as to the exercise of the voting rights, if any, pertaining to the
amount of Shares or other Deposited Securities represented by their respective
American Depositary Shares and (c) a statement as to the manner in which such
instructions may be given, including an express indication that instructions may
be given or deemed given in accordance with the last sentence of this paragraph
if no instruction is received, to the Depositary to give a discretionary proxy
to a person designated by the Company. Upon the written request of an Owner on
such record date, received on or before the date established by the Depositary
for such purpose, the Depositary shall endeavor, in so far as practicable, to
vote or cause to be voted the amount of Shares or other Deposited Securities
represented by the American Depositary Shares evidenced by such Receipt in
accordance with the instructions set forth in such request. The Depositary shall
not itself exercise any voting discretion over any Deposited Securities. If no
instructions are received by the Depositary from any Owner with respect to any
of the Deposited Securities represented by the American Depositary Shares
evidenced by such Owner's Receipts on or before the date established by the
Depositary for such purpose, the Depositary shall deem such Owner to have
instructed the Depositary to give a discretionary proxy to a person designated
by the Company with respect to such Deposited Securities and the Depositary
shall give a discretionary proxy to a person designated by the Company to vote
such Deposited Securities, provided that no such instruction shall be deemed
given and no such discretionary proxy shall be given with respect to any matter
as to which the Company informs the Depositary (and the Company agrees to
provide such information as promptly as practicable in writing) that (x) the
Company does not wish such proxy given, (y) substantial opposition exists or (z)
such matter materially and adversely affects the rights of holders of Shares.
Subject to the rules of any securities exchange on which American
Depositary Shares or the Deposited Securities represented thereby are listed,
the Depositary shall if requested by the Company deliver, at least two Business
Days prior to the date of such meeting, to the Company, to the attention of its
Secretary, copies of all instructions
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received from Owners in accordance with which the Depositary will vote, or cause
to be voted, the Deposited Securities represented by the American Depositary
Shares evidenced by such Receipts at such meeting. Delivery of instructions will
be made at the expense of the Company (unless otherwise agreed in writing by the
Company and the Depositary) provided that payment of such expense shall not be a
condition precedent to the obligations of the Depositary under this Section.
SECTION 4.08. Changes Affecting Deposited Securities. In
circumstances where the provisions of Section 4.03 do not apply, upon any change
in nominal value, change in par value, split-up, consolidation or any other
reclassification of Deposited Securities, or upon any recapitalization,
reorganization, merger or consolidation or sale of assets affecting the Company
or to which it is a party, any securities which shall be received by the
Depositary or a Custodian in exchange for or in conversion of or in respect of
Deposited Securities shall be treated as new Deposited Securities under this
Deposit Agreement, and American Depositary Shares shall thenceforth represent
the new Deposited Securities so received in exchange or conversion, unless
additional Receipts are delivered pursuant to the following sentence. In any
such case the Depositary may, and shall if the Company shall so request, execute
and deliver additional Receipts as in the case of a dividend in Shares, or call
for the surrender of outstanding Receipts to be exchanged for new Receipts
specifically describing such new Deposited Securities.
SECTION 4.09. Reports. The Depositary shall make available for
inspection by Owners at its Corporate Trust Office any reports and
communications, including any proxy soliciting material, received from the
Company which are both (a) received by the Depositary as the holder of the
Deposited Securities and (b) made generally available to the holders of such
Deposited Securities by the Company. The Depositary shall also send to the
Owners copies of such reports when furnished by the Company pursuant to Section
5.06. Any such reports and communications, including any such proxy soliciting
material, furnished to the Depositary by the Company shall be furnished in
English, to the extent such materials are required to be translated into English
pursuant to any regulations of the Commission. The Company agrees to provide to
the Depositary, at the Company's expense (unless otherwise agreed in writing by
the Company and the Depositary) all documents that it provides to the Custodian.
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In the event the Receipts are listed or quoted on a national
securities exchange in the United States, the Company will promptly transmit to
the Custodian English language versions of any reports and other communications
that are made generally available by the Company to holders of its Shares or
other Deposited Securities and the Depositary will, at the Company's expense
(unless otherwise agreed in writing by the Company and the Depositary), arrange
for the prompt transmittal by the Custodian to the Depositary or such notices,
reports and other communications and arrange for the mailing, at the Company's
expense (unless otherwise agreed in writing by the Company and the Depositary),
of copies thereof (or if requested by the Company, a summary of any such notice
provided by the Company) to all Owners or, at the request of the Company, make
such notices, reports and other communications available to all Owners on a
basis similar to that for holders of Shares or other Deposited Securities, or on
such other basis as the Company may advise the Depositary may be required by any
applicable law, regulation or stock exchange requirement. The Company has
delivered to the Depositary and the Custodian a copy of the provisions of or
governing the Shares and any other Deposited Securities issued by the Company or
any affiliate of the Company, and promptly upon any amendment thereto or change
therein, the Company shall deliver to the Depositary and the Custodian a copy of
such provisions as so amended or changed. The Depositary may rely upon such copy
for all purposes of this Deposit Agreement. The Depositary will, at the expense
of the Company (unless otherwise agreed in writing by the Company and the
Depositary), make such copy and such notices, reports and other communications
available for inspection by Owners at the Depositary's office, at the office of
the Custodian and at any other designated transfer offices.
SECTION 4.10. Lists of Owners. Promptly upon request by the Company,
the Depositary shall, at the expense of the Company (unless otherwise agreed in
writing by the Company and the Depositary), furnish to it a list, as of a recent
date, of the names, addresses and holdings of American Depositary Shares by all
persons in whose names Receipts are registered on the books of the Depositary.
SECTION 4.11. Withholding. In connection with any distribution to
Owners, the Company will remit to the appropriate governmental authority or
agency all amounts (if any) required to be withheld by the Company and owing to
such authority or agency by the Company; and the Depositary and the Custodian
will remit to the appropriate governmental authority or agency all amounts (if
any) required to be withheld and owing to such authority or agency by the
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Depositary or the Custodian. In the event that the Depositary determines that
any distribution in property other than cash (including Shares and rights to
subscribe therefor) is subject to any tax or other governmental charge which the
Depositary is obligated to withhold, the Depositary may by public or private
sale dispose of all or a portion of such property (including Shares and rights
to subscribe therefor) in such amounts and in such manner as the Depositary
deems necessary and practicable to pay any such taxes or charges and the
Depositary shall distribute the net proceeds of any such sale after deduction of
such taxes or charges to the Owners entitled thereto in proportion to the number
of American Depositary Shares held by them respectively, all in accordance with
applicable provisions of this Deposit Agreement.
ARTICLE 5
THE DEPOSITARY, THE CUSTODIANS AND THE COMPANY
SECTION 5.01. Maintenance of Office and Transfer Books by the
Depositary. Until termination of this Deposit Agreement in accordance with its
terms, the Depositary shall maintain in the Borough of Manhattan, The City of
New York, facilities for the execution and delivery, registration, registration
of transfers, combinations and split-ups and surrender of Receipts in accordance
with the provisions of this Deposit Agreement.
The Depositary shall keep books for the registration of Receipts and
transfers of Receipts which at all reasonable times shall be open for inspection
by the Owners, provided that such inspection shall not be for the purpose of
communicating with Owners for an object other than the business of the Company,
including without limitation a matter related to this Deposit Agreement or the
Receipts.
The Depositary may close the transfer books after consultation with
the Company to the extent practicable, at any time or from time to time, when
deemed expedient by it in connection with the performance of its duties
hereunder or at the request of the Company, provided that any such closing of
the transfer books shall be subject to the provisions of Section 2.06 which
limit the suspension of withdrawals of Shares.
If any Receipts or the American Depositary Shares evidenced thereby
are listed on one or more stock exchanges in the United States, the Depositary
shall act as Registrar or, with the written approval of the Company, appoint a
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Registrar or one or more co-registrars for registry of such Receipts in
accordance with any requirements of such exchange or exchanges.
The Company shall have the right, upon reasonable request, to
inspect the transfer and registration records of the Depositary relating to the
Receipts, to take copies thereof and to require the Depositary and any
co-registrars to supply copies of such portions of such records as the Company
may request.
SECTION 5.02. Prevention or Delay in Performance by the Depositary
or the Company. Neither the Depositary nor the Company nor any of their
respective directors, employees, agents or affiliates shall incur any liability
to any Owner or Beneficial Owner, if by reason of any provision of any present
or future law or regulation of the United States or any other country, or of any
governmental or regulatory authority or stock exchange, or by reason of any
provision, present or future, of the Charter of the Company, or by reason of any
act of God or war or other circumstance beyond its control, the Depositary or
the Company shall be prevented or forbidden from, or be subject to any civil or
criminal penalty on account of, doing or performing any act or thing which by
the terms of this Deposit Agreement it is provided shall be done or performed;
nor shall the Depositary or the Company nor any of their respective directors,
employees, agents or affiliates incur any liability to any Owner or Beneficial
Owner by reason of any nonperformance or delay, caused as aforesaid, in the
performance of any act or thing which by the terms of this Deposit Agreement it
is provided shall or may be done or performed, or by reason of any exercise of,
or failure to exercise, any discretion provided for in this Deposit Agreement.
Where, by the terms of a distribution pursuant to Sections 4.01, 4.02, or 4.03
of the Deposit Agreement, or an offering or distribution pursuant to Section
4.04 of the Deposit Agreement, or for any other reason, the Depositary is
prevented or prohibited from making such distribution or offering available to
Owners, and the Depositary is prevented or prohibited from disposing of such
distribution or offering on behalf of such Owners and making the net proceeds
available to such Owners, then the Depositary, after consultation with the
Company, shall not make such distribution or offering, and shall allow any
rights, if applicable, to lapse.
SECTION 5.03. Obligations of the Depositary, the Custodian and the
Company. The Company assumes no obligation nor shall it be subject to any
liability under this Deposit Agreement to Owners or Beneficial Owners, except
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that it agrees to perform its obligations specifically set forth in this Deposit
Agreement without negligence or bad faith.
The Depositary assumes no obligation nor shall it be subject to any
liability under this Deposit Agreement to any Owner or Beneficial Owner
(including, without limitation, liability with respect to the validity or worth
of the Deposited Securities), except that it agrees to perform its obligations
specifically set forth in this Deposit Agreement without negligence or bad
faith.
Neither the Depositary nor the Company shall be under any obligation
to appear in, prosecute or defend any action, suit or other proceeding in
respect of any Deposited Securities or in respect of the Receipts, which in its
opinion may involve it in expense or liability, unless indemnity satisfactory to
it against all expense and liability shall be furnished as often as may be
required, and the Custodian shall not be under any obligation whatsoever with
respect to such proceedings, the responsibility of the Custodian being solely to
the Depositary.
Neither the Depositary nor the Company shall be liable for any
action or nonaction by it in reliance upon the advice of or information from
legal counsel, accountants, any person presenting Shares for deposit, any Owner
or any other person believed by it in good faith to be competent to give such
advice or information.
The Depositary shall not be liable for any acts or omissions made by
a successor depositary whether in connection with a previous act or omission of
the Depositary or in connection with any matter arising wholly after the removal
or resignation of the Depositary, provided that in connection with the issue out
of which such potential liability arises the Depositary performed its
obligations without negligence or bad faith while it acted as Depositary.
The Depositary shall not be responsible for any failure to carry out
any instructions to vote any of the Deposited Securities, or for the manner in
which any such vote is cast or the effect of any such vote, provided that any
such action or nonaction is in good faith.
No disclaimer of liability under the Securities Act of 1933 is
intended by any provision of this Deposit Agreement.
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The Depositary, subject to Sections 2.05 and 2.09 hereof, may own
and deal in any class of securities of the Company and its affiliates and in
Receipts.
SECTION 5.04. Resignation and Removal of the The Depositary. The
Depositary may at any time resign as Depositary hereunder by written notice of
its election so to do delivered to the Company, such resignation to take effect
upon the appointment of a successor depositary and its acceptance of such
appointment as hereinafter provided.
The Depositary may at any time be removed by the Company by written
notice of such removal effective upon the appointment of a successor depositary
and its acceptance or such appointment as hereinafter provided.
In case at any time the Depositary acting hereunder shall resign or
be removed, the Company shall use its best efforts that are reasonable under the
circumstances to appoint a successor depositary, which shall be a bank or trust
company having an office in the Borough of Manhattan, The City of New York.
Every successor depositary shall execute and deliver to its predecessor and to
the Company an instrument in writing accepting its appointment hereunder, and
thereupon such successor depositary, without any further act or deed, shall
become fully vested with all the rights, powers, duties and obligations of its
predecessor; but such predecessor, nevertheless, upon payment of all sums due it
and on the written request of the Company shall execute and deliver an
instrument transferring to such successor all rights and powers of such
predecessor hereunder, shall duly assign, transfer and deliver all right, title
and interest in the Deposited Securities to such successor, and shall deliver to
such successor a list of the Owners of all outstanding Receipts. Any such
successor depositary shall promptly mail notice of its appointment to the
Owners.
Any corporation into or with which the Depositary may be merged or
consolidated shall be the successor of the Depositary without the execution or
filing of any document or any further act.
SECTION 5.05. The Custodian. The Custodian shall be subject at all
times and in all respects to the directions of the Depositary and shall be
responsible solely to it and the Depositary shall be responsible for the
compliance by the Custodian with the applicable provisions of this Deposit
Agreement. Any Custodian may resign from its duties hereunder by notice of such
resignation delivered to the Depositary at least 30 days prior to the date on
which such resignation is to become effective. If upon such
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resignation there shall be no Custodian acting hereunder, the Depositary shall,
promptly after receiving such notice, appoint a substitute custodian or
custodians approved by the Company (such approval not to be unreasonably
withheld), each of which shall thereafter be a Custodian hereunder. The
Depositary may discharge any Custodian at any time upon notice to the Custodian
being discharged with the approval of the Company (such approval not to be
unreasonably withheld). Whenever the Depositary in its discretion determines
that it is in the best interest of the Owners to do so, it may appoint
substitute or additional custodian or custodians, which shall thereafter be one
of the Custodians hereunder. The Depositary shall notify the Company of the
appointment of a substitute or additional Custodian at least 30 days prior to
the date on which such appointment is to become effective. Upon demand of the
Depositary any Custodian shall deliver such of the Deposited Securities held by
it as are requested of it to any other Custodian or such substitute or
additional custodian or custodians. Each such substitute or additional custodian
shall deliver to the Depositary, forthwith upon its appointment, an acceptance
of such appointment satisfactory in form and substance to the Depositary.
Promptly after any such change, the Depositary shall give notice thereof in
writing to all Owners.
Upon the appointment of any successor depositary hereunder, each
Custodian then acting hereunder shall forthwith become, without any further act
or writing, the agent hereunder of such successor depositary and the appointment
of such successor depositary shall in no way impair the authority of each
Custodian hereunder; but the successor depositary so appointed shall,
nevertheless, on the written request of any Custodian, execute and deliver to
such Custodian all such instruments as may be proper to give to such Custodian
full and complete power and authority as agent hereunder of such successor
depositary.
SECTION 5.06. Notices and Reports. On or before the first date on
which the Company gives notice, by publication or otherwise, of any meeting of
holders of Shares or other Deposited Securities, or of any adjourned meeting of
such holders, or of the taking of any action in respect of any cash or other
distributions or the offering of any rights, the Company agrees to transmit to
the Depositary and the Custodian a copy of the notice thereof in the form given
or to be given to holders of Shares or other Deposited Securities.
The Company will arrange for the translation into English, if not
already in English, to the extent required pursuant to any regulations of the
Commission, and the
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prompt transmittal by the Company to the Depositary and the Custodian of such
notices and any other reports and communications which are made generally
available by the Company to holders of its Shares. If requested in writing by
the Company, the Depositary will arrange for the mailing, as promptly as
practicable and at the Company's expense (unless otherwise agreed in writing by
the Company and the Depositary), of copies of such notices, reports and
communications to all Owners. The Company will timely provide the Depositary
with the quantity of such notices, reports, and communications, as requested by
the Depositary from time to time, in order for the Depositary to effect such
mailings.
SECTION 5.07. Distribution of Additional Shares, Rights, etc. The
Company agrees that in the event of any issuance or distribution of (1)
additional Shares, (2) rights to subscribe for Shares, (3) securities
convertible into or exchangeable for Shares, or (4) rights to subscribe for such
securities, the Company will take all steps reasonably necessary to ensure that
no violation by the Company or the Depositary of the Securities Act of 1933 will
result from such issuance or distribution.
The Company agrees with the Depositary that neither the Company nor
any company controlled by the Company will at any time deposit any Shares,
either originally issued or previously issued and reacquired by the Company or
any such affiliate, unless a Registration Statement is in effect as to such
Shares under the Securities Act of 1933 or the Company furnishes to the
Depositary a written opinion from U.S. counsel for the Company, which counsel
shall be reasonably satisfactory to the Depositary, stating that the offer and
sale of the Receipts evidencing the American Depositary Shares representing such
Shares are exempt from registration under that Act. The Company will advise each
person who, to the best knowledge of the Company, controls, or is under common
control with, the Company that such person is subject to the same restrictions
on the deposit of Shares as the Company and persons controlled by the Company.
SECTION 5.08. Indemnification. The Company agrees to indemnify the
Depositary, its directors, employees, agents and affiliates and any Custodian
against, and hold each of them harmless from, any liability or expense
(including, but not limited to, the reasonable fees and expenses of counsel)
which may arise out of acts performed or omitted, in accordance with the
provisions of this Deposit Agreement and of the Receipts, as the same may be
amended, modified or supplemented from time to time,
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(i) by either the Depositary or a Custodian or their respective directors,
employees, agents and affiliates, except for any liability or expense arising
out of the negligence or bad faith of either of them, and except to the extent
that such liability or expense arises out of information relating to the
Depositary or the Custodian, as applicable, furnished in writing to the Company
by the Depositary or the Custodian, as applicable, expressly for use in any
registration statement, proxy statement, prospectus (or placement memorandum) or
preliminary prospectus (or preliminary placement memorandum) relating to the
Shares, or omissions from such information; or (ii) by the Company or any of its
directors, employees, agents and affiliates. The indemnities contained in this
paragraph shall not extend to any liability or expense which may arise out of
any Pre-Release.
The Depositary agrees to indemnify the Company, its directors,
employees, agents and affiliates and hold them harmless from any liability or
expense which may arise out of acts performed or omitted by the Depositary or
its Custodian or their respective directors, employees, agents and affiliates
due to their negligence or bad faith.
The obligations set forth in this Section 5.08 shall survive the
termination of this Deposit Agreement and the succession or substitution of any
indemnified person.
Any person seeking indemnification hereunder (an "Indemnified
Person") shall notify the person from whom it is seeking indemnification (the
"Indemnifying Person") of the commencement of any indemnifiable action or claim
promptly after such Indemnified Person becomes aware of such commencement and
shall consult in good faith with the Indemnifying Person as to the conduct of
the defense of such action or claim, which defense shall be reasonable under the
circumstances. No Indemnified Person shall compromise or settle any such action
or claim without the consent in writing of the Indemnifying Person.
SECTION 5.09. Charges of Depositary. The Company agrees to pay the
fees and reasonable out-of-pocket expenses of the Depositary and those of any
Registrar only in accordance with agreements in writing entered into between the
Depositary and the Company from time to time. The Depositary shall present
detailed statements for such expenses to the Company at least once every three
months. The charges and expenses of the Custodian are for the sole account of
the Depositary.
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The following charges (to the extent permitted by applicable law or
the rules of any securities exchange on which the American Depositary Shares are
admitted for trading) shall be incurred by any party depositing or withdrawing
Shares or by any party surrendering Receipts or to whom Receipts are issued
(including, without limitation, issuance pursuant to a stock dividend or stock
split declared by the Company or an exchange of stock regarding the Receipts or
Deposited Securities or a distribution of Receipts pursuant to Section 4.03),
whichever applicable: (1) taxes and other governmental charges, (2) such
registration fees as may from time to time be in effect for the registration of
transfers of Shares generally on the Share register of the Company or Foreign
Registrar and applicable to transfers of Shares to the name of the Depositary or
its nominee or the Custodian or its nominee on the making of deposits or
withdrawals hereunder, (3) such cable, telex and facsimile transmission expenses
as are expressly provided in this Deposit Agreement, (4) such expenses as are
incurred by the Depositary in the conversion of foreign currency pursuant to
Section 4.05, (5) a fee not in excess of $5.00 or less per 100 American
Depositary Shares (or portion thereof) for the execution and delivery of
Receipts pursuant to Sections 2.03 or 4.03 and the surrender of Receipts
pursuant to Section 2.05 and (6) a fee for the distribution of proceeds of sales
of securities or rights pursuant to Section 4.02 or 4.04, respectively, such fee
(which may be deducted from such proceeds) being in an amount equal to the
lesser of (i) the fee for the issuance of American Depositary Shares referred to
above which would have been charged as a result of the deposit by Owners of
securities (for purposes of this clause 6 treating all such securities as if
they were Shares) or Shares received in exercise of rights distributed to them
pursuant to Section 4.02 or 4.04, respectively, but which securities or rights
are instead sold by the Depositary and the net proceeds distributed and (ii) the
amount of such proceeds.
SECTION 5.10. Exclusivity. The Company agrees not to appoint any
other depositary for issuance of American Depositary Receipts so long as The
Bank of New York is acting as Depositary hereunder, subject, however, to the
rights of the Company under Section 5.04.
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ARTICLE 6
AMENDMENT AND TERMINATION
SECTION 6.01. Amendment. The form of the Receipts and any provisions
of this Deposit Agreement may at any time and from time to time be amended by
agreement between the Company and the Depositary in any respect which they may
deem necessary or desirable. Any amendment which shall impose or increase any
fees or charges (other than taxes and other governmental charges, registration
fees, cable, telex or facsimile transmission costs, delivery costs or other such
expenses), or which shall otherwise prejudice any substantial existing right of
Owners, shall, however, not become effective as to outstanding Receipts until
the expiration of thirty days after notice of such amendment shall have been
given to the Owners of outstanding Receipts. Every Owner at the time any
amendment so becomes effective shall be deemed, by continuing to hold such
Receipt, to consent and agree to such amendment and to be bound by the Deposit
Agreement as amended thereby. In no event shall any amendment impair the right
of the Owner of any Receipt to surrender such Receipt and receive therefor the
Deposited Securities represented thereby, except in order to comply with
mandatory provisions of applicable law.
SECTION 6.02. Termination. The Depositary shall at any time, at the
direction of the Company, terminate this Deposit Agreement by mailing notice of
such termination to the Owners of all Receipts then outstanding at least 30 days
prior to the date fixed in such notice for such termination. The Depositary may
likewise terminate this Deposit Agreement by mailing notice of such termination
to the Company and the Owners of all Receipts then outstanding, such termination
to be effective on a date specified in such notice not less than 30 days after
the date thereof, if at any time 60 days shall have expired after the Depositary
shall have delivered to the Company a written notice of its election to resign
and a successor depositary shall not have been appointed and accepted its
appointment as provided in Section 5.04. On and after the date of termination,
the Owner of a Receipt will, upon (a) surrender of such Receipt at the Corporate
Trust Office of the Depositary, (b) payment of the fee of the Depositary for the
surrender of Receipts referred to in Section 2.05, and (c) payment of any
applicable taxes or governmental charges, be entitled to delivery, to the Owner
or upon the Owner's order, of the amount of Deposited Securities represented by
the American Depositary Shares evidenced by such Receipt. If any Receipts shall
remain outstanding after the date of termination, the Depositary thereafter
shall discontinue the registration of transfers
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of Receipts, shall suspend the distribution of dividends to the Owners thereof,
and shall not give any further notices or perform any further acts under this
Deposit Agreement, except that the Depositary shall continue to collect
dividends and other distributions pertaining to Deposited Securities, shall sell
rights as provided in this Deposit Agreement, and shall continue to deliver
Deposited Securities, together with any dividends or other distributions
received with respect thereto and the net proceeds of the sale of any rights or
other property, in exchange for Receipts surrendered to the Depositary (after
deducting, in each case, the fee of the Depositary for the surrender of a
Receipt, any expenses for the account of the Owner of such Receipt in accordance
with the terms and conditions of this Deposit Agreement, and any applicable
taxes or governmental charges). At any time after the expiration of one year
from the date of termination, the Depositary may sell the Deposited Securities
then held hereunder and may thereafter hold uninvested the net proceeds of any
such sale, together with any other cash then held by it hereunder, unsegregated
and without liability for interest, for the pro rata benefit of the Owners of
Receipts which have not theretofore been surrendered, such Owners thereupon
becoming general creditors of the Depositary with respect to such net proceeds.
After making such sale, the Depositary shall be discharged from all obligations
under this Deposit Agreement, except to account for such net proceeds and other
cash (after deducting, in each case, the fee of the Depositary for the surrender
of a Receipt, any expenses for the account of the Owner of such Receipt in
accordance with the terms and conditions of this Deposit Agreement, and any
applicable taxes or governmental charges) and except as provided in Section
5.08. Upon the termination of this Deposit Agreement, the Company shall be
discharged from all obligations under this Deposit Agreement except for its
obligations to the Depositary under Sections 5.08 and 5.09 hereof.
ARTICLE 7
MISCELLANEOUS
SECTION 7.01. Counterparts. This Deposit Agreement may be executed
in any number of counterparts, each of which shall be deemed an original and all
of such counterparts shall constitute one and the same instrument. Copies of
this Deposit Agreement shall be filed with the Depositary and the Custodian and
shall be open to inspection by any Owner during business hours.
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SECTION 7.02. No Third Party Beneficiaries. This Deposit Agreement
is for the exclusive benefit of the parties hereto and shall not be deemed to
give any legal or equitable right, remedy or claim whatsoever to any other
person.
SECTION 7.03. Severability. In case any one or more of the
provisions contained in this Deposit Agreement or in the Receipts should be or
become invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein or therein shall
in no way be affected, prejudiced or disturbed thereby.
SECTION 7.04. Binding Effect on Owners and Beneficial Owners. The
Owners and Beneficial Owners shall be bound by all of the terms and conditions
of this Deposit Agreement and of the Receipts by acceptance thereof.
SECTION 7.05. Notices. Any and all notices to be given to the
Company shall be deemed to have been duly given if personally delivered or sent
by mail or cable, telex or facsimile transmission confirmed by letter, addressed
to
Embratel Participacoes S.A.
SCN - Quadra CN2
Lote F - 2- Andar
Sala 204
Brasilia - DE, Brazil
Attention: __________
or any other place to which the Company may have transferred its principal
office.
Any and all notices to be given to the Depositary shall be deemed to
have been duly given if in English and personally delivered or sent by mail or
cable, telex or facsimile transmission confirmed by letter, addressed to The
Bank of New York, 101 Barclay Street, New York, New York 10286, Attention:
American Depositary Receipt Administration, or any other place to which the
Depositary may have transferred its Corporate Trust Office.
Any and all notices to be given to any Owner shall be deemed to have
been duly given if personally delivered or sent by mail or cable, telex or
facsimile transmission confirmed by letter, addressed to such Owner at the
address of such Owner as it appears on the transfer books for Receipts of the
Depositary, or, if such Owner shall have filed with the Depositary a written
request that notices
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intended for such Owner be mailed to some other address, at the address
designated in such request.
Delivery of a notice sent by mail or cable, telex or facsimile
transmission shall be deemed to be effective at the time when a duly addressed
letter containing the same (or a confirmation thereof in the case of a cable,
telex or facsimile transmission) is deposited, postage prepaid, in a post-office
letter box; provided, however, that delivery or a notice to the Company or the
Depositary shall be deemed to be effective when actually received by the Company
or the Depositary, as the case may be. The Depositary or the Company may,
however, act upon any cable, telex or facsimile transmission received by it,
notwithstanding that such cable, telex or facsimile transmission shall not
subsequently be confirmed by letter as aforesaid.
SECTION 7.06. Governing Law. This Deposit Agreement and the Receipts
shall be interpreted and all rights hereunder and thereunder and provisions
hereof and thereof shall be governed by the law of the State of New York.
SECTION 7.07. Headings. Headings contained herein are included for
convenience only and are not to be used in construing or interpreting any
provision hereof.
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IN WITNESS WHEREOF, EMBRATEL PARTICIPACOES S.A. and THE BANK OF NEW
YORK have duly executed this agreement as of the day and year first set forth
above and all Owners shall become parties hereto upon acceptance by them of
Receipts issued in accordance with the terms hereof.
EMBRATEL PARTICIPACOES S.A.
By: /s/ Fernando Xavier Ferreira
----------------------------------------
Fernando Xavier Ferreira
President and Director of
Investor Relations
By: /s/ Dilio Sergio Penedo
----------------------------------------
Dilio Sergio Penedo
Vice President
THE BANK OF NEW YORK,
as Depositary
By: /s/[ILLEGIBLE]
----------------------------------------
[ILLEGIBLE]
Vice President
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EXHIBIT A
AMERICAN DEPOSITARY SHARES
(Each American Depositary
Share represents ___
deposited Shares)
THE BANK OF NEW YORK
AMERICAN DEPOSITARY RECEIPT
FOR NON-VOTING PREFERRED STOCK
WITHOUT PAR VALUE OF
EMBRATEL PARTICIPACOES S.A.
(ORGANIZED UNDER THE LAWS OF THE FEDERATIVE REPUBLIC OF BRAZIL)
The Bank of New York, as depositary (hereinafter called the
"Depositary"), hereby certifies that____________________________________
_______________, or registered assigns IS THE OWNER OF ________________________
AMERICAN DEPOSITARY SHARES
representing deposited non-voting preferred stock (herein called "Shares") of
Embratel Participacoes S.A., a sociedade anonima de economia mista (a limited
liability company) organized under the laws of The Federative Republic of Brazil
(herein called the "Company"). At the date hereof, each American Depositary
Share represents ___ Shares deposited or subject to deposit under the Deposit
Agreement (as such term is hereinafter defined) at the Sao Paulo office of Banco
Itau (herein called the "Custodian"). The Depositary's Corporate Trust Office is
located at a different address than its principal executive office. Its
Corporate Trust Office is located at 101 Barclay Street, New York, N.Y. 10286,
and its principal executive office is located at 48 Wall Street, New York, N.Y.
10286.
THE DEPOSITARY'S CORPORATE TRUST OFFICE ADDRESS IS
101 BARCLAY STREET, NEW YORK, N.Y. 10286
1. THE DEPOSIT AGREEMENT.
This American Depositary Receipt is one of an issue (herein called
"Receipts"), all issued and to be issued upon the terms and conditions set
forth in the deposit agreement, dated as of ____________ __, 1998 (herein
called the "Deposit Agreement"), by and among the Company, the Depositary, and
all Owners and Beneficial Owners from
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time to time of Receipts issued thereunder, each of whom by accepting a Receipt
agrees to become a party thereto and become bound by all the terms and
conditions thereof. The Deposit Agreement sets forth the rights of Owners and
Beneficial Owners of the Receipts and the rights and duties of the Depositary in
respect of the Shares deposited thereunder and any and all other securities,
property and cash from time to time received in respect of such Shares and held
thereunder (such Shares, securities, property, and cash are herein called
"Deposited Securities"). Copies of the Deposit Agreement are on file at the
Depositary's Corporate Trust Office in New York City and at the office of the
Custodian.
The statements made on the face and reverse of this Receipt are
summaries of certain provisions of the Deposit Agreement and are qualified by
and subject to the detailed provisions of the Deposit Agreement, to which
reference is hereby made. Capitalized terms defined in the Deposit Agreement and
not defined herein shall have the meanings set forth in the Deposit Agreement.
2. SURRENDER OF RECEIPTS AND WITHDRAWAL OF SHARES.
Upon surrender at the Corporate Trust Office of the Depositary of
this Receipt for the purpose of withdrawal of the Deposited Securities
represented by the American Depositary Shares evidenced hereby, and upon payment
of the fee of the Depositary provided in this Receipt, and subject to the terms
and conditions of the Deposit Agreement, the Owner hereof is entitled to
delivery, to him or upon his order, of the Deposited Securities at the time
represented by the American Depositary Shares for which this Receipt is issued.
Delivery of such Deposited Securities may be made by (a) (i) the delivery of
certificates in the name of the Owner hereof or as ordered by him or
certificates properly endorsed or accompanied by proper instruments of transfer
to such Owner or as ordered by him, or (ii) book-entry transfer of the Shares
represented by this Receipt to an account in the name of such Owner or as
ordered by him, and (b) delivery of any other securities, property and cash to
which such Owner is then entitled in respect of this Receipt to such Owner or as
ordered by him. Such delivery will be made at the option of the Owner hereof,
either at the office of the Custodian or at the Corporate Trust Office of the
Depositary, as provided in the Deposit Agreement; provided that the forwarding
of certificates for Shares or other Deposited Securities for such delivery at
the Corporate Trust Office of the Depositary shall be at the risk and expense of
the Owner hereof.
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3. TRANSFERS, SPLIT-UPS, AND COMBINATIONS OF RECEIPTS.
The transfer of this Receipt is registrable on the books of the
Depositary at its Corporate Trust Office by the Owner hereof in person or by a
duly authorized attorney, upon surrender of this Receipt properly endorsed for
transfer or accompanied by proper instruments of transfer and funds sufficient
to pay any applicable transfer taxes and the expenses of the Depositary and upon
compliance with such regulations, if any, as the Depositary may establish for
such purpose. This Receipt may be split into other such Receipts, or may be
combined with other such receipts into one Receipt, evidencing the same
aggregate number of American Depositary Shares as the Receipt or Receipts
surrendered. As a condition precedent to the execution and delivery,
registration of transfer, split-up, combination, or surrender of any Receipt,
the delivery of any distribution thereon, or withdrawal of any Deposited
Securities, the Company, the Depositary, the Custodian, or Registrar may require
payment from the depositor of the Shares or the presentor of the Receipt of a
sum sufficient to reimburse it for any tax or other governmental charge and any
stock transfer or registration fee with respect thereto (including any such tax
or charge and fee with respect to Shares being deposited or withdrawn) and
payment of any applicable fees as provided in this Receipt, may require the
production of proof satisfactory to it as to the identity and genuineness of any
signature and may also require compliance with such reasonable regulations the
Depositary may establish consistent with the provisions of the Deposit Agreement
or this Receipt, including, without limitation, this Article 3.
The delivery of Receipts against deposits of Shares generally or
against deposits of particular Shares may be suspended, or the transfer of
Receipts in particular instances may be refused, or the registration of transfer
of outstanding Receipts, or the combination or split-up of Receipts generally
may be suspended, during any period when the transfer books of the Depositary
are closed, or if any such action is deemed necessary or advisable by the
Depositary or the Company at any time or from time to time because of any
requirement of law or of any government or governmental body or commission, or
under any provision of the Deposit Agreement or this Receipt, or for any other
reason, subject to the provisions of the following sentence. Notwithstanding any
other provision of the Deposit Agreement or this Receipt, the surrender of
outstanding Receipts and withdrawal of Deposited Securities may be suspended
only for (i) temporary delays caused by closing the transfer books of the
Depositary or the Company or the deposit of Shares in
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connection with voting at a shareholders' meeting, or the payment of dividends,
(ii) the payment of fees, taxes and similar charges, and (iii) compliance with
any U.S. or foreign laws or governmental regulations relating to the Receipts or
to the withdrawal of the Deposited Securities, or (iv) any other reason that may
at any time be specified in paragraph I(A)(1) of the General Instructions to
Form F-6, as from time to time in effect, or any successor provision thereto.
Without limitation of the foregoing, the Depositary shall not knowingly accept
for deposit under the Deposit Agreement any Shares required to be registered
under the provisions of the Securities Act of 1933, unless a registration
statement is in effect as to such Shares.
4. LIABILITY OF OWNER OR BENEFICIAL OWNER FOR TAXES.
If any tax or other governmental charge shall become payable by the
Custodian or the Depositary with respect to any Receipt or any Deposited
Securities represented hereby, such tax or other governmental charge shall be
payable by the Owner or Beneficial Owner hereof to the Depositary. The
Depositary may refuse to effect any transfer of this Receipt or any combination
or split-up hereof or any withdrawal of Deposited Securities represented by
American Depositary Shares evidenced by such Receipt until such payment is made,
and may withhold any dividends or other distributions, or may sell for the
account of the Owner or Beneficial Owner hereof any part or all of the Deposited
Securities represented by the American Depositary Shares evidenced by this
Receipt, and may apply such dividends or other distributions or the proceeds of
any such sale in payment of such tax or other governmental charge (and any taxes
or expenses arising out of such sale), and the Owner or Beneficial Owner hereof
shall remain liable for any deficiency.
5. WARRANTIES OF DEPOSITORS.
Every person depositing Shares hereunder and under the Deposit
Agreement shall be deemed thereby to represent and warrant that such Shares and
each certificate therefor are validly issued, fully paid, non-assessable, and
free of any preemptive rights of the holders of outstanding Shares and that the
person making such deposit is duly authorized so to do. Every such person shall
also be deemed to represent that (i) the Shares presented for deposit are not,
and the Receipts issuable upon such deposit will not be, restricted securities
within the meaning of Rule 144(a)(3) under the Securities Act of 1933, and (ii)
the deposit of such Shares and the sale of Receipts evidencing American
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Depositary Shares representing such Shares by that person are not otherwise
restricted under the Securities Act of 1933. Such representations and warranties
shall survive the deposit of Shares and issuance of Receipts.
6. FILING PROOFS, CERTIFICATES, AND OTHER INFORMATION.
Any person presenting Shares for deposit or any Owner of a Receipt
may be required from time to time to file with the Depositary or the Custodian
such proof of citizenship or residence, exchange control approval, legal or
beneficial ownership of Receipts, Deposited Securities or other securities,
compliance with all applicable laws or regulations or terms of the Deposit
Agreement or such Receipt, or such information relating to the registration on
the books of the Company or the Foreign Registrar, if applicable, to execute
such certificates and to make such representations and warranties, as the
Depositary may deem necessary or proper. The Depositary may withhold the
delivery or registration of transfer of any Receipt or the distribution of any
dividend or sale or distribution of rights or of the proceeds thereof or the
delivery of any Deposited Securities until such proof or other information is
filed or such certificates are executed or such representations and warranties
made. The Depositary shall from time to time advise the Company of the
availability of any such proofs, certificates or other information and shall
provide copies thereof to the Company as promptly as practicable upon request by
the Company, unless such disclosure is prohibited by law.
7. CHARGES OF DEPOSITARY.
The Company agrees to pay the fees and reasonable out-of-pocket
expenses of the Depositary and those of any Registrar only in accordance with
agreements in writing entered into between the Depositary and the Company from
time to time. The Depositary shall present detailed statement for such expenses
to the Company at least once every three months. The charges and expenses of the
Custodian are for the sole account of the Depositary.
The following charges (to the extent permitted by applicable law or
the rules of any securities exchange on which the American Depositary Shares are
admitted for trading) shall be incurred by any party depositing or withdrawing
Shares or by any party surrendering Receipts or to whom Receipts are issued
(including, without limitation, issuance pursuant to a stock dividend or stock
split declared by the Company or an exchange of stock regarding
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the Receipts or Deposited Securities or a distribution of Receipts pursuant to
Section 4.03 of the Deposit Agreement), whichever applicable: (1) taxes and
other governmental charges, (2) such registration fees as may from time to time
be in effect for the registration of transfers of Shares generally on the Share
register of the Company or Foreign Registrar and applicable to transfers of
Shares to the name of the Depositary or its nominee or the Custodian or its
nominee on the making of deposits or withdrawals under the terms of the Deposit
Agreement, (3) such cable, telex and facsimile transmission expenses as are
expressly provided in the Deposit Agreement, (4) such expenses as are incurred
by the Depositary in the conversion of foreign currency pursuant to Section 4.05
of the Deposit Agreement, (5) a fee not in excess of $5.00 or less per 100
American Depositary Shares (or portion thereof) for the execution and delivery
of Receipts pursuant to Sections 2.03 or 4.03 of the Deposit Agreement and the
surrender of Receipts pursuant to Section 2.05 of the Deposit Agreement and (6)
a fee for the distribution of proceeds of sales of securities or rights pursuant
to Sections 4.02 or 4.04, respectively, of the Deposit Agreement, such fee
(which may be deducted from such proceeds) being in an amount equal to the
lesser of (i) the fee for the issuance of American Depositary Shares referred to
above which would have been charged as a result of the deposit by Owners of
securities (for purposes of this clause 6 treating all such securities as if
they were Shares) or Shares received in exercise of rights distributed to them
pursuant to Sections 4.02 or 4.04, respectively, but which securities or rights
are instead sold by the Depositary and the net proceeds distributed and (ii) the
amount of such proceeds.
The Depositary, subject to Article 8 hereof, may own and deal in any
class of securities of the Company and its affiliates and in Receipts.
8. PRE-RELEASE OF RECEIPTS.
Neither the Depositary nor the Custodian shall deliver Shares, by
physical delivery, book entry or otherwise (other than to the Company or its
agent as contemplated by Section 4.08 of the Deposit Agreement), or otherwise
permit Shares to be withdrawn from the facility created hereby, except upon the
receipt and cancellation of Receipts.
The Depositary may issue Receipts against rights to receive Shares
from the Company (or any agent of the Company recording Share ownership). No
such issue of
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Receipts will be deemed a "Pre-Release" subject to the restrictions of the
following paragraph.
In its capacity as Depositary, the Depositary will not deliver
Shares held under the Deposit Agreement prior to the receipt and cancellation by
the Depositary of Receipts. The Depositary may execute and deliver Receipts
prior to the receipt of Shares pursuant to Section 2.02 of the Deposit Agreement
("Pre-Release"). The Depositary may, pursuant to Section 2.05 of the Deposit
Agreement, deliver Shares upon the receipt and cancellation of Receipts which
have been Pre-Released, whether or not such cancellation is prior to the
termination of such Pre-Release or the Depositary knows that such Receipt has
been Pre-Released. The Depositary may receive Receipts in lieu of Shares in
satisfaction of a Pre-Release. Each Pre-Release will be (a) preceded or
accompanied by a written representation and agreement from the person to whom
Receipts or Shares are to be delivered (the "Pre-Releasee") that the
Pre-Releasee, or its customer, (i) owns the Shares or Receipts to be remitted,
as the case may be, (ii) assigns all beneficial right, title and interest in
such Shares or Receipts, as the case may be, to the Depositary for the benefit
of the Owners, and (iii) agrees in effect to hold such Shares or Receipts, as
the case may be, for the account of the Depositary until delivery of the same
upon the Depositary's request, (b) at all times fully collateralized with cash
or U.S. government securities, (c) terminable by the Depositary on not more than
five (5) business days notice, and (d) subject to such further indemnities and
credit regulations as the Depositary deems appropriate. The number of American
Depositary Shares which are outstanding at any time as a result of Pre-Releases
will not normally exceed thirty percent (30%) of the American Depositary Shares
outstanding (without giving effect to American Depositary Shares evidenced by
Receipts outstanding as a result of Pre-Releases); provided, however, that the
Depositary reserves the right to disregard such limit from time to time as it
deems appropriate and may, with the prior written consent of the Company, change
such limit for purposes of general application. The Depositary will also set
limits with respect to the number of Pre-Released Receipts involved in
transactions to be done hereunder with any one person on a case by case basis as
it deems appropriate. The collateral referred to in clause (b) above shall be
held by the Depositary for the benefit of the Owners as security for the
performance of the obligations to deliver Shares or Receipts set forth in clause
(a) above (and shall not, for the avoidance of doubt, constitute Deposited
Securities hereunder).
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The Depositary may retain for its own account any compensation
received by it in connection with the foregoing.
9. TITLE TO RECEIPTS.
It is a condition of this Receipt, and every successive holder and
Owner of this Receipt by accepting or holding the same consents and agrees, that
title to this Receipt when properly endorsed or accompanied by proper
instruments of transfer, is transferable by delivery with the same effect as in
the case of a negotiable instrument, provided, however, that the Depositary and
the Company, notwithstanding any notice to the contrary, may treat the person in
whose name this Receipt is registered on the books of the Depositary as the
absolute owner hereof for the purpose of determining the person entitled to
distribution of dividends or other distributions or to any notice provided for
in the Deposit Agreement or for all other purposes.
10. VALIDITY OF RECEIPT.
This Receipt shall not be entitled to any benefits under the Deposit
Agreement or be valid or obligatory for any purpose, unless this Receipt shall
have been executed by the Depositary by the manual signature of a duly
authorized signatory of the Depositary; provided, however, that such signature
may be a facsimile if a Registrar for the Receipts shall have been appointed and
such Receipts are counter-signed by the manual signature of a duly authorized
officer of the Registrar.
11. REPORTS; INSPECTION OF TRANSFER BOOKS.
The Company currently furnishes the Securities and Exchange
Commission (hereinafter called the "Commission") with certain public reports and
documents required by foreign law or otherwise under Rule 12g3-2(b) under the
Securities Exchange Act of 1934. Such reports and communications will be
available for inspection and copying by Beneficial Owners and Owners at the
public reference facilities maintained by the Commission located at 450 Fifth
Street, N.W., Washington, D.C. 20549.
The Depositary will make available for inspection by Owners of
Receipts at its Corporate Trust Office any reports and communications, including
any proxy soliciting material, received from the Company which are both (a)
received by the Depositary as the holder of the Deposited Securities and (b)
made generally available to the
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holders of such Deposited Securities by the Company. The Depositary will also
send to Owners of Receipts copies of such reports when furnished by the Company
pursuant to the Deposit Agreement. Any such reports and communications,
including any such proxy soliciting material, furnished to the Depositary by the
Company shall be furnished in English to the extent such materials are required
to be translated into English pursuant to any regulations of the Commission. The
Company agrees to provide to the Depositary, at the Company's expense (unless
otherwise agreed in writing by the Company and the Depositary), all documents
that it provides to the Custodian.
In the event the Receipts are listed or quoted on a national
securities exchange in the United States, the Company will promptly transmit to
the Custodian English language versions of any reports and other communications
that are made generally available by the Company to holders of its Shares or
other Deposited Securities and the Depositary will, at the Company's expense
(unless otherwise agreed in writing by the Company and the Depositary), arrange
for the prompt transmittal by the Custodian to the Depositary of such notices,
reports and other communications and arrange for the mailing, at the Company's
expense (unless otherwise agreed in writing by the Company and the Depositary),
of copies thereof (or if requested by the Company, a summary of any such notice
provided by the Company) to all Owners or, at the request of the Company, make
such notices, reports and other communications available to all Owners on a
basis similar to that for holders of Shares or other Deposited Securities, or on
such other basis as the Company may advise the Depositary may be required by any
applicable law, regulation or stock exchange requirement. The Company has
delivered to the Depositary and the Custodian a copy of the provisions of or
governing the Shares and any other Deposited Securities issued by the Company or
any affiliate of the Company, and promptly upon any amendment thereto or change
therein, the Company shall deliver to the Depositary and the Custodian a copy of
such provisions as so amended or changed. The Depositary may rely upon such copy
for all purposes of this Deposit Agreement. The Depositary will, at the expense
of the Company (unless otherwise agreed in writing by the Company and the
Depositary), make such copy and such notices, reports and other communications
available for inspection by Owners at the Depositary's office, at the office of
the Custodian and at any other designated transfer offices.
The Depositary will keep books for the registration of Receipts and
transfers of Receipts which at all reasonable times shall be open for inspection
by the Owners
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of Receipts provided that such inspection shall not be for the purpose of
communicating with Owners of Receipts for an object other than the business of
the Company, including, without limitation, a matter related to the Deposit
Agreement or the Receipts.
The Depositary may close the transfer books after consultation with
the Company to the extent practicable, at any time or from time to time, when
deemed expedient by it in connection with the performance of its duties under
the Deposit Agreement or at the request of the Company, provided that any such
closing of the transfer books shall be subject to the provisions of Section 2.06
of the Deposit Agreement which limit the suspension of withdrawals of Shares.
12. DIVIDENDS AND DISTRIBUTIONS.
Whenever the Depositary or on its behalf, its agent, receives any
cash dividend or other cash distribution on any Deposited Securities, the
Depositary will, if at the time of receipt thereof any amounts received in a
foreign currency can in the judgment of the Depositary be converted on a
reasonable basis into United States dollars transferable to the United States,
and subject to the Deposit Agreement, convert or will cause its agent to
convert, as promptly as practicable (and in any event within one Business Day)
after its receipt of such dividend or distribution (unless otherwise prohibited
or prevented by law), such dividend or distribution into dollars and will, as
promptly as practicable, distribute the amount thus received (net of the
expenses of the Depositary as provided in Article 7 hereof and Section 5.09 of
the Deposit Agreement) to the Owners of Receipts entitled thereto, provided,
however, that in the event that the Company or the Depositary is required to
withhold and does withhold from such cash dividend or other cash distribution in
respect of any Deposited Securities an amount on account of taxes, the amount
distributed to the Owners of the Receipts evidencing American Depositary Shares
representing such Deposited Securities shall be reduced accordingly.
Subject to the provisions of Section 4.11. and 5.09 of the Deposit
Agreement, whenever the Depositary receives any distribution other than a
distribution described in Sections 4.01, 4.03 or 4.04 of the Deposit Agreement,
the Depositary will, as promptly as practicable, cause the securities or
property received by it to be distributed to the Owners of Receipts entitled
thereto, in any manner that the Depositary may deem equitable and practicable
for accomplishing such distribution; provided, however, that if in the opinion
of the Depositary such distribution cannot be
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made proportionately among the Owners of Receipts entitled thereto, or if for
any other reason the Depositary deems such distribution not to be feasible, the
Depositary may, after consultation with the Company, adopt such method as it may
deem equitable and practicable for the purpose of effecting such distribution,
including, but not limited to, the public or private sale of the securities or
property thus received, or any part thereof, and the net proceeds of any such
sale (net of the fees of the Depositary as provided in Article 7 hereof and
Section 5.09 of the Deposit Agreement and any expenses in connection with such
sale) shall be distributed by the Depositary to the Owners of Receipts entitled
thereto as in the case of a distribution received in cash, all in the manner and
subject to the conditions set forth in the Deposit Agreement.
If any distribution consists of a dividend in, or free distribution
of, Shares, the Depositary may or shall, if the Company shall so request,
distribute, as promptly as practicable, to the Owners of outstanding Receipts
entitled thereto, additional Receipts evidencing an aggregate number of American
Depositary Shares representing the amount of Shares received as such dividend or
free distribution subject to the terms and conditions of the Deposit Agreement
with respect to the deposit of Shares and the issuance of American Depositary
Shares evidenced by Receipts, including the withholding of any tax or other
governmental charge as provided in Section 4.11 of the Deposit Agreement and the
payment of the fees of the Depositary as provided in Article 7 hereof and
Section 5.09 of the Deposit Agreement. In lieu of delivering Receipts for
fractional American Depositary Shares in any such case, the Depositary will sell
the amount of Shares represented by the aggregate of such fractions and
distribute the net proceeds, all in the manner and subject to the conditions set
forth in the Deposit Agreement. If additional Receipts are not so distributed,
each American Depositary Share shall thenceforth also represent the additional
Shares distributed upon the Deposited Securities represented thereby. In
addition, the Depositary may withhold any distribution of Receipts under this
paragraph and Section 4.03 of the Deposit Agreement if it has not received
satisfactory assurances from the Company that such distribution does not require
registration under the Securities Act or is exempt from registration under the
provisions of such Act; provided that, in any such event, the Depositary may
sell the Shares distributed upon the Deposited Securities and distribute the net
proceeds, all in the manner and subject to the conditions described in this
Article and Section 4.01 of the Deposit Agreement.
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In the event that the Depositary determines that any distribution in
property other than cash (including Shares and rights to subscribe therefor) is
subject to any tax or other governmental charge which the Depositary is
obligated to withhold, the Depositary may by public or private sale dispose of
all or a portion of such property (including Shares and rights to subscribe
therefor) in such amounts and in such manner as the Depositary deems necessary
and practicable to pay any such taxes or charges, and the Depositary shall
distribute the net proceeds of any such sale after deduction of such taxes or
charges to the Owners of Receipts entitled thereto.
13. RIGHTS.
In the event that the Company shall offer or cause to be offered to
the holders of any Deposited Securities any rights to subscribe for additional
Shares or any rights of any other nature, the Depositary, after consultation
with the Company, shall have discretion as to the procedure to be followed in
making such rights available to any Owners or in disposing of such rights on
behalf of any Owners and making the net proceeds available to such Owners or, if
by the terms of such rights offering or for any other reason it would be
unlawful for the Depositary either to make such rights available to any Owners
or to dispose of such rights and make the net proceeds available to such Owners,
then the Depositary shall allow the rights to lapse. If at the time of the
offering of any rights the Depositary determines in its discretion that it is
lawful and feasible to make such rights available to all or certain Owners but
not to other Owners, the Depositary may, and at the request of the Company
shall, distribute to any Owner to whom it determines the distribution to be
lawful and feasible, in proportion to the number of American Depositary Shares
held by such Owner, warrants or other instruments therefor in such form as it
deems appropriate.
In circumstances in which rights would otherwise not be distributed,
if an Owner requests the distribution of warrants or other instruments in order
to exercise the rights allocable to the American Depositary Shares of such Owner
hereunder, the Depositary will promptly make such rights available to such Owner
upon written notice from the Company to the Depositary that (a) the Company has
elected in its sole discretion to permit such rights to be exercised and (b)
such Owner has executed such documents as the Company has determined in its sole
discretion are reasonably required under applicable law.
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If the Depositary has distributed warrants or other instruments for
rights to all or certain Owners, then upon instruction from such an Owner
pursuant to such warrants or other instruments to the Depositary from such
Owners to exercise such rights, upon payment by such Owner to the Depositary for
the account of such Owner of an amount equal to the purchase price of the Shares
to be received upon the exercise of the rights, and upon payment of the fees of
the Depositary and any other charges as set forth in such warrants or other
instruments, the Depositary shall, on behalf of such Owner, exercise the rights
and purchase the Shares, and the Company shall cause the Shares so purchased to
be delivered to the Depositary on behalf of such Owner. As agent for such Owner,
the Depositary will cause the Shares so purchased to be deposited pursuant to
Section 2.02 of the Deposit Agreement, and shall, pursuant to Section 2.03 of
the Deposit Agreement, execute and deliver Receipts to such Owner. In the case
of a distribution pursuant to this paragraph, such Receipts shall be legended in
accordance with applicable U.S. laws, and shall be subject to the appropriate
restrictions on sale, deposit, cancellation, and transfer under such laws.
If the Depositary determines that it is not lawful or feasible to
make such rights available to all or certain Owners, it may, and at the request
of the Company will use its best efforts that are reasonable under the
circumstances to, sell the rights, warrants or other instruments in proportion
to the number of American Depositary Shares held by the Owners to whom it has
determined it may not lawfully or feasibly make such rights available, and
allocate the net proceeds of such sales (net of the fees of the Depositary as
provided in Section 5.09 of the Deposit Agreement, any expenses in connection
with such sale and all taxes and governmental charges payable in connection with
such rights and subject to the terms and conditions of the Deposit Agreement)
for the account of such Owners otherwise entitled to such rights, warrants or
other instruments, upon an averaged or other practical basis without regard to
any distinctions among such Owners because of exchange restrictions or the date
of delivery of any Receipt or otherwise. Such proceeds shall be distributed as
promptly as practicable in accordance with Section 4.01 of the Deposit
Agreement.
If a registration statement under the Securities Act of 1933 is
required with respect to the securities to which any rights relate in order for
the Company to offer such rights to Owners and sell the securities represented
by such rights, the Depositary will not offer such rights to Owners having an
address in the United States (as defined in
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Regulation S) unless and until such a registration statement is in effect, or
unless the offering and sale of such securities and such rights to such Owners
are exempt from registration under the provisions of such Act.
The Depositary shall not be responsible for any failure to determine
that it may be lawful or feasible to make such rights available to Owners in
general or any Owner in particular.
14. CONVERSION OF FOREIGN CURRENCY.
Whenever the Depositary or the Custodian shall receive foreign
currency, by way of dividends or other distributions or the net proceeds from
the sale of securities, property or rights, and if at the time of the receipt
thereof the foreign currency so received can, pursuant to applicable law, be
converted on a reasonable basis into Dollars and the resulting Dollars
transferred to the United States, the Depositary or the Custodian shall convert
or cause to be converted as promptly as practicable (and in any event within one
Business Day of its or its agent's receipt of such Foreign Currency), by sale or
in any other manner that it may determine in accordance with applicable law,
such Foreign Currency into Dollars. If, at the time of conversion of such
Foreign Currency into Dollars, such Dollars can, pursuant to applicable law, be
transferred outside of Brazil for distribution to Owners entitled thereto, such
Dollars shall be distributed as promptly as practicable to the Owners entitled
thereto or, if the Depositary shall have distributed any rights, warrants or
other instruments which entitle the holders thereof to such Dollars, then to the
holders of such rights, warrants and/or instruments upon surrender thereof for
cancellation. Such distribution or conversion may be made upon an averaged or
other practicable basis without regard to any distinctions among Owners on
account of exchange restrictions, the date of delivery of any Receipt or
otherwise and shall be net of any expenses of conversion into Dollars incurred
by the Depositary as provided in Section 5.09 of the Deposit Agreement.
If such conversion, transfer or distribution can be effected only
with the approval or license of any government or agency thereof, the Depositary
shall file as promptly as practicable such application for approval or license;
however, the Depositary shall be entitled to rely upon Brazilian local counsel
in such matters, which counsel shall be instructed to act as promptly as
possible.
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If at any time foreign currency received by the Depositary or the
Custodian is not, pursuant to applicable law, convertible, in whole or in part,
into Dollars transferable to the United States, or if any approval or license of
any government or agency thereof which is required for such conversion is denied
or in the opinion of the Depositary cannot be promptly obtained, the Depositary
shall, (a) as to that portion of the foreign currency that is convertible into
Dollars, make such conversion and, if permitted by applicable law, transfer such
Dollars to the United States for distribution to Owners in accordance with the
first paragraph of this Article 13 or, if such transfer is not so permitted,
hold such Dollars uninvested and without liability for interest thereon for the
respective accounts of the Owners entitled to receive the same, and (b) as to
the nonconvertible balance, if any, (i) if requested in writing by an Owner,
distribute or cause the Custodian to distribute the foreign currency (or an
appropriate document evidencing the right to receive such foreign currency)
received by the Depositary or Custodian to such Owner and (ii) the Depositary
shall hold or shall cause the Custodian to hold any amounts of nonconvertible
foreign currency not distributed pursuant to the immediate preceding subclause
(i) uninvested and without liability for interest thereon for the respective
accounts of the Owners entitled to receive the same.
15. RECORD DATES.
Whenever any cash dividend or other cash distribution shall become
payable or any distribution other than cash shall be made, or whenever rights
shall be issued with respect to the Deposited Securities, or whenever for any
reason the Depositary causes a change in the number of Shares that are
represented by each American Depositary Share, or whenever the Depositary shall
receive notice of any meeting of holders of Shares or other Deposited
Securities, or whenever the Depositary shall find it necessary or convenient,
the Depositary shall fix a record date, which date shall, to the extent
practicable, be either (x) the same date as the record date fixed by the
Company, or (y) if different from the record date fixed by the Company, be fixed
after consultation with the Company (a) for the determination of the Owners of
Receipts who shall be (i) entitled to receive such dividend, distribution or
rights or the net proceeds of the sale thereof or (ii) entitled to give
instructions for the exercise of voting rights at any such meeting, or (b) on or
after which each American Depositary Share will represent the changed number of
Shares, subject to the provisions of the Deposit Agreement.
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16. VOTING OF DEPOSITED SECURITIES.
At any time that the Depositary has the right to vote the Shares
represented by the American Depositary Shares, the Depositary will comply with
the following provisions.
As soon as practicable after receipt of notice of any meeting or
solicitation of consents or proxies of holders of Shares or other Deposited
Securities, if requested in writing by the Company, the Depositary shall, as
soon as practicable thereafter, mail to the Owners of Receipts a notice, the
form of which notice shall be in the sole discretion of the Depositary, which
shall contain (a) such information as is contained in such notice of meeting,
(or, if requested by the Company a summary of such information provided by the
Company), (b) a statement that the Owners of Receipts as of the close of
business on a specified record date will be entitled, subject to any applicable
provision of Brazilian law and of the Charter of the Company, to instruct the
Depositary as to the exercise of the voting rights, if any, pertaining to the
amount of Shares or other Deposited Securities represented by their respective
American Depositary Shares and (c) a statement as to the manner in which such
instructions may be given, including an express indication that instructions may
be given or deemed given in accordance with the last sentence of this paragraph
if no instruction is received, to the Depositary to give a discretionary proxy
to a person designated by the Company. Upon the written request of an Owner of a
Receipt on such record date, received on or before the date established by the
Depositary for such purpose, the Depositary shall endeavor insofar as
practicable to vote or cause to be voted the amount of Shares or other Deposited
Securities represented by such American Depositary Shares evidenced by such
Receipt in accordance with the instructions set forth in such request. The
Depositary shall not itself exercise any voting discretion over any Deposited
Securities. If no instructions are received by the Depositary from any Owner
with respect to any of the Deposited Securities represented by the American
Depositary Shares evidenced by such Owner's Receipts on or before the date
established by the Depositary for such purpose, the Depositary shall deem such
Owner to have instructed the Depositary to give a discretionary proxy to a
person designated by the Company with respect to such Deposited Securities and
the Depositary shall give a discretionary proxy to a person designated by the
Company to vote such Deposited Securities, provided that no such instruction
shall be deemed given and no such discretionary proxy shall be given with
respect to any matter as to which
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the Company informs the Depositary (and the Company agrees to provide such
information as promptly as practicable in writing) that (x) the Company does not
wish such proxy given, (y) substantial composition exists or (z) such matter
materially and adversely affects the rights of holders of Shares.
Subject to the rules of any securities exchange on which American
Depositary Shares or the Deposited Securities represented thereby are listed,
the Depositary shall if requested by the Company deliver, at least two Business
Days prior to the date of such meeting, to the Company, to the attention of its
Secretary, copies of all instructions received from Owners in accordance with
which the Depositary will vote, or cause to be voted, the Deposited Securities
represented by the American Depositary Shares evidenced by such Receipts at such
meeting. Delivery of instructions will be made at the expense of the Company
(unless otherwise agreed in writing by the Company and the Depositary).
17. CHANGES AFFECTING DEPOSITED SECURITIES.
In circumstances where the provisions of Section 4.03 of the Deposit
Agreement do not apply, upon any change in nominal value, change in par value,
split-up, consolidation, or any other reclassification of Deposited Securities,
or upon any recapitalization, reorganization, merger or consolidation, or sale
of assets affecting the Company or to which it is a party, any securities which
shall be received by the Depositary or a Custodian in exchange for or in
conversion of or in respect of Deposited Securities shall be treated as new
Deposited Securities under the Deposit Agreement, and American Depositary Shares
shall thenceforth represent the new Deposited Securities so received in exchange
or conversion, unless additional Receipts are delivered pursuant to the
following sentence. In any such case the Depositary may, and shall if the
Company shall so request, execute and deliver additional Receipts as in the case
of a dividend in Shares, or call for the surrender of outstanding Receipts to be
exchanged for new Receipts specifically describing such new Deposited
Securities.
18. LIABILITY OF THE COMPANY AND DEPOSITARY.
Neither the Depositary nor the Company nor any of their respective
directors, employees, agents or affiliates shall incur any liability to any
Owner or Beneficial Owner, if by reason of any provision of any present or
future law or regulation of the United States or any other country, or
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of any other governmental or regulatory authority, or by reason of any
provision, present or future, of the Charter of the Company, or by reason of any
act of God or war or other circumstances beyond its control, the Depositary or
the Company shall be prevented or forbidden from or be subject to any civil or
criminal penalty on account of doing or performing any act or thing which by the
terms of the Deposit Agreement it is provided shall be done or performed; nor
shall the Depositary or the Company nor any of their respective directors,
employees, agents or affiliates incur any liability to any Owner or Beneficial
Owner of a Receipt by reason of any non-performance or delay, caused as
aforesaid, in the performance of any act or thing which by the terms of the
Deposit Agreement it is provided shall or may be done or performed, or by reason
of any exercise of, or failure to exercise, any discretion provided for in the
Deposit Agreement. Where, by the terms of a distribution pursuant to Sections
4.01, 4.02 or 4.03 of the Deposit Agreement, or an offering or distribution
pursuant to Section 4.04 of the Deposit Agreement, such distribution or offering
may not be made available to Owners of Receipts, and the Depositary may not
dispose of such distribution or offering on behalf of such Owners and make the
net proceeds available to such Owners, then the Depositary shall not make such
distribution or offering, and shall allow any rights, if applicable, to lapse.
Neither the Company nor the Depositary assumes any obligation or shall be
subject to any liability under the Deposit Agreement to Owners or Beneficial
Owners of Receipts, except that they agree to perform their obligations
specifically set forth in the Deposit Agreement without negligence or bad faith.
