<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 18, 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:
TELE LESTE CELULAR PARTICIPACOES S.A.
(Exact name of Registrant as specified in its charter)
TELE LESTE CELLULAR 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 213
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............................................. vi
EXCHANGE RATES................................................ ix
PART I
ITEM 1. Description of Business....................................... 1
ITEM 2. Description of Property....................................... 24
ITEM 3. Legal Proceedings............................................. 24
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 Revenues and Expenses..................................... 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
Tele Leste Celular Participacoes S.A. (the "Registrant"), a corporation
organized under the laws of the Federative Republic of Brazil ("Brazil"), was
formed upon the reorganization of Telecomunicacoes 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 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 Telebahia Celular
S.A. ("Telebahia Cellular") and Telergipe Celular S.A. ("Telergipe Cellular")
held by Telebras (representing 89.3% and 73.6% of the total share capital of
Telebahia Cellular and Telergipe Cellular, respectively) was transferred to
the Registrant. Telebahia Cellular and Telergipe Cellular supply cellular
telecommunications services in the Brazilian states of Bahia and Sergipe,
respectively. Telebahia Cellular and Telergipe Cellular were each formed on
January 5, 1998 and on January 30, 1998, each of Telecomunicacoes da Bahia
S.A.--Telebahia ("Telebahia") and Telecomunicacoes de Sergipe S.A.--Telergipe
("Telergipe") spun off the assets and liabilities associated with its cellular
telecommunications operations to Telebahia Cellular and Telergipe Cellular,
respectively, effective January 1, 1998. See "Description of Business--The
Company."
Substantially all of the Registrant's assets are shares of its operating
subsidiaries. The Registrant relies almost exclusively on dividends from its
subsidiaries 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 Revenues and Expenses--Liquidity and Capital
Resources."
As used herein, the "Company" refers to the Registrant and its consolidated
subsidiaries Telebahia Cellular and Telergipe Cellular.
PRESENTATION OF FINANCIAL INFORMATION
FINANCIAL STATEMENTS AND MINORITY INTERESTS
The audited consolidated statements of financial condition included herein
as of December 31, 1996 and 1997 and the related consolidated statements of
revenues and expenses, net interdivisional cash distribution (receipt) and
changes in divisional equity for each of the years ended December 31, 1995,
1996 and 1997 (including the notes thereto, the "Consolidated Financial
Statements") present the financial condition and revenues and expenses of the
Registrant and the consolidated cellular telecommunications businesses of
Telebahia and Telergipe, which were spun off into the Registrant's
Subsidiaries, Telebahia Cellular and Telergipe Cellular, effective January 1,
1998. The portion of the consolidated equity and income before interest
income, unallocated interest expense and taxes of the Company attributable to
shareholders of the Company 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 directly and indirectly owned
10.7% and 26.4% of the share capital of Telebahia and Telergipe, respectively.
Substantially all such share capital is comprised of preferred shares
ii
<PAGE>
originally issued from time to time by Telebahia and Telergipe in connection
with their auto-financing activities. The consideration paid for such
preferred shares was the higher of market or book value at the time of
issuance, for shares issued after August 1996, and book value for shares
issued prior to August 1996. A secondary trading market has developed in such
preferred shares in which institutional and other investors participate. For a
discussion of such auto-financing activities, see "Management's Discussion and
Analysis of Financial Condition and Revenues and Expenses--Revenues and
Expenses for the years ended December 31, 1995, 1996 and 1997--Minority
interests."
Cash and certain nonspecific debt relating to the cellular telephone
operations of Telebahia and Telergipe could not be segregated from Telebahia
and Telergipe prior to December 31, 1997 and such amounts are not reflected in
the Consolidated Financial Statements. As a result, interest income, certain
interest expense and taxes relating to the cellular telephone businesses of
Telebahia and Telergipe could not be identified and reflected in the
Consolidated Financial Statements. See "Management's Discussion and Analysis
of Financial Condition and Revenues and Expenses--Revenues and Expenses for
the years ended December 31, 1995, 1996 and 1997--Allocated interest expense."
FORMATION OF REGISTRANT
The formations of the Registrant, Telebahia Cellular and Telergipe Cellular
have 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 cellular telecommunications businesses of Telebahia and Telergipe were
transferred to Telebahia Cellular and Telergipe Cellular, respectively, at
their indexed historical cost. The revenues and expenses associated with such
assets and liabilities were allocated to Telebahia Cellular and Telergipe
Cellular. Separate records of revenues from the cellular telecommunications
businesses of Telebahia and Telergipe were maintained historically.
Accordingly, actual amounts were also allocated for the periods included
herein. The Combined Statements of Revenues and Expenses and Net
Interdivisional Cash Distribution (Receipt) have been prepared to include the
historical activity related to the assets and liabilities transferred. The
Consolidated Financial Statements are not necessarily indicative of what would
have been the financial condition and revenues and expenses of the Company as
of December 31, 1996 and 1997 and for the three year period ended December 31,
1997 had the cellular telecommunications businesses of Telebahia and Telergipe
been separate legal entities during such periods. See "Description of
Business--Background", "--The Company" and Notes 1, 2 and 23 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 Tele Leste Celular Participacoes S.A. 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 an increase of R$92,643,000 in relation
to the Company's historical retained earnings. See Note 23 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. See Note 2a to the Consolidated Financial Statements.
iii
<PAGE>
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. Effective January 1, 1996, the CVM no longer requires
Brazilian companies to restate their financial statements for reporting
purposes in constant currency by indexing historical amounts using the UFIR.
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 general price inflation in Brazil and has
elected the IGP-M for purposes of preparing its 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.
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 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 ADS"), each originally
representing ownership of 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
iv
<PAGE>
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. 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 5,000 Preferred Shares. The ADSs will be
evidenced by American Depositary Receipts ("ADRs").
v
<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.
vi
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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.
vii
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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.
viii
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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 cruzeiros 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 per US$1.00. As of September 11,
1998, 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>
- --------
Source: Central Bank of Brazil
(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 at December 31, 1997, representing approximately 9% of all
lines in service in Brazil at that date. Telebras is controlled by the Federal
Government 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. Empresa
Brasileira de Telecomunicacoes S.A.--Embratel ("Embratel"), a subsidiary of
Telebras, 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 of the Brazilian
Telecommunications Industry."
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 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 (including the Company) and
(c) one domestic and international long-distance operator. 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
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separate Brazilian states. Following the Breakup, each of the eight cellular
operators provides cellular telephone service on Band A in one of eight
regions into which Brazil has been divided for purposes of cellular telephone
service 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 the
purposes of fixed-line telephone service.
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 a consortium comprised
of Iberdrola S.A. (68%) and Telefonica Internacional S.A. (32%) (collectively,
"Iberdrola/Telefonica"). For a description of the business activities of the
members of the Iberdrola/Telefonica consortium, see "Control of Registrant."
Iberdrola/Telefonica agreed to pay R$428 million for the Federal Government's
stake in the Registrant, R$171.2 million of which was paid on August 4, 1998
and the remainder of which will 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.
BAND A AND BAND B
Brazilian regulation allows cellular services to be offered within two
frequency ranges of the radio spectrum. These two frequency ranges are
referred to as "Band A" and "Band B" by Anatel. Band A is the frequency range
used by all of the former companies of the Telebras System, including the
Company; Band B is the frequency range used by all new competitors. No
cellular operators may offer services outside of Band A and Band B and no more
than one operator may provide cellular service within a given geographical
area for each of Band A and Band B. To the extent that the geographic areas
represented by Band B concessions differ from the Region in which the Company
operates, more than one Band B operator may compete with the Company (although
each of such Band B operators would be operating within a distinct
geographical area and not competing with each other). See "--Regulation of the
Brazilian Telecommunications Industry--Concessions and Licenses."
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THE COMPANY
The Company is one of two suppliers of cellular telecommunications services
in the states of Bahia and Sergipe (together, the "Region"). Since the Company
began to offer cellular telecommunications services in July 1993, there has
been significant growth in subscriber levels and revenue. At December 31, 1996
and December 31, 1997, the Company had approximately 181,000 and 206,600
subscribers, respectively. From December 31, 1994 to December 31, 1997, the
Company's penetration level, or proportion of the population of the Region
that subscribes to the Company's cellular service, increased from 0.24% to
1.42%. See "--Network Coverage and Usage."
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 (i)
89.3% of the share capital (including 95.8% of the voting stock) of Telebahia
Celular S.A. ("Telebahia Cellular"), which conducts the cellular operations
previously conducted by Telecomunicacoes da Bahia S.A.--Telebahia
("Telebahia"), and (ii) 73.6% of the share capital (including 85.5% of the
voting stock) of Telergipe Celular S.A. ("Telergipe Cellular"), which conducts
the cellular operations previously conducted by Telecomunicacoes de Sergipe
S.A.--Telergipe ("Telergipe"). See "Presentation of Information--Overview."
As a 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 Revenues and Expenses--Liquidity and
Capital Resources" and "Defaults upon Senior Securities."
The business of the Company is to furnish cellular telephone services to the
Region and engage in all activities related thereto in accordance with the
concessions granted to it by the Federal Government on November 4, 1997 (the
"Concessions") and related approvals and authorizations. The Concessions
expire on June 29, 2008 with respect to the state of Bahia and on December 15,
2008 with respect to the state of Sergipe and, if the Company meets certain
obligations set forth in the Concessions, may be renewed at the discretion of
Anatel for 15 year terms upon the Company giving 30 months notice prior to the
expiration date and negotiating a renewal fee. See "--Regulation of the
Brazilian Telecommunications Industry." The Ministry of Communications has
granted cellular concessions to certain former Telebras operating subsidiaries
("Band A Operators") and to certain new entrants ("Band B Operators"). The
Band A Operators and Band B Operators will compete against each other in
different regions of Brazil. The Company is one of the Band A Operators and
competes against Vicunha Telecomunicacoes Ltda. ("Vicunha"), a Band B
Operator, in the Region. See "--Background--Band A and Band B" and "--
Competition."
In 1997, Telebahia Cellular contributed 85.6% of the Company's net operating
revenues and 88.6% of its income before interest income, unallocated interest
expense and taxes, with the remainder being contributed by Telergipe Cellular.
The Company's headquarters are located at SCN-Quadra CN2, Lote F, 2(degrees)
Andar, Sala 213, Brasilia-DF, 70710-500, Brazil, and its telephone number is
55-61-327-5542.
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THE REGION
The Region covers an area of approximately 589,000 square kilometers,
representing approximately 6.9% of the total area of Brazil. The Region has 14
metropolitan areas with populations in excess of 100,000.
Set forth below is a map showing the location of the Region within Brazil.
MAP OF BRAZIL
The following table sets forth various statistics relating to each state in
the Region as of December 31, 1997.
<TABLE>
<CAPTION>
POPULATION % OF BRAZIL'S % OF BRAZIL'S PER CAPITA
STATE OF STATE POPULATION GDP INCOME
----- ------------ ------------- ------------- ----------
<S> <C> <C> <C> <C>
Bahia................. 12.7 million 8.0% 4.9% R$3,343
Sergipe............... 1.7 million 1.0% 0.5% R$2,956
------------ --- --- -------
Region................ 14.4 million 9.0% 5.4% R$3,299
============ === === =======
</TABLE>
The Company's business, financial condition, results of operations and
prospects depend on the performance of the Brazilian economy in general and
the economy of the Region in particular. See "--Brazilian Economic
Environment."
SERVICES
The Company currently offers cellular services to its subscribers
principally pursuant to one basic rate plan although it has begun to offer
alternative plans as well. See "--Rates" and "--Regulation of the Brazilian
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Telecommunications Industry--Rate Regulation." Although the Company currently
offers only analog cellular service, it may offer digital cellular service in
the future. See "--Network." The Company does not sell products, such as
cellular phones, although it may offer such products in the future, in
particular in connection with the provision of digital cellular service.
The following table sets forth the major ancillary services offered by the
Company.
<TABLE>
<CAPTION>
SERVICES DESCRIPTION
-------- -----------
<C> <S>
Voice Mail............. A 24-hour voice mail service with message waiting
information.
Supplementary Service.. A package of services that includes call waiting, call
forwarding and three-party conference call
capabilities.
Rental Service......... A temporary cellular connection rental service (which
may include cellular phone rental) for non-subscribers
such as travelers, tourists and convention
representatives.
Domestic Roaming....... Automatic roaming services within Brazil.
International Roaming.. Automatic roaming services within Argentina and
Uruguay and manual roaming in Paraguay.
Caller ID.............. A service which identifies the phone number of the
calling party on some digital cellular phones.
Out Calling............ A service that provides for the cellular telephone to
ring when turned on by a customer if the customer has
voice-mail messages.
</TABLE>
The Company offers, in cooperation with all the other Band A Operators,
automatic roaming services throughout Brazil that allow a subscriber to
receive any call made to the subscriber's number, regardless of the region in
which the subscriber is located. In the future, the Company will also be
required to offer roaming services in cooperation with the Band B Operators.
The Company offers international roaming in Argentina, Uruguay and Paraguay
through agreements with cellular service providers in those countries. See "--
Operating Agreements--Roaming Agreements."
The Company also provides cellular service to subscribers of other Band A
Operators roaming in the Region. The Company charges such operators for the
services provided to such subscribers pursuant to roaming agreements entered
into with such operators. See "--Operating Agreements--Roaming Agreements."
The Company's customer service center provides 24-hour service in Salvador
and 8 am to 7 pm service in other areas in order to resolve customer service
problems. The Company can monitor the speed at which calls are being answered
and the abandonment rate resulting from calls not being answered within a
specified period. During the three months ended December 31, 1997, the
customer service team answered, on average, 3,500 calls per working day (with
an average of 20 seconds per call) and answered, on average, 150 letters per
month. As of March 31, 1998, the Company had 9 customer service attendants and
had one customer service attendant for every 2,289 subscribers.