The Depositary shall not be subject to any liability with respect to the
validity or worth of the Deposited Securities. Neither the Depositary nor the
Company shall be under any obligation to appear in, prosecute or defend any
action, suit, or other proceeding in respect of any Deposited Securities or in
respect of the Receipts, which in its opinion may involve it in expense or
liability, unless indemnity satisfactory to it against all expenses and
liability shall be furnished as often as may be required, and the Custodian
shall not be under any obligation whatsoever with respect to such proceedings,
the responsibility of the Custodian being solely to the Depositary. Neither the
Depositary nor the Company shall be liable for any action or nonaction by it in
reliance upon the advice of or information from legal counsel, accountants, any
person presenting Shares for deposit, any Owner or Beneficial Owner of a
Receipt, or any other person believed by it in good faith to be competent to
give such advice or information. The Depositary shall not be responsible for any
failure to carry out any instructions to vote any of the Deposited
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Securities, or for the manner in which any such vote is cast or the effect of
any such vote, provided that any such action or nonaction is in good faith. The
Depositary shall not be liable for any acts or omissions made by a successor
depositary whether in connection with a previous act or omission of the
Depositary or in connection with a matter arising wholly after the removal or
resignation of the Depositary, provided that in connection with the issue out of
which such potential liability arises, the Depositary performed its obligations
without negligence or bad faith while it acted as Depositary.
The Company agrees to indemnify the Depositary, its directors,
employees, agents and affiliates and any Custodian against, and hold each of
them harmless from, any liability or expense (including, but not limited to, the
reasonable fees and expenses of counsel) which may arise out of acts performed
or omitted, in accordance with the provisions of the Deposit Agreement and of
the Receipts, as the same may be amended, modified, or supplemented from time to
time, (i) by either the Depositary or a Custodian or their respective directors,
employees, agents and affiliates, except for any liability or expense arising
out of the negligence or bad faith of either of them, and except to the extent
that such liability or expense arises out of information relating to the
Depositary or the Custodian, as applicable, furnished in writing to the Company
by the Depositary or the Custodian, as applicable, expressly for use in any
registration statement, proxy statement, prospectus (or placement memorandum) or
preliminary prospectus (or preliminary placement memorandum) relating to the
Shares, or omissions from such information; or (ii) by the Company or any of its
directors, employees, agents and affiliates. The indemnities contained in this
paragraph shall not extend to any liability or expense which may arise out of
any Pre-Release.
No disclaimer of liability under the Securities Act of 1933 is
intended by any provisions of the Deposit Agreement.
The Depositary, subject to Sections 2.05 and 2.09 of the Deposit
Agreement, may own and deal in any class of securities of the Company and its
affiliates and in Receipts.
19. RESIGNATION AND REMOVAL OF THE DEPOSITARY; APPOINTMENT OF
SUCCESSOR CUSTODIAN.
The Depositary may at any time resign as Depositary hereunder by
written notice of its election so to do
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delivered to the Company, such resignation to take effect upon the appointment
of a successor depositary and its acceptance of such appointment as provided in
the Deposit Agreement. The Depositary may at any time be removed by the Company
by written notice of such removal, effective upon the appointment of a successor
depositary and its acceptance of such appointment as provided in the Deposit
Agreement. Whenever the Depositary in its discretion determines that it is in
the best interest of the Owners of Receipts to do so, it may appoint a
substitute or additional custodian or custodians.
20. AMENDMENT.
The form of the Receipts and any provisions of the Deposit Agreement
may at any time and from time to time be amended by agreement between the
Company and the Depositary in any respect which they may deem necessary or
desirable. Any amendment which shall impose or increase any fees or charges
(other than taxes and other governmental charges, registration fees and cable,
telex or facsimile transmission costs, delivery costs or other such expenses),
or which shall otherwise prejudice any substantial existing right of Owners of
Receipts, shall, however, not become effective as to outstanding Receipts until
the expiration of thirty days after notice of such amendment shall have been
given to the Owners of outstanding Receipts. Every Owner of a Receipt at the
time any amendment so becomes effective shall be deemed, by continuing to hold
such Receipt, to consent and agree to such amendment and to be bound by the
Deposit Agreement as amended thereby. In no event shall any amendment impair the
right of the Owner of any Receipt to surrender such Receipt and receive therefor
the Deposited Securities represented thereby except in order to comply with
mandatory provisions of applicable law.
21. TERMINATION OF DEPOSIT AGREEMENT
The Depositary at any time, at the direction of the Company, shall
terminate the Deposit Agreement by mailing notice of such termination to the
Owners of all Receipts then outstanding at least 30 days prior to the date fixed
in such notice for such termination. The Depositary may likewise terminate the
Deposit Agreement by mailing notice of such termination to the Company and the
Owners of all Receipts then outstanding, such termination to be effective on a
date specified in such notice not less than 30 days after the date thereof, if
at any time 60 days shall have expired after the Depositary shall have delivered
to the Company a written notice of its election to resign and a successor
depositary shall not have been appointed and
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accepted its appointment as provided in the Deposit Agreement. On and after the
date of termination, the Owner of a Receipt will, upon (a) surrender of such
Receipt at the Corporate Trust Office of the Depositary, (b) payment of the fee
of the Depositary for the surrender of Receipts referred to in Section 2.05 of
the Deposit Agreement, and (c) payment of any applicable taxes or governmental
charges, be entitled to delivery, to the Owner or upon the Owner's order, of the
amount of Deposited Securities represented by the American Depositary Shares
evidenced by such Receipt. If any Receipts shall remain outstanding after the
date of termination, the Depositary thereafter shall discontinue the
registration of transfers of Receipts, shall suspend the distribution of
dividends to the Owners thereof, and shall not give any further notices or
perform any further acts under the Deposit Agreement, except that the Depositary
shall continue to collect dividends and other distributions pertaining to
Deposited Securities, shall sell rights as provided in the Deposit Agreement,
and shall continue to deliver Deposited Securities, together with any dividends
or other distributions received with respect thereto and the net proceeds of the
sale of any rights or other property, in exchange for Receipts surrendered to
the Depositary (after deducting, in each case, the fee of the Depositary for the
surrender of a Receipt, any expenses for the account of the Owner of such
Receipt in accordance with the terms and conditions of the Deposit Agreement,
and any applicable taxes or governmental charges). At any time after the
expiration of one year from the date of termination, the Depositary may sell the
Deposited Securities then held under the Deposit Agreement and may thereafter
hold uninvested the net proceeds of any such sale, together with any other cash
then held by it thereunder, unsegregated and without liability for interest, for
the pro rata benefit of the Owners of Receipts which have not theretofore been
surrendered, such Owners thereupon becoming general creditors of the Depositary
with respect to such net proceeds. After making such sale, the Depositary shall
be discharged from all obligations under the Deposit Agreement, except to
account for such net proceeds and other cash (after deducting, in each case, the
fee of the Depositary for the surrender of a Receipt, any expenses for the
account of the Owner of such Receipt in accordance with the terms and conditions
of the Deposit Agreement, and any applicable taxes or governmental charges) and
except as provided in Section 5.08 of the Deposit Agreement. Upon the
termination of the Deposit Agreement, the Company shall be discharged from all
obligations under the Deposit Agreement except for its obligations to the
Depositary with respect to indemnification, charges, and expenses.
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EXHIBIT 10.1
MODELO DE
CONTRATO DE CONCESSAO DO SERVICO TELEFONICO FIXO COMUTADO LONGA DISTANCIA
NACIONAL
(EMBRATEL)
Pelo presente instrumento, de um lado a Agencia Nacional de
Telecomunicacoes, doravante denominada ANATEL, entidade integrante da UNIAO e
nos termos da Lei Federal n 9.472 de 16 de Julho de 1997, Lei Geral de
Telecomunicacoes - LGT, incumbida do exercicio do Poder Concedente, ora
representada pelo seu Presidente Renato Navarro Guerreiro, [qualificar]
conjuntamente com o Conselheiro **** [qualificar], conforme aprovacao do seu
Conselho Diretor constante da Resolucao n ****, e, de outro a [nome e
qualificacao da concessionaria], por seu representante legal, doravante
denominada CONCESSIONARIA, consoante o disposto no art. 207 da referida Lei
Geral de Telecomunicacoes, por este instrumento e na melhor forma de direito,
celebram o presente CONTRATO DE CONCESSAO, que sera regido pelas normas adiante
referidas e pelas seguintes clausulas:
CAPITULO I - DO OBJETO
CLAUSULA 1.1. - O objeto do presente Contrato e a concessao do Servico
Telefonico Fixo Comutado, destinado ao uso do publico em geral, prestado em
regime publico, na modalidade de servico de longa distancia nacional, para
chamadas originadas na area geografica definida na clausula 2.1, nos termos do
Plano Geral de Outorgas.
PARAGRAFO UNICO - Compreende-se no objeto da presente concessao o
Servico Telefonico Fixo Comutado, prestado em regime publico, em areas
limitrofes e fronteiricas, em conformidade com a regulamentacao editada pela
ANATEL, consoante disposicao contida no Plano Geral de Outorgas.
CLAUSULA 1.2. - Servico Telefonico Fixo Comutado e o servico de
telecomunicacoes que, por meio da transmissao de voz e de outros sinais,
destina-se a comunicacao entre pontos fixos determinados, utilizando processos
de telefonia.
CLAUSULA 1.3. - Mediante previa aprovacao por parte da ANATEL, a
Concessionaria podera implantar e explorar utilidades ou comodidades
relacionadas com a prestacao do servico objeto da presente concessao.
PARAGRAFO UNICO - Serao consideradas relacionadas com o objeto da
presente Concessao aquelas prestacoes, utilidades ou comodidades que, a juizo da
ANATEL, sejam consideradas inerentes a plataforma do servico ora concedido, sem
caracterizar nova modalidade de servico, observadas as disposicoes da
regulamentacao.
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CLAUSULA 1.4. - A Concessionaria tem direito a implantacao, expansao e
operacao dos troncos, redes e centrais de comutacao necessarios a sua execucao,
bem assim sua exploracao industrial, nos termos da regulamentacao.
CLAUSULA 1.5. - E indissociavel da prestacao do servico concedido, a
obrigacao de atendimento as metas de universalizacao e qualidade previstas neste
Contrato.
CLAUSULA 1.6. - A Concessionaria devera assegurar a todos os
solicitantes e usuarios do servico concedido a realizacao das instalacoes
necessarias a prestacao do servico, nos termos da regulamentacao.
CLAUSULA 1.7. - A Concessionaria devera manter acesso gratuito para
servicos de emergencia estabelecidos na regulamentacao.
CAPITULO II - DA AREA DE PRESTACAO DO SERVICO
CLAUSULA 2.1. - A area geografica de prestacao do servico objeto da
presente concessao e aquela abrangida pelo(s) territorio(s) contido(s) no(s)
Setor(es) de numero *** constante(s) do Anexo 3 do Plano Geral de Outorgas.
CAPITULO - III - DO PRAZO E DAS CONDICOES DE PRORROGACAO DO CONTRATO
Clausula 3.1. - O prazo da presente concessao, outorgada a titulo
gratuito, tera seu termo final em 31 de dezembro de 2005, assegurado o direito a
prorrogacao unica por vinte anos, de acordo com as clausulas 3.2, 3.3 e 3.4.
CLAUSULA 3.2. - A presente concessao sera prorrogada, a pedido da
Concessionaria, a titulo oneroso, uma unica vez por 20 (vinte) anos, desde que a
Concessionaria atenda as condicoes constantes deste Contrato, podendo o novo
Contrato incluir novos condicionamentos, estabelecer novas metas para
universalizacao e de qualidade, tendo em vista as condicoes vigentes a epoca da
prorrogacao, definindo, no caso de metas de universalizacao, recursos
complementares, nos termos do art. 81 da Lei n 9.472, de 1997.
(S) 1 - A ANATEL, 36 (trinta e seis) meses antes do termo final
previsto na clausula 3.1, fara publicar consulta publica com sua proposta de
novos condicionamentos e de novas metas para qualidade e universalizacao do
servico, submetidas estas ultimas a aprovacao, por meio de Decreto, do
Presidente da Republica, nos termos do art. 18,
2
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inciso III, da Lei n 9.472, de 1997.
(S) 2 - Para a prorrogacao prevista nesta clausula, a Concessionaria
devera manifestar seu expresso interesse com antecedencia minima de 30 (trinta)
meses antes do termo final previsto na clausula 3.1.
CLAUSULA 3.3. - Para prorrogacao do prazo da presente concessao, nos
termos do previsto na clausula anterior, a Concessionaria devera pagar, a cada
bienio, durante o periodo de prorrogacao, onus correspondente a 2% (dois por
cento) da sua receita, do ano anterior ao do pagamento, do Servico Telefonico
Fixo Comutado, liquida de impostos e contribuicoes sociais incidentes.
(S) 1 - No calculo do valor referido no caput desta clausula sera
considerada a receita liquida decorrente da aplicacao dos planos de servico,
basico e alternativos, objeto da presente concessao.
(S) 2 - O calculo do percentual referido no caput desta clausula sera
feito sempre relativamente a receita liquida das deducoes de impostos e
contribuicoes incidentes, apurada entre janeiro e dezembro do ano anterior e
obtida das demonstracoes financeiras elaboradas conforme legislacao societaria e
principios fundamentais de contabilidade, aprovadas pela administracao da
Concessionaria e auditadas por auditores independentes, e o pagamento tera
vencimento em 30 de abril do ano subsequente ao da apuracao do onus.
(S) 3 - A primeira parcela do onus tera vencimento em 30 de abril de
2007, calculada considerando a receita liquida apurada de 1 de janeiro a 31 de
dezembro de 2006, e as parcelas subsequentes terao vencimento a cada 24 (vinte e
quatro) meses, tendo como base de calculo a receita do ano anterior.
(S) 4 - O atraso no pagamento do onus previsto nesta clausula
implicara a cobranca de multa moratoria de 0,33% (zero virgula trinta e tres por
cento) ao dia, ate o limite de 10% (dez por cento), acrescida da taxa
referencial SELIC para titulos federais, a ser aplicada sobre o valor da divida
considerando todos os dias de atraso de pagamento.
CLAUSULA 3.4. A prorrogacao do prazo do presente Contrato ensejara a
prorrogacao no direito de uso das radiofrequencias referidas na clausula 4.1 que
sejam necessarias a continuidade da prestacao do servico.
PARAGRAFO UNICO - O retorno a ANATEL de radiofrequencias que nao sejam
necessarias a continuidade da prestacao dos servicos nao implicara modificacao
do valor do onus da prorrogacao fixado na clausula 3.3.
3
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CAPITULO IV - DO MODO, FORMA E CONDICOES DE PRESTACAO
Clausula 4.1. A utilizacao de radiofrequencias na prestacao do
servico objeto desta concessao sera autorizada pela ANATEL, a titulo oneroso e
sem exclusividade, salvo se existir disposicao em contrario na regulamentacao,
consoante o disposto nos artigos 83 e 163 da Lei n 9.472, de 1997.
(S) 1 - A Concessionaria tera direito de utilizacao, sem
exclusividade, das radiofrequencias autorizadas anteriormente a data da
assinatura deste Contrato, independente do pagamento de qualquer onus, exceto as
taxas de fiscalizacao, observadas as condicoes estabelecidas nas respectivas
licencas de funcionamento das estacoes.
(S) 2 - O direito de utilizacao de radiofrequencias referido nesta
clausula nao elide a prerrogativa conferida a ANATEL pelo art.161 da Lei n
9.472, de 1997.
(S) 3 - As novas radiofrequencias que venham a ser requeridas pela
Concessionaria terao seu uso autorizado, a titulo oneroso, com observancia dos
procedimentos definidos pela ANATEL para autorizacoes similares.
(S) 4 - O prazo das autorizacoes de uso de radiofrequencias
requeridas nos termos do paragrafo anterior sera igual ao prazo da presente
Concessao, devendo sua prorrogacao ser feita a titulo oneroso, independente do
pagamento do onus referido na clausula 3.3. do presente.
CLAUSULA 4.2. - A Concessionaria se obriga a prestar o servico objeto
da concessao de forma a cumprir plenamente as obrigacoes de universalizacao e
continuidade inerentes ao regime publico, que lhe e inteiramente aplicavel,
observados os criterios, formulas e parametros definidos no presente Contrato.
PARAGRAFO UNICO - O descumprimento das obrigacoes relacionadas a
universalizacao e a continuidade ensejara a aplicacao das sancoes previstas no
presente Contrato, permitira a decretacao de intervencao pela ANATEL e, conforme
o caso e a gravidade ou quando a decretacao de intervencao for inconveniente,
inocua, injustamente benefica a Concessionaria ou desnecessaria, implicara a
caducidade da concessao, nos termos do disposto na clausula 26.4.
CLAUSULA 4.3. - A Concessionaria explorara o servico objeto da
concessao por sua conta e risco, dentro do regime de ampla e justa competicao
estabelecido na Lei n 9.472, de 1997, e no Plano Geral de Outorgas, sendo
remunerada pelas tarifas cobradas e por eventuais
4
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receitas complementares ou acessorias que perceba nos termos do presente
Contrato.
PARAGRAFO UNICO - A Concessionaria nao tera direito a qualquer especie
de exclusividade, nem podera reclamar direito quanto a admissao de novos
prestadores do mesmo servico, no regime publico ou privado.
CLAUSULA 4.4. - Ao longo de todo o prazo de vigencia da concessao, a
Concessionaria se obriga a manter os compromissos de qualidade, abrangencia e
oferta do servico constantes do presente Contrato, independentemente do ambiente
de competicao existente na area geografica de exploracao do servico.
CLAUSULA 4.5. - A Concessionaria se compromete a manter e conservar
todos os bens, equipamentos e instalacoes empregados no servico em perfeitas
condicoes de funcionamento, conservando e reparando suas unidades e promovendo,
nos momentos oportunos, as substituicoes demandadas em funcao do desgaste ou
superacao tecnologica, ou ainda promovendo os reparos ou modernizacoes
necessarias a boa execucao do servico e a preservacao do servico adequado,
conforme determinado no presente Contrato.
CAPITULO V - DAS REGRAS PARA IMPLANTACAO, EXPANSAO, ALTERACAO E MODERNIZACAO DO
SERVICO
CLAUSULA 5.1. - Constituem pressupostos basicos da presente concessao
a expansao e a modernizacao do servico concedido, observadas as metas e os
criterios constantes do presente Contrato.
PARAGRAFO UNICO - A ANATEL podera determinar a alteracao de metas de
implantacao, expansao e modernizacao do servico, respeitado o direito da
Concessionaria de nao ser obrigada a suportar custos adicionais nao recuperaveis
com a receita decorrente do atendimento dessas metas por meio da exploracao
eficiente do servico.
CLAUSULA 5.2. - A alteracao nas condicoes de prestacao do servico
somente podera ocorrer por determinacao da ANATEL ou mediante sua previa e
expressa aprovacao.
CLAUSULA 5.3. - A modernizacao do servico sera buscada atraves da
constante introducao de equipamentos, processos e meios aptos a prestar ao
usuario um servico compativel com a atualidade em face das tecnologias
disponiveis no mercado.
CAPITULO VI - DOS CRITERIOS E INDICADORES DE QUALIDADE E
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CONTINUIDADE DO SERVICO.
CLAUSULA 6.1. - Constitui pressuposto da presente Concessao a adequada
qualidade do servico prestado pela Concessionaria, considerando-se como tal o
servico que satisfizer as condicoes de regularidade, eficiencia, seguranca,
atualidade, generalidade, cortesia e modicidade das tarifas.
(S) 1 - A regularidade sera caracterizada pela prestacao continuada
do servico com estrita observancia do disposto nas normas baixadas pela ANATEL.
(S) 2 - A eficiencia sera caracterizada pela consecucao e preservacao
dos parametros constantes do presente Contrato e pelo atendimento do usuario do
servico nos prazos previstos neste Contrato.
(S) 3 - A seguranca na prestacao do servico sera caracterizada pela
confidencialidade dos dados referentes a utilizacao do servico pelos usuarios,
bem como pela plena preservacao do sigilo das informacoes transmitidas no ambito
de sua prestacao, observado o disposto no Capitulo XIV.
(S) 4 - A atualidade sera caracterizada pela modernidade dos
equipamentos, das instalacoes e das tecnicas de prestacao do servico, com a
absorcao dos avancos tecnologicos advindos ao longo do prazo da concessao que,
definitivamente, tragam beneficios para os usuarios, respeitadas as disposicoes
do presente Contrato.
(S) 5 - A generalidade sera caracterizada com a prestacao nao
discriminatoria do servico a todo e qualquer usuario, obrigando-se a
Concessionaria a prestar o servico a quem o solicite, no local indicado pelo
solicitante, nos termos do presente Contrato e de acordo com a regulamentacao.
(S) 6 - A cortesia sera caracterizada pelo atendimento respeitoso e
imediato de todos os usuarios do servico concedido, bem como pela observancia
das obrigacoes de informar e atender pronta e polidamente todos que, usuarios ou
nao, solicitem da Concessionaria informacoes, providencias ou qualquer tipo de
postulacao nos termos do disposto no presente Contrato.
(S) 7 - O principio da modicidade das tarifas sera caracterizado pelo
esforco da Concessionaria em praticar tarifas inferiores as fixadas pela ANATEL
CLAUSULA 6.2. - A Concessionaria devera observar os parametros e
indicadores do Plano Geral de Metas de Qualidade.
PARAGRAFO UNICO - A Concessionaria devera divulgar,
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anualmente, quadro demonstrativo das metas e parametros estabelecidos e
realizados do Plano Geral de Metas de Qualidade e do Plano Geral de Metas de
Universalizacao, sem prejuizo do fornecimento destes dados, sempre que
solicitados pela ANATEL.
CLAUSULA 6.3. - A continuidade do servico ora concedido, elemento
essencial ao regime de sua prestacao, sera caracterizada pela nao interrupcao do
servico, observada a suspensao por inadimplencia do usuario nos termos do
disposto na clausula 8.3. e no art. 3, inciso VII da Lei n 9.472, de 1997.
PARAGRAFO UNICO - Nao sera considerada violacao da continuidade a
interrupcao circunstancial do servico decorrente de situacao de emergencia,
motivada por razoes de ordem tecnica ou de seguranca das instalacoes, mediante
comunicacao aos usuarios afetados e, nos casos relevantes, tambem mediante aviso
circunstanciado a ANATEL.
CLAUSULA 6.4. - A Concessionaria nao podera, em hipotese alguma,
interromper a prestacao do servico alegando o nao adimplemento de qualquer
obrigacao por parte da ANATEL ou da Uniao, nao sendo invocavel, pela
Concessionaria, a excecao por inadimplemento contratual.
CLAUSULA 6.5. - Alem da gerencia e auditoria dos indicadores de
qualidade, a ANATEL avaliara, periodicamente, o grau de satisfacao dos usuarios
com o servico ora concedido, podendo divulgar os resultados da Concessionaria,
abrangendo, pelo menos, os seguintes aspectos:
I - atendimento ao usuario, especialmente no que tange a facilidade
de acesso, presteza, cordialidade, rapidez e eficacia na resposta a
solicitacoes e reclamacoes;
II - tarifas cobradas e descontos oferecidos;
III - qualidade tecnica do servico prestado; e
IV - adequacao dos servicos oferecidos as necessidades dos usuarios.
CAPITULO VII - DAS METAS DE UNIVERSALIZACAO
CLAUSULA 7.1. - A universalizacao constitui traco essencial do regime
de prestacao do servico ora concedido e sera caracterizada pelo atendimento
uniforme e nao discriminatorio de todos os usuarios e pelo cumprimento das metas
constantes do Plano Geral de Metas de Universalizacao, aprovado pelo Poder
Executivo, nos termos dos artigos
7
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18, inciso III, e 80 da Lei n 9.472, de 1997.
CLAUSULA 7.2. - A excecao do disposto na clausula 7.4. deste Contrato
e observado o Plano Geral de Metas de Universalizacao, aprovado pelo Poder
Executivo nos termos dos artigos 18, inciso III, e 80 da Lei n 9.472, de 1997,
a implementacao das metas de universalizacao previstas neste Contrato sera
financiada exclusivamente pela Concessionaria, atraves da exploracao do servico,
nao lhe assistindo direito a ressarcimento ou subsidio.
CLAUSULA 7.3. - A Concessionaria assume a obrigacao de implementar
metas de universalizacao nao previstas no presente Contrato e que venham a ser
requeridas pela ANATEL, em observancia ao disposto no (S) 2 do art. 2 do Plano
Geral de Metas de Universalizacao, aprovado pelo Decreto n 2.592, de 1998,
respeitado o seguinte procedimento para definicao do montante e criterio de
ressarcimento:
I - a ANATEL consultara a Concessionaria sobre os custos totais da
implantacao das metas adicionais pretendidas e sobre a parcela
destes que nao podera ser amortizada pela receita de exploracao,
sendo coberta por pagamento especifico, indicando especificamente os
objetivos a serem atingidos, as tecnologias selecionadas, bem como o
local e prazo de implementacao;
II - se decorrido o prazo fixado na consulta, inexistir manifestacao
da Concessionaria, a ANATEL tomara as providencias necessarias para
determinar os onus e custos da implementacao destas metas bem como
para estimar a correspondente geracao de receita;
III - se respondida a Consulta pela Concessionaria, a ANATEL
avaliara se os custos e as estimativas de receitas apresentados sao
adequados e compativeis, levando em conta as tecnologias
disponiveis, o preco dos insumos e mao-de-obra, as caracteristicas
geograficas e socio-economicas da demanda a ser atendida, os precos
praticados no mercado alem de outras variaveis que considere
relevantes;
IV - nao considerando razoaveis os custos e/ou a estimativa de
receita propostos, a ANATEL podera, motivadamente, imputar a
implementacao das metas a Concessionaria, estabelecendo o valor do
ressarcimento, observado o disposto no Capitulo XXX; e
V - estando os valores de ressarcimento adequados e compativeis no
entendimento da ANATEL, esta confirmara a Concessionaria a imputacao
da
8
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implementacao destas metas especificas, nos termos da proposta de
ressarcimento encaminhada pela Concessionaria.
(S) 1 - Se, apos o procedimento previsto nesta clausula, a ANATEL
considerar inconveniente ou inviavel a implementacao da meta especifica de
universalizacao atraves da Concessionaria, contratara junto a outrem a
incumbencia, podendo faze-lo por meio de outorgas especificas e delimitadas do
servico, observados os parametros economicos obtidos no procedimento previsto
nesta clausula.
(S) 2 - A criterio da ANATEL, o procedimento previsto nesta clausula
tambem podera ser utilizado para fins de fixacao dos valores a serem ressarcidos
com a utilizacao dos recursos do Fundo de Universalizacao dos Servicos de
Telecomunicacoes, quando da antecipacao das metas previstas no Plano Geral de
Metas de Universalizacao, aprovado pelo Poder Executivo, nos termos dos artigos
18, inciso III, e 80 da Lei n 9.472, de 1997.
(S) 3 - A utilizacao de recursos do Fundo de Universalizacao dos
Servicos de Telecomunicacoes, conforme paragrafo anterior, implica a exclusao do
aproveitamento dos beneficios da antecipacao de metas previstos no (S) 2 do
artigo 10, do Plano Geral de Outorgas, exceto no caso de ressarcimento a ANATEL
pelos valores que tenha utilizado desse Fundo, acrescidos da remuneracao devida.
CLAUSULA 7.4. - A adocao dos procedimentos previstos na clausula
anterior constitui faculdade da ANATEL, que podera adota-la a seu criterio e
consoante o melhor atendimento do interesse publico, nao assistindo a
Concessionaria direito de preferencia na implementacao destas metas.
CAPITULO VIII - DAS REGRAS SOBRE SUSPENSAO DO SERVICO POR INADIMPLENCIA E A
PEDIDO DO USUARIO
CLAUSULA 8.1. - O assinante do servico objeto da presente concessao
podera solicitar, a qualquer tempo, a suspensao do servico, devendo a
Concessionaria atender a solicitacao em prazo a ser estabelecido pela ANATEL, o
qual nao sera superior a 48 (quarenta e oito) horas, ressalvados os casos de
aprazamento por parte do assinante.
PARAGRAFO UNICO - A Concessionaria nao podera exigir pagamento pela
suspensao do servico a que se refere o caput desta clausula.
CLAUSULA 8.2. - O assinante que estiver adimplente com a
Concessionaria podera requerer a suspensao do servico, na forma da
9
<PAGE>
regulamentacao.
CLAUSULA 8.3. - A Concessionaria somente podera proceder a suspensao
do servico cujo assinante nao honrar o pagamento de debito diretamente
decorrente da utilizacao do servico concedido, apos transcorridos 30 (trinta)
dias de inadimplencia, observando o procedimento estabelecido em regulamentacao
propria editada pela ANATEL, e devera ser assegurado prazo para o assinante
questionar os debitos contra ele lancados.
(S) 1. A Concessionaria devera informar o bloqueio de acesso ao
assinante com antecedencia minima de 15 (quinze) dias.
(S) 2. O inadimplemento de debitos nao relacionados diretamente com o
servico objeto desta concessao, conforme paragrafo unico da clausula 10.6, nao
ensejara a interrupcao de que trata a presente clausula.
CLAUSULA 8.4. A Concessionaria assegurara ainda ao assinante o direito
a ter bloqueado temporaria ou permanentemente o acesso a comodidades ou
utilidades oferecidas, bem como a servicos de valor adicionado, sempre que por
ele solicitado, nos termos da regulamentacao.
CLAUSULA 8.5. Caso a inadimplencia do assinante se referir
exclusivamente ao pagamento dos servicos prestados por prestador de Servico
Telefonico Fixo Comutado diverso do ora concedido que seja objeto de faturamento
conjunto pela Concessionaria, o bloqueio devera obedecer ao procedimento
especifico objeto de regulamentacao pela ANATEL.
CAPITULO IX - DO PLANO DE NUMERACAO
CLAUSULA 9.1. - Observada a regulamentacao, a Concessionaria se obriga
a obedecer ao Regulamento de Numeracao para o Servico Telefonico Fixo Comutado
editado pela ANATEL, devendo assegurar ao assinante do servico a portabilidade
de codigos de acesso no prazo definido nesse Regulamento.
(S) 1 - A Concessionaria arcara com os custos necessarios a adaptar-
se ao Regulamento de Numeracao referido no caput desta Clausula.
(S) 2 - Os custos referentes aos investimentos necessarios para
permitir a portabilidade de codigos de acesso serao divididos entre a
Concessionaria e os demais prestadores de servico de telecomunicacao, em regime
publico ou privado.
10
<PAGE>
(S) 3 - Os custos referentes a administracao do processo de
consignacao e ocupacao de codigos de acesso do Regulamento de Numeracao serao
imputados a Concessionaria, nos termos do Regulamento da Administracao da
Numeracao.
CAPITULO X - DO REGIME TARIFARIO E DA COBRANCA DOS USUARIOS
CLAUSULA 10.1. - A Concessionaria devera ofertar a todos os usuarios,
obrigatoriamente, o Plano Basico do Servico de Longa Distancia Nacional, Anexo
02, parte integrante deste Contrato.
PARAGRAFO UNICO - O Plano Basico do Servico de Longa Distancia
Nacional sera unico para toda a area referida na clausula 2.1. e devera conter,
nos termos do estabelecido pela ANATEL, valores maximos para cada item da
estrutura tarifaria definida para a prestacao do Servico Telefonico Fixo
Comutado, valores estes que serao revistos e reajustados, observadas as normas
aplicaveis.
CLAUSULA 10.2. - A Concessionaria podera ofertar aos seus assinantes
Planos Alternativos de Servico de Longa Distancia Nacional com criterios de
tarifacao diferentes daqueles constantes do Plano Basico do Servico de Longa
Distancia Nacional.
(S) 1 - Sera garantida ao assinante a transferencia entre os diversos
Planos de Servico de Longa Distancia Nacional ofertados pela Concessionaria, nos
termos da regulamentacao.
(S) 2 - A estrutura de tarifas e valores dos Planos Alternativos de
Servico de Longa Distancia Nacional sao de livre proposicao da Concessionaria,
observado o disposto na clausula 10.1.
(S) 3 - A Concessionaria e obrigada a ofertar, de forma nao
discriminatoria, ao usuario seus Planos Alternativos de Servico de Longa
Distancia Nacional homologados pela ANATEL.
(S) 4 - Os Planos Alternativos de Servico de Longa Distancia Nacional
deverao ser homologados pela ANATEL antes de sua oferta ao publico em geral.
(S) 5 - A ANATEL devera se pronunciar sobre os Planos Alternativos de
Servico de Longa Distancia Nacional em ate 15 (quinze) dias apos seu
recebimento, considerando-se os mesmos homologados caso, ate este prazo, nao
haja pronunciamento da ANATEL.
CLAUSULA 10.3. - A Concessionaria podera praticar descontos nas
tarifas dos Planos de Servico de Longa Distancia Nacional desde que de forma
equanime e nao discriminatoria, vedada a reducao subjetiva de valores, e
observado o principio da justa competicao.
11
<PAGE>
PARAGRAFO UNICO - A Concessionaria se obriga a divulgar, com
antecedencia, aos seus usuarios os descontos tarifarios, dando-lhes ampla e
previa divulgacao, comunicando sua decisao a ANATEL, ate 7 (sete) dias apos o
inicio da vigencia da reducao das tarifas.
CLAUSULA 10.4. - A Concessionaria se obriga a dar ampla publicidade as
tarifas praticadas pelo servico objeto da presente concessao, na forma
regulamentada pela ANATEL.
CLAUSULA 10.5. - Quando da implantacao de novas prestacoes, utilidades
ou comodidades relacionadas ao servico objeto da concessao, a Concessionaria
submetera previamente a pretensao de cobranca para aprovacao da ANATEL, sem a
qual nao podera ser cobrada qualquer tarifa ou preco.
CLAUSULA 10.6. - Os documentos de cobranca emitidos pela
Concessionaria deverao ser apresentados de maneira detalhada, clara,
explicativa, indevassavel e deverao discriminar o tipo e a quantidade de cada
servico prestado ao usuario, na forma da regulamentacao.
PARAGRAFO UNICO - A Concessionaria podera lancar no documento de
cobranca, desde que de forma clara e explicita, os valores devidos pelo
assinante em funcao da prestacao de servicos de valor adicionado, bem como de
outras comodidades ou utilidades relacionadas com o servico concedido.
CLAUSULA 10.7. - A Concessionaria cobrara dos demais prestadores de
servicos de telecomunicacoes tarifas de uso de redes, observadas as normas
editadas pela ANATEL.
CLAUSULA 10.8 - A Concessionaria oferecera desconto ao assinante
afetado por eventuais descontinuidades na prestacao do servico concedido, desde
que nao sejam por ele motivadas, o qual sera proporcional ao periodo em que se
verificar a interrupcao, na forma da regulamentacao.
CAPITULO XI - DO REAJUSTAMENTO DAS TARIFAS
CLAUSULA 11.1. - A cada intervalo nao inferior a 12 (doze) meses, por
iniciativa da ANATEL ou da Concessionaria, observadas as regras da legislacao
economica vigente, as tarifas constantes do Plano Basico do Servico de Longa
Distancia Nacional Anexo 02, poderao ser reajustadas mediante a aplicacao da
seguinte formula:
- ---------------------------------------------------------------------------
5 24 less than 5 24
(E E Tij\t\ x Mij\to\) or (1-k) Ft E E Tij\to\ x Mij\to\
( --- ) equal to ---
- ---------------------------------------------------------------------------
12
<PAGE>
- ---------------------------------------------------------------------
i=l j=l MT i=l j=l MT
- ---------------------------------------------------------------------
Sendo:
- ---------------------------------------------------------------------
Tij\t\ less than Tij\to\ x 1,05 x IGP-DI\t\
or equal to ------
IGP-DI\to\
- ---------------------------------------------------------------------
Onde:
Tij\t\ = tarifa proposta no Plano Basico do Servico de Longa Distancia Nacional
para o horario j no degrau tarifario de distancia i, liquida dos tributos
incidentes.
Tij\to\ = tarifa vigente no Plano Basico do Servico de Longa Distancia Nacional
para o horario j no degrau tarifario de distancia i, liquida dos tributos
incidentes.
Mij\to\ = minutos do servico de longa distancia nacional observados no Plano
Basico do Servico de Longa Distancia Nacional no horario j e no degrau da
distancia i desde o ultimo reajuste tarifario ou, no caso do primeiro reajuste,
desde 1 de abril de 1998 .
MT = minutos totais do servico de longa distancia nacional, observados no Plano
Basico do Servico de Longa Distancia Nacional desde o ultimo reajuste tarifario
ou, no caso do primeiro reajuste, desde 1 de abril de 1998.
i = degrau tarifario de distancia do servico de longa distancia nacional
constante da Estrutura Tarifaria do Servico.
j = horario de tarifacao do servico de longa distancia nacional constante da
Estrutura Tarifaria do Servico.
\t\ = data do reajuste proposto.
\to\ = data do ultimo reajuste ou, no caso do primeiro reajuste, 1 de abril de
1998; e
F\t\ = IGP-DI\t\
-------
IGP-DI\to\
Onde:
IGP-DI = Indice Geral de Precos, Disponibilidade Interna, divulgado pela
Fundacao Getulio Vargas, ou outro indice que venha a substitui-lo
k = fator de transferencia.
(S) 1. - O fator de transferencia sera aplicado ao longo da
concessao da seguinte forma:
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I - ate 31 de dezembro de 2000 sera igual a 0,02 (zero virgula
zero dois);
II - de 1 de janeiro de 2001 a 31 de dezembro de 2003 sera igual a
0,04 (zero virgula zero quatro).
III - de 1 de janeiro de 2004 a 31 de dezembro de 2005 sera igual a
0,05 (zero virgula zero cinco).
(S) 2 - Caso o periodo de reajuste envolva valores diferentes de
fator de transferencia, devera ser efetuada, para sua aplicacao, uma media
ponderada considerando os meses de incidencia de cada valor de fator de
transferencia.
(S) 3 - Caso o reajuste seja efetuado em periodos superiores a doze
meses, a formula em que consta o fator de transferencia devera ser aplicada de
forma progressiva, considerando periodos de doze meses e, finalmente, o residuo
de meses, se houver.
(S) 4- Apos 2005 novos valores dos fatores de transferencia poderao
ser estabelecidos pela ANATEL quando da prorrogacao do prazo deste Contrato,
considerando as condicoes vigentes na epoca.
CLAUSULA 11.2. As tarifas de uso de redes serao reajustadas mediante
a aplicacao das seguintes formulas:
<TABLE>
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
5 24 ............5 24
( E E TU-RIUij\t\ x Mij\to\) less than 1-k) Ft E E TU-RIUij\to\ x Mij\to\
i=1 j=1 ----- or equal to i=1 j=1 ----
MT
MT
- -----------------------------------------------------------------------------------
</TABLE>
Sendo:
- --------------------------------------------------------------------------------
TU-RIUij\t\ less than TU-RIUij\to\ x 1,05 x IGP-DI\t\
or ------
equal to IGP-DI\to\
- --------------------------------------------------------------------------------
Onde:
TU-RIUij\t\ - tarifa de uso de rede interurbana proposta para o horario j no
degrau da distancia i, liquida dos tributos incidentes.
TU-RIUij\to\ - tarifa de uso de rede interurbana vigente para o horario j no
degrau da distancia i, liquida dos tributos incidentes.
Mij\to\ - minutos que usam a rede interurbana da Concessionaria no horario j e
no degrau de distancia i, observados desde o ultimo reajuste tarifario ou, no
caso do primeiro reajuste, desde 1 de abril de 1998.
14
<PAGE>
MT - minutos totais que usam a rede interurbana da Concessionaria observados
desde o ultimo reajuste tarifario ou, no caso do primeiro reajuste, desde 1 de
abril de 1998.
t = data do reajuste proposto.
to = data do ultimo reajuste ou, no caso do primeiro reajuste, 1 de abril de
1998, e
Ft = IGP-DIt
-------
. IGP-DI to
Onde:
IGP-DI = Indice Geral de Precos, Disponibilidade Interna, divulgado pela
Fundacao Getulio Vargas, ou outro indice que venha a substitui-lo
k = fator de transferencia.
(S) 1 - O fator de transferencia sera aplicado ao longo da
concessao da seguinte forma:
I - ate 31 de dezembro de 2000 sera igual a 0,02 (zero virgula
zero dois);
II - de 1 de janeiro de 2001 a 31 de dezembro de 2003 sera igual a
0,04 (zero virgula zero quatro);
III - de 1 de janeiro de 2004 a 31 de dezembro de 2005 sera igual a
0,05 (zero virgula zero cinco).
(S) 2 - Caso o periodo de reajuste envolva valores diferentes de
fator de transferencia, devera ser efetuada, para sua aplicacao, uma media
ponderada considerando os meses de incidencia de cada valor de fator de
transferencia .
(S) 3 - Caso o reajuste seja efetuado em periodos superiores a doze
meses, a formula em que consta o fator de transferencia devera ser aplicada de
forma progressiva, considerando periodos de doze meses e, finalmente, o residuo
de meses, se houver.
(S) 4 - Apos 2005 novos valores dos fatores de transferencia poderao
ser estabelecidos pela ANATEL quando da prorrogacao do prazo deste Contrato,
considerando as condicoes vigentes na epoca.
CAPITULO XII - DA PROTECAO DA SITUACAO ECONOMICA DA CONCESSIONARIA E DA REVISAO
DAS TARIFAS
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<PAGE>
CLAUSULA 12.1. - Constitui pressuposto basico do presente Contrato a
preservacao, em regime de ampla competicao, da justa equivalencia entre a
prestacao e a remuneracao, vedado as partes o enriquecimento imotivado as custas
de outra parte ou dos usuarios do servico, nos termos do disposto neste
Capitulo.
(S) 1 - A Concessionaria nao sera obrigada a suportar prejuizos em
decorrencia do presente Contrato, salvo se estes decorrerem de algum dos
seguintes fatores:
I - da sua negligencia, inepcia ou omissao na exploracao do servico;
II - dos riscos normais a atividade empresarial;
III - da gestao ineficiente dos seus negocios, inclusive aquela
caracterizada pelo pagamento de custos operacionais e
administrativos incompativeis com os parametros verificados no
mercado; ou
IV - da sua incapacidade de aproveitar as oportunidades existentes
no mercado, inclusive no atinente a expansao, ampliacao e incremento
da prestacao do servico objeto da concessao.
(S) 2 - E tambem vedado o enriquecimento imotivado da Concessionaria
decorrente da apropriacao de ganhos economicos nao advindos diretamente da sua
eficiencia empresarial, em especial quando decorrentes da edicao de novas regras
sobre o servico.
(S) 3 - Fara jus a Concessionaria a recomposicao da sua situacao
inicial de encargos e retribuicoes quando circunstancias de forca maior ou
calamidades afetarem de forma significativa a exploracao do servico, observado
sempre, como parametro, o reflexo destas situacoes nos prestadores de servicos
no regime privado.
(S) 4 - Na avaliacao do cabimento da recomposicao de que trata o
paragrafo anterior sera considerada, entre outros fatores, a existencia de
cobertura do evento motivador da alteracao da situacao economica inicial pelo
Plano de Seguros previsto na clausula 23.1.
CLAUSULA 12.2. - Cabera o restabelecimento da situacao economica do
Contrato quando ficar demonstrada a inocorrencia dos fatores indicados no (S)
1 da clausula anterior, o qual dar-se-a preferencialmente pela revisao
de tarifas ou por qualquer outro mecanismo que, a criterio da ANATEL, seja
considerado apto a neutralizar a situacao verificada.
(S) 1 - A revisao das tarifas afastara qualquer outro
16
<PAGE>
mecanismo de neutralizacao do enriquecimento imotivado das partes, tornando
superado o evento ao qual ela se referia.
(S) 2 - A providencia adotada para neutralizar uma distorcao sera
unica, completa e final relativamente ao evento que lhe deu origem.
CLAUSULA 12.3.- Independentemente do disposto na clausula 12.1.,
cabera revisao das tarifas integrantes do Plano Basico do Servico de Longa
Distancia Nacional em favor da Concessionaria ou dos usuarios, nos termos do
art. 108 da Lei n 9.472, de 1997, quando verificada uma das seguintes situacoes
especificas:
I - modificacao unilateral deste Contrato imposta pela ANATEL, que
importe variacao expressiva de custos ou de receitas, para mais ou
para menos, de modo que a elevacao ou reducao de tarifas seja
imposta pela necessidade de evitar o enriquecimento imotivado de
qualquer das partes;
II - alteracao na ordem tributaria posterior a assinatura deste
Contrato que implique aumento ou reducao da lucratividade potencial
da concessionaria;
III - ocorrencias supervenientes, decorrentes de fato do principe ou
fato da Administracao que resultem, comprovadamente, em alteracao
dos custos da Concessionaria;
IV - alteracao legislativa de carater especifico, que tenha impacto
direto sobre as receitas da Concessionaria de modo a afetar a
continuidade ou a qualidade do servico prestado; ou
V - alteracao legislativa que acarrete beneficio a Concessionaria,
inclusive a que concede ou suprime isencao, reducao, desconto ou
qualquer outro privilegio tributario ou tarifario, consoante do
previsto no (S) 3 do art. 108 da Lei n 9.472, de 1997.
(S) 1 - Nao importara na revisao de tarifas o prejuizo ou a reducao
de ganhos da Concessionaria decorrente da livre exploracao do servico em
condicoes de competicao ou da gestao ineficiente dos seus negocios.
(S) 2 - Nao sera aplicavel a hipotese de revisao prevista no inciso
II do caput desta clausula quando a alteracao na ordem tributaria implicar
criacao, supressao, elevacao ou reducao em impostos incidentes sobre a renda ou
o lucro da Concessionaria, como o Imposto sobre a
17
<PAGE>
Renda, que nao impliquem oneracao administrativa ou operacional.
(S) 3 - Nao cabera revisao de tarifas nas hipoteses previstas nesta
clausula quando os eventos ensejadores da revisao ja estiverem cobertos pelo
plano de seguros previsto na clausula 23.1.
(S) 4 - As contribuicoes da Concessionaria ao Fundo de
Universalizacao dos Servicos de Telecomunicacoes e ao Fundo para o
Desenvolvimento Tecnologico das Telecomunicacoes nao ensejarao revisao das
tarifas.
CLAUSULA 12.4. - Nao sera aplicavel a revisao de tarifas quando ficar
caracterizado que os impactos motivadores do pedido por parte da Concessionaria
puderem ser neutralizados com a eficiente exploracao do servico, pela expansao
do mercado ou pela geracao de receitas alternativas ou complementares associadas
ao objeto do presente Contrato, observadas as condicoes competitivas verificadas
no momento.
PARAGRAFO UNICO - A diminuicao da receita decorrente de descontos ou
reducao de tarifas nao dara ensejo a revisao das mesmas.
CLAUSULA 12.5. - O procedimento de revisao de tarifas podera ser
iniciado por requerimento da Concessionaria ou por determinacao da ANATEL.
(S) 1 - Quando o procedimento de revisao das tarifas for iniciado
pela Concessionaria deverao ser obedecidos os seguintes requisitos:
I - ser acompanhado de relatorio tecnico ou laudo pericial que
demonstre cabalmente o impacto da ocorrencia na formacao das tarifas
ou na estimativa de receitas da Concessionaria;
II - ser acompanhada de todos os documentos necessarios a
demonstracao do cabimento do pleito;
III - a Concessionaria devera indicar a sua pretensao de revisao
tarifaria, informando os impactos e as eventuais alternativas de
balanceamento das tarifas; e
IV - todos os custos com diligencias e estudos necessarios a plena
instrucao do pedido correrao por conta da Concessionaria.
(S) 2 - O procedimento de revisao das tarifas iniciado pela ANATEL
devera ser objeto de comunicacao a Concessionaria consignando prazo para sua
manifestacao, acompanhada de copia dos laudos e estudos realizados para
caracterizar a situacao ensejadora da revisao.
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<PAGE>
(S) 3 - O procedimento de revisao das tarifas sera concluido em prazo
nao superior a 120 (cento e vinte) dias, ressalvada a hipotese em que seja
necessaria a prorrogacao deste para complementacao da instrucao.
(S) 4 - O requerimento devera ser aprovado pela ANATEL, devendo a
Concessionaria providenciar a ampla divulgacao dos novos valores maximos das
tarifas revistas, nos termos do que reza o presente Contrato.
CAPITULO XIII - DAS RECEITAS ALTERNATIVAS, COMPLEMENTARES E ACESSORIAS
CLAUSULA 13.1. - A Concessionaria podera obter outras fontes
alternativas de receitas, desde que isso nao implique o descumprimento das
normas constantes do Regulamento Geral dos Servicos de Telecomunicacoes e das
demais normas editadas pela ANATEL.
PARAGRAFO UNICO - A Concessionaria, suas coligadas, controladas ou
controladoras nao poderao condicionar a oferta do servico ora concedido ao
consumo casado de qualquer outro servico, nem oferecer vantagens ao usuario em
virtude da fruicao de servicos adicionais aquele objeto do presente Contrato,
ainda que prestados por terceiros.
CLAUSULA 13.2. - A ANATEL podera determinar que a Concessionaria
ofereca aos usuarios comodidades ou utilidades correlacionadas ao objeto da
concessao, devendo neste caso as partes ajustarem os precos unitarios destes
servicos, observados os parametros de mercado e o direito a justa remuneracao.
CAPITULO XIV - DOS DIREITOS E GARANTIAS DOS USUARIOS E DEMAIS PRESTADORES
CLAUSULA 14.1. - Respeitadas as regras e parametros constantes deste
Contrato, constituem direitos dos usuarios do servico objeto da presente
concessao:
I - o acesso ao servico e a sua fruicao dentro dos padroes de
qualidade, regularidade e eficiencia previstos no presente Contrato,
em seus anexos e nas normas vigentes;
II - a possibilidade de solicitar a suspensao ou a interrupcao do
servico prestado pela Concessionaria;
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III - o tratamento nao discriminatorio quanto as condicoes de acesso
e fruicao do servico;
IV - a obtencao de informacoes adequadas quanto as condicoes de
prestacao do servico e as tarifas e aos precos praticados;
V - a inviolabilidade e o segredo de sua comunicacao, respeitadas as
hipoteses e condicoes constitucionais e legais de quebra de sigilo
de telecomunicacoes;
VI - obter, gratuitamente, mediante solicitacao encaminhada ao
servico de atendimento dos usuarios mantido pela Concessionaria, a
nao divulgacao do seu codigo de acesso;
VII - a nao suspensao do servico sem sua solicitacao, ressalvada a
hipotese de debito diretamente decorrente de sua utilizacao ou por
descumprimento dos deveres constantes do art. 4 da Lei n 9.472, de
1997;
VIII - o conhecimento previo de toda e qualquer alteracao nas
condicoes de prestacao do servico que lhe atinjam direta ou
indiretamente;
IX - a privacidade nos documentos de cobranca e na utilizacao de
seus dados pessoais pela Concessionaria;
X - a resposta eficiente e pronta as suas reclamacoes pela
Concessionaria, nos termos do previsto na clausula 15.7.;
XI - o encaminhamento de reclamacoes ou representacoes contra a
Concessionaria junto a ANATEL e aos organismos de defesa do
consumidor;
XII - a reparacao pelos danos causados pela violacao dos seus
direitos;
XIII - ver observados os termos do Contrato de Assinatura pelo qual
tiver sido contratado o servico;
XIV - escolher livremente o prestador dos servicos telefonicos de
longa distancia nacional e internacional;
XV - ter respeitado o seu direito de portabilidade de codigos de
acesso, observadas as disposicoes do Regulamento de Numeracao
editado pela ANATEL; e
XVI - nao ser obrigado a consumir servicos ou a adquirir bens ou
equipamentos que nao sejam de seu interesse, bem
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como a nao ser compelido a se submeter a condicao para recebimento
do servico objeto da presente concessao, nos termos da
regulamentacao.
(S) 1 - A Concessionaria observara o dever de zelar estritamente pelo
sigilo inerente ao servico telefonico e pela confidencialidade quanto aos dados
e informacoes, empregando meios e tecnologias que assegurem este direito dos
usuarios.
(S) 2 - A Concessionaria tornara disponiveis os recursos tecnologicos
necessarios a suspensao de sigilo de telecomunicacoes determinada por autoridade
judiciaria, na forma da regulamentacao.
CLAUSULA 14.2. - Aos demais prestadores de servicos de
telecomunicacoes serao assegurados, alem dos direitos referidos na clausula
anterior, os seguintes direitos:
I - a interconexao a rede da Concessionaria em condicoes economicas
e operacionais nao discriminatorias, sob condicoes tecnicamente
adequadas e a precos isonomicos e justos que atendam estritamente ao
necessario a prestacao do servico, observada a regulamentacao
editada pela ANATEL;
II - a receber o servico solicitado junto a Concessionaria sem
qualquer tipo de discriminacao, pelos precos de mercado ou por
precos negociados pelas partes e com as reducoes que forem
aplicaveis em funcao dos custos evitados em virtude do consumo em
larga escala, respeitada a regulamentacao; e
III - a obter todas as informacoes que sejam necessarias para a
prestacao do servico por eles operados, inclusive aquelas relativas
ao faturamento, ressalvado o direito da Concessionaria a preservacao
dos seus dados recobertos pelo sigilo empresarial, bem como os
direitos de terceiros.
(S) 1 - Os conflitos entre Concessionaria e demais prestadores serao
resolvidos administrativamente pela ANATEL, nos termos da regulamentacao a ser
por ela editada.
(S) 2 - A ANATEL acompanhara permanentemente o relacionamento entre
os prestadores que se utilizem do servico ora concedido e a Concessionaria, de
modo a coibir condutas que possam implicar prejuizo injusto para qualquer das
partes ou que importem em violacao a ordem economica e a livre concorrencia,
comunicando, nestas hipoteses, tais condutas ao Conselho Administrativo de
Defesa Economica - CADE, apos o exercicio de sua competencia, na forma do
disposto no art. 19, inciso XIX, da Lei n 9.472, de 1997.
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CLAUSULA 14.3. Observada a regulamentacao, sera assegurado o direito
de qualquer usuario a prestacao e fruicao de servicos de valor adicionado, que
devera se dar em condicoes tecnicamente adequadas e a precos isonomicos e
justos, sendo defeso a Concessionaria o estabelecimento de qualquer entrave ou
restricao a fruicao do servico ora concedido.
PARAGRAFO UNICO - Entende-se por servico de valor adicionado toda a
atividade que acrescentar ao servico objeto desta concessao, sem com ele se
confundir, novas utilidades relacionadas ao acesso, armazenamento, apresentacao,
movimentacao ou recuperacao de informacoes.
CAPITULO XV - DOS DIREITOS, GARANTIAS E OBRIGACOES DA CONCESSIONARIA
CLAUSULA 15.1. - Alem das outras obrigacoes decorrentes deste Contrato
e inerentes a prestacao do servico, incumbira a Concessionaria:
I - prestar o servico com absoluta observancia do disposto no
presente Contrato, submetendo-se plenamente a regulamentacao editada
pela ANATEL;
II - implantar todos os equipamentos e instalacoes necessarios a
prestacao, continuidade, modernizacao, ampliacao e universalizacao
do servico objeto da concessao, dentro das especificacoes constantes
do presente Contrato;
III - manter em perfeitas condicoes de operacao e funcionamento a
rede de telecomunicacoes, em quantidade, extensao e localizacoes
pertinentes e suficientes a adequada prestacao do servico;
IV - prover recursos financeiros necessarios ao atendimento dos
parametros de universalizacao e continuidade constantes do presente
Contrato e a prestacao adequada do servico;
V - prestar a ANATEL, na forma e periodicidade previstas na
regulamentacao, contas e informacoes de natureza tecnica,
operacional, economica, financeira e contabil, bem como fornecer-lhe
todos os dados e elementos referentes ao servico que sejam
solicitados;
VI - manter os terminais de uso publico, permanentes ou
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temporarios, na forma prevista neste Contrato;
VII - submeter-se a fiscalizacao da ANATEL, permitindo o acesso de
seus agentes as instalacoes integrantes do servico bem como a seus
registros contabeis;
VIII - manter registros contabeis separados por servico, bem como
ter em dia o inventario dos bens e dos componentes do ativo
imobilizado da empresa;
IX - manter sistema de informacao e atendimento do usuario, nos
termos da clausula 15.7.;
X - zelar pela integridade dos bens vinculados a prestacao do
servico;
XI - submeter a aprovacao da ANATEL, previamente a sua utilizacao, a
minuta de Contrato-Padrao a ser celebrado com os assinantes, bem
como todas as alteracoes, aditamentos ou variantes a ele aplicaveis;
XII - submeter a aprovacao previa da ANATEL os acordos operacionais
ou contratos de prestacao de servicos, de associacao ou parceria,
que pretenda firmar com entidades estrangeiras;
XIII - encaminhar para publicacao na Biblioteca da ANATEL copia de
acordos e contratos relativos a prestacao do servico ora concedido
com prestadores nacionais e estrangeiros de servicos de
telecomunicacoes;
XIV - divulgar, diretamente ou atraves de terceiros, o codigo de
acesso dos seus assinantes e dos demais assinantes de prestadores de
Servico Telefonico Fixo Comutado, em regime publico e privado, na
area de concessao, com exclusao daqueles que requererem
expressamente a omissao dos seus dados pessoais;
XV - fornecer, em prazos e a precos razoaveis e de forma nao
discriminatoria, a relacao de seus assinantes a quem queira divulga-
la;
XVI - respeitar rigorosamente o dever de sigilo e confidencialidade
das telecomunicacoes, observadas as prescricoes legais e
contratuais;
XVII - respeitar a privacidade dos usuarios com relacao aos
documentos de cobranca e a todas as informacoes pessoais a eles
referentes;
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XVIII - cumprir, as suas proprias expensas, observado o disposto na
clausula 7.2 deste Contrato, todas as metas de universalizacao
expressamente constantes deste Contrato;
XIX - implementar projetos de expansao e universalizacao do servico
que venham a ser determinados pela ANATEL, segundo patamares de
ressarcimento, prazos e condicoes de implementacao estabelecidos,
observado o disposto na clausula 7.3.;
XX - submeter previamente a ANATEL toda e qualquer alteracao que
pretenda fazer nos seus estatutos quanto a cisao, fusao,
transformacao, incorporacao, bem como a transferencia de controle ou
alteracao no capital social;
XXI - assegurar a qualquer outro prestador de servico de
telecomunicacoes a interconexao com sua rede, observadas a
regulamentacao especifica e as normas do presente Contrato;
XXII - tornar disponivel aos demais prestadores do Servico
Telefonico Fixo Comutado os servicos de faturamento e arrecadacao,
cobrando por estes precos justos e compativeis nos termos do
presente Contrato e da regulamentacao;
XXIII - observar todos os direitos dos demais prestadores de
servicos de telecomunicacoes, omitindo-se de praticar qualquer
conduta discriminatoria ou voltada a obstar a atividade destes;
XXIV - utilizar, sempre que exigido pela regulamentacao,
equipamentos com certificacao expedida ou aceita pela ANATEL;
XXV - observar as normas e os padroes tecnicos vigentes no Brasil,
omitindo-se de qualquer pratica discriminatoria em relacao a bens e
equipamentos produzidos no pais;
XXVI - colocar a disposicao das autoridades e dos agentes da defesa
civil, nos casos de calamidade publica, todos os meios, sistemas e
disponibilidades que lhe forem solicitados com vistas a dar-lhes
suporte ou a amparar as populacoes atingidas;
XXVII - atender com prioridade o Presidente da Republica, seus
representantes protocolares, sua comitiva e pessoal de apoio, bem
como os Chefes de Estado estrangeiros, quando em visitas ou
deslocamentos oficiais
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pelo territorio brasileiro, tornando disponiveis os meios
necessarios para adequada comunicacao destas autoridades, observada
a regulamentacao editada pela ANATEL;
XXVIII - arcar com o onus fixado pela ANATEL no caso de prorrogacao
do prazo da concessao, nos termos do art. 207, (S) 1, da Lei n
9.472, de 1997, e da clausula 3.3.;
XXIX - pagar todas as taxas de fiscalizacao e funcionamento das suas
instalacoes, na forma da regulamentacao;
XXX - publicar anualmente, independente do regime juridico a que
esteja sujeita, balanco e demonstracoes financeiras levantadas ao
final de cada exercicio social, observadas as disposicoes da
legislacao vigente e da regulamentacao editada pela ANATEL;
XXXI - observar as normas vigentes no pais quanto a utilizacao de
mao-de-obra estrangeira, inclusive nos cargos de maior qualificacao;
XXXII - indenizar os usuarios pelos danos efetivamente decorrentes
da nao prestacao do servico que seria exigivel frente aos parametros
de continuidade e as metas de universalizacao previstas no presente
Contrato;
XXXIII - nao despender com contratos de prestacao de servicos de
gerencia, inclusive assistencia tecnica, com entidades estrangeiras,
em relacao a receita anual do Servico Telefonico Fixo Comutado,
liquida de impostos e contribuicoes, valores superiores a:
a) 1% (um por cento) ao ano, ate 31/12/2000;
b) 0,5% (zero virgula cinco por cento) ao ano, de 01/01/2001 a
31/12/2002; e
c) 0,2% (zero virgula dois por cento) ao ano, a partir de
01/01/2003;
XXXIV - dar cumprimento a acordos firmados entre o Brasil e outros
paises e organismos internacionais, na forma regulamentada pela
ANATEL; e
XXXV - dar cumprimento aos contratos celebrados com a TELEBRAS,
cujos objetos sejam a prestacao de servicos pelo Centro de Pesquisa
e Desenvolvimento - CPqD ou seu sucessor.
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PARAGRAFO UNICO As decisoes relativas ao inciso XXXIII desta clausula
em contratos de prestacao de servicos e assistencia tecnica, entre a
Concessionaria e terceiros vinculados aos acionistas controladores, deverao ser
tomadas em assembleia geral extraordinaria, devendo a Concessionaria fazer
constar no seu estatuto social, ate 31.12.98, que as acoes preferenciais terao
direito a voto nessas decisoes, sem prejuizo do disposto no (S) 1 do artigo 115
da Lei n 6.404, de 15 de dezembro de 1976.
CLAUSULA 15.2. - Sem prejuizo das demais disposicoes constantes deste
Contrato e das garantias asseguradas em lei constituem direitos da
Concessionaria:
I - explorar o servico concedido dentro de sua estrategia
empresarial, definindo livremente seus investimentos, respeitadas a
regulamentacao editada pela ANATEL e as disposicoes deste Contrato;
II - indicar representante para acompanhar a atividade
fiscalizatoria da ANATEL;
III - interromper, nos termos da clausula 8.3 deste Contrato, ou nao
atender a solicitacao de prestacao de servico para o assinante
inadimplente com as suas obrigacoes contratuais com a
Concessionaria;
IV- solicitar a instauracao do procedimento de arbitragem nas
hipoteses e na forma prescrita no Capitulo XXX deste Contrato;
V - ter preservadas as condicoes economicas de exploracao do servico
contra alteracoes que importem em enriquecimento imotivado da Uniao
ou dos usuarios nos termos do disposto no Capitulo XII;
VI - solicitar a revisao das tarifas aplicadas ao servico concedido,
na forma do disposto neste Contrato;
VII - solicitar da ANATEL a confidencialidade de informacao colhida
no exercicio da atividade fiscalizatoria, nos termos do disposto
neste Contrato:
VIII - empregar na execucao dos servicos equipamentos e infra-
estrutura que nao lhe pertencam, observado o disposto na clausula
21.1. deste Contrato; e
IX - contratar com terceiros o desenvolvimento de atividades
inerentes, acessorias ou complementares ao servico, bem como a
implementacao de projetos
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associados.
CLAUSULA 15.3. - Durante a vigencia do Contrato, a Concessionaria sera
a unica responsavel, perante terceiros, pelos atos praticados pelo seu pessoal,
prepostos e contratados, na prestacao do Servico Telefonico Fixo Comutado, bem
como pelo uso dos equipamentos, instalacoes ou redes, excluidas a Uniao e a
ANATEL de quaisquer reclamacoes e/ou indenizacoes.
CLAUSULA 15.4. - A Concessionaria nao podera opor embaracos a obras de
interesse publico, qualquer que seja a sua natureza, sempre que se tornar
necessaria a remocao de instalacoes ou de redes telefonicas para viabilizacao de
intervencoes promovidas, direta ou indiretamente, por qualquer orgao ou entidade
da Administracao publica.
CLAUSULA 15.5. - A Concessionaria devera pactuar diretamente com cada
Prefeitura Municipal das areas de exploracao do servico bem como com as demais
Concessionarias de servicos publicos as condicoes para colocacao de postes e
cruzetas para suspensao de suas linhas e cabos aereos, bem como dutos e
canalizacoes subterraneos destinados a passagem de cabos sob ruas e logradouros
publicos.
(S) 1 - A Concessionaria diligenciara junto aos titulares de bens
publicos ou privados sobre ou sob os quais tenha que passar dutos ou
canalizacoes ou ainda instalar suportes para colocacao dos mesmos, obtendo o
respectivo consentimento ou servidao para tal fim.
(S) 2 - A Concessionaria devera promover junto as respetivas
autoridades municipais as tratativas necessarias ao estabelecimento das
condicoes para superacao das interferencias na rede necessaria a prestacao do
servico, inclusive quanto ao corte e poda de arvores.
CLAUSULA 15.6. - Nos termos do disposto no art. 73 da Lei n 9.472, de
1997, a Concessionaria podera utilizar postes, dutos, condutos e servidoes
pertencentes ou controlados por outros prestadores de servicos de
telecomunicacoes ou de outros servicos de interesse publico.
(S) 1 - A utilizacao dos meios referidos no caput desta clausula
devera ser realizada de forma nao discriminatoria e a precos justos e razoaveis.
(S) 2 - A Concessionaria devera tornar disponivel aos demais
prestadores de servicos de telecomunicacoes, classificados pela ANATEL como de
interesse coletivo, os meios de sua propriedade ou por ela controlados,
referidos no caput desta clausula, respeitadas as mesmas condicoes previstas no
paragrafo anterior.
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(S) 3 - Sempre que a Concessionaria nao chegar a um acordo com os
demais prestadores de servicos acerca da utilizacao dos meios referidos nesta
clausula, cabera a ANATEL, isoladamente ou em conjunto com os demais orgaos
reguladores envolvidos, definir as condicoes desta utilizacao.
CLAUSULA 15.7. - A Concessionaria mantera, durante todo o prazo da
presente concessao, central de informacao e de atendimento do usuario,
funcionando 24 (vinte e quatro) horas por dia, capacitada para receber e
processar solicitacoes, queixas e reclamacoes encaminhadas pelos usuarios
pessoalmente ou por qualquer meio de comunicacao a distancia.
(S) 1 - A Concessionaria devera divulgar a todos os usuarios os
enderecos e codigos de acesso a sua central de informacao e de atendimento do
usuario, os quais deverao constar necessariamente do Contrato - Padrao com eles
firmado para prestacao do servico.
(S) 2 - A Concessionaria devera tornar disponivel e divulgar codigo
de acesso facil e gratuito para o encaminhamento de solicitacoes dos usuarios
por via telefonica.
(S) 3 - Todas as solicitacoes, reclamacoes ou queixas encaminhadas
pelos usuarios, por qualquer meio, deverao receber um numero de ordem, que sera
informado ao interessado para possibilitar seu acompanhamento.
(S) 4 - O usuario sera informado pela Concessionaria nos prazos
definidos no Plano Geral de Metas de Qualidade, quanto as providencias adotadas
em funcao da sua solicitacao, reclamacao ou queixa.
(S) 5 - Caso a ANATEL constate existir dificuldade de acesso pelos
usuarios da central de informacao e de atendimento podera determinar a
Concessionaria a ampliacao dos meios de acesso disponiveis, sob pena de
considerar desatendida a obrigacao prevista nesta clausula.
CLAUSULA 15.8 - Na contratacao de servicos e na aquisicao de
equipamentos e materiais vinculados ao servico objeto deste Contrato, a
Concessionaria se obriga a considerar ofertas de fornecedores independentes,
inclusive os nacionais, e basear suas decisoes, com respeito as diversas ofertas
apresentadas, no cumprimento de criterios objetivos de preco, condicoes de
entrega e especificacoes tecnicas estabelecidas na regulamentacao pertinente.
(S) 1 - Nos casos em que haja equivalencia entre ofertas, a empresa
Concessionaria se obriga a utilizar como criterio de desempate, a preferencia a
servicos oferecidos por empresas situadas no Pais,
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equipamentos e materiais produzidos no Pais, e, entre eles, aqueles com
tecnologia nacional. A equivalencia referida nesta clausula sera apurada quando,
cumulativamente:
I - o preco nacional for menor ou igual ao preco do importado, posto
no territorio nacional, incluidos os tributos incidentes;
II - o prazo de entrega for compativel com as necessidades do
servico; e
III - sejam satisfeitas as especificacoes tecnicas estabelecidas na
regulamentacao pertinente e possuam certificacao expedida ou aceita
pela ANATEL, quando aplicavel.
(S) 2 - Compreende-se como servicos aqueles relacionados com a
pesquisa e desenvolvimento, planejamento, projeto, implantacao e instalacao
fisica, operacao, manutencao, supervisao e testes de avaliacao de sistemas de
telecomunicacoes.
(S) 3 - A operacionalizacao do disposto nesta clausula sera objeto de
regulamentacao por parte da ANATEL, incluindo sancoes aplicaveis.
CLAUSULA 15.9. Ressalvadas as alteracoes objeto de previa aprovacao
da ANATEL, a Concessionaria mantera os compromissos para expansao e conformidade
dos cabos submarinos e terrestres nacionais constantes do Anexo 03 Rotas
Opticas, deste Contrato.
PARAGRAFO UNICO - A desativacao de rotas em cabos de fibras-opticas,
bem como a alteracao do perfil de rotas e redes nacionais da Concessionaria
dependerao de previa aprovacao da ANATEL.
CLAUSULA 15.10. A Concessionaria se obriga a manter e expandir a rede
nacional de fibras opticas, interligando todas as capitais de Estados da
Federacao ate 31 de dezembro de 2003.
(S) 1 - Ate 31 de dezembro de 2000 deverao estar interligadas todas as
capitais de Estados da Federacao a excecao de Boa Vista, Cuiaba, Macapa, Manaus,
Porto Velho e Rio Branco.
(S) 2 - A ANATEL podera isentar a Concessionaria da exigencia
estabelecida no caput desta clausula, se esta solicitar e assumir o compromisso
de realizar a interligacao das capitais, nos prazos indicados, usando meios
alternativos, de tecnologia digital, com capacidade e qualidade plenamente
compativeis com as necessidades dos usuarios e do mercado a ser atendido.
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CAPITULO XVI - DAS OBRIGACOES E PRERROGATIVAS DA ANATEL
CLAUSULA 16.1. - Alem das outras prerrogativas inerentes a sua funcao
de orgao regulador e das demais obrigacoes decorrentes do presente Contrato,
incumbira a ANATEL:
I - acompanhar e fiscalizar a prestacao do servico e a conservacao
dos bens reversiveis, visando ao atendimento das normas,
especificacoes e instrucoes estabelecidas neste Contrato e em seus
anexos;
II - proceder as vistorias para a verificacao da adequacao das
instalacoes e equipamentos, determinando as necessarias correcoes,
reparos, remocoes, reconstrucoes ou substituicoes, as expensas da
Concessionaria;
III - regulamentar permanentemente a prestacao do servico concedido;
IV - intervir na execucao do servico quando necessario, a fim de
assegurar sua regularidade e o fiel cumprimento do Contrato e das
normas legais pertinentes;
V - aplicar as penalidades previstas na regulamentacao do servico e,
especificamente, neste Contrato;
VI - deliberar sobre os Planos Alternativos de Servico de Longa
Distancia Nacional apresentados pela Concessionaria;
VII - autorizar o reajuste e proceder a revisao das tarifas, nos
termos e conforme o disposto neste Contrato;
VIII - atuar dentro dos limites previstos neste Contrato com vista a
impedir o enriquecimento imotivado das partes, nos termos deste
Contrato;
IX - zelar pela boa qualidade do servico, receber, apurar e
solucionar queixas e reclamacoes dos usuarios, cientificando-os, em
ate noventa dias, das providencias tomadas com vista a repressao de
infracoes a seus direitos;
X - declarar extinta a Concessao nos casos previstos neste Contrato;
XI - zelar pela garantia de interconexao, dirimindo eventuais
pendencias surgidas entre a Concessionaria e
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demais prestadores;
XII - zelar pelo atendimento das metas de universalizacao previstas
neste Contrato, e as metas que vierem a ser estabelecidas nos Planos
de Metas posteriores;
XIII - acompanhar permanentemente o relacionamento entre a
Concessionaria e demais prestadores de servicos de telecomunicacoes,
dirimindo conflitos surgidos entre eles;
XIV - coibir condutas da Concessionaria contrarias ao regime de
competicao, observadas as competencias legais do CADE;
XV - propor, por solicitacao da Concessionaria, ao Presidente da
Republica, por intermedio do Ministerio das Comunicacoes, a
declaracao de utilidade publica para fins de desapropriacao ou
instituicao de servidao administrativa, dos bens necessarios a
implantacao ou manutencao do servico objeto deste Contrato;
XVI - exercer a atividade fiscalizatoria do servico nos termos do
disposto neste Contrato; e
XVII - arrecadar as taxas relativas ao FISTEL, adotando as
providencias previstas na legislacao vigente.
CAPITULO XVII - DA CONCESSIONARIA
CLAUSULA 17.1. - A Concessionaria e empresa constituida segundo as
leis brasileiras, sob natureza de sociedade por acoes, tendo por finalidade
exclusiva a exploracao do servico objeto da presente concessao, ressalvados os
servicos nos termos do disposto no (S) 3 do art. 207 da Lei n 9.472, de 1997.
PARAGRAFO UNICO - Se aprovada alteracao estatutaria da Concessionaria,
os documentos que a formalizarem serao encaminhados a ANATEL para arquivamento,
passando a fazer parte integrante do presente Contrato.
CLAUSULA 17.2. - A Concessionaria e seus controladores se obrigam a
manter, durante todo o prazo da concessao e de sua prorrogacao, no minimo, todas
as condicoes de prestacao do servico e de capacitacao existentes a epoca da
entrada em vigencia do presente Contrato.
CLAUSULA 17.3. A Concessionaria e seus controladores se
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obrigam a assegurar, durante o prazo da concessao e sua prorrogacao, a efetiva
existencia, em territorio nacional, dos centros de deliberacao e implementacao
das decisoes estrategicas, gerenciais e tecnicas envolvidas no cumprimento do
presente Contrato, inclusive fazendo refletir tal obrigacao na composicao e nos
procedimentos decisorios de seus orgaos de administracao.
PARAGRAFO UNICO A Concessionaria devera inserir, no seu estatuto, ate
31 de dezembro de 1998, disposicoes que garantam o cumprimento do disposto no
caput desta clausula.
CAPITULO XVIII - DA TRANSFERENCIA DA CONCESSAO E DO CONTROLE DA CONCESSIONARIA
Clausula 18.1. - A transferencia da concessao ou do controle, direto
ou indireto, da Concessionaria so sera autorizada pela ANATEL, observados o
Plano Geral de Outorgas e o art. 202 da Lei n 9.472, de 1997, quando:
I - o cessionario preencha todos os requisitos estabelecidos nos
termos do art. 200 da Lei n 9.472, de 1997; e
II - a medida nao prejudique a competicao e nao coloque em risco a
execucao do Contrato e as normas gerais de protecao a ordem
economica.
PARAGRAFO UNICO - O descumprimento de qualquer disposicao constante
desta clausula importara na caducidade da presente concessao.
CLAUSULA 18.2. - Poderao ser livremente dadas em caucao as acoes da
Concessionaria cuja transferencia nao altere seu controle.
PARAGRAFO UNICO - No caso de caucao de acoes que importem oneracao do
patrimonio da Concessionaria, deverao ser previstos nos contratos de
financiamento dispositivos que submetam os credores, em caso de execucao, as
regras constantes deste Capitulo.
CAPITULO XIX - DO REGIME DE FISCALIZACAO
CLAUSULA 19.1. - A ANATEL exercera a fiscalizacao do servico ora
concedido a fim de assegurar o cumprimento dos pressupostos de universalizacao e
continuidade inerentes ao regime publico de sua prestacao, bem como para zelar
pelo cumprimento das metas e dos compromissos constantes do presente Contrato.
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(S) 1 - A fiscalizacao a ser exercida pela ANATEL compreendera a
inspecao e o acompanhamento das atividades, equipamentos e instalacoes da
Concessionaria, implicando amplo acesso a todos os dados e informacoes da
Concessionaria ou de terceiros.
(S) 2 - As informacoes colhidas no exercicio da atividade
fiscalizatoria serao publicadas na Biblioteca, a excecao daquelas que, por
solicitacao da Concessionaria, sejam consideradas pela ANATEL como de carater
confidencial.
(S) 3 - As informacoes que venham a ser consideradas de carater
confidencial nos termos do paragrafo anterior, somente serao utilizadas nos
procedimentos correlacionados ao presente Contrato, respondendo a ANATEL e
aqueles por ela indicados por qualquer divulgacao, ampla ou restrita, de tais
informacoes fora deste ambito de utilizacao.
CLAUSULA 19.2. - A Concessionaria, por intermedio de representante
indicado, podera acompanhar toda e qualquer atividade da fiscalizacao da ANATEL,
nao podendo obstar ou impedir a atuacao da fiscalizacao, sob pena de incorrer
nas penalidades previstas neste Contrato.
CAPITULO XX - DA PRESTACAO DE CONTAS PELA CONCESSIONARIA
CLAUSULA 20.1. - Na forma da regulamentacao, a Concessionaria devera
enviar periodicamente a ANATEL relatorios estatisticos e circunstanciados de
todo o servico prestado, contendo, entre outros elementos, os indicadores de
expansao e abrangencia da rede de telefonia, bem como noticiando o estagio
tecnologico dos equipamentos utilizados.
CAPITULO XXI - DOS BENS VINCULADOS A CONCESSAO
CLAUSULA 21.1. - Integram o acervo da presente concessao, sendo a ela
vinculados, todos os bens pertencentes ao patrimonio da Concessionaria e que
sejam indispensaveis a prestacao do servico ora concedido, especialmente aqueles
qualificados como tal no Anexo 01 - Qualificacao dos Bens Reversiveis da
Prestacao do Servico Telefonico Fixo Comutado Longa Distancia Nacional.
(S) 1 - Integram tambem o acervo dos bens vinculados a concessao as
autorizacoes de uso do espectro de radiofrequencias que lhe sejam outorgadas e,
quando couber, o direito de uso de posicoes orbitais, observado o disposto nos
artigos 48 e 161 da Lei n 9.472, de 1997, e
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ainda o constante da clausula 4.1. do presente Contrato.
(S) 2 - Em relacao aos bens vinculados a concessao, a Concessionaria
somente podera empregar diretamente na prestacao do servico ora concedido
equipamentos, infra-estrutura, logiciarios ou qualquer outro bem que nao sejam
de sua propriedade mediante previa e expressa anuencia da ANATEL, que podera
dispensar tal exigencia nos casos e hipoteses dispostas na regulamentacao.
(S) 3 - Havendo risco a continuidade dos servicos ou impedimento da
reversao dos bens vinculados a concessao, a ANATEL podera negar autorizacao para
utilizacao de bens de terceiros ou exigir que o respectivo Contrato contenha
clausula pela qual o proprietario se obriga, em caso de extincao da concessao, a
manter os Contratos e em subrogar a ANATEL nos direitos dele decorrentes.
CAPITULO XXII - DO REGIME DE REVERSAO
CLAUSULA 22.1. - Quando da extincao da concessao reverterao
automaticamente a ANATEL todos os bens vinculados a concessao na forma do
Capitulo XXI supra, resguardado a Concessionaria o direito as indenizacoes
previstas na legislacao e neste Contrato.
PARAGRAFO UNICO - Ate 180 (cento e oitenta) dias apos o advento da
extincao da concessao sera procedida uma vistoria dos bens que a integram e
lavrado um Termo de Devolucao e Reversao dos Bens, com indicacao detalhada do
estado de conservacao dos mesmos, facultado o acompanhamento por
representante(s) da Concessionaria.
CLAUSULA 22.2. - A Concessionaria se obriga a entregar os bens
reversiveis em perfeitas condicoes de operacionalidade, utilizacao e manutencao,
sem prejuizo do desgaste normal resultante do seu uso.
PARAGRAFO UNICO - Os bens reversiveis serao transferidos a ANATEL
livres de quaisquer onus ou encargos, observada a hipotese do paragrafo 2 da
clausula seguinte.
CLAUSULA 22.3. - A reversao dos bens de que trata o Capitulo XXI
supra, ao final do prazo contratual, sera feita sem indenizacao, ressalvado o
disposto nesta clausula.
(S) 1 - Somente cabera indenizacao em favor da Concessionaria caso
existam, ao final da Concessao, bens ainda nao integralmente amortizados, cuja
aquisicao tenha sido previamente autorizada pela ANATEL, ou adquiridos antes da
assinatura deste Contrato, com o objetivo de garantir a continuidade e a
atualidade do servico concedido.
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(S) 2 - Alternativa ou supletivamente a indenizacao disposta no
paragrafo anterior, a ANATEL podera admitir a transferencia de bens que tenham
sido dados em garantia do seu proprio financiamento, subrogando-se na parcela
financiada ainda inadimplida.
CLAUSULA 22.4. - Ao final da Concessao a ANATEL procedera a avaliacao
dos bens referidos na clausula 21.1, podendo recusar a reversao de bens que
considere prescindiveis ou inaproveitaveis para aplicacao na exploracao do
servico, garantido o direito da Concessionaria ao contraditorio, inclusive
atraves da elaboracao e apresentacao, as suas expensas, de laudos ou estudos
demonstradores da necessidade de reversao.
PARAGRAFO UNICO - Caso a Concessionaria nao concorde com a decisao da
ANATEL quanto ao disposto nesta clausula admitir-se-a o recurso ao processo de
solucao de divergencias prescrito neste Contrato.
CAPITULO XXIII - DO PLANO DE SEGUROS
CLAUSULA 23.1. - Durante todo o prazo de vigencia da concessao, a
Concessionaria devera manter com Companhia Seguradora de porte compativel com o
objeto segurado registrada junto aos orgaos regulatorios do setor, as seguintes
apolices de seguros necessarias para garantir a efetiva e abrangente cobertura
de riscos inerentes ao desenvolvimento de todas as atividades contempladas no
presente Contrato:
I - seguro do tipo "todos os riscos" para danos materiais cobrindo a
perda, destruicao ou dano em todos ou em qualquer bem integrante da
concessao, devendo tal seguro contemplar todas as coberturas
compreendidas de acordo com os padroes internacionais;
II - seguro de preservacao de condicoes economicas para continuidade
da exploracao do servico, cobrindo, no minimo, os custos
operacionais contra variacoes nas receitas da Concessionaria,
decorrentes de sinistros ou modificacoes nas condicoes de exploracao
do Contrato que nao sejam cobertas pelos seguros de danos materiais,
desde que a pactuacao desta modalidade de seguro seja admitida pelas
normas brasileiras e expressamente autorizada pelo Instituto de
Resseguros do Brasil IRB ou orgao equivalente; e
III - seguro garantia do cumprimento das obrigacoes relativas a
qualidade e a universalizacao previstas neste
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Contrato ("Performance Bond", carta de credito e valor mantido em
caucao) no valor correspondente a 10% do montante de investimentos
estimado a cada ano para cumprimento das metas previstas no presente
Contrato.
(S) 1 - A Concessionaria devera fazer constar das apolices de seguro
a obrigacao de a Seguradora informar, por escrito, com antecedencia minima de 10
(dez) dias, a Concessionaria e a ANATEL, quaisquer fatos que possam implicar o
cancelamento total ou parcial das apolices contratadas, reducao de coberturas,
aumento de franquias ou reducao dos valores segurados.
(S) 2 - As apolices emitidas em atendimento ao disposto nesta
clausula nao poderao conter obrigacoes, restricoes ou disposicoes que colidam
com as disposicoes do presente Contrato ou com a regulamentacao e deverao conter
declaracao expressa da Seguradora que conhece integralmente o presente ajuste,
inclusive no tocante aos limites dos direitos da Concessionaria.
(S) 3 - No caso de descumprimento, pela Concessionaria, da obrigacao
de manter em plena vigencia as apolices de seguro previstas, a ANATEL,
independentemente da sua faculdade de decretar a intervencao ou a caducidade da
presente concessao, podera proceder a contratacao e ao pagamento direto dos
premios respectivos, correndo os custos por conta da Concessionaria.
(S) 4- Anualmente, ate o final do mes de Janeiro, a Concessionaria
devera apresentar certificado emitido pela(s) seguradora(s) confirmando que
todos os premios vencidos no ano precedente encontram-se quitados e que as
apolices contratadas estao em plena vigencia ou foram renovadas, devendo neste
caso serem encaminhados os termos das novas apolices.
(S) 5 - As apolices referidas nesta clausula deverao obedecer aos
seguintes prazos de apresentacao e vigencia:
I - a apolice referida no inciso I do caput desta clausula devera ser
apresentada em ate 90 (noventa) dias, contados da assinatura do presente
Contrato e tera vigencia imediata;
II - a apolice referida no inciso II do caput desta clausula devera
ser apresentada ate 30 de novembro de 1999, com vigencia a partir de 1 de
janeiro de 2000; e
III - a apolice referida no inciso III do caput desta clausula devera
ser apresentada ate 30 de novembro de 2000, com vigencia a partir de 1 de
janeiro de 2001.
(S) 6 - A ANATEL podera alterar as coberturas ou os
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prazos de apresentacao das apolices referidas nesta clausula, com vistas a
adequar tais exigencias a regulamentacao editada pela Superintendencia de
Seguros Privados SUSEP ou as condicoes estabelecidas pelo Instituto de
Resseguros do Brasil IRB, bem como quando forem editadas normas que obstem a
contratacao dos seguros aqui referidos ou quando nao existam condicoes de
mercado amplo e competitivo que permitam a sua contratacao a custos razoaveis.
CAPITULO XXIV - DA INTERCONEXAO
Clausula 24.1. - A Concessionaria tem obrigacao de permitir,
facilitar, tornar disponivel e efetivar a interconexao, a rede por ela operada,
de redes de outros prestadores de servicos de telecomunicacoes, em regime
publico ou privado, sempre que estes o solicitem, observando e fazendo observar
as normas e regulamentos editados pela ANATEL a este respeito.
CLAUSULA 24.2. - As tarifas de uso de rede vigentes na assinatura do
presente Contrato sao aquelas constantes da Portaria n. 2.505, de 20 de
dezembro de 1996, do Ministerio das Comunicacoes e poderao ser atualizadas e
revistas consoante o disposto neste Contrato e na regulamentacao.
CLAUSULA 24.3. A Concessionaria tera os mesmos direitos e obedecera as
mesmas condicoes de interconexao a que estejam sujeitos os demais prestadores.
PARAGRAFO UNICO - A Concessionaria devera tornar disponivel para
interconexao os elementos da rede com maior nivel de desagregacao tecnicamente
possivel, observada a regulamentacao da ANATEL.
CAPITULO XXV - DAS SANCOES
CLAUSULA 25.1. - Na execucao do presente Contrato, a Concessionaria se
sujeita as seguintes sancoes, que serao aplicadas mediante decisao fundamentada
da ANATEL, assegurado o seu direito de defesa nos termos do disposto no seu
Regimento Interno e sem prejuizo das demais penalidades previstas na
regulamentacao:
I - por violacao das disposicoes do presente Contrato que importe em
nao atendimento de metas de universalizacao; multa de ate
R$50.000.000,00 (cinquenta milhoes de reais);
II - por ato ou omissao contrario as disposicoes constantes
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deste Contrato que acarrete prejuizo a competicao no setor de
telecomunicacoes; multa de ate R$ 50.000.000,00 (cinquenta milhoes
de reais);
III - por violacao as disposicoes contratuais que importe em nao
cumprimento das metas e parametros de qualidade na prestacao do
servico; multa de ate R$40.000.000,00 (quarenta milhoes de reais);
IV - por outro ato ou omissao nao enquadrado nos incisos anteriores
que importe em violacao aos direitos do usuario definidos neste
Contrato ou acarrete-lhe prejuizo; multa de ate R$30.000.000,00
(trinta milhoes de reais);
V - por ato ou omissao que viole o disposto na clausula 15.8 deste
Contrato, referente a contratacao de servicos e aquisicao de
equipamentos e materiais produzidos no Pais; multa de R$
30.000.000,00 (trinta milhoes de reais);
VI - por qualquer ato ou omissao que traga obice ou dificuldade ao
exercicio da atividade fiscal da ANATEL prevista neste Contrato;
multa de ate R$20.000.000 (vinte milhoes de reais);
VII - por ato, omissao ou negligencia que coloque em risco a
seguranca das instalacoes; multa de ate R$15.000.000,00 (quinze
milhoes de reais);
VIII - por ato ou omissao que acarrete dano ou ponha em risco bens
ou equipamentos vinculados a concessao; multa de ate R$
10.000.000,00 (dez milhoes de reais); e
IX - pelo descumprimento de qualquer obrigacao prevista
expressamente neste Contrato, exceto as indicadas nos incisos
anteriores, cujas sancoes ja estao neles estabelecidas; multa de ate
R$ 10.000.000,00 (dez milhoes de reais).
(S) 1 - A infracao prescrita no inciso I desta clausula estara
caracterizada quando a Concessionaria nao cumprir, nos prazos previstos neste
Contrato, suas obrigacoes quanto a expansao do servico, ampliacao da prestacao
do servico, atraves de telefones de uso publico e atendimento a localidades,
consoante o disposto no Plano Geral de Metas de Universalizacao, e a sancao sera
aplicada levando em consideracao, alem dos principios gerais constantes deste
Capitulo, os seguintes fatores:
a) a diferenca entre o estagio de implementacao verificado e a meta
definida no Contrato;
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b) a possibilidade de recuperacao do cronograma de implementacao as
expensas da Concessionaria;
c) o prejuizo para a politica refletida no Plano Geral de Metas para
a Universalizacao;
d) os danos trazidos aos beneficiarios diretos das metas
desatendidas; e
e) eventuais circunstancias de ordem tecnica ou economica que possam
atenuar a responsabilidade da Concessionaria, sem elidi-la.
(S) 2 - A infracao prescrita no inciso II supra tera sua gravidade
definida exclusivamente em funcao dos criterios gerais prescritos na clausula
25.2 e sera caracterizada pela conduta da Concessionaria que, direta ou
indiretamente, possa importar prejuizo a competicao no setor, especialmente:
a) oferecimento de obice ou dificuldade a opcao por outro prestador
do servico concedido ou do servico de longa distancia nacional e
internacional;
b) recusa em dar interconexao a prestador de servico de
telecomunicacoes;
c) oferecimento de obices ou dificuldades a atividade de prestadores
de servico de valor adicionado;
d) condicionamento da prestacao do servico concedido ou oferecimento
de vantagens em funcao de aquisicao, pelo usuario, de servico
estranho ao presente Contrato;
e) execucao de qualquer servico de telecomunicacoes que nao seja
objeto de concessao ou autorizacao outorgadas pela ANATEL em seu
favor;
f) pela nao preservacao dos niveis de qualidade praticados quanto a
interconexao; e
g) procrastinacao na entrega de informacoes essenciais a atividade
dos demais prestadores, especialmente no que tange as bases
cadastrais.
(S) 3 - A infracao prescrita no inciso III desta clausula sera
caracterizada pela prestacao reiterada do servico concedido aquem dos parametros
de qualidade definidos no Plano Geral de Metas de Qualidade ou pela comprovada
violacao dos indicadores referidos no Capitulo VI, sendo na primeira hipotese
considerada infracao grave, especialmente:
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a) a nao alocacao na operacao e manutencao do servico dos recursos
humanos e materiais necessarios a preservacao dos padroes minimos de
qualidade; e
b) negligencia na modernizacao da rede que afete a qualidade do
servico.
(S) 4 - A infracao prescrita no inciso IV supra tera sua escala de
gravidade definida em funcao do numero de usuarios atingidos e dos prejuizos
causados, ficando caracterizada pela violacao, comissiva ou omissiva, direta ou
indireta, de obrigacao prevista neste Contrato, que nao implique afronta aos
deveres quanto a universalizacao e qualidade, mas que acarrete violacao dos
direitos dos usuarios, especialmente:
a) a interrupcao na prestacao dos servicos por prazo superior ao
estabelecido no Plano de Metas de Qualidade, salvo a ocorrencia das
situacoes previstas no paragrafo unico da clausula 6.3;
b) a recusa em prestar o servico concedido a qualquer interessado;
c) o nao cumprimento do dever de prestar informacoes ao usuario;
d) a violacao do sigilo de telecomunicacoes, fora das hipoteses
legais, ainda que praticada por terceiros nas instalacoes sob
responsabilidade da Concessionaria;
e) a nao manutencao de central de informacao e de atendimento ao
usuario na forma prescrita neste Contrato;
f) a cobranca de tarifa ou preco em desacordo com as regras
estipuladas neste Contrato e na regulamentacao; e
g) a restricao ao exercicio do direito a livre escolha entre os
Planos de Servico de Longa Distancia Nacional.
(S) 5 - A sancao prevista no inciso V sera caracterizada pela
verificacao de violacao da obrigacao contida na clausula 15.8 e tera sua
gravidade definida conforme dispuser a regulamentacao.
(S) 6 - A infracao prescrita no inciso VI supra tera sua gravidade
definida em funcao da relevancia da atividade fiscal obstada e sera
caracterizada pela violacao, comissiva ou omissiva, direta ou indireta, da
Concessionaria ou de seus prepostos, que impeca ou dificulte a atividade de
fiscalizacao exercida pela ANATEL, seus prepostos, agentes ou mesmo pelos
usuarios, especialmente:
a) recusa da Concessionaria em atender pedido de
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informacao formulado pela ANATEL relacionada ao servico concedido ou
aos bens a ele afetos;
b) oferecimento de entrave a atuacao dos agentes de fiscalizacao da
ANATEL;
c) omissao em cumprir obrigacao de publicidade prevista neste
Contrato, ou na regulamentacao; e
d) nao envio ou envio intempestivo de qualquer informacao, dado,
relatorio ou documento que, por forca da regulamentacao ou deste
Contrato, deveria ser remetida a ANATEL.
(S) 7 - A infracao prescrita no inciso VII desta clausula tera sua
gravidade definida em funcao da proporcao do risco ensejado e sera caracterizada
pela conduta da Concessionaria que afronte as regras dispostas no presente
Contrato e na regulamentacao, viole as normas e padroes tecnicos de seguranca ou
que coloquem em risco as instalacoes afetas ao servico concedido, especialmente:
a) o emprego, no servico concedido, de equipamento nao certificado
pela ANATEL, quando exigida a certificacao;
b) a nao alocacao na operacao e manutencao do servico dos recursos
humanos e materiais necessarios a preservacao dos padroes minimos de
seguranca; e
c) nao adocao de precaucoes que sejam recomendadas para o servico
ora concedido.
(S) 8 - A infracao prescrita no inciso VIII desta clausula tera sua
gravidade definida em funcao da relevancia, do vulto economico e da
essencialidade dos bens envolvidos e sera caracterizada pela conduta da
Concessionaria que contraria o disposto neste Contrato ou na regulamentacao e
que possa por em risco bens ou equipamentos vinculados a presente concessao ou
dificultar a reversao dos mesmos, em especial:
a) a nao manutencao de inventario e registro dos bens referidos na
clausula 21.1.;
b) pelo emprego, diretamente na prestacao do servico objeto da
presente concessao, de bens de terceiros sem previa anuencia da
ANATEL ou sem que esta seja dispensada em regulamento; e
c) pela negligencia na conservacao dos bens reversiveis, observada a
regulamentacao.
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(S) 9 - A sancao prevista no inciso IX sera caracterizada pela
verificacao de violacao de obrigacao contratual nao compreendida nos incisos
anteriores, em especial aquela prevista no inciso XXXI da clausula 15.1.
(S) 10 - A sancao prevista no inciso II supra tem carater contratual
e sera aplicada pela ANATEL independentemente das providencias que venham a ser
adotadas pelo CADE.
(S) 11 - O nao recolhimento de qualquer multa fixada nos termos do
disposto na presente clausula no prazo fixado pela ANATEL caracterizara falta
grave, ensejando a intervencao na Concessionaria nos termos do disposto no
Capitulo XXVIII, alem de implicar a cobranca de multa moratoria de 0,33% (zero
virgula trinta e tres por cento) ao dia, ate o limite de 10% (dez por cento),
acrescida da taxa referencial SELIC para titulos federais, a ser aplicada sobre
o valor da divida, considerando todos os dias de atraso de pagamento.
CLAUSULA 25.2. - Para aplicacao das multas contratuais previstas
neste Capitulo serao observadas as regras contidas no Titulo VI do Livro III da
Lei n 9.472, de 1997, e na regulamentacao.
(S) 1 - Na definicao da gravidade das sancoes e na fixacao das
multas, a ANATEL observara as seguintes circunstancias:
I - a proporcionalidade entre a intensidade do apenamento e a
gravidade da falta, inclusive quanto ao numero dos usuarios
atingidos;
II - os danos resultantes da infracao para o servico e para os
usuarios;
III - a vantagem auferida pela Concessionaria em virtude da
infracao;
IV - a participacao da Concessionaria no mercado dentro de sua area
geografica de prestacao do servico;
V - a situacao economica e financeira da Concessionaria, em especial
a sua capacidade de geracao de receitas e o seu patrimonio;
VI - os antecedentes da Concessionaria;
VII - a reincidencia especifica, assim entendida a repeticao de
falta de igual natureza apos o recebimento de notificacao anterior;
e
VIII - as circunstancias gerais agravantes ou atenuantes da
infracao.
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(S) 2 - Independente dos criterios especificos de graduacao previstos
em cada inciso da clausula anterior e de outros previstos na regulamentacao, a
gradacao das penas observara a seguinte escala:
I - a infracao sera considerada leve quando decorrer de condutas
involuntarias ou escusaveis da Concessionaria e da qual ela nao se
beneficie;
II - a infracao sera considerada de gravidade media quando decorrer de
conduta inescusavel, mas que nao traga para a Concessionaria qualquer
beneficio ou proveito, nem afete numero significativo de usuarios; e
III - a infracao sera considerada grave quando a ANATEL constatar
presente um dos seguintes fatores:
a) ter a Concessionaria agido com ma-fe;
b) da infracao decorrer beneficio direto ou indireto para a
Concessionaria;
c) a Concessionaria for reincidente na infracao;
d) o numero de usuarios atingido for significativo; e
e) na hipotese prevista no (S) 10 da clausula anterior.
(S) 3 - A criterio da ANATEL, nas infracoes classificadas como leves,
quando da sua primeira ocorrencia, podera ser aplicada a pena de advertencia a
Concessionaria, que sera comunicada formalmente da sancao, sem prejuizo da
publicacao da decisao na Imprensa Oficial.
(S) 4 - Para aplicacao das sancoes previstas neste Capitulo sera
observado o Procedimento Sancionatorio previsto no Regimento Interno da ANATEL.
(S) 5 - Nas infracoes previstas no inciso IV da clausula 25.1. a
ANATEL podera determinar que a Concessionaria abata do valor a ser recolhido, a
titulo de multa, montantes a serem pagos como ressarcimento aos usuarios
atingidos, fixando no ato de aplicacao da pena os criterios para o
ressarcimento, o prazo em que deve ser pago e o valor maximo do abatimento.
(S) 6 - A hipotese prevista no paragrafo anterior so podera ser
adotada quando verificado que o interesse ou a necessidade dos usuarios nao
elidira a responsabilidade da Concessionaria pelas demais indenizacoes civis
devidas.
CLAUSULA 25.3. - As multas previstas nesta clausula serao aplicadas
sem prejuizo da caracterizacao das hipoteses de intervencao ou
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declaracao de caducidade previstas no presente Contrato.
PARAGRAFO UNICO - Em caso de inexecucao total ou parcial do ajuste ou
de atrasos injustificados superiores a 120 (cento e vinte) dias no cumprimento
das metas previstas neste Contrato, a Concessionaria estara sujeita a decretacao
de caducidade da Concessao nos termos do disposto na clausula 26.4.
CLAUSULA 25.4. - Os valores das multas previstas neste Capitulo serao
reajustados, anualmente, mediante a aplicacao do IGP-DI, vencendo o primeiro
reajuste apos um ano da assinatura do presente Contrato.
CAPITULO XXVI - DA EXTINCAO DA CONCESSAO
Clausula 26.1. - Considerar-se-a extinto o Contrato de concessao nas
seguintes hipoteses:
I - termino do prazo de concessao do servico, desde que nao tenha sido
prorrogado nos termos do presente Contrato;
II - encampacao, consoante o Art. 113 da Lei n 9.472, de 1997;
III - caducidade, nos termos do disposto no artigo 114 da Lei n
9.472, de 1997, e no presente Contrato;
IV - rescisao amigavel ou judicial, nos termos do art. 115 da Lei n
9.472, de 1997; e
V - anulacao.
(S) 1 - Extinta a concessao, retornarao a ANATEL os direitos e
deveres relativos a prestacao do servico concedido, com reversao dos bens
referidos na clausula 22.1, resguardado a Concessionaria o direito as
indenizacoes previstas na legislacao e neste Contrato.
(S) 2 - Apos a extincao da concessao, a ANATEL procedera aos
levantamentos, avaliacoes e liquidacoes necessarios, no prazo de 180 (cento e
oitenta) dias contados da assuncao do servico, salvo na hipotese de termino do
prazo contratual, quando estas providencias deverao ser adotadas pela ANATEL com
antecedencia.
(S) 3 - Extinta a concessao antes do termo contratual, a ANATEL, sem
prejuizo de outras medidas cabiveis, podera:
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I - ocupar, temporariamente, bens moveis e imoveis e valer-se de
pessoal empregado na prestacao do servico necessarios a sua
continuidade; e
II - manter os Contratos firmados pela Concessionaria com terceiros
pelo prazo e nas condicoes inicialmente ajustadas.
CLAUSULA 26.2. - A reversao ao termino do prazo contratual sera
feita sem indenizacao, salvo quando ocorrer a hipotese prevista na clausula
22.3.
CLAUSULA 26.3. - Nos termos do art. 113 da Lei n 9.472, de 1997,
considera-se encampacao a retomada do servico pela ANATEL durante o prazo de
concessao, em face de razao extraordinaria de interesse publico, mediante lei
autorizativa especifica e precedida de pagamento de indenizacao.
CLAUSULA 26.4. - O presente Contrato podera ter sua caducidade
declarada por ato do Conselho Diretor da ANATEL, precedido de processo
administrativo que assegure ampla defesa a Concessionaria, nas hipoteses de:
I - transferencia do controle societario, cisao, fusao,
transformacao da Concessionaria ou ainda incorporacao ou reducao do
seu capital sem a previa aprovacao da ANATEL;
II - transferencia irregular do Contrato;
III - nao cumprimento do compromisso de transferencia referido na
clausula 18.1. e no art. 87 da Lei n 9.472, de 1997;
IV - falencia ou dissolucao da Concessionaria;
V - nao atendimento das exigencias de cobertura por planos de
seguros em afronta as obrigacoes previstas na clausula 23.1. e tal
omissao nao puder, a criterio da ANATEL, ser suprida com a
intervencao; e
VI - quando, nos termos do art. 114, inciso IV, da Lei n 9.472, de
1997, ocorrer qualquer das hipoteses previstas na clausula 28.1. e,
a criterio da ANATEL, a intervencao for considerada inconveniente,
inocua ou ainda injustamente benefica a Concessionaria.
(S) 1 - Sera considerada desnecessaria a intervencao quando a
demanda pelo servico objeto da concessao puder ser atendida, mediante permissao,
por outras prestadoras de modo regular e imediato.
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(S) 2 - A declaracao de caducidade nao elidira a aplicacao das
penalidades cabiveis nos termos deste Contrato pelas infracoes praticadas pela
Concessionaria, nem prejudicara o direito a indenizacao definida nos termos do
Capitulo seguinte.
CLAUSULA 26.5. - A Concessionaria tera direito a rescisao
contratual, judicial ou amigavel, quando por acao ou omissao do Poder Publico, a
execucao do Contrato se tornar excessivamente onerosa, nos termos do art. 115 da
Lei n 9.472, de 1997.
PARAGRAFO UNICO - Nao constitui motivo para a rescisao contratual a
introducao ou a ampliacao da competicao entre os diversos prestadores do servico
objeto da concessao, sendo certo que a Concessionaria assume a presente
concessao ciente de que exercera suas atividades sem qualquer reserva ou
exclusividade de mercado.
CLAUSULA 26.6. - A anulacao sera decretada pela ANATEL em caso de
irregularidade insanavel e grave verificada no presente Contrato.
CAPITULO XXVII- DA INDENIZACAO
CLAUSULA 27.1. - Para fins de calculo de indenizacao, devida pela
ANATEL a Concessionaria nos casos expressamente previstos no presente Contrato,
observar-se-a o seguinte:
I - Termino do prazo contratual - nao cabera indenizacao, exceto se
comprovado que o nao pagamento significa enriquecimento imotivado
por parte da Uniao em funcao da reversao de bens ainda nao
integralmente amortizados, observado o disposto na clausula 22.3.;
II - Encampacao - observado o disposto no art. 113 da Lei n 9.472,
de 1997, a indenizacao, que sera paga previamente ao ato, deve
corresponder ao valor dos bens que reverterem ao poder concedente,
descontada a sua depreciacao.
III - Caducidade - independentemente da aplicacao das penalidades e
da reparacao dos danos decorrentes do inadimplemento, nos termos do
Contrato, a Concessionaria somente podera postular indenizacao se
comprovadamente estiver a ocorrer enriquecimento imotivado por parte
da Uniao pela reversao de bens nao integralmente amortizados ou
depreciados, descontando o valor dos danos causados e das multas
cominadas, bem como, quando o caso, das obrigacoes financeiras nao
satisfeitas;
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IV - Rescisao amigavel ou judicial - nao cabera indenizacao, exceto
se contrariamente for fixado em sentenca judicial; e
V - Anulacao - somente quando comprovado que a Concessionaria nao
concorreu para a ilegalidade, cabera indenizacao correspondente
apenas ao valor efetivo dos bens que reverterem para a Uniao,
calculado na data da decretacao da anulacao, desde que estes bens
ainda nao estejam integralmente amortizados pela exploracao dos
servicos.
(S) 1 O valor provisorio a ser antecipado pela ANATEL para os casos
de encampacao sera calculado na forma prescrita na lei autorizativa especifica.
(S) 2 - Quando advier a caducidade por culpa comprovada da
Concessionaria, esta acarretara tambem:
a) retencao dos creditos decorrentes do Contrato, inclusive com
apropriacao de receitas decorrentes de pagamentos feitos pelos
usuarios do servico;
b) responsabilizacao por prejuizos causados a Uniao e aos usuarios;
c) aplicacao de multas nos termos do disposto no presente Contrato e
na legislacao vigente; e
d) perda do seguro garantia previsto na clausula 23.1.
(S) 3 - Excetuada a hipotese de encampacao, a indenizacao cabivel
para os demais casos de extincao do Contrato sera calculada nos termos deste
capitulo e parcelada pelo numero de meses a que ainda seria vigente a concessao,
devendo a primeira parcela vencer apos um ano da extincao do Contrato.
(S) 4 - A ANATEL podera transferir para o prestador que suceder a
Concessionaria na exploracao do servico, o onus de pagamento das respectivas
indenizacoes, assumindo novamente a obrigacao de pagamento, caso o novo
prestador atrase em mais de 90 (noventa) dias os pagamentos.
CAPITULO XXVIII - DA INTERVENCAO
CLAUSULA 28.1. - A intervencao na Concessionaria podera ser
decretada pela ANATEL, a seu criterio e no interesse publico, atraves de ato
especifico e motivado do seu Conselho Diretor, sempre que, por
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falha da Concessionaria, houver risco quanto a continuidade e seguranca do
servico e em especial nas seguintes situacoes:
I - paralisacao injustificada do servico, assim entendida a
interrupcao da prestacao fora das hipoteses previstas no presente
Contrato e sem a apresentacao de razoes tidas pela ANATEL como aptas
a justifica-la;
II - inadequacao ou insuficiencias reiteradas no servico prestado,
caracterizadas pelo nao atendimento dos parametros de qualidade
previstos no presente Contrato e na regulamentacao, mesmo apos
notificacao de prazo, pela ANATEL, para regularizacao da situacao;
III - pratica de ma administracao que coloque em risco a
continuidade do servico;
IV - pratica reincidente de infracoes definidas como graves nos
termos da clausula 25.1 supra;
V - nao atendimento das metas de universalizacao, assim entendido o
descumprimento injustificado do cronograma de implementacao das
obrigacoes de universalizacao presentes neste Contrato;
VI - recusa injustificada de interconexao, assim entendida a
negativa, delonga ou qualquer atitude protelatoria na negociacao ou
efetivacao da ligacao a sua rede solicitada por outro prestador,
observadas as condicoes de interconexao arbitradas pela ANATEL;
VII - infracao da ordem economica, caracterizada pela aplicacao de
sancoes por pratica contraria a concorrencia; e
VIII - omissao em prestar contas a ANATEL ou oferecimento de obice a
atividade fiscalizatoria que pressuponham a pratica de qualquer das
ocorrencias previstas nos incisos anteriores.
CLAUSULA 28.2. - O ato de intervencao devera, necessariamente,
indicar o prazo, os motivos, os objetivos e limites, alem de designar o
interventor.
PARAGRAFO UNICO - O prazo e os limites da intervencao deverao ser
compativeis e proporcionais aos motivos que a ensejaram.
CLAUSULA 28.3. - A intervencao sera precedida de procedimento
administrativo instaurado pela ANATEL, no qual sera assegurado o amplo direito
de defesa da Concessionaria.
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PARAGRAFO UNICO - Quando imprescindivel a intervencao imediata,
podera ela ser decretada cautelarmente pela ANATEL, sem previa manifestacao da
Concessionaria, devendo, neste caso, o procedimento ser imediatamente instaurado
na data da decretacao e concluido em ate cento e oitenta dias, prazo em que
podera a Concessionaria exercer seu direito amplo a defesa.
CLAUSULA 28.4. - A decretacao da intervencao nao afetara o curso
regular dos negocios da Concessionaria nem seu normal funcionamento, produzindo,
contudo, o imediato afastamento de seus administradores.
CLAUSULA 28.5. - A funcao de interventor podera recair sobre agente
dos quadros da ANATEL, pessoa especificamente nomeada, colegiado ou empresa,
assumindo a Concessionaria os custos da remuneracao.
(S) 1 - Dos atos do interventor cabera recurso a ANATEL.
(S) 2 - O interventor prestara contas e respondera pelos atos que
praticar.
(S) 3 - Para os atos de alienacao e disposicao do patrimonio da
Concessionaria, o interventor necessitara de previa autorizacao da ANATEL.
CLAUSULA 28.6. - Nao sera decretada a intervencao quando, a juizo da
ANATEL, ela for considerada desnecessaria.
PARAGRAFO UNICO - A intervencao sera considerada desnecessaria nas
hipoteses prescritas no (S) 1 da clausula 26.4. supra, bem como naquelas
previstas no art. 114, inciso IV da Lei n 9.472, de 1997.
CAPITULO XXIX - DAS EXPROPRIACOES E IMPOSICOES ADMINISTRATIVAS
Clausula 29.1. - Caso haja a necessidade, para implementacao,
prestacao ou modernizacao do servico, de realizar alguma desapropriacao ou
servidao administrativa, os onus serao suportados integralmente pela
Concessionaria, devendo a ANATEL solicitar do Presidente da Republica a emissao
do ato de decretacao de utilidade publica.
CAPITULO XXX - DA ARBITRAGEM
Clausula 30.1. - Os eventuais conflitos que possam surgir
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em materia da aplicacao e interpretacao das normas da concessao serao resolvidos
pela ANATEL no exercicio da sua funcao de orgao regulador conforme prescrito nos
artigos. 8 e 19 da Lei n 9.472, de 1997, podendo a Concessionaria recorrer ao
procedimento de arbitragem disposto no presente Capitulo exclusivamente quando
inconformada com a decisao da ANATEL relativa as seguintes materias:
I - violacao do direito da Concessionaria a protecao de sua situacao
economica, conforme prescrito no Capitulo XII;
II - revisao das tarifas, prevista no Capitulo XII; e
III - indenizacoes devidas quando da extincao do presente Contrato,
inclusive quanto aos bens revertidos.
PARAGRAFO UNICO - A submissao de qualquer questao a arbitragem nao
exime a ANATEL e a Concessionaria da obrigacao de dar integral cumprimento a
este Contrato, nem permite a interrupcao das atividades vinculadas a concessao.
CLAUSULA 30.2. - O processo de arbitragem tera inicio mediante
comunicacao remetida por uma parte a outra, requerendo a instalacao do Tribunal
Arbitral de que trata este Capitulo e indicando detalhadamente a materia em
torno da qual gira a controversia.
PARAGRAFO UNICO - A ANATEL podera rejeitar a instalacao do Tribunal
Arbitral se, motivada e justificadamente, demonstrar que a controversia nao se
enquadra no rol de materias prevista na clausula 30.1.
CLAUSULA 30.3. - O Tribunal Arbitral sera composto por 5 (cinco)
membros, assim nomeados:
I - 2 (dois) membros efetivos e respectivos suplentes indicados pelo
Conselho Diretor da ANATEL dentre especialistas nas areas afetas a
materia controvertida, nao pertencentes aos seus quadros, sendo pelo
menos um, que o presidira, detentor de conhecimentos especificos em
regulamentacao juridica de telecomunicacoes;
II - 2 (dois) membros efetivos e respectivos suplentes indicados
pela Concessionaria, dentre especialistas nas areas afetas a materia
controvertida, que nao sejam seus empregados, sendo pelo menos um
detentor de conhecimentos especificos em regulamentacao juridica de
telecomunicacoes; e
III - 1 (um) membro efetivo e respectivo suplente indicado pelos
membros referidos nos incisos anteriores.
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(S) 1 - O Tribunal Arbitral podera ser assistido pelos peritos
tecnicos que considere conveniente designar.
(S) 2 - Considera-se constituido o Tribunal na data em que todos os
arbitros aceitarem as suas indicacoes e comunicarem a ambas as partes as suas
aceitacoes.
(S) 3 - O Tribunal julgara segundo o direito constituido e suas
decisoes tem forca cogente, independentemente de homologacao judicial.
CLAUSULA 30.4. - Nao tendo sido rejeitado pela ANATEL ou sendo
superado tal questionamento, sera iniciado o Processo versado no presente
Capitulo, o qual obedecera ao seguinte procedimento:
I - as partes terao 10 (dez) dias contados do recebimento da
comunicacao de que trata o caput da clausula anterior, para indicar
os membros do Tribunal Arbitral, o qual sera instalado imediatamente
apos a aceitacao de todos os seus membros;
II - estando inerte uma das partes ou tendo oferecido resistencia a
instalacao o Tribunal Arbitral, a outra parte podera se utilizar da
faculdade prevista no art. 7 da Lei n 9.307, de 23 de setembro de
1996;
III - instalado o Tribunal Arbitral, sera aberto prazo sucessivo de
25 (vinte e cinco) dias para que as partes apresentem suas razoes
sobre a materia controvertida, podendo nesta oportunidade apresentar
laudos, pericias, pareceres, juntar documentos ou informacoes que
entendam relevantes para sustentar sua posicao;
IV - apresentados os memoriais, o Tribunal analisara as razoes
expostas e podera, por requerimento de um de seus membros,
determinar a elaboracao de laudos, pericias ou pareceres, solicitar
informacoes ou documentos para as partes, bem como realizar
diligencias e tomar as providencias que entenda necessarias para a
perfeita instrucao da materia controvertida;
V - durante a coleta dos elementos a que se refere o inciso
anterior, serao sempre permitidos as partes a manifestacao e o
contraditorio, obedecidos os principios da informalidade, da
consensualidade e da celeridade que pautarao o procedimento;
VI - declarada encerrada a instrucao, sera concedido prazo comum de
15 (quinze) dias para que as partes apresentem
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suas alegacoes finais;
VII - transcorrido o prazo prescrito no inciso anterior,
independentemente da apresentacao das alegacoes finais, o Tribunal
proferira sua decisao em prazo nao superior a 30 (trinta) dias;
VIII - da decisao do Tribunal Arbitral nao cabera recurso, exceto
pedido de reconsideracao, cabivel apenas na hipotese da decisao ter
sido adotada por maioria de apenas um voto; e
IX - so cabera invalidacao do processo de arbitragem nas hipoteses
prescritas no art. 32 da Lei n 9.307/96.
PARAGRAFO UNICO - As despesas com o processo de arbitragem,
abrangendo, inclusive, as custas de laudos, pareceres e pericias, bem como os
honorarios dos membros do Tribunal, serao imputadas a Concessionaria ou a
ANATEL, conforme decisao do Tribunal Arbitral.
CAPITULO XXXI - DO REGIME LEGAL APLICAVEL E DOS DOCUMENTOS APLICAVEIS
CLAUSULA 31.1. - Regem a presente concessao, sem prejuizo das demais
normas integrantes do ordenamento juridico brasileiro, a Lei n 9.472 de 16 de
Julho de 1.997 e a regulamentacao dela decorrente, em especial a de competencia
do Poder Executivo, conforme disposto no art. 18 da referida Lei, prevalecendo
sempre estas no que colidir com aquelas.
CLAUSULA 31.2. - Na prestacao do servico ora concedido deverao ser
observadas as politicas nacionais de telecomunicacoes e regulamentacao da
ANATEL, como parte integrante deste Contrato, em especial os documentos
relacionados a seguir:
I - Plano Geral de Outorgas;
II - Plano Geral de Metas de Universalizacao;
III - Plano Geral de Metas de Qualidade;
IV - Regulamento Geral dos Servicos de Telecomunicacoes;
V - Regulamento do Servico Telefonico Fixo Comutado;
VI - Regulamento Geral de Interconexao;
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VII- Regulamento de Numeracao para o Servico Telefonico Fixo
Comutado;
VIII - Regulamento da Administracao da Numeracao; e
IX - Regulamento sobre Remuneracao pelo Uso das Redes das
Prestadoras do STFC.
CLAUSULA 31.3. Na interpretacao das normas e disposicoes constantes do
presente Contrato deverao ser levadas em conta, alem dos documentos referidos no
item anterior, as regras gerais de hermeneutica e as normas e principios
contidos na Lei n 9.472/97.
CAPITULO XXXII - DO FORO
CLAUSULA 32.1. - Para solucao de questoes decorrentes do presente
Contrato que nao puderem ser resolvidas atraves do procedimento de solucao de
divergencias constante do Capitulo XXX - Da Arbitragem, sera competente o Foro
da Secao Judiciaria da Justica Federal de Brasilia, Distrito Federal.
CAPITULO XXXIII - DAS DISPOSICOES FINAIS E GERAIS
CLAUSULA 33.1. - O Contrato ora assinado entrara em vigencia quando da
publicacao do seu extrato no Diario Oficial da Uniao.
PARAGRAFO UNICO - A Concessionaria tera prazo de 6 (seis) meses
contados da edicao da regulamentacao referida na clausula 31.2, a qual devera
estar totalmente editada ate 31 de dezembro de 1998, quando passara a ser
exigido integralmente o cumprimento das obrigacoes constantes deste Contrato.
E por assim estarem de pleno acordo com as disposicoes e condicoes do presente
Contrato, as partes o assinam em 03 (tres) vias de igual teor e forma, na
presenca das testemunhas, que tambem o assinam, para que se produzam seus legais
e juridicos efeitos.
Brasilia, 26 de maio de 1998.
Pela ANATEL:
__________________________
__________________________
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Pela Concessionaria:
__________________________
__________________________
Testemunhas:
__________________________
Nome:
RG:
__________________________
Nome:
RG:
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ANEXO N 01
QUALIFICACAO DOS BENS REVERSIVEIS DA PRESTACAO DO
SERVICO TELEFONICO FIXO COMUTADO LONGA DISTANCIA NACIONAL
a) Infra-estrutura e equipamentos de comutacao, transmissao incluindo
terminais de uso publico;
b) Infra-estrutura e equipamentos de rede externa;
c) Infra-estrutura de equipamentos de energia e ar condicionado;
d) Infra-estrutura e equipamentos de centros de atendimento e de prestacao de
servico;
e) Infra-estrutura e equipamentos de sistemas de suporte a operacao;
f) Outros indispensaveis a prestacao do servico.
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ANEXO N 02
PLANO BASICO DO SERVICO DE LONGA DISTANCIA NACIONAL
1 - Generalidades
1.1 O Plano Basico do Servico de Longa Distancia Nacional e regido pelas
Portarias citadas neste anexo, demais regulamentacoes vigentes e por outras que
venham a sucede-las.
1.2 As tarifas apresentadas sao maximas, liquidas de impostos e contribuicoes
sociais.
2 Utilizacao do Servico Telefonico Fixo Comutado Longa Distancia Nacional
2.1 O sistema de tarifacao para o Servico de Longa Distancia Nacional leva em
consideracao a distancia entre os centros de areas tarifarias das localidades de
origem e destino da chamada, seu tempo de duracao, o tipo de chamada realizada e
o horario de realizacao da mesma.
2.2 As localidades centros de area de tarifacao sao aprovadas pela Portaria
n195, de 30.03.94, do Ministro de Estado das Comunicacoes.
2.3 A unidade de tarifacao e o decimo de minuto (seis segundos), em conformidade
com a Portaria n 219, de 03.04.97, do Ministro de Estado das Comunicacoes.
2.4 A tarifacao minima e de um minuto para as chamadas automaticas, terminal a
terminal, e de 3 minutos para as chamadas manuais, conforme estabelece a Norma
n 003/81, republicada pela Portaria n 297, de 29.11.95, do Ministro de Estado
das Comunicacoes.
2.5 O valor da Tarifa Basica (TB) deste servico, conforme estabelece a Portaria
n 226, de 03.04.97, do Ministro de Estado das Comunicacoes, e de R$ 0,18
(dezoito centavos de real), que corresponde a um minuto no horario normal para o
degrau de maior distancia geodesica da Matriz de Degraus Tarifarios.
2.6 As tarifas do minuto estarao limitadas aos valores estabelecidos no quadro
abaixo, em funcao da distancia entre os centros de area de tarifacao e o horario
da chamada:
56
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Degrau Distancia Geodesica Multiplicador Horario Horario Horario Reduzido Horario
Diferenciado Normal R$ Super-Reduzido
R$ R$ R$
- ------------------------------------------------------------------------------------------------------------------
(2xHN) (1xHN) (0,50xHN) (0,25xHN)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DC Conurbado 0,128 0,04608 0,02304 0,01152 0,00576
- ------------------------------------------------------------------------------------------------------------------
D1 -ate 50 Km ,300 0,10800 0,05400 0,02700 0,01350
- ------------------------------------------------------------------------------------------------------------------
D2 *50 ate 100 Km 0,500 0,18000 0,09000 0,04500 0,02250
- ------------------------------------------------------------------------------------------------------------------
D3 *100 ate 300 Km 0,750 0,27000 0,13500 0,06750 0,03375
- ------------------------------------------------------------------------------------------------------------------
D4 *300 Km 1,000 0,36000 0,18000 0,09000 0,04500
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
____________
* Greater than sign
2.7 A modulacao horaria e a estabelecida pela Norma n 003/81, reeditada pela
Portaria n 297, de 29.11.95, conforme quadro abaixo:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Horario 2a a 6a Sabados Domingos e Feriados
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
de 0:00h a 6:00h super-reduzido super-reduzido super-reduzido
- ------------------------------------------------------------------------------------------------------------
de 6:00h a 7:00h reduzido reduzido reduzido
- ------------------------------------------------------------------------------------------------------------
de 7:00h a 9:00h normal normal reduzido
- ------------------------------------------------------------------------------------------------------------
de 9:00h a 12:00h diferenciado normal reduzido
- ------------------------------------------------------------------------------------------------------------
de 12:00h a 14:00h normal normal reduzido
- ------------------------------------------------------------------------------------------------------------
de 14:00h a 18:00h diferenciado reduzido reduzido
- ------------------------------------------------------------------------------------------------------------
de 18:00h a 21:00h NORMAL reduzido reduzido
- ------------------------------------------------------------------------------------------------------------
de 21:00h a 24:00h reduzido reduzido reduzido
- ------------------------------------------------------------------------------------------------------------
</TABLE>
2.8 Nao sera permitida a cobranca de qualquer acrescimo sobre os valores acima
definidos, independentemente da duracao da chamada.
2.9 As chamadas manuais serao tarifadas obedecendo os criterios estabelecidos na
Norma n 003/81, reeditada pela Portaria n 297, de 29.11.95.
3 - CHAMADAS DESTINADAS AO SERVICO MOVEL CELULAR
3.1 Os criterios e procedimentos de tarifacao de chamadas para o Servico Movel
Celular sao os regulamentados pela Norma n 23/96, aprovada pela Portaria n
1536, de 04.11.96, do Ministro de Estado das Comunicacoes.
3.2 A unidade de tarifacao e o decimo de minuto (seis segundos).
3.3 A tarifacao minima e de 30 (trinta) segundos.
3.4 A Portaria n 2503, de 20.12.96, do Ministro de Estado das Comunicacoes,
fixou os valores maximos das tarifas, por minuto, conforme tabela abaixo:
57
<PAGE>
<TABLE>
<CAPTION>
TARIFA NORMAL TARIFA REDUZIDA
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
VC-2 VC-3 VC-2 VC-3
- -----------------------------------------------------------------------------
0,58000 0,66000 0,40600 0,46200
- -----------------------------------------------------------------------------
</TABLE>
3.5 O horario de tarifa reduzida para as chamadas destinadas ao Servico Movel
Celular sera de Segunda a Sabado de 0:00h as 7:00h e das 21:00h as 24:00h e aos
Domingos e Feriados, de 0:00h as 24:00h, conforme disposto na Norma n 23/96,
aprovada pela Portaria n 1536, de 04.11.96, do Ministro de Estado das
Comunicacoes.
58
<PAGE>
ANEXO 03
ROTAS OPTICAS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
INSTALADAS
- --------------------------------------------------------------------------------------------
<S> <C>
Rio de Janeiro (RJO) - Sao Paulo (SPO)
- --------------------------------------------------------------------------------------------
Rio de Janeiro (RJO) - Belo Horizonte (BHE)
- --------------------------------------------------------------------------------------------
Sao Paulo (SPO) - Belo Horizonte (BHE)
- --------------------------------------------------------------------------------------------
Belo Horizonte (BHE) - Brasilia (BSA)
- --------------------------------------------------------------------------------------------
Brasilia (BSA) - Anapolis (ANS) - Goiania (GNA)
- --------------------------------------------------------------------------------------------
Sao Paulo (SPO) - Curitiba (CTA)
- --------------------------------------------------------------------------------------------
Curitiba (CTA) - Paranagua (PNG)
- --------------------------------------------------------------------------------------------
Curitiba (CTA) - Florianopolis (FNS)
- --------------------------------------------------------------------------------------------
Florianopolis (FNS) - Porto Alegre (PAE)
- --------------------------------------------------------------------------------------------
Rio de Janeiro (RJO) - Vitoria (VTA) Sao Mateus (SMT) (Submarino)
- --------------------------------------------------------------------------------------------
Sao Mateus (SMT) - Porto Seguro (PGU) (Terrestre)
- --------------------------------------------------------------------------------------------
Porto Seguro (PGU) - Salvador (SDR) Recife (RCE) (Submarino)
- --------------------------------------------------------------------------------------------
Recife (RCE) - Natal (NTL) (Submarino)
- --------------------------------------------------------------------------------------------
Natal (NTL) - Fortaleza (FLA) (Terrestre)
- --------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
<S> <C>
c. A INSTALAR ATE 31/12/1998
- --------------------------------------------------------------------------------------------
Porto Alegre (PAE) - Santa Maria (SMA) - Rosario do Sul (RSS) - Alegrete (ALG) - Uruguaiana
(UGN)
Uruguaiana (UGN) - Passos de Los Libres
- --------------------------------------------------------------------------------------------
Santana do Livramento (SIV) - Rosario do Sul (RRS)- Alegrete (ALG)
- --------------------------------------------------------------------------------------------
Santana do Livramento (SIV) - RIVERA
- --------------------------------------------------------------------------------------------
Rio de Janeiro (RJO) - Tangua (TANG)
- --------------------------------------------------------------------------------------------
Santos (STS) - Sao Paulo (SPO)
- --------------------------------------------------------------------------------------------
Rio de Janeiro (RJO) - Santos (STS) (Submarino)
- --------------------------------------------------------------------------------------------
Tres Coracoes (TCS) - Juiz de Fora (JFA)
- --------------------------------------------------------------------------------------------
Fortaleza (FLA) Salvador (SDR)
- --------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
d. A INSTALAR ATE 31/12/1999
- --------------------------------------------------------------------------------------------
<S> <C>
Florianopolis (FNS) - Curitiba (CTA) (Alternativa)
- --------------------------------------------------------------------------------------------
Sao Paulo (SPO) - Curitiba (CTA) (Alternativa)
- --------------------------------------------------------------------------------------------
Maringa (MGA) - Apucarana (APU) Londrina (LDA)
- --------------------------------------------------------------------------------------------
Goiania (GNA) - Belo Horizonte (BHE) (Alternativa)
- --------------------------------------------------------------------------------------------
Sao Paulo (SPO) - Goiania (GNA)
- --------------------------------------------------------------------------------------------
Salvador (SDR) - Belo Horizonte (BHE) (Alternativa)
- --------------------------------------------------------------------------------------------
Fortaleza (FLA) - Teresina (TSA)- Sao Luis (SLS)
- --------------------------------------------------------------------------------------------
Sao Luis (SLS) - Santa Ines (SIS) - Belem (BLM)
- --------------------------------------------------------------------------------------------
Porto Alegre (PAE) - Florianopolis (FNS) (Alternativa)
- --------------------------------------------------------------------------------------------
Porto Seguro (PGU) - Itabuna (ITB) - Vitoria da Conquista (VCA)
- --------------------------------------------------------------------------------------------
Rio de Janeiro (RJO) - Fortaleza (FLA) (Atlantis2)
- --------------------------------------------------------------------------------------------
Santa Ines (SIS)- Imperatriz (ITZ) - Estreito (ETO)
- --------------------------------------------------------------------------------------------
Goiania (GNA) Palmas (PMJ) - Estreito (ETO)
- --------------------------------------------------------------------------------------------
</TABLE>
59
<PAGE>
- -------------------------------------------------------------------------------
A INSTALAR ATE 31/12/2000
- -------------------------------------------------------------------------------
Bauru (BRU) Campo Grande (CPE)
- -------------------------------------------------------------------------------
Foz do Iguacu (FOZ) - Cascavel (CSC) - Maringa (MGA)
- -------------------------------------------------------------------------------
Cascavel (CSC) - Ponta Grossa (PGO)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
A INSTALAR ATE 31/12/2001
- -------------------------------------------------------------------------------
Recife (RCE) - Caruaru (CRU) - Bom Nome (BONM)
- -------------------------------------------------------------------------------
Itabuna (ITB) - Ilheus (ILH)
- -------------------------------------------------------------------------------
Goiania (GNA) - Araguari (ARI)
- -------------------------------------------------------------------------------
Porto Alegre (PAE) - Criciuma (CUA) - Florianopolis (FNS) - Joinville (JVE)
- -------------------------------------------------------------------------------
60
<PAGE>
EXHIBIT 10.2
STANDARD CONCESSION AGREEMENT
FOR DOMESTIC LONG-DISTANCE
SWITCHED, FIXED-LINE TELEPHONE SERVICE
(EMBRATEL)
The National Telecommunications Agency ANATEL (Agencia Nacional de
Telecomunicacoes), hereinafter referred to as ANATEL, a Brazilian federal
agency, responsible for granting concessions as provided in Federal Law No.