SALES AND MARKETING
TARGET MARKETS
The Company divides its market into the business user segment, which
accounted for 25% of the Company's sales during 1997, and the personal user
segment, which accounted for 75% of the Company's sales during 1997. Within
each of these segments, customers are further divided into groups according to
their level of usage (intensive, high, medium or low use), hours of use (peak
or off-peak) and destination of calls (local, long distance or roaming). The
Company believes that a significant number of its personal subscribers use
their cellular phones for both personal and business purposes. The Company
varies the manner in which it markets and promotes its services to these
market segments and occasionally develops special plans and services for
particular market segments. In addition, the Company provides additional
support services, such as dedicated account representatives, to certain market
segments.
With respect to personal users, the Company has serviced primarily those
segments of the Brazilian population with high and middle income levels.
According to the Company's research, as of December 31, 1997,
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approximately 60% of the Company's personal subscribers were between 26 and 45
years of age and approximately 60% were high school educated.
Pursuant to the Company's policy, cellular service is provided to all
individual applicants, regardless of the applicant's income level, in the
order in which applications are received. Nonetheless, services can be
interrupted if a subscriber fails to make timely payments.
SALES NETWORK
The Company markets its services through its own direct sales personnel, and
a network of stores most of which are operated by various independent
distributors. At December 31, 1997, the Company had 224 direct sales persons
and 45 independent distributors, and promoted its services through 52 stores
covering all major cities in the Region. Seven of these stores were operated
by the Company and 45 were operated by independent distributors. Through its
direct sales force and its network of stores, the Company is able to sell its
services and provide after-sale services to subscribers at convenient
locations throughout the Region.
The Company carefully selects its independent distributors based on their
creditworthiness and on an assessment of a potential distributor's premises.
Contracts with independent distributors are established on an exclusive basis
for key sales posts and on a non-exclusive basis for others but can be
terminated at the Company's discretion for any reason including poor sales
performance or actions by an independent distributor contrary to the Company's
operating policies or business ethics, upon giving 30 days written notice.
The Company pays its independent distributors a commission for each new
subscriber they sign up. The commission varies from R$14 for small
distributors (less than 20 new subscribers per month) to R$56 for large
distributors (more than 300 new subscribers per month). The Company also pays
independent distributors R$4 for each subscriber upgraded to a new mobile
phone.
NETWORK COVERAGE AND USAGE
The following table shows the Company's subscriber base as well as coverage
and other statistics at the dates indicated.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Subscribers(1)................................... 107,355 169,873(2) 206,598
Subscriber growth from prior period.............. 239.4% 58.2% 20.3%
Estimated Region population (millions)(2)........ 14.2 14.3 14.5
Estimated covered population (millions)(3)....... 4.6 6.0 6.4
Percentage population covered.................... 32.5% 42% 44%
Regional penetration(4).......................... 0.75% 1.26% 1.42%
Percentage of Region covered..................... 5% 11% 13%
Average monthly incoming minutes of use per
subscriber...................................... 95.4 94.0 137.8
Average monthly outgoing minutes of use per
subscriber...................................... 131.7 122.6 125.1
Average monthly revenues per subscriber (in
nominal reais)(5)............................... R$91.12 R$90.56 R$87.79
</TABLE>
- --------
(1) Reflects the total number of cellular lines in service at period end.
Separate lines owned by the same person are accounted for as separate
subscribers. The Company had 5,435 and 31,629 subscribers at December 31,
1993 and 1994, respectively.
(2) Population figures have been calculated by the Company based on Brazilian
population census data prepared by Instituto Brasileiro de Geografia e
Estatistica ("IBGE") using the average annual geometric population growth
rate as published by IBGE.
(3) Number of people within the Region that can access the Company's cellular
telephone signal.
(4) Number of subscribers divided by population of the Region.
(5) Net of value-added taxes.
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Pursuant to the Concession, the Company has an obligation to provide service
to certain municipalities within the Region within a time frame determined by
reference to the size of such municipalities, as set forth in the following
table. At present, the Company believes it will be able to meet all such
coverage obligations. See "--Regulation of the Brazilian Telecommunications
Industry."
<TABLE>
<CAPTION>
MINIMUM COVERAGE
POPULATION OF PERCENTAGE OF MUNICIPALITIES LEVEL REQUIRED BY
MUNICIPALITIES REQUIRED TO BE COVERED NOVEMBER 4,
-------------- ---------------------------- -----------------
<S> <C> <C>
30,000 to 50,000................. 70% 2002
50,000 to 75,000................. 80% 2001
75,000 to 100,000................ 90% 2000
100,000 to 200,000............... 100% 1999
Above 200,000.................... 100% 1998
</TABLE>
RATES
The Company generates cellular telecommunications revenue from (i)
activation fees, which are one-time sign-up charges paid to obtain cellular
service, (ii) usage charges, which include measured service charges based on
tenths of a minute of outgoing calls and roaming and other similar charges,
(iii) monthly subscription charges, (iv) network usage charges, which are the
amounts charged by the Company to other cellular and fixed-line telephone
service providers for use of the Company's network by such service providers
(e.g., when one of such service provider's subscribers calls one of the
Company's subscribers) and (v) other services and charges, which primarily
include charges for services such as call forwarding and call waiting and fees
arising from the transfer of cellular service from one subscriber to another.
Rates for the foregoing cellular telecommunications services provided by the
Company are subject to the final approval of Anatel. The Company submits
requests for rate adjustments to Anatel. See "--Regulation of the Brazilian
Telecommunications Industry."
SUBSCRIBER RATES
Since October 1994, cellular telephone service in Brazil, unlike that in
North America, has been offered on a "calling party pays" basis. Under the
policy of calling party pays, a subscriber of the Company generally pays usage
charges only for calls made by the subscriber. When a subscriber makes a call
from a limited geographic area (a "registration area") to a person within the
same registration area, the customer pays a certain base rate per minute
("VC1"). If the recipient of the call is outside the registration area from
which the call was made but within the concession region of the cellular
provider for such registration area, the subscriber pays a higher rate
("VC2"). Calls made from within a registration area to a recipient located
outside the concession region in which such registration area is located are
billed at the highest per-minute rate ("VC3"). The Company earns VC1, VC2, or
VC3 revenues, as applicable, for all cellular calls originating from the
Region, whether made by a Company subscriber or a subscriber of another
cellular operator that is roaming in the Region. Similarly, when a Company
subscriber makes a cellular call while outside the Region, the VC1, VC2, or
VC3 revenues, as applicable, associated with that call are paid over to the
cellular operator from whose concession region the call is made. See "--
Operating Agreements--Roaming Agreements."
When a Company subscriber makes or receives a call while outside the
registration area in which such subscriber is registered for service (such
subscriber's "Home Registration Area"), the subscriber also pays the Company a
per-call surcharge known as "AD." When a Company subscriber receives a call
while outside such subscriber's Home Registration Area, the subscriber pays a
certain per-minute rate if the subscriber is located within the Region
("DSL1"), or a higher rate ("DSL2") if the subscriber is located outside the
Region. The Company's Region consists of 43 registration areas which vary in
size depending upon population density.
Measured service charges are discounted 30% for calls made on Sundays and
national holidays and between 9:00 p.m. and 7:00 a.m. Monday through Saturday
("off-peak calls"). The Company imposes a 30% surcharge on all VC1 calls from
one cellular phone to another cellular phone.
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The following table illustrates the average cellular mobile telephone rates
for the Company's Basic Service Plan for each year in the four-year period
ended December 31, 1997 in historical reais. The table does not reflect the
effect of inflation, which significantly reduced the real value of such rates
over the course of the periods presented.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1995 1996 1997
------ ------ ------ ------
(IN REAIS)
<S> <C> <C> <C> <C>
Basic Service Plan:
Activation fee................................. 151.17 305.91 310.00 310.00
Monthly subscription fee....................... 22.82 26.66 26.00 26.00
VC1 (per minute)(1)............................ 0.25(2) 0.25 0.25 0.26
VC2 (per minute)(1)............................ 0.58(2) 0.58 0.58 0.58
VC3 (per minute)(1)............................ 0.66(2) 0.66 0.66 0.66
AD (per call).................................. -- 0.55 0.55 0.55
DSL 1 (per minute)(1).......................... -- 0.29 0.29 0.29
DSL 2 (per minute)(1).......................... -- 0.33 0.33 0.33
</TABLE>
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(1) Weighted average of peak monthly rates, net of value-added taxes. A 30%
discount applies to all off-peak calls and a 30% surcharge applies to all
VC1 calls from one cellular phone to another cellular phone.
(2) Weighted average of peak monthly rates, net of value-added taxes, for
October through December 1994. Prior to October 1994, a different "mobile
party pays" rate structure applied.
The following table sets forth certain terms of the Company's Basic Service
Plan as of March 31, 1998.
<TABLE>
<CAPTION>
PER MINUTE
RATE(2)
ACTIVATION MONTHLY --------------
PLAN(1) FEE SUBSCRIPTION FEE VC1 VC2 VC3
------- ---------- ---------------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Basic Service Plan................... 116.81 24.59 0.25 0.58 0.66
</TABLE>
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(1)All amounts in reais, net of value-added taxes.
(2) All rates are peak rates, net of value-added taxes. A 30% discount applies
to all off-peak calls and a 30% surcharge applies to all VC1 calls from
one cellular phone to another.
The following table sets forth certain terms of the Company's plans of
service, which have been approved by Anatel as of June 30, 1998.
<TABLE>
<CAPTION>
PROPOSED PLANS(1)
----------------------------------------
BASIC P80 P200
(REVISED) PLUS P80 PLUS P200 PLUS FLEX
--------- ------ ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Activation fee.............. 116.81 116.81 97.34 97.34 97.34 97.34 97.34
Monthly subscription fee.... 24.59 50.64 38.71 64.76 57.87 83.92 18.09
VC1(2)...................... 0.25 0.25 0.22 0.22 0.18 0.18 0.47(3)
VC2(2)...................... 0.58 0.58 0.49 0.49 0.49 0.49 0.58
VC3(2)...................... 0.66 0.66 0.59 0.59 0.59 0.59 0.66
AD.......................... 0.55 0.55 0.55 0.55 0.55 0.55 0.55
DSL1(2)..................... 0.29 0.29 0.25 0.25 0.25 0.25 0.29
DSL2(2)..................... 0.33 0.33 0.29 0.29 0.29 0.29 0.33
VC1 Minutes Included........ -- -- 80 80 200 200 --
VC2 and VC3 Minutes
Included................... -- 60 -- 60 -- 60 40
</TABLE>
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(1) All amounts (except minutes) in reais, net of value-added taxes.
(2) Reduced by 30% for off-peak calls.
(3) Reduced by 81% (rather than 30%) for off-peak calls.
The Plus, P80, P80 Plus, P200 and P200 Plus plans all have higher monthly
charges but lower usage rates and are designed for heavy users. The Flex plan
has low activation and monthly charges and low off-peak rates and is expected
to be used by casual personal users.
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NETWORK USAGE CHARGES
In addition to revenues arising from cellular calls originating within the
Region and calls made by the Company's subscribers while outside the Region,
the Company earns revenues from any call (cellular or fixed) originating
outside the Region as well as any call originating on a fixed network within
the Region, and terminating on a subscriber's cellular telephone within the
coverage area of the network. The Company charges the operator from whose
network such a call originates a network usage charge for every minute the
Company's network is used in connection with the call. See "--Operating
Agreements--Interconnection Agreements." The Company's average network usage
tariff, net of value-added taxes, was R$0.17, R$0.17 and R$0.19 per minute in
1995, 1996 and 1997, respectively.
TAXES ON TELECOMMUNICATIONS SERVICES
The cost of all telecommunications services to the subscriber includes a
variety of taxes. The Company deducts the amount of such taxes to present net
operating revenues. The principal tax is a state value-added tax, the Imposto
sobre Circulacao de Mercadorias e Servicos ("ICMS"), which the Brazilian
states impose at varying rates on certain revenues from the provision of
telecommunications services. The rate in the states of Bahia and Sergipe is
25% for domestic telecommunications services.
On June 19, 1998 the secretaries of the treasury of the individual Brazilian
states approved an agreement to interpret existing Brazilian tax law to
broaden the application of the ICMS to cover not only telecommunications
services, but also other services, including cellular activation, which had
not been previously subject to such tax, as of July 2, 1998. In addition,
pursuant to this new interpretation of existing tax law, the ICMS tax may be
applied retroactively for such telecommunications services rendered during the
last five years.
The Company believes that the attempt by the state treasury secretaries to
extend the scope of ICMS tax to services which are supplementary to basic
telecommunications services is unlawful because: (i) the state secretaries
acted beyond the scope of their authority; (ii) their interpretation would
subject certain services to taxation which are not considered
telecommunications services; and (iii) no new taxes may be applied
retroactively. Accordingly, no provision for loss has been made in the
accompanying consolidated financial statements.
There can be no assurance that the Company will prevail in its position that
the new interpretation by the state treasury secretaries is unlawful. If the
25% ICMS tax were applied retroactively for five years, it would have a
material negative impact on the financial condition and results of operations
of the Company. See "Management's Discussion and Analysis of Financial
Condition and Revenues and Expenses--Revenues and Expenses for years ended
December 31, 1995, 1996 and 1997--Net operating revenues--Value-added and
other indirect taxes."
Other taxes on gross operating revenues 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% of gross operating revenues
for some telecommunications services. The average rate of all such taxes, as a
percentage of gross operating revenues, was 21.2% in 1997. This rate is likely
to increase in the future as a result of activation fees becoming subject to
ICMS.