9,472 of July 16, 1997, the General Telecommunications Law GTL, represented
herein by its President, Renato Navarro Guerreiro, [identification], and its
Counsellor **** [identification], acting in accordance with Resolution No. ****
of its Board of Directors, on the one hand, and [name and identification of the
concessionaire], represented by its authorized representative, hereinafter
referred to as the Concessionaire, hereby enter into this Concession Agreement
as provided in Art. 207 of the above-mentioned General Telecommunications Law,
which shall be governed by the legal provisions referred to above and the
following provisions:
CHAPTER I - PURPOSE
CLAUSE 1.1. - The subject matter of this Agreement is the concession
of public Domestic Long-Distance Switched Fixed-line Telephone Service in the
geographic area defined in clause 2.1, as provided in the General Concession
Plan.
SOLE PARAGRAPH - This concession includes public Switched Fixed-line
Telephone Service in border or frontier areas as provided by regulations issued
by ANATEL as provided in the General Concession Plan.
CLAUSE 1.2. - Switched Fixed-line Telephone Service is the
telecommunications service which, through the transmission of voice and other
signals, is used for communications between fixed and determined points, using
processes of telephony.
CLAUSE 1.3. - With the prior approval of ANATEL, the Concessionaire
may establish and carry out useful or convenient activities related to providing
the service which is the subject matter of this concession.
SOLE PARAGRAPH - Services and useful or convenient activities shall be
considered to be related to the subject matter of this Concession if, in the
view of ANATEL, they may be considered an inherent part of the platform for the
service granted hereby, and not a new type of service, as provided by
regulation.
CLAUSE 1.4. - The Concessionaire is entitled to establish, expand and
operate the trunk lines, networks and switching centers required to implement
the Concession and operate it as a business, as provided by regulation.
CLAUSE 1.5. - The provision of the service granted hereby may not be
separated from the obligations to fulfill the universal service and quality
objectives provided for in this Agreement.
1
<PAGE>
CLAUSE 1.6. - The Concessionaire must provide to all applicants and
customers the installations that are necessary for the supply of the service
granted hereby, as provided by regulation.
CLAUSE 1.7. - The Concessionaire must provide free access to emergency
services, as provided by regulation.
CHAPTER II - SERVICE AREA
CLAUSE 2.1. - The geographical area of the service which is the
subject matter of this concession is the territory in the Sector number(s) ***
set forth in Annex 3 to the General Concession Plan.
CHAPTER III - TERM OF THE AGREEMENT AND CONDITIONS FOR EXTENSIONS
CLAUSE 3.1. - This concession, which is granted without charge, shall
expire on December 31, 2005, with a guaranteed one-time extension of twenty
years, as provided in clauses 3.2, 3.3 and 3.4.
CLAUSE 3.2. - This concession shall be extended once, at the request
of the Concessionaire, for 20 (twenty) years, in return for consideration,
provided the Concessionaire complies with the terms set forth in this Agreement,
and the new Agreement may include new conditions and establish new universal
service and quality objectives, in light of the conditions prevailing at the
time of the extension, and establish, in the case of universal service
objectives, supplementary resources, as provided in Art. 81 of Law No. 9,472 of
1997.
(S) 1 - Thirty six (36) months before the expiration date provided in
clause 3.1, ANATEL shall make available for public comment its proposals for new
conditions and new quality and universal service objectives, which shall be
submitted to the President of the Republic for approval by Decree, as provided
in Art. 18, paragraph III of Law No. 9,472 of 1997.
(S) 2 - In order to obtain the extension provided for by this clause,
the Concessionaire must indicate its interest the at least 30 (thirty) months
before the expiration date provided in clause 3.1.
CLAUSE 3.3. - In order to extend this concession as provided in the
preceding clause, the Concessionaire shall pay a fee every two years during the
extension period corresponding to 2% (two percent) of its revenue for the year
prior to the payment, net of income taxes and payroll taxes, derived from
Switched Fixed-line Telephone Service.
(S) 1 - The amount referred to in the preceding paragraph shall be
calculated on the basis of the net revenue generated through the execution of
the service plans, both basic and supplemental, which are the subject matter of
this concession.
(S) 2 - The percentage referred to in the first paragraph of this
clause shall always be calculated on the basis of revenue, net of income tax and
payroll tax deductions, generated
2
<PAGE>
between January and December of the previous year as shown in the financial
statements prepared in accordance with corporate law and basic accounting
principles, approved by the management of the Concessionaire and audited by
independent auditors, and payment shall be due on April 30 of the year following
the year for which the fee was determined.
(S) 3 - The first fee payment shall be due on April 30, 2007,
calculated on the basis of net revenue from January 1 and December 31, 2006, and
subsequent payments shall be due every 24 (twenty four) months, calculated on
the basis of revenue from the preceding year.
(S) 4 - Late payment of the fee provided for in this clause shall be
subject to a fine of 0.33% (zero point thirty three percent) per day, up to a
maximum of 10% (ten percent), plus the SELIC reference rate for federal
securities, to be levied upon the amount owed based on the number of days it is
past due.
CLAUSE 3.4. - The extension of the duration of this Agreement shall
entail the extension of the right to use those radio frequencies referred to in
clause 4.1 which are required to continue providing the service which is the
subject matter of this concession.
SOLE PARAGRAPH - The return of radio frequencies to ANATEL that are
not required to continue providing services shall not change the amount of the
extension fee as determined in clause 3.3.
CHAPTER IV - MANNER, FORM AND TERMS OF SERVICE
CLAUSE 4.1. - The use of radio frequencies to provide the service
which is the subject matter of this concession shall be authorized by ANATEL, in
exchange for payment and without exclusive rights, unless otherwise stated in
the regulations, in accordance with the provisions of Articles 83 and 163 of Law
No. 9,472 of 1997.
(S) 1 - The Concessionaire shall have the nonexclusive right to use
the radio frequencies authorized prior to the signing of this Agreement, which
shall not be contingent upon the payment of any fee, with the exception of audit
fees, in accordance with the terms set forth in the respective station operation
licenses.
(S) 2 - The right to use the radio frequencies referred to in this
clause does not preclude the prerogative granted to ANATEL by Art. 161 of Law
No. 9,472 of 1997.
(S) 3 - The use of new radio frequencies that may be required by the
Concessionaire shall be authorized in exchange for payment, in observance of the
procedures defined by ANATEL for such authorizations.
(S) 4 - The use of the radio frequencies required under the terms of
the preceding paragraph shall be authorized for the same amount of time as this
Concession, and any extension of their use must be made in exchange for payment,
independently of the fee payment referred to in clause 3.3 herein.
3
<PAGE>
CLAUSE 4.2. - The Concessionaire agrees to provide the service which
is the subject matter of the concession in such a way as to comply fully with
the applicable universal service and continuity requirements inherent to the
provision of a public service, in accordance with the criteria, formulas and
parameters set forth in this Agreement.
SOLE PARAGRAPH - Failure to comply with the obligations pertaining to
the universalization and continuity of service shall result in the application
of the penalties provided for in this Agreement, entitle ANATEL to issue an
intervention decree and, depending upon the circumstances and seriousness of the
situation, or in the event that issuing an intervention decree is unsuitable,
ineffective, unfairly benefits the Concessionaire or useless, lead to the
forfeiture of the concession, as set forth in clause 26.4.
CLAUSE 4.3. - The Concessionaire shall operate the service which is
the subject matter of the concession on its own behalf and at its own risk,
under the system of full and fair competition established by Law No. 9,472 of
1997, and by the General Concession Plan, and shall be remunerated by the rates
charged and any additional or incidental revenue it receives under the terms of
this Agreement.
SOLE PARAGRAPH - The Concessionaire shall not be entitled to any type
of exclusive right, nor shall it claim any rights as to the admission of new
providers of the same service, whether in the public or private sector.
CLAUSE 4.4. - Throughout the duration of the concession, the
Concessionaire agrees to maintain its commitments to quality, availability and
supply of the service granted hereby, as stated in this Agreement, regardless of
the competitive environment in the geographic area where it operates the
service.
CLAUSE 4.5. - The Concessionaire agrees to conserve and maintain in
perfect operating condition all of the goods, equipment and facilities used to
provide the service granted hereby; to maintain and repair them; and to promote,
when appropriate, their replacement when required, either due to wear and tear
or to technological obsolescence; and to promote the repairs and modernizations
required to provide and maintain proper service, as set forth in this Agreement.
CHAPTER V - RULES FOR THE ESTABLISHMENT, EXPANSION, MODIFICATION AND
MODERNIZATION OF SERVICE
CLAUSE 5.1. - The expansion and modernization of the service granted
hereby, while observing the goals and criteria set forth in this Agreement, are
fundamental tenets of this concession.
SOLE PARAGRAPH - ANATEL may modify the objectives regarding the
establishment, expansion and modernization of the service granted hereby,
provided it respects the right of the Concessionaire to not be forced to sustain
additional expenses which cannot be recovered through the revenue resulting from
compliance with such objectives and through the efficient operation of the
service.
4
<PAGE>
CLAUSE 5.2. - Changes to the terms under which the service granted
hereby is provided may only be decided by ANATEL, or with its prior express
approval.
CLAUSE 5.3. - Modernization of the service granted hereby shall be
sought by the continual introduction of equipment, processes and means capable
of providing users with service compatible with the current technologies
available in the market.
CHAPTER VI - CRITERIA AND INDICATORS OF QUALITY AND CONTINUOUS SERVICE
CLAUSE 6.1. - A fundamental tenet of this Concession is the provision
of adequate quality service by the Concessionaire, meaning service which is
satisfactory in terms of consistency, efficiency, security, contemporaneity,
universal availability, courtesy and reasonable rates.
(S) 1 - Consistency is characterized by the continuous provision of
the service granted hereby, in strict observance of the standards laid down by
ANATEL.
(S) 2 - Efficiency is characterized by the application and
preservation of the parameters set forth in this Agreement, and by the service
granted hereby provided to users within the timeframes provided for in this
Agreement.
(S) 3 - Security is characterized by the confidentiality of data
regarding use of the service granted hereby by users, as well as the complete
safeguarding of all information communicated within the ambit of providing such
service, in accordance with Chapter XIV.
(S) 4 - Contemporaneity is characterized by the up-to-date nature of
the equipment, facilities and techniques used to provide the service granted
hereby, achieved by incorporating technological advances, which clearly benefit
users, occurring during the term of the concession, in keeping with the
provisions of this Agreement.
(S) 5 - Universal availability is characterized by the provision of
the service granted hereby to each and every user without discrimination,
whereby the Concessionaire commits itself to provide the service to whomever
requests it, at the location indicated by the latter, under the terms of this
Agreement and as provided by regulation.
(S) 6 - Courtesy is characterized by respectful and immediate
assistance given to all users of the service granted hereby, as well as by full
compliance with the obligation to inform and assist promptly and politely all
those who, regardless of whether they are users, request information or
arrangements, or make any other type of request, under the terms set forth in
this Agreement.
(S) 7 - The principle of reasonable rates is characterized by the
Concessionaire's efforts to charge rates lower than the maximum rates determined
by ANATEL.
CLAUSE 6.2. - The Concessionaire must comply with the parameters and
indicators of the General Plan on Quality.
5
<PAGE>
SOLE PARAGRAPH - The Concessionaire must annually release a chart
demonstrating the objectives and parameters, established and realized, of the
General Plan on Quality and the General Plan on Universal Service,
notwithstanding the requirement to supply this data whenever ANATEL so requests.
CLAUSE 6.3. - The continuity of the service granted hereby, an
essential element of the system under which it is provided, is characterized by
the provision of service without interruption, while taking into account
suspension of service due to default on the part of the user under the terms set
forth in clause 8.3 of this Agreement and Art. 3, paragraph VII of Law No. 9,472
of 1997.
SOLE PARAGRAPH - Consistency shall not be considered to have been
violated in the event the service granted hereby is interrupted because of an
emergency situation, technical problems or circumstances involving the security
of installations. The affected users are to be notified and, when appropriate,
explanatory notification is to be given to ANATEL.
CLAUSE 6.4. - The Concessionaire may not, under any circumstances,
interrupt the service granted hereby on the allegation that ANATEL or the
federal government have not complied with any obligation, and the Concessionaire
may not invoke any exception arising from breach of contract.
CLAUSE 6.5. - In addition to managing and monitoring quality
indicators, ANATEL shall periodically evaluate the degree of customer
satisfaction with the service granted hereby, and may release the following
results concerning the Concessionaire:
I - Customer service, especially with regard to availability,
promptness, politeness, speed and effectiveness in responding to
requests and complaints;
II - Rates charged and discounts offered;
III - Technical quality of the service provided; and
IV - Adequacy of the services offered in relation to users' needs.
CHAPTER VII - UNIVERSAL SERVICE OBJECTIVES
CLAUSE 7.1. - Universal service is an essential aspect of the system
under which the service granted hereby is provided. It is characterized by the
provision of uniform and nondiscriminatory assistance to all users, and by the
Concessionaire's achievement of the objectives set forth in the General Plan on
Universal Service, approved by Executive authority, under the terms of Article
18, paragraph III and Article 80 of Law No. 9,472 of 1997, and those of Annex 2
of this Agreement.
CLAUSE 7.2. - With the exception of clause 7.4 of this Agreement and
in keeping with the General Plan on Universal Service, approved by Executive
Authority under the terms of Article 18, paragraph III and Article 80 of Law No.
9,472 of 1997, the implementation of the
6
<PAGE>
universal service objectives provided for in this Agreement shall be financed
exclusively through the operation of the service by the Concessionaire, which
shall not be entitled to any compensation or subsidy.
CLAUSE 7.3. - The Concessionaire agrees to implement those universal
service objectives which are not provided for in this Agreement, but which may
be required by ANATEL, in compliance with the provisions of (S) 2 , Art. 2 of
the General Plan on Universal Service, approved by Decree No. 2,592 of May 15,
1998, and the following procedure shall be observed when defining compensation
amounts and criteria:
I - ANATEL shall consult the Concessionaire regarding the total cost
of implementing the planned additional objectives, the extent to which
they cannot be amortized by operating revenue, and by which specific
payments they are covered. The objectives to be achieved, the
technologies selected, and the location and timeframe of
implementation are to be specifically indicated;
II - Should the stated timeframe for consultation lapse without a
response by the Concessionaire, ANATEL shall take the necessary steps
in order to determine the charges and expenses involved in
implementing the additional objectives, and estimate the corresponding
revenue generated;
III - Should the Concessionaire issue a response following
consultation, ANATEL shall determine whether the expenses and
estimated revenue presented are adequate and reasonable, taking into
account available technologies, the cost of materials and labor, the
geographical, social and economic characteristics of the market demand
to be met, market prices, and other variables it considers relevant;
IV - In the event ANATEL does not consider the proposed expenses
and/or estimated revenue to be reasonable, it may, with justification,
make the Concessionaire responsible for implementing the additional
objectives, and determine the amount of compensation, in accordance
with the provisions of Chapter XXX; and
V - Should ANATEL consider the amount of compensation to be adequate
and reasonable, it shall confirm to the Concessionaire that the latter
is charged with implementing such additional objectives, under the
terms of the compensation proposal issued by the Concessionaire.
(S) 1 - Upon following the procedure set forth in this clause, should
ANATEL consider the implementation of the specific universal service objective
by the Concessionaire to be unsuitable or unfeasible, it shall contract such
undertaking out to another party, which it may do by granting specific and
defined parts of the service, in accordance with the economic parameters derived
from the procedures provided for in this clause.
(S) 2 - At the discretion of ANATEL, the procedure provided for in
this clause may also be used to determine the amounts to be compensated
utilizing the resources of the Fund
7
<PAGE>
for Universal Telecommunications Services, when it fulfills the objectives set
forth in the General Plan on Universal Service, approved by Executive authority,
under the terms of Article 18, paragraph III and Article 80 of Law No. 9,472 of
1997.
(S) 3 - The use of resources of the Fund for Universal
Telecommunications Services, pursuant to the preceding paragraph, excludes the
utilization of the benefits provided for in (S) 2, Article 10 of the General
Concession Plan, except in the case of compensation to ANATEL for amounts it has
used from said Fund, in addition to the compensation owed.
CLAUSE 7.4. - The adoption of the procedures provided for in the
preceding clause is the prerogative of ANATEL, which may adopt them at its
discretion and in keeping with the best interests of the public, and the
Concessionaire shall not have the right to choose how it prefers to implement
the aforementioned universal service objectives.
CHAPTER VIII - RULES GOVERNING THE SUSPENSION OF SERVICE DUE TO NONCOMPLIANCE,
OR AT THE REQUEST OF THE USER
CLAUSE 8.1. - Subscribers of the service which is the subject matter
of this concession may request, at any time, the suspension of such service, and
the Concessionaire must respond to their request within the timeframe to be
established by ANATEL, which shall be no greater than 48 (forty eight) hours,
unless postponed by the subscriber.
SOLE PARAGRAPH - The Concessionaire may not demand payment for the
suspension of service referred to above.
CLAUSE 8.2. - Subscribers in compliance with their contract with the
Concessionaire may request the suspension of their service, as provided by
regulation.
CLAUSE 8.3. - The Concessionaire may only proceed to suspend the
service of a subscriber who is at least 30 (thirty) days in default of payment,
such debt resulting directly from the use of the service granted hereby, and in
compliance with the procedures set forth by regulation published by ANATEL.
Subscribers must be allowed time to challenge the amounts claimed from them.
(S) 1 - The Concessionaire must give subscribers at least 15 (fifteen)
days' notice prior to suspension of service.
(S) 2 - Failure to pay amounts outstanding that are not directly
related to the service which is the subject matter of this concession, in
accordance with the sole paragraph of clause 10.6, shall not be cause for the
cancellation of service provided for in this clause.
CLAUSE 8.4 - The Concessionaire shall also guarantee subscribers the
right to block access temporarily or permanently to available conveniences or
features, as well as to premium services, provided they so request, as provided
by regulation.
8
<PAGE>
CLAUSE 8.5 - In the event the default of the subscriber exclusively
involves the nonpayment of services supplied by a provider of Switched, Fixed-
line Telephone Service other than the service conceded herein, and which is
billed jointly with the Concessionaire's services, the disconnection must follow
the specific procedure laid down in regulation by ANATEL.
CHAPTER IX - NUMBERING PLAN
CLAUSE 9.1. - As provided by regulation, the Concessionaire agrees to
obey the Numbering Regulations for Switched, Fixed-line Telephone Service
published by ANATEL, and must guarantee subscribers portability of access codes
within the timeframe defined in such Regulations.
(S) 1 - The Concessionaire shall assume all expenses required to
conform to the Numbering Regulations referred to above.
(S) 2 - The expenses pertaining to the investments required in order
to enable portability of access codes shall be shared by the Concessionaire and
the other providers of telecommunications services, whether in the public or
private sector.
(S) 3 - The expenses pertaining to the administration of the process
of assigning and holding access codes pursuant to the Numbering Regulations
shall be borne by the Concessionaire, under the terms of the Numbering
Administration Regulations.
CHAPTER X - RATE AND PAYMENT STRUCTURE
CLAUSE 10.1. - The Concessionaire is required to offer all users the
Basic Domestic Long-Distance Service Plan, as provided in Annex 2, which is an
integral part of this Agreement.
SOLE PARAGRAPH - The Basic Domestic Long-Distance Service Plan shall
be the sole plan for the entire area referred to in clause 2.1 and must state,
under the terms set forth by ANATEL, maximum amounts for each item of the rate
structure defined for the provision of Switched, Fixed-line Telephone Service.
Said amounts shall be revised and adjusted, in accordance with applicable
standards.
CLAUSE 10.2. - The Concessionaire may offer its subscribers
Supplemental Domestic Long-Distance Service Plans with rate criteria different
from those in the Basic Domestic Long-Distance Service Plan.
(S) 1 - Subscribers shall be guaranteed the right to switch between
the various Domestic Long-Distance Service Plans offered by the Concessionaire,
as provided by regulation.
(S) 2 - The Concessionaire is free to propose the rate structure for
the Supplemental Domestic Long-Distance Service Plans, provided it complies with
clause 10.1 of this Agreement.
(S) 3 - The Concessionaire is required to offer its Supplemental
Domestic Long-Distance Service Plans, approved by ANATEL, to users in a
nondiscriminatory manner.
9
<PAGE>
(S) 4 - Supplemental Domestic Long-Distance Service Plans must be
authorized by ANATEL before being offered to the general public.
(S) 5 - ANATEL must decide whether to approve Supplemental Domestic
Long-Distance Service Plans within 15 (fifteen) days of their having been
submitted, and they shall be considered to have been approved if ANATEL makes no
decision within this timeframe.
CLAUSE 10.3. - The Concessionaire may offer discounts on the rates for
Domestic Long-Distance Service Plans provided it does so in an egalitarian and
nondiscriminatory manner. The Concessionaire shall not reduce amounts
subjectively and must observe the principles of fair competition.
SOLE PARAGRAPH - The Concessionaire agrees to give its users ample and
prior notice of discounted rates for the service, and to communicate its notice
of discounted rates to ANATEL within 7 (seven) days after the rate reduction
takes effect.
CLAUSE 10.4. - The Concessionaire agrees to publicize the rates
charged for the service which is the subject matter of the concession, in the
manner required by ANATEL.
CLAUSE 10.5. - When new services, conveniences or features are
introduced in relation to the service granted hereby, the Concessionaire shall
submit its proposed rates to ANATEL for approval, without which no rate or price
may be charged.
CLAUSE 10.6. - Billing documents issued by the Concessionaire must be
presented in a detailed, clear, explanatory and self-evident manner, and must
distinguish the type and quantity of each service provided to the user, as
provided by regulation.
SOLE PARAGRAPH - The Concessionaire may list the amounts owed by the
subscriber within the billing document for premium services, as well as for
other conveniences or features related to the service granted hereby, provided
it does so in a clear and explicit manner.
CLAUSE 10.7. - The Concessionaire shall collect network usage fees
from other providers of telecommunications services, in keeping with the
standards published by ANATEL.
CLAUSE 10.8 - The Concessionaire shall offer a discount to those
subscribers affected by any discontinuance of the service granted hereby,
provided the subscriber was not the cause of discontinuance, and the discount
shall be prorated for the period during which the interruption occurred, as
provided by regulation.
CHAPTER XI - RATE ADJUSTMENTS
CLAUSE 11.1. - The rates listed in the Basic Domestic Long-Distance
Service Plan Annex 2, may be adjusted by applying the formula below. This may
be done no more than once every 12 (twelve) months, at the initiative of ANATEL
or the Concessionaire, in keeping with the rules of economic legislation in
force.
10
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(5 24 Mij\to\) 5 24 Mij\to\
(E E Rij\t\ x -----) less than (1-k) Ft E E Rij\to\ x -----
(i equal to l j equal to l TM ) or equal to i equal to l j equal to l TM
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Let:
- --------------------------------------------------------------------------------
GPI - DA\t\
Rij\t\ less than Rij\to\ x 1.05 x ----------
or equal to GPI - DA\to\
- --------------------------------------------------------------------------------
Where:
Rij\t\ - proposed rate for the Basic Domestic Long-Distance Service Plan during
the j period at the rate for distance i, net of taxes.
Rij\to\ - current rate for the Basic Domestic Long-Distance Service Plan during
the j period at the rate for distance i, net of taxes.
Mij\to\ - minutes of domestic long-distance service through the Basic Domestic
Long-Distance Service Plan, during the j period at distance i, since the last
rate adjustment or, in the case of the first adjustment, since April 1, 1998.
TM - total minutes of domestic long-distance service through the Basic Domestic
Long-Distance Service Plan since the last rate adjustment or, in the case of the
first adjustment, since April 1, 1998.
i = distance rate for domestic long-distance service indicated in the Rate
Structure.
j = billing period for domestic long-distance service indicated in the Rate
Structure.
\t\ = proposed date of adjustment.
\to\ = date of the last adjustment or, in the case of the first adjustment,
April 1, 1998.
and
GPI-DA\t\
F\t\ = ---------
GPI-DA\to\
Where:
GPI-DA = General Price Index, Domestic Availability, issued by the Getulio
Vargas Foundation, or its successor index.
k = transfer factor.
(S) 1 - The transfer factor shall be applied during the duration of
the concession in the following manner:
I - Until December 31, 2000 it shall be equal to 0.02 (zero point zero
two); and
II - From January 1, 2001 until December 31, 2003, it shall be equal
to 0.04 (zero point zero four).
11
<PAGE>
III - From January 1, 2004 to December 31, 2005, it shall be equal to
0.05 (zero point zero five).
(S) 2 - In the event the adjustment period includes different transfer
factor values, a weighted average must be calculated thereof taking into account
the months during which each transfer factor value occurred.
(S) 3 - In the event an adjustment takes place after more than twelve
months have gone by, the formula including the transfer factor must be applied
progressively, taking into account twelve-month periods, and then any remaining
months.
(S) 4 - After 2005, new transfer factor values may be determined by
ANATEL in the event this Agreement is extended, depending upon the conditions
which exist at that time.
CLAUSE 11.2. - Network usage fees shall be adjusted by applying the
following formulas:
<TABLE>
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(5 24 Mijto) 5 24 Mij/to/
(E E TU - RIUij/t/ x -----) less than (1-k) Ft E E TU - RIUij/to/ x -------
(i equal to l j equal to l TM ) or equal to i equal to l j equal to l TM
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Let:
- --------------------------------------------------------------------------------
GPI - DA/t/
TU - RIUij/t/ less than or equal to TU - RIUij/to/ x 1.05 x ----------
GPI - DA/to/
- --------------------------------------------------------------------------------
Where:
TU-RIUij/t/ - proposed rate for use of the long-distance network during the j
period for distance i, net of taxes.
TU-RIUij/to/ - current rate for use of the long-distance network during the j
period for distance i, net of taxes.
Mj/to/ - Minutes of use of the long-distance network of the Concessionaire
during the j period for distance i, since the last rate adjustment or, in the
case of the first adjustment, since April 1, 1998.
TM - Total Minutes of use of the long-distance network of the Concessionaire
since the last rate adjustment or, in the case of the first adjustment, since
April 1, 1998.
/t/ = date of the proposed adjustment.
/to/ = date of the last adjustment or, in the case of the first adjustment,
April 1, 1998; and
12
<PAGE>
GPI-DA/t/
Ft = ---------
GPI-DA/to/
Where:
GPI-DA = General Price Index, Domestic Availability, issued by the Getulio
Vargas Foundation, or its successor index.
k = transfer factor.
(S) 1 - The transfer factor shall be applied during the duration of
the concession in the following manner:
I - Until December 31, 2000 it shall be equal to 0.02 (zero point zero
two);
II - From January 1, 2001 until December 31, 2003, it shall be equal
to 0.04 (zero point zero four);
III - From January 1, 2004 until December 31, 2005, it shall be equal
to 0.05 (zero point zero five);
(S) 2 - In the event the adjustment period includes different transfer
factor values, a weighted average must be calculated thereof taking into account
the months during which each transfer factor value occurred.
(S) 3 - In the event an adjustment takes place after more than twelve
months have gone by, the formula including the transfer factor must be applied
progressively, taking into account twelve-month periods, and then any remaining
months.
(S) 4 - After 2005, new transfer factor values may be determined by
ANATEL in the event this Agreement is extended, depending upon the conditions
which exist at that time.
CHAPTER XII - SAFEGUARDING THE ECONOMIC WELLBEING OF THE CONCESSIONAIRE AND
REVISION OF RATES
CLAUSE 12.1. - Preserving a fair balance, under a fully competitive
system, between the service provided by the Concessionaire and its remuneration
is a basic tenet of this Agreement. It is forbidden for any party to unjustly
enrich itself at the expense of any other party or the users of the service,
under the terms set forth in this Chapter.
(S) 1 - The Concessionaire shall not be required to suffer any damages
resulting from this Agreement, unless they result from any of the following
factors:
I - From its negligence, ineptitude or oversight in operating the
service granted hereby;
II - From the normal risks of business activity;
13
<PAGE>
III - From the inefficient management of its business, including the
payment of operating and administrative expenses which are
incompatible with the parameters demonstrated in the market; or
IV - From its failure to take advantage of existing opportunities in
the market, including expanding, extending and increasing the service
provided.
(S) 2 - The Concessionaire is prohibited from unjustly profiting from
any economic gain not resulting directly from its operational efficiency,
especially that which results from the issuance of new rules governing the
service granted hereby.
(S) 3 - The Concessionaire is entitled to restructure its initial
obligations and compensation scheme in the event that a force majeure or other
disaster significantly affects the operation of the service granted hereby.
However, the actions of private-sector service providers in such a situation
shall serve as the standard of reasonable conduct.
(S) 4 - When evaluating the appropriateness of the restructuring
addressed in the preceding paragraph, it shall be taken into account whether,
among other factors, the Insurance Plan provided for in clause 23.1 covers the
event which caused the initial economic situation to change.
CLAUSE 12.2. - The economic basis of the Agreement shall be re-
established when it can be demonstrated that none of the factors listed in (S) 1
of the previous clause have occurred. This shall preferably be accomplished by
the revision of rates, or through any other mechanism which, in the view of
ANATEL, is capable of correcting the situation.
(S) 1 - The revision of rates precludes any other mechanism used to
deter unjust enrichment by any party, which is displaced by the event to which
the rate revision refers.
(S) 2 - A single, complete and final measure shall be taken in order
to correct the event that gave rise to the distortion.
CLAUSE 12.3. - Independent of clause 12.1, revising the rates listed
in the Basic Domestic Long-Distance Service Plan in favor of the Concessionaire
or the users shall be called for, under the terms of Art. 108 of Law No. 9,472
of 1997, in the following specific situations:
I - Unilateral modification of this Agreement imposed by ANATEL,
involving significant upward or downward variations in expenses or
income, for instance, when the raising or lowering of rates is
required in order to prevent any of the parties from making
unjustified profits;
II - A change in tax law subsequent to the signing of this Agreement
which involves an increase or reduction in the potential profitability
of the Concessionaire;
14
<PAGE>
III - Supervening events resulting from acts of governance or the
Administration which demonstrably affect the expenses of the
Concessionaire;
IV - Specific changes in legislation which have a direct impact upon
the income of the Concessionaire in such a way as to affect the
continuity or quality of the service provided;
V - Legislative changes which benefit the Concessionaire, including
those which grant or cancel exemptions, reductions, discounts or any
other tax or rate-related privileges, in keeping with the provisions
of (S) 3, Art. 108 of Law No. 9,472 of 1997.
(S) 1 - When reviewing rates, any damage or profit losses sustained by
the Concessionaire shall not be taken into account if they result from the free
operation of the service granted hereby under competitive conditions, or from
the inefficient management of its business.
(S) 2 - The revision scenario anticipated in paragraph II of this
clause shall not be applicable in the event the change in the tax law involves
the creation, elimination, increase or lowering of incidental taxes on the
Concessionaire's income or profits, and not involving and administrative or
operational tax.
(S) 3 - The rate revision scenarios anticipated by this clause shall
not apply if the events leading to the revision are already covered by the
Insurance Plan provided for in clause 23.1.
(S) 4 - The Concessionaire's contributions to the Fund for Universal
Telecommunications Services and to the Fund for the Development of
Telecommunications Technology shall not occasion the revision of rates.
CLAUSE 12.4. - Rate revisions shall not be applicable if the cause
motivating the Concessionaire's request can be neutralized through the efficient
operation of the service granted hereby, market expansion, or the generation of
alternative or supplementary revenue in associated with the subject matter of
this Agreement, in keeping with current competitive conditions.
SOLE PARAGRAPH - Reductions in revenue which result from discounts or
rate reductions shall not occasion the revision of rates.
CLAUSE 12.5. - The rate revision procedure may be initiated at the
request of the Concessionaire, or by a decision of ANATEL.
(S) 1 - In the event the revision procedure is initiated by the
Concessionaire, the following requirements must be observed:
15
<PAGE>
I - The request must be accompanied by a technical or expert report
demonstrating the precise impact of the occurrence upon the
determination of rates or the estimated revenue of the Concessionaire;
II - The request must be accompanied by all documents required to
substantiate the claim;
III - The Concessionaire must explain its claim for rate revision, and
report on the impact and possible rate-balancing alternatives;
IV - The Concessionaire shall bear all expenses for the research and
studies needed to fully back its claim.
(S) 2 - Rate-revision procedures initiated by ANATEL must be
communicated to the Concessionaire, allowing it time to respond, and shall be
accompanied by copies of the reports and studies carried out in order define the
circumstances occasioning the revision.
(S) 3 - The rate-revision procedure shall be concluded within 120 (one
hundred twenty) days, unless it becomes necessary to extend it in order to
conclude the proceedings.
(S) 4 - The request must be approved by ANATEL, and the Concessionaire
must fully divulge the new maximum amounts of the revised rates, under the terms
stated in this Agreement.
CHAPTER XIII - ALTERNATIVE, SUPPLEMENTARY AND ANCILLARY REVENUE
CLAUSE 13.1. - The Concessionaire may obtain other, alternative
sources of revenue, provided this does not involve noncompliance with the
standards set forth in the General Telecommunications Services Regulations and
other standards published by ANATEL.
SOLE PARAGRAPH - The Concessionaire and its affiliates may not make
the provision of the service granted herein contingent upon the consumption of
any other service, nor may they offer advantages to users who benefit from
services in addition to the service that is the subject matter of this
Agreement, including those provided by third parties.
CLAUSE 13.2. - ANATEL may order the Concessionaire to offer users
conveniences or features related to the subject matter of the concession, in
which case the parties must adjust the unit prices of said services, taking into
account market parameters and the right to fair compensation.
CHAPTER XIV - RIGHTS AND PRIVILEGES OF USERS AND OTHER SERVICE PROVIDERS
CLAUSE 14.1. - In accordance with the rules and guidelines set forth
in this Agreement, users of the service granted by this concession are entitled
to the following rights:
16
<PAGE>
I - To access and use the service in accordance with the standards of
quality, regularity and efficiency provided for by this Agreement, in
its annexes and according to current standards;
II - The possibility of requesting the suspension or cancellation of
the service provided by the Concessionaire;
III - To receive nondiscriminatory treatment with regard to the terms
of access and use of the service;
IV - To obtain adequate information regarding the terms under which
the service is provided and the rates charged;
V - The inviolability and secrecy of communications, respecting
constitutional and legal provisions regarding the privacy of
telecommunication;
VI - To arrange, without charge, for their access code not to be
disclosed, by placing a request with the Concessionaire's customer
service department;
VII - The non-suspension of service unless requested, except in the
case of nonpayment of the debt resulting directly from its use, or
noncompliance with the duties set forth in Art. 4 of Law No. 9,472 of
1997;
VIII - Prior notification of any and all changes to the terms of
service that affect them directly or indirectly;
IX - Confidentiality of billing documents and the use of their
personal information by the Concessionaire;
X - To receive an efficient and prompt response from the
Concessionaire to their complaints, under the terms provided for in
clause 15.7;
XI - To lodge claims or petitions against the Concessionaire with
ANATEL and consumer rights organizations;
XII - To receive compensation for harm sustained due to the violation
of their rights;
XIII - Compliance with the terms of the Subscription Agreement which
they entered into for the service;
XIV - Freedom to choose their domestic and international long distance
carrier;
XV - Respect for their right to portable access codes, in accordance
with the provisions of the Numbering Regulations published by ANATEL;
and
17
<PAGE>
XVI - Not to be required to consume services or acquire goods or
equipment in which they have no interest, as well as not to be
compelled to satisfy certain conditions in order to receive the
service which is the subject matter of this concession, as provided by
regulation.
(S) 1 - The Concessionaire shall comply with the duty to safeguard the
privacy inherent to telephone service and the confidentiality of data and
information. Moreover, it shall employ the means and technology to guarantee
users this right.
(S) 2 - Upon the order of judicial authorities, the Concessionaire
shall make available the technological resources required to access private
telecommunications, as provided by regulation.
CLAUSE 14.2. - In addition to the rights referred to in the preceding
clause, other providers of telecommunications services shall be guaranteed the
following rights:
I - To interconnect with the Concessionaire's network under
nondiscriminatory business and operating conditions, under technically
suitable conditions, and at equally-applied and fair prices which
strictly consider the necessity of offering the service, in accordance
with the regulations published by ANATEL;
II - To receive the service requested from the Concessionaire without
any kind of discrimination, at market prices or prices negotiated
between the parties, and at any discount which may apply owing to
savings from bulk consumption, in accordance with regulation;
III - To obtain all information required to provide the service they
themselves operate, including billing information, except as regards
the Concessionaire's right to protect its trade secrets, as well as
the rights of third parties.
(S) 1 - Conflicts between the Concessionaire and other service
providers shall be resolved administratively by ANATEL, under the terms of
regulations to be published by ANATEL.
(S) 2 - ANATEL shall always oversee the relations between the
Concessionaire and the carriers using the service granted herein, in such a way
as to discourage conduct that may involve unfair harm to any of the parties, or
that undermines economic order and free competition. In these instances, once it
has exercised its authority, it shall notify the Administrative Council of
Economic Defense CADE of such conduct, in the manner provided for in Art. 19,
paragraph XIX of Law No. 9,472 of 1997.
CLAUSE 14.3. - In accordance with regulation, all users shall be
guaranteed the right to receive and use premium services, which must be provided
in adequate technical condition, and at equally-applied and fair prices. The
Concessionaire is prohibited from blocking or restricting the use of the service
granted herein in any way.
18
<PAGE>
SOLE PARAGRAPH - A premium service is understood to be any activity
that enhances the service which is the subject matter of this concession, but
should not be confused with new features related to access, storage,
presentation, transfer or recovery of information.
CHAPTER XV - RIGHTS, PRIVILEGES AND OBLIGATIONS OF THE CONCESSIONAIRE
CLAUSE 15.1. - In addition to the other obligations arising from this
Agreement and inherent to the provision of the service granted hereby, it is the
duty of the Concessionaire:
I - To provide the service granted hereby in strict compliance with
the provisions of this Agreement, and to comply fully with the
regulations published by ANATEL;
II - To install all equipment and facilities needed to provide the
service which is the subject matter of the concession and ensure its
continuity, contemporaneity, expansion and universality, following the
specifications set forth in this Agreement;
III - To keep the telecommunications network in optimum operating
condition, with quantities, configurations and locations which are
proper and sufficient to provide suitable service;
IV - To provide the financial resources required to comply with the
standards for universal service and continuity set forth in this
Agreement, and to provide adequate service;
V - To provide ANATEL, in the manner and as often as provided by
regulation, with reports and information of a technical, operational,
business, accounting and financial nature, as well as to provide it
with all requested data and elements regarding the service granted
hereby;
VI - To maintain all public-use lines, whether permanent or temporary,
in the manner prescribed in this Agreement;
VII - To submit to audits by ANATEL and allow its agents access to its
company facilities as well as to its accounting records;
VIII - To keep separate accounting records for each department, as
well as to keep an up-to-date inventory of the goods and components
that make up the fixed assets of the company;
IX - To maintain a system for providing service and information to
users, under the terms of clause 15.7;
X - To safeguard the assets involved in providing the service granted
hereby;
19
<PAGE>
XI - To submit to ANATEL for prior approval the draft as well as all
changes, amendments or variations applicable to the Standard Agreement
entered into with subscribers;
XII - To submit for prior approval from ANATEL the operating
agreements or service, partnership or joint-venture agreements it
wishes to sign with foreign entities;
XIII - To send for publication in the ANATEL library copies of the
agreements and contracts pertaining to the provision of service to
Brazilian and non-Brazilian providers of telecommunications services;
XIV - To divulge, directly or through third parties, the access
numbers of its own subscribers and other subscribers to Switched,
Fixed-line Telephone Service providers, whether in the public or
private sector, in the concession area with the exception of those
subscribers who specifically request that their personal information
not be given out;
XV - To provide a list of its subscribers to whomever it wishes, at
prices and within timeframes which are reasonable, and in a
nondiscriminatory manner;
XVI - To rigorously respect the secrecy and confidentiality of
telecommunications, in accordance with legal and contractual
obligations;
XVII - To respect the privacy of users as regards billing documents
and all personal information pertaining to them;
XVIII - To comply, at its own expense and in accordance with the
provisions of clause 7.2 of this Agreement, with all universal service
objectives which are expressly stated herein;
XIX - To implement any projects for the expansion and universalization
of service which may be ordered by ANATEL, in conformity with the
established level of compensation, timeframe and terms of
implementation, in accordance with the provisions of clause 7.3;
XX - To submit to ANATEL for prior approval any and all changes it
wishes to make to its bylaws regarding company spin-offs, mergers,
transformations and incorporations, as well as any transfer of
control, or change in its capital stock;
XXI - To guarantee interconnection with its network to any other
telecommunications service provider, in keeping with specific
regulation and the standards of this Agreement;
20
<PAGE>
XXII - To make its billing and collection services available to other
providers of Switched, Fixed-line Telephone Services, and charge them
fair and compatible prices under the terms of this Agreement and the
regulations;
XXIII - To respect all the rights of other telecommunications service
providers and refrain from any discriminatory conduct towards them or
attempt to obstruct their activity;
XXIV - To use equipment with certification either issued or accepted
by ANATEL, whenever required to do so by regulation;
XXV - To comply with the norms and technical standards in force in
Brazil, refraining from any discriminatory practice with regard to
goods and equipment manufactured therein;
XXVI - In the case of disasters, to make available to civil defense
authorities and agents all requested facilities, systems and access
thereto, with a view to providing them with support or protecting
affected populations;
XXVII - To give priority to assisting the President of the Republic,
his official representatives, his support team and staff, as well as
to foreign heads of state making official visits or trips through
Brazilian territory, for whom it shall make available the means
required to communicate adequately, in keeping with the regulations
published by ANATEL;
XXVIII - To pay the fee set by ANATEL in the event the duration of the
concession is extended, under the terms of (S) 1, Art. 207 of Law No.
9,472 of 1997, and clause 3.3 of this Agreement;
XXIX - To pay all inspection and operating costs for its
installations, as provided by regulation;
XXX - To publish annually, regardless of the legal system to which it
is subject, the balance sheet and year-end financial statements, as
set forth in the legislation in force and the regulations published by
ANATEL;
XXXI - To comply with current Brazilian standards as regards the use
of non-Brazilian labor, including in positions requiring advanced
qualifications;
XXXII - To compensate users for damages which have in fact resulted
from the failure to provide service which would have been expected in
view of the continuity guidelines and universal service objectives
provided for in this Agreement;
XXXIII - When entering into contracts for management services,
including technical assistance, with non-Brazilian entities not to
spend more than the
21
<PAGE>
following amounts, as a percentage of the annual revenue from
Switched, Fixed-line Telephone Service:
a) 1% (one percent) per year, until 12/31/2000;
b) 0.5% (zero point five percent) per year, from 01/01/2001 until
12/31/2002; and
c) 0.2% (zero point two percent) per year, as of 01/01/2003;
XXXIV - To comply with agreements between Brazil and other countries
and international organizations, in the manner laid down by ANATEL;
and
XXXV - To comply with the contracts entered into with TELEBRAS, the
subject matter of which is the provision of services by the Research
and Development Center CPqD or its successor.
SOLE PARAGRAPH - Decisions concerning paragraph XXXIII of this clause
and involving service and technical assistance contracts between the
Concessionaire and third parties with ties to the majority shareholders, must be
made at extraordinary shareholder meetings, and the Concessionaire must state in
its corporate bylaws, until 12/31/98, that preferred stock shall have voting
rights in such decisions, without detriment to the provisions of (S) 1, Article
115 of Law No. 6,404, of December 15, 1976.
CLAUSE 15.2. - Without detriment to the other provisions set forth in
this Agreement, and those privileges guaranteed by law, the Concessionaire has
the following rights:
I - To operate the conceded service within the framework of its
corporate strategy, and to define freely its investments, in
accordance with the regulations published by ANATEL and the provisions
of this Agreement
II - To appoint a representative to monitor the inspection activities
of ANATEL;
III - To interrupt, according to the terms of Clause 8.3 of this
Agreement, the service granted hereby, or not fulfill the service
requests, of subscribers who fail to fulfill their contractual
obligations towards the Concessionaire;
IV - To request arbitration proceedings under the circumstances and in
the manner prescribed by Chapter XXX of this Agreement;
V - To operate the service granted hereby under business conditions
without being subject to changes involving unjustified enrichment of
the government or users, under the terms provided for in Chapter XII;
VI - To request the revision of the rates applied to the conceded
service, in the manner provided for in this Agreement;
22
<PAGE>
VII - To request that ANATEL keep confidential the information it
gathers during its inspection/audit activities, under the terms
provided for in this Agreement;
VIII - To use equipment and infrastructure which do not belong to it
when carrying out services, in accordance with clause 21.1 of this
Agreement; and
IX - To contract with third parties to develop activities that are an
inherent part of, incidental to or which supplement the service
granted hereby, as well as to implement associated projects.
CLAUSE 15.3. - For as long as this Agreement is in force, the
Concessionaire shall be solely liable, with regard to third parties, for the
actions of its personnel, employees and contractors involved in the provision of
Switched, Fixed-line Telephone Service, as well as for the use of equipment,
installations and networks, and the government and ANATEL are held exempt from
all claims and/or indemnities.
CLAUSE 15.4. - The Concessionaire may not obstruct works in the public
interest, regardless of their nature, in the event it becomes necessary to
remove installations or telephone networks in order to render feasible
interventions promoted, either directly or indirectly, by any body or
organization of the public Administration.
CLAUSE 15.5. - The Concessionaire must execute agreements directly
with each Municipal government in the areas it operates the service granted
hereby, as well as with other public service utilities, as regards the location
of the poles and cross bars used to hang aerial lines and cables, and the
underground conduits and pipes used to run cables under streets and public
parks.
(S) 1 - The Concessionaire shall make arrangements with the holders of
public or private property over or under which it has to run conduits or pipes,
or install supports to hold said conduits and pipes, and shall obtain the
corresponding consent or easements for such purposes.
(S) 2 - The Concessionaire must seek arrangements with the respective
municipal authorities in order to maintain conditions required to overcome
interference in the network required to provide the service granted hereby,
including the felling and pruning of trees.
CLAUSE 15.6. - Under the terms of the provisions of Art. 73 of Law No.
9,472 of 1997, the Concessionaire may use poles, pipes, conduits and easements
belonging to or controlled by other providers of telecommunications services or
other public utilities.
(S) 1 - The use of the facilities referred to in the preceding
paragraph must be carried out in a nondiscriminatory way, and at fair and
reasonable prices.
(S) 2 - The Concessionaire must make the facilities it owns or
controls, referred to in the first paragraph of this clause, available to the
other providers of telecommunications
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services, classified by ANATEL as public utilities, and do so in accordance with
the same conditions provided for in the preceding paragraph.
(S) 3 - In the event the Concessionaire does not reach an agreement
with other service providers regarding the use of the facilities referred to in
this clause, it shall be ANATEL's duty, either alone or together with other
involved regulatory bodies, to define the conditions of said use.
CLAUSE 15.7. - During the entire duration of this concession, the
Concessionaire shall maintain a user information and service center operating 24
(twenty-four) hours a day, capable of receiving and processing requests,
complaints and claims from users, either in person or via any form of long
distance communication.
(S) 1 - The Concessionaire must make available to all users the
addresses and access codes of its information and service center, which are
required to be listed in the Standard Contract entered into with service
subscribers.
(S) 2 - The Concessionaire must make available and announce an
easy-to-dial, toll-free number for users to make requests via telephone.
(S) 3 - All requests, claims or complaints made by users, by whatever
means, must be assigned an order number, which shall be given to the concerned
party so that he or she can be assisted.
(S) 4 - The user shall be informed, within the timeframe defined in
the General Plan on Quality, of the measures taken in response to his or her
request, claim or complaint.
(S) 5 - In the event that ANATEL notes that users are having
difficulty obtaining access to the information and service center, it may order
the Concessionaire to increase the availability of access, or risk being found
guilty of not complying with the obligation provided for in this clause.
CLAUSE 15.8. - When hiring services and acquiring equipment and
materials associated with the provision of the service which is the subject
matter of this Agreement, the Concessionaire commits itself to field offers from
independent suppliers, including those which are state-run, and to base its
decisions, with regard to the various offers submitted, on the objective
criteria of price, conditions of delivery and technical specifications set forth
in the relevant regulations.
(S) 1 - In the event of equivalent offers, the Concessionaire agrees
to use as the deciding criteria, the preference of services offered by companies
located in Brazil, and equipment and materials produced in Brazil, particularly
those produced using Brazilian technology. The issue of equivalent offers shall
be automatically decided if, cumulatively:
I - The price in Brazil of the domestic product is lower than or equal
to that of the imported product, tax included;
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II - The delivery schedule meets the Concessionaire's needs; and
III - The technical specifications established by relevant regulation
are met and the product has certification that has either been issued
or accepted by ANATEL, when applicable.
(S) 2 - Services are understood to mean those relating to research and
development, planning, setting up and physically installing, operating,
maintaining, supervising and performing evaluation tests of telecommunication
systems.
(S) 3 - ANATEL shall formulate regulations governing the execution of
the provisions in this clause, including applicable penalties.
CLAUSE 15.9. - With the exception of changes which have received prior
approval from ANATEL, the Concessionaire shall fulfill its commitments regarding
the expansion and conformity of the domestic underwater and land cables listed
in Annex 3 - Optical Routes, of this Agreement.
SOLE PARAGRAPH - The discontinuance of fiber-optic cable routes, as
well as changes to the profile of the Concessionaire's domestic routes and
networks, is contingent upon the prior approval of ANATEL.
CLAUSE 15.10. - The Concessionaire agrees to maintain and expand the
domestic fiber-optic network, thereby connecting all the capitals of the
Brazilian States by December 31, 2003.
(S) 1 - All the capitals of the Brazilian States must be
interconnected by December 31, 2000, with the exception of Boa Vista, Cuiaba,
Macapa, Manaus, Porto Velho and Rio Branco.
(S) 2 - ANATEL may exempt the Concessionaire from the first
requirement of this clause if the Concessionaire makes such a request and
commits itself to achieving interconnection among the State capitals, within the
indicated timeframes, using alternative means based on digital technology, and
with capacity and quality which are fully compatible with the needs of users and
the market to be served.
CHAPTER XVI - OBLIGATIONS AND PREROGATIVES OF ANATEL
CLAUSE 16.1. - In addition to the prerogatives that are an inherent
part of its function as a regulatory body, and other obligations under this
Agreement, ANATEL shall be responsible for:
I - Overseeing and monitoring the provision of the service granted
hereby and the safeguarding of revertible assets, ensuring compliance
with the standards, specifications and instructions set forth in this
Agreement and its annexes;
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II - Carrying out site visits to inspect the adequacy of installations
and equipment, and ordering any necessary rectifications, repairs,
removals, reconstruction or replacements, at the expense of the
Concessionaire;
III - Continually regulating the execution of the conceded service;
IV - Intervening when necessary in the execution of the service
granted hereby in order to ensure its regularity and faithful
compliance with the Agreement and relevant legal standards;
V - Applying the penalties provided for by regulation of the service
and specifically, by this Agreement;
VI - Reviewing the Supplemental Domestic Long-Distance Service Plans
submitted by the Concessionaire;
VII - Authorizing the adjustment of rates and revising them, under the
terms of, and in accordance with, the provisions of this Agreement;
VIII - Acting within the limits set forth in this Agreement to prevent
the parties from unjustified enrichment, under the terms of this
Agreement;
IX - Ensuring the high quality of the service granted hereby,
accepting, processing and resolving complaints and claims from users,
and informing them, within ninety days, of the measures taken to curb
infringements upon their rights;
X - Declaring the termination of the Concession in the cases provided
for in this Agreement;
XI - Guaranteeing interconnectivity, and settling any disputes which
arise between the Concessionaire and other service providers;
XII - Ensuring compliance with the universal service objectives
provided for in this Agreement, and with any objectives set forth in
future Objectives Plans;
XIII - Continually overseeing the relations between the Concessionaire
and other providers of telecommunications services, and settling any
disputes arising among them;
XIV - Discouraging conduct by the Concessionaire that runs contrary to
the system of free competition, in keeping with the legal authority of
the Administrative Council of Economic Defense - CADE;
XV - Submitting to the President of the Republic, at the request of
the Concessionaire and through the intermediary of the Ministry of
Communications, proposals for declarations of public interest, with a
view to exercising eminent
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domain or implementing public easements over the property needed to
establish or maintain the service which is the subject matter of this
Agreement;
XVI - Auditing the service granted hereby under the terms set forth in
this Agreement; and
XVII - Collecting fees for FISTEL and adopting the measures provided
for in current legislation.
CHAPTER XVII - THE CONCESSIONAIRE
CLAUSE 17.1. - The Concessionaire is a company incorporated under
Brazilian law, as a corporation (sociedade anonima), with the sole purpose of
operating the service that is the subject matter of this concession, with the
exception of those services provided for under the terms of (S) 3, Art. 207 of
Law No. 9,472 of 1997.
SOLE PARAGRAPH - In the event that changes to the Concessionaire's
bylaws are approved, the documents formalizing such changes shall be sent to
ANATEL for filing, and shall be fully incorporated into this Agreement.
CLAUSE 17.2. - The Concessionaire and those entities which control it
agree to maintain, for the entire duration of the concession and its extension,
all of the service conditions and capabilities which existed at the time this
Agreement entered into force.
CLAUSE 17.3. - The Concessionaire and those entities which control it
agree to ensure the actual existence on Brazilian territory, during the
concession period and the extension thereof, of centers for decision-making and
the implementation of strategic, managerial and technical decisions involved in
carrying out this Agreement, as well as to ensure this obligation is reflected
in the make-up and decision-making processes of its governing bodies.
SOLE PARAGRAPH - The Concessionaire must include provisions in its
bylaws, until December 31, 1998, which guarantee compliance with the provisions
of the preceding paragraph.
CHAPTER XVIII - ASSIGNMENT OF THE CONCESSION AND CHANGE OF CONTROL OF THE
CONCESSIONAIRE
CLAUSE 18.1. - Assignment of the concession, or the change of direct
or indirect control over the Concessionaire, may only be authorized by ANATEL,
in keeping with the General Concession Plan and Art. 202 of Law No. 9,472 of
1997, provided that:
I - The assignee fulfills all of the requirements established under
the terms of Art. 200 of Law No. 9,472 of 1997; and
II - The assignment or change does not undermine competition, or
threaten the execution of this Agreement or the general standards for
the protection of economic order.
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SOLE PARAGRAPH - Failure to comply with any provision of this clause
shall result in the forfeiture of this concession.
CLAUSE 18.2. - The capital stock of the Concessionaire may be pledged
freely, and such an assignment does not affect its control.
SOLE PARAGRAPH - If the pledging of stock results in the taxation of
the assets of the Concessionaire, provisions must be made in the financing
agreements in order to submit the creditors, in the event of foreclosure, to the
rules set forth in this Chapter.
CHAPTER XIX - INSPECTION SYSTEM
CLAUSE 19.1. - ANATEL shall carry out inspections of the service
granted herein in order to ensure compliance with the prerequisites of universal
service and continuity, which are an inherent part of the public service being
provided. It shall also ensure fulfillment of the objectives and commitments set
forth in this Agreement.
(S) 1 - The inspections to be performed by ANATEL shall involve
inspecting and monitoring the Concessionaire's activities, equipment and
facilities, which in turn requires complete access to all of the
Concessionaire's or third parties' data and information.
(S) 2 - The information gathered during its inspection activities
shall be published by its library, with the exception of information which, at
the Concessionaire's request, is considered by ANATEL to be confidential in
nature.
(S) 3 - Any information judged confidential in nature under the terms
of the preceding paragraph shall only be used in proceedings related to this
Agreement, and any requests for further dissemination of such information,
whether broad or restricted, must be made to ANATEL, or whomever it has
indicated.
CLAUSE 19.2. - The Concessionaire, through the intermediary of a named
representative, may monitor any and all of ANATEL's inspection activities. It
may not obstruct or prevent said inspection activities, at the risk of being
subject to the penalties provided for in this Agreement.
CHAPTER XX - REPORTING OBLIGATIONS OF THE CONCESSIONAIRE
CLAUSE 20.1. - As provided by regulation, the Concessionaire must
periodically send ANATEL statistical and status reports on all services
provided, including, among other elements, figures on the expansion and scope of
the telephone network. The Concessionaire must also report on the technological
status of the equipment used.
CHAPTER XXI - CONCESSION-RELATED ASSETS
CLAUSE 21.1. - The assets related to this concession consist of all
assets owned by the Concessionaire and required to provide the service conceded
herein, especially those
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classified as such in Annex 1 Classification of Revertible Assets Used to
Provide Domestic Long-Distance, Switched, Fixed-Point Telephone Service.
(S) 1 - Concession-related assets also include permits that have been
granted for the use of the radio frequency spectrum and, where applicable, usage
rights for orbital positions, in accordance with Articles 48 and 161 of Law No.
9,472 of 1997 and the provisions of clause 4.1 of this Agreement.
(S) 2 - With regard to concession-related assets, the Concessionaire
must receive the prior and express consent of ANATEL for the direct use of
equipment, infrastructure, software systems, or any other type of asset that is
not its property, in order to provide the service conceded herein. ANATEL may
exempt it from this requirement in the cases and circumstances provided for by
regulation.
(S) 3 - If the continuity of service is at risk, or there is an
impediment to the reversion of a concession-related asset, ANATEL may withhold
authorization to use third-party assets, or require that the corresponding
Agreement contain a clause stipulating that the owner agrees, in the event of
termination of the concession, to uphold the Agreement and transfer to ANATEL
the rights pertaining thereto.
CHAPTER XXII - THE SYSTEM OF REVERSION
CLAUSE 22.1. - In the event of the termination of the concession, all
concession-related assets shall revert automatically to ANATEL, as indicated in
Chapter XXI above, and the Concessionaire shall retain its right to the
compensation provided for by law and this Agreement.
SOLE PARAGRAPH - Within 180 (one hundred eighty) days following the
termination of the concession, an inventory shall be taken of the assets
pertaining thereto, and an Asset Restitution and Reversion Statement shall be
drawn up, with a detailed account of the condition of said assets. One or more
representatives of the Concessionaire shall be authorized to monitor the
foregoing.
CLAUSE 22.2. - The Concessionaire commits itself to remit revertible
assets in a perfect state of operation, utilization and maintenance, except as
regards normal wear and tear through usage.
SOLE PARAGRAPH - Revertible assets shall be transferred to ANATEL free
of any charge or encumbrance, while taking into account the scenario stated in
paragraph 2 of the following clause.
CLAUSE 22.3. - The reversion of assets, as addressed in Chapter XXI
above, which occurs at the end of the contractual term, shall be carried out
without compensation, except as provided for in this clause.
(S) 1 - The Concessionaire shall only be compensated if, upon the
termination of the Concession, there exist partially-amortized assets, the
acquisition of which had been
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previously authorized by ANATEL, or which were acquired prior to the signing of
this Agreement, for the purpose of guaranteeing reliable, up-to-date service.
(S) 2 - In place of or in addition to the compensation provided for in
the preceding paragraph, ANATEL may allow the assignment of assets that have
been pledged as security for its own financing needs, and assume any financed
portion which is still outstanding.
CLAUSE 22.4. - Upon termination of the Concession, ANATEL shall assess
the assets referred to in clause 21.1, and may refuse the reversion of assets it
considers dispensable to, or useless in the operation of the service granted
hereby. The Concessionaire is guaranteed the right to contest the foregoing,
including by way of reports or studies prepared and presented at its expense,
demonstrating the need for reversion.
SOLE PARAGRAPH - In the event the Concessionaire disagrees with
ANATEL's decision regarding the provisions of this clause, recourse to the
dispute-resolution process provided for in this Agreement shall be allowed.
CHAPTER XXIII - INSURANCE PLAN
CLAUSE 23.1. - During the entire time the concession is in force, the
Concessionaire must subscribe, with an appropriate Insurance Company registered
with the corresponding regulatory body of the insurance industry, to the
insurance policies listed below in order to ensure effective and comprehensive
coverage of the inherent risks involved in carrying out all of the activities
contemplated within this Agreement.
I - Comprehensive insurance against material damage, covering the
loss, destruction or damage of any and all assets associated with the
concession. Said insurance must provide blanket coverage, in
accordance with international standards;
II - Business interruption insurance which covers, at a minimum,
variations in the Concessionaire's income resulting from accidents, or
changes in the operating terms of the Agreement, which affect
operating costs and which are not covered by insurance against
material damage, provided that taking out this type of insurance is
allowed by Brazilian standards and expressly authorized by the
Brazilian Reinsurance Institute - IRB or an equivalent organization;
and
III - Insurance covering the achievement of the quality and universal
service requirements provided for in this Agreement (i.e., a
performance bond, a letter of credit and the amount kept as a deposit)
with a value corresponding to 10% of the estimated annual amount
invested in order to achieve the objectives provided for in this
Agreement.
(S) 1 - The Concessionaire must arrange to have its insurance policies
include the requirement that the Insurer inform the Concessionaire and ANATEL,
in writing and with at least 10 (ten) days' notice, of any information which may
entail the complete or partial
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cancellation of the policies taken out, a reduction in coverage, an increase in
deductibles, or a lowering of the values covered.
(S) 2 - Policies taken out in order to comply with the provisions of
this clause may not contain obligations, restrictions or provisions which
contradict the provisions of this Agreement or regulations, and must contain an
express statement by the Insurer that it is completely familiar with this
Agreement, specifically as regards the limits of the Concessionaire's rights.
(S) 3 - In the event the Concessionaire fails to comply with the
requirement to keep the required insurance policies in effect, then ANATEL,
notwithstanding its ability to order intervention in or the termination of this
concession, may then take out said insurance and directly pay for the
corresponding premiums, at the expense of the Concessionaire.
(S) 4 - Every year, by the end of the month of January, the
Concessionaire must submit a certificate issued by the insurers, confirming that
all the premiums due for the preceding year have been paid, and that the
policies have taken full effect or been renewed. In the latter case, any new
policy terms are also to be submitted.
(S) 5 - The policies referred to in this clause must comply with the
following deadlines for presentation and activation:
I - The policy referred to in item I of the first paragraph of this
clause must be presented within 90 (ninety) days as of the signing of
this Agreement, and must take immediate effect;
II - The policy referred to in item II of the first paragraph of this
clause must be presented by November 30, 1999, and take effect as of
January 1, 2000; and
III - The policy referred to in item III of the first paragraph of
this clause must be presented by November 30, 2000, and take effect as
of January 1, 2001.
(S) 6 - ANATEL may change the coverage or the presentation deadlines
for the policies referred to in this clause so as to adapt said requirements to
the regulations published by the Private Insurance Commission - SUSEP, or to the
terms established by the Brazilian Reinsurance Institute - IRB. It may also do
so if standards are published which interfere with the contracting of the
insurance referred to herein, or if the market is not ample or competitive
enough to allow the insurance to be taken out at a reasonable cost.
CHAPTER XXIV - INTERCONNECTION
CLAUSE 24.1. - The Concessionaire is required to allow, facilitate,
provide and implement the interconnection of other telecommunications service
providers' networks with the network it operates, whether they are in the public
or private sector, and whenever they so request. In so doing, it shall enforce
and observe the regulations published by ANATEL pertaining thereto.
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CLAUSE 24.2. - The network usage fees required as of the signing of
this Agreement are those listed in Administrative Ruling No. 2,505 of December
20, 1996, issued by the Ministry of Communications, and may be updated and
reviewed in keeping with the provisions of this Agreement as provided by
regulation.
CLAUSE 24.3. - The Concessionaire shall enjoy the same rights, and
observe the same terms of interconnection, as the ones applying to other service
providers.
SOLE PARAGRAPH - The Concessionaire must maintain the elements of its
network for interconnection at the most technically advanced level possible, in
accordance with ANATEL regulations.
CHAPTER XXV - PENALTIES
CLAUSE 25.1. - In the execution of this Agreement, the Concessionaire
shall be subject to the following penalties, notwithstanding other penalties
provided for by regulation, which shall be applied by way of justified decisions
by ANATEL, and the former shall be guaranteed the right to defend itself under
the terms of the Internal Regulations.
I - For violations of the provisions of this Agreement resulting in
non-fulfillment of universal service objectives, there shall be a fine
of up to R$50,000,000.00 (fifty million Brazilian reais);
II - For acts or omissions contrary to the provisions set forth in
this Agreement, and which cause harm to competitors in the
telecommunications industry, there shall be a fine of up to
R$50,000,000.00 (fifty million Brazilian reais);
III - For any violation of contractual provisions which results in the
non-fulfillment of quality of service objectives or guidelines, there
shall be a fine of up to R$40,000,000.00 (forty million Brazilian
reais);
IV - For any other act or omission not covered by the preceding
paragraphs, and which involves the violation of users' rights as set
forth in this Agreement, or which causes them harm, there shall be a
fine of up to R$30,000,000.00 (thirty million Brazilian reais);
V - For any act or omission which violates the provisions of clause
15.8 of this Agreement, involving the hiring of services and the
acquisition of equipment and materials manufactured in Brazil, there
shall be a fine of up to R$30,000,000.00 (thirty million Brazilian
reais);
VI - For any act or omission which obstructs or hinders the inspection
activities of ANATEL as provided for in this Agreement, there shall be
a fine of up to R$20,000,000.00 (twenty million Brazilian reais);
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VII - For any act, omission or negligence which threatens the security
of the facilities, there shall be a fine of up to R$15,000,000.00
(fifteen million Brazilian reais);
VIII - For any act or omission which brings harm or poses a risk to
concession-related assets or equipment, there shall be a fine of up to
R$10,000,000.00 (ten million Brazilian reais); and
IX - For failure to comply with any express requirement in this
Agreement, with the exception of the requirements stated in the
preceding paragraphs, for which penalties have already been
determined, there shall be a fine of up to R$10,000,000.00 (ten
million Brazilian reais).
(S) 1 - The infraction specified in paragraph I of this clause shall
be characterized by the failure of the Concessionaire to fulfill its
obligations, within the timeframes set forth in this Agreement, with regard to
the expansion and increased availability of the service granted hereby by
supplying public telephones and assistance to localities, in keeping with the
provisions of the General Plan on Universal Service. When applying the penalty,
the following factors shall be taken into consideration, in addition to the
general principles laid forth in this Chapter:
a) The difference between the objective defined in the Agreement and
its degree of implementation;
b) The possibility for the Concessionaire catch up on the
implementation schedule, at its own expense;
c) The harm done to the policy reflected in the General Plan on
Universal Service;
d) The harm done to the intended direct beneficiaries of the
unfulfilled objectives; and
e) Any attenuating circumstances of a technical or economic nature
which may lessen the responsibility of the Concessionaire,
although not exonerate it.
(S) 2 - The seriousness of the infraction indicated in paragraph II of
this clause shall be defined solely on the basis of the general criteria
indicated in clause 25.2, and shall be characterized by conduct of the
Concessionaire which, directly or indirectly, could inflict harm upon its
competitors in the industry, particularly:
a) Obstructing or hindering the option to use another provider of
the service or domestic and international long distance service.
b) Refusing to provide interconnection to a provider of
telecommunications services;
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c) Obstructing or hindering the activity of providers of premium
services;
d) Placing conditions upon the availability of the conceded service,
or offering advantages to users in exchange for their acquiring
services other than the service which is the subject matter of
this Agreement;
e) Supplying any telecommunications service that is not a purpose of
the concession or authorized by ANATEL;
f) Failing to uphold quality standards regarding interconnection;
and
g) Delaying the supply of information vital to the activities of
other service providers, especially involving user-related
information.
(S) 3 - The infraction specified in paragraph III of this clause shall
either be characterized by repeatedly providing service which is below the
quality parameters defined in the General Plan on Quality, or by demonstrably
contravening the quality indicators listed in Chapter VI. In the first case,
the following are considered particularly serious infractions:
a) Failure to allocate the human and material resources required to
maintain minimum quality standards in the operation and
maintenance of the service granted hereby; and
b) Negligence in modernizing the network which impacts the quality
of service.
(S) 4 - The seriousness of the infraction indicated in paragraph IV of
this clause shall be defined on the basis of the number of users affected and on
the damage caused. It shall be characterized by the violation, whether directly
or indirectly, through commission or omission, of an obligation stipulated in
this Agreement, and which does not involve a violation of duties pertaining to
universal service and quality, but rather a violation of the rights of users,
particularly:
a) Interruption of service for periods longer than allowed by the
General Plan on Quality, except under the circumstances indicated
in the sole paragraph of clause 6.3;
b) Refusal to provide the conceded service to any interested party;
c) Failure to fulfill the duty of providing information to users;
d) Breach of the secrecy of telecommunications, outside of legally-
mandated circumstances, even in the case of breaches committed by
third parties using facilities over which the Concessionaire has
responsibility;
e) Failure to maintain a user information and service center as
stipulated in this Agreement;
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f) Charging rates or prices which are against the rules stipulated
in this Agreement and as provided by regulation; and
g) Restricting the right to freely choose among Domestic Long-
Distance Service Plans.
(S) 5 - The penalty provided for by paragraph V of this clause shall
be characterized by a verifiable violation of the obligation indicated in clause
15.8, and its seriousness shall be determined in accordance with regulatory
provisions.
(S) 6 - The seriousness of the infraction indicated in paragraph VI of
this clause shall be defined on the basis of the significance of the inspection
activity obstructed, and shall be characterized by a violation committed by the
Concessionaire or its employees, whether directly or indirectly, through
commission or omission, which impedes or hinders the inspection activities
carried out by ANATEL, by its employees, or even by users, particularly:
a) The refusal of the Concessionaire to comply with requests for
information made by ANATEL regarding the conceded service or the
assets allocated to it;
b) Hindering the actions of ANATEL's inspectors;
c) Failure to fulfill the publicity obligations provided for in this
Agreement, or as provided by the regulation; and
d) Failure to send, or to send in a timely manner, information,
data, reports or documents which, as determined by regulation or
this Agreement, should have been conveyed to ANATEL.
(S) 7 - The seriousness of the infraction indicated in paragraph VII
of this clause shall be defined on the basis of the degree of risk posed, and
shall be characterized by conduct of the Concessionaire which runs counter to
the rules set forth in this Agreement and as provided by regulation, violates
norms and standards of technical safety, or which poses a risk to the facilities
allocated to the conceded service, particularly:
a) The use of equipment not certified by ANATEL to provide the
service, when such certification is required;
b) Failure to allocate the human and material resources required to
maintain minimum safety standards in the operation and
maintenance of the service; and
c) Failure to take the precautions recommended for the service
conceded herein.
(S) 8 - The seriousness of the infraction indicated in paragraph VIII
of this clause shall be defined on the basis of the significance, the economic
importance and the
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indispensability of the assets involved, and shall be characterized by conduct
of the Concessionaire which runs counter to the provisions of this Agreement or
the regulations, and which could pose a risk to assets or equipment associated
with this concession, or make their reversion difficult, particularly:
a) Failure to keep inventory and records of the assets referred to
in clause 21.1;
b) The direct use of the assets of third parties in providing the
service, without prior authorization from ANATEL, or without a
regulatory dispensation; and
c) Negligence in maintaining revertible assets, as provided by
regulation.
(S) 9 - The penalty provided for in paragraph IX of this clause shall
be called for in the case of a demonstrable violation of a contractual
obligation which is not included among the preceding paragraphs, particularly
the violation indicated in paragraph XXXI of clause 15.1.
(S) 10 - The penalty provided for in paragraph II above is of a
contractual nature and shall be applied by ANATEL regardless of any measures
taken by the Administrative Council of Economic Defense - CADE.
(S) 11 - Failure to pay any fine which has been determined under the
provisions in this clause, and within the timeframe determined by ANATEL, shall
constitute a serious violation, and shall occasion intervention in the affairs
of the Concessionaire, under the terms set forth in Chapter XXVIII. It shall
also entail payment of a late fee of 0.33% (zero point thirty-three percent) per
day, up to a maximum of 10% (ten percent), plus the SELIC reference rate for
federal securities, to be levied upon the amount owed on the basis of the number
of days it is past due.
CLAUSE 25.2. - When applying the contractual fines provided for in
this Chapter, the rules stated in Title VI, Book III of Law No. 9,472 of 1997,
and those provided by regulation, shall be observed.
(S) 1 - When defining the seriousness of penalties and determining
fines, ANATEL shall take the following factors into account:
I - Whether the severity of the punishment is in proportion to the
seriousness of the violation, while also taking into account the
number of users affected;
II - The damage inflicted upon the service and users as a result of
the infraction;
III - Any advantage which the Concessionaire has reaped as a result of
the infraction;
IV - The market share of the Concessionaire in its geographical
service area;
36
<PAGE>
V - The economic and financial situation of the Concessionaire,
especially its potential to generate revenue, and its assets;
VI - The Concessionaire's past record;
VII - Whether the violation is a repeat offense, that being a repeat
of a violation of the same nature after having received notification
previously; and
VIII - Whether the infraction involved aggravating or attenuating
circumstances.
(S) 2 - Regardless of the specific ranking criteria provided for in
each paragraph of the preceding clause, and others provided for by regulation,
penalties shall be ranked using the following scale:
I - The infraction shall be considered minor if it results from
unintentional or excusable conduct of the Concessionaire, and from
which it does not benefit;
II - The infraction shall be considered moderately serious if it
results from inexcusable conduct, but which does not provide the
Concessionaire with any benefit or gain, or affect a significant
number of users; and
III - The infractions shall be considered serious if ANATEL finds
evidence that:
a) The Concessionaire has acted in bad faith;
b) The infraction has resulted in a direct or indirect benefit for
the Concessionaire;
c) The Concessionaire's infraction is a repeat offense;
d) A significant number of users were affected; and
e) There were circumstances of the kind anticipated in (S) 10 of the
preceding clause.
(S) 3 - At ANATEL's discretion, in the case of first-time occurrences
of infractions classified as minor, it may apply the disciplinary measure of
issuing a warning to the Concessionaire, which shall be formally notified of the
sanction, regardless of the publication of the ruling in the Official Journal.
(S) 4 - When applying the disciplinary measures provided for in this
Chapter, the Disciplinary Proceedings provided for in the Internal Regulations
of ANATEL shall be observed.
(S) 5 - In the case of the infractions provided for in paragraph IV of
clause 25.1, ANATEL may reduce the amount the Concessionaire would pay in fines
from the amount to be paid as compensation to the affected users, and the
compensation criteria, the payment schedule and the maximum amount of the
abatement shall be stated within the sentencing document.
37
<PAGE>
(S) 6 - The measure provided for in the preceding paragraph may only
be adopted if it can be proved that respecting the rights or demands of users
shall not exonerate the Concessionaire from its liability for other civil
damages owed.
CLAUSE 25.3. - The fines provided for in this clause shall be applied
notwithstanding scenarios involving intervention or declaration of forfeiture,
as provided for in this Agreement.
SOLE PARAGRAPH - In the event of complete or partial failure to carry
out an adjustment, or unjustified delays of over 120 (one hundred twenty) days
in complying with the objectives set forth in this Agreement, the Concessionaire
shall be subject to a declaration of forfeiture of the Concession, under the
terms set forth in clause 26.4.
CLAUSE 25.4. - The amounts of the fines provided for in this Chapter
shall be adjusted annually by applying the GPI-DA, and the first adjustment
shall take place one year after the signing of this Agreement.
CHAPTER XXVI - TERMINATION OF THE CONCESSION
CLAUSE 26.1. - The Concession Agreement shall be considered terminated
in the event of the following:
I - Expiration of the concession period for the service granted
hereby, in the event it has not been extended under the terms of this
Agreement;
II - Expropriation, in accordance with Art. 113 of Law No. 9,472 of
1997;
III - Forfeiture, under the terms set forth in Article 114 of Law No.
9,472 of 1997 and in this Agreement;
IV - Amicable or judicial rescission, under the terms of Art. 115 of
Law No. 9,472 of 1997; and
V - Annulment.
(S) 1 - Upon termination of the concession, the rights and duties
pertaining to the provision of the conceded service shall revert to ANATEL,
along with the assets referred to in clause 22.1, and the Concessionaire shall
retain the right to the compensation provided for by law and within this
Agreement.
(S) 2 - Following the termination of the concession, ANATEL shall
undertake all necessary inventories, assessments and settlements within 180 (one
hundred eighty) days of taking over the service granted hereby, except in the
case of expiration of the agreement, in which case these steps are to be taken
in advance by ANATEL.
(S) 3 - If the concession is terminated prior to its contractual
expiration date, ANATEL may do the following, notwithstanding other suitable
measures:
38
<PAGE>
I - Make temporary use of fixed and intangible assets, and avail
itself of the personnel required to continue providing the service
granted hereby; and
II - Maintain the Contracts signed between the Concessionaire and
third parties for the duration and under the terms initially agreed
upon.
CLAUSE 26.2. - Reversion upon the expiration of the Agreement shall be
carried out without compensation, except under the circumstances provided for in
clause 22.3.
CLAUSE 26.3. - Under the terms of Art. 113 of Law No. 9,472 of 1997,
expropriation is understood to be the repossession of the service by ANATEL
during the concession period, due to extraordinary motives of public interest,
by way of a specific authorizing law and subsequent to the payment of
compensation.
CLAUSE 26.4. - In the circumstances listed below, the forfeiture of
this Agreement may be declared by an act of the Board of Directors of ANATEL,
preceded by administrative proceedings which guarantee the Concessionaire an
ample defense:
I - Transfer of corporate control, spin-offs, mergers or
transformation of the Concessionaire, as well as raising or lowering
its capital stock without the prior approval of ANATEL;
II - Improper assignment of the Agreement;
III - Failure to fulfill a commitment to an assignment, as referred to
in clause 18.1 of this Agreement and Art. 87 of Law No. 9,472 of 1997;
IV - Bankruptcy or dissolution of the Concessionaire;
V - Noncompliance with insurance coverage requirements, in violation
of the obligations provided for in clause 23.1, which, in the judgment
of ANATEL, cannot be dealt with through intervention; and
VI - The occurrence, under the terms of Art. 114, paragraph IV of Law
No. 9,472 of 1997, of any of the situations stipulated by clause 28.1,
and in which intervention, in the judgment of ANATEL would be
inappropriate, ineffective or even unjustly favorable to the
Concessionaire.
(S) 1 - Intervention shall be judged unnecessary in the event the
demand for the service which is the subject matter of the concession may be met,
through authorization, by other providers in a regular and immediate fashion.
(S) 2 - Declaring forfeiture shall not preclude the application of
appropriate penalties, under the terms of this Agreement, for infractions
committed by the Concessionaire, nor shall it prejudice the right to
compensation defined under the terms of the following Chapter.
39
<PAGE>
CLAUSE 26.5. - The Concessionaire shall be entitled to contractual,
judicial or amicable rescission in the event that, due to acts or omissions of
government authorities, the execution of the Agreement becomes excessively
onerous, under the terms of Art. 115 of Law No. 9,472 of 1997.
SOLE PARAGRAPH - The introduction or increase of competition among the
various providers of the service which is the subject matter of the concession
does not constitute a motive for the rescission of the Agreement, since the
Concessionaire clearly takes this concession with the knowledge that it will be
carrying out its activities without any kind of reserved or exclusive market.
CLAUSE 26.6. - Annulment shall be decreed by ANATEL in the event that
irremediable and serious irregularities are discovered in this Agreement.
CHAPTER XXVII - COMPENSATION
CLAUSE 27.1. - For the purposes of calculating compensation owed by
ANATEL to the Concessionaire, in the cases expressly provided for in this
Agreement, the following shall be observed:
I - Expiration of the contract term: No compensation shall be due,
unless it is proved that the absence of payment results in the
unjustified enrichment of the government through the reversion of
assets which have not been completely amortized, in accordance with
the provisions of clause 22.3;
II - Expropriation: In keeping with the provisions of Art. 113 of Law
No. 9,472 of 1997, compensation, which shall be paid prior to
expropriation, must correspond to the value of the assets which are
reverting to the granting authority, minus depreciation;
III - Forfeiture: Independently of the application of penalties and
the indemnification of damage resulting from breach of contract, under
the terms of the Agreement, the Concessionaire may only claim
compensation if it is proved that the government will be unjustly
enriched through the reversion of assets that have not been completely
amortized or depreciated, after deducting the value of the damage
incurred and of imposed fines, in addition to any unmet financial
obligations;
IV - Amicable or judicial rescission: No compensation shall be due,
unless otherwise determined by a court ruling; and
V - Annulment: Compensation shall only be due if it is proved that the
Concessionaire did not act illegally, and such compensation shall
correspond solely to the actual value of the assets which revert to
the government, calculated on the date the annulment is decreed, on
the condition that said assets have not yet been fully amortized.
40
<PAGE>
(S) 1 - The temporary amount to be advanced by ANATEL in cases of
expropriation shall be calculated in the manner prescribed by the specific
authorizing legislation.
(S) 2 - In the event that forfeiture is brought about through the
demonstrated fault of the Concessionaire, it shall also occasion:
a) retention of the credits stemming from the Agreement, including
the appropriation of revenue from the payments made by users of
the service;
b) liability for prejudice caused to the government and to the
users;
c) the levying of fines under the terms provided for in this
Agreement and current legislation; and
d) loss of the insurance guarantee provided for in clause 23.1.
(S) 3 - Except in cases of expropriation, the appropriate compensation
for other instances of termination of the Agreement shall be calculated under
the terms of this chapter and divided into installments equal to the number of
months the concession would have been in effect. The first installment shall be
paid one year after the termination of the Agreement.
(S) 4 - The responsibility for paying the various types of
compensation may be transferred by ANATEL to the provider that takes over the
operation of the service granted hereby from the Concessionaire. However, ANATEL
shall reassume the payment obligation in the event the new provider is more than
90 (ninety) days behind in its payments.
CHAPTER XXVIII - INTERVENTION
CLAUSE 28.1. - In the event the continuity and security of the service
granted hereby is jeopardized through the fault of the Concessionaire,
especially in the situations indicated below, then ANATEL, at its discretion and
in the public interest, may decree its intervention in the affairs of the
Concessionaire by way of a specific and justified act of its Board of Directors.
I - Unjustified paralysis of the service granted hereby, that being
the interruption of service under circumstances not anticipated by
this Agreement, and which are not attributed to causes which ANATEL
considers justifiable;
II - Inadequacy or repeated insufficiencies of the service provided,
characterized by noncompliance with the quality parameters provided
for in this Agreement and by regulation, even after warnings issued by
ANATEL to rectify the situation by a certain deadline;
III - Poor administrative practices that jeopardize the continuity of
the service granted hereby;
41
<PAGE>
IV - Recurrence of violations defined as serious under the terms of
clause 25.1 above;
V - Non-fulfillment of universal service objectives, that being the
unjustified failure to comply with the timetable for implementing the
universal service requirements of this Agreement;
VI - Unjustified withholding of interconnection, understood as
refusing, delaying or postponing the negotiation or implementation of
a connection to its network, at the request of another service
provider, and in compliance with the terms of interconnection
determined by ANATEL;
VII - Violation of economic order, characterized by unfair trade
practices; and
VIII - Failure to provide reports to ANATEL, or obstruction of
inspection activities, which may presuppose the occurrence of any of
the events anticipated in the previous paragraphs.
CLAUSE 28.2. - The intervention decree must state the timeframe,
motives, goals and scope, in addition to designating the intervening party.
SOLE PARAGRAPH - The duration and scope of the intervention must be
compatible with and in proportion to the cause for the intervention.
CLAUSE 28.3. - The intervention shall be preceded by administrative
proceedings initiated by ANATEL, during which the full rights of defense of the
Concessionaire shall be guaranteed.
SOLE PARAGRAPH - If immediate intervention is indispensable, it may be
decreed as a precaution by ANATEL, without a prior declaration by the
Concessionaire, in which case the proceedings must be initiated immediately as
of the date of the decree, and concluded within one hundred eighty days, during
which time the Concessionaire may exercise its full rights of defense.
CLAUSE 28.4. - The intervention decree shall neither affect the
regular course of business of the Concessionaire, nor its normal functioning. It
shall, however, occasion the immediate dismissal of its management.
CLAUSE 28.5. - The function of temporary administrator may fall to an
executive of ANATEL, a specifically appointed person, collegial body or a
company, and the Concessionaire shall assume the cost of remuneration.
(S) 1 - ANATEL may have recourse the intervening party to act on its
behalf.
(S) 2 - The temporary administrator shall issue reports and be
responsible for its acts.
42
<PAGE>
(S) 3 - For acts of alienation and disposal of the assets of the
Concessionaire, the temporary administrator requires the prior authorization of
ANATEL.
CLAUSE 28.6. - Intervention shall not be decreed if ANATEL deems it
unnecessary.
SOLE PARAGRAPH - Intervention shall be deemed unnecessary under the
circumstances set forth in (S) 1 of clause 26.4 above, as well as under those
provided for in Art. 114, paragraph IV of Law No. 9,472 of 1997.
CHAPTER XXIX - ADMINISTRATIVE EXPROPRIATIONS AND IMPOSITIONS
CLAUSE 29.1. - In the event public easements or expropriations need to
be carried out in order to implement, provide or update the service granted
hereby, such tasks shall be handled entirely by the Concessionaire, and ANATEL
must submit proposals to the President of the Republic requesting the issuance
of declarations of public interest.
CHAPTER XXX - ARBITRATION
CLAUSE 30.1. - Any disputes that may arise over the application and
interpretation of the terms of the concession shall be resolved by ANATEL
through the exercise of its function as a regulatory body, in accordance with
the provisions of Articles 8 and 19 of Law No. 9,472 of 1997. The Concessionaire
may only evoke the arbitration proceeding provided for in this Chapter if it
disagrees with a ruling by ANATEL on the following topics:
I - Infringement of the right of the Concessionaire to protect its
economic situation, as set forth in Chapter XII;
II - Rate revision, as provided for in Chapter XII; and
III - Compensation owed upon the termination of this Agreement,
including reverted assets.
SOLE PARAGRAPH - The submission of any issue to arbitration does not
exempt ANATEL and the Concessionaire from the obligation to comply fully with
this Agreement, nor does it permit the interruption of the activities associated
with the concession.
CLAUSE 30.2. - Arbitration proceedings shall be initiated when one
party sends notice to the other, requesting the establishment of the Arbitration
Tribunal provided for in this Chapter, and detailing the issue which is the
topic of controversy.
SOLE PARAGRAPH - ANATEL may reject the establishment of the
Arbitration Tribunal if it can justifiably demonstrate that the dispute is not
included in the list of topics provided for in clause 30.1.
CLAUSE 30.3 - The Arbitration Tribunal shall be composed of 5 (five)
members, appointed as follows:
43
<PAGE>
I - 2 (two) members, and their respective alternates, chosen by the
Board of Directors of ANATEL from among specialists in the areas
pertaining to the disputed matter, and who are not ANATEL employees.
At least one of them, who shall preside over the proceedings, shall
have specific knowledge of the legal regulation of telecommunications;
II - 2 (two) members, and their respective alternates, chosen by the
Concessionaire, from among specialists in the areas pertaining to the
disputed matter, and who are not ANATEL employees. At least one of
them shall have specific knowledge of the legal regulation of
telecommunications; and
III - 1 (one) member, and his or her respective alternate, chosen by
the members referred to in the preceding paragraphs.
(S) 1 - The Arbitration Tribunal may be assisted by whatever technical
experts it finds suitable to appoint.
(S) 2 - The Tribunal shall be considered constituted on the date when
all arbitrators accept their appointments and notify both parties of their
acceptance.
(S) 3 - The Tribunal shall adjudicate on the basis of established law,
and its rulings shall have cogent force, independent of judicial homologation.
CLAUSE 30.4 - If it has not been rejected by ANATEL, or if such
arguments have been overcome, the Proceedings dealt with in this Chapter shall
be initiated, and the following procedures shall be observed:
I - The parties shall have 10 (ten) days as of receiving the notice
discussed at the beginning of the preceding clause in which to choose
the members of the Arbitration Tribunal, which shall be established as
soon as all of its members demonstrated their accepted;
II - In the event one of the parties fails to act, or offers
resistance to the establishment of the Arbitration Tribunal, the other
party may avail itself of the right provided for in Art. 7 of Law No.
9,307 of September 23, 1996;
III - Once the Arbitration Tribunal has been established, the parties
shall each have 25 (twenty-five) days to present their arguments
concerning the disputed matter and may use this opportunity to present
reports, surveys, and opinions, as well as any other documents or
information which they feel are relevant in supporting their position;
IV - Once the briefs have been presented, the Tribunal shall analyze
the arguments and may, at the request of one of its members, order the
elaboration of reports, surveys or opinions, and request information
or documents from the parties. In addition, the Tribunal may make any
other investigation or take any
44
<PAGE>
other measures it deems necessary to obtain optimal information about
the disputed matter;
V - During the gathering of the items referred to in the preceding
paragraph, the parties shall always be permitted to make and refute
arguments in keeping with the principles of informality, consensus and
celerity which shall govern the proceeding;
VI - Once the preliminary fact-finding period has been declared
closed, the parties shall be granted a common 15 (fifteen) day period
in which to present their closing arguments;
VII - Once the period mentioned above has elapsed, regardless of the
presentation of the final arguments, the Tribunal shall issue its
ruling within 30 (thirty) days;
VIII - The ruling of the Arbitration Tribunal may not be appealed,
except for petitions for reconsideration, which are only suitable in
cases when a ruling is approved with a mere one-vote majority; and
IX - Invalidation of arbitration proceedings shall only be allowed
under the circumstances provided for in Art. 32 of Law No. 9,307/96.
SOLE PARAGRAPH - The expense of the arbitration process, including the
cost of reports, opinions and surveys, as well as the fees of the Tribunal
members, shall either be charged to the Concessionaire or to ANATEL, depending
upon the ruling of the Arbitration Tribunal.
CHAPTER XXXI - APPLICABLE LEGAL SYSTEM
CLAUSE 31.1. - Without prejudice to the norms inherent in the
Brazilian legal system, this concession is governed by Law No. 9,472 of July 16,
1997 and by the regulations resulting therefrom, particularly those issued by
Executive Authority in accordance with the provisions of Art. 18 of the above-
mentioned Law, and they always take precedence over conflicting standards.
CLAUSE 31.2. - When providing the service conceded herein, national
telecommunications policy and the regulations of ANATEL must be observed and
considered an integral part of this Agreement, particularly the following
related documents:
I - General Concession Plan;
II - General Plan on Universal Service;
III - General Plan on Quality;
IV - General Regulations for Telecommunications Services;
45
<PAGE>
V - Regulations for Switched, Fixed-line Telephone Service;
VI - General Regulations for Interconnection;
VII - Numbering Regulations for Switched, Fixed-line Telephone
Service;
VIII - Numbering Administration Regulations; and
IX - Regulations for Compensation for Network Usage of Providers of
Switched, Fixed-line Telephone Service.
CLAUSE 31.3. - When interpreting the standards and provisions
contained within this Agreement, general rules of interpretation and the
standards and principles of Law No. 9, 472 of 1997 must be taken into account,
in addition to the documents referred to in the preceding item.
CHAPTER XXXII - VENUE
CLAUSE 32.1. - In order to resolve disputes stemming from this
Agreement which cannot be resolved through the dispute-resolution process in
Chapter XXX Arbitration, the Federal District Court of Brasilia (Foro da Secao
Judiciaria da Justica Federal de Brasilia, Distrito Federal) shall have
competent jurisdiction.
CHAPTER XXXIII - FINAL AND GENERAL PROVISIONS
CLAUSE 33.1. - The Agreement signed herewith shall enter into force as
soon as its abstract is published in the official government daily journal
(Diario Oficial da Uniao).
SOLE PARAGRAPH - The Concessionaire shall have 6 (six) months as of
the publication of the regulations referred to in clause 31.2, which are
expected to have been completely published by December 31, 1998, before being
required to comply fully with the obligations set forth in this Agreement.
In order to signify their full acceptance of the provisions and terms
of this Agreement, the parties hereby execute it in triplicate, before witnesses
who also execute it, in order that this Agreement take legal and judicial
effect.
Brasilia, May 26, 1998.
ANATEL:
__________________________
__________________________
Concessionaire:
__________________________
__________________________
46
<PAGE>
Witnesses:
__________________________
Name:
ID:
__________________________
Name:
ID:
47
<PAGE>
ANNEX 1
CLASSIFICATION OF REVERTIBLE ASSETS USED
TO PROVIDE
DOMESTIC LONG-DISTANCE,
SWITCHED, FIXED-LINE TELEPHONE SERVICE
a) Infrastructure and equipment used for switching and transmission, including
public terminals;
b) Infrastructure and equipment used in the external network;
c) Infrastructure and equipment used for energy and air conditioning;
d) Infrastructure and equipment used by assistance and service centers;
e) Infrastructure and equipment used in operations support systems;
f) Other items required to provide the service.
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<PAGE>
ANNEX 2
BASIC DOMESTIC LONG-DISTANCE SERVICE PLAN
1 - GENERAL
1.1 - The Basic Domestic Long-Distance Service Plan is governed by the
administrative rulings cited in this annex, by other regulations in effect and
any succeeding regulations.
1.2 - The rates presented are maximums, net of payroll and income taxes.
2 - USAGE OF DOMESTIC LONG-DISTANCE, SWITCHED, FIXED-LINE TELEPHONE SERVICE
2.1 - The billing structure for Domestic Long-Distance Service takes into
account the distance between the billing areas where a call is originated and
where it is received, the duration of the call, the type of call made, and the
time of day of the call.
2.2 - The locations which are the centers of the billing areas have been
approved by Administrative Decree No. 195 of March 30, 1994, issued by the
Ministry of Communications.
2.3 - The billing unit is one tenth of a minute (i.e., six seconds), in
accordance with Administrative Decree No. 219 of April 2, 1997, issued by the
Ministry of Communications.
2.4 - The minimum billed increment is one minute for direct-dialed calls and
three minutes for manual calls, as set forth in Standard No. 003/81 and restated
by Administrative Decree No. 297 of November 29, 1995, issued by the Ministry of
Communications.
2.5 - The Basic Rate (BR) of this service, as determined by Administrative
Decree No. 226 of April 3, 1997, issued by the Ministry of Communications, is
R$0.18 (eighteen centavos), which corresponds to one minute during the normal
period (NP) for the greatest distance indicated in the Rate Table below.
2.6 - Per-minute rates shall be limited to the amounts set forth in the table
below, on the basis of the distance between the centers of billing areas and the
time of the call:
<TABLE>
<CAPTION>
Normal Super-
------ ------
Premium Period Discount Discount
------- ------ -------- --------
Level Distance Multiplier Period R$ (NP) R$ Period R$ Period R$
----- -------- --------- --------- ------- --------- ---------
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(2xNP) (1xNP) (0.50xNP) (0.25xNP)
- -----------------------------------------------------------------------------------------------------------------
DC Local 0.128 0.04608 0.02304 0.01152 0.00576
- -----------------------------------------------------------------------------------------------------------------
D1 Up to 50 Km 0.300 0.10800 0.05400 0.02700 0.01350
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
49
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
D2 Between 50 and 0.500 0.18000 0.09000 0.04500 0.02250
100 Km
- -----------------------------------------------------------------------------------------------------------------
D3 Between 100 and 0.750 0.27000 0.13500 0.06750 0.03375
300 Km
- -----------------------------------------------------------------------------------------------------------------
D4 Over 300 Km 1.000 0.36000 0.18000 0.09000 0.04500
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
2.7 - Billing periods have been established by Standard No. 003/81, and restated
by Administrative Decree No. 297 of November 29, 1995, as per the following
table:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
Period Monday - Friday Saturday Sunday and Holidays
=========================================================================
<S> <C> <C> <C>
Midnight to 6 am super-discount super-discount super-discount
- -------------------------------------------------------------------------
6 am to 7 am discount discount discount
- -------------------------------------------------------------------------
7 am to 9 am normal normal discount
- -------------------------------------------------------------------------
9 am to Noon premium normal discount
- -------------------------------------------------------------------------
Noon to 2 pm normal normal discount
- -------------------------------------------------------------------------
2 pm to 6 pm premium discount discount
- -------------------------------------------------------------------------
6 pm to 9 pm normal discount discount
- -------------------------------------------------------------------------
9 pm to Midnight discount discount discount
- -------------------------------------------------------------------------
</TABLE>
2.8 - No additional charges may be levied upon the above-defined amounts,
regardless of call length.
2.9 - Manual calls shall be billed in keeping with the criteria established in
Standard No. 003/81, restated in Administrative Decree No. 297 of November 29,
1995.
3 CALLS TO MOBILE CELLULAR SERVICE
3.1 - The billing criteria and procedures for mobile cellular calls are
regulated by Standard No. 23/96, approved by Administrative Decree No. 1536 of
November 4, 1996, issued by the Ministry of Communications.
3.2 - The billing unit is one tenth of a minute (i.e., six seconds).
3.3 - The minimum billing increment is 30 (thirty) seconds.
3.4 - Administrative Decree No. 2503 of December 20, 1996, issued by the
Ministry of Communications, has determined the maximum per-minute rates, as
shown in the table below:
<TABLE>
<CAPTION>
--------------------------------------------------------
Normal Rate Discount Rate
--------------------------------------------------------
VC-2 VC-3 VC-2 VC-3
--------------------------------------------------------
<S> <C> <C> <C>
0.58000 0.66000 0.40600 0.46200
--------------------------------------------------------
</TABLE>
3.5 - The discount period for calls to Mobile Cellular Service shall be from
Monday through Saturday from midnight to 7 a.m. and from 9 p.m. to midnight, and
all day Sundays and
50
<PAGE>
holidays, as set forth in Standard No. 23/96, approved by Administrative Decree
No. 1,536 of November 4, 1996, issued by the Ministry of Communications.
51
<PAGE>
ANNEX 3
OPTICAL ROUTES
- -------------------------------------------------------------------------------
INSTALLED
- -------------------------------------------------------------------------------
Rio de Janeiro (RJO) - Sao Paulo (SPO)
- -------------------------------------------------------------------------------
Rio de Janeiro (RJO) - Belo Horizonte (BHE)
- -------------------------------------------------------------------------------
Sao Paulo (SPO) - Belo Horizonte (BHE)
- -------------------------------------------------------------------------------
Belo Horizonte (BHE) - Brasilia (BSA)
- -------------------------------------------------------------------------------
Brasilia (BSA) - Anapolis (ANS) - Goiania (GNA)
- -------------------------------------------------------------------------------
Sao Paulo (SPO) - Curitiba (CTA)
- -------------------------------------------------------------------------------
Curitiba (CTA) - Paranagua (PNG)
- -------------------------------------------------------------------------------
Curitiba (CTA) - Florianopolis (FNS)
- -------------------------------------------------------------------------------
Florianopolis (FNS) - Porto Alegre (PAE)
- -------------------------------------------------------------------------------
Rio de Janeiro (RJO) - Vitoria (VTA) - Sao Mateus (SMT) (Underwater)
- -------------------------------------------------------------------------------
Sao Mateus (SMT) - Porto Seguro (PGU) (Land)
- -------------------------------------------------------------------------------
Porto Seguro (PGU) - Salvador (SDR) - Recife (RCE) (Underwater)
- -------------------------------------------------------------------------------
Recife (RCE) - Natal (NTL) (Underwater)
- -------------------------------------------------------------------------------
Natal (NTL) - Fortaleza (FLA) (Land)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
TO BE INSTALLED BY 12/31/1998
- -------------------------------------------------------------------------------
Porto Alegre (PAE) - Santa Maria (SMA) - Rosario do Sul (RSS) - Alegrete (ALG)
- - Uruguaiana (UGN)
- -------------------------------------------------------------------------------
Uruguaiana (UGN) - Passos de Los Libres
- -------------------------------------------------------------------------------
Santana do Livramento (SIV)- Rosario do Sul (RRS)- Alegrete (ALG)
- -------------------------------------------------------------------------------
Santana do Livramento (SIV) - RIVERA
- -------------------------------------------------------------------------------
Rio de Janeiro (RJO) - Tangua (TANG)
- -------------------------------------------------------------------------------
Santos (STS) - Sao Paulo (SPO)
- -------------------------------------------------------------------------------
Rio de Janeiro (RJO) - Santos (STS) (Underwater)
- -------------------------------------------------------------------------------
Tres Coracoes (TCS) - Juiz de Fora (JFA)
- -------------------------------------------------------------------------------
Fortaleza (FLA) - Salvador (SDR)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
TO BE INSTALLED BY 12/31/1999
- -------------------------------------------------------------------------------
Florianopolis (FNS) - Curitiba (CTA) (Supplemental)
- -------------------------------------------------------------------------------
Sao Paulo (SPO) - Curitiba (CTA) (Supplemental)
- -------------------------------------------------------------------------------
Maringa (MGA) - Apucarana (APU) - Londrina (LDA)
- -------------------------------------------------------------------------------
Goiania (GNA) - Belo Horizonte (BHE) (Supplemental)
- -------------------------------------------------------------------------------
52
<PAGE>
- -------------------------------------------------------------------------------
Sao Paulo (SPO) - Goiania (GNA)
- -------------------------------------------------------------------------------
Salvador (SDR) - Belo Horizonte (BHE) (Supplemental)
- -------------------------------------------------------------------------------
Fortaleza (FLA) - Teresina (TSA)- Sao Luis (SLS)
- -------------------------------------------------------------------------------
Sao Luis (SLS) - Santa Ines (SIS) - Belem (BLM)
- -------------------------------------------------------------------------------
Porto Alegre (PAE) - Florianopolis (FNS) (Supplemental)
- -------------------------------------------------------------------------------
Porto Seguro (PGU) - Itabuna (ITB) - Vitoria da Conquista (VCA)
- -------------------------------------------------------------------------------
Rio de Janeiro (RJO) - Fortaleza (FLA) (Atlantis2)
- -------------------------------------------------------------------------------
Santa Ines (SIS)- Imperatriz (ITZ) - Estreito (ETO)
- -------------------------------------------------------------------------------
Goiania (GNA) - Palmas (PMJ) - Estreito (ETO)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
TO BE INSTALLED BY 12/31/2000
- -------------------------------------------------------------------------------
Bauru (BRU) Campo Grande (CPE)
- -------------------------------------------------------------------------------
Foz do Iguacu (FOZ) - Cascavel (CSC) Maringa (MGA)
- -------------------------------------------------------------------------------
Cascavel (CSC) - Ponta Grossa (PGO)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
TO BE INSTALLED BY 12/31/2001
- -------------------------------------------------------------------------------
Recife (RCE) - Caruaru (CRU) - Bom Nome (BONM)
- -------------------------------------------------------------------------------
Itabuna (ITB) - Ilheus (ILH)
- -------------------------------------------------------------------------------
Goiania (GNA) - Araguari (ARI)
- -------------------------------------------------------------------------------
Porto Alegre (PAE) - Criciuma (CUA) - Florianopolis (FNS) - Joinville (JVE)
- -------------------------------------------------------------------------------
53
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EXHIBIT 10.3
MODELO DE
CONTRATO DE CONCESSAO DO SERVICO TELEFONICO FIXO
COMUTADO DE LONGA DISTANCIA INTERNACIONAL
(EMBRATEL)
Pelo presente instrumento, de um lado a Agencia Nacional de
Telecomunicacoes, doravante denominada ANATEL, entidade integrante da UNIAO e
nos termos da Lei Federal n degrees 9.472 de 16 de Julho de 1997, Lei Geral de
Telecomunicacoes - LGT, incumbida do exercicio do Poder Concedente, ora
representada pelo seu Presidente Renato Navarro Guerreiro, [qualificar]
conjuntamente com o Conselheiro **** [qualificar], conforme aprovacao do seu
Conselho Diretor constante da Resolucao n degrees ****, e de outro a [nome e
qualificacao da concessionaria], por seu representante legal, doravante
denominada CONCESSIONARIA, consoante o disposto no art. 207 da referida Lei
Geral de Telecomunicacoes, por este instrumento e na melhor forma de direito,
celebram o presente CONTRATO DE CONCESSAO, que sera regido pelas normas adiante
referidas e pelas seguintes clausulas:
CAPITULO I - DO OBJETO
CLAUSULA 1.1. - O objeto do presente Contrato e a concessao do Servico
Telefonico Fixo Comutado, destinado ao uso do publico em geral, prestado em
regime publico, na modalidade de servico longa distancia internacional na area
geografica definida na clausula 2.1., nos termos do Plano Geral de Outorgas.
CLAUSULA 1.2. - Servico Telefonico Fixo Comutado e o servico de
telecomunicacoes que, por meio da transmissao de voz e de outros sinais,
destina-se a comunicacao entre pontos fixos determinados, utilizando processos
de telefonia.
CLAUSULA 1.3. - Mediante previa aprovacao por parte da ANATEL, a
Concessionaria podera implantar e explorar utilidades ou comodidades
relacionadas com a prestacao do servico objeto da presente concessao.
PARAGRAFO UNICO - Serao consideradas relacionadas com o objeto da
presente Concessao aquelas prestacoes, utilidades ou comodidades que, a juizo da
ANATEL, sejam consideradas inerentes a plataforma do servico ora concedido, sem
caracterizar nova modalidade de servico, observadas as disposicoes da
regulamentacao.
CLAUSULA 1.4. - A concessionaria tem direito a implantacao, expansao e
operacao dos troncos, redes e centrais de comutacao necessarios a sua execucao,
bem assim sua exploracao industrial, nos termos da regulamentacao.
1
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CLAUSULA 1.5. - E indissociavel da prestacao do servico concedido, a
obrigacao de atendimento as metas de universalizacao e qualidade previstas neste
contrato.
CLAUSULA 1.6. - A Concessionaria devera assegurar a todos os
solicitantes e usuarios do servico concedido a realizacao das instalacoes
necessarias a prestacao do servico, nos termos da regulamentacao.
CLAUSULA 1.7. - A Concessionaria devera manter acesso gratuito para
servicos de emergencia estabelecidos na regulamentacao.
CAPITULO II - DA AREA DE PRESTACAO DO SERVICO
CLAUSULA 2.1. - A area geografica de prestacao do servico objeto da
presente concessao e aquela correspondente a todo territorio nacional.
CAPITULO - III - DO PRAZO E DAS CONDICOES DE PRORROGACAO DO CONTRATO
Clausula 3.1. - O prazo da presente concessao, outorgada a titulo
gratuito, tera seu termo final em 31 de dezembro de 2005, assegurado o direito a
prorrogacao unica por vinte anos, de acordo com as clausulas 3.2, 3.3 e 3.4.
CLAUSULA 3.2. - A presente concessao sera prorrogada, a pedido da
Concessionaria, a titulo oneroso, uma unica vez por 20 (vinte) anos, desde que a
Concessionaria atenda as condicoes constantes deste Contrato, podendo o novo
Contrato incluir novos condicionamentos, estabelecer novas metas para
universalizacao e de qualidade, tendo em vista as condicoes vigentes a epoca da
prorrogacao, definindo, no caso de metas de universalizacao, recursos
complementares, nos termos do art. 81 da Lei n 9.472, de 1997.
(S) 1 - A ANATEL, 36 (trinta e seis) meses antes do termo final
previsto na clausula 3.1, fara publicar consulta publica com sua proposta de
novos condicionamentos e de novas metas para qualidade e universalizacao do
servico, submetidas estas ultimas a aprovacao, por meio de Decreto, do
Presidente da Republica, nos termos do art. 18, inciso III, da Lei n degrees
9.472, de 1997.
(S) 2 - Para a prorrogacao prevista nesta Clausula, a Concessionaria
devera manifestar seu expresso interesse com antecedencia minima de 30 (trinta)
meses antes do termo final previsto na Clausula 3.1.
CLAUSULA 3.3. - Para prorrogacao do prazo da presente
2
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concessao, nos termos do previsto na clausula anterior, a Concessionaria devera
pagar, a cada bienio, durante o periodo de prorrogacao, onus correspondente a 2%
(dois por cento) da sua receita, do ano anterior ao do pagamento, do Servico
Telefonico Fixo Comutado, liquida de impostos e contribuicoes sociais
incidentes.
(S) 1 - No calculo do valor referido no caput desta clausula sera
considerada a receita liquida decorrente da aplicacao dos planos de servico,
basico e alternativos, objeto da presente concessao.
(S) 2 - O calculo do percentual referido no caput desta clausula sera
feito sempre relativamente a receita liquida das deducoes de impostos e
contribuicoes incidentes, apurada entre janeiro e dezembro do ano anterior e
obtida das demonstracoes financeiras elaboradas conforme legislacao societaria e
principios fundamentais de contabilidade, aprovadas pela administracao da
Concessionaria e auditadas por auditores independentes, e o pagamento tera
vencimento em 30 de abril do ano subsequente ao da apuracao do onus.
(S) 3 - A primeira parcela do onus tera vencimento em 30 de abril de
2007, calculada considerando a receita liquida apurada de 1 de janeiro a 31 de
dezembro de 2006, e as parcelas subsequentes terao vencimento a cada 24 (vinte e
quatro) meses, tendo como base de calculo a receita do ano anterior.
(S) 4 - O atraso no pagamento do onus previsto nesta clausula
implicara a cobranca de multa moratoria de 0,33% (zero virgula trinta e tres por
cento) ao dia, ate o limite de 10% (dez por cento), acrescida da taxa
referencial SELIC para titulos federais, a ser aplicada sobre o valor da divida
considerando todos os dias de atraso de pagamento.
CLAUSULA 3.4. - A prorrogacao do prazo do presente Contrato ensejara a
prorrogacao no direito de uso das radiofrequencias referidas na clausula 4.1 que
sejam necessarias a continuidade da prestacao do servico.
PARAGRAFO UNICO - O retorno a ANATEL de radiofrequencias que nao sejam
necessarias a continuidade da prestacao dos servicos nao implicara modificacao
do valor do onus da prorrogacao fixado na clausula 3.3.
CAPITULO IV - DO MODO, FORMA E CONDICOES DE PRESTACAO
CLAUSULA 4.1. - A utilizacao de radiofrequencias na prestacao do
servico objeto desta concessao sera autorizada pela ANATEL, a titulo oneroso e
sem exclusividade, salvo se existir
3
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disposicao em contrario na regulamentacao, consoante o disposto nos artigos 83 e
163 da Lei n 9.472, de 1997.
(S) 1 - A Concessionaria tera direito de utilizacao, sem
exclusividade, das radiofrequencias autorizadas anteriormente a data da
assinatura deste contrato, independente do pagamento de qualquer onus, exceto as
taxas de fiscalizacao, observadas as condicoes estabelecidas nas respectivas
licencas de funcionamento das estacoes.
(S) 2 - O direito de utilizacao de radiofrequencias referido nesta
clausula nao elide a prerrogativa conferida a ANATEL pelo art.161 da Lei n
9.472, de 1997.
(S) 3 - As novas radiofrequencias que venham a ser requeridas pela
Concessionaria terao seu uso autorizado, a titulo oneroso, com observancia dos
procedimentos definidos pela ANATEL para autorizacoes similares.
(S) 4 - O prazo das autorizacoes de uso de radiofrequencias
requeridas nos termos do paragrafo anterior sera igual ao prazo da presente
Concessao, devendo sua prorrogacao ser feita a titulo oneroso, independente do
pagamento do onus referido na clausula 3.3. do presente.
CLAUSULA 4.2. - A Concessionaria se obriga a prestar o servico objeto
da concessao de forma a cumprir plenamente as obrigacoes de universalizacao e
continuidade inerentes ao regime publico, que lhe e inteiramente aplicavel,
observados os criterios, formulas e parametros definidos no presente Contrato.
PARAGRAFO UNICO - O descumprimento das obrigacoes relacionadas a
universalizacao e a continuidade ensejara a aplicacao das sancoes previstas no
presente Contrato, permitira a decretacao de intervencao pela ANATEL e, conforme
o caso e a gravidade ou quando a decretacao de intervencao for inconveniente,
inocua, injustamente benefica a Concessionaria ou desnecessaria, implicara a
caducidade da concessao, nos termos do disposto na clausula 26.4.
CLAUSULA 4.3. - A Concessionaria explorara o servico objeto da
concessao por sua conta e risco, dentro do regime de ampla e justa competicao
estabelecido na Lei n 9.472, de 1997, e no Plano Geral de Outorgas, sendo
remunerada pelas tarifas cobradas e por eventuais receitas complementares ou
acessorias que perceba nos termos do presente Contrato.
PARAGRAFO UNICO - A Concessionaria nao tera direito a qualquer especie
de exclusividade, nem podera reclamar direito quanto a admissao de novos
prestadores do mesmo servico, no regime publico ou privado.
4
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CLAUSULA 4.4. - Ao longo de todo o prazo de vigencia da concessao, a
Concessionaria se obriga a manter os compromissos de qualidade, abrangencia e
oferta do servico constantes do presente Contrato, independentemente do ambiente
de competicao existente na area geografica de exploracao do servico.
CLAUSULA 4.5. - A Concessionaria se compromete a manter e conservar
todos os bens, equipamentos e instalacoes empregados no servico em perfeitas
condicoes de funcionamento, conservando e reparando suas unidades e promovendo,
nos momentos oportunos, as substituicoes demandadas em funcao do desgaste ou
superacao tecnologica, ou ainda promovendo os reparos ou modernizacoes
necessarias a boa execucao do servico e a preservacao do servico adequado,
conforme determinado no presente Contrato.
CAPITULO V - DAS REGRAS PARA IMPLANTACAO, EXPANSAO, ALTERACAO E MODERNIZACAO DO
SERVICO
CLAUSULA 5.1. - Constituem pressupostos basicos da presente concessao
a expansao e a modernizacao do servico concedido, observadas as metas e os
criterios constantes do presente Contrato.
PARAGRAFO UNICO - A ANATEL podera determinar a alteracao de metas de
implantacao, expansao e modernizacao do servico, respeitado o direito da
Concessionaria de nao ser obrigada a suportar custos adicionais nao recuperaveis
com a receita decorrente do atendimento dessas metas por meio da exploracao
eficiente do servico.
CLAUSULA 5.2. - A alteracao nas condicoes de prestacao do servico
somente podera ocorrer por determinacao da ANATEL ou mediante sua previa e
expressa aprovacao.
CLAUSULA 5.3. - A modernizacao do servico sera buscada atraves da
constante introducao de equipamentos, processos e meios aptos a prestar ao
usuario um servico compativel com a atualidade em face das tecnologias
disponiveis no mercado.
CAPITULO VI - DOS CRITERIOS E INDICADORES DE QUALIDADE E CONTINUIDADE DO
SERVICO.
CLAUSULA 6.1. - Constitui pressuposto da presente Concessao a adequada
qualidade do servico prestado pela Concessionaria, considerando-se como tal o
servico que satisfizer as condicoes de regularidade, eficiencia, seguranca,
atualidade, generalidade, cortesia e modicidade das tarifas.
5
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(S) 1 - A regularidade sera caracterizada pela prestacao continuada
do servico com estrita observancia do disposto nas normas baixadas pela ANATEL.
(S) 2 - A eficiencia sera caracterizada pela consecucao e preservacao
dos parametros constantes do presente Contrato e pelo atendimento do usuario do
servico nos prazos previstos neste Contrato.
(S) 3 - A seguranca na prestacao do servico sera caracterizada pela
confidencialidade dos dados referentes a utilizacao do servico pelos usuarios,
bem como pela plena preservacao do sigilo das informacoes transmitidas no ambito
de sua prestacao, observado o disposto no Capitulo XIV.
(S) 4 - A atualidade sera caracterizada pela modernidade dos
equipamentos, das instalacoes e das tecnicas de prestacao do servico, com a
absorcao dos avancos tecnologicos advindos ao longo do prazo da concessao que,
definitivamente, tragam beneficios para os usuarios, respeitadas as disposicoes
do presente Contrato.
(S) 5 - A generalidade sera caracterizada com a prestacao nao
discriminatoria do servico a todo e qualquer usuario, obrigando-se a
Concessionaria a prestar o servico a quem o solicite, no local indicado pelo
solicitante, nos termos do presente Contrato e de acordo com a regulamentacao.
(S) 6 - A cortesia sera caracterizada pelo atendimento respeitoso e
imediato de todos os usuarios do servico concedido, bem como pela observancia
das obrigacoes de informar e atender pronta e polidamente todos que, usuarios ou
nao, solicitem da Concessionaria informacoes, providencias ou qualquer tipo de
postulacao nos termos do disposto no presente Contrato.
(S) 7 - O principio da modicidade das tarifas sera caracterizado pelo
esforco da Concessionaria em praticar tarifas inferiores as fixadas pela ANATEL
CLAUSULA 6.2. - A Concessionaria devera observar os parametros e
indicadores do Plano Geral de Metas de Qualidade.
PARAGRAFO UNICO - A Concessionaria devera divulgar, anualmente, quadro
demonstrativo das metas e parametros estabelecidos e realizados do Plano Geral
de Metas de Qualidade e do Plano Geral de Metas de Universalizacao, sem prejuizo
do fornecimento destes dados, sempre que solicitados pela ANATEL.
CLAUSULA 6.3. - A continuidade do servico ora concedido, elemento
essencial ao regime de sua prestacao, sera caracterizada pela nao interrupcao do
servico, observada a suspensao por inadimplencia do
6
<PAGE>
usuario nos termos do disposto na clausula 8.3. e no art. 3, inciso VII, da Lei
n 9.472, de 1997.
PARAGRAFO UNICO - Nao sera considerada violacao da continuidade a
interrupcao circunstancial do servico decorrente de situacao de emergencia,
motivada por razoes de ordem tecnica ou de seguranca das instalacoes, mediante
comunicacao aos usuarios afetados e, nos casos relevantes, tambem, mediante
aviso circunstanciado, a ANATEL.
CLAUSULA 6.4. - A Concessionaria nao podera, em hipotese alguma,
interromper a prestacao do servico alegando o nao adimplemento de qualquer
obrigacao por parte da ANATEL ou da Uniao, nao sendo invocavel, pela
Concessionaria, a excecao por inadimplemento contratual.
CLAUSULA 6.5. - Alem da gerencia e auditoria dos indicadores de
qualidade, a ANATEL avaliara, periodicamente, o grau de satisfacao dos usuarios
com o servico ora concedido, podendo divulgar os resultados da Concessionaria,
abrangendo, pelo menos, os seguintes aspectos:
I - atendimento ao usuario, especialmente no que tange a facilidade
de acesso, presteza, cordialidade, rapidez e eficacia na resposta a
solicitacoes e reclamacoes;
II - tarifas cobradas e descontos oferecidos;
III - qualidade tecnica do servico prestado; e
IV - adequacao dos servicos oferecidos as necessidades dos usuarios.
CAPITULO VII - DAS METAS DE UNIVERSALIZACAO
CLAUSULA 7.1. - A universalizacao constitui traco essencial do regime
de prestacao do servico ora concedido e sera caracterizada pelo atendimento
uniforme e nao discriminatorio de todos os usuarios e pelo cumprimento das metas
constantes do Plano Geral de Metas de Universalizacao, aprovado pelo Poder
Executivo, nos termos dos artigos 18, inciso III, e 80 da Lei n 9.472, de 1997.
CLAUSULA 7.2. - A excecao do disposto na clausula 7.4. deste Contrato
e observado o Plano Geral de Metas de Universalizacao, aprovado pelo Poder
Executivo nos termos dos artigos 18, inciso III, e 80 da Lei n 9.472, de 1997,
a implementacao das metas de universalizacao previstas neste Contrato sera
financiada exclusivamente pela Concessionaria, atraves da exploracao do servico,
nao lhe assistindo
7
<PAGE>
direito a ressarcimento ou subsidio.
CLAUSULA 7.3. - A Concessionaria assume a obrigacao de implementar
metas de universalizacao nao previstas no presente Contrato e que venham a ser
requeridas pela ANATEL, em observancia ao disposto no (S) 2 do art. 2 do Plano
Geral de Metas de Universalizacao, aprovado pelo Decreto n 2.592, de 1998,
respeitado o seguinte procedimento para definicao do montante e criterio de
ressarcimento:
I - a ANATEL consultara a Concessionaria sobre os custos totais da
implantacao das metas adicionais pretendidas e sobre a parcela
destes que nao podera ser amortizada pela receita de exploracao,
sendo coberta por pagamento especifico, indicando especificamente os
objetivos a serem atingidos, as tecnologias selecionadas, bem como o
local e prazo de implementacao;
II - se decorrido o prazo fixado na consulta, inexistir manifestacao
da Concessionaria, a ANATEL tomara as providencias necessarias para
determinar os onus e custos da implementacao destas metas bem como
para estimar a correspondente geracao de receita;
III - se respondida a Consulta pela Concessionaria, a ANATEL
avaliara se os custos e as estimativas de receitas apresentados sao
adequados e compativeis, levando em conta as tecnologias
disponiveis, o preco dos insumos e mao-de-obra, as caracteristicas
geograficas e socio-economicas da demanda a ser atendida, os precos
praticados no mercado alem de outras variaveis que considere
relevantes;
IV - nao considerando razoaveis os custos e/ou a estimativa de
receita propostos, a ANATEL podera, motivadamente, imputar a
implementacao das metas a Concessionaria, estabelecendo o valor do
ressarcimento, observado o disposto no Capitulo XXX; e
V - estando os valores de ressarcimento adequados e compativeis no
entendimento da ANATEL, esta confirmara a Concessionaria a imputacao
da implementacao destas metas especificas, nos termos da proposta de
ressarcimento encaminhada pela Concessionaria.
(S) 1 - Se, apos o procedimento previsto nesta clausula, a ANATEL
considerar inconveniente ou inviavel a implementacao da meta especifica de
universalizacao atraves da Concessionaria, contratara junto a outrem a
incumbencia, podendo faze-lo por meio de outorgas
8
<PAGE>
especificas e delimitadas do servico, observados os parametros economicos
obtidos no procedimento previsto nesta clausula.
(S) 2 - A criterio da ANATEL, o procedimento previsto nesta clausula
tambem podera ser utilizado para fins de fixacao dos valores a serem ressarcidos
com a utilizacao dos recursos do Fundo de Universalizacao dos Servicos de
Telecomunicacoes, quando da antecipacao das metas previstas no Plano Geral de
Metas de Universalizacao, aprovado pelo Poder Executivo, nos termos dos artigos
18, inciso III, e 80 da Lei n 9.472, de 1997.
(S) 3 - A utilizacao de recursos do Fundo de Universalizacao dos
Servicos de Telecomunicacoes, conforme paragrafo anterior, implica a exclusao do
aproveitamento dos beneficios da antecipacao de metas previstos no (S) 2 do
artigo 10 do Plano Geral de Outorgas, exceto no caso de ressarcimento a ANATEL
pelos valores que tenha utilizado desse Fundo, acrescidos da remuneracao devida.
CLAUSULA 7.4. - A adocao dos procedimentos previstos na clausula
anterior constitui faculdade da ANATEL, que podera adota-la a seu criterio e
consoante o melhor atendimento do interesse publico, nao assistindo a
Concessionaria direito de preferencia na implementacao destas metas.
CAPITULO VIII - DAS REGRAS SOBRE SUSPENSAO DO SERVICO POR INADIMPLENCIA E A
PEDIDO DO USUARIO
CLAUSULA 8.1. - O assinante do servico objeto da presente concessao
podera solicitar, a qualquer tempo, a suspensao do servico, devendo a
Concessionaria atender a solicitacao em prazo a ser estabelecido pela ANATEL, o
qual nao sera superior a 48 horas, ressalvados os casos de aprazamento por parte
do assinante.
PARAGRAFO UNICO - A Concessionaria nao podera exigir pagamento pela
suspensao do servico a que se refere o caput desta clausula.
CLAUSULA 8.2. - O assinante que estiver adimplente com a
Concessionaria podera requerer a suspensao do servico, na forma da
regulamentacao.
CLAUSULA 8.3. - A Concessionaria somente podera proceder a suspensao
do servico cujo assinante nao honrar o pagamento de debito diretamente
decorrente da utilizacao do servico concedido, apos transcorridos 30 dias de
inadimplencia, observando o procedimento estabelecido em regulamentacao propria
editada pela ANATEL, e devera ser assegurado prazo para o assinante questionar
os debitos contra ele
9
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lancados.
(S) 1 - A Concessionaria devera informar o bloqueio de acesso ao
assinante com antecedencia minima de 15 (quinze) dias.
(S) 2 - O inadimplemento de debitos nao relacionados diretamente com
o servico objeto desta concessao, conforme paragrafo unico da clausula 10.6, nao
ensejara a interrupcao de que trata a presente clausula.
CLAUSULA 8.4. A Concessionaria assegurara ainda ao assinante o direito
a ter bloqueado temporaria ou permanentemente o acesso a comodidades ou
utilidades oferecidas, bem como a servicos de valor adicionado, sempre que por
ele solicitado, nos termos da regulamentacao.
CLAUSULA 8.5. - Caso a inadimplencia do assinante se referir
exclusivamente ao pagamento dos servicos prestados por prestador de Servico
Telefonico Fixo Comutado diverso do ora concedido que seja objeto de faturamento
conjunto pela Concessionaria, o bloqueio devera obedecer ao procedimento
especifico objeto de regulamentacao pela ANATEL.
CAPITULO IX - DO PLANO DE NUMERACAO
CLAUSULA 9.1. - Observada a regulamentacao, a Concessionaria se obriga
a obedecer ao Regulamento de Numeracao para o Servico Telefonico Fixo Comutado
editado pela ANATEL, devendo assegurar ao assinante do servico a portabilidade
de codigos de acesso no prazo definido nesse Regulamento.
(S) 1 - A Concessionaria arcara com os custos necessarios a adaptar-
se ao Regulamento de Numeracao referido no caput desta Clausula.
(S) 2 - Os custos referentes aos investimentos necessarios para
permitir a portabilidade de codigos de acesso serao divididos entre a
Concessionaria e os demais prestadores de servico de telecomunicacao, em regime
publico ou privado.
(S) 3 - Os custos referentes a administracao do processo de
consignacao e ocupacao de codigos de acesso do Regulamento de Numeracao serao
imputados a Concessionaria, nos termos do Regulamento da Administracao da
Numeracao.
CAPITULO X - DO REGIME TARIFARIO E DA COBRANCA DOS USUARIOS
10
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CLAUSULA 10.1. - A Concessionaria devera ofertar a todos os usuarios,
obrigatoriamente, o Plano Basico do Servico de Longa Distancia Internacional,
Anexo 02, parte integrante deste Contrato.
PARAGRAFO UNICO - O Plano Basico do Servico de Longa Distancia
Internacional sera unico para toda a area referida na clausula 2.1. e devera
conter, nos termos do estabelecido pela ANATEL, valores maximos para cada item
da estrutura tarifaria definida para a prestacao do Servico Telefonico Fixo
Comutado, valores estes que serao revistos e reajustados, observadas as normas
aplicaveis.
CLAUSULA 10.2. - A Concessionaria podera ofertar aos seus usuarios
Planos Alternativos de Servico de Longa Distancia Internacional com criterios de
tarifacao diferentes daqueles constantes do Plano Basico do Servico de Longa
Distancia Internacional.
(S) 1 - Sera garantida ao assinante a transferencia entre os diversos
Planos de Servico de Longa Distancia Internacional ofertados pela
Concessionaria, nos termos da regulamentacao.
(S) 2 - A estrutura de tarifas e valores dos Planos Alternativos de
Servico de Longa Distancia Internacional sao de livre proposicao da
Concessionaria, observado o disposto na clausula 10.1.
(S) 3 - A Concessionaria e obrigada a ofertar, de forma nao
discriminatoria, ao usuario seus Planos Alternativos de Servico de Longa
Distancia Internacional homologados pela ANATEL.
(S) 4 - Os Planos Alternativos de Servico de Longa Distancia
Internacional deverao ser homologados pela ANATEL antes de sua oferta ao publico
em geral.
(S) 5 - A ANATEL devera se pronunciar sobre os Planos Alternativos de
Servico de Longa Distancia Internacional em ate 15 dias apos seu recebimento,
considerando-se os mesmos homologados caso, ate este prazo, nao haja
pronunciamento da ANATEL.
CLAUSULA 10.3. - A Concessionaria podera praticar descontos nas
tarifas dos Planos de Servico de Longa Distancia Internacional desde que de
forma equanime e nao discriminatoria, vedada a reducao subjetiva de valores, e
observado o principio da justa competicao.
PARAGRAFO UNICO A Concessionaria se obriga a divulgar, com
antecedencia, aos seus usuarios os descontos tarifarios, dando-lhes ampla e
previa divulgacao, comunicando sua decisao a ANATEL, ate 7 (sete) dias apos o
inicio da vigencia da reducao das tarifas.
CLAUSULA 10.4. - A Concessionaria se obriga a dar ampla
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<PAGE>
publicidade as tarifas praticadas pelo servico objeto da presente concessao, na
forma regulamentada pela ANATEL.
CLAUSULA 10.5. - Quando da implantacao de novas prestacoes, utilidades
ou comodidades relacionadas ao servico objeto da concessao, a Concessionaria
submetera previamente a pretensao de cobranca para aprovacao da ANATEL, sem a
qual nao podera ser cobrada qualquer tarifa ou preco.
CLAUSULA 10.6. - Os documentos de cobranca emitidos pela
Concessionaria deverao ser apresentados de maneira detalhada, clara,
explicativa, indevassavel e deverao discriminar o tipo e a quantidade de cada
servico prestado ao usuario, na forma da regulamentacao.
PARAGRAFO UNICO - A Concessionaria podera lancar no documento de
cobranca, desde que de forma clara e explicita, os valores devidos pelo
assinante em funcao da prestacao de servicos de valor adicionado, bem como de
outras comodidades ou utilidades relacionadas com o servico concedido.
CLAUSULA 10.7. - A Concessionaria cobrara dos demais prestadores de
servicos de telecomunicacoes tarifas de uso de redes , observadas as normas
editadas pela ANATEL.
CLAUSULA 10.8 A Concessionaria oferecera desconto ao assinante
afetado por eventuais descontinuidades na prestacao do servico concedido, desde
que nao sejam por ele motivadas, o qual sera proporcional ao periodo em que se
verificar a interrupcao, na forma da regulamentacao.