BILLING AND ADMINISTRATION
Telebahia Cellular and Telergipe Cellular each use a billing and
administration system (together, the "Company Billing System") provided by
Telebahia and Telergipe, respectively. The Company Billing System has four
main functions: (i) subscriber registration; (ii) subscriber information
consultation; (ii) accounts payable management; and (iv) billing and
collection. At the time of subscriber activation, account information is
entered into the Company Billing System by on-line operators. To smooth the
billing and collection cycles, Telebahia
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Cellular groups its subscribers into billing batches of approximately 100,000
subscribers. By limiting this number to approximately 50% of the total number
of subscribers, Telebahia Cellular spreads the tasks and duties performed by
its customer service, billing and collection departments throughout the month
and receives a more evenly distributed inflow of cash. Telergipe Cellular, on
the other hand, does not group its subscribers in this manner for billing
purposes.
The Company has contracted to use, and is in the process of implementing, a
new system developed by Informatica Telecomunicaciones y Servicios, S.A., a
Chilean company, for such purposes in the future. The Company expects this
system to be operational by September 1998.
The Company is responsible for billing its subscribers for all calls made by
such subscribers and collecting the payments related to such calls. However,
the Company receives roaming fees (VC1, VC2 or VC3, as applicable) from other
cellular operators as a result of their subscribers roaming in the Region, and
conversely, the Company pays roaming fees to other cellular operators when its
subscribers roam outside of the Region. See "--Rates--Subscriber Rates."
In addition, the Company receives network usage fees from other operators
when a call originates on their network and terminates on the Company's
cellular network, and conversely, the Company must pay network usage fees when
calls from its subscribers terminate on the network of another operator. After
the collection cycle is over, the Company, the fixed-line and cellular
operators jointly reconcile the amounts collected from subscribers against the
amounts due to each operator and pay the net amounts outstanding to the
appropriate parties. For international and domestic long-distance calls made
by its subscribers, the Company forwards the amount collected for such calls
to Embratel and charges Embratel a fee for the use of its cellular network.
The Company collects payments through cash or check payments directly from
subscribers and from fixed-line companies and Embratel. Pursuant to Brazilian
law, subscribers must receive a bill at least five days prior to the due date,
and the Company must allow subscribers at least 15 days before suspending
service for non-payment. Telebahia Cellular estimates that approximately 44%
(by value) of its bills are paid in full on or before the due date. Telergipe
Cellular estimates that approximately 40% (by value) of its bills are paid in
full on or before 15 days after the due date.
In the event a subscriber's payment is over 15 days past due (from the due
date), the subscriber's ability to make outgoing calls is suspended until full
payment for all outstanding charges is received. After 60 days of non-payment,
the service is disconnected. See "Management's Discussion and Analysis of
Financial Condition and Revenues and Expenses--Revenues and Expenses for the
years ended December 31, 1995, 1996 and 1997--Operating expenses." In the case
of Telergipe Cellular, the charges for activation are prepaid by the
subscriber, but, in the case of Telebahia Cellular, subscribers pay the
activation fee in the first month's bill.
CELLULAR TELECOMMUNICATIONS TECHNOLOGY
GENERAL
Cellular telecommunications technology, including that utilized by the
Company, is based on the division of a given geographical territory into a
number of areas or "cells" which are generally contiguous. Each cell contains
a low-power transmitter-receiver, known as a "base station" or "cell site,"
that communicates by radio signal with cellular telephones located in the
cell. Each cell is connected by fixed-lines or microwave links to a central
switching point or Mobile Telephone Switching Office ("MTSO"), which controls
the routing of calls and which, in turn, is connected to the Public Switched
Telephone Network ("PSTN"). The MTSO controls the assignment of frequencies
within the cell and allows cellular telephone users to move freely from one
cell to another across the service area while continuing their calls.
CAPACITY CONSIDERATIONS
Cellular telecommunications networks such as the Company's are planned and
constructed to meet a certain level of subscriber density and traffic demand.
Before this level is exceeded, certain steps must be taken to increase
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network capacity in order to maintain service standards. Such capacity
increases can be accomplished by increasing digital penetration and by using
such techniques as sectorization and cell splitting. Other techniques that
have been developed to ensure service quality at sustainable cost include
microcells. The Company believes that its cellular network requires, and will
continue to require, further expansion if it is to meet existing and future
demand for cellular service in the Region.
OPERATING CHARACTERISTICS
Cellular telecommunications networks are typically characterized by
relatively high fixed costs and relatively low variable costs. Until
technological limitations on network capacity are reached, additional capacity
can usually be added in increments that closely match demand and at less than
the proportionate cost of initial capacity.
NETWORK
The ability of the network to deliver high quality service and extensive
geographic coverage is a key factor in the provision of cellular
telecommunications services. The Company develops its cellular network by
building new base stations and adding channels to existing base stations. Such
development is accomplished for the purpose of increasing network capacity and
improving coverage in direct response to projected subscriber demand.
The Company has focused on providing cellular service to Salvador and
Aracaju and the surrounding metropolitan areas. Expansion of the network
enhances the Company's ability to provide service in such key metropolitan
areas where the demand for cellular services continues to increase. The
Company continues to expand its network to cover as broad a geographical area
as is economically feasible in order also to meet consumer demand for cellular
service in areas outside the major urban areas. The Company's Concessions also
contain certain obligations concerning network expansion. See "--Regulation of
the Brazilian Telecommunications Industry--Obligations of Telecommunications
Companies." In building its cellular network, the Company has purchased
cellular equipment manufactured by NEC and Ericsson.
Prior to 1997, the Company's network used only Advanced Mobile Phone Service
("AMPS") analog technology. In 1997, Telebahia Cellular commenced building a
network based on Code Division Multiple Access ("CDMA") technology capable of
servicing digital cellular phones. The Company began to offer digital cellular
service to customers on April 6, 1998. The Company believes that
digitalization offers certain advantages, including greater network capacity,
reduced operating costs and additional revenue through the sale of digital
specific, value-added cellular services. Digital cellular services also offer
subscribers greater security, although digital cellular phones are generally
more expensive than analog cellular phones. Digitalization represents one of
the Company's key strategic initiatives. Although Telergipe Cellular does not
currently plan to offer digital cellular service, it may do so in the future.
As of December 31, 1997, the Company's cellular telecommunications network
consisted of six cellular switches, 268 base stations and 19 signal repeaters.
The Company's six switching centers, located in Salvador, Aracaju, Feira de
Santana and Itabuna, employ five central NEAX 61 switches and one central AXE
10 switch to provide switching services for the Region. The network is
connected primarily by a fiber-optic transmission system leased from Telebahia
and Telergipe. As of December 31, 1997, each of Telebahia Cellular and
Telergipe Cellular was interconnected directly with one local PSTN (in Bahia
and Sergipe, respectively). Through March 31, 1998, the Company had spent
approximately R$413 million constructing its cellular network.
Each of Telebahia Cellular and Telergipe Cellular maintains a network
administration system in Salvador and Aracaju, respectively, which are capable
of monitoring the base stations, the switching centers and all critical
network operational parameters. In addition, technicians operating these
systems have the ability to evaluate rapidly and respond to technical
difficulties in network operations. The Company analyzes the performance data
generated by this system in order to make the operating adjustments or capital
expenditures necessary to enhance network operations.
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FRAUD DETECTION AND PREVENTION
Fraud resulting from cloned cellular phone calls has increased since the
Company began offering cellular services, and the Company believes that the
incidence of cloning is likely to continue to increase in the near term.
"Cloning" fraud occurs through the technological duplication of the cellular
signal of an authorized subscriber, enabling the defrauding party to make
calls using the authorized subscriber's signal. Such calls are then invoiced
to the authorized subscriber. This form of fraud primarily effects analog
cellular services and is difficult to carry out in relation to digital
cellular services. "Subscription" fraud occurs when a person, typically using
a fictitious identification and address, obtains cellular service with no
intention of paying for the service and then incurs substantial charges before
the cellular operator is able to identify the fraud and terminate service.
When the Company discovers that a receivable has been generated by a
fraudulent call, the receivable is written off.
If any part of a fraudulent call is carried over another operator's network,
the Company is obligated to pay such operator the applicable network usage
charge, whether or not the Company ever collects the receivable associated
with that call. Similarly, other operators are required to pay the Company for
fraudulent calls that are carried over the Company's network. See "--Rates--
Network Usage Charges."
Fraud detection measures currently employed by the Company involve the
manual review of call detail records which are produced on average
approximately two days after calls are made. These records are analyzed to
identify abnormal calling patterns, simultaneous calls on one particular
cellular phone, calls placed in a particular interval from different locations
that are too far apart to have been placed by the same phone, an unusually
high level of international calls and calls to numbers previously identified
as suspect, to allow the Company to take corrective actions. The Company
believes that the new billing system that presently is being implemented will
enable the Company to compare the accumulated bill of each customer to a pre-
assigned credit limit and thereby will permit better prevention of fraud.
The Company in conjunction with the other Band A Operators is installing
DFMS (Digital Fraud Management System), a nation-wide fraud detection system
licensed for Digital Equipment Corporation. This system will analyze various
aspects of calls including, simultaneous usage by a single "subscriber," call
frequency and unusually high usage patterns. The Company expects such software
to be operational by September 1998.
Significant expenditures are required periodically to acquire and utilize
anti-fraud technology. For the year ended December 31, 1997, costs incurred by
the Company for the prevention of fraud were approximately R$1.3 million.
During 1998 the Company expects to invest an additional R$0.5 million on its
fraud prevention systems.
QUALITY OF SERVICE
The Company's cellular network is subject to congestion in certain areas,
primarily the Salvador and Aracaju metropolitan areas. Such congestion can
result in subscribers being occasionally unable to make calls in certain areas
and can cause calls to terminate prematurely. See "--Regulation of the
Brazilian Telecommunications Industry--Obligations of Telecommunications
Companies--Quality of Service." The Company's service problems have been
exacerbated because of government-imposed constraints on the Company's capital
expenditure budget, which have prevented the Company from increasing network
capacity to meet demand for cellular services in parts of the Region. See "--
Capital Expenditures." The Company has not, in the past, compensated
subscribers who claimed to have been adversely affected by network congestion.
COMPETITION
Until recently, Brazil's Constitution required that public
telecommunications concessions be granted to government-controlled enterprises
only, but permitted the granting of concessions to others for the provision of
nonpublic telecommunications services. A constitutional amendment passed in
August 1995 permits the Federal Government to grant concessions and licenses
to private companies to provide public telecommunications services.
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The first law implementing the constitutional amendment, which was passed by
the Federal Congress in July 1996, provides for opening certain
telecommunications activities, including the mobile cellular, satellite
communications and data transmission areas, to competition from the private
sector. See "--Background--Regulatory Reform and Privatization" and "--
Regulation of the Brazilian Telecommunications Industry--Concessions and
Licenses."
In January 1997, the Ministry of Communications called for bids from
companies and groups wishing to apply for licenses to provide mobile cellular
services on Band B in each of the ten areas specified in the request for
proposals. Bidders for the licenses, unlike participants in the privatization
of the Telebras System, were subject to limits on foreign participation and
required to be, or be affiliated with, a telecommunications operator.
A license to provide cellular services in the Region on Band B has been
granted to Vicunha, the shareholders of which are: (i) STET Mobile Holding
N.V., a subsidiary of Telecom Italia S.p.A. (43%), (ii) the Brazilian textiles
group Vicunha S.A. (37%) and (iii) the media group Organizacoes Globo S.A. and
Banco Bradesco S.A., Brazil's largest private sector bank (20%). Vicunha paid
R$250 million for the license and commenced providing cellular service based
on the Time Division Multiple Access ("TDMA") digital standard in the Region
in April 1997. Vicunha has also acquired a license to provide cellular
services in the neighboring state of Minas Gerais for R$520 million. Vicunha's
rights and obligations under its concessions are substantially the same as the
Company's rights and obligations under its Concessions. The Company expects
that Vicunha subscribers will use dual mode cellular phones which can be used
on AMPS analog networks, such as the Company's, as well as on TDMA digital
networks.
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. Among such factors are the business strategies
and capabilities of current and potential competitors, future market
conditions, the regulations applicable to new entrants and the Company and the
effectiveness of the Company's efforts to prepare for increased competition.
One or more new competitors may have technical or financial resources greater
than those of the Company. There can be no assurance that the entry of new
competitors will not have a material adverse effect on the Company's business,
financial condition, results of operations or prospects.
The Company also competes with fixed-line telephone service operators.
Fixed-line density in the Region at December 31, 1997 is estimated by
Telergipe and Telebahia to have been approximately 7.3 telephone lines per 100
persons. If substantial capital were to be invested in the fixed-line
telephone industry, resulting in increased fixed-line density and improved
service, certain of the Company's existing and potential subscribers might
choose fixed-line service providers due to a number of factors, some of which
are price-related.
The Company also competes with certain other wireless communications
services, such as mobile radio, paging or beeper services, which are used by
certain of the Company's existing and potential subscribers in the Region.
These competing wireless communication services are generally less expensive
than cellular services.
Technological advances in the communications field, such as the possible
introduction of satellite services and Personal Communications Services
("PCS"), may introduce additional future competition for cellular systems.
Satellite services, which provide nation-wide coverage, may become available
in Brazil in the near future. Although satellite services have the benefit of
covering a much greater area than cellular services, they are considerably
more expensive than cellular services and do not offer comparable coverage
inside buildings. PCS services, which are similar to digital cellular
services, cannot be supplied in Brazil without obtaining a concession to
provide such services from the Federal Government. The Federal Government has
indicated that it does not intend to issue concessions to provide PCS services
until 2000. The Company does not currently plan to offer mobile satellite
services (other than pursuant to a roaming arrangement with a satellite
service provider) or PCS services, although it may consider doing so in the
future.
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OPERATING AGREEMENTS
INTERCONNECTION AGREEMENTS
The Company has entered into interconnection agreements with each of
Telebahia, Telergipe and Embratel. The terms of these interconnection
agreements include provisions for the number and location of connection
points, the method by which signals must be received and transmitted,
interconnection tariffs and the assumption of responsibility for the costs of
interconnection. See "--Regulation of the Brazilian Telecommunications
Industry--Obligations of Telecommunications Companies--Interconnection."