CAPITULO XI - DO REAJUSTAMENTO DAS TARIFAS
CLAUSULA 11.1. - A cada intervalo nao inferior a 12 (doze) meses, por
iniciativa da ANATEL ou da Concessionaria, observadas as regras da legislacao
economica vigente, as tarifas constantes do Plano Basico do Servico de Longa
Distancia Internacional Anexo 02, poderao ser reajustadas mediante a aplicacao
da seguinte formula:
<TABLE>
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
9 24 9 24
(E E Tij\t\ x Mij\to\) (less than or equal to) (1-k) Ft E E Tij\to\ x Mij\to\
--- -----
i=1 j=1 MT i=1 j=1 MT
- -------------------------------------------------------------------------------------
</TABLE>
Sendo:
- --------------------------------------------------------------------------------
Tij\t\ (less than or equal to) Tij\to\ x 1,05 x IGP-DI\t\
-------
IGP-DI\to\
- --------------------------------------------------------------------------------
12
<PAGE>
Onde:
Tij\t\ - tarifa proposta do Plano Basico do Servico de Longa Distancia
Internacional para o trafego tarifado no Brasil no horario j destinados aos
paises do grupo i, liquida dos tributos incidentes.
Tij\to\ - tarifa vigente do Plano Basico do Servico de Longa Distancia
Internacional para o trafego tarifado no Brasil no horario j destinado aos
paises do grupo i, liquida dos tributos incidentes.
Mij\to\ - minutos tarifados no Brasil do servico de longa distancia
internacional do Plano Basico do Servico de Longa Distancia Internacional no
horario j destinados aos paises do grupo i observados desde o ultimo reajuste
tarifario ou, no caso do primeiro reajuste, desde 1 de abril de 1998.
MT - minutos totais do servico de longa distancia internacional do Plano Basico
do Servico de Longa Distancia Internacional observados desde o ultimo reajuste
tarifario ou, no caso do primeiro reajuste, desde 1 de abril de 1998.
\t\ = data do reajuste proposto
\to\ = data do ultimo reajuste ou, no caso do primeiro reajuste, 1 de abril de
1998; e
F\t\ = IGP-DI\t\
-------
IGP-DI\to\
Onde:
IGP-DI = Indice Geral de Precos, Disponibilidade Interna, divulgado pela
Fundacao Getulio Vargas, ou outro indice que venha a substitui-lo
k = fator de transferencia.
(S) 1 - O fator de transferencia sera aplicado ao longo da
Concessao da seguinte forma:
I - ate 31 de dezembro de 1999 sera igual a 0,05 (zero virgula zero
cinco);
II - de 1 de janeiro de 2000 a 31 de dezembro de 2005 sera igual a
0,15 (zero virgula quinze).
(S) 2 - Caso o periodo de reajuste envolva valores diferentes de
fator de transferencia, devera ser efetuada, para sua aplicacao, uma media
ponderada considerando os meses de incidencia de cada valor de fator de
transferencia.
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<PAGE>
(S) 3 - Caso o reajuste seja efetuado em periodos superiores a doze
meses, a formula em que consta o fator de transferencia devera ser aplicada de
forma progressiva, considerando periodos de doze meses e, finalmente, o residuo
de meses, se houver.
(S) 4. - Eventuais mudancas de paises nos diversos grupos constantes
da Estrutura Tarifaria para o servico de longa distancia internacional poderao,
a juizo da ANATEL, ser admitidas, considerando, em especial, o interesse do
usuario.
(S) 5 - Apos 2005 novos valores dos fatores de transferencia poderao
ser estabelecidos pela ANATEL quando da prorrogacao do prazo deste Contrato,
considerando as condicoes vigentes na epoca.
CAPITULO XII - DA PROTECAO DA SITUACAO ECONOMICA DA CONCESSIONARIA E DA REVISAO
DAS TARIFAS
CLAUSULA 12.1. - Constitui pressuposto basico do presente Contrato a
preservacao, em regime de ampla competicao, da justa equivalencia entre a
prestacao e a remuneracao, vedado as partes o enriquecimento imotivado as custas
de outra parte ou dos usuarios do servico, nos termos do disposto neste
Capitulo.
(S) 1 - A Concessionaria nao sera obrigada a suportar prejuizos em
decorrencia do presente Contrato, salvo se estes decorrerem de algum dos
seguintes fatores:
I - da sua negligencia, inepcia ou omissao na exploracao do servico;
II - dos riscos normais a atividade empresarial;
III - da gestao ineficiente dos seus negocios, inclusive aquela
caracterizada pelo pagamento de custos operacionais e
administrativos incompativeis com os parametros verificados no
mercado; ou
IV - da sua incapacidade de aproveitar as oportunidades existentes
no mercado, inclusive no atinente a expansao, ampliacao e incremento
da prestacao do servico objeto da concessao.
(S) 2 - E tambem vedado o enriquecimento imotivado da Concessionaria
decorrente da apropriacao de ganhos economicos nao advindos diretamente da sua
eficiencia empresarial, em especial quando decorrentes da edicao de novas regras
sobre o servico.
14
<PAGE>
(S) 3 - Fara jus a Concessionaria a recomposicao da sua situacao
inicial de encargos e retribuicoes quando circunstancias de forca maior ou
calamidades afetarem de forma significativa a exploracao do servico, observado
sempre, como parametro, o reflexo destas situacoes nos prestadores de servicos
no regime privado.
(S) 4 - Na avaliacao do cabimento da recomposicao de que trata o
paragrafo anterior sera considerada, entre outros fatores, a existencia de
cobertura do evento motivador da alteracao da situacao economica inicial pelo
Plano de Seguros previsto na clausula 23.1.
CLAUSULA 12.2. - Cabera o restabelecimento da situacao economica do
Contrato quando ficar demonstrada a inocorrencia dos fatores indicados no (S) 1
da clausula anterior, o qual dar-se-a preferencialmente pela revisao de tarifas
ou por qualquer outro mecanismo que, a criterio da ANATEL, seja considerado apto
a neutralizar a situacao verificada.
(S) 1 - A revisao das tarifas afastara qualquer outro mecanismo de
neutralizacao do enriquecimento imotivado das partes, tornando superado o evento
ao qual ela se referia.
(S) 2 - A providencia adotada para neutralizar uma distorcao sera
unica, completa e final relativamente ao evento que lhe deu origem.
CLAUSULA 12.3. - Independentemente do disposto na clausula 12.1.,
cabera revisao das tarifas integrantes do Plano Basico do Servico de Longa
Distancia Internacional em favor da Concessionaria ou dos usuarios, nos termos
do art. 108 da Lei n 9.472, de 1997, quando verificada uma das seguintes
situacoes especificas:
I - modificacao unilateral deste Contrato imposta pela ANATEL, que
importe variacao expressiva de custos ou de receitas, para mais ou
para menos, de modo que a elevacao ou reducao de tarifas seja
imposta pela necessidade de evitar o enriquecimento imotivado de
qualquer das partes;
II - alteracao na ordem tributaria posterior a assinatura deste
Contrato que implique aumento ou reducao da lucratividade potencial
da Concessionaria;
III - ocorrencias supervenientes, decorrentes de fato do principe ou
fato da Administracao que resultem, comprovadamente, em alteracao
dos custos da Concessionaria;
IV - alteracao legislativa de carater especifico, que tenha
15
<PAGE>
impacto direto sobre as receitas da Concessionaria de modo a afetar
a continuidade ou a qualidade do servico prestado; ou
V - alteracao legislativa que acarrete beneficio a Concessionaria,
inclusive a que concede ou suprime isencao, reducao, desconto ou
qualquer outro privilegio tributario ou tarifario, consoante do
previsto no (S) 3 do art. 108 da Lei n 9.472, de 1997.
(S) 1 - Nao importara na revisao de tarifas o prejuizo ou a reducao
de ganhos da Concessionaria decorrente da livre exploracao do servico em
condicoes de competicao ou da gestao ineficiente dos seus negocios.
(S) 2 - Nao sera aplicavel a hipotese de revisao prevista no inciso
II do caput desta clausula quando a alteracao na ordem tributaria implicar
criacao, supressao, elevacao ou reducao em impostos incidentes sobre a renda ou
o lucro da Concessionaria, como o Imposto sobre a Renda, que nao impliquem
oneracao administrativa ou operacional.
(S) 3 - Nao cabera revisao de tarifas nas hipoteses previstas nesta
clausula quando os eventos ensejadores da revisao ja estiverem cobertos pelo
plano de seguros previsto na clausula 23.1.
(S) 4 - As contribuicoes da Concessionaria ao Fundo de
Universalizacao dos Servicos de Telecomunicacoes e ao Fundo para o
Desenvolvimento Tecnologico das Telecomunicacoes nao ensejarao revisao das
tarifas.
CLAUSULA 12.4. - Nao sera aplicavel a revisao de tarifas quando ficar
caracterizado que os impactos motivadores do pedido por parte da Concessionaria
puderem ser neutralizados com a eficiente exploracao do servico, pela expansao
do mercado ou pela geracao de receitas alternativas ou complementares associadas
ao objeto do presente Contrato, observadas as condicoes competitivas verificadas
no momento.
PARAGRAFO UNICO - A diminuicao da receita decorrente de descontos ou
reducao de tarifas nao dara ensejo a revisao das mesmas.
CLAUSULA 12.5. - O procedimento de revisao de tarifas podera ser
iniciado por requerimento da Concessionaria ou por determinacao da ANATEL.
(S) 1 - Quando o procedimento de revisao das tarifas for iniciado
pela Concessionaria deverao ser obedecidos os seguintes requisitos:
I - ser acompanhado de relatorio tecnico ou laudo pericial
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<PAGE>
que demonstre cabalmente o impacto da ocorrencia na formacao das
tarifas ou na estimativa de receitas da Concessionaria;
II - ser acompanhada de todos os documentos necessarios a
demonstracao do cabimento do pleito;
III - a Concessionaria devera indicar a sua pretensao de revisao
tarifaria, informando os impactos e as eventuais alternativas de
balanceamento das tarifas; e
IV - todos os custos com diligencias e estudos necessarios a plena
instrucao do pedido correrao por conta da Concessionaria.
(S) 2 - O procedimento de revisao das tarifas iniciado pela ANATEL
devera ser objeto de comunicacao a Concessionaria consignando prazo para sua
manifestacao, acompanhada de copia dos laudos e estudos realizados para
caracterizar a situacao ensejadora da revisao.
(S) 3 - O procedimento de revisao das tarifas sera concluido em prazo
nao superior a 120 (cento e vinte) dias, ressalvada a hipotese em que seja
necessaria a prorrogacao deste para complementacao da instrucao.
(S) 4 - O requerimento devera ser aprovado pela ANATEL, devendo a
Concessionaria providenciar a ampla divulgacao dos novos valores maximos das
tarifas revistas, nos termos do que reza o presente Contrato.
CAPITULO XIII - DAS RECEITAS ALTERNATIVAS, COMPLEMENTARES E ACESSORIAS
Clausula 13.1. - A Concessionaria podera obter outras fontes
alternativas de receitas, desde que isso nao implique o descumprimento das
normas constantes do Regulamento Geral dos Servicos de Telecomunicacoes e das
demais normas editadas pela ANATEL.
PARAGRAFO UNICO - A Concessionaria, suas coligadas, controladas ou
controladoras nao poderao condicionar a oferta do servico ora concedido ao
consumo casado de qualquer outro servico, nem oferecer vantagens ao usuario em
virtude da fruicao de servicos adicionais aquele objeto do presente Contrato,
ainda que prestados por terceiros.
CLAUSULA 13.2. - A ANATEL podera determinar que a
17
<PAGE>
Concessionaria ofereca aos usuarios comodidades ou utilidades correlacionadas ao
objeto da concessao, devendo neste caso as partes ajustarem os precos unitarios
destes servicos, observados os parametros de mercado e o direito a justa
remuneracao.
CAPITULO XIV - DOS DIREITOS E GARANTIAS DOS USUARIOS E DEMAIS PRESTADORES
Clausula 14.1. - Respeitadas as regras e parametros constantes deste
Contrato, constituem direitos dos usuarios do servico objeto da presente
concessao:
I - o acesso ao servico e a sua fruicao dentro dos padroes de
qualidade, regularidade e eficiencia previstos no presente Contrato,
em seus anexos e nas normas vigentes;
II - a possibilidade de solicitar a suspensao ou a interrupcao do
servico prestado pela Concessionaria;
III - o tratamento nao discriminatorio quanto as condicoes de acesso
e fruicao do servico;
IV - a obtencao de informacoes adequadas quanto as condicoes de
prestacao do servico e as tarifas e aos precos praticados;
V - a inviolabilidade e o segredo de sua comunicacao, respeitadas as
hipoteses e condicoes constitucionais e legais de quebra de sigilo
de telecomunicacoes;
VI - obter, gratuitamente, mediante solicitacao encaminhada ao
servico de atendimento dos usuarios mantido pela Concessionaria, a
nao divulgacao do seu codigo de acesso;
VII - a nao suspensao do servico sem sua solicitacao, ressalvada a
hipotese de debito diretamente decorrente de sua utilizacao ou por
descumprimento dos deveres constantes do art. 4 da Lei n 9.472, de
1997;
VIII - o conhecimento previo de toda e qualquer alteracao nas
condicoes de prestacao do servico que lhe atinjam direta ou
indiretamente;
IX - a privacidade nos documentos de cobranca e na utilizacao de
seus dados pessoais pela Concessionaria;
X - a resposta eficiente e pronta as suas reclamacoes pela
18
<PAGE>
Concessionaria, nos termos do previsto na clausula 15.7.;
XI - o encaminhamento de reclamacoes ou representacoes contra a
Concessionaria junto a ANATEL e aos organismos de defesa do
consumidor;
XII - a reparacao pelos danos causados pela violacao dos seus
direitos;
XIII - ver observados os termos do Contrato de Assinatura pelo qual
tiver sido contratado o servico;
XIV - escolher livremente o prestador dos servicos telefonicos de
longa distancia nacional e internacional;
XV - ter respeitado o seu direito de portabilidade de codigos de
acesso, observadas as disposicoes do Regulamento de Numeracao
editado pela ANATEL; e
XVI - nao ser obrigado a consumir servicos ou a adquirir bens ou
equipamentos que nao sejam de seu interesse, bem como a nao ser
compelido a se submeter a condicao para recebimento do servico
objeto da presente concessao, nos termos da regulamentacao.
(S) 1 - A Concessionaria observara o dever de zelar estritamente pelo
sigilo inerente ao servico telefonico e pela confidencialidade quanto aos dados
e informacoes, empregando meios e tecnologias que assegurem este direito dos
usuarios.
(S) 2 - A Concessionaria tornara disponiveis os recursos tecnologicos
necessarios a suspensao de sigilo de telecomunicacoes determinada por autoridade
judiciaria, na forma da regulamentacao.
CLAUSULA 14.2. - Aos demais prestadores de servicos de
telecomunicacoes serao assegurados, alem dos direitos referidos na clausula
anterior, os seguintes direitos:
I - a interconexao a rede da Concessionaria em condicoes economicas
e operacionais nao discriminatorias, sob condicoes tecnicamente
adequadas e a precos isonomicos e justos que atendam estritamente ao
necessario a prestacao do servico, observada a regulamentacao
editada pela ANATEL;
II - a receber o servico solicitado junto a Concessionaria sem
qualquer tipo de discriminacao, pelos precos de mercado ou por
precos negociados pelas partes e com as reducoes que forem
aplicaveis em funcao dos custos evitados em virtude do consumo em
larga escala,
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<PAGE>
respeitada a regulamentacao; e
III - a obter todas as informacoes que sejam necessarias para a
prestacao do servico por eles operados, inclusive aquelas relativas
ao faturamento, ressalvado o direito da Concessionaria a preservacao
dos seus dados recobertos pelo sigilo empresarial, bem como os
direitos de terceiros.
(S) 1 - Os conflitos entre Concessionaria e demais prestadores serao
resolvidos administrativamente pela ANATEL, nos termos da regulamentacao a ser
por ela editada.
(S) 2 - A ANATEL acompanhara permanentemente o relacionamento entre
os prestadores que se utilizem do servico ora concedido e a Concessionaria, de
modo a coibir condutas que possam implicar prejuizo injusto para qualquer das
partes ou que importem em violacao a ordem economica e a livre concorrencia,
comunicando, nestas hipoteses, tais condutas ao Conselho Administrativo de
Defesa Economica - CADE, apos o exercicio de sua competencia, na forma do
disposto no art. 19, inciso XIX, da Lei n 9.472, de 1997.
CLAUSULA 14.3. Observada a regulamentacao, sera assegurado o direito
de qualquer usuario a prestacao e fruicao de servicos de valor adicionado, que
devera se dar em condicoes tecnicamente adequadas e a precos isonomicos e
justos, sendo defeso a Concessionaria o estabelecimento de qualquer entrave ou
restricao a fruicao do servico ora concedido.
PARAGRAFO UNICO - Entende-se por servico de valor adicionado toda a
atividade que acrescentar ao servico objeto desta concessao, sem com ele se
confundir, novas utilidades relacionadas ao acesso, armazenamento, apresentacao,
movimentacao ou recuperacao de informacoes.
CAPITULO XV - DOS DIREITOS, GARANTIAS E OBRIGACOES DA CONCESSIONARIA
CLAUSULA 15.1. - Alem das outras obrigacoes decorrentes deste Contrato
e inerentes a prestacao do servico, incumbira a Concessionaria:
I - prestar o servico com absoluta observancia do disposto no
presente Contrato, submetendo-se plenamente a regulamentacao editada
pela ANATEL;
II - implantar todos os equipamentos e instalacoes necessarios a
prestacao, continuidade, modernizacao,
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<PAGE>
ampliacao e universalizacao do servico objeto da concessao, dentro
das especificacoes constantes do presente Contrato;
III - manter em perfeitas condicoes de operacao e funcionamento a
rede de telecomunicacoes, em quantidade, extensao e localizacoes
pertinentes e suficientes a adequada prestacao do servico;
IV - prover recursos financeiros necessarios ao atendimento dos
parametros de universalizacao e continuidade constantes do presente
Contrato e a prestacao adequada do servico;
V - prestar a ANATEL, na forma e periodicidade previstas na
regulamentacao, contas e informacoes de natureza tecnica,
operacional, economica, financeira e contabil, bem como fornecer-lhe
todos os dados e elementos referentes ao servico que sejam
solicitados;
VI - manter os terminais de uso publico, permanentes ou temporarios,
na forma prevista neste Contrato;
VII - submeter-se a fiscalizacao da ANATEL, permitindo o acesso de
seus agentes as instalacoes integrantes do servico bem como a seus
registros contabeis;
VIII - manter registros contabeis separados por servico, bem como
ter em dia o inventario dos bens e dos componentes do ativo
imobilizado da empresa;
IX - manter sistema de informacao e atendimento do usuario, nos
termos da clausula 15.7.;
X - zelar pela integridade dos bens vinculados a prestacao do
servico;
XI - submeter a aprovacao da ANATEL, previamente a sua utilizacao, a
minuta de Contrato- Padrao a ser celebrado com os assinantes, bem
como todas as alteracoes, aditamentos ou variantes a ele aplicaveis;
XII - submeter a aprovacao previa da ANATEL os acordos operacionais
ou contratos de prestacao de servicos, associacao ou parceria, que
pretenda firmar com entidades estrangeiras;
XIII - encaminhar para publicacao na Biblioteca da ANATEL copia de
acordos e contratos relativos a prestacao do servico ora concedido
com prestadores
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<PAGE>
nacionais e estrangeiros de servicos de telecomunicacoes;
XIV - divulgar, diretamente ou atraves de terceiros, o codigo de
acesso dos seus assinantes e dos demais assinantes de prestadores de
Servico Telefonico Fixo Comutado, em regime publico e privado, na
area de concessao, com exclusao daqueles que requererem
expressamente a omissao dos seus dados pessoais;
XV - fornecer, em prazos e a precos razoaveis e de forma nao
discriminatoria, a relacao de seus assinantes a quem queira divulga-
la;
XVI - respeitar rigorosamente o dever de sigilo e confidencialidade
das telecomunicacoes, observadas as prescricoes legais e
contratuais;
XVII - respeitar a privacidade dos usuarios com relacao aos
documentos de cobranca e a todas as informacoes pessoais a eles
referentes;
XVIII - cumprir, as suas proprias expensas, observado o disposto na
clausula 7.2 deste Contrato, todas as metas de universalizacao
expressamente constantes deste Contrato;
XIX - implementar projetos de expansao e universalizacao do servico
que venham a ser determinados pela ANATEL, segundo patamares de
ressarcimento, prazos e condicoes de implementacao estabelecidos,
observado o disposto na clausula 7.3.;
XX - submeter previamente a ANATEL toda e qualquer alteracao que
pretenda fazer nos seus estatutos quanto a cisao, fusao,
transformacao, incorporacao, bem como a transferencia de controle ou
alteracao no capital social;
XXI - assegurar a qualquer outro prestador de servico de
telecomunicacoes a interconexao com sua rede, observadas a
regulamentacao especifica e as normas do presente Contrato;
XXII - tornar disponivel aos demais prestadores do Servico
Telefonico Fixo Comutado os servicos de faturamento e arrecadacao,
cobrando por estes precos justos e compativeis nos termos do
presente Contrato e da regulamentacao;
XXIII - observar todos os direitos dos demais prestadores de
servicos de telecomunicacoes, omitindo-se de praticar
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qualquer conduta discriminatoria ou voltada a obstar a atividade
destes;
XXIV - utilizar, sempre que exigido pela regulamentacao,
equipamentos com certificacao expedida ou aceita pela ANATEL;
XXV - observar as normas e os padroes tecnicos vigentes no Brasil,
omitindo-se de qualquer pratica discriminatoria em relacao a bens e
equipamentos produzidos no pais;
XXVI - colocar a disposicao das autoridades e dos agentes da defesa
civil, nos casos de calamidade publica, todos os meios, sistemas e
disponibilidades que lhe forem solicitados com vistas a dar-lhes
suporte ou a amparar as populacoes atingidas;
XXVII - atender com prioridade o Presidente da Republica, seus
representantes protocolares, sua comitiva e pessoal de apoio, bem
como os Chefes de Estado estrangeiros, quando em visitas ou
deslocamentos oficiais pelo territorio brasileiro, tornando
disponiveis os meios necessarios para adequada comunicacao destas
autoridades, observada a regulamentacao editada pela ANATEL;
XXVIII - arcar com o onus fixado pela ANATEL no caso de prorrogacao
do prazo da concessao, nos termos do art. 207, (S) 1, da Lei n
9.472, de 1997, e da clausula 3.3.;
XXIX - pagar todas as taxas de fiscalizacao e funcionamento das suas
instalacoes, na forma da regulamentacao;
XXX - publicar anualmente, independente do regime juridico a que
esteja sujeita, balanco e demonstracoes financeiras levantadas ao
final de cada exercicio social, observadas as disposicoes da
legislacao vigente e da regulamentacao editada pela ANATEL;
XXXI - observar as normas vigentes no pais quanto a utilizacao de
mao-de-obra estrangeira, inclusive nos cargos de maior qualificacao;
XXXII - indenizar os usuarios pelos danos efetivamente decorrentes
da nao prestacao do servico que seria exigivel frente aos parametros
de continuidade e as metas de universalizacao previstas no presente
Contrato;
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XXXIII - nao despender com contratos de prestacao de servicos de
gerencia, inclusive assistencia tecnica, com entidades estrangeiras,
em relacao a receita anual do Servico Telefonico Fixo Comutado,
liquida de impostos e contribuicoes, valores superiores a:
a) 1% (um por cento) ao ano, ate 31/12/2000;
b) 0,5% (zero virgula cinco por cento) ao ano, de 01/01/2001 a
31/12/2002; e
c) 0,2% (zero virgula dois por cento) ao ano, a partir de
01/01/2003;
XXXIV dar cumprimento a acordos firmados entre o Brasil e outros
paises e organismos internacionais, na forma regulamentada pela
ANATEL; e
XXXV dar cumprimento aos contratos celebrados com a TELEBRAS, cujos
objetos sejam a prestacao de servicos pelo Centro de Pesquisa e
Desenvolvimento CPqD ou seu sucessor.
PARAGRAFO UNICO As decisoes relativas ao inciso XXXIII desta
clausula em contratos de prestacao de servicos e assistencia tecnica, entre a
Concessionaria e terceiros vinculados aos acionistas controladores, deverao ser
tomadas em assembleia geral extraordinaria, devendo a Concessionaria fazer
constar no seu estatuto social, ate 31.12.98, que as acoes preferenciais terao
direito a voto nessas decisoes, sem prejuizo do disposto no (S) 1 do artigo 115
da Lei n 6.404, de 15 de dezembro de 1976.
CLAUSULA 15.2. - Sem prejuizo das demais disposicoes constantes
deste Contrato e das garantias asseguradas em lei constituem direitos da
Concessionaria:
I - explorar o servico concedido dentro de sua estrategia
empresarial, definindo livremente seus investimentos, respeitadas a
regulamentacao editada pela ANATEL e as disposicoes deste Contrato;
II - indicar representante para acompanhar a atividade
fiscalizatoria da ANATEL;
III - interromper, nos termos da clausula 8.3 deste Contrato, ou nao
atender a solicitacao de prestacao de servico para o usuario
inadimplente com as suas obrigacoes contratuais com a
Concessionaria;
IV- solicitar a instauracao do procedimento de arbitragem
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nas hipoteses e na forma prescrita no Capitulo XXX deste Contrato;
V - ter preservadas as condicoes economicas de exploracao do servico
contra alteracoes que importem em enriquecimento imotivado da Uniao
ou dos usuarios nos termos do disposto no Capitulo XII;
VI - solicitar a revisao das tarifas aplicadas ao servico concedido,
na forma do disposto neste Contrato;
VII - solicitar da ANATEL a confidencialidade de informacao colhida
no exercicio da atividade fiscalizatoria, nos termos do disposto
neste Contrato;
VIII - empregar na execucao dos servicos equipamentos e infra-
estrutura que nao lhe pertencam, observado o disposto na clausula
21.1. deste Contrato; e
IX - contratar com terceiros o desenvolvimento de atividades
inerentes, acessorias ou complementares ao servico, bem como a
implementacao de projetos associados.
CLAUSULA 15.3. - Durante a vigencia do Contrato, a Concessionaria
sera a unica responsavel, perante terceiros, pelos atos praticados pelo seu
pessoal, prepostos e contratados, na prestacao do Servico Telefonico Fixo
Comutado, bem como pelo uso dos equipamentos, instalacoes ou redes, excluidas a
Uniao e a ANATEL de quaisquer reclamacoes e/ou indenizacoes.
CLAUSULA 15.4. - A Concessionaria nao podera opor embaracos a obras
de interesse publico, qualquer que seja a sua natureza, sempre que se tornar
necessaria a remocao de instalacoes ou de redes telefonicas para viabilizacao de
intervencoes promovidas, direta ou indiretamente, por qualquer orgao ou entidade
da Administracao publica.
CLAUSULA 15.5. - A Concessionaria devera pactuar diretamente com
cada Prefeitura Municipal das areas de exploracao do servico bem como com as
demais Concessionarias de servicos publicos as condicoes para colocacao de
postes e cruzetas para suspensao de suas linhas e cabos aereos, bem como dutos e
canalizacoes subterraneos destinados a passagem de cabos sob ruas e logradouros
publicos.
(S) 1 - A Concessionaria diligenciara junto aos titulares de bens
publicos ou privados sobre ou sob os quais tenha que passar dutos ou
canalizacoes ou ainda instalar suportes para colocacao dos mesmos, obtendo o
respectivo consentimento ou servidao para tal fim.
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(S) 2 - A Concessionaria devera promover junto as respetivas
autoridades municipais as tratativas necessarias ao estabelecimento das
condicoes para superacao das interferencias na rede necessaria a prestacao do
servico, inclusive quanto ao corte e poda de arvores.
CLAUSULA 15.6. - Nos termos do disposto no art. 73 da Lei n 9.472, de
1997 a Concessionaria podera utilizar postes, dutos, condutos e servidoes
pertencentes ou controlados por outros prestadores de servicos de
telecomunicacoes ou de outros servicos de interesse publico.
(S) 1 - A utilizacao dos meios referidos no caput desta clausula
devera ser realizada de forma nao discriminatoria e a precos justos e razoaveis.
(S) 2 - A Concessionaria devera tornar disponivel aos demais
prestadores de servicos de telecomunicacoes, classificados pela ANATEL como de
interesse coletivo, os meios de sua propriedade ou por ela controlados,
referidos no caput desta clausula, respeitadas as mesmas condicoes previstas no
paragrafo anterior.
(S) 3 - Sempre que a Concessionaria nao chegar a um acordo com os
demais prestadores de servicos acerca da utilizacao dos meios referidos nesta
clausula, cabera a ANATEL, isoladamente ou em conjunto com os demais orgaos
reguladores envolvidos, definir as condicoes desta utilizacao.
CLAUSULA 15.7. - A Concessionaria mantera durante todo o prazo da
presente concessao, central de informacao e de atendimento do usuario,
funcionando 24 horas por dia, capacitada para receber e processar solicitacoes,
queixas e reclamacoes encaminhadas pelos usuarios pessoalmente ou por qualquer
meio de comunicacao a distancia.
(S) 1 - A Concessionaria devera divulgar a todos os usuarios os
enderecos e codigos de acesso a sua central de informacao e de atendimento do
usuario, os quais deverao constar necessariamente do Contrato - Padrao com eles
firmado para prestacao do servico.
(S) 2 - A Concessionaria devera tornar disponivel e divulgar codigo de
acesso facil e gratuito para o encaminhamento de solicitacoes dos usuarios por
via telefonica.
(S) 3 - Todas as solicitacoes, reclamacoes ou queixas encaminhadas
pelos usuarios, por qualquer meio, deverao receber um numero de ordem, que sera
informado ao interessado para possibilitar seu acompanhamento.
(S) 4 - O usuario sera informado pela Concessionaria nos
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prazos definidos no Plano Geral de Metas de Qualidade, quanto as providencias
adotadas em funcao da sua solicitacao, reclamacao ou queixa.
(S) 5 - Caso a ANATEL constate existir dificuldade de acesso pelos
usuarios da central de informacao e de atendimento podera determinar a
Concessionaria a ampliacao dos meios de acesso disponiveis, sob pena de
considerar desatendida a obrigacao prevista nesta clausula.
CLAUSULA 15.8 - Na contratacao de servicos e na aquisicao de
equipamentos e materiais vinculados ao servico objeto deste Contrato, a
Concessionaria se obriga a considerar ofertas de fornecedores independentes,
inclusive os nacionais, e basear suas decisoes, com respeito as diversas ofertas
apresentadas, no cumprimento de criterios objetivos de preco, condicoes de
entrega e especificacoes tecnicas estabelecidas na regulamentacao pertinente.
(S) 1 - Nos casos em que haja equivalencia entre ofertas, a empresa
Concessionaria se obriga a utilizar como criterio de desempate, a preferencia a
servicos oferecidos por empresas situadas no Pais, equipamentos e materiais
produzidos no Pais, e, entre eles, aqueles com tecnologia nacional. A
equivalencia referida nesta clausula sera apurada quando, cumulativamente:
I - o preco nacional for menor ou igual ao preco do importado, posto
no territorio nacional, incluidos os tributos incidentes;
II - o prazo de entrega for compativel com as necessidades do servico;
e
III - sejam satisfeitas as especificacoes tecnicas estabelecidas na
regulamentacao pertinente e possuam certificacao expedida ou aceita
pela ANATEL, quando aplicavel.
(S) 2 - Compreende-se como servicos aqueles relacionados com a
pesquisa e desenvolvimento, planejamento, projeto, implantacao e instalacao
fisica, operacao, manutencao, supervisao e testes de avaliacao de sistemas de
telecomunicacoes.
(S) 3 - A operacionalizacao do disposto nesta clausula sera objeto de
regulamentacao por parte da ANATEL, incluindo sancoes aplicaveis.
CLAUSULA 15.9. Ressalvadas as alteracoes objeto de previa aprovacao
da ANATEL, a Concessionaria mantera os compromissos para expansao e conformidade
dos cabos submarinos e
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terrestres internacionais constantes do Anexo 03 Rotas Opticas, deste Contrato.
PARAGRAFO UNICO - A desativacao de rotas em cabos de fibras-opticas,
bem como a alteracao do perfil de rotas e redes internacionais da Concessionaria
dependerao de previa aprovacao da ANATEL.
CLAUSULA 15.10. A Concessionaria devera informar a ANATEL todas as
tarifas internacionais de contabilidade (accouting rates) praticadas com
administracoes estrangeiras.
PARAGRAFO UNICO A ANATEL podera, no interesse do Pais, impor limites
aos valores de tarifas internacionais de contabilidade (accounting rates) com
administracoes estrangeiras.
CAPITULO XVI - DAS OBRIGACOES E PRERROGATIVAS DA ANATEL
CLAUSULA 16.1. - Alem das outras prerrogativas inerentes a sua funcao
de orgao regulador e das demais obrigacoes decorrentes do presente Contrato,
incumbira a ANATEL:
I - acompanhar e fiscalizar a prestacao do servico e a conservacao dos
bens reversiveis, visando ao atendimento das normas, especificacoes e
instrucoes estabelecidas neste Contrato e em seus anexos;
II - proceder as vistorias para a verificacao da adequacao das
instalacoes e equipamentos, determinando as necessarias correcoes,
reparos, remocoes, reconstrucoes ou substituicoes, as expensas da
Concessionaria;
III - regulamentar permanentemente a prestacao do servico concedido;
IV - intervir na execucao do servico quando necessario, a fim de
assegurar sua regularidade e o fiel cumprimento do Contrato e das
normas legais pertinentes;
V - aplicar as penalidades previstas na regulamentacao do servico e,
especificamente, neste Contrato;
VI - deliberar sobre os Planos Alternativos de Servico de Longa
Distancia Internacional apresentados pela Concessionaria;
VII - autorizar o reajuste e proceder a revisao das tarifas, nos
termos e conforme o disposto neste Contrato;
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VIII - atuar dentro dos limites previstos neste Contrato com vista a
impedir o enriquecimento imotivado das partes, nos termos deste
Contrato;
IX - zelar pela boa qualidade do servico, receber, apurar e
solucionar queixas e reclamacoes dos usuarios, cientificando-os, em
ate noventa dias, das providencias tomadas com vista a repressao de
infracoes a seus direitos;
X - declarar extinta a Concessao nos casos previstos neste Contrato;
XI - zelar pela garantia de interconexao, dirimindo eventuais
pendencias surgidas entre a Concessionaria e demais prestadores;
XII - zelar pelo atendimento das metas de universalizacao previstas
neste Contrato, e as metas que vierem a ser estabelecidas nos Planos
de Metas posteriores;
XIII - acompanhar permanentemente o relacionamento entre a
Concessionaria e demais prestadores de servicos de telecomunicacoes,
dirimindo conflitos surgidos entre eles;
XIV - coibir condutas da Concessionaria contrarias ao regime de
competicao, observadas as competencias legais do CADE;
XV - propor, por solicitacao da Concessionaria, ao Presidente da
Republica, por intermedio do Ministerio das Comunicacoes, a
declaracao de utilidade publica para fins de desapropriacao ou
instituicao de servidao administrativa, dos bens necessarios a
implantacao ou manutencao do servico objeto deste Contrato;
XVI - exercer a atividade fiscalizatoria do servico nos termos do
disposto neste Contrato; e
XVII - arrecadar as taxas relativas ao FISTEL, adotando as
providencias previstas na legislacao vigente.
CAPITULO XVII - DA CONCESSIONARIA
CLAUSULA 17.1. - A Concessionaria e empresa constituida segundo as
leis brasileiras, sob natureza de sociedade por acoes, tendo por finalidade
exclusiva a exploracao do servico objeto da presente
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concessao, ressalvados os servicos nos termos do disposto no (S) 3 do art. 207
da Lei n 9.472, de 1997.
PARAGRAFO UNICO - Se aprovada alteracao estatutaria da Concessionaria,
os documentos que a formalizarem serao encaminhados a ANATEL para arquivamento,
passando a fazer parte integrante do presente Contrato.
CLAUSULA 17.2. - A Concessionaria e seus controladores se obrigam a
manter, durante todo o prazo da concessao e de sua prorrogacao, no minimo, todas
as condicoes de prestacao do servico e de capacitacao existentes a epoca da
entrada em vigencia do presente Contrato.
CLAUSULA 17.3. A Concessionaria e seus controladores se obrigam a
assegurar, durante o prazo da concessao e sua prorrogacao, a efetiva existencia,
em territorio nacional, dos centros de deliberacao e implementacao das decisoes
estrategicas, gerenciais e tecnicas envolvidas no cumprimento do presente
Contrato, inclusive fazendo refletir tal obrigacao na composicao e nos
procedimentos decisorios de seus orgaos de administracao.
PARAGRAFO UNICO A Concessionaria devera inserir, no seu estatuto, ate
31 de dezembro de 1998, disposicoes que garantam o cumprimento do disposto no
caput desta clausula.
CAPITULO XVIII - DA TRANSFERENCIA DA CONCESSAO E DO CONTROLE DA CONCESSIONARIA
Clausula 18.1. - A transferencia da concessao ou do controle, direto
ou indireto, da Concessionaria so sera autorizada pela ANATEL, observados o
Plano Geral de Outorgas e o art. 202 da Lei n 9.472, de 1997, quando:
I - o cessionario preencha todos os requisitos estabelecidos nos
termos do art. 200 da Lei n 9.472, de 1997; e
II - a medida nao prejudique a competicao e nao coloque em risco a
execucao do Contrato e as normas gerais de protecao a ordem economica.
PARAGRAFO UNICO - O descumprimento de qualquer disposicao constante
desta clausula importara na caducidade da presente concessao.
CLAUSULA 18.2. - Poderao ser livremente dadas em caucao as acoes da
Concessionaria cuja transferencia nao altere seu controle.
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PARAGRAFO UNICO - No caso de caucao de acoes que importem oneracao do
patrimonio da Concessionaria, deverao ser previstos nos contratos de
financiamento dispositivos que submetam os credores, em caso de execucao, as
regras constantes deste Capitulo.
CAPITULO XIX - DO REGIME DE FISCALIZACAO
CLAUSULA 19.1. - A ANATEL exercera a fiscalizacao do servico ora
concedido a fim de assegurar o cumprimento dos pressupostos de universalizacao e
continuidade inerentes ao regime publico de sua prestacao, bem como para zelar
pelo cumprimento das metas e dos compromissos constantes do presente Contrato.
(S) 1 - A fiscalizacao a ser exercida pela ANATEL compreendera a
inspecao e o acompanhamento das atividades, equipamentos e instalacoes da
Concessionaria, implicando amplo acesso a todos os dados e informacoes da
Concessionaria ou de terceiros.
(S) 2 - As informacoes colhidas no exercicio da atividade
fiscalizatoria serao publicadas na Biblioteca, a excecao daquelas que, por
solicitacao da Concessionaria, sejam consideradas pela ANATEL como de carater
confidencial.
(S) 3 - As informacoes que venham a ser consideradas de carater
confidencial nos termos do paragrafo anterior, somente serao utilizadas nos
procedimentos correlacionados ao presente Contrato, respondendo a ANATEL e
aqueles por ela indicados por qualquer divulgacao, ampla ou restrita, de tais
informacoes fora deste ambito de utilizacao.
CLAUSULA 19.2. - A Concessionaria, por intermedio de representante
indicado, podera acompanhar toda e qualquer atividade da fiscalizacao da ANATEL,
nao podendo obstar ou impedir a atuacao da fiscalizacao, sob pena de incorrer
nas penalidades previstas neste Contrato.
CAPITULO XX - DA PRESTACAO DE CONTAS PELA CONCESSIONARIA
CLAUSULA 20.1. - Na forma da regulamentacao, a Concessionaria devera
enviar periodicamente a ANATEL relatorios estatisticos e circunstanciados de
todo o servico prestado, contendo, entre outros elementos, os indicadores de
expansao e abrangencia da rede de telefonia, bem como noticiando o estagio
tecnologico dos equipamentos utilizados.
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CAPITULO XXI - DOS BENS VINCULADOS A CONCESSAO
Clausula 21.1. - Integram o acervo da presente concessao, sendo a ela
vinculados, todos os bens pertencentes ao patrimonio da Concessionaria e que
sejam indispensaveis a prestacao do servico ora concedido, especialmente aqueles
qualificados como tal no Anexo 01 - Qualificacao dos Bens Reversiveis da
Prestacao do Servico Telefonico Fixo Comutado de Longa Distancia Internacional.
(S) 1 - Integram tambem o acervo dos bens vinculados a concessao as
autorizacoes de uso do espectro de radiofrequencias que lhe sejam outorgadas e,
quando couber, o direito de uso de posicoes orbitais, observado o disposto nos
artigos 48 e 161 da Lei n 9.472, de 1997 e ainda o constante da clausula 4.1. do
presente Contrato.
(S) 2 - Em relacao aos bens vinculados a concessao, a Concessionaria
somente podera empregar diretamente na prestacao do servico ora concedido
equipamentos, infra-estrutura, logiciarios ou qualquer outro bem que nao sejam
de sua propriedade mediante previa e expressa anuencia da ANATEL, que podera
dispensar tal exigencia nos casos e hipoteses dispostas na regulamentacao.
(S) 3 - Havendo risco a continuidade dos servicos ou impedimento da
reversao dos bens vinculados a concessao, a ANATEL podera negar autorizacao para
utilizacao de bens de terceiros ou exigir que o respectivo Contrato contenha
clausula pela qual o proprietario se obriga, em caso de extincao da concessao, a
manter os Contratos e em subrogar a ANATEL nos direitos dele decorrentes.
CAPITULO XXII - DO REGIME DE REVERSAO
CLAUSULA 22.1. - Quando da extincao da concessao reverterao
automaticamente a ANATEL todos os bens vinculados a concessao na forma do
Capitulo XXI supra, resguardado a Concessionaria o direito as indenizacoes
previstas na legislacao e neste Contrato.
PARAGRAFO UNICO - Ate 180 dias apos o advento da extincao da concessao
sera procedida uma vistoria dos bens que a integram e lavrado um Termo de
Devolucao e Reversao dos Bens, com indicacao detalhada do estado de conservacao
dos mesmos, facultado o acompanhamento por representante(s) da Concessionaria.
CLAUSULA 22.2. - A Concessionaria se obriga a entregar os bens
reversiveis em perfeitas condicoes de operacionalidade, utilizacao e manutencao,
sem prejuizo do desgaste normal resultante do seu uso.
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PARAGRAFO UNICO - Os bens reversiveis serao transferidos a ANATEL
livres de quaisquer onus ou encargos, observada a hipotese do paragrafo 2 da
clausula seguinte.
CLAUSULA 22.3. - A reversao dos bens de que trata o Capitulo XXI
supra, ao final do prazo contratual, sera feita sem indenizacao, ressalvado o
disposto nesta clausula.
(S) 1 - Somente cabera indenizacao em favor da Concessionaria caso
existam, ao final da Concessao, bens ainda nao integralmente amortizados, cuja
aquisicao tenha sido previamente autorizada pela ANATEL, ou adquiridos antes da
assinatura deste Contrato, com o objetivo de garantir a continuidade e a
atualidade do servico concedido.
(S) 2 - Alternativa ou supletivamente a indenizacao disposta no
paragrafo anterior, a ANATEL podera admitir a transferencia de bens que tenham
sido dados em garantia do seu proprio financiamento, subrogando-se na parcela
financiada ainda inadimplida.
CLAUSULA 22.4. - Ao final da Concessao a ANATEL procedera a avaliacao
dos bens referidos na clausula 21.1, podendo recusar a reversao de bens que
considere prescindiveis ou inaproveitaveis para aplicacao na exploracao do
servico, garantido o direito da Concessionaria ao contraditorio, inclusive
atraves da elaboracao e apresentacao, as suas expensas, de laudos ou estudos
demonstradores da necessidade de reversao.
PARAGRAFO UNICO - Caso a Concessionaria nao concorde com a decisao da
ANATEL quanto ao disposto nesta clausula admitir-se-a o recurso ao processo de
solucao de divergencias prescrito neste Contrato.
CAPITULO XXIII - DO PLANO DE SEGUROS
Clausula 23.1. - Durante todo o prazo de vigencia da concessao, a
Concessionaria devera manter com Companhia Seguradora de porte compativel com o
capital a ser segurado registrada junto aos orgaos regulatorios do setor, as
seguintes apolices de seguros necessarias para garantir a efetiva e abrangente
cobertura de riscos inerentes ao desenvolvimento de todas as atividades
contempladas no presente Contrato:
I - seguro do tipo "todos os riscos" para danos materiais cobrindo a
perda, destruicao ou dano em todos ou em qualquer bem integrante da
concessao, devendo tal seguro contemplar todas as coberturas
compreendidas de acordo com os padroes internacionais;
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II - seguro de preservacao de condicoes economicas para continuidade
da exploracao do servico, cobrindo, no minimo, os custos operacionais
contra variacoes nas receitas da Concessionaria, decorrentes de
sinistros ou modificacoes nas condicoes de exploracao do Contrato que
nao sejam cobertas pelos seguros de danos materiais, desde que a
pactuacao desta modalidade de seguro seja admitida pelas normas
brasileiras e expressamente autorizada pelo Instituto de Resseguros do
Brasil IRB ou orgao equivalente; e
III - seguro garantia do cumprimento das obrigacoes relativas a
qualidade e a universalizacao previstas neste Contrato ("Performance
Bond", carta de credito e valor mantido em caucao) no valor
correspondente a 10% do montante de investimentos estimado a cada ano
para cumprimento das metas previstas no presente Contrato.
(S) 1 - A Concessionaria devera fazer constar das apolices de seguro a
obrigacao de a Seguradora informar, por escrito, com antecedencia minima de 10
(dez) dias, a Concessionaria e a ANATEL, quaisquer fatos que possam implicar o
cancelamento total ou parcial das apolices contratadas, reducao de coberturas,
aumento de franquias ou reducao dos valores segurados.
(S) 2 - As apolices emitidas em atendimento ao disposto nesta clausula
nao poderao conter obrigacoes, restricoes ou disposicoes que colidam com as
disposicoes do presente Contrato ou com a regulamentacao e deverao conter
declaracao expressa da Seguradora que conhece integralmente o presente ajuste,
inclusive no tocante aos limites dos direitos da Concessionaria.
(S) 3 - No caso de descumprimento, pela Concessionaria, da obrigacao
de manter em plena vigencia as apolices de seguro previstas, a ANATEL,
independentemente da sua faculdade de decretar a intervencao ou a caducidade da
presente concessao, podera proceder a contratacao e ao pagamento direto dos
premios respectivos, correndo os custos por conta da Concessionaria.
(S) 4 - Anualmente, ate o final do mes de Janeiro, a Concessionaria
devera apresentar certificado emitido pela(s) seguradora(s) confirmando que
todos os premios vencidos no ano precedente encontram-se quitados e que as
apolices contratadas estao em plena vigencia ou foram renovadas, devendo neste
caso serem encaminhados os termos das novas apolices.
(S) 5 - As apolices referidas nesta clausula deverao obedecer aos
seguintes prazos de apresentacao e vigencia:
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I - a apolice referida no inciso I do caput desta clausula devera ser
apresentada em ate 90 (noventa) dias, contados da assinatura do presente
Contrato e tera vigencia imediata;
II - a apolice referida no inciso II do caput desta clausula devera
ser apresentada ate 30 de novembro de 1999, com vigencia a partir de 1
de janeiro de 2000;
III - a apolice referida no inciso III do caput desta clausula devera
ser apresentada ate 30 de novembro de 2000, com vigencia a partir de 1 de
janeiro de 2001.
(S) 6 - A ANATEL podera alterar as coberturas ou os prazos de
apresentacao das apolices referidas nesta clausula, com vistas a adequar tais
exigencias a regulamentacao editada pela Superintendencia de Seguros Privados
SUSEP ou as condicoes estabelecidas pelo Instituto de Resseguros do Brasil IRB,
bem como quando forem editadas normas que obstem a contratacao dos seguros aqui
referidos ou quando nao existam condicoes de mercado amplo e competitivo que
permitam a sua contratacao a custos razoaveis.
CAPITULO XXIV - DA INTERCONEXAO
CLAUSULA 24.1. - A Concessionaria tem obrigacao de permitir,
facilitar, tornar disponivel e efetivar a interconexao, a rede por ela operada,
de redes de outros prestadores de servicos de telecomunicacoes, em regime
publico ou privado, sempre que estes o solicitem, observando e fazendo observar
as normas e regulamentos editados pela ANATEL a este respeito.
CLAUSULA 24.2. A Concessionaria tera os mesmos direitos e obedecera as
mesmas condicoes de interconexao a que estejam sujeitos os demais prestadores.
PARAGRAFO UNICO - A Concessionaria devera tornar disponivel para
interconexao os elementos da rede com maior nivel de desagregacao tecnicamente
possivel, observada a regulamentacao da ANATEL.
CAPITULO XXV - DAS SANCOES
CLAUSULA 25.1. - Na execucao do presente Contrato a Concessionaria se
sujeita as seguintes sancoes, que serao aplicadas mediante decisao fundamentada
da ANATEL, assegurado o seu direito de defesa nos termos do disposto no
Regimento Interno da ANATEL e sem prejuizo das demais penalidades previstas na
regulamentacao:
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I - por violacao das disposicoes do presente Contrato que importe em
desatendimento de metas de universalizacao; multa de ate
R$50.000.000,00 (cinquenta milhoes de reais);
II - por ato ou omissao contrario as disposicoes constantes deste
Contrato que acarrete prejuizo a competicao no setor de
telecomunicacoes; multa de ate R$ 50.000.000,00 (cinquenta milhoes
de reais);
III - por violacao as disposicoes contratuais que importe em nao
cumprimento das metas e parametros de qualidade na prestacao do
servico; multa de ate R$40.000.000,00 (quarenta milhoes de reais);
IV - por outro ato ou omissao nao enquadrado nos incisos anteriores
que importe em violacao aos direitos do usuario definidos neste
Contrato ou acarrete-lhe prejuizo; multa de ate R$30.000.000,00
(trinta milhoes de reais);
V - por ato ou omissao que viole o disposto na clausula 15.8 deste
Contrato, referente a contratacao de servicos e aquisicao de
equipamentos e materiais produzidos no Pais; multa de R$
30.000.000,00 (trinta milhoes de reais);
VI - por qualquer ato ou omissao que traga obice ou dificuldade ao
exercicio da atividade fiscal da ANATEL prevista neste Contrato;
multa de ate R$20.000.000 (vinte milhoes de reais);
VII - por ato, omissao ou negligencia que coloque em risco a
seguranca das instalacoes; multa de ate R$15.000.000,00 (quinze
milhoes de reais);
VIII - por ato ou omissao que acarrete dano ou ponha em risco bens
ou equipamentos vinculados a concessao; multa de ate R$
10.000.000,00 (dez milhoes de reais); e
IX - pelo descumprimento de qualquer obrigacao prevista
expressamente neste Contrato, exceto as indicadas nos incisos
anteriores, cujas sancoes ja estao neles estabelecidas; multa de ate
R$ 10.000.000,00 (dez milhoes de reais).
(S) 1 - A infracao prescrita no inciso I desta clausula estara
caracterizada quando a Concessionaria nao cumprir, nos prazos previstos neste
Contrato, suas obrigacoes quanto a expansao do servico, ampliacao da prestacao
do servico, atraves de telefones de uso publico e atendimento a localidades,
consoante o disposto no Plano Geral de Metas
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de Universalizacao, e sera aplicada levando em consideracao, alem dos principios
gerais constantes deste Capitulo, os seguintes fatores:
a) a diferenca entre o estagio de implementacao verificado e a meta
definida no Contrato;
b) a possibilidade de recuperacao do cronograma de implementacao as
expensas da Concessionaria;
c) o prejuizo para a politica refletida no Plano Geral de Metas para
a Universalizacao;
d) os danos trazidos aos beneficiarios diretos das metas
desatendidas; e
e) eventuais circunstancias de ordem tecnica ou economica que possam
atenuar a responsabilidade da Concessionaria, sem elidi-la.
(S) 2 - A infracao prescrita no inciso II supra tera sua gravidade
definida exclusivamente em funcao dos criterios gerais prescritos na clausula
25.2 e sera caracterizada pela conduta da Concessionaria que, direta ou
indiretamente, possa importar prejuizo a competicao no setor, especialmente:
a) oferecimento de obice ou dificuldade a opcao por outro prestador
do servico concedido ou do servico de longa distancia nacional e
internacional;
b) recusa em dar interconexao a prestador de servico de
telecomunicacoes;
c) oferecimento de obices ou dificuldades a atividade de prestadores
de servico de valor adicionado;
d) condicionamento da prestacao do servico concedido ou oferecimento
de vantagens em funcao de aquisicao, pelo usuario, de servico
estranho ao presente Contrato;
e) execucao de qualquer servico de telecomunicacoes que nao seja
objeto de concessao ou autorizacao outorgadas pela ANATEL em seu
favor;
f) pela nao preservacao dos niveis de qualidade praticados quanto a
interconexao; e
g) procrastinacao na entrega de informacoes essenciais a atividade
dos demais prestadores, especialmente no que tange as bases
cadastrais.
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(S) 3 - A infracao prescrita no inciso III desta clausula sera
caracterizada pela prestacao reiterada do servico concedido aquem dos parametros
de qualidade definidos no Plano Geral de Metas de Qualidade ou pela comprovada
violacao dos indicadores referidos no Capitulo VI, sendo na primeira hipotese
considerada infracao grave, especialmente:
a) a nao alocacao na operacao e manutencao do servico dos recursos
humanos e materiais necessarios a preservacao dos padroes minimos de
qualidade; e
b) negligencia na modernizacao da rede que afete a qualidade do
servico.
(S) 4 - A infracao prescrita no inciso IV supra tera sua escala de
gravidade definida em funcao do numero de usuarios atingidos e dos prejuizos
causados, ficando caracterizada pela violacao, comissiva ou omissiva, direta ou
indireta, de obrigacao prevista neste Contrato, que nao implique afronta aos
deveres quanto a universalizacao e qualidade, mas que acarrete violacao dos
direitos dos usuarios, especialmente:
a) a interrupcao na prestacao dos servicos por prazo superior ao
estabelecido no Plano de Metas de Qualidade, salvo a ocorrencia das
situacoes previstas no paragrafo unico da clausula 6.3;
b) a recusa em prestar o servico concedido a qualquer interessado;
c) o descumprimento do dever de prestar informacoes ao usuario;
d) a violacao do sigilo de telecomunicacoes, fora das hipoteses
legais, ainda que praticada por terceiros nas instalacoes sob
responsabilidade da Concessionaria;
e) a nao manutencao de central de informacao e de atendimento ao
usuario na forma prescrita neste Contrato;
f) a cobranca de tarifa ou preco em desacordo com as regras
estipuladas neste Contrato e na regulamentacao; e
g) a restricao ao exercicio do direito a livre escolha entre planos
de servico.
(S) 5 - A sancao prevista no inciso V sera caracterizada pela
verificacao de violacao da obrigacao contida na clausula 15.8 e tera sua
gravidade definida conforme dispuser a regulamentacao.
(S) 6 - A infracao prescrita no inciso VI supra tera sua gravidade
definida em funcao da relevancia da atividade fiscal obstada e
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sera caracterizada pela violacao, comissiva ou omissiva, direta ou indireta, da
Concessionaria ou de seus prepostos, que impeca ou dificulte a atividade de
fiscalizacao exercida pela ANATEL, seus prepostos, agentes ou mesmo pelos
usuarios, especialmente:
a) recusa da Concessionaria em atender pedido de informacao
formulado pela ANATEL relacionada ao servico concedido ou aos bens a
ele afetos;
b) oferecimento de entrave a atuacao dos agentes de fiscalizacao da
ANATEL;
c) omissao em cumprir obrigacao de publicidade prevista neste
Contrato, ou na regulamentacao; e
d) nao envio ou envio intempestivo de qualquer informacao, dado,
relatorio ou documento que, por forca da regulamentacao ou deste
Contrato, deveria ser remetida a ANATEL.
(S) 7 - A infracao prescrita no inciso VII desta clausula tera sua
gravidade definida em funcao da proporcao do risco ensejado e sera caracterizada
pela conduta da Concessionaria que afronte as regras dispostas no presente
Contrato e na regulamentacao, viole as normas e padroes tecnicos de seguranca ou
que coloquem em risco as instalacoes afetas ao servico concedido, especialmente:
a) o emprego, no servico concedido, de equipamento nao certificado
pela ANATEL, quando exigida a certificacao;
b) a nao alocacao na operacao e manutencao do servico dos recursos
humanos e materiais necessarios a preservacao dos padroes minimos de
seguranca; e
c) nao adocao de precaucoes que sejam recomendadas para o servico
ora concedido.
(S) 8 - A infracao prescrita no inciso VIII desta clausula tera sua
gravidade definida em funcao da relevancia, do vulto economico e da
essencialidade dos bens envolvidos e sera caracterizada pela conduta da
Concessionaria que contraria o disposto neste Contrato ou na regulamentacao e
que possa por em risco bens ou equipamentos vinculados a presente concessao ou
dificultar a reversao dos mesmos, em especial:
a) a nao manutencao de inventario e registro dos bens referidos na
clausula 21.1.;
b) pelo emprego, diretamente na prestacao do servico objeto da
presente concessao, de bens de terceiros sem
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previa anuencia da ANATEL ou sem que esta seja dispensada em
regulamento; e
c) pela negligencia na conservacao dos bens reversiveis, observada a
regulamentacao.
(S) 9 - A sancao prevista no inciso IX sera caracterizada pela
verificacao de violacao de obrigacao contratual nao compreendida nos incisos
anteriores, em especial aquela prevista no inciso XXXI da clausula 15.1.
(S) 10 - A sancao prevista no inciso II supra tem carater contratual e
sera aplicada pela ANATEL independentemente das providencias que venham a ser
adotadas pelo CADE.
(S) 11 - O nao recolhimento de qualquer multa fixada nos termos do
disposto na presente clausula no prazo fixado pela ANATEL caracterizara falta
grave, ensejando a intervencao na Concessionaria nos termos do disposto no
Capitulo XXVIII, alem de implicar a cobranca de multa moratoria de 0,33% (zero
virgula trinta e tres por cento) ao dia, ate o limite de 10% (dez por cento),
acrescida da taxa referencial SELIC para titulos federais, a ser aplicada sobre
o valor da divida, considerando todos os dias de atraso de pagamento.
CLAUSULA 25.2. - Para aplicacao das multas contratuais previstas neste
Capitulo serao observadas as regras contidas no Titulo VI do Livro III da Lei n
9.472, de 1997 e na regulamentacao.
(S) 1 - Na definicao da gravidade das sancoes e na fixacao das
multas, a ANATEL observara as seguintes circunstancias:
I - a proporcionalidade entre a intensidade do apenamento e a
gravidade da falta, inclusive quanto ao numero dos usuarios
atingidos;
II - os danos resultantes da infracao para o servico e para os
usuarios;
III - a vantagem auferida pela Concessionaria em virtude da
infracao;
IV - a participacao da Concessionaria no mercado dentro de sua area
geografica de prestacao do servico;
V - a situacao economica e financeira da Concessionaria, em
especial a sua capacidade de geracao de receitas e o seu patrimonio;
VI - os antecedentes da Concessionaria;
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VII - a reincidencia especifica, assim entendida a repeticao de
falta de igual natureza apos o recebimento de notificacao anterior;
e
VIII - as circunstancias gerais agravantes ou atenuantes da
infracao.
(S) 2 - Independente dos criterios especificos de graduacao previstos
em cada inciso da clausula anterior e de outros previstos na regulamentacao, a
gradacao das penas observara a seguinte escala:
I - a infracao sera considerada leve quando decorrer de condutas
involuntarias ou escusaveis da Concessionaria e da qual ela nao se
beneficie;
II - a infracao sera considerada de gravidade media quando decorrer
de conduta inescusavel, mas que nao traga para a Concessionaria
qualquer beneficio ou proveito, nem afete numero significativo de
usuarios; e
III - a infracao sera considerada grave quando a ANATEL constatar
presente um dos seguintes fatores:
a) ter a Concessionaria agido com ma-fe;
b) da infracao decorrer beneficio direto ou indireto para a
Concessionaria;
c) a Concessionaria for reincidente na infracao;
d) o numero de usuarios atingido for significativo; e
e) na hipotese prevista no (S) 10 da clausula anterior.
(S) 3 - A criterio da ANATEL, nas infracoes classificadas como leves,
quando da sua primeira ocorrencia, podera ser aplicada a pena de advertencia a
Concessionaria, que sera comunicada formalmente da sancao, sem prejuizo da
publicacao da decisao na Imprensa Oficial.
(S) 4 - Para aplicacao das sancoes previstas neste Capitulo sera
observado o Procedimento Sancionatorio previsto no Regimento Interno da ANATEL.
(S) 5 - Nas infracoes previstas no inciso IV da clausula 25.1. a
ANATEL podera determinar que a Concessionaria abata do valor a ser recolhido, a
titulo de multa, montantes a serem pagos como ressarcimento aos usuarios
atingidos, fixando no ato de aplicacao da pena os criterios para o
ressarcimento, o prazo em que deve ser pago e o valor maximo do abatimento.
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(S) 6 - A hipotese prevista no paragrafo anterior so podera ser
adotada quando verificado que o interesse ou a necessidade dos usuarios nao
elidira a responsabilidade da Concessionaria pelas demais indenizacoes civis
devidas.
CLAUSULA 25.3. - As multas previstas nesta clausula serao aplicadas
sem prejuizo da caracterizacao das hipoteses de intervencao ou declaracao de
caducidade previstas no presente Contrato.
PARAGRAFO UNICO - Em caso de inexecucao total ou parcial do ajuste ou
de atrasos injustificados superiores a 120 dias no cumprimento das metas
previstas neste Contrato, a Concessionaria estara sujeita a decretacao de
caducidade da Concessao nos termos do disposto na clausula 26.4.
CLAUSULA 25.4. - Os valores das multas previstas neste Capitulo serao
reajustados, anualmente, mediante a aplicacao do IGP-DI, vencendo o primeiro
reajuste apos um ano da assinatura do presente Contrato.
CAPITULO XXVI - DA EXTINCAO DA CONCESSAO
Clausula 26.1. - Considerar-se-a extinto o Contrato de concessao nas
seguintes hipoteses:
I - termino do prazo de concessao do servico, desde que nao tenha
sido prorrogado nos termos do presente Contrato;
II - encampacao, consoante o Art. 113 da Lei n 9.472, de 1997;
III - caducidade, nos termos do disposto no artigo 114 da Lei n
9.472, de 1997, e no presente Contrato;
IV - rescisao amigavel ou judicial, nos termos do art. 115 da Lei
n 9.472, de 1997; e
V - anulacao.
(S) 1 - Extinta a concessao, retornarao a ANATEL os direitos e
deveres relativos a prestacao do servico concedido, com reversao dos bens
referidos na clausula 22.1., resguardado a Concessionaria o direito as
indenizacoes previstas na legislacao e neste Contrato.
(S) 2 - Apos a extincao da concessao, a ANATEL procedera aos
levantamentos, avaliacoes e liquidacoes necessarios, no prazo de 180
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(cento e oitenta) dias contados da assuncao do servico, salvo na hipotese de
termino do prazo contratual, quando estas providencias deverao ser adotadas pela
ANATEL com antecedencia.
(S) 3 - Extinta a concessao antes do termo contratual, a ANATEL,
sem prejuizo de outras medidas cabiveis, podera:
I - ocupar, temporariamente, bens moveis e imoveis e valer-se de
pessoal empregado na prestacao do servico necessarios a sua
continuidade; e
II - manter os Contratos firmados pela Concessionaria com terceiros
pelo prazo e nas condicoes inicialmente ajustadas.
CLAUSULA 26.2. - A reversao ao termino do prazo contratual sera feita
sem indenizacao, salvo quando ocorrer a hipotese prevista na clausula 22.3.
CLAUSULA 26.3. - Nos termos do art. 113 da Lei n 9.472, de 1997,
considera-se encampacao a retomada do servico pela ANATEL durante o prazo de
concessao, em face de razao extraordinaria de interesse publico, mediante lei
autorizativa especifica e precedida de pagamento de indenizacao.
CLAUSULA 26.4. - O presente Contrato podera ter sua caducidade
declarada por ato do Conselho Diretor da ANATEL, precedido de processo
administrativo que assegure ampla defesa a Concessionaria, nas hipoteses de :
I - transferencia do controle societario, cisao, fusao,
transformacao da Concessionaria ou ainda incorporacao ou reducao do
seu capital sem a previa aprovacao da ANATEL;
II - transferencia irregular do Contrato;
III - nao cumprimento do compromisso de transferencia referido na
clausula 18.1. e no art. 87 da Lei n 9.472, de 1997;
IV - falencia ou dissolucao da Concessionaria;
V - nao atendimento das exigencias de cobertura por planos de
seguros em afronta as obrigacoes previstas na clausula 23.1. e tal
omissao nao puder, a criterio da ANATEL, ser suprida com a
intervencao; e
VI - quando, nos termos do art. 114, inciso IV, da Lei n 9.472, de
1997, ocorrer qualquer das hipoteses previstas
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na clausula 28.1. e, a criterio da ANATEL, a intervencao for
considerada inconveniente, inocua ou ainda injustamente benefica a
Concessionaria.
(S) 1 - Sera considerada desnecessaria a intervencao quando a demanda
pelo servico objeto da concessao puder ser atendida, mediante permissao, por
outras prestadoras de modo regular e imediato.
(S) 2 - A declaracao de caducidade nao elidira a aplicacao das
penalidades cabiveis nos termos deste Contrato pelas infracoes praticadas pela
Concessionaria, nem prejudicara o direito a indenizacao definida nos termos do
Capitulo seguinte.
CLAUSULA 26.5. - A Concessionaria tera direito a rescisao contratual,
judicial ou amigavel, quando por acao ou omissao do Poder Publico, a execucao do
Contrato se tornar excessivamente onerosa, nos termos do art. 115 da Lei n
9.472, de 1997.
PARAGRAFO UNICO - Nao constitui motivo para a rescisao contratual a
introducao ou a ampliacao da competicao entre os diversos prestadores do servico
objeto da concessao, sendo certo que a Concessionaria assume a presente
concessao ciente de que exercera suas atividades sem qualquer reserva ou
exclusividade de mercado.
CLAUSULA 26.6. - A anulacao sera decretada pela ANATEL em caso de
irregularidade insanavel e grave verificada no presente Contrato.
CAPITULO XXVII- DA INDENIZACAO
CLAUSULA 27.1. - Para fins de calculo de indenizacao, devida pela
ANATEL a Concessionaria nos casos expressamente previstos no presente Contrato,
observar-se-a o seguinte:
I - Termino do prazo contratual - nao cabera indenizacao, exceto
se comprovado que o nao pagamento significa enriquecimento imotivado
por parte da Uniao em funcao da reversao de bens ainda nao
integralmente amortizados, observado o disposto na clausula 22.3.;
II - Encampacao - observado o disposto no art. 113 da Lei n 9.472,
de 1997, a indenizacao, que sera paga previamente ao ato, deve
corresponder ao valor dos bens que reverterem ao poder concedente,
descontada a sua depreciacao.
III - Caducidade - independentemente da aplicacao das penalidades e
da reparacao dos danos decorrentes do
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inadimplemento, nos termos do Contrato, a Concessionaria somente
podera postular indenizacao se comprovadamente estiver a ocorrer
enriquecimento imotivado por parte da Uniao pela reversao de bens
nao integralmente amortizados ou depreciados, descontando o valor
dos danos causados e das multas cominadas, bem como, quando o caso,
das obrigacoes financeiras nao satisfeitas;
IV - Rescisao amigavel ou judicial - nao cabera indenizacao, exceto
se contrariamente for fixado em sentenca judicial; e
V - Anulacao - somente quando comprovado que a Concessionaria nao
concorreu para a ilegalidade, cabera indenizacao correspondente
apenas ao valor efetivo dos bens que reverterem para a Uniao,
calculado na data da decretacao da anulacao, desde que estes bens
ainda nao estejam integralmente amortizados pela exploracao dos
servicos.
(S) 1 - O valor provisorio a ser antecipado pela ANATEL para os
casos de encampacao sera calculado na forma prescrita na lei autorizativa
especifica.
(S) 2 - Quando advier a caducidade por culpa comprovada da
Concessionaria, esta acarretara tambem:
a) retencao dos creditos decorrentes do Contrato, inclusive com
apropriacao de receitas decorrentes de pagamentos feitos pelos
usuarios do servico;
b) responsabilizacao por prejuizos causados a Uniao e aos usuarios;
c) aplicacao de multas nos termos do disposto no presente Contrato e
na legislacao vigente; e
d) perda do seguro garantia previsto na clausula 23.1.
(S) 3 - Excetuada a hipotese de encampacao, a indenizacao cabivel
para os demais casos de extincao do Contrato sera calculada nos termos deste
capitulo e parcelada pelo numero de meses a que ainda seria vigente a concessao,
devendo a primeira parcela vencer apos um ano da extincao do Contrato.
(S) 4 - A ANATEL podera transferir para o prestador que suceder a
Concessionaria na exploracao do servico, o onus de pagamento das respectivas
indenizacoes, assumindo novamente a obrigacao de pagamento, caso o novo
prestador atrase em mais de 90 (noventa) dias os
45
<PAGE>
pagamentos.
CAPITULO XXVIII - DA INTERVENCAO
CLAUSULA 28.1. - A intervencao na Concessionaria podera ser
decretada pela ANATEL, a seu criterio e no interesse publico, atraves de ato
especifico e motivado do seu Conselho Diretor, sempre que, por falha da
Concessionaria, houver risco quanto a continuidade e seguranca do servico e em
especial nas seguintes situacoes:
I - paralisacao injustificada do servico, assim entendida a
interrupcao da prestacao fora das hipoteses previstas no presente
Contrato e sem a apresentacao de razoes tidas pela ANATEL como aptas
a justifica-la;
II - inadequacao ou insuficiencias reiteradas no servico prestado,
caracterizadas pelo nao atendimento dos parametros de qualidade
previstos no presente Contrato e na regulamentacao, mesmo apos
notificacao de prazo, pela ANATEL, para regularizacao da situacao;
III - pratica de ma administracao que coloque em risco a
continuidade do servico;
IV - pratica reincidente de infracoes definidas como graves nos
termos da clausula 25.1 supra;
V - nao atendimento das metas de universalizacao, assim entendido o
descumprimento injustificado do cronograma de implementacao das
obrigacoes de universalizacao presentes neste Contrato;
VI - recusa injustificada de interconexao, assim entendida a
negativa, delonga ou qualquer atitude protelatoria na negociacao ou
efetivacao da ligacao a sua rede solicitada por outro prestador,
observadas as condicoes de interconexao arbitradas pela ANATEL;
VII - infracao da ordem economica, caracterizada pela aplicacao de
sancoes por pratica contraria a concorrencia; e
VIII - omissao em prestar contas a ANATEL ou oferecimento de obice a
atividade fiscalizatoria que pressuponham a pratica de qualquer das
ocorrencias previstas nos incisos anteriores.
CLAUSULA 28.2. - O ato de intervencao devera,
46
<PAGE>
necessariamente, indicar o prazo, os motivos, os objetivos e limites, alem de
designar o interventor.
PARAGRAFO UNICO - O prazo e os limites da intervencao deverao ser
compativeis e proporcionais aos motivos que a ensejaram.
CLAUSULA 28.3. - A intervencao sera precedida de procedimento
administrativo instaurado pela ANATEL, no qual sera assegurado o amplo direito
de defesa da Concessionaria.
PARAGRAFO UNICO - Quando imprescindivel a intervencao imediata, podera
ela ser decretada cautelarmente pela ANATEL, sem previa manifestacao da
Concessionaria, devendo, neste caso, o procedimento ser imediatamente instaurado
na data da decretacao e concluido em ate cento e oitenta dias, prazo em que
podera a Concessionaria exercer seu direito amplo a defesa.
CLAUSULA 28.4. - A decretacao da intervencao nao afetara o curso
regular dos negocios da Concessionaria nem seu normal funcionamento, produzindo,
contudo, o imediato afastamento de seus administradores.
CLAUSULA 28.5. - A funcao de interventor podera recair sobre agente
dos quadros da ANATEL, pessoa especificamente nomeada, colegiado ou empresa,
assumindo a Concessionaria os custos da remuneracao.
(S) 1 - Dos atos do interventor cabera recurso a ANATEL.
(S) 2 - O interventor prestara contas e respondera pelos atos que
praticar.
(S) 3 - Para os atos de alienacao e disposicao do patrimonio da
Concessionaria, o interventor necessitara de previa autorizacao da ANATEL.
CLAUSULA 28.6. - Nao sera decretada a intervencao quando, a juizo da
ANATEL, ela for considerada desnecessaria.
PARAGRAFO UNICO - A intervencao sera considerada desnecessaria nas
hipoteses prescritas no (S) 1 da clausula 26.4. supra, bem como naquelas
previstas no art. 114, inciso IV, da Lei n 9.472, de 1997.
CAPITULO XXIX - DAS EXPROPRIACOES E IMPOSICOES ADMINISTRATIVAS
CLAUSULA 29.1. - Caso haja a necessidade, para implementacao,
prestacao ou modernizacao do servico, de realizar
47
<PAGE>
alguma desapropriacao ou servidao administrativa, os onus serao suportados
integralmente pela Concessionaria, devendo a ANATEL solicitar do Presidente da
Republica a emissao do ato de decretacao de utilidade publica.
CAPITULO XXX - DA ARBITRAGEM
Clausula 30.1. - Os eventuais conflitos que possam surgir em materia
da aplicacao e interpretacao das normas da concessao serao resolvidos pela
ANATEL no exercicio da sua funcao de orgao regulador conforme prescrito nos
artigos. 8 e 19 da Lei n 9.472, de 1997, podendo a Concessionaria recorrer ao
procedimento de arbitragem disposto no presente Capitulo exclusivamente quando
inconformada com a decisao da ANATEL relativa as seguintes materias:
I - violacao do direito da Concessionaria a protecao de sua situacao
economica, conforme prescrito no Capitulo XII;
II - revisao das tarifas, prevista no Capitulo XII; e
III - indenizacoes devidas quando da extincao do presente Contrato,
inclusive quanto aos bens revertidos.
PARAGRAFO UNICO - A submissao de qualquer questao a arbitragem nao
exime a ANATEL e a Concessionaria da obrigacao de dar integral cumprimento a
este Contrato, nem permite a interrupcao das atividades vinculadas a concessao.
CLAUSULA 30.2. - O processo de arbitragem tera inicio mediante
comunicacao remetida por uma parte a outra, requerendo a instalacao do Tribunal
Arbitral de que trata este Capitulo e indicando detalhadamente a materia em
torno da qual gira a controversia.
PARAGRAFO UNICO - A ANATEL podera rejeitar a instalacao do Tribunal
Arbitral se, motivada e justificadamente, demonstrar que a controversia nao se
enquadra no rol de materias prevista na clausula 30.1.
CLAUSULA 30.3. - O Tribunal Arbitral sera composto por 5 (cinco)
membros, assim nomeados:
I - 2 (dois) membros efetivos e respectivos suplentes indicados pelo
Conselho Diretor da ANATEL dentre especialistas nas areas afetas a
materia controvertida, nao pertencentes aos seus quadros, sendo pelo
menos um, que o presidira, detentor de conhecimentos especificos em
regulamentacao juridica de telecomunicacoes;
48
<PAGE>
II - 2 (dois) membros efetivos e respectivos suplentes indicados
pela Concessionaria, dentre especialistas nas areas afetas a materia
controvertida, que nao sejam seus empregados, sendo pelo menos um
detentor de conhecimentos especificos em regulamentacao juridica de
telecomunicacoes; e
III - 1 (um) membro efetivo e respectivo suplente indicado pelos
membros referidos nos incisos anteriores.
(S) 1 - O Tribunal Arbitral podera ser assistido pelos peritos
tecnicos que considere conveniente designar.
(S) 2 - Considera-se constituido o Tribunal na data em que todos os
arbitros aceitarem as suas indicacoes e comunicarem a ambas as partes as suas
aceitacoes.
(S) 3 - O Tribunal julgara segundo o direito constituido e suas
decisoes tem forca cogente, independentemente de homologacao judicial.
CLAUSULA 30.4. - Nao tendo sido rejeitado pela ANATEL ou sendo
superado tal questionamento, sera iniciado o Processo versado no presente
Capitulo, o qual obedecera ao seguinte procedimento:
I - as partes terao 10 (dez) dias contados do recebimento da
comunicacao de que trata o caput da clausula anterior, para indicar
os membros do Tribunal Arbitral, o qual sera instalado imediatamente
apos a aceitacao de todos os seus membros;
II - estando inerte uma das partes ou tendo oferecido resistencia a
instalacao do Tribunal Arbitral, a outra parte podera se utilizar da
faculdade prevista no art. 7 da Lei n 9.307, de 23 de setembro de
1996;
III - instalado o Tribunal Arbitral, sera aberto prazo sucessivo de
25 (vinte e cinco) dias para que as partes apresentem suas razoes
sobre a materia controvertida, podendo nesta oportunidade apresentar
laudos, pericias, pareceres, juntar documentos ou informacoes que
entendam relevantes para sustentar sua posicao;
IV - apresentados os memoriais, o Tribunal analisara as razoes
expostas e podera, por requerimento de um de seus membros,
determinar a elaboracao de laudos, pericias ou pareceres, solicitar
informacoes ou documentos para as partes, bem como realizar
diligencias e tomar as providencias que entenda necessarias para a
perfeita
49
<PAGE>
instrucao da materia controvertida;
V - durante a coleta dos elementos a que se refere o inciso
anterior, serao sempre permitidos as partes a manifestacao e o
contraditorio, obedecidos os principios da informalidade, da
consensualidade e da celeridade que pautarao o procedimento;
VI - declarada encerrada a instrucao, sera concedido prazo comum de
15 (quinze) dias para que as partes apresentem suas alegacoes
finais;
VII - transcorrido o prazo prescrito no inciso anterior,
independentemente da apresentacao das alegacoes finais, o Tribunal
proferira sua decisao em prazo nao superior a 30 (trinta) dias;
VIII - da decisao do Tribunal Arbitral nao cabera recurso, exceto
pedido de reconsideracao, cabivel apenas na hipotese da decisao ter
sido adotada por maioria de apenas um voto; e
IX - so cabera invalidacao do processo de arbitragem nas hipoteses
prescritas no art. 32 da Lei n 9.307/96.
PARAGRAFO UNICO - As despesas com o processo de arbitragem,
abrangendo, inclusive, as custas de laudos, pareceres e pericias, bem como os
honorarios dos membros do Tribunal, serao imputadas a Concessionaria ou a
ANATEL, conforme decisao do Tribunal Arbitral.
CAPITULO XXXI - DO REGIME LEGAL APLICAVEL E DOS DOCUMENTOS APLICAVEIS
CLAUSULA 31.1. - Regem a presente concessao, sem prejuizo das demais
normas integrantes do ordenamento juridico brasileiro, a Lei n 9.472 de 16 de
Julho de 1.997 e a regulamentacao dela decorrente, em especial a de competencia
do Poder Executivo, conforme disposto no art. 18 da referida Lei, prevalecendo
sempre estas no que colidir com aquelas.
CLAUSULA 31.2. - Na prestacao do servico ora concedido deverao ser
observadas as politicas nacionais de telecomunicacoes e regulamentacao da
ANATEL, como parte integrante deste Contrato, em especial os documentos
relacionados a seguir:
I - Plano Geral de Outorgas;
50
<PAGE>
II - Plano Geral de Metas de Universalizacao;
III - Plano Geral de Metas de Qualidade;
IV - Regulamento Geral dos Servicos de Telecomunicacoes;
V - Regulamento do Servico Telefonico Fixo Comutado;
VI - Regulamento Geral de Interconexao;
VII- Regulamento de Numeracao para o Servico Telefonico Fixo
Comutado;
VIII Regulamento da Administracao da Numeracao; e
IX - Regulamento sobre Remuneracao pelo Uso das Redes das
Prestadoras do STFC.
CLAUSULA 31.3. Na interpretacao das normas e disposicoes constantes
do presente Contrato deverao ser levadas em conta, alem dos documentos referidos
no item anterior, as regras gerais de hermeneutica e as normas e principios
contidos na Lei n 9.472/97.
CAPITULO XXXII - DO FORO
CLAUSULA 32.1. - Para solucao de questoes decorrentes do presente
Contrato, que nao puderem ser resolvidas atraves do procedimento de solucao de
divergencias constante do Capitulo XXX Da Arbitragem, sera competente o Foro da
Secao Judiciaria da Justica Federal de Brasilia, Distrito Federal.
CAPITULO XXXIII - DAS DISPOSICOES FINAIS E GERAIS
CLAUSULA 33.1. - O Contrato ora assinado entrara em vigencia quando
da publicacao do seu extrato no Diario Oficial da Uniao.
PARAGRAFO UNICO - A Concessionaria tera prazo de 6 meses contados da
edicao da regulamentacao referida na clausula 31.2 , a qual devera estar
totalmente editada ate 31 de dezembro de 1998, quando passara a ser exigido
integralmente o cumprimento das obrigacoes constantes deste Contrato.
E por assim estarem de pleno acordo com as disposicoes e condicoes do presente
Contrato, as partes o assinam em 03 (tres) vias de igual teor e
51
<PAGE>
forma, na presenca das testemunhas, que tambem o assinam, para que se produzam
seus legais e juridicos efeitos.
Brasilia, 26 de maio de 1998.
Pela ANATEL:
__________________________
__________________________
Pela Concessionaria:
__________________________
__________________________
Testemunhas:
__________________________
Nome:
RG:
__________________________
Nome:
RG:
52
<PAGE>
ANEXO N 01
QUALIFICACAO DOS BENS REVERSIVEIS DA PRESTACAO DO
SERVICO TELEFONICO FIXO COMUTADO LONGA DISTANCIA INTERNACIONAL
a) Infra-estrutura e equipamentos de comutacao, transmissao incluindo
terminais de uso publico;
b) Infra-estrutura e equipamentos de rede externa;
c) Infra-estrutura de equipamentos de energia e ar condicionado;
d) Infra-estrutura e equipamentos de centros de atendimento e de prestacao de
servico;
e) Infra-estrutura e equipamentos de sistemas de suporte a operacao;
f) Outros indispensaveis a prestacao do servico.
53
<PAGE>
ANEXO N 02
PLANO BASICO DO SERVICO DE LONGA DISTANCIA INTERNACIONAL
1 - GENERALIDADES
1.1 O Plano Basico do Servico de Longa Distancia Internacional e regido pelas
Portarias citadas neste anexo, demais regulamentacoes vigentes e por outras que
venham a sucede-las.
1.2 As tarifas apresentadas sao maximas, liquidas de impostos e contribuicoes
sociais.
2 - UTILIZACAO DO SERVICO TELEFONICO FIXO COMUTADO (STFC) LONGA DISTANCIA
INTERNACIONAL
2.1 Os criterios e procedimentos de tarifacao do STFC Longa Distancia
Internacional sao regulamentados pela Norma n 007/93, aprovada pela Portaria n
906, de 23.07.93, do Ministro de Estado das Comunicacoes.
2.2 A unidade de tarifacao e o decimo de minuto (seis segundos).
2.3 A tarifacao minima e de 1 (um) minuto para chamadas automaticas e de 3
(tres) minutos para chamadas manuais.
2.4 A Tarifa Basica do Servico Internacional - TBSI e a unidade tarifaria deste
servico, cujo valor e o fixado pela Portaria n 226, de 03.04.97, do Ministro de
Estado das Comunicacoes em R$ 0,27.
2.5 Os valores maximos das tarifas, por minuto, do STFC Longa Distancia
Internacional, expressos em reais, para o horario de tarifacao normal, segundo a
Portaria n 220, de 03.04.97, do Ministro de Estado das Comunicacoes, sao:
54
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Pais ou Chamadas Automaticas (DDI)
----------------------------------------------------------------------
Grupo Minuto Inicial Minuto Subsequente
de ----------------------------------------------------------------------
Paises NORMAL REDUZIDO NORMAL REDUZIDO
R$ R$ R$ R$
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 1,67670 1,34136 1,40940 1,12752
- --------------------------------------------------------------------------------
2 1,30410 1,04328 0,95310 0,76248
- --------------------------------------------------------------------------------
3 1,67670 1,34136 1,57680 1,26144
- --------------------------------------------------------------------------------
4 1,67670 1,34136 1,67670 1,34136
- --------------------------------------------------------------------------------
5 1,72800 1,38240 1,67670 1,34136
- --------------------------------------------------------------------------------
6 2,16000 1,72800 1,86300 1,49040
- --------------------------------------------------------------------------------
7 2,43270 1,94616 1,95210 1,56168
- --------------------------------------------------------------------------------
8 3,59100 2,87280 2,91600 2,33280
- --------------------------------------------------------------------------------
9 3,59100 2,87280 2,91600 2,33280
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Pais ou Horario de Tarifa
Grupo de Pais ou Grupo de Paises Reduzida
Paises
- --------------------------------------------------------------------------------
<S> <C> <C>
1 Argentina, Chile, Paraguai e Uruguai 20:00h as 05:00h
- --------------------------------------------------------------------------------
2 Estados Unidos da America (inclui 20:00h as 05:00h
Havai )
- --------------------------------------------------------------------------------
3 Canada e demais paises das Americas 20:00h as 05:00h
e Antilhas
- --------------------------------------------------------------------------------
4 Portugal (inclusive Acores e Ilha da 20:00h as 05:00h
Madeira)
- --------------------------------------------------------------------------------
5 Alemanha, Andorra, Austria, Belgica, 20:00h as 05:00h
Dinamarca, Espanha, Finlandia,
Franca, Holanda, Irlanda, Italia,
Liechenstein, Noruega, Reino Unido,
Suecia e Suica
- --------------------------------------------------------------------------------
6 Demais paises da Europa e Oriente 20:00h as 05:00h
Medio
- --------------------------------------------------------------------------------
7 Australia e Japao 01:00h as 06:00h e
das 13:00h as
17:00h
- --------------------------------------------------------------------------------
8 Paises da Africa 20:00h as 05:00h
- --------------------------------------------------------------------------------
9 Demais paises da Asia, Oceania e 01:00h as 06:00h e
Ilhas do Pacifico (exceto Havai) das 13:00h as
17:00h
- --------------------------------------------------------------------------------
</TABLE>
2.6 Os valores maximos das tarifas, por minuto, do Servico de Longa Distancia
Internacional, para chamadas Regionais, expressos em reais, para o horario de
tarifacao normal, segundo a Portaria n 220, de 03.04.97, do Ministro de Estado
das Comunicacoes, sao:
55
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------
Chamadas Automaticas (DDI)
----------------------------------------------------------------------
Regiao Minuto Inicial Minuto Subsequente
----------------------------------------------------------------------
Normal Reduzido Normal Reduzido
R$ R$ R$ R$
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
A 1,23930 0,99144 1,04490 0,83592
- --------------------------------------------------------------------------------
B 1,23930 0,99144 1,04490 0,83592
- --------------------------------------------------------------------------------
C 1,25820 1,00656 1,18260 0,94608
- --------------------------------------------------------------------------------
D 1,23930 0,99144 1,04490 0,83592
- --------------------------------------------------------------------------------
E 1,25820 1,00656 1,18260 0,94608
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Horario de
Regiao Pais ou Grupo de Paises Tarifa Reduzida
- --------------------------------------------------------------------------------
<S> <C> <C>
A Estados do Mato Grosso do Sul e 20:00h as 05:00h
Parana / todo o Paraguai
- --------------------------------------------------------------------------------
B Estado do Rio Grande do Sul / todo o 20:00h as 05:00h
Uruguai
- --------------------------------------------------------------------------------
C Estado do Amazonas / a Comissaria do 20:00h as 05:00h
Amazonas na Colombia
- --------------------------------------------------------------------------------
D Estados do Parana, Santa Catarina e 20:00h as 05:00h
Rio Grande do Sul / as provincias do
Chaco, Formosa, Missiones,
Corrientes e norte de Santa Fe na
Argentina
- --------------------------------------------------------------------------------
E Estado do Mato Grosso do Sul 20:00h as 05:00h
/Departamento de Santa Cruz de La
Sierra na Bolivia
- --------------------------------------------------------------------------------
</TABLE>
2.7 Os descontos por horario previstos nas tabelas dos itens 2.5 e 2.6 serao
aplicados de segunda feira a sabado, nos horarios descritos e aos domingos e
feriados nacionais de 0:00h as 24h.
2.8 Na tarifacao de chamadas de abrangencia internacional-fronteirica aplicam-se
os criterios correspondentes ao Degrau 1 do Servico de Longa Distancia Nacional.
56
<PAGE>
ANEXO 03
ROTAS OPTICAS
<TABLE>
<CAPTION>
<S> <C>
- -----------------------------------------------------------------------------------------------
INSTALADAS
- -----------------------------------------------------------------------------------------------
SISTEMA SEGMENTO
- -----------------------------------------------------------------------------------------------
AMERICAS 1 Florida (USA)-St. Thomas (Caribe) FLO-STH
- -----------------------------------------------------------------------------------------------
St. Thomas-Fortaleza (Brasil) STH-FLA
- -----------------------------------------------------------------------------------------------
Fortaleza (Brasil)-Trinidad Tobago (Caribe) FLA-TT
- -----------------------------------------------------------------------------------------------
Fortaleza (Brasil)-Venezuela FLA-VEM
- -----------------------------------------------------------------------------------------------
Florida (USA)-Fortaleza (Brasil) FLO-FLA
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
COLUMBUS 2 Florida (USA)-St. Thomas (Caribe) FLO-STH
- -----------------------------------------------------------------------------------------------
Florida (USA)-Mexico FLO-MXO
- -----------------------------------------------------------------------------------------------
St. Thomas (Caribe)-Italia STH-ITA
- -----------------------------------------------------------------------------------------------
St. Thomas (Caribe)-Ilhas Canarias STH-CAN
- -----------------------------------------------------------------------------------------------
St. Thomas (Caribe)- Ilha da Madeira STH-MAD
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
UNISUR Florianopolis-Unidade de Derivacao FNS-BU
- -----------------------------------------------------------------------------------------------
Unidade de Derivacao-Argentina BU-ATA
- -----------------------------------------------------------------------------------------------
Unidade de Derivacao-Uruguai BU-UGI
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
TAINO-CARIBE St. Thomas-Porto Rico (Caribe) STH-PRO
- -----------------------------------------------------------------------------------------------
St. Thomas-Tortola (Caribe) STH-TOR
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
EURAFRICA Ilha da Madeira-Portugal MAD-POR
- -----------------------------------------------------------------------------------------------
Portugal-Franca POR-FCA
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
RIOJA Espanha-Inglaterra EPA-ING
- -----------------------------------------------------------------------------------------------
Inglaterra-Belgica ING-BGA
- -----------------------------------------------------------------------------------------------
Belgica-Holanda BGA-HOL
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
TPC 4 Japao-California (USA) JPO-CAL
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
TPC 5 Japao-California (USA) JPO-CAL
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
APCN Japao-Coreia JPO-COR
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
H-J-K Japao-Hong Kong JPO-HOK
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
FOSCJ Japao-China (Continental) JPO-CHI
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
HAW 5 California-Havai CAL-HAW
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
PACRIM-E Havai-Nova Zelandia HAW-NZA
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
TASMAN 2 Nova Zelandia-Australia NZA-ALA
- -----------------------------------------------------------------------------------------------
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
SISTEMA SEGMENTO
<S> <C>
- -----------------------------------------------------------------------------------------------
ODIN Dinamarca-Holanda DIN-HOL
- -----------------------------------------------------------------------------------------------
Dinamarca-Noruega DIN-NOR
- -----------------------------------------------------------------------------------------------
Noruega-Suecia NOR-SUE
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
TAT10D Holanda-Alemanha HOL-ALE
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
TAT12/13 Nova York-Franca-Inglaterra NYK-FRA-ING
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
ITUR Russia-Italia RUS-ITA
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
NPC Japao-California (USA) JPO-CAL
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
SEA-ME-WE2 Cingapura-Italia CIN-ITA
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
PTAT-CARAC Ilha das Bermudas (ING)-Ilha de Tortola (Caracas) TOT-BER-LON
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
ANTILLAS 1 Porto Rico-Republica Dominicana PCO-RDO
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
- -----------------------------------------------------------------------------------------------
A INSTALAR ATE 31/12/1999
- -----------------------------------------------------------------------------------------------
SEA-ME-WE 3 Portugal-Coreia POR-COR
- -----------------------------------------------------------------------------------------------
Portugal-India POR-IND
- -----------------------------------------------------------------------------------------------
Portugal-Tailandia POR-TAI
- -----------------------------------------------------------------------------------------------
Portugal-Italia POR-ITA
- -----------------------------------------------------------------------------------------------
Portugal-Turquia POR-TUR
- -----------------------------------------------------------------------------------------------
Portugal-Inglaterra POR-ING
- -----------------------------------------------------------------------------------------------
Portigal-Cingapura POR-CIN
- -----------------------------------------------------------------------------------------------
Portugal-Franca POR-FRA
Portugal-Alemanha POR-ALE
- -----------------------------------------------------------------------------------------------
Portugal-Japao POR-JAP
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
AMERICAS 2 Fortaleza-St. Croix (Caribe) FLA-SICROIX
- -----------------------------------------------------------------------------------------------
Fortaleza-Cayenne (G. Francesa) FLA-CAYENNE
- -----------------------------------------------------------------------------------------------
Fortaleza-Venezuela FLA-VEM
- -----------------------------------------------------------------------------------------------
Fortaleza-Curacao FLA-CCO
- -----------------------------------------------------------------------------------------------
Fortaleza-Martinica FLA-MARTINICA
- -----------------------------------------------------------------------------------------------
Fortaleza-Porto Rico FLA-P.RICO
- -----------------------------------------------------------------------------------------------
Fortaleza-Florida (USA) FLA-FLO
- -----------------------------------------------------------------------------------------------
St. Croix (Caribe)-Florida (USA) SICROIX-FLO
- -----------------------------------------------------------------------------------------------
Fortaleza-Trinidad Tobago FLA-TTO
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
ATLANTIS 2 Fortaleza-Lisboa FLA-LBA
- -----------------------------------------------------------------------------------------------
Fortaleza-Praia (CaboVerde) FLA-PRA
- -----------------------------------------------------------------------------------------------
Fortaleza-Dakar FLA-DKR
- -----------------------------------------------------------------------------------------------
Fortaleza-El Medano FLA-MDO
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
PANAMERICANO St. Thomas (Caribe)-Colombia STH-COL
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
58
<PAGE>
EXHIBIT 10.4
STANDARD
CONCESSION AGREEMENT
FOR INTERNATIONAL LONG-DISTANCE
SWITCHED, FIXED-LINE TELEPHONE SERVICE
(EMBRATEL)
The National Telecommunications Agency - ANATEL (Agencia Nacional de
Telecomunicacoes), hereinafter referred to as ANATEL, a Brazilian federal
agency, responsible for granting concessions as provided in Federal Law No.
9,472 of July 16, 1997, the General Telecommunications Law GTL, represented
herein by its President, Renato Navarro Guerreiro, [identification], and its
Counsellor **** [identification], acting in accordance with Resolution No. ****
of its Board of Directors, on the one hand, and [name and identification of the
concessionaire], represented by its authorized representative, hereinafter
referred to as the Concessionaire, hereby enter into this Concession Agreement
as provided in Art. 207 of the above-mentioned General Telecommunications Law,
which shall be governed by the legal provisions referred to above and the
following provisions:
CHAPTER I - PURPOSE
CLAUSE 1.1. - The subject matter of this Agreement is the concession
of public international long-distance Switched Fixed-line Telephone Service in
the geographic area defined in clause 2.1, as provided in the General Concession
Plan.
CLAUSE 1.2. - Switched Fixed-line Telephone Service is the
telecommunications service which, through the transmission of voice and other
signals, is used for communications between fixed and determined points, using
processes of telephony.
CLAUSE 1.3. - With the prior approval of ANATEL, the Concessionaire
may establish and carry out useful or convenient activities related to providing
the service which is the subject matter of this concession.
SOLE PARAGRAPH - Services and useful or convenient activities shall be
considered to be related to the subject matter of this Concession if, in the
view of ANATEL, they may be considered an inherent part of the platform for the
service granted hereby, and not a new type of service, as provided by
regulation.
CLAUSE 1.4. - The Concessionaire is entitled to establish, expand and
operate the trunk lines, networks and switching centers required to implement
the Concession and operate it as a business, as provided by regulation.
CLAUSE 1.5. - The provision of the service granted hereby may not be
separated from the obligations to fulfill the universal service and quality
objectives provided for in this Agreement.
CLAUSE 1.6. - The Concessionaire must provide to all applicants and
customers the installations that are necessary for the supply of the service
granted hereby, as provided by regulation.
1
<PAGE>
CLAUSE 1.7. - The Concessionaire must provide free access to emergency
services, as provided by regulation.
CHAPTER II SERVICE AREA
CLAUSE 2.1. - The geographical area of the service which is the
subject matter of this concession is the entire territory of Brazil.
CHAPTER III TERM OF THE AGREEMENT AND CONDITIONS FOR EXTENSIONS
CLAUSE 3.1. - This concession, which is granted without charge, shall
expire on December 31, 2005, with a guaranteed one-time extension of twenty
years, as provided in clauses 3.2, 3.3 and 3.4.
CLAUSE 3.2. - This concession shall be extended once, at the request
of the Concessionaire, for 20 (twenty) years, in return for consideration,
provided the Concessionaire complies with the terms set forth in this Agreement,
and the new Agreement may include new conditions and establish new universal
service and quality objectives, in light of the conditions prevailing at the
time of the extension, and establish, in the case of universal service
objectives, supplementary resources, as provided in Art. 81 of Law No. 9,472 of
1997.
(S) 1 - Thirty six (36) months before the expiration date provided in
clause 3.1, ANATEL shall make available for public comment its proposals for new
conditions and new quality and universal service objectives, which shall be
submitted to the President of the Republic for approval by Decree, as provided
in Art. 18, paragraph III of Law No. 9,472 of 1997.
(S) 2 - In order to obtain the extension provided for by this clause,
the Concessionaire must indicate its interest the at least 30 (thirty) months
before the expiration date provided in clause 3.1.
CLAUSE 3.3. - In order to extend this concession as provided in the
preceding clause, the Concessionaire shall pay a fee every two years during the
extension period corresponding to 2% (two percent) of its revenue for the year
prior to the payment, net of income taxes and payroll taxes, derived from
Switched Fixed-line Telephone Service.
(S) 1 - The amount referred to in the preceding paragraph shall be
calculated on the basis of the net revenue generated through the execution of
the service plans, both basic and supplemental, which are the subject matter of
this concession.
(S) 2 - The percentage referred to in the first paragraph of this
clause shall always be calculated on the basis of revenue, net of income tax and
payroll tax deductions, generated between January and December of the previous
year as shown in the financial statements prepared in accordance with corporate
law and basic accounting principles, approved by the management of the
Concessionaire and audited by independent auditors, and payment shall be due on
April 30 of the year following the year for which the fee was determined.
2
<PAGE>
(S) 3 - The first fee payment shall be due on April 30, 2007,
calculated on the basis of net revenue from January 1 and December 31, 2006, and
subsequent payments shall be due every 24 (twenty four) months, calculated on
the basis of revenue from the preceding year.
(S) 4 - Late payment of the fee provided for in this clause shall be
subject to a fine of 0.33% (zero point thirty three percent) per day, up to a
maximum of 10% (ten percent), plus the SELIC reference rate for federal
securities, to be levied upon the amount owed based on the number of days it is
past due.
CLAUSE 3.4. - The extension of the duration of this Agreement shall
entail the extension of the right to use those radio frequencies referred to in
clause 4.1 which are required to continue providing the service which is the
subject matter of this concession.
SOLE PARAGRAPH - The return of radio frequencies to ANATEL that are
not required to continue providing services shall not change the amount of the
extension fee as determined in clause 3.3.
CHAPTER IV - MANNER, FORM AND TERMS OF SERVICE
CLAUSE 4.1. - The use of radio frequencies to provide the service
which is the subject matter of this concession shall be authorized by ANATEL, in
exchange for payment and without exclusive rights, unless otherwise stated in
the regulations, in accordance with the provisions of Articles 83 and 163 of Law
No. 9,472 of 1997.
(S) 1 - The Concessionaire shall have the nonexclusive right to use
the radio frequencies authorized prior to the signing of this Agreement, which
shall not be contingent upon the payment of any fee, with the exception of audit
fees, in accordance with the terms set forth in the respective station operation
licenses.
(S) 2 - The right to use the radio frequencies referred to in this
clause does not preclude the prerogative granted to ANATEL by Art. 161 of Law
No. 9,472 of 1997.
(S) 3 - The use of new radio frequencies that may be required by the
Concessionaire shall be authorized in exchange for payment, in observance of the
procedures defined by ANATEL for such authorizations.
(S) 4 - The use of the radio frequencies required under the terms of
the preceding paragraph shall be authorized for the same amount of time as this
Concession, and any extension of their use must be made in exchange for payment,
independently of the fee payment referred to in clause 3.3 herein.
CLAUSE 4.2. - The Concessionaire agrees to provide the service which
is the subject matter of the concession in such a way as to comply fully with
the applicable universal service and continuity requirements inherent to the
provision of a public service, in accordance with the criteria, formulas and
parameters set forth in this Agreement.
3
<PAGE>
SOLE PARAGRAPH - Failure to comply with the obligations pertaining to
the universalization and continuity of service shall result in the application
of the penalties provided for in this Agreement, entitle ANATEL to issue an
intervention decree and, depending upon the circumstances and seriousness of the
situation, or in the event that issuing an intervention decree is unsuitable,
ineffective, unfairly benefits the Concessionaire or useless, lead to the
forfeiture of the concession, as set forth in clause 26.4.
CLAUSE 4.3. - The Concessionaire shall operate the service which is
the subject matter of the concession on its own behalf and at its own risk,
under the system of full and fair competition established by Law No. 9,472 of
1997, and by the General Concession Plan, and shall be remunerated by the rates
charged and any additional or incidental revenue it receives under the terms of
this Agreement.
SOLE PARAGRAPH - The Concessionaire shall not be entitled to any type
of exclusive right, nor shall it claim any rights as to the admission of new
providers of the same service, whether in the public or private sector.
CLAUSE 4.4. - Throughout the duration of the concession, the
Concessionaire agrees to maintain its commitments to quality, availability and
supply of the service granted hereby, as stated in this Agreement, regardless of
the competitive environment in the geographic area where it operates the
service.
CLAUSE 4.5. - The Concessionaire agrees to conserve and maintain in
perfect operating condition all of the goods, equipment and facilities used to
provide the service granted hereby; to maintain and repair them; and to promote,
when appropriate, their replacement when required, either due to wear and tear
or to technological obsolescence; and to promote the repairs and modernizations
required to provide and maintain proper service, as set forth in this Agreement.
CHAPTER V - RULES FOR THE ESTABLISHMENT, EXPANSION, MODIFICATION AND
MODERNIZATION OF SERVICE
CLAUSE 5.1. - The expansion and modernization of the service granted
hereby, while observing the goals and criteria set forth in this Agreement, are
fundamental tenets of this concession.
SOLE PARAGRAPH - ANATEL may modify the objectives regarding the
establishment, expansion and modernization of the service granted hereby,
provided it respects the right of the Concessionaire to not be forced to sustain
additional expenses which cannot be recovered through the revenue resulting from
compliance with such objectives and through the efficient operation of the
service.
CLAUSE 5.2. - Changes to the terms under which the service granted
hereby is provided may only be decided by ANATEL, or with its prior express
approval.
4
<PAGE>
CLAUSE 5.3. - Modernization of the service granted hereby shall be
sought by the continual introduction of equipment, processes and means capable
of providing users with service compatible with the current technologies
available in the market.
CHAPTER VI - CRITERIA AND INDICATORS OF QUALITY AND CONTINUOUS SERVICE
CLAUSE 6.1. - A fundamental tenet of this Concession is the provision
of adequate quality service by the Concessionaire, meaning service which is
satisfactory in terms of consistency, efficiency, security, contemporaneity,
universal availability, courtesy and reasonable rates.
(S) 1 - Consistency is characterized by the continuous provision of
the service granted hereby, in strict observance of the standards laid down by
ANATEL.
(S) 2 - Efficiency is characterized by the application and
preservation of the parameters set forth in this Agreement, and by the service
granted hereby provided to users within the timeframes provided for in this
Agreement.
(S) 3 - Security is characterized by the confidentiality of data
regarding use of the service granted hereby by users, as well as the complete
safeguarding of all information communicated within the ambit of providing such
service, in accordance with Chapter XIV.
(S) 4 - Contemporaneity is characterized by the up-to-date nature of
the equipment, facilities and techniques used to provide the service granted
hereby, achieved by incorporating technological advances, which clearly benefit
users, occurring during the term of the concession, in keeping with the
provisions of this Agreement.
(S) 5 - Universal availability is characterized by the provision of
the service granted hereby to each and every user without discrimination,
whereby the Concessionaire commits itself to provide the service to whomever
requests it, at the location indicated by the latter, under the terms of this
Agreement and as provided by regulation.
(S) 6 - Courtesy is characterized by respectful and immediate
assistance given to all users of the service granted hereby, as well as by full
compliance with the obligation to inform and assist promptly and politely all
those who, regardless of whether they are users, request information or
arrangements, or make any other type of request, under the terms set forth in
this Agreement.
(S) 7 - The principle of reasonable rates is characterized by the
Concessionaire's efforts to charge rates lower than the maximum rates determined
by ANATEL.
CLAUSE 6.2. - The Concessionaire must comply with the parameters and
indicators of the General Plan on Quality.
SOLE PARAGRAPH - The Concessionaire must annually release a chart
demonstrating the objectives and parameters, established and realized, of the
General Plan on
5
<PAGE>
Quality and the General Plan on Universal Service, notwithstanding the
requirement to supply this data whenever ANATEL so requests.
CLAUSE 6.3. - The continuity of the service granted hereby, an
essential element of the system under which it is provided, is characterized by
the provision of service without interruption, while taking into account
suspension of service due to default on the part of the user under the terms set
forth in clause 8.3 of this Agreement and Art. 3, paragraph VII of Law No. 9,472
of 1997.
SOLE PARAGRAPH - Consistency shall not be considered to have been
violated in the event the service granted hereby is interrupted because of an
emergency situation, technical problems or circumstances involving the security
of installations. The affected users are to be notified and, when appropriate,
explanatory notification is to be given to ANATEL.
CLAUSE 6.4. - The Concessionaire may not, under any circumstances,
interrupt the service granted hereby on the allegation that ANATEL or the
federal government have not complied with any obligation, and the Concessionaire
may not invoke any exception arising from breach of contract.
CLAUSE 6.5. - In addition to managing and monitoring quality
indicators, ANATEL shall periodically evaluate the degree of customer
satisfaction with the service granted hereby, and may release the following
results concerning the Concessionaire:
I - Customer service, especially with regard to availability,
promptness, politeness, speed and effectiveness in responding to
requests and complaints;
II - Rates charged and discounts offered;
III - Technical quality of the service provided; and
IV - Adequacy of the services offered in relation to users' needs.
CHAPTER VII - UNIVERSAL SERVICE OBJECTIVES
CLAUSE 7.1. - Universal service is an essential aspect of the system
under which the service granted hereby is provided. It is characterized by the
provision of uniform and nondiscriminatory assistance to all users, and by the
Concessionaire's achievement of the objectives set forth in the General Plan on
Universal Service, approved by Executive authority, under the terms of Article
18, paragraph III and Article 80 of Law No. 9,472 of 1997, and those of Annex 2
of this Agreement.
CLAUSE 7.2. - With the exception of clause 7.4 of this Agreement and
in keeping with the General Plan on Universal Service, approved by Executive
authority pursuant to Article 18, paragraph III and Article 80 of Law No. 9,472
of 1997, the implementation of the universal service objectives provided for in
this Agreement shall be financed exclusively through
6
<PAGE>
the operation of the service by the Concessionaire, which shall not be entitled
to any compensation or subsidy.
CLAUSE 7.3. - The Concessionaire agrees to implement those universal
service objectives which are not provided for in this Agreement, but which may
be required by ANATEL, in compliance with the provisions of (S) 2, Art. 2 of
the General Plan on Universal Service, approved by Decree No. 2,592 of May 15,
1998, and the following procedure shall be observed when defining compensation
amounts and criteria:
I - ANATEL shall consult the Concessionaire regarding the total cost
of implementing the planned additional objectives, the extent to which
they cannot be amortized by operating revenue, and by which specific
payments they are covered. The objectives to be achieved, the
technologies selected, and the location and timeframe of
implementation are to be specifically indicated;
II - Should the stated timeframe for consultation lapse without a
response by the Concessionaire, ANATEL shall take the necessary steps
in order to determine the charges and expenses involved in
implementing the additional objectives, and estimate the corresponding
revenue generated;
III - Should the Concessionaire issue a response following
consultation, ANATEL shall determine whether the expenses and
estimated revenue presented are adequate and reasonable, taking into
account available technologies, the cost of materials and labor, the
geographical, social and economic characteristics of the market demand
to be met, market prices, and other variables it considers relevant;
IV - In the event ANATEL does not consider the proposed expenses
and/or estimated revenue to be reasonable, it may, with justification,
make the Concessionaire responsible for implementing the additional
objectives, and determine the amount of compensation, in accordance
with the provisions of Chapter XXX; and
V - Should ANATEL consider the amount of compensation to be adequate
and reasonable, it shall confirm to the Concessionaire that the latter
is charged with implementing such additional objectives, under the
terms of the compensation proposal issued by the Concessionaire.
(S) 1 - Upon following the procedure set forth in this clause, should
ANATEL consider the implementation of the specific universal service objective
by the Concessionaire to be unsuitable or unfeasible, it shall contract such
undertaking out to another party, which it may do by granting specific and
defined parts of the service, in accordance with the economic parameters derived
from the procedures provided for in this clause.
(S) 2 - At the discretion of ANATEL, the procedure provided for in
this clause may also be used to determine the amounts to be compensated
utilizing the resources of the Fund for Universal Telecommunications Services,
when it fulfills the objectives set forth in the
7
<PAGE>
General Plan on Universal Service, approved by Executive authority, under the
terms of Article 18, paragraph III and Article 80 of Law No. 9,472 of 1997.
(S) 3 - The use of resources of the Fund for Universal
Telecommunications Services, pursuant to the preceding paragraph, excludes the
utilization of the benefits provided for in (S) 2, Article 10 of the General
Concession Plan, except in the case of compensation to ANATEL for amounts it has
used from said Fund, in addition to the compensation owed.
CLAUSE 7.4. - The adoption of the procedures provided for in the
preceding clause is the prerogative of ANATEL, which may adopt them at its
discretion and in keeping with the best interests of the public, and the
Concessionaire shall not have the right to choose how it prefers to implement
the aforementioned universal service objectives.
CHAPTER VIII - RULES GOVERNING THE SUSPENSION OF SERVICE DUE TO NONCOMPLIANCE,
OR AT THE REQUEST OF THE USER
CLAUSE 8.1. - Subscribers of the service which is the subject matter
of this concession may request, at any time, the suspension of such service, and
the Concessionaire must respond to their request within the timeframe to be
established by ANATEL, which shall be no greater than 48 (forty eight) hours,
unless postponed by the subscriber.
SOLE PARAGRAPH - The Concessionaire may not demand payment for the
suspension of service referred to above.
CLAUSE 8.2. - Subscribers in compliance with their contract with the
Concessionaire may request the suspension of their service, as provided by
regulation.
CLAUSE 8.3. - The Concessionaire may only proceed to suspend the
service of a subscriber who is at least 30 days in default of payment, such debt
resulting directly from the use of the service granted hereby, and in compliance
with the procedures set forth by regulation published by ANATEL. The users must
be allowed time to challenge the amounts claimed from them.
(S) 1 - The Concessionaire must give subscribers at least 15
(fifteen) days' notice prior to suspension of service.
(S) 2 - Failure to pay amounts outstanding that are not directly
related to the service which is the subject matter of this concession, in
accordance with the sole paragraph of clause 10.6, shall not be cause for the
cancellation of service provided for in this clause.
CLAUSE 8.4 - The Concessionaire shall also guarantee subscribers the
right to block access temporarily or permanently to available conveniences or
features, as well as to premium services, provided they so request, as provided
by regulation.
CLAUSE 8.5 - In the event the default of the subscriber exclusively
involves the nonpayment of services supplied by a provider of Switched, Fixed-
line Telephone Service other
8
<PAGE>
than the service conceded herein, and which is billed jointly with the
Concessionaire's services, the disconnection must follow the specific procedure
laid down in regulation by ANATEL.
CHAPTER IX - NUMBERING PLAN
CLAUSE 9.1. - As provided by regulation, the Concessionaire agrees to
obey the Numbering Regulations for Switched, Fixed-line Telephone Service
published by ANATEL, and must guarantee subscribers portability of access codes
within the timeframe defined in such Regulations.
(S) 1 - The Concessionaire shall assume all expenses required to
conform to the Numbering Regulations referred to above.
(S) 2 - The expenses pertaining to the investments required in order
to enable portability of access codes shall be shared by the Concessionaire and
the other providers of telecommunications services, whether in the public or
private sector.
(S) 3 - The expenses pertaining to the administration of the process
of assigning and holding access codes pursuant to the Numbering Regulations
shall be borne by the Concessionaire, under the terms of the Numbering
Administration Regulations.
CHAPTER X - RATE AND PAYMENT STRUCTURE
CLAUSE 10.1. - The Concessionaire is required to offer all users the
Basic International Long-Distance Service Plan, as provided in Annex 2, which is
an integral part of this Agreement.
SOLE PARAGRAPH - The Basic International Long-Distance Service Plan
shall be the only plan for the entire area referred to in clause 2.1 and must
state, under the terms set forth by ANATEL, maximum amounts for each item of the
rate structure defined for the provision of Switched, Fixed-line Telephone
Service. Said amounts shall be revised and adjusted, in accordance with
applicable standards.
CLAUSE 10.2. - The Concessionaire may offer its users Supplemental
International Long-Distance Service Plans with rate criteria different from
those in the Basic International Long-Distance Service Plan.
(S) 1 - Subscribers shall be guaranteed the right to switch between
the various International Long-Distance Service Plans offered by the
Concessionaire, as provided by regulation.
(S) 2 - The Concessionaire is free to propose the rate structure for
the Supplemental International Long-Distance Service Plans, provided it complies
with clause 10.1 of this Agreement.
(S) 3 - The Concessionaire is required to offer its Supplemental
International Long-Distance Service Plans, approved by ANATEL, to users in a
nondiscriminatory manner.
9
<PAGE>
(S) 4 - Supplemental International Long-Distance Service Plans must be
authorized by ANATEL before being offered to the general public.
(S) 5 - ANATEL must decide whether to approve Supplemental
International Long-Distance Service Plans within 15 days of their having been
submitted, and they shall be considered to have been approved if ANATEL makes no
decision within this timeframe.
CLAUSE 10.3. - The Concessionaire may offer discounts on the rates for
International Long-Distance Service Plans provided it does so in an egalitarian
and nondiscriminatory manner. The Concessionaire shall not reduce amounts
subjectively and must observe the principles of fair competition.
SOLE PARAGRAPH - The Concessionaire agrees to give its users ample and
prior notice of discounted rates for the service, and to communicate its notice
of discounted rates to ANATEL within 7 (seven) days after the rate reduction
takes effect.
CLAUSE 10.4. - The Concessionaire agrees to publicize the rates
charged for the service which is the subject matter of the concession, in the
manner required by ANATEL.
CLAUSE 10.5. - When new services, conveniences or features are
introduced in relation to the service granted hereby, the Concessionaire shall
submit its proposed rates to ANATEL for approval, without which no rate or price
may be charged.
CLAUSE 10.6. - Billing documents issued by the Concessionaire must be
presented in a detailed, clear, explanatory and self-evident manner, and must
distinguish the type and quantity of each service provided to the user, as
provided by regulation.
SOLE PARAGRAPH - The Concessionaire may list the amounts owed by the
subscriber within the billing document for premium services, as well as for
other conveniences or features related to the service granted hereby, provided
it does so in a clear and explicit manner.
CLAUSE 10.7. - The Concessionaire shall collect network usage fees
from other providers of telecommunications services, in keeping with the
standards published by ANATEL.
CLAUSE 10.8 - The Concessionaire shall offer a discount to those
subscribers affected by any discontinuance of the service granted hereby,
provided the subscriber was not the cause of discontinuance, and the discount
shall be prorated for the period during which the interruption occurred, as
provided by regulation.
CHAPTER XI - RATE ADJUSTMENTS
CLAUSE 11.1. - The rates listed in the Basic International Long-
Distance Service Plan Annex 2, may be adjusted by applying the formula below.
This may be done no more than once every 12 (twelve) months, at the initiative
of ANATEL or the Concessionaire, in keeping with the rules of economic
legislation in force.
10
<PAGE>
- -------------------------------------------------------------------------
( 9 24 Mij\to\) less than 9 24 Mij\to\
( E E Tij\t\ ----- ) or (1-k) Ft E E Tij\to\ x -------
(i=l j=l MT ) equal to i=l j=l MT
- -------------------------------------------------------------------------
Let:
- ---------------------------------------------------------------
less than GPI-DA\t\
Tij\t\ or Tij\to\ x 1.05 x --------
equal to GPI-DA\to\
- ---------------------------------------------------------------
Where:
Tij\t\ - proposed rate of the Basic International Long-Distance Service Plan for
charged calls made in Brazil during the j time-period to countries in the i
group, net of taxes.
Tij\to\ - current rate of the Basic International Long-Distance Service Plan for
charged calls made in Brazil during the j time-period to countries in the i
group, net of taxes.
Mij\to\ - charged minutes in Brazil for international long-distance service
through the Basic International Long-Distance Service Plan during the j period
to countries in the i group since the last rate adjustment or, in the case of
the first adjustment, since April 1, 1998.
MT - total minutes of international long-distance service through the Basic
International Long-Distance Service Plan since the last rate adjustment or, in
the case of the first adjustment, since April 1, 1998.
\t\ = proposed date of adjustment.
\to\ = date of the last adjustment or, in the case of the first adjustment,
April 1, 1998.
and
Ft = GPI-DA\t\
---------
GPI-DA\to\
Where:
GPI-DA = General Price Index, Domestic Availability, issued by the Getulio
Vargas Foundation, or its successor index.
k = transfer factor.
(S) 1 - The transfer factor shall be applied during the duration of
the concession in the following manner:
I - Until December 31, 1999 it shall be equal to 0.05 (zero point zero
five); and
II - From January 1, 2000 until December 31, 2005, it shall be equal
to 0.15 (zero point fifteen).
(S) 2 - In the event the adjustment period includes different transfer
factor values, a weighted average must be calculated thereof taking into account
the months during which each transfer factor value occurred.
11
<PAGE>
(S) 3 - In the event an adjustment takes place after more than twelve
months have gone by, the formula including the transfer factor must be applied
progressively, taking into account twelve-month periods, and then any remaining
months.
(S) 4 - ANATEL may, at its discretion, authorize changes to the
countries in the various groups making up the Rate Structure for international
long-distance service, especially if doing so is in the interest of users.
(S) 5 - After 2005, new transfer factor values may be determined by
ANATEL in the event this Agreement is extended, depending upon the conditions
which exist at that time.
CHAPTER XII - SAFEGUARDING THE ECONOMIC WELLBEING OF THE CONCESSIONAIRE AND
REVISION OF RATES
CLAUSE 12.1. - Preserving a fair balance, under a fully competitive
system, between the service provided by the Concessionaire and its remuneration
is a basic tenet of this Agreement. It is forbidden for any party to unjustly
enrich itself at the expense of any other party or the users of the service,
under the terms set forth in this Chapter.
(S) 1 - The Concessionaire shall not be required to suffer any damages
resulting from this Agreement, unless they result from any of the following
factors:
I - From its negligence, ineptitude or oversight in operating the
service granted hereby;
II - From the normal risks of business activity;
III - From the inefficient management of its business, including the
payment of operating and administrative expenses which are
incompatible with the parameters demonstrated in the market; or
IV - From its failure to take advantage of existing opportunities in
the market, including expanding, extending and increasing the service
provided.
(S) 2 - The Concessionaire is prohibited from unjustly profiting from
any economic gain not resulting directly from its operational efficiency,
especially that which results from the issuance of new rules governing the
service granted hereby.
(S) 3 - The Concessionaire is entitled to restructure its initial
obligations and compensation scheme in the event that a force majeure or other
disaster significantly affects the operation of the service granted hereby.
However, the actions of private-sector service providers in such a situation
shall serve as the standard of reasonable conduct.
(S) 4 - When evaluating the appropriateness of the restructuring
addressed in the preceding paragraph, it shall be taken into account whether,
among other factors, the Insurance Plan provided for in clause 23.1 covers the
event which caused the initial economic situation to change.
12
<PAGE>
CLAUSE 12.2. - The economic basis of the Agreement shall be re-
established when it can be demonstrated that none of the factors listed in (S) 1
of the previous clause have occurred. This shall preferably be accomplished by
the revision of rates, or through any other mechanism which, in the view of
ANATEL, is capable of correcting the situation.
(S) 1 - The revision of rates precludes any other mechanism used to
deter unjust enrichment by any party, which is displaced by the event to which
the rate revision refers.
(S) 2 - A single, complete and final measure shall be taken in order
to correct the event that gave rise to the distortion.
CLAUSE 12.3. - Independent of clause 12.1, revising the rates listed
in the Basic International Long-Distance Service Plan in favor of the
Concessionaire or the users shall be called for, under the terms of Art. 108 of
Law No. 9,472 of 1997, in the following specific situations:
I - Unilateral modification of this Agreement imposed by ANATEL,
involving significant upward or downward variations in expenses or
income, for instance, when the raising or lowering of rates is
required in order to prevent any of the parties from making
unjustified profits;
II - A change in tax law subsequent to the signing of this Agreement
which involves an increase or reduction in the potential profitability
of the Concessionaire;
III - Supervening events resulting from acts of governance or the
Administration which demonstrably affect the expenses of the
Concessionaire;
IV - Specific changes in legislation which have a direct impact upon
the income of the Concessionaire in such a way as to affect the
continuity or quality of the service provided;
V - Legislative changes which benefit the Concessionaire, including
those which grant or cancel exemptions, reductions, discounts or any
other tax or rate-related privileges, in keeping with the provisions
of (S) 3, Art. 108 of Law No. 9,472 of 1997.
(S) 1 - When reviewing rates, any damage or profit losses sustained by
the Concessionaire shall not be taken into account if they result from the free
operation of the service granted hereby under competitive conditions, or from
the inefficient management of its business.
(S) 2 - The revision scenario anticipated in paragraph II of this
clause shall not be applicable in the event the change in the tax law involves
the creation, elimination, increase or lowering of incidental taxes on the
Concessionaire's income or profits, and not involving and administrative or
operational tax.
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(S) 3 - The rate revision scenarios anticipated by this clause shall
not apply if the events leading to the revision are already covered by the
Insurance Plan provided for in clause 23.1.
(S) 4 - The Concessionaire's contributions to the Fund for Universal
Telecommunications Services and to the Fund for the Development of
Telecommunications Technology shall not occasion the revision of rates.
CLAUSE 12.4. - Rate revisions shall not be applicable if the cause
motivating the Concessionaire's request can be neutralized through the efficient
operation of the service granted hereby, market expansion, or the generation of
alternative or supplementary revenue in associated with the subject matter of
this Agreement, in keeping with current competitive conditions.
SOLE PARAGRAPH - Reductions in revenue which result from discounts or
rate reductions shall not occasion the revision of rates.
CLAUSE 12.5. - The rate revision procedure may be initiated at the
request of the Concessionaire, or by a decision of ANATEL.
(S) 1 - In the event the revision procedure is initiated by the
Concessionaire, the following requirements must be observed:
I - The request must be accompanied by a technical or expert
report demonstrating the precise impact of the occurrence upon the
determination of rates or the estimated revenue of the Concessionaire;
II - The request must be accompanied by all documents required to
substantiate the claim;
III - The Concessionaire must explain its claim for rate revision, and
report on the impact and possible rate-balancing alternatives;
IV - The Concessionaire shall bear all expenses for the research
and studies needed to fully back its claim.
(S) 2 - Rate-revision procedures initiated by ANATEL must be
communicated to the Concessionaire, allowing it time to respond, and shall be
accompanied by copies of the reports and studies carried out in order define the
circumstances occasioning the revision.
(S) 3 - The rate-revision procedure shall be concluded within 120 (one
hundred twenty) days, unless it becomes necessary to extend it in order to
conclude the proceedings.
(S) 4 - The request must be approved by ANATEL, and the Concessionaire
must fully divulge the new maximum amounts of the revised rates, under the terms
stated in this Agreement.
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CHAPTER XIII - ALTERNATIVE, SUPPLEMENTARY AND ANCILLARY REVENUE
CLAUSE 13.1. - The Concessionaire may obtain other, alternative
sources of revenue, provided this does not involve noncompliance with the
standards set forth in the General Telecommunications Services Regulations and
other standards published by ANATEL.
SOLE PARAGRAPH - The Concessionaire and its affiliates may not make
the provision of the service granted herein contingent upon the consumption of
any other service, nor may they offer advantages to users who benefit from
services in addition to the service that is the subject matter of this
Agreement, including those provided by third parties.
CLAUSE 13.2. - ANATEL may order the Concessionaire to offer users
conveniences or features related to the subject matter of the concession, in
which case the parties must adjust the unit prices of said services, taking into
account market parameters and the right to fair compensation.
CHAPTER XIV - RIGHTS AND PRIVILEGES OF USERS AND OTHER SERVICE PROVIDERS
CLAUSE 14.1. - In accordance with the rules and guidelines set forth
in this Agreement, users of the service granted by this concession are entitled
to the following rights:
I - To access and use the service in accordance with the standards
of quality, regularity and efficiency provided for by this Agreement,
in its annexes and according to current standards;
II - The possibility of requesting the suspension or cancellation of
the service provided by the Concessionaire;
III - To receive nondiscriminatory treatment with regard to the terms
of access and use of the service;
IV - To obtain adequate information regarding the terms under which
the service is provided and the rates charged;
V - The inviolability and secrecy of communications, respecting
constitutional and legal provisions regarding the privacy of
telecommunication;
VI - To arrange, without charge, for their access code not to be
disclosed, by placing a request with the Concessionaire's customer
service department;
VII - The non-suspension of service unless requested, except in the
case of nonpayment of the debt resulting directly from its use, or
noncompliance with the duties set forth in Art. 4 of Law No. 9,472 of
1997;
VIII - Prior notification of any and all changes to the terms of
service that affect them directly or indirectly;
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IX - Confidentiality of billing documents and the use of their
personal information by the Concessionaire;
X - To receive an efficient and prompt response from the
Concessionaire to their complaints, under the terms provided for in
clause 15.7;
XI - To lodge claims or petitions against the Concessionaire with
ANATEL and consumer rights organizations;
XII - To receive compensation for harm sustained due to the
violation of their rights;
XIII - Compliance with the terms of the Subscription Agreement which
they entered into for the service;
XIV - Freedom to choose their domestic and international long
distance carrier;
XV - Respect for their right to portable access codes, in
accordance with the provisions of the Numbering Regulations published
by ANATEL; and
XVI - Not to be required to consume services or acquire goods or
equipment in which they have no interest, as well as not to be
compelled to satisfy certain conditions in order to receive the
service which is the subject matter of this concession, as provided by
regulation.
(S) 1 - The Concessionaire shall comply with the duty to safeguard the
privacy inherent to telephone service and the confidentiality of data and
information. Moreover, it shall employ the means and technology to guarantee
users this right.
(S) 2 - Upon the order of judicial authorities, the Concessionaire
shall make available the technological resources required to access private
telecommunications, as provided by regulation.
CLAUSE 14.2. - In addition to the rights referred to in the preceding
clause, other providers of telecommunications services shall be guaranteed the
following rights:
I - To interconnect with the Concessionaire's network under
nondiscriminatory business and operating conditions, under technically
suitable conditions, and at equally-applied and fair prices which
strictly consider the necessity of offering the service, in accordance
with the regulations published by ANATEL;
II - To receive the service requested from the Concessionaire without
any kind of discrimination, at market prices or prices negotiated
between the parties, and at any discount which may apply owing to
savings from bulk consumption, in accordance with regulation; and
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III - To obtain all information required to provide the service they
themselves operate, including billing information, except as regards
the Concessionaire's right to protect its trade secrets, as well as
the rights of third parties.
(S) 1 - Conflicts between the Concessionaire and other service
providers shall be resolved administratively by ANATEL, under the terms of
regulations to be published by ANATEL.
(S) 2 - ANATEL shall always oversee the relations between the
Concessionaire and the carriers using the service granted herein, in such a way
as to discourage conduct that may involve unfair harm to any of the parties, or
that undermines economic order and free competition. In these instances, once it
has exercised its authority, it shall notify the Administrative Council of
Economic Defense - CADE of such conduct, in the manner provided for in Art. 19,
paragraph XIX of Law No. 9,472 of 1997.
CLAUSE 14.3. - In accordance with regulation, all users shall be
guaranteed the right to receive and use premium services, which must be provided
in adequate technical condition, and at equally-applied and fair prices. The
Concessionaire is prohibited from blocking or restricting the use of the service
granted herein in any way.
SOLE PARAGRAPH - A premium service is understood to be any activity
that enhances the service which is the subject matter of this concession, but
should not be confused with new features related to access, storage,
presentation, transfer or recovery of information.