ROAMING AGREEMENTS
Agreements for automatic roaming have been entered into with the other seven
Band A Operators and with the following Band B Operators: BCP Telecomunicacoes
S.A., BCP Nordesle S.A. (formerly BSE S.A.) and Americel S.A. The Company is
currently negotiating roaming agreements with the remaining Band B Operators.
These roaming agreements permit the Company's subscribers to use their
cellular phones on the networks of other cellular operators while travelling
outside the Region ("roaming"). Conversely, the Company is required to provide
cellular service to subscribers of those cellular operators when those
subscribers are within the Region. The agreements require the Company and the
other cellular operators to provide service to roaming subscribers on the same
basis as they provide service to their own subscribers and to carry out a
monthly reconciliation of roaming subscriber usage charges. The agreements
have a three year term and automatically renew for further one year terms.
The Company has also entered into international roaming agreements with
Miniphone S.A. (Band A--Buenos Aires), Compania de Radiocomunicaciones Moviles
S.A. (Band B--Buenos Aires), Telecom Personal S.A. (Band A--Interior/Northern
Argentina), Telefonica Comunicaciones Personales S.A. (Southern Argentina),
Administracion Nacional de Telecomunicaciones (Uruguay), Abiatar S.A.--Movicom
(Uruguay) and Telefonica Celular del Paraguai S.A. (Paraguay) that permit its
subscribers to use their cellular phones in Argentina, Uruguay and Paraguay
and subscribers of those companies to use their cellular phones in the Region.
In addition, the Company is currently negotiating an international roaming
agreement with Telecomunicacoes Moveis Nacionais S.A.--TMN (Portugal). The
terms of these international roaming agreements vary from agreement to
agreement.
EMPLOYEES
As of March 31, 1998, the Company had 229 full-time employees, of whom
approximately 17% are employed in technical or operational positions, 57% in
sales and marketing, 22% in finance and administrative support and 4% in
customer service. Approximately 57% of all employees are members of state
labor unions associated either with the Federacao Nacional dos Trabalhadores
em Telecomunicacoes ("Fenattel") or with the Federacao Interestadual dos
Trabalhadores em Telecomunicacoes ("Fittel"). Each operating subsidiary of the
Company negotiates a new collective labor agreement every year with the local
union. These negotiations are carried out with the supervision and guidance of
the Company, on one side, and Fenattel and Fittel, on the other. 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 participates in a pension fund, Fundacao Telebras de Seguridade
Social ("Sistel"), the purpose of which is to supplement government-provided
retirement benefits. The Company makes monthly contributions to Sistel
currently equal to 13.5% of the salary of each employee who is a Sistel
member. Each employee member also makes a monthly contribution to Sistel based
on age and salary. Members of Sistel qualify for full pension benefits after
reaching age 57 and having completed at least 35 years of service for men and
30 years of service for women. Sistel operates independently from the Company,
and its assets and liabilities are fully segregated from those of the Company
and of Telebras. See Note 18 to the Consolidated Financial
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Statements. Employees of the Company at the time of the privatization have the
right to maintain their rights and benefits in Sistel in accordance with the
terms in place at that time.
RESEARCH AND DEVELOPMENT
Until the Breakup of Telebras, Telebahia, Telergipe 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 or the
"Center"). All research and development expenses incurred by Telebahia and
Telergipe were allocated to the fixed-line operations of those companies.
Accordingly, the Company had no research and development expenses in 1995,
1996 and 1997.
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 telecommunications
technology. Pursuant to a three year contract signed in May 1998 between
Telebras and the Company, the Company is obliged to contribute an aggregate of
R$0.8 million to the Center during the three years ending May 2001. 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 such as Band B Operators on a fee-for-
service basis. The Company may consider conducting research independently of
the Center on a case by case basis but will otherwise rely on the Center for
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 in the last five years have included and in the
future will continue to include increasing network capacity, improving overall
quality and, more recently, increasing the digitalization of the Company's
network.
The Company's capital expenditures historically have been planned and
allocated on a Telebras system-wide basis and were subject to approval by the
Ministry of Communications. In addition, the budget for capital expenditures
of the Telebras System has been 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 1999 (Programa de Recuperacao e Expansao dos Sistemas de
Telecomunicacoes e Postal or "PASTE"). The foregoing constraints on capital
expenditures have prevented the Company from making certain investments that
it might otherwise would have made to improve cellular telephone service in
the Region.
Since the privatization of Telebras, none of these requirements has applied.
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 of the Brazilian Telecommunications Industry--
Obligations of Telecommunications 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 Revenues and Expenses--Liquidity and
Capital Resources."
The 1998 annual capital expenditure budget for the Telebras System includes
capital expenditures of the Company. The Company has entered into contracts
for a total of R$65.1 million in 1998 capital expenditures. The Company
expects, however, that as a result of the privatization all capital
expenditures will be subject to revision by management and the new controlling
shareholders of the Company.
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The following table sets forth the Company's capital expenditures for each
year in the three-year period ended December 31, 1997, in constant reais of
December 31, 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
---------- ---------- ----------
(IN MILLIONS OF CONSTANT REAIS)
<S> <C> <C> <C>
Automatic switching equipment................... 31.8 9.7 4.6
Other equipment................................. 88.5 128.5 62.7
Real estate..................................... 15.2 35.8 1.0
Other assets.................................... -- 1.1 0.2
---------- ---------- ---------
Total capital expenditures.................... 135.5 175.1 68.5
========== ========== =========
</TABLE>
REGULATION OF THE BRAZILIAN TELECOMMUNICATIONS INDUSTRY
GENERAL
The Company's business, including the services it may provide and the rates
it charges for telecommunications services, is regulated by Anatel pursuant to
Law No. 9,472 of July 16, 1997, the Lei Geral de Telecomunicacoes (the
"Telecommunications Law"), the regulations, decrees, orders and plans issued
thereunder and the Concession contract granting the Company the right to
provide certain telecommunications services, subject to certain obligations
contained in 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 and the Codigo
Brasileiro de Telecomunicacoes (the "Code of Telecommunications") promulgated
thereunder, 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"). 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 Band A Operators and 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.
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.
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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 initial 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 assets 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"). There are four
companies that operate in the Public Regime: Embratel Participacoes S.A.,
Telesp Participacoes S.A., Tele Centro Sul Participacoes S.A., and Tele Norte
Leste Participacoes S.A. As the primary providers of fixed-line telephone
services, which serve an important public function, these four companies are
subject to certain obligations. These obligations fall into three basic
categories: quality of service, continuity of service, and network expansion
and modernization.
Companies operating in the Private Regime, which includes every company
other than the four companies operating in the Public Regime, are generally
not subject to any general obligations that arise from general laws, but
rather may have obligations imposed on them by Anatel as part of the List of
Obligations appended to their concessions or licenses. Technically, the
General Plan on Quality applies to operators in both the Public Regime and the
Private Regime, but the terms of the General Plan on Quality allow Anatel to
waive its requirements and Anatel has stated that it does not plan to impose
any specific requirements on Private Regime companies outside of the context
of individual concessions and licenses other than such basic obligations as
those concerning network engineering.
Non-fixed Services--Private Regime--Concessions. Pursuant to the Minimum Law
and the Telecommunications Law, the Band A and Band B Operators have been
granted concessions. Each cellular concession is a specific grant of authority
to supply cellular services, subject to certain obligations contained in the
List of Obligations. If a cellular company wishes to offer any
telecommunications service other than the cellular service authorized by its
concession, it may apply to Anatel for a license to offer such other services.
See "--Non-fixed Services--Private Regime--Licenses."
Each cellular concession has been granted for an initial period of 15 years,
and may be renewed at the discretion of Anatel for further periods of 15 years
if the List of Obligations contained in the concession has been met. The Band
A cellular concessions did not require the payment of a fee. Terms of payment
for renewal of the Band A and Band B cellular concessions have not yet been
established.
Currently, there is a limit on the number of cellular companies. One company
may operate in Band A and one company in Band B in any area of the country.
Under the cellular concessions, Anatel may not authorize additional providers
of cellular services until December 31, 1999.
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Non-fixed Services--Private Regime--Licenses. Except for cellular services,
for which no additional licenses will be granted until December 31, 1999,
licenses may be granted to any company wishing to offer telecommunications
services in the Private Regime. Licensees are not subject to any specific
obligations, although individual licenses may contain certain obligations. The
Company has not been granted any licenses as of the date of this Registration
Statement.
Operators in the Private Regime may be granted licenses to offer any type of
telecommunications service (including any services currently offered solely by
Public Regime companies). As noted above, there is currently a restriction on
Anatel's ability to license new cellular operators in the Private Regime until
December 31, 1999, although this restriction is not a permanent part of the
Private Regime and it is anticipated that new Private Regime licenses for
cellular services will be granted once the restriction period expires.
OBLIGATIONS OF TELECOMMUNICATIONS COMPANIES
Providers of telecommunications services are subject to certain obligations
contained in the List of Obligations of their concessions and licenses.
Providers of telecommunications services in the Private Regime, including the
Band A and Band B Operators, are subject to a set of obligations contained in
their List of Obligations. Cellular companies, including the Company, are not
subject to the same level of formal obligations to which the companies in the
Public Regime are subject.
The Company must at all times meet certain obligations concerning quality of
service, network expansion and modernization pursuant to the List of
Obligations. Failure to meet the List of Obligations at any time may result in
fines and penalties of up to 0.05% of annual net operating revenues per day
until the Company complies with the obligations as well as potential
revocation of the Company's Concessions. The Company anticipates meeting the
List of Obligations.
The following two tables set forth the quality of service obligations and
the network expansion and modernization obligations of the Company as stated
in the List of Obligations for the period 1998-2002 and the Company's status
with regard to each obligation as of December 31, 1997.
NETWORK EXPANSION AND MODERNIZATION
<TABLE>
<CAPTION>
TELEBAHIA TELERGIPE
CELLULAR CELLULAR
STATUS AS OF STATUS AS OF MINIMUM COVERAGE
DECEMBER 31, DECEMBER 31, REQUIRED BY NOVEMBER 4,
1997 1997 1998 1999 2000 2001 2002
------------ ------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Services Offered(1) in
cities with populations
of:
30,000 to 50,000...... 56% 33% -- -- -- -- 70%
50,000 to 75,000...... 100% 100% -- -- -- 80% --
75,000 to 100,000..... 100% 100% -- -- 90% -- --
100,000 to 200,000.... 100% 100% -- 100% -- -- --
Over 200,000 or state
capital.............. 100% 100% 100% -- -- -- --
Maximum average
installation waiting
time
(in days)(2)........... 0 0 180 120 30 15 5
</TABLE>
- --------
(1) For services to be deemed to be offered in any city, service must be
available to at least 30% of the population.
(2) Between request for service and connection in areas with cellular service.
18
<PAGE>
QUALITY OF SERVICE
<TABLE>
<CAPTION>
TELERGIPE CELLULAR MAXIMUM/
TELEBAHIA CELLULAR STATUS DURING MINIMUM
STATUS DURING 1997 1997 REQUIRED
------------------ ------------------ --------
<S> <C> <C> <C>
Minimum average level of system
availability(1)............... 99.1% 99.1% 98%
Maximum network drop rate(2)... 0.1% 5.9% 3%
Maximum "all circuits busy"
rate(3)....................... 13.3% 10.7% 5%
Maximum interconnection drop
rate(4)....................... 1.0% 1.2% 3%
Minimum average system
availability on first call
attempt....................... 94.0% 84.5% 90%
Maximum number of customer
complaints per month (per 100
subscribers).................. 2.6% 0.2% 5%
</TABLE>
- --------
(1) Percentage of time system operational and available for call origination,
transport and completion.
(2) Rate of failed call completion due to signal loss between radio base
station and switching centers.
(3) Rate at which system rejects attempted calls during peak period because no
circuits are available.
(4) Rate at which interconnected calls fail to complete during peak periods.
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. 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 require
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.
RATE REGULATION
Price-Caps. Concessions granted to the Band A and Band B Operators,
including the Concessions of the Company, provide for a price-cap mechanism to
set and adjust rates on an annual basis. The price-cap mechanism consists of
an upper limit, or price-cap, placed on a weighted average rate for a basket
of services, stipulated by Anatel. The basket includes the services in the
Basic Service Plan, including monthly subscription fees, VC1 calling, VC2
calling, VC3 calling, DSL1 calling, DSL2 calling, and AD charges, as well as
interconnection charges, including network usage fees.
The initial price-cap agreed by Anatel and the Company in the Concessions is
based on the previously existing tariffs, which were developed based on the
fully allocated costs of the Company. The initial price-cap will be adjusted
on an annual basis under a formula contained in the Concessions. The formula
allows two adjustments to the price-cap. First, the price-cap is revised
upward to reflect increases in inflation by multiplying
19
<PAGE>
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.
The price-cap covers a basket of 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 20%, 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.
Similar to the regulatory systems in most countries going through
liberalization, Anatel has imposed a productivity factor (or X-factor) on the
four fixed-line companies operating in the Public Regime. Under this system,
the price-cap imposed on these operators is adjusted downward annually by a
specific productivity factor once certain other adjustments (such as for
inflation) have been made. There is no productivity factor or X-factor applied
to revise the price-cap for cellular companies downward.
Cellular Rates. Since October 1994, cellular telephone service in Brazil,
unlike that in North America, has been offered on a "calling party pays"
basis. Under the policy of calling party pays, a cellular telephone service
subscriber generally pays usage charges only for calls made by the subscriber.
When a subscriber makes a call from a limited geographic area (a "registration
area") to a person within the same registration area, the customer pays a
certain base rate per minute ("VC1"). If the recipient of the call is outside
the registration area from which the call was placed but within the concession
region of the cellular provider for such registration area, the subscriber
pays a higher rate ("VC2"). Calls made from within a registration area to a
recipient located outside the concession region in which such registration
area is located are billed at the highest per-minute rate ("VC3"). The Company
earns VC1, VC2, or VC3 revenues, as applicable, for all cellular calls
originating from the Region, whether made by a Company subscriber or a
subscriber of another cellular operator that is roaming in the Region.
Similarly, when a Company subscriber makes a cellular call while outside the
Region, the VC1, VC2, or VC3 revenues, as applicable, associated with that
call are paid over to the cellular operator from whose concession region the
call is made. See "--Operating Agreements--Roaming Agreements."
When a Company subscriber makes or receives a call while outside the
registration area in which such subscriber is registered for service (such
subscriber's "Home Registration Area"), the subscriber also pays the Company a
per-call surcharge known as "AD." When a Company subscriber receives a call
while outside such subscriber's Home Registration Area, the subscriber also
pays a certain per-minute rate if the subscriber is located within the Region
("DSL1"), or a higher rate ("DSL2") if the subscriber is located outside the
Region. The Company's Region consists of 43 registration areas which vary in
size depending upon population density.
For a breakdown of the Company's current cellular service rates, see "--
Rates--Subscriber 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 a flat fee charged per minute of use which
represents an average charge for a basket of network elements and services.
For a breakdown of the Company's current network usage charges, see "--
Rates--Subscriber Rates" and "--Network Usage Charges."
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
20
<PAGE>
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.
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.
21
<PAGE>
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.
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
public sector debt, (iii) to strengthen the capital markets and promote wider
share ownership 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.
22
<PAGE>
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 Brazilian
Government implemented several measures intended to curtail the outflow of
foreign investment, as Central Bank reserves were reduced from US$61.2 billion
in September 1997 to US$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 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 rate 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 7.7 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 7.7% for 1997 and 1.3% for the first quarter of 1998. Despite
23
<PAGE>
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."
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. 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 statement of operations. 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.
ITEM 2: DESCRIPTION OF PROPERTY
The principal physical properties of the Company consist of transmission
equipment, switching equipment and base stations. The Company leases office
space (approximately 1,800 square meters) in Salvador, Bahia from which the
majority of its management activities are conducted, and leases other office
space in Aracaju.
The Company also leases the sites where its cellular network equipment is
installed. As of May 1, 1998, the Company had six large cellular switches in
Salvador, Aracaju, Feira de Santana and Itabuna and 268 cell sites, of which
57 were located on land owned by the Company and the remainder of which were
located on land leased by the Company. Most of these leases do not expire
prior to 2003. In addition, the Company leases seven retail stores through the
Region.
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 passage 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.
24
<PAGE>
Telebras, Telebahia and Telergipe, the legal predecessors of the Registrant,
Telebahia Cellular and Telergipe Cellular, respectively, are defendants in a
number of legal proceedings and subject to certain other claims and
contingencies. Liability for any claims arising out of acts committed by
Telebahia or Telergipe, as the case may be, prior to the effective date of the
spin-off of Telebahia's and Telergipe's cellular assets and liabilities to
Telebahia Cellular and Telergipe Cellular, respectively, remains with
Telebahia or Telergipe, as the case may be, except for those liabilities for
which specific accounting provisions have been assigned to Telebahia Cellular
or Telergipe Cellular. Any claims against Telebahia or Telergipe which are not
satisfied by Telebahia or Telergipe could result in claims against Telebahia
Cellular or Telergipe Cellular to the extent that Telebahia Cellular or
Telergipe Cellular has received assets which might have been used to settle
those claims had it not been spun off from Telebahia or Telergipe, as the case
may be. 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 (in which case 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.
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." Iberdrola/Telefonica owns 51.8% of the Common
Shares. Accordingly, Iberdrola/Telefonica has the ability to control the
election of the Registrant's Board of Directors and the direction and future
operations of the Company. Iberdrola/Telefonica is managed by Telefonica
Internacional, S.A. pursuant to a shareholder's agreement among Iberdrola and
Telefonica International, S.A.
The following table sets forth information concerning the ownership of
Common Shares by Iberdrola/Telefonica 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>
Iberdrola........................................ 39,931,193,697 32.11%
Telefonica Internacional S.A..................... 24,473,957,428 19.68%
All directors and executive officers as a group
(5 persons)..................................... . 0.00%
</TABLE>
The following is a brief description of the members of the
Iberdrola/Telefonica consortium.
IBERDROLA S.A. Iberdrola is an electric power company whose major activity
is the generation, transportation, distribution and marketing of electricity.
Iberdrola is also engaged in sectors such as new energy, engineering,
consultancy, telecommunications, information systems, real estate, and added
value services to customers. In Spain, it provides electricity to its more
than eight million customers, which represent 40% of the peninsular domestic
market. Iberdrola performs activities in 23 companies set up in Argentina,
Bolivia, Brazil, Colombia, Chile and Guatemala, and participates in the
management of electricity, gas and telecommunications supply to over
ten million customers in those countries. Iberdrola is also a participant in
the consortia that acquired control of two other New Holding Companies: Tele
Sudeste Celular Participacoes S.A. and Telesp Participacoes S.A.
TELEFONICA INTERNACIONAL S.A. Telefonica Internacional S.A. is a subsidiary
of Telefonica de Espana S.A. ("Telefonica"). Telefonica is dedicated to the
telecommunications sector, with activities in Spain and Portugal and in the
Americas. Telefonica provides a comprehensive range of telecommunications
services, including fixed, mobile and public telephone services to the
residential and business markets, as well as international calls, data
transmission and infrastructure services. Its shares are listed on the Madrid
Stock Exchange and on the New York Stock Exchange. Telefonica is also a
participant in the consortia that acquired control of three other New
25
<PAGE>
Holding Companies: Tele Sudeste Celular Participacoes S.A., Telesp Celular
Participacoes S.A. and Telesp Participacoes S.A.
ITEM 5: NATURE OF TRADING MARKET
There has never been a trading market for the Common Shares, the Preferred
Shares or the ADSs. The common shares and preferred shares of Telebahia
Cellular have traded 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") since May 18, 1998. Prior to that date, Telebahia
Cellular shares traded on such exchanges as units with shares of Telebahia.
Prior to the spin-off of Telebahia and Telergipe's cellular operations to
Telebahia Cellular and Telergipe Cellular, the common shares and preferred
shares of Telebahia traded on the Brazilian Stock Exchanges. The common shares
and preferred shares of Telergipe never traded on any of the Brazilian Stock
Exchanges. Management believes that the market prices of shares of Telebahia,
units comprised of Telebahia and Telebahia Cellular shares are not indicative
of the eventual market price, if any, of the Preferred Shares.
The eventual market price of the Preferred Shares, if any, is expected to
differ materially from the market price of the preferred shares of Telebahia
Cellular, which are set forth below. Two factors accounting for this
difference are expected to be (i) that the Registrant has certain assets and
liabilities that Telebahia Cellular does not (see Note 23 to the Consolidated
Financial Statements) and (ii) that the capital structure of Telebahia
Cellular differs significantly from that of the Registrant. As of May 18,
1998, Telebahia Cellular had 3,496,617 thousand common shares and 5,921,090
thousand preferred shares outstanding.
<TABLE>
<CAPTION>
PRICES PER 1,000
PREFERRED SHARES OF
TELEBAHIA
CELLULAR(1)
------------------- ---
HIGH LOW
-------------------
IN NOMINAL REAIS
<S> <C> <C> <C>
May 18, 1998 through May 31, 1998.................. R$ 44.00 R$ 29.00
June 1, 1998 through June 30, 1998................. R$ 29.00 R$ 22.00
July 1, 1998 through July 31, 1998................. R$20.01 R$12.01
August 1, 1998 through September 16, 1998.......... R$15.94 R$11.00
</TABLE>
- --------
(1)Share prices are for Telebahia Cellular, a subsidiary of the Registrant,
and not for the Registrant itself.
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, 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 5,000 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 TBE. Prices at which the Preferred Shares and the ADSs may
trade cannot be predicted. There can be no
26
<PAGE>
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.
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 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."
27
<PAGE>
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.
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 the 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 the 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.
28
<PAGE>
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 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 the issuance of the ADSs 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
29
<PAGE>
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 Preferred Shares or ADSs in their particular
circumstances.
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 Company (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 rate of the withholding tax on dividends in respect of profits
generated prior to December 31, 1995 below the generally applicable 15% rate
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.
30
<PAGE>
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
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 Company'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 levied by some States
in Brazil on gifts made or inheritances bestowed by individuals or entities
that are not resident or domiciled in Brazil or in the relevant State to
individuals or entities 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.
31
<PAGE>
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 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, such Preferred Shares. The Registered Capital for
each Preferred Share purchased in the form of an ADSs, or purchased in Brazil,
and deposited with the Depositary in exchange for a ADS, will be equal to its
purchase price (in U.S. dollars) to the purchaser. The Registered Capital for
a Preferred Share that is withdrawn upon asurrender 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.
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<PAGE>
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.
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
33
<PAGE>
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 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 24 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 divisional equity at December 31,
1996 and 1997 and income before interest income, unallocated interest expense
and taxes for the years ended December 31, 1996 and 1997. All other selected
financial information has been derived from the Company's accounting records.
The Consolidated Financial Statements present the consolidated financial
condition and revenues and expenses of the Registrant and the combined
cellular telecommunications businesses of Telebahia and Telergipe, which were
spun off into the Registrant's Subsidiaries, Telebahia Cellular and Telergipe
Cellular, effective January 1, 1998. The portion of the equity and income
before interest income, unallocated interest expense and taxes of the Company
attributable to shareholders of the Company 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
directly and indirectly owned 10.7% and 26.4% of the share capital of
Telebahia and Telergipe, respectively.
Cash and nonspecific debt relating to the cellular telecommunications
businesses of Telebahia and Telergipe could not be segregated from Telebahia
and Telergipe prior to December 31, 1997 and such amounts are not
34
<PAGE>
reflected in the Consolidated Financial Statements. As a result, interest
income, unallocated interest expense and income tax expense relating to the
cellular telecommunications businesses of Telebahia and Telergipe could not be
identified and reflected in the Consolidated Financial Statements. In view of
the exclusion of such revenues and expenses from the Consolidated Financial
Statements, historical income per share and dividend per share information has
not been included in the table below. See "Management's Discussion and
Analysis of Financial Condition and Revenues and Expenses for the years ended
December 31, 1995, 1996 and 1997--Allocated interest expense."
The formations of the Registrant, Telebahia Cellular and Telergipe Cellular
have 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 cellular telecommunications businesses of Telebahia and Telergipe were
transferred to Telebahia Cellular and Telergipe Cellular at their indexed
historical cost. The revenues and expenses associated with such assets and
liabilities were also allocated to Telebahia Cellular and Telergipe Cellular.
Separate records of revenues from the cellular telecommunications businesses
of Telebahia and Telergipe were maintained historically. Accordingly, actual
amounts were allocated for the periods included herein. The Consolidated
Statements of Revenues and Expenses and Net Interdivisional Cash Distribution
(Receipt) have been prepared to include the historical activity related to the
assets and liabilities transferred. The Consolidated Financial Statements are
not necessarily indicative of what would have been the financial condition and
revenues and expenses of the Company as of December 31, 1996 and 1997, and for
the three year period ended December 31, 1997 had the cellular
telecommunications businesses of Telebahia and Telergipe been separate legal
entities during such period. See "Description of Business--Background", "--The
Company" and Notes 1, 2 and 23 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. 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 Consolidated Statements
of Revenues and Expenses. Inflationary gains or losses without a corresponding
income or expense caption have been allocated to other net operating income.
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. Effective January 1, 1996, the CVM no longer requires Brazilian
companies to restate their financial statements for reporting purposes in
constant currency by indexing historical amounts using the UFIR. 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 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.
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 the 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,
------------------------------------------------------
1995 1996 1997 1997
--------- ---------- ---------- -------------------
(IN THOUSANDS OF CONSTANT (IN THOUSANDS
REAIS, EXCEPT PER SHARE DATA) OF U.S. DOLLARS)(1)
<S> <C> <C> <C> <C>
STATEMENT OF REVENUES
AND EXPENSES DATA:
Brazilian GAAP
Net operating revenue
from cellular
telecommunications
services............... R$84,176 R$188,544 R$220,441 US$197,457
Cost of services........ (30,823) (55,543) (68,716) (61,551)
--------- ---------- ---------- ----------
Gross profit............ 53,353 133,001 151,725 135,906
Operating expenses:
Selling expense........ (3,275) (19,229) (17,471) (15,649)
General and
administrative
expense............... (7,745) (16,015) (20,517) (18,378)
Other net operating
income................ 3,441 5,301 1,568 1,405
--------- ---------- ---------- ----------
Total................ (7,579) (29,943) (36,420) (32,622)
Operating income before
interest............... 45,774 103,058 115,305 103,284
Allocated interest ex-
pense.................. (9,614) (10,466) (10,333) (9,256)
--------- ---------- ---------- ----------
Operating income before
interest income and un-
allocated interest ex-
pense.................. 36,160 92,592 104,972 94,028
Net non-operating in-
come................... -- -- 57 51
Employees' profit
share.................. -- (209) (142) (127)
--------- ---------- ---------- ----------
Income before interest
income, unallocated
interest expense, taxes
and minority
interests.............. 36,160 92,383 104,887 93,952
Minority interests
before interest income,
unallocated interest
expense and taxes...... (1,861) (6,468) (13,108) (11,741)
--------- ---------- ---------- ----------
Income before interest
income, unallocated
interest expense and
taxes(2)............... 34,299 85,915 91,779 82,211
========= ========== ========== ==========
U.S. GAAP
Income before interest income,
unallocated interest expense
and taxes(2)..................... 85,248 89,459 80,132
========== ========== ==========
FINANCIAL CONDITION DATA
(AT DECEMBER 31):
Brazilian GAAP
Property, plant and
equipment, net......... 161,815 324,686 373,928 334,941
Total assets............ 175,020 352,971 408,947 366,309
Loans and financing--
current portion........ 9,210 9,408 70,564 63,207
Loans and financing--
non-current portion.... 93,440 130,154 78,284 70,122
Divisional equity....... 55,428 176,618 194,329 174,068
U.S. GAAP
Property, plant and equipment,
net.............................. 323,110 368,903 330,440
Total assets...................... 351,915 405,580 363,293
Loans and financing--current
portion.......................... 6,387 128,965 115,519
Loans and financing--non-current
portion.......................... 130,154 16,874 15,115
Divisional equity................. 175,733 191,482 171,517
</TABLE>
<TABLE>
<CAPTION>
MAY 22, 1998
----------------
(IN THOUSANDS OF
CONSTANT REAIS)
<S> <C>
NEW HOLDING COMPANY--BRAZILIAN GAAP SHAREHOLDERS' EQUITY(4):
Share capital................................................. 87,161
Income reserves............................................... 71,488
Retained earnings............................................. 92,643
-------
Total shareholders' equity................................... 251,292
=======
</TABLE>
36
<PAGE>
SELECTED FINANCIAL INFORMATION FOR 1993 AND 1994:
Selected financial information as of and for the years ended December 31,
1993 and 1994 has not been presented as the accounting records for these years
were not maintained in a manner that would enable all costs, assets and
liabilities to be segregated between fixed and cellular operations. Given that
the Company's cellular business in 1993 and 1994 was in a developmental stage
having limited relevance to the Company's current operations, management
believes that the omitted selected financial information as of and for the
years ended December 31, 1993 and 1994 would not be material to an
understanding of the trends affecting the evolution of the Company's costs in
the periods presented or in future periods. However, information relating to
net operating revenues and number of subscribers at year end has been
presented in the following table.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1993 1994 1995 1996 1997 1997
----- ------ ------- ------- ------- ----------------
(IN THOUSANDS OF CONSTANT REAIS, (IN THOUSANDS OF
EXCEPT SUBSCRIBER DATA) U.S. DOLLARS)(1)
<S> <C> <C> <C> <C> <C> <C>
REVENUES AND SUBSCRIBERS
Net operating revenue... 2,558 34,464 84,176 188,544 220,441 197,457
Subscribers (year end).. 5,435 31,629 107,355 181,094 206,598(3)
</TABLE>
- --------
(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) The consolidated net income of the Company has not been presented as cash
and nonspecific debt relating to the cellular telecommunications
businesses of Telebahia and Telergipe could not be segregated from
Telebahia and Telergipe prior to December 31, 1997. Accordingly, the
Consolidated Statement of Revenues and Expenses Data does not include
interest income and additional interest expense, if any, associated with
such cash and nonspecific debt. Had such amounts been reported, the
Company would have deducted income and social contribution taxes utilizing
the effective tax rates of Telebahia Cellular and Telergipe Cellular for
the periods presented. For US GAAP purposes, the income and social
contribution taxes would have been adjusted from the Brazilian GAAP
amounts to reflect the impact of the indexation of permanent assets. In
addition, in order to report combined net income, minority interests would
have been adjusted giving effect to the adjustments noted above.
(3) Includes 11,221 subscribers whose service was cancelled in 1996 due to
nonpayment or other reasons but who continued to appear as subscribers in
the Company's records until March 1997.
(4) 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 U.S. 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 23 to the Consolidated Financial
Statements.
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
REVENUES AND EXPENSES
The following discussion of the consolidated financial condition and
revenues and expenses 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 differ in
37
<PAGE>
certain significant respects from U.S. GAAP. Note 24 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 income before interest income, unallocated
interest expense and taxes for the two years ended December 31, 1996 and 1997
and divisional equity as of 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 89.3% and 73.6% of the
total share capital of Telebahia Cellular and Telergipe Cellular,
respectively, were transferred to the Registrant.
The Consolidated Financial Statements present the financial condition and
revenues and expenses of the consolidated cellular telecommunications
businesses of Telebahia and Telergipe, which were spun off into the
Registrant's Subsidiaries, Telebahia Cellular and Telergipe Cellular,
effective January 1, 1998. The portion of the consolidated equity and income
before interest income, unallocated interest expense and taxes of the Company
attributable to shareholders of the Company 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
directly and indirectly owned 10.7% and 26.4% of the share capital of
Telebahia and Telergipe, respectively.
The formations of the Registrant, Telebahia Cellular and Telergipe Cellular
have 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 cellular telecommunications businesses of Telebahia and Telergipe were
transferred to Telebahia Cellular and Telergipe Cellular at their indexed
historical cost. The revenues and expenses associated with such assets and
liabilities were also allocated to Telebahia Cellular and Telergipe Cellular.
Separate records of revenues from the cellular telecommunications businesses
of Telebahia and Telergipe were maintained historically. Accordingly, actual
amounts were allocated for the periods included herein. The Consolidated
Statements of Revenues and Expenses and Net Interdivisional Cash Distribution
(Receipt) have been prepared to include the historical activity related to the
assets and liabilities transferred. The Consolidated Financial Statements are
not necessarily indicative of what would have been the financial condition and
revenues and expenses of the Company as of December 31, 1996 and 1997 and for
the three-year period ended December 31, 1997 had the cellular
telecommunications businesses of Telebahia and Telergipe been separate legal
entities during such period. See "Description of Business--Background", "--The
Company" and Notes 1, 2 and 23 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 Tele Leste Celular Participacoes S.A. 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 an increase of R$92,643,000 in relation
to the Company's historical retained earnings. See Note 23 to the Consolidated
Financial Statements. Allocated retained earnings and future retained earnings
will be the basis from which future dividends will be payable.
38
<PAGE>
Cash and nonspecific debt relating to the cellular telecommunications
businesses of Telebahia and Telergipe could not be segregated from Telebahia
and Telergipe prior to December 31, 1997 and such amounts are not reflected in
the Consolidated Financial Statements. As a result, interest income,
unallocated interest expense and income tax expense relating to the cellular
telecommunications businesses of Telebahia and Telergipe could not be
identified and reflected in 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 revenues
and expenses are significantly affected by Brazilian telecommunications
regulation, including regulation of tariffs. See "Description of Business--
Regulation of the Brazilian Telecommunications Industry." The Company's
financial condition and revenues and expenses 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.
In July 1996, Brazil's Congress enacted legislation which opened mobile
cellular communications to competition from the private sector. As a result,
the Company recently has begun to compete with certain other cellular
communications providers in the Region and prices for cellular
telecommunications have begun to decline. The Company expects that this
decline will continue and that its operating margins will diminish. The scope
of increased competition and any adverse effects on the Company's results and
market share will ultimately depend on a variety of factors that cannot now be
assessed with precision and are beyond the Company's control. See "Description
of Business--Competition."
EFFECTS OF INFLATION AND DEVALUATION
The Company's results in the years for which financial information is
presented herein were affected by inflation and devaluation, and that
financial information should be evaluated in light of the methodology for
recognition of effects of inflation applied by the Company under Brazilian
GAAP.
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 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 statement of operations. 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. Effective January 1, 1996, the CVM no longer requires Brazilian
companies to restate their financial statements for reporting purposes in
constant currency by indexing historical amounts using the UFIR. 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 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.
39
<PAGE>
In July 1997, the three-year cumulative inflation rate for Brazil fell below
100%; however, for public 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 the 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.
Because financial information for the Company is presented in constant
currency, reported revenues reflect average real rates (i.e., nominal rates as
restated in constant currency in accordance with variations in the applicable
index) rather than nominal rates. Inflation results in decreases in real rates
to the extent that nominal rate increases fail to keep pace with the rate of
inflation. In the years under review, rate increases generally lagged behind
inflation, resulting in steady real rate decreases. See "Description of
Business--Rates--Subscriber Rates."
FOREIGN EXCHANGE AND INTEREST RATE EXPOSURE
The Company's financial condition and revenues and expenses may be affected
by changes in foreign currency exchange rates (primarily the U.S. dollar/real
rate) and market rates of interest (primarily the London Interbank Offered
Rate ("LIBOR")).
The principal foreign exchange risk faced by the Company arises from the
excess of interest-bearing foreign currency liabilities over foreign currency
income generating assets. At December 31, 1997, the Company had R$148.8
million of financial liabilities (primarily suppliers credits) denominated in
U.S. dollars. The Company's revenues are earned almost entirely in reais and
the Company has no material dollar-denominated assets. During the three years
ended December 31, 1997, any losses arising from the devaluation of the real
against the U.S. dollar were offset by net inflationary gains on monetary
assets and liabilities. Should the Company cease using the constant currency
method of accounting in the future, such inflationary gains would no longer be
recognized. The Company does not hedge its foreign currency exposure and,
accordingly, any decrease in the value of the real relative to the dollar
could have a material adverse effect on the Company's revenues and expenses.
The Company also faces foreign exchange risk as a result of substantially all
its capital expenditures being incurred in dollars while its revenues are
earned almost entirely in reais. As a result of this mismatch, any increases
in the Company's capital costs arising from currency fluctuations may not be
compensated by increased revenues.
The Company's financial condition and revenues and expenses may also be
affected by changes in market rates of interest (primarily LIBOR). 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, 48.8%
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 (primarily LIBOR), the Company's financing expenses will increase.
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 have
traditionally used two digits rather than four to record the applicable year.
As a consequence, any of the Company's computer programs that has date-
sensitive software may recognize a date recorded as "00" as the year 1900
rather than 2000. This could result in a system failure or miscalculations
causing disruption of operations, including a temporary inability to process
transactions, send invoices or engage in normal business activities.
All of the principal computer systems relied upon by the Company are
presently provided by Telebahia and Telergipe. In May 1997 Telebahia and
Telergipe commenced programs to review their respective computer systems,
including those relied upon by the Company, and to identify and resolve any
problems posed by the year 2000 problem. Telebahia and Telergipe believe they
have identified all items of hardware and software that might be affected by
the year 2000 issue and are in the process of implementing appropriate
solutions. Telebahia and Telergipe expect their programs to be completed by
January 1999 and to cost a total of R$2.2 million.
40
<PAGE>
As the principal computer systems used by the Company will be reviewed by
Telesp pursuant to Telesp's year 2000 program, the Company does not intend to
carry out its own independent review of those computer systems. In addition,
the Company intends to replace all of its principal computer systems with new
systems prior to 2000. Accordingly, the Company does not expect to incur any
expenses in relation to the year 2000 issue other than expenses relating to
the purchase of new computer systems.
The Company has formally contacted its major network infrastructure
suppliers seeking their assurance that equipment supplied by them will not be
affected by the year 2000 issue. The Company has not yet received any such
assurances. As of August 30, 1998, the Company had not determined its most
probable worst case scenarios in relation to the year 2000 problem and had not
formulated contingency plans in respect of such scenarios.
There can be no assurance that the Company's future financial performance
will not be materially adversely affected by a failure by the Company,
Telebahia and Telergipe, or a third party upon whom the Company relies, to
timely address the year 2000 issue.
41
<PAGE>
REVENUES AND EXPENSES FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
The following table sets forth, for each of the years in the three-year
period ended December 31, 1997, certain components of the Company's income
before interest income, unallocated interest expense and taxes in constant
reais of December 31, 1997 and as a percentage of gross operating revenues, as
well as the proportional change from year to year in each such component,
expressed as a percentage.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, % OF CHANGE
--------------------------------------------- -------------------
1995 %* 1996 %* 1997 %* 1995-1996 1996-1997
--------- --- --------- --- -------- --- --------- ---------
(IN THOUSANDS OF CONSTANT REAIS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net operating revenue
from cellular
telecommunications
services:
Activation fees........ R$ 14,154 14% R$ 26,354 11% R$13,470 5% 86.2% (48.9)%
Usage charges.......... 41,064 39 103,333 44 122,814 44 151.6 18.9
Monthly subscription
payments.............. 28,013 27 70,777 30 82,006 29 152.7 15.9
Network usage charges.. 15,966 15 33,807 14 59,682 21 111.7 76.5
Other.................. 4,744 5 2,911 1 1,640 1 (38.6) (43.7)
--------- --- --------- --- -------- --- ----- -----
Gross operating
revenue............... 103,941 100 237,182 100 279,612 100 128.2 17.9
Value added and other
indirect taxes........ (19,765) (19) (48,638) (21) (59,171) (21) 146.1 21.7
--------- --- --------- --- -------- --- ----- -----
Total................. 84,176 81 188,544 79 220,441 79 124.0 16.9
Cost of services:
Depreciation and
amortization.......... (4,410) (4) (15,353) (7) (19,988) (7) 248.1 30.2
Personnel.............. (166) -- (310) -- (422) -- 86.7 36.1
Materials and
services.............. (4,086) (4) (7,900) (3) (11,984) (5) 93.3 51.7
Other:
Fixed-line network
expenses.............. (19,877) (19) (27,279) (12) (32,000) (11) 37.2 17.3
Fistel tax............. (2,284) (2) (4,701) (2) (4,322) (2) 105.8 (8.1)
--------- --- --------- --- -------- --- ----- -----
Total................ (30,823) (30) (55,543) (23) (68,716) (25) 80.2 23.7
Operating expenses:
Selling expense........ (3,275) (3) (19,229) (8) (17,471) (6) 487.1 (9.1)
General and
administrative
expense............... (7,745) (7) (16,015) (7) (20,517) (7) 106.8 28.1
Other net operating
income................ 3,441 3 5,301 2 1,568 -- 54.1 (70.4)
--------- --- --------- --- -------- --- ----- -----
Total................. (7,579) (7) (29,943) (13) (36,420) (13) 295.1 21.6
Operating income before
interest............... 45,774 44 103,058 43 115,305 41 125.1 11.9
Allocated interest
expense................ (9,614) (9) (10,466) (4) (10,333) (3) 8.9 (1.3)
--------- --- --------- --- -------- --- ----- -----
Operating income before
interest income and
unallocated interest
expense................ 36,160 35 92,592 39 104,972 38 156.1 13.4
Net nonoperating
income................. -- -- -- -- 57 -- --
Employees' profit
share.................. -- -- (209) -- (142) -- -- (32.1)
--------- --- --------- --- -------- --- ----- -----
Income before, interest
income, unallocated
interest expense, taxes
and minority
interests.............. 36,160 35 92,383 39 104,887 38 155.5 13.5
Minority interests
before interest income,
unallocated interest
expense and taxes...... (1,861) (2) (6,468) (3) (13,108) (5) 247.6 102.7
--------- --- --------- --- -------- ---
Income before interest
income, unallocated
interest expense and
taxes.................. R$ 34,299 33 R$ 85,915 36 R$91,779 33 150.5 6.8
========= === ========= === ======== ===
</TABLE>
- --------
* Represents line item as a percentage of gross operating revenues.
NET OPERATING REVENUES
The Company generates operating revenue from (i) activation fees, which are
the initial charges paid by a new subscriber for obtaining cellular service,
(ii) usage charges, which include measured service charges based on tenths of
a minute of outgoing calls and roaming and other similar charges, (iii)
monthly subscription payments, (iv) network usage charges, which are the
amounts charged by the Company to other telecommunications service providers
for use of the Company's network, primarily for terminating calls on the
Company's network that originate on other networks and (v) other services and
charges, which primarily include fees for cellular telephone service charges
received from Telebahia and Telergipe and fees paid by clients for
supplemental services such as call forwarding, call waiting and call blocking.
The Company does not presently sell handsets or other equipment.
Net operating revenues increased by 16.9% to R$220.4 million in 1997 from
R$188.5 million in 1996, which in turn represented a 124.0% increase from
R$84.2 million in 1995. The growth in revenues over the three
42
<PAGE>
year period was principally driven by increases in the Company's subscriber
base. The average number of subscribers increased 31.2% to 191,477 subscribers
in 1997 from 145,943 subscribers in 1996, which in turn represented a 157.9%
increase from 56,593 subscribers in 1995. Management believes that as the
Telebahia and Telergipe cellular telephone markets continue to mature, demand
for new service will continue to fall. In addition, Vicunha commenced offering
cellular telephone services in Bahia and Sergipe on Band B in April 1998,
thereby increasing the available capacity of cellular service in these
regions. See "Description of Business-- Competition." As a consequence of
these factors, management expects that the growth rate of the Company's
subscription base will flatten and that prices will be subject to pressure. In
particular, management anticipates that activation fees will decline
significantly in 1998 and in future periods. In each of the periods under
discussion, the growth in revenues has been offset in part by the decline in
the real value of tariffs charged by the Company as a consequence of nominal
tariffs remaining largely unchanged during periods of inflation.
Activation fees. Revenues from activation fees for cellular service declined
by 48.9% to R$13.5 million in 1997 from R$26.4 million in 1996, which in turn
represented an increase of 86.2% from R$14.2 million in 1995. The decline in
1997 reflected a reduction in the number of subscribers signing up for service
from 85,013 in 1996 to 43,452 in 1997. The number of persons paying the
activation fee in 1997 exceeded the 36,725 year-end to year-end increase in
subscribers because 6,727 subscribers cancelled during 1997. The increase in
revenues from activation fees in 1996 reflected an increase in the number of
subscribers signing up for service from 46,270 in 1995 to 85,013 in 1996, as
well as an increase in the nominal activation fee (before deduction of value-
added taxes) from R$305.9 in 1995 to R$310 in 1996. As a result of Vicunha,
the Band B Operator, commencing operations in Bahia and Sergipe in April 1998,
the Company's activation fee dropped from R$300 at year end 1997 to R$120 at
April 30, 1998. Management expects that the activation fee will be further
reduced during the course of 1998 and that activation fees will be a
significantly declining source of income going forward.
Usage charges. Revenues from usage charges increased 18.9% to R$122.8
million in 1997 from R$103.3 million in 1996, which in turn represented a
151.6% increase from R$41.1 million in 1995. The increase from 1996 to 1997
principally reflected a 33.9% increase in the total minutes of outgoing calls
from 17,891,994 minutes to 23,957,539 minutes, offset by the effect of the
rates charged for such calls not increasing to keep pace with inflation. The
increase from 1995 to 1996 principally reflected a 140.0% increase in the
total minutes of outgoing calls from 7,455,925 minutes to 17,891,994 minutes.
Monthly subscription payments. Revenues from monthly subscription payments
increased by 15.9% to R$82.0 million in 1997 from R$70.8 million in 1996,
which in turn represented an increase of 152.7% from R$28.0 million in 1995.
The increase in 1997 reflected the growth in the average number of subscribers
offset by the effect of the monthly subscription rate not increasing to keep
pace with inflation. The increase in 1996 reflected the growth in the
Company's subscriber base, offset by the effect of a 2.5% decline in nominal
rates during an inflationary period.
Network usage charges. Network usage charges increased 76.5% to R$59.7
million from R$33.8 million in 1996, which in turn represented a 111.7%
increase from R$16.0 million in 1995. The increases over the three year period
were principally due to an increase in the volume of calls to the Company's
subscribers originating outside the Company's network, principally calls from
fixed-line telephones in the Bahia and Sergipe regions. Total minutes
attributed to incoming calls increased 92% to 316,833 million minutes from
164,682 million minutes in 1996, which in turn represented a 154% increase
from 64,775 million minutes in 1995. The effect of these increases in incoming
traffic were offset in part by the effect of the network usage tariffs the
Company charges not increasing with inflation.
Other. Revenues from other services, which principally include sales of
cellular telephone service to Telebahia and Telergipe (the fixed-line
operators in Bahia and Sergipe, respectively) and other value-added services
such as call forwarding, call waiting and call blocking decreased 43.7% in
1997 to R$1.6 million from R$2.9 million in 1996, which in turn represented a
38.6% decrease from R$4.7 million in 1995. The decreases in 1997 and 1996
reflected principally a decrease in fees from the transfer of service from one
subscriber to another. This transfer of service practice was prevalent in the
period prior to 1996 when the Company was unable to meet customer demand.
43
<PAGE>
Value-added and other taxes. The principal taxes deducted from gross
operating revenue are Bahia and Sergipe state value-added taxes, the Imposto
sobre Circulacao de Mercadorias e Servicos ("ICMS") on operating revenues from
the provision of telecommunications services and federal social contribution
taxes, including the Programa de Assistencia aos Servidores de Empresas
Publicas ("PASEP") and Contribuicao para Financiamento da Seguridade Social
("COFINS"). The ICMS is 25.0%, except for the international service rate,
which was 13% from April 1994 to September 1996 and has been 0% since
September 1996. The PASEP and COFINS aggregate 2.65% of gross operating
revenues. Taxes on operating revenues were 19.0% of gross operating revenues
in 1995, 20.5% in 1996 and 21.2% in 1997. The effective rate of taxes on gross
operating revenues varies depending upon the composition of the Company's
revenues, some of which are not taxable. Activation fees are expected to
become subject to ICMS for the first time with effect from July 1, 1998, which
will significantly increase the effective rate of taxation of operating
revenues. See "Description of Business--Rates--Taxes on Telecommunications
Services."
On June 19, 1998 the secretaries of the treasury of the individual Brazilian
states approved an agreement to interpret existing Brazilian tax law to
broaden the application of the ICMS to cover not only telecommunications
services, but also other services, including cellular activation, which had
not been previously subject to such tax. Pursuant to this new interpretation
of existing tax law, the ICMS tax may be applied retroactively for such
telecommunications services rendered during the last five years.
The Company believes that the attempt by the state treasury secretaries to
extend the scope of ICMS tax to services which are supplementary to basic
telecommunications services is unlawful because: (i) the state secretaries
acted beyond the scope of their authority; (ii) their interpretation would
subject certain services to taxation which are not considered
telecommunications services; and (iii) no new taxes may be applied
retroactively. Accordingly, no provision for loss has been made in the
accompanying consolidated financial statements.
There can be no assurance that the Company will prevail in its position that
the new interpretation by the state treasury secretaries is unlawful. If the
25% ICMS tax were applied retroactively for five years, it would have a
material negative impact on the financial condition and results of operations
of the Company.
COST OF SERVICES
Cost of services increased 23.7% to R$68.7 million in 1997 from R$55.5
million in 1996, which in turn represented a 80.2% increase from R$30.8
million in 1995. The principal components of these increases over the three
year period include costs related to materials and services and fixed-line
network expenses.
Depreciation and amortization. Depreciation and amortization expenses grew
throughout the 1995 to 1997 period, increasing from R$4.4 million in 1995 to
R$20.0 million in 1997. These increases reflected the expansion of the
Company's network. The Company's accounting policies and assumptions with
respect to depreciation and amortization did not change during this period.
Personnel. Personnel expenses increased from R$0.2 million in 1995 to R$0.4
million in 1997. This increase was principally due to increases in the number
of employees. Salaries did not increase materially during this period.
Materials and services. Materials and services include costs of materials
and services received from third parties, including network usage charges paid
to fixed-line telephone service providers and other telephone service
providers. Materials and services increased 51.7% to R$12.0 million in 1997
from R$7.9 million in 1996, which in turn represented a 93.3% increase from
R$4.1 million in 1995. The increase in 1997 was principally due a 50.3%
increase to R$11.4 million in 1997 from R$7.6 million in 1996 in network usage
charges paid to other telephone service providers. This increase reflected an
increase in the total number of cellular subscribers as well as an increase in
the volume of calls per customer terminating outside the Company's network.
The increase recorded in 1996 was principally due to a 92.6% increase to R$7.6
million from R$3.9 million in 1995
44
<PAGE>
in network usage charges paid to other telephone service providers driven
largely by a substantial increase in the number of cellular subscribers.
Fixed-line network expenses. Fixed-line network expenses represent lease
payments to Telebahia and Telergipe for use of interconnecting circuits among
the Company's radio base stations and switching centers and between the
Company's network and Telebahia and Telergipe's network. Such expenses
increased 17.3% to R$32.0 million in 1997 from R$27.3 million in 1996, which
in turn represented a 37.2% increase from R$19.9 million in 1995. These
increases were largely driven by increases in the areas of Bahia and Sergipe
covered by the Company's network and in the number of cellular subscribers.
Fistel tax. Taxes payable to finance the Fundo de Fiscalizacao das
Telecomunicacoes ("Fistel") were R$2.3 million, R$4.7 million and R$4.3
million in 1995, 1996 and 1997, respectively. The Fistel tax, which is
calculated on the basis of the Company's subscriber base and certain of the
Company's operational cellular equipment, increased in 1996 as a result of an
increase in the number of new subscribers signing up for service in such year
and expansion of the Company's network.
OPERATING EXPENSES
Operating expenses increased by 21.6% to R$36.4 million in 1997 from R$29.9
million in 1996, which in turn represented a 295.1% increase from R$7.6
million in 1995. The discussion below addresses the principal components of
operating expenses during the 1995 to 1997 period.
Selling expense. Selling expense decreased 9.1% to R$17.5 million in 1997
from R$19.2 million in 1996, which in turn represented a 487.1% increase from
R$3.3 million in 1995. The decrease in selling expenses in 1997 principally
reflected a 30% decline in provisions to the allowance for accounts that are
not probable of collection to R$7.2 million, offset in part by a R$1.2 million
increase in lease payments associated with retail distribution centers and a
number of less significant cost increases. The decrease in provisions to the
allowance for accounts that are not probable of collection reflected
management's estimate of the amount of the Company's accounts receivable as to
which collection was improbable at year-end 1997. The increase in selling
expenses in 1996 was principally due to R$10.9 million in provisions to the
allowance for accounts that are not probable of collection. The Company
recorded no such provisions in 1995 because management believed, based on its
experience up to December 31, 1995, that substantially all the Company's past
due accounts receivable at that date would be collected. The balance of the
increase in 1996 selling expenses was principally due to costs associated with
intern training and the hiring of part-time employees to meet increased
cellular customer demand and increased personnel costs.
It has been the Company's policy to maintain an allowance for past due
accounts receivable equal to management's estimate of probable future losses
on such accounts, based on historical losses on accounts receivable and the
Company's current level of overdue accounts receivable. The Company makes
provisions for and then charges off immediately any account receivable arising
from fraud, although the amounts of such charge-offs were not material during
the periods under consideration. In the first six months of 1998, the Company
made provisions to the allowance for accounts that are not probable of
collection totaling R$10.1 million. In 1998, the Company instituted a policy
of performing credit checks on potential clients in an effort to reduce the
level of nonpayment among its customers.
Prior to 1996, the Company did not experience significant losses from bad
debts. This experience was in part due to the fact that most of the Company's
early subscribers (who were also owners of a fixed telephone line) were
required to pledge their fixed lines as a guarantee of debts incurred in
relation to their cellular lines. Because nonpayment of a cellular account
would also result in a subscriber losing his fixed line, the Company's early
subscribers had a strong incentive to pay their cellular accounts. This
practice of requiring subscribers to pledge their fixed lines as a guarantee
of payment for cellular accounts was eliminated in 1997 and, consequently, the
Company has experienced a higher nonpayment rate among its subscribers since
that date.
The low provisions in the Company's initial years of operation also
reflected the unusual market situation that prevailed in the Region where an
activated cellular line was a marketable asset because of the long wait
required to obtain such a line from the Company. In view of the resale value
of a cellular line in the secondary
45
<PAGE>
market, many of the Company's subscribers had incentive to keep current in
their payments. As the Company began to satisfy a greater proportion of the
Region's demand in 1996 and 1997, however, the value of a cellular line
declined and the level of nonpayment among the Company's customers increased.
This increase in the rate of nonpayment among the Company's subscribers is
reflected in the level of provisions recorded by management during 1996 and
1997.
The Company started to maintain records of the total number of subscriber
cancellations made in connection with overdue accounts receivable in 1997. The
total number of subscriber cancellations made by the Company due to nonpayment
in 1997 was 6,700. The Company had a total of 46,300, 73,700 and 36,700 new
subscribers in 1995, 1996 and 1997, respectively.
General and administrative expense. Administrative expenses increased 28.1%
to R$20.5 million in 1997 from R$16.0 million in 1996, which in turn
represented a 106.8% increase from R$7.7 million in 1995. The increase over
the three-year period was principally due to increased payments to Telebahia
and Telergipe for the services of its employees and certain shared overhead
expense items, reflecting growth in the Company's business. The amounts of
such payments to Telebahia and Telergipe in 1995, 1996 and 1997 represent
allocations to the Company of personnel and overhead expense associated with
the Telebahia and Telergipe fixed-line telephone services divisions. Such
allocations are based on management's estimates of the proportion of such
divisions' time dedicated to the cellular business in those years. In
connection with the split-up of Telebahia and Telergipe in January 1998, the
Company contracted with Telebahia and Telergipe for the continued provision of
certain services by Telebahia and Telergipe employees, as well as the
continued sharing of certain overhead costs. The Company expects that such
services and sharing will continue to be required in the short term, but the
unit-costs of such services and sharing under such contracts will not increase
materially during that time.
In 1998, the Company and Embratel entered into a number of service,
infrastructure sharing and interconnection agreements. The Company does not
believe that these new agreements will have a significant impact on its future
operations.
Other net operating income. Other net operating income decreased 70.4% in
1997 to R$1.6 million from R$5.3 million in 1996, which in turn reflected a
54.1% increase from R$3.4 million in 1995. The decrease in 1997 principally
reflected a 63.0% fall to R$2.6 million in fines received from delinquent
customers. The decrease in fine payments resulted from a reduction in the
amount of such fines from 10% of the past due amount in 1995 and 1996 to 2% in
1997, offset in part by an increase in the number of such fines assessed. This
reduction was mandated by federal law. The increase in 1996 principally
reflected a 161.9% increase in fines paid by delinquent customers, which was a
consequence of increased accounts receivable. The Company had no research and
development expenses in 1995, 1996 or 1997 but has committed to invest R$0.8
million during the three years ended May 2001. See "Description of Business--
Research and Development."
ALLOCATED INTEREST EXPENSE
Allocated interest expense remained unchanged in 1997 at R$10.3 million as
compared to R$10.5 million in 1996. Although the Company's average debt
increased to R$144.2 million in 1997 from R$121.1 million in 1996, interest
payments decreased principally as a result of a 26.7% reduction in average
interest rates during the period. Allocated interest expense increased 8.9% in
1996 from R$9.6 million in 1995 due principally to higher interest payments
resulting from an increase in the Company's average debt from R$68.9 million
in 1995.
The historical financial statements of Telebahia and Telergipe include cash
and non-specific debt that related to both the fixed and cellular operations
of Telebahia and Telergipe and could not be segregated prior to December 31,
1997. As a result, the Consolidated Financial Statements do not include
interest income or interest expense arising from non-specific debt (i.e.,
unallocated interest expense). The total amount of interest income and
unallocated interest expense at Telebahia and Telergipe during each of the
reported periods is set forth in the table below. Management believes that
such amounts are not necessarily material to an understanding of trends in the
Company's interest income and expense because the surplus cash balances and
working capital of the combined fixed and cellular operations of Telebahia and
Telergipe prior to December 31, 1997, were not necessarily indicative of the
cash position of the cellular operations.
46
<PAGE>
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
(IN THOUSANDS OF
CONSTANT REAIS)
<S> <C> <C> <C>
Interest income....................................... 6,330 7,801 14,384
Unallocated interest expense.......................... 16,211 25,905 19,064
</TABLE>
NET NONOPERATING INCOME
Net nonoperating income includes gains from disposition of fixed assets. The
Company had a net nonoperating income of R$57 thousand in 1997. The Company
did not record any nonoperating income in 1996 and 1995.
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% the Company's net income adjusted
for dividends. Following the expected 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.
Employees' profit share was R$209 thousand and R$142 thousand in 1996 and
1997, respectively, and was based in both years on agreements between
Telebahia and Telergipe and the labor union's representatives. The Company did
not record employees' profit share in 1995.
MINORITY INTERESTS
Minority interest was R$1.9 million, R$6.5 million and R$13.1 million in
1995, 1996 and 1997, respectively, reflecting 5.1%, 7.0% and 12.5% of income
before interest income, unallocated interest expense and taxes, respectively.
The 1996 and 1997 increases in minority interest as a percentage of income
before interest income, unallocated interest expense and taxes principally
reflected the issuance and sale by Telebahia and Telergipe of preferred shares
of such entities to new subscribers pursuant to a system called "auto-
financing." Under such system, each new subscriber was required to invest in
shares of Telebahia and Telergipe and the proceeds from such investment were
used by such entities to finance network expansion.
LIQUIDITY AND CAPITAL RESOURCES
The Registrant is a holding company and its principal assets are the shares
of its operating subsidiaries. The Registrant relies almost exclusively on
dividends from its subsidiaries 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 shareholdings in Telebahia
Cellular and Telergipe Cellular is sufficient to allow the Registrant to
control the payment of dividends by such companies. The Registrant currently
is able to nominate and elect all the members of the boards of directors of
Telebahia Cellular and Telergipe Cellular. 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. Management believes that, based on current holdings in its
operating subsidiaries, if cumulative voting were required the Registrant
would still be able to control the payment of dividends by Telebahia Cellular
and Telergipe Cellular 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 preferred shareholders and the minority voting
shareholders of Telebahia Cellular and Telergipe Cellular, in each case voting
as a single class of such preferred shareholders and a single class of such
minority voting
47
<PAGE>
shareholders, elect one member each of the Audit Committee. The remaining
members of the Audit Committee are selected by the controlling shareholder.
The Company made capital expenditures of R$135.5 million, R$175.1 million
and R$68.5 million in 1995, 1996 and 1997, respectively. These expenditures
related primarily to increasing network capacity and coverage. See
"Description of Business--Capital Expenditures." Capital expenditures during
these years were financed principally with internally generated cash. The
Company's ability to fund investment with internally generated cash during
these years does not reflect what would have been the Company's cash flow were
it a stand-alone business. Among other factors, had the Company been operated
on a stand-alone basis from the inception of Telebahia and Telergipe's
cellular operations, the Company's cash flow would have been significantly
lower as a result of greater debt service requirements and the obligation to
pay income tax.
The Company has entered into contracts for a total of R$65.1 million in 1998
capital expenditures. Such expenditures will be funded principally with cash
allocated to the Company upon the split-up of Telebras. See Note 23b to the
Consolidated Financial Statements. In addition, it is possible that following
the anticipated privatization of the Company in July 1998 the Company's new
controlling shareholders will elect to increase capital expenditures. It is
not possible for management to predict, however, the strategy of the Company's
new controlling shareholders. Most of the planned 1998 capital expenditures
will be dedicated to expanding the Company's analog network including
installation of signal enhancement devices, digitalizing the existing network,
improving anti-fraud technology and adapting the network to accommodate voice
mail.
The Company had R$78.3 million of long-term indebtedness at December 31,
1997, all of which represented financing from suppliers for the purchase of
equipment and was secured and dollar denominated. 69.2% of such debt bore
interest at fixed rates. For details of the composition of, and changes in,
the Company's debt, see Note 16 to the Consolidated Financial Statements.
R$83 million and R$36 million of interest and principal payments on the
Company's indebtedness as of December 31, 1997 will be due in 1998 and 1999,
respectively. The Company has no lines of credit or other credit commitments
available to it.
The Company's indebtedness reflects the allocation to the Company, upon the
split up of Telebahia and Telergipe, of all Telebahia's and Telergipe's
indebtedness incurred specifically in connection with the construction of
their respective cellular networks. Such indebtedness is reflected in the
Company's Consolidated Financial Statements and, under the terms of the split
up, the Company is legally obligated to pay all amounts owed under such
indebtedness. The credit agreements evidencing the indebtedness, however, have
not been legally assigned to the Company and Telebahia and Telergipe, as the
case may be, remain the legal obligors under such agreements. The Company,
Telebahia and Telergipe are currently seeking the approval of the lenders to
legally assign the underlying Telebahia and Telergipe debt to the Company. Any
subsequent legal assignment of Telebahia and Telergipe debt to the Company
will not result in the Company incurring any net additional debt because the
Company is already legally obligated to pay the amounts owned under such debt
pursuant to the terms of the split up.
Substantially all the Company's start up costs and initial capital
investments were financed by cash flows from the fixed-line telephone
operations of Telebahia and Telergipe. Accordingly, the Company's indebtedness
does not reflect the amount of debt the Company would have been required to
incur to build its current network had the Company been operated on a stand-
alone basis from the inception of Telebahia and Telergipe's cellular
operations.
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
constituted events of default under such credit agreements. In addition, most
of the Company's other credit agreements include cross-
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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 approximately R$84.3 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.
Because the Registrant was formed on May 22, 1998, it was not subject to
dividend payment requirements during the reported periods and the Consolidated
Financial Statements do not reflect dividend payments by the Registrant. In
addition, dividend payments made during the reported periods by Telebahia and
Telergipe are reflected in the financial statements of those entities but not
in the Consolidated Financial Statements included in this Registration
Statement, which reflect certain assets and liabilities of the cellular
operations of Telebahia and Telergipe but not the capital structure of those
entities. In 1998 and thereafter, the Registrant will be subject to the
mandatory dividend payment requirements described under "Description of
Securities to be Registered--Capital Stock."
U.S. GAAP RECONCILIATION
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 revenues and expenses during the reported periods 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 or expected to be in
default as a result of its privatization and the Breakup of the Telebras
System (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 based on the interest rate on 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; and (iv) in accordance with Brazilian GAAP, the
deferred tax liability arising out of the indexation of permanent assets was
charged to divisional equity, whereas under U.S. GAAP the charge would be to
income for the year. Income before interest income, unallocated interest
expense and taxes under U.S. GAAP was R$85.2 million and R$89.5 million for
1996 and 1997, respectively. See Note 24 to the Consolidated Financial
Statements.
RECENT RESULTS
The Company had consolidated net operating revenues and consolidated net
income of R$119.4 million and R$22.0 million, respectively, for the first six
months of 1998. 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 to 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. However, management believes that had consolidated net
operating revenue and consolidated net income for the six months ended June
30, 1998 been indexed for inflation and expressed in constant reais on the
same basis as the amounts presented in the Consolidated Financial Statements,
such adjustments would have had no material effect.
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The Company had consolidated net operating revenues, as reported in the
Consolidated Financial Statements, of R$220.4 million for the year ended
December 31, 1997. On an annualized basis, consolidated net operating revenues
so determined for the first six months of 1998 represented an increase
compared to consolidated net operating income in 1997. The increase in
consolidated net operating revenues was principally due to increased usage
fees and network usage charges attributable to an increase in the average
number of cellular customers and significant increases in the volume of
incoming calls.
A comparison of consolidated net income for 1997 and the first six months of
1998 is not presented because 1997 net income was not reported. See Note 2 to
the Consolidated Financial Statements. Costs of services provided increased
significantly faster than net operating revenues in the first six months of
1998, principally due to increased personnel costs and other costs associated
with services rendered by third parties. In addition, depreciation cost in
1998 increased due to expansion of the cellular network completed in 1997.
Operating expenses also increased significantly faster than net operating
revenues in the first six months of 1998, principally due to costs associated
with the opening of new cellular telephone stores as well as increased
personnel expenses related to increased demand for cellular telecommunications
services.
Results for the 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 six months
net income figure given above to U.S. GAAP are comparable in nature to those
discussed in Note 24 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 six months income tax
effects of indexation for financial reporting purposes.
Comparative interim period net operating revenues and net income are not
presented herein. The Registrant was not formed prior to May 22, 1998 and did
not publish interim financial results for the first half of 1997. In addition,
the Registrant's operating subsidiaries, published interim 1997 results (if
any) were for the combined cellular and fixed line entities.
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.
Approximately R$149 million of the indebtedness of the Company is denominated
in U.S. dollars. The potential immediate loss to the Company that would result
from a hypothetical 10% change in foreign currency exchange rates would be
approximately R$15 million. In addition, if such a change were to be
sustained, the Company's cost of financing would increase in proportion to the
change.
INTEREST RATE RISK
At December 31, 1997, the Company had approximately R$149 million in loans
and financing outstanding, of which R$76.2 million bore interest at fixed
rates and R$72.6 million bore interest at floating rates of interest
(primarily LIBOR-based). The Company invests its excess liquidity
(R$10 million at December 31, 1997) mainly
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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$800
thousand. 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 16 and 19 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 four 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. All current members were appointed in August 1998.
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
Esteban Serra Mont............................................... Chairman
Fernando Maria Fournon Gonzales-Barcia........................... Director
Eduardo Lopez-Aranguren Marcos................................... Director
Alexandre Bertoldi............................................... Director
</TABLE>
Set forth below are brief biographical descriptions of the Directors.
Esteban Serra Mont, 50 years old, has served as Chairman of the Board of
Directors since August 1998. He joined Iberdrola S.A. in 1980 and has served
as executive for Management of International Investment of Iberdrola Energia
S.A., the company which manages the Iberdrola Group's international energy
activities and Spanish investments in water, gas and services, Vice-President
of Litoral Gas in Argentina and Eletropaz in Bolivia. In addition to his
position as member of the Board of Directors of the Company, he is also a
member of the Boards of