CHAPTER XV - RIGHTS, PRIVILEGES AND OBLIGATIONS OF THE CONCESSIONAIRE
CLAUSE 15.1. - In addition to the other obligations arising from this
Agreement and inherent to the provision of the service granted hereby, it is the
duty of the Concessionaire:
I - To provide the service granted hereby in strict compliance with
the provisions of this Agreement, and to comply fully with the
regulations published by ANATEL;
II - To install all equipment and facilities needed to provide the
service which is the subject matter of the concession and ensure its
continuity, contemporaneity, expansion and universality, following the
specifications set forth in this Agreement;
III - To keep the telecommunications network in optimum operating
condition, with quantities, configurations and locations which are
proper and sufficient to provide suitable service;
IV - To provide the financial resources required to comply with the
standards for universal service and continuity set forth in this
Agreement, and to provide adequate service;
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V - To provide ANATEL, in the manner and as often as provided by
regulation, with reports and information of a technical, operational,
business, accounting and financial nature, as well as to provide it
with all requested data and elements regarding the service granted
hereby;
VI - To maintain all public-use lines, whether permanent or
temporary, in the manner prescribed in this Agreement;
VII - To submit to audits by ANATEL and allow its agents access to
its company facilities as well as to its accounting records;
VIII - To keep separate accounting records for each department, as
well as to keep an up-to-date inventory of the goods and components
that make up the fixed assets of the company;
IX - To maintain a system for providing service and information to
users, under the terms of clause 15.7;
X - To safeguard the assets involved in providing the service
granted hereby;
XI - To submit to ANATEL for prior approval the draft as well as all
changes, amendments or variations applicable to the Standard Agreement
entered into with subscribers;
XII - To submit for prior approval from ANATEL the operating
agreements or service, partnership or joint-venture agreements it
wishes to sign with foreign entities;
XIII - To send for publication in the ANATEL library copies of the
agreements and contracts pertaining to the provision of service to
Brazilian and non-Brazilian providers of telecommunications services;
XIV - To divulge, directly or through third parties, the access
numbers of its own subscribers and other subscribers to Switched,
Fixed-line Telephone Service providers, whether in the public or
private sector, in the concession area with the exception of those
subscribers who specifically request that their personal information
not be given out;
XV - To provide a list of its subscribers to whomever it wishes, at
prices and within timeframes which are reasonable, and in a
nondiscriminatory manner;
XVI - To rigorously respect the secrecy and confidentiality of
telecommunications, in accordance with legal and contractual
obligations;
XVII - To respect the privacy of users as regards billing documents
and all personal information pertaining to them;
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XVIII - To comply, at its own expense and in accordance with the
provisions of clause 7.2 of this Agreement, with all universal service
objectives which are expressly stated herein;
XIX - To implement any projects for the expansion and
universalization of service which may be ordered by ANATEL, in
conformity with the established level of compensation, timeframe and
terms of implementation, in accordance with the provisions of clause
7.3;
XX - To submit to ANATEL for prior approval any and all changes it
wishes to make to its bylaws regarding company spin-offs, mergers,
transformations and incorporations, as well as any transfer of
control, or change in its capital stock;
XXI - To guarantee interconnection with its network to any other
telecommunications service provider, in keeping with specific
regulation and the standards of this Agreement;
XXII - To make its billing and collection services available to
other providers of Switched, Fixed-line Telephone Services, and charge
them fair and compatible prices under the terms of this Agreement and
the regulations;
XXIII - To respect all the rights of other telecommunications service
providers and refrain from any discriminatory conduct towards them or
attempt to obstruct their activity;
XXIV - To use equipment with certification either issued or accepted
by ANATEL, whenever required to do so by regulation;
XXV - To comply with the norms and technical standards in force in
Brazil, refraining from any discriminatory practice with regard to
goods and equipment manufactured therein;
XXVI - In the case of disasters, to make available to civil defense
authorities and agents all requested facilities, systems and access
thereto, with a view to providing them with support or protecting
affected populations;
XXVII - To give priority to assisting the President of the Republic,
his official representatives, his support team and staff, as well as
to foreign heads of state making official visits or trips through
Brazilian territory, for whom it shall make available the means
required to communicate adequately, in keeping with the regulations
published by ANATEL;
XXVIII - To pay the fee set by ANATEL in the event the duration of the
concession is extended, under the terms of (S) 1, Art. 207 of Law No.
9,472 of 1997, and clause 3.3 of this Agreement;
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XXIX - To pay all inspection and operating costs for its
installations, as provided by regulation;
XXX - To publish annually, regardless of the legal system to which
it is subject, the balance sheet and year-end financial statements, as
set forth in the legislation in force and the regulations published by
ANATEL;
XXXI - To comply with current Brazilian standards as regards the use
of non-Brazilian labor, including in positions requiring advanced
qualifications;
XXXII - To compensate users for damages which have in fact resulted
from the failure to provide service which would have been expected in
view of the continuity guidelines and universal service objectives
provided for in this Agreement;
XXXIII - When entering into contracts for management services,
including technical assistance, with non-Brazilian entities not to
spend more than the following amounts, as a percentage of the annual
revenue from Switched, Fixed-line Telephone Service:
a) 1% (one percent) per year, until 12/31/2000;
b) 0.5% (zero point five percent) per year, from 01/01/2001 until
12/31/2002; and
c) 0.2% (zero point two percent) per year, as of 01/01/2003;
XXXIV - To comply with agreements between Brazil and other countries
and international organizations, in the manner laid down by ANATEL;
and
XXXV - To comply with the contracts entered into with TELEBRAS, the
subject matter of which is the provision of services by the Research
and Development Center - CPqD or its successor.
SOLE PARAGRAPH - Decisions concerning paragraph XXXIII of this clause
and involving service and technical assistance contracts between the
Concessionaire and third parties with ties to the majority shareholders, must be
made at extraordinary shareholder meetings, and the Concessionaire must state in
its corporate bylaws, until 12/31/98, that preferred stock shall have voting
rights in such decisions, without detriment to the provisions of (S) 1, Article
115 of Law No. 6,404, of December 15, 1976.
CLAUSE 15.2. - Without detriment to the other provisions set forth in
this Agreement, and those privileges guaranteed by law, the Concessionaire has
the following rights:
I - To operate the conceded service within the framework of its
corporate strategy, and to define freely its investments, in
accordance with the regulations published by ANATEL and the provisions
of this Agreement
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II - To appoint a representative to monitor the inspection
activities of ANATEL;
III - To interrupt, according to the terms of Clause 8.3 of this
Agreement, the service granted hereby, or not fulfill the service
requests, of users who fail to fulfill their contractual obligations
towards the Concessionaire;
IV - To request arbitration proceedings under the circumstances and
in the manner prescribed by Chapter XXX of this Agreement;
V - To operate the service granted hereby under business conditions
without being subject to changes involving unjustified enrichment of
the government or users, under the terms provided for in Chapter XII;
VI - To request the revision of the rates applied to the conceded
service, in the manner provided for in this Agreement;
VII - To request that ANATEL keep confidential the information it
gathers during its inspection/audit activities, under the terms
provided for in this Agreement;
VIII - To use equipment and infrastructure which do not belong to it
when carrying out services, in accordance with clause 21.1 of this
Agreement; and
IX - To contract with third parties to develop activities that are
an inherent part of, incidental to or which supplement the service
granted hereby, as well as to implement associated projects.
CLAUSE 15.3. - For as long as this Agreement is in force, the
Concessionaire shall be solely liable, with regard to third parties, for the
actions of its personnel, employees and contractors involved in the provision of
Switched, Fixed-line Telephone Service, as well as for the use of equipment,
installations and networks, and the government and ANATEL are held exempt from
all claims and/or indemnities.
CLAUSE 15.4. - The Concessionaire may not obstruct works in the public
interest, regardless of their nature, in the event it becomes necessary to
remove installations or telephone networks in order to render feasible
interventions promoted, either directly or indirectly, by any body or
organization of the public Administration.
CLAUSE 15.5. - The Concessionaire must execute agreements directly
with each Municipal government in the areas it operates the service granted
hereby, as well as with other public service utilities, as regards the location
of the poles and cross bars used to hang aerial lines and cables, and the
underground conduits and pipes used to run cables under streets and public
parks.
(S) 1 - The Concessionaire shall make arrangements with the holders of
public or private property over or under which it has to run conduits or pipes,
or install supports to hold
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said conduits and pipes, and shall obtain the corresponding consent or easements
for such purposes.
(S) 2 - The Concessionaire must seek arrangements with the respective
municipal authorities in order to maintain conditions required to overcome
interference in the network required to provide the service granted hereby,
including the felling and pruning of trees.
CLAUSE 15.6.- Under the terms of the provisions of Art. 73 of Law No.
9,472 of 1997, the Concessionaire may use poles, pipes, conduits and easements
belonging to or controlled by other providers of telecommunications services or
other public utilities.
(S) 1 - The use of the facilities referred to in the preceding
paragraph must be carried out in a nondiscriminatory way, and at fair and
reasonable prices.
(S) 2 - The Concessionaire must make the facilities it owns or
controls, referred to in the first paragraph of this clause, available to the
other providers of telecommunications services, classified by ANATEL as public
utilities, and do so in accordance with the same conditions provided for in the
preceding paragraph.
(S) 3 - In the event the Concessionaire does not reach an agreement
with other service providers regarding the use of the facilities referred to in
this clause, it shall be ANATEL's duty, either alone or together with other
involved regulatory bodies, to define the conditions of said use.
CLAUSE 15.7. - During the entire duration of this concession, the
Concessionaire shall maintain a user information and service center operating 24
hours a day, capable of receiving and processing requests, complaints and claims
from users, either in person or via any form of long distance communication.
(S) 1 - The Concessionaire must make available to all users the
addresses and access codes of its information and service center, which are
required to be listed in the Standard Contract entered into with service
subscribers.
(S) 2 - The Concessionaire must make available and announce an
easy-to-dial, toll-free number for users to make requests via telephone.
(S) 3 - All requests, claims or complaints made by users, by whatever
means, must be assigned an order number, which shall be given to the concerned
party so that he or she can be assisted.
(S) 4 - The user shall be informed, within the timeframe defined in
the General Plan on Quality, of the measures taken in response to his or her
request, claim or complaint.
(S) 5 - In the event that ANATEL notes that users are having
difficulty obtaining access to the information and service center, it may order
the Concessionaire to increase the
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availability of access, or risk being found guilty of not complying with the
obligation provided for in this clause.
CLAUSE 15.8 - When hiring services and acquiring equipment and
materials associated with the provision of the service which is the subject
matter of this Agreement, the Concessionaire commits itself to field offers from
independent suppliers, including those which are state-run, and to base its
decisions, with regard to the various offers submitted, on the objective
criteria of price, conditions of delivery and technical specifications set forth
in the relevant regulations.
(S) 1 - In the event of equivalent offers, the Concessionaire agrees
to use as the deciding criteria, the preference of services offered by companies
located in Brazil, and equipment and materials produced in Brazil, particularly
those produced using Brazilian technology. The issue of equivalent offers shall
be automatically decided if, cumulatively:
I - The price in Brazil of the domestic product is lower than or equal
to that of the imported product, tax included;
II - The delivery schedule meets the Concessionaire's needs; and
III - The technical specifications established by relevant regulation
are met and the product has certification that has either been issued
or accepted by ANATEL, when applicable.
(S) 2 - Services are understood to mean those relating to research and
development, planning, setting up and physically installing, operating,
maintaining, supervising and performing evaluation tests of telecommunication
systems.
(S) 3 - ANATEL shall formulate regulations governing the execution of
the provisions in this clause, including applicable penalties.
CLAUSE 15.9 - With the exception of changes which have received prior
approval from ANATEL, the Concessionaire shall fulfill its commitments regarding
the expansion and conformity of the international underwater and land cables
listed in Annex 3 - Optical Routes, of this Agreement.
SOLE PARAGRAPH - The discontinuance of fiber-optic cable routes, as
well as changes to the profile of the Concessionaire's international routes and
networks, is contingent upon the prior approval of ANATEL.
CLAUSE 15.10 - The Concessionaire must inform ANATEL of all
international accounting rates applied in arrangement with foreign
administrations.
SOLE PARAGRAPH - ANATEL may impose limits in the national interest
upon the international accounting rates applied in arrangement with foreign
administrations.
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CHAPTER XVI - OBLIGATIONS AND PREROGATIVES OF ANATEL
CLAUSE 16.1. - In addition to the prerogatives that are an inherent
part of its function as a regulatory body, and other obligations under this
Agreement, ANATEL shall be responsible for:
I - Overseeing and monitoring the provision of the service granted
hereby and the safeguarding of revertible assets, ensuring compliance
with the standards, specifications and instructions set forth in this
Agreement and its annexes;
II - Carrying out site visits to inspect the adequacy of
installations and equipment, and ordering any necessary
rectifications, repairs, removals, reconstruction or replacements, at
the expense of the Concessionaire;
III - Continually regulating the execution of the conceded service;
IV - Intervening when necessary in the execution of the service
granted hereby in order to ensure its regularity and faithful
compliance with the Agreement and relevant legal standards;
V - Applying the penalties provided for by regulation of the
service and specifically, by this Agreement;
VI - Reviewing the Supplemental International Long-Distance Service
Plans submitted by the Concessionaire;
VII - Authorizing the adjustment of rates and revising them, under
the terms of, and in accordance with, the provisions of this
Agreement;
VIII - Acting within the limits set forth in this Agreement to prevent
the parties from unjustified enrichment, under the terms of this
Agreement;
IX - Ensuring the high quality of the service granted hereby,
accepting, processing and resolving complaints and claims from users,
and informing them, within ninety days, of the measures taken to curb
infringements upon their rights;
X - Declaring the termination of the Concession in the cases
provided for in this Agreement;
XI - Guaranteeing interconnectivity, and settling any disputes which
arise between the Concessionaire and other service providers;
XII - Ensuring compliance with the universal service objectives
provided for in this Agreement, and with any objectives set forth in
future Objectives Plans;
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XIII - Continually overseeing the relations between the Concessionaire
and other providers of telecommunications services, and settling any
disputes arising among them;
XIV - Discouraging conduct by the Concessionaire that runs contrary
to the system of free competition, in keeping with the legal authority
of the Administrative Council of Economic Defense - CADE;
XV - Submitting to the President of the Republic, at the request of
the Concessionaire and through the intermediary of the Ministry of
Communications, proposals for declarations of public interest, with a
view to exercising eminent domain or implementing public easements
over the property needed to establish or maintain the service which is
the subject matter of this Agreement;
XVI - Auditing the service granted hereby under the terms set forth
in this Agreement; and
XVII - Collecting fees for FISTEL and adopting the measures provided
for in current legislation.
CHAPTER XVII - THE CONCESSIONAIRE
CLAUSE 17.1. - The Concessionaire is a company incorporated under
Brazilian law, as a corporation (sociedade anonima), with the sole purpose of
operating the service that is the subject matter of this concession, with the
exception of those services provided for under the terms of (S) 3, Art. 207 of
Law No. 9,472 of 1997.
SOLE PARAGRAPH - In the event that changes to the Concessionaire's
bylaws are approved, the documents formalizing such changes shall be sent to
ANATEL for filing, and shall be fully incorporated into this Agreement.
CLAUSE 17.2. - The Concessionaire and those entities which control it
agree to maintain, for the entire duration of the concession and its extension,
all of the service conditions and capabilities which existed at the time this
Agreement entered into force.
CLAUSE 17.3. - The Concessionaire and those entities which control it
agree to ensure the actual existence on Brazilian territory, during the
concession period and the extension thereof, of centers for decision-making and
the implementation of strategic, managerial and technical decisions involved in
carrying out this Agreement, as well as to ensure this obligation is reflected
in the make-up and decision-making processes of its governing bodies.
SOLE PARAGRAPH - The Concessionaire must include provisions in its
bylaws, until December 31, 1998, which guarantee compliance with the provisions
of the preceding paragraph.
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CHAPTER XVIII - ASSIGNMENT OF THE CONCESSION AND CHANGE OF CONTROL OF THE
CONCESSIONAIRE
CLAUSE 18.1. Assignment of the concession, or the change of direct or
indirect control over the Concessionaire, may only be authorized by ANATEL, in
keeping with the General Concession Plan and Art. 202 of Law No. 9,472 of 1997,
provided that:
I - The assignee fulfills all of the requirements established under
the terms of Art. 200 of Law No. 9,472 of 1997; and
II - The assignment or change does not undermine competition, or
threaten the execution of this Agreement or the general standards for
the protection of economic order.
SOLE PARAGRAPH - Failure to comply with any provision of this clause
shall result in the forfeiture of this concession.
CLAUSE 18.2. - The capital stock of the Concessionaire may be pledged
freely, and such an assignment does not affect its control.
SOLE PARAGRAPH - If the pledging of stock results in the taxation of
the assets of the Concessionaire, provisions must be made in the financing
agreements in order to submit the creditors, in the event of foreclosure, to the
rules set forth in this Chapter.
CHAPTER XIX - INSPECTION SYSTEM
CLAUSE 19.1. - ANATEL shall carry out inspections of the service
granted herein in order to ensure compliance with the prerequisites of universal
service and continuity, which are an inherent part of the public service being
provided. It shall also ensure fulfillment of the objectives and commitments set
forth in this Agreement.
(S) 1 - The inspections to be performed by ANATEL shall involve
inspecting and monitoring the Concessionaire's activities, equipment and
facilities, which in turn requires complete access to all of the
Concessionaire's or third parties' data and information.
(S) 2 - The information gathered during its inspection activities
shall be published by its library, with the exception of information which, at
the Concessionaire's request, is considered by ANATEL to be confidential in
nature.
(S) 3 - Any information judged confidential in nature under the terms
of the preceding paragraph shall only be used in proceedings related to this
Agreement, and any requests for further dissemination of such information,
whether broad or restricted, must be made to ANATEL, or whomever it has
indicated.
CLAUSE 19.2. - The Concessionaire, through the intermediary of a named
representative, may monitor any and all of ANATEL's inspection activities. It
may not obstruct
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or prevent said inspection activities, at the risk of being subject to the
penalties provided for in this Agreement.
CHAPTER XX - REPORTING OBLIGATIONS OF THE CONCESSIONAIRE
CLAUSE 20.1. - As provided by regulation, the Concessionaire must
periodically send ANATEL statistical and status reports on all services
provided, including, among other elements, figures on the expansion and scope of
the telephone network. The Concessionaire must also report on the technological
status of the equipment used.
CHAPTER XXI - CONCESSION-RELATED ASSETS
CLAUSE 21.1. - The assets related to this concession consist of all
assets owned by the Concessionaire and required to provide the service conceded
herein, especially those classified as such in Annex 1 Classification of
Revertible Assets Used to Provide International Long-Distance, Switched, Fixed-
Point Telephone Service.
(S) 1 - Concession-related assets also include permits that have been
granted for the use of the radio frequency spectrum and, where applicable, usage
rights for orbital positions, in accordance with Articles 48 and 161 of Law No.
9,472 of 1997 and the provisions of clause 4.1 of this Agreement.
(S) 2 - With regard to concession-related assets, the Concessionaire
must receive the prior and express consent of ANATEL for the direct use of
equipment, infrastructure, software systems, or any other type of asset that is
not its property, in order to provide the service conceded herein. ANATEL may
exempt it from this requirement in the cases and circumstances provided for by
regulation.
(S) 3 - If the continuity of service is at risk, or there is an
impediment to the reversion of a concession-related asset, ANATEL may withhold
authorization to use third-party assets, or require that the corresponding
Agreement contain a clause stipulating that the owner agrees, in the event of
termination of the concession, to uphold the Agreement and transfer to ANATEL
the rights pertaining thereto.
CHAPTER XXII - THE SYSTEM OF REVERSION
CLAUSE 22.1. - In the event of the termination of the concession, all
concession-related assets shall revert automatically to ANATEL, as indicated in
Chapter XXI above, and the Concessionaire shall retain its right to the
compensation provided for by law and this Agreement.
SOLE PARAGRAPH - Within 180 days following the termination of the
concession, an inventory shall be taken of the assets pertaining thereto, and an
Asset Restitution and Reversion Statement shall be drawn up, with a detailed
account of the condition of said assets. One or more representatives of the
Concessionaire shall be authorized to monitor the foregoing.
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CLAUSE 22.2. - The Concessionaire commits itself to remit revertible
assets in a perfect state of operation, utilization and maintenance, except as
regards normal wear and tear through usage.
SOLE PARAGRAPH - Revertible assets shall be transferred to ANATEL free
of any charge or encumbrance, while taking into account the scenario stated in
paragraph 2 of the following clause.
CLAUSE 22.3. - The reversion of assets, as addressed in Chapter XXI
above, which occurs at the end of the contractual term, shall be carried out
without compensation, except as provided for in this clause.
(S) 1 - The Concessionaire shall only be compensated if, upon the
termination of the Concession, there exist partially-amortized assets, the
acquisition of which had been previously authorized by ANATEL, or which were
acquired prior to the signing of this Agreement, for the purpose of guaranteeing
reliable, up-to-date service.
(S) 2 - In place of or in addition to the compensation provided for in
the preceding paragraph, ANATEL may allow the assignment of assets that have
been pledged as security for its own financing needs, and assume any financed
portion which is still outstanding.
CLAUSE 22.4. - Upon termination of the Concession, ANATEL shall assess
the assets referred to in clause 21.1, and may refuse the reversion of assets it
considers dispensable to, or useless in the operation of the service granted
hereby. The Concessionaire is guaranteed the right to contest the foregoing,
including by way of reports or studies prepared and presented at its expense,
demonstrating the need for reversion.
SOLE PARAGRAPH - In the event the Concessionaire disagrees with
ANATEL's decision regarding the provisions of this clause, recourse to the
dispute-resolution process provided for in this Agreement shall be allowed.
CHAPTER XXIII - INSURANCE PLAN
CLAUSE 23.1. - During the entire time the concession is in force, the
Concessionaire must subscribe to the insurance policies listed below in order to
ensure effective and comprehensive coverage of the inherent risks involved in
carrying out all of the activities contemplated within the present Agreement.
The selected Insurance Company must be registered with insurance industry
regulatory agencies, and its coverage capacity must be in keeping with the
capital being insured:.
I - Comprehensive insurance against material damage, covering the
loss, destruction or damage of any and all assets associated with the
concession. Said insurance must provide blanket coverage, in
accordance with international standards;
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II - Business interruption insurance which covers, at a minimum,
variations in the Concessionaire's income resulting from accidents, or
changes in the operating terms of the Agreement, which affect
operating costs and which are not covered by insurance against
material damage, provided that taking out this type of insurance is
allowed by Brazilian standards and expressly authorized by the
Brazilian Reinsurance Institute - IRB or an equivalent organization;
and
III - Insurance covering the achievement of the quality and universal
service requirements provided for in this Agreement (i.e., a
performance bond, a letter of credit and the amount kept as a deposit)
with a value corresponding to 10% of the estimated annual amount
invested in order to achieve the objectives provided for in this
Agreement.
(S) 1 - The Concessionaire must arrange to have its insurance policies
include the requirement that the Insurer inform the Concessionaire and ANATEL,
in writing and with at least 10 (ten) days' notice, of any information which may
entail the complete or partial cancellation of the policies taken out, a
reduction in coverage, an increase in deductibles, or a lowering of the values
covered.
(S) 2 - Policies taken out in order to comply with the provisions of
this clause may not contain obligations, restrictions or provisions which
contradict the provisions of this Agreement or regulations, and must contain an
express statement by the Insurer that it is completely familiar with this
Agreement, specifically as regards the limits of the Concessionaire's rights.
(S) 3 - In the event the Concessionaire fails to comply with the
requirement to keep the required insurance policies in effect, then ANATEL,
notwithstanding its ability to order intervention in or the termination of this
concession, may then take out said insurance and directly pay for the
corresponding premiums, at the expense of the Concessionaire.
(S) 4 - Every year, by the end of the month of January, the
Concessionaire must submit a certificate issued by the insurers, confirming that
all the premiums due for the preceding year have been paid, and that the
policies have taken full effect or been renewed. In the latter case, any new
policy terms are also to be submitted.
(S) 5 - The policies referred to in this clause must comply with the
following deadlines for presentation and activation:
I - The policy referred to in item I of the first paragraph of this
clause must be presented within 90 (ninety) days as of the signing of
this Agreement, and must take immediate effect;
II - The policy referred to in item II of the first paragraph of this
clause must be presented by November 30, 1999, and take effect as of
January 1, 2000;
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III - The policy referred to in item III of the first paragraph of
this clause must be presented by November 30, 2000, and take effect as
of January 1, 2001.
(S) 6 - ANATEL may change the coverage or the presentation deadlines
for the policies referred to in this clause so as to adapt said requirements to
the regulations published by the Private Insurance Commission - SUSEP, or to the
terms established by the Brazilian Reinsurance Institute - IRB. It may also do
so if standards are published which interfere with the contracting of the
insurance referred to herein, or if the market is not ample or competitive
enough to allow the insurance to be taken out at a reasonable cost.
CHAPTER XXIV - INTERCONNECTION
CLAUSE 24.1. - The Concessionaire is required to allow, facilitate,
provide and implement the interconnection of other telecommunications service
providers' networks with the network it operates, whether they are in the public
or private sector, and whenever they so request. In so doing, it shall enforce
and observe the regulations published by ANATEL pertaining thereto.
CLAUSE 24.2. - The Concessionaire shall enjoy the same rights, and
observe the same terms of interconnection, as the ones applying to other service
providers.
SOLE PARAGRAPH - The Concessionaire must maintain the elements of its
network for interconnection at the most technically advanced level possible, in
accordance with ANATEL regulations.
CHAPTER XXV - PENALTIES
CLAUSE 25.1. - In the execution of this Agreement, the Concessionaire
shall be subject to the following penalties, notwithstanding other penalties
provided for by regulation, which shall be applied by way of justified decisions
by ANATEL, and the former shall be guaranteed the right to defend itself under
the terms of the Internal Regulations of ANATEL:
I - For violations of the provisions of this Agreement resulting in
non-fulfillment of universal service objectives, there shall be a fine
of up to R$50,000,000.00 (fifty million Brazilian reais);
II - For acts or omissions contrary to the provisions set forth in
this Agreement, and which cause harm to competitors in the
telecommunications industry, there shall be a fine of up to
R$50,000,000.00 (fifty million Brazilian reais);
III - For any violation of contractual provisions which results in the
non-fulfillment of quality of service objectives or guidelines, there
shall be a fine of up to R$40,000,000.00 (forty million Brazilian
reais);
IV - For any other act or omission not covered by the preceding
paragraphs, and which involves the violation of users' rights as set
forth in this Agreement, or
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which causes them harm, there shall be a fine of up to R$30,000,000.00
(thirty million Brazilian reais);
V - For any act or omission which violates the provisions of clause
15.8 of this Agreement, involving the hiring of services and the
acquisition of equipment and materials manufactured in Brazil, there
shall be a fine of up to R$30,000,000.00 (thirty million Brazilian
reais);
VI - For any act or omission which obstructs or hinders the inspection
activities of ANATEL as provided for in this Agreement, there shall be
a fine of up to R$20,000,000.00 (twenty million Brazilian reais);
VII - For any act, omission or negligence which threatens the security
of the facilities, there shall be a fine of up to R$15,000,000.00
(fifteen million Brazilian reais);
VIII - For any act or omission which brings harm or poses a risk to
concession-related assets or equipment, there shall be a fine of up to
R$10,000,000.00 (ten million Brazilian reais); and
IX - For failure to comply with any express requirement in this
Agreement, with the exception of the requirements stated in the
preceding paragraphs, for which penalties have already been
determined, there shall be a fine of up to R$10,000,000.00 (ten
million Brazilian reais).
(S) 1 - The infraction specified in paragraph I of this clause shall
be characterized by the failure of the Concessionaire to fulfill its
obligations, within the timeframes set forth in this Agreement, with regard to
the expansion and increased availability of the service granted hereby by
supplying public telephones and assistance to localities, in keeping with the
provisions of the General Plan on Universal Service. When applying the penalty,
the following factors shall be taken into consideration, in addition to the
general principles laid forth in this Chapter:
a) The difference between the objective defined in the Agreement and
its degree of implementation;
b) The possibility for the Concessionaire catch up on the
implementation schedule, at its own expense;
c) The harm done to the policy reflected in the General Plan on
Universal Service;
d) The harm done to the intended direct beneficiaries of the
unfulfilled objectives; and
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e) Any attenuating circumstances of a technical or economic nature
which may lessen the responsibility of the Concessionaire,
although not exonerate it.
(S) 2 - The seriousness of the infraction indicated in paragraph II of
this clause shall be defined solely on the basis of the general criteria
indicated in clause 25.2, and shall be characterized by conduct of the
Concessionaire which, directly or indirectly, could inflict harm upon its
competitors in the industry, particularly:
a) Obstructing or hindering the option to use another provider of the
service or domestic and international long distance service.
b) Refusing to provide interconnection to a provider of
telecommunications services;
c) Obstructing or hindering the activity of providers of premium
services;
d) Placing conditions upon the availability of the conceded service,
or offering advantages to users in exchange for their acquiring
services other than the service which is the subject matter of
this Agreement;
e) Supplying any telecommunications service that is not a purpose of
the concession or authorized by ANATEL;
f) Failing to uphold quality standards regarding interconnection; and
g) Delaying the supply of information vital to the activities of
other service providers, especially involving user-related
information.
(S) 3 - The infraction specified in paragraph III of this clause shall
either be characterized by repeatedly providing service which is below the
quality parameters defined in the General Plan on Quality, or by demonstrably
contravening the quality indicators listed in Chapter VI. In the first case,
the following are considered particularly serious infractions:
a) Failure to allocate the human and material resources required to
maintain minimum quality standards in the operation and
maintenance of the service granted hereby; and
b) Negligence in modernizing the network which impacts the quality of
service.
(S) 4 - The seriousness of the infraction indicated in paragraph IV of
this clause shall be defined on the basis of the number of users affected and on
the damage caused. It shall be characterized by the violation, whether directly
or indirectly, through commission or omission, of an obligation stipulated in
this Agreement, and which does not involve a violation of duties pertaining to
universal service and quality, but rather a violation of the rights of users,
particularly:
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a) Interruption of service for periods longer than allowed by the
General Plan on Quality, except under the circumstances indicated
in the sole paragraph of clause 6.3;
b) Refusal to provide the conceded service to any interested party;
c) Failure to fulfill the duty of providing information to users;
d) Breach of the secrecy of telecommunications, outside of legally-
mandated circumstances, even in the case of breaches committed by
third parties using facilities over which the Concessionaire has
responsibility;
e) Failure to maintain a user information and service center as
stipulated in this Agreement;
f) Charging rates or prices which are against the rules stipulated in
this Agreement and as provided by regulation; and
g) Restricting the right to freely choose among service plans.
(S) 5 - The penalty provided for by paragraph V of this clause shall
be characterized by a verifiable violation of the obligation indicated in clause
15.8, and its seriousness shall be determined in accordance with regulatory
provisions.
(S) 6 - The seriousness of the infraction indicated in paragraph VI of
this clause shall be defined on the basis of the significance of the inspection
activity obstructed, and shall be characterized by a violation committed by the
Concessionaire or its employees, whether directly or indirectly, through
commission or omission, which impedes or hinders the inspection activities
carried out by ANATEL, by its employees, or even by users, particularly:
a) The refusal of the Concessionaire to comply with requests for
information made by ANATEL regarding the conceded service or the
assets allocated to it;
b) Hindering the actions of ANATEL's inspectors;
c) Failure to fulfill the publicity obligations provided for in this
Agreement, or as provided by the regulation; and
d) Failure to send, or to send in a timely manner, information, data,
reports or documents which, as determined by regulation or this
Agreement, should have been conveyed to ANATEL.
(S) 7 - The seriousness of the infraction indicated in paragraph VII
of this clause shall be defined on the basis of the degree of risk posed, and
shall be characterized by conduct of the Concessionaire which runs counter to
the rules set forth in this Agreement and as provided by
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regulation, violates norms and standards of technical safety, or which poses a
risk to the facilities allocated to the conceded service, particularly:
a) The use of equipment not certified by ANATEL to provide the
service, when such certification is required;
b) Failure to allocate the human and material resources required to
maintain minimum safety standards in the operation and maintenance
of the service; and
c) Failure to take the precautions recommended for the service
conceded herein.
(S) 8 - The seriousness of the infraction indicated in paragraph VIII
of this clause shall be defined on the basis of the significance, the economic
importance and the indispensability of the assets involved, and shall be
characterized by conduct of the Concessionaire which runs counter to the
provisions of this Agreement or the regulations, and which could pose a risk to
assets or equipment associated with this concession, or make their reversion
difficult, particularly:
a) Failure to keep inventory and records of the assets referred to in
clause 21.1;
b) The direct use of the assets of third parties in providing the
service, without prior authorization from ANATEL, or without a
regulatory dispensation; and
c) Negligence in maintaining revertible assets, as provided by
regulation.
(S) 9 - The penalty provided for in paragraph IX of this clause shall
be called for in the case of a demonstrable violation of a contractual
obligation which is not included among the preceding paragraphs, particularly
the violation indicated in paragraph XXXI of clause 15.1.
(S) 10 - The penalty provided for in paragraph II above is of a
contractual nature and shall be applied by ANATEL regardless of any measures
taken by the Administrative Council of Economic Defense - CADE.
(S) 11 - Failure to pay any fine which has been determined under the
provisions in this clause, and within the timeframe determined by ANATEL, shall
constitute a serious violation, and shall occasion intervention in the affairs
of the Concessionaire, under the terms set forth in Chapter XXVIII. It shall
also entail payment of a late fee of 0.33% (zero point thirty-three percent) per
day, up to a maximum of 10% (ten percent), plus the SELIC reference rate for
federal securities, to be levied upon the amount owed on the basis of the number
of days it is past due.
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CLAUSE 25.2. - When applying the contractual fines provided for in
this Chapter, the rules stated in Title VI, Book III of Law No. 9,472 of 1997,
and those provided by regulation, shall be observed.
(S) 1 - When defining the seriousness of penalties and determining
fines, ANATEL shall take the following factors into account:
I - Whether the severity of the punishment is in proportion to the
seriousness of the violation, while also taking into account the
number of users affected;
II - The damage inflicted upon the service and users as a result of
the infraction;
III - Any advantage which the Concessionaire has reaped as a result of
the infraction;
IV - The market share of the Concessionaire in its geographical
service area;
V - The economic and financial situation of the Concessionaire,
especially its potential to generate revenue, and its assets;
VI - The Concessionaire's past record;
VII - Whether the violation is a repeat offense, that being a repeat
of a violation of the same nature after having received notification
previously; and
VIII - Whether the infraction involved aggravating or attenuating
circumstances.
(S) 2 - Regardless of the specific ranking criteria provided for in
each paragraph of the preceding clause, and others provided for by regulation,
penalties shall be ranked using the following scale:
I - The infraction shall be considered minor if it results from
unintentional or excusable conduct of the Concessionaire, and from
which it does not benefit;
II - The infraction shall be considered moderately serious if it
results from inexcusable conduct, but which does not provide the
Concessionaire with any benefit or gain, or affect a significant
number of users; and
III - The infractions shall be considered serious if ANATEL finds
evidence that:
a) The Concessionaire has acted in bad faith;
b) The infraction has resulted in a direct or indirect benefit for
the Concessionaire;
c) The Concessionaire's infraction is a repeat offense;
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d) A significant number of users were affected; and
e) There were circumstances of the kind anticipated in (S) 10 of the
preceding clause.
(S) 3 - At ANATEL's discretion, in the case of first-time occurrences
of infractions classified as minor, it may apply the disciplinary measure of
issuing a warning to the Concessionaire, which shall be formally notified of the
sanction, regardless of the publication of the ruling in the Official Journal.
(S) 4 - When applying the disciplinary measures provided for in this
Chapter, the Disciplinary Proceedings provided for in the Internal Regulations
of ANATEL shall be observed.
(S) 5 - In the case of the infractions provided for in paragraph IV of
clause 25.1, ANATEL may reduce the amount the Concessionaire would pay in fines
from the amount to be paid as compensation to the affected users, and the
compensation criteria, the payment schedule and the maximum amount of the
abatement shall be stated within the sentencing document.
(S) 6 - The measure provided for in the preceding paragraph may only
be adopted if it can be proved that respecting the rights or demands of users
shall not exonerate the Concessionaire from its liability for other civil
damages owed.
CLAUSE 25.3. - The fines provided for in this clause shall be applied
notwithstanding scenarios involving intervention or declaration of forfeiture,
as provided for in this Agreement.
SOLE PARAGRAPH - In the event of complete or partial failure to carry
out an adjustment, or unjustified delays of over 120 days in complying with the
objectives set forth in this Agreement, the Concessionaire shall be subject to a
declaration of forfeiture of the Concession, under the terms set forth in clause
26.4.
CLAUSE 25.4. - The amounts of the fines provided for in this Chapter
shall be adjusted annually by applying the GPI-DA, and the first adjustment
shall take place one year after the signing of this Agreement.
CHAPTER XXVI - TERMINATION OF THE CONCESSION
CLAUSE 26.1. - The Concession Agreement shall be considered terminated
in the event of the following:
I - Expiration of the concession period for the service granted
hereby, in the event it has not been extended under the terms of this
Agreement;
II - Expropriation, in accordance with Art. 113 of Law No. 9,472 of
1997;
III - Forfeiture, under the terms set forth in Article 114 of Law No.
9,472 of 1997 and in this Agreement;
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IV - Amicable or judicial rescission, under the terms of Art. 115 of
Law No. 9,472 of 1997; and
V - Annulment.
(S) 1 - Upon termination of the concession, the rights and duties
pertaining to the provision of the conceded service shall revert to ANATEL,
along with the assets referred to in clause 22.1, and the Concessionaire shall
retain the right to the compensation provided for by law and within this
Agreement.
(S) 2 - Following the termination of the concession, ANATEL shall
undertake all necessary inventories, assessments and settlements within 180 (one
hundred eighty) days of taking over the service granted hereby, except in the
case of expiration of the agreement, in which case these steps are to be taken
in advance by ANATEL.
(S) 3 - If the concession is terminated prior to its contractual
expiration date, ANATEL may do the following, notwithstanding other suitable
measures:
I - Make temporary use of fixed and intangible assets, and avail
itself of the personnel required to continue providing the service
granted hereby; and
II - Maintain the Contracts signed between the Concessionaire and
third parties for the duration and under the terms initially agreed
upon.
CLAUSE 26.2. - Reversion upon the expiration of the Agreement shall be
carried out without compensation, except under the circumstances provided for in
clause 22.3.
CLAUSE 26.3. - Under the terms of Art. 113 of Law No. 9,472 of 1997,
expropriation is understood to be the repossession of the service by ANATEL
during the concession period, due to extraordinary motives of public interest,
by way of a specific authorizing law and subsequent to the payment of
compensation.
CLAUSE 26.4. - In the circumstances listed below, the forfeiture of
this Agreement may be declared by an act of the Board of Directors of ANATEL,
preceded by administrative proceedings which guarantee the Concessionaire an
ample defense:
I - Transfer of corporate control, spin-offs, mergers or
transformation of the Concessionaire, as well as raising or lowering
its capital stock without the prior approval of ANATEL;
II - Improper assignment of the Agreement;
III - Failure to fulfill a commitment to an assignment, as referred to
in clause 18.1 of this Agreement and Art. 87 of Law No. 9,472 of 1997;
IV - Bankruptcy or dissolution of the Concessionaire;
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V - Noncompliance with insurance coverage requirements, in violation
of the obligations provided for in clause 23.1, which, in the judgment
of ANATEL, cannot be dealt with through intervention; and
VI - The occurrence, under the terms of Art. 114, paragraph IV of Law
No. 9,472 of 1997, of any of the situations stipulated by clause 28.1,
and in which intervention, in the judgment of ANATEL would be
inappropriate, ineffective or even unjustly favorable to the
Concessionaire.
(S) 1 - Intervention shall be judged unnecessary in the event the
demand for the service which is the subject matter of the concession may be met,
through authorization, by other providers in a regular and immediate fashion.
(S) 2 - Declaring forfeiture shall not preclude the application of
appropriate penalties, under the terms of this Agreement, for infractions
committed by the Concessionaire, nor shall it prejudice the right to
compensation defined under the terms of the following Chapter.
CLAUSE 26.5. - The Concessionaire shall be entitled to contractual,
judicial or amicable rescission in the event that, due to acts or omissions of
government authorities, the execution of the Agreement becomes excessively
onerous, under the terms of Art. 115 of Law No. 9,472 of 1997.
SOLE PARAGRAPH - The introduction or increase of competition among the
various providers of the service which is the subject matter of the concession
does not constitute a motive for the rescission of the Agreement, since the
Concessionaire clearly takes this concession with the knowledge that it will be
carrying out its activities without any kind of reserved or exclusive market.
CLAUSE 26.6. - Annulment shall be decreed by ANATEL in the event that
irremediable and serious irregularities are discovered in this Agreement.
CHAPTER XXVII - COMPENSATION
CLAUSE 27.1. - For the purposes of calculating compensation owed by
ANATEL to the Concessionaire, in the cases expressly provided for in this
Agreement, the following shall be observed:
I - Expiration of the contract term: No compensation shall be due,
unless it is proved that the absence of payment results in the
unjustified enrichment of the government through the reversion of
assets which have not been completely amortized, in accordance with
the provisions of clause 22.3;
II - Expropriation: In keeping with the provisions of Art. 113 of Law
No. 9,472 of 1997, compensation, which shall be paid prior to
expropriation, must correspond to the value of the assets which are
reverting to the granting authority, minus depreciation;
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III - Forfeiture: Independently of the application of penalties and
the indemnification of damage resulting from breach of contract, under
the terms of the Agreement, the Concessionaire may only claim
compensation if it is proved that the government will be unjustly
enriched through the reversion of assets that have not been completely
amortized or depreciated, after deducting the value of the damage
incurred and of imposed fines, in addition to any unmet financial
obligations;
IV - Amicable or judicial rescission: No compensation shall be due,
unless otherwise determined by a court ruling; and
V - Annulment: Compensation shall only be due if it is proved that the
Concessionaire did not act illegally, and such compensation shall
correspond solely to the actual value of the assets which revert to
the government, calculated on the date the annulment is decreed, on
the condition that said assets have not yet been fully amortized.
(S) 1 - The temporary amount to be advanced by ANATEL in cases of
expropriation shall be calculated in the manner prescribed by the specific
authorizing legislation.
(S) 2 - In the event that forfeiture is brought about through the
demonstrated fault of the Concessionaire, it shall also occasion:
a) retention of the credits stemming from the Agreement, including
the appropriation of revenue from the payments made by users of
the service;
b) liability for prejudice caused to the government and to the users;
c) the levying of fines under the terms provided for in this
Agreement and current legislation; and
d) loss of the insurance guarantee provided for in clause 23.1.
(S) 3 - Except in cases of expropriation, the appropriate compensation
for other instances of termination of the Agreement shall be calculated under
the terms of this chapter and divided into installments equal to the number of
months the concession would have been in effect. The first installment shall be
paid one year after the termination of the Agreement.
(S) 4 - The responsibility for paying the various types of
compensation may be transferred by ANATEL to the provider that takes over the
operation of the service granted hereby from the Concessionaire. However, ANATEL
shall reassume the payment obligation in the event the new provider is more than
90 (ninety) days behind in its payments.
CHAPTER XXVIII - INTERVENTION
CLAUSE 28.1. - In the event the continuity and security of the service
granted hereby is jeopardized through the fault of the Concessionaire,
especially in the situations
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indicated below, then ANATEL, at its discretion and in the public interest, may
decree its intervention in the affairs of the Concessionaire by way of a
specific and justified act of its Board of Directors.
I - Unjustified paralysis of the service granted hereby, that being
the interruption of service under circumstances not anticipated by
this Agreement, and which are not attributed to causes which ANATEL
considers justifiable;
II - Inadequacy or repeated insufficiencies of the service provided,
characterized by noncompliance with the quality parameters provided
for in this Agreement and by regulation, even after warnings issued by
ANATEL to rectify the situation by a certain deadline;
III - Poor administrative practices that jeopardize the continuity of
the service granted hereby;
IV - Recurrence of violations defined as serious under the terms of
clause 25.1 above;
V - Non-fulfillment of universal service objectives, that being the
unjustified failure to comply with the timetable for implementing the
universal service requirements of this Agreement;
VI - Unjustified withholding of interconnection, understood as
refusing, delaying or postponing the negotiation or implementation of
a connection to its network, at the request of another service
provider, and in compliance with the terms of interconnection
determined by ANATEL;
VII - Violation of economic order, characterized by unfair trade
practices; and
VIII - Failure to provide reports to ANATEL, or obstruction of
inspection activities, which may presuppose the occurrence of any of
the events anticipated in the previous paragraphs.
CLAUSE 28.2. - The intervention decree must state the timeframe,
motives, goals and scope, in addition to designating the intervening party.
SOLE PARAGRAPH - The duration and scope of the intervention must be
compatible with and in proportion to the cause for the intervention.
CLAUSE 28.3. - The intervention shall be preceded by administrative
proceedings initiated by ANATEL, during which the full rights of defense of the
Concessionaire shall be guaranteed.
SOLE PARAGRAPH - If immediate intervention is indispensable, it may be
decreed as a precaution by ANATEL, without a prior declaration by the
Concessionaire, in which case the proceedings must be initiated immediately as
of the date of the decree, and concluded within
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one hundred eighty days, during which time the Concessionaire may exercise its
full rights of defense.
CLAUSE 28.4. - The intervention decree shall neither affect the
regular course of business of the Concessionaire, nor its normal functioning. It
shall, however, occasion the immediate dismissal of its management.
CLAUSE 28.5. - The function of temporary administrator may fall to an
executive of ANATEL, a specifically appointed person, collegial body or a
company, and the Concessionaire shall assume the cost of remuneration.
(S) 1 - ANATEL may have recourse the intervening party to act on its
behalf.
(S) 2 - The temporary administrator shall issue reports and be
responsible for its acts.
(S) 3 - For acts of alienation and disposal of the assets of the
Concessionaire, the temporary administrator requires the prior authorization of
ANATEL.
CLAUSE 28.6. - Intervention shall not be decreed if ANATEL deems it
unnecessary.
SOLE PARAGRAPH - Intervention shall be deemed unnecessary under the
circumstances set forth in (S) 1 of clause 26.4 above, as well as under those
provided for in Art. 114, paragraph IV of Law No. 9,472 of 1997.
CHAPTER XXIX - ADMINISTRATIVE EXPROPRIATIONS AND IMPOSITIONS
CLAUSE 29.1. - In the event public easements or expropriations need to
be carried out in order to implement, provide or update the service granted
hereby, such tasks shall be handled entirely by the Concessionaire, and ANATEL
must submit proposals to the President of the Republic requesting the issuance
of declarations of public interest.
CHAPTER XXX - ARBITRATION
CLAUSE 30.1. - Any disputes that may arise over the application and
interpretation of the terms of the concession shall be resolved by ANATEL
through the exercise of its function as a regulatory body, in accordance with
the provisions of Articles 8 and 19 of Law No. 9,472 of 1997. The Concessionaire
may only evoke the arbitration proceeding provided for in this Chapter if it
disagrees with a ruling by ANATEL on the following topics:
I - Infringement of the right of the Concessionaire to protect its
economic situation, as set forth in Chapter XII;
II - Rate revision, as provided for in Chapter XII; and
41
<PAGE>
III - Compensation owed upon the termination of this Agreement,
including reverted assets.
SOLE PARAGRAPH - The submission of any issue to arbitration does not
exempt ANATEL and the Concessionaire from the obligation to comply fully with
this Agreement, nor does it permit the interruption of the activities associated
with the concession.
CLAUSE 30.2. - Arbitration proceedings shall be initiated when one
party sends notice to the other, requesting the establishment of the Arbitration
Tribunal provided for in this Chapter, and detailing the issue which is the
topic of controversy.
SOLE PARAGRAPH - ANATEL may reject the establishment of the
Arbitration Tribunal if it can justifiably demonstrate that the dispute is not
included in the list of topics provided for in clause 30.1.
CLAUSE 30.3 - The Arbitration Tribunal shall be composed of 5 (five)
members, appointed as follows:
I - 2 (two) members, and their respective alternates, chosen by the
Board of Directors of ANATEL from among specialists in the areas
pertaining to the disputed matter, and who are not ANATEL employees.
At least one of them, who shall preside over the proceedings, shall
have specific knowledge of the legal regulation of telecommunications;
II - 2 (two) members, and their respective alternates, chosen by the
Concessionaire, from among specialists in the areas pertaining to the
disputed matter, and who are not ANATEL employees. At least one of
them shall have specific knowledge of the legal regulation of
telecommunications; and
III - 1 (one) member, and his or her respective alternate, chosen by
the members referred to in the preceding paragraphs.
(S) 1 - The Arbitration Tribunal may be assisted by whatever technical
experts it finds suitable to appoint.
(S) 2 - The Tribunal shall be considered constituted on the date when
all arbitrators accept their appointments and notify both parties of their
acceptance.
(S) 3 - The Tribunal shall adjudicate on the basis of established law,
and its rulings shall have cogent force, independent of judicial homologation.
CLAUSE 30.4 - If it has not been rejected by ANATEL, or if such
arguments have been overcome, the Proceedings dealt with in this Chapter shall
be initiated, and the following procedures shall be observed:
I - The parties shall have 10 (ten) days as of receiving the notice
discussed at the beginning of the preceding clause in which to choose
the members of the
42
<PAGE>
Arbitration Tribunal, which shall be established as soon as all of its
members demonstrated their accepted;
II - In the event one of the parties fails to act, or offers
resistance to the establishment of the Arbitration Tribunal, the other
party may avail itself of the right provided for in Art. 7 of Law No.
9,307 of September 23, 1996;
III - Once the Arbitration Tribunal has been established, the parties
shall each have 25 (twenty-five) days to present their arguments
concerning the disputed matter and may use this opportunity to present
reports, surveys, and opinions, as well as any other documents or
information which they feel are relevant in supporting their position;
IV - Once the briefs have been presented, the Tribunal shall analyze
the arguments and may, at the request of one of its members, order the
elaboration of reports, surveys or opinions, and request information
or documents from the parties. In addition, the Tribunal may make any
other investigation or take any other measures it deems necessary to
obtain optimal information about the disputed matter;
V - During the gathering of the items referred to in the preceding
paragraph, the parties shall always be permitted to make and refute
arguments in keeping with the principles of informality, consensus and
celerity which shall govern the proceeding;
VI - Once the preliminary fact-finding period has been declared
closed, the parties shall be granted a common 15 (fifteen) day period
in which to present their closing arguments;
VII - Once the period mentioned above has elapsed, regardless of the
presentation of the final arguments, the Tribunal shall issue its
ruling within 30 (thirty) days;
VIII - The ruling of the Arbitration Tribunal may not be appealed,
except for petitions for reconsideration, which are only suitable in
cases when a ruling is approved with a mere one-vote majority; and
IX - Invalidation of arbitration proceedings shall only be allowed
under the circumstances provided for in Art. 32 of Law No. 9,307/96.
SOLE PARAGRAPH - The expense of the arbitration process, including the
cost of reports, opinions and surveys, as well as the fees of the Tribunal
members, shall either be charged to the Concessionaire or to ANATEL, depending
upon the ruling of the Arbitration Tribunal.
43
<PAGE>
CHAPTER XXXI - APPLICABLE LEGAL SYSTEM
CLAUSE 31.1. - Without prejudice to the norms inherent in the
Brazilian legal system, this concession is governed by Law No. 9,472 of July 16,
1997 and by the regulations resulting therefrom, particularly those issued by
Executive Authority in accordance with the provisions of Art. 18 of the above-
mentioned Law, and they always take precedence over conflicting standards.
CLAUSE 31.2. - When providing the service conceded herein, national
telecommunications policy and the regulations of ANATEL must be observed and
considered an integral part of this Agreement, particularly the following
related documents:
I - General Concession Plan;
II - General Plan on Universal Service;
III - General Plan on Quality;
IV - General Regulations for Telecommunications Services;
V - Regulations for Switched, Fixed-line Telephone Service;
VI - General Regulations for Interconnection;
VII - Numbering Regulations for Switched, Fixed-line Telephone
Service;
VIII - Numbering Administration Regulations; and
IX - Regulations for Compensation for Network Usage of Providers of
Switched, Fixed-line Telephone Service.
CLAUSE 31.3. - When interpreting the standards and provisions
contained within this Agreement, general rules of interpretation and the
standards and principles of Law No. 9, 472 of 1997 must be taken into account,
in addition to the documents referred to in the preceding item.
CHAPTER XXXII - VENUE
CLAUSE 32.1. - In order to resolve disputes stemming from this
Agreement which cannot be resolved through the dispute-resolution process in
Chapter XXX Arbitration, the Federal District Court of Brasilia (Foro da Secao
Judiciaria da Justica Federal de Brasilia, Distrito Federal) shall have
competent jurisdiction.
CHAPTER XXXIII - FINAL AND GENERAL PROVISIONS
CLAUSE 33.1. - The Agreement signed herewith shall enter into force as
soon as its abstract is published in the official government daily journal
(Diario Oficial da Uniao).
44
<PAGE>
SOLE PARAGRAPH - The Concessionaire shall have 6 months as of the
publication of the regulations referred to in clause 31.2, which are expected to
have been completely published by December 31, 1998, before being required to
comply fully with the obligations set forth in this Agreement.
In order to signify their full acceptance of the provisions and terms
of this Agreement, the parties hereby execute it in triplicate, before witnesses
who also execute it, in order that this Agreement take legal and judicial
effect.
Brasilia, May 26, 1998.
ANATEL:
__________________________
__________________________
Concessionaire:
__________________________
__________________________
Witnesses:
__________________________
Name:
ID:
__________________________
Name:
ID:
45
<PAGE>
ANNEX 1
CLASSIFICATION OF REVERTIBLE ASSETS USED
TO PROVIDE
INTERNATIONAL LONG-DISTANCE,
SWITCHED, FIXED-POINT TELEPHONE SERVICE
A) Infrastructure and equipment used for switching and transmission, including
public terminals;
B) Infrastructure and equipment used in the external network;
C) Infrastructure and equipment used for energy and air conditioning;
D) Infrastructure and equipment used by assistance and service centers;
E) Infrastructure and equipment used in operations support systems;
F) Other items required to provide the service.
46
<PAGE>
ANNEX 2
BASIC INTERNATIONAL LONG-DISTANCE SERVICE PLAN
1 - GENERAL
1.1 - The Basic International Long-Distance Service Plan is governed by the
administrative rulings cited in this annex, by other regulations in effect and
any succeeding regulations.
1.2 - The rates presented are maximums, net payroll and income taxes.
2 - USAGE OF INTERNATIONAL LONG-DISTANCE, SWITCHED, FIXED-POINT TELEPHONE
SERVICE (SFTS)
2.1 - The billing criteria and procedures for the International Long-Distance
SFTS are regulated by Standard No. 007/93, approved by Administrative Decree No.
906 of July 23, 1993, issued by the Ministry of Communications.
2.2 - The billing unit is one tenth of a minute (i.e., six seconds).
2.3 - The minimum billed increment is 1 (one) minute for direct-dialed calls and
3 (three) minutes for manual calls.
2.4 - The Basic International Service Rate (TBSI) is the billing unit for this
service, which is fixed by Administrative Decree No. 226 of April 3, 1997,
issued by the Ministry of Communications at R$0.27.
2.5 - The maximum per-minute rates for International Long-Distance SFTS,
expressed in reais, for normal rate periods pursuant to Administrative Decree
No. 220 of April 3, 1997, issued by the Ministry of Communications, are as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Country Direct-Dialed Calls
or
Country
Group
- ------------------------------------------------------------------------------------------
First Minute Subsequent Minute
- ------------------------------------------------------------------------------------------
Normal Reduced Normal Reduced
R$ R$ R$ R$
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 1.67670 1.34136 1.40940 1.12752
- ------------------------------------------------------------------------------------------
2 1.30410 1.04328 0.95310 0.76248
- ------------------------------------------------------------------------------------------
3 1.67670 1.34136 1.57680 1.26144
- ------------------------------------------------------------------------------------------
4 1.67670 1.34136 1.67670 1.34136
- ------------------------------------------------------------------------------------------
5 1.72800 1.38240 1.67670 1.34136
- ------------------------------------------------------------------------------------------
</TABLE>
47
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------
6 2.16000 1.72800 1.86300 1.49040
- ------------------------------------------------------------------------------------------
7 2.43270 1.94616 1.95210 1.56168
- ------------------------------------------------------------------------------------------
8 3.59100 2.87280 2.91600 2.33280
- ------------------------------------------------------------------------------------------
9 3.59100 2.87280 2.91600 2.33280
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Country or Country or Country Group Reduced-Rate Period
Country
Group
- ---------------------------------------------------------------------------------------
<S> <C> <C>
1 Argentina, Chile, Paraguay and Uruguay 8 pm to 5 am
- ---------------------------------------------------------------------------------------
2 United States of America (incl. Hawaii) 8 pm to 5 am
- ---------------------------------------------------------------------------------------
3 Canada and all other countries of North and 8 pm to 5 am
South America and the Caribbean
- ---------------------------------------------------------------------------------------
4 Portugal (including the Azores and Madeira) 8 pm to 5 am
- ---------------------------------------------------------------------------------------
5 Andorra, Austria, Belgium, Denmark, Finland, 8 pm to 5 am
France, Germany, Ireland, Italy, Liechtenstein,
Netherlands, Norway, Spain, Sweden, Switzerland,
United Kingdom
- ---------------------------------------------------------------------------------------
6 Other countries of Europe and the Middle East 8 pm to 5 am
- ---------------------------------------------------------------------------------------
7 Australia and Japan 1 am to 6 am and
1 pm to 5 pm
- ---------------------------------------------------------------------------------------
8 Countries of Africa 8 pm to 5 am
- ---------------------------------------------------------------------------------------
9 Other countries of Asia, Oceania and the islands 1 am to 6 am and
of the Pacific (except Hawaii) 1 pm to 5 pm
- ---------------------------------------------------------------------------------------
</TABLE>
2.6 - The maximum per-minute rates for International Long-Distance Service, for
Regional calls, expressed in reais, for the normal rate periods pursuant to
Administrative Decree No. 220 of April 3, 1997, issued by the Ministry of
Communications, are as follows:
<TABLE>
<CAPTION>
Region Direct-Dialed Calls
---------------------------------------------------------------------------------
First Minute Subsequent Minute
- ------------------------------------------------------------------------------------------
Normal Reduced Normal Reduced
R$ R$ R$ R$
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A 1.23930 0.99144 1.04490 0.83592
- ------------------------------------------------------------------------------------------
B 1.23930 0.99144 1.04490 0.83592
- ------------------------------------------------------------------------------------------
C 1.25820 1.00656 1.18260 0.94608
- ------------------------------------------------------------------------------------------
D 1.23930 0.99144 1.04490 0.83592
- ------------------------------------------------------------------------------------------
E 1.25820 1.00656 1.18260 0.94608
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Region Country or Country Group Reduced-Rate Period
- ---------------------------------------------------------------------------------------
<S> <C> <C>
A States of Mato Grosso do Sul and Parana / all of 8 pm to 5 am
Paraguay
- ---------------------------------------------------------------------------------------
</TABLE>
48
<PAGE>
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------
B State of Rio Grande do Sul / all of Uruguay 8 pm to 5 am
- ---------------------------------------------------------------------------------------
C State of Amazonas / the Amazonas administrative 8 pm to 5 am
district in Colombia
- ---------------------------------------------------------------------------------------
D States of Parana, Santa Catarina and Rio Grande 8 pm to 5 am
do Sul / the provinces of Chaco, Formosa,
Missiones, Corrientes and northern Santa Fe in
Argentina
- ---------------------------------------------------------------------------------------
E State of Mato Grosso do Sul / Department of
Santa Cruz de La Sierra in Bolivia 8 pm to 5 am
- ---------------------------------------------------------------------------------------
</TABLE>
2.7 - The reduced rates for the periods indicated in the tables in items 2.5 and
2.6 shall apply during the stated times from Monday through Saturday, and all
day (24 hours) on Sundays and national holidays.
2.8 - International calls to border areas are governed by the billing criteria
corresponding to Degree 1 of Domestic Long-Distance Service.
49
<PAGE>
ANNEX 3
OPTICAL ROUTES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
INSTALLED
- ----------------------------------------------------------------------------------------
SYSTEM SEGMENT
- ----------------------------------------------------------------------------------------
<S> <C>
AMERICAS 1 Florida (USA)-St. Thomas (Caribbean) FLO-STH
- ----------------------------------------------------------------------------------------
St. Thomas-Fortaleza (Brazil) STH-FLA
- ----------------------------------------------------------------------------------------
Fortaleza (Brazil)-Trinidad and Tobago (Caribbean) FLA-TT
- ----------------------------------------------------------------------------------------
Fortaleza (Brazil)-Venezuela FLA-VEM
- ----------------------------------------------------------------------------------------
Florida (USA)-Fortaleza (Brazil) FLO-FLA
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
COLUMBUS 2 Florida (USA)-St. Thomas (Caribbean) FLO-STH
- ----------------------------------------------------------------------------------------
Florida (USA)-Mexico FLO-MXO
- ----------------------------------------------------------------------------------------
St. Thomas (Caribbean)-Italy STH-ITA
- ----------------------------------------------------------------------------------------
St. Thomas (Caribbean)-Canary Islands STH-CAN
- ----------------------------------------------------------------------------------------
St. Thomas (Caribbean) -Madeira STH-MAD
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
UNISUR Florianopolis-Bridge Unit FNS-BU
- ----------------------------------------------------------------------------------------
Bridge Unit-Argentina BU-ATA
- ----------------------------------------------------------------------------------------
Bridge Unit-Uruguay BU-UGI
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
TAINO-CARIBE St. Thomas-Puerto Rico (Caribbean) STH-PRO
- ----------------------------------------------------------------------------------------
St. Thomas-Tortola (Caribbean) STH-TOR
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
EURAFRICA Madeira-Portugal MAD-POR
- ----------------------------------------------------------------------------------------
Portugal-France POR-FCA
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
RIOJA Spain-England EPA-ING
- ----------------------------------------------------------------------------------------
England-Belgium ING-BGA
- ----------------------------------------------------------------------------------------
Belgium-Holland BGA-HOL
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
TPC 4 Japan-California (USA) JPO-CAL
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
TPC 5 Japan-California (USA) JPO-CAL
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
APCN Japan-Korea JPO-COR
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
H-J-K Japan-Hong Kong JPO-HOK
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
FOSCJ Japan-China (PRC) JPO-CHI
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
HAW 5 California-Hawaii CAL-HAW
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
</TABLE>
50
<PAGE>
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
PICRIC-E Hawaii-New Zealand HAW-NIA
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
TASMANIA 2 New Zealand-Australia NIA-ALA
- ----------------------------------------------------------------------------------------
DIN Denmark-Netherlands DIN-HOL
- ----------------------------------------------------------------------------------------
Denmark-Norway DIN-NOR
- ----------------------------------------------------------------------------------------
Norway-Sweden NOR-SUE
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
TAT10D Netherlands-Germany HOL-ALE
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
TAT12/13 New York-France-England NYK-FRA-ING
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
ITUR Russia-Italy RUS-ITA
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
NPC Japan-California (USA) JPO-CAL
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
SEA-ME-WE2 Singapore-Italy CIN-ITA
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
PTAT-CARAC Bermuda (UK)-Tortola island (Caracas) TOT-BER-LON
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
ANTILLAS 1 Puerto Rico-Dominican Republic PCO-RDO
- ----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
TO BE INSTALLED BY 12/31/1999
- ----------------------------------------------------------------------------------------
<S> <C>
SEA-ME-WE 3 Portugal-Korea POR-COR
- ----------------------------------------------------------------------------------------
Portugal-India POR-IND
- ---------------------------------------------------------------------------------------
Portugal-Thailand POR-TAI
- ---------------------------------------------------------------------------------------
Portugal-Italy POR-ITA
- ---------------------------------------------------------------------------------------
Portugal-Turkey POR-TUR
- ---------------------------------------------------------------------------------------
Portugal-England POR-ING
- ---------------------------------------------------------------------------------------
Portugal-Singapore POR-CIN
- ---------------------------------------------------------------------------------------
Portugal-France POR-FRA
- ----------------------------------------------------------------------------------------
Portugal-Germany POR-ALE
- ---------------------------------------------------------------------------------------
Portugal-Japan POR-JAP
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
AMERICAS 2 Fortaleza-St. Croix (Caribbean) FLA-SICROIX
- ---------------------------------------------------------------------------------------
Fortaleza-Cayenne (French Guyana) FLA-CAYENNE
- ---------------------------------------------------------------------------------------
Fortaleza-Venezuela FLA-VEM
- ---------------------------------------------------------------------------------------
Fortaleza-Curacao FLA-CCO
- ---------------------------------------------------------------------------------------
Fortaleza-Martinique FLA-MARTINICA
- ---------------------------------------------------------------------------------------
Fortaleza-Puerto Rico FLA-P.RICO
- ---------------------------------------------------------------------------------------
Fortaleza-Florida (USA) FLA-FLO
- ---------------------------------------------------------------------------------------
St. Croix (Caribbean)-Florida (USA) SICROIX-FLO
- ---------------------------------------------------------------------------------------
</TABLE>
51
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------
<S> <C>
Fortaleza-Trinidad and Tobago FLA-TTO
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
ATLANTIS 2 Fortaleza-Lisbon FLA-LBA
- ---------------------------------------------------------------------------------------
Fortaleza-Praia (Cape Verde) FLA-PRA
- ---------------------------------------------------------------------------------------
Fortaleza-Dakar FLA-DKR
- ---------------------------------------------------------------------------------------
Fortaleza-El Medano FLA-MDO
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
PANAMERICANO St. Thomas (Caribbean)-Colombia STH-COL
- ---------------------------------------------------------------------------------------
</TABLE>
52
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
As independent auditors, we hereby consent to the use in this
Registration Statement on Form 20-F, dated September 21, 1998, for Embratel
Participacoes S.A. of our report dated July 17, 1998 related to the consolidated
financial statements of Embratel Participacoes S.A. for the years ended
December 31, 1995 1996 and 1997 and as of December 31, 1996 and 1997.
/s/ KPMG Peat Marwick
Sao Paulo, Brazil
September 21, 1998
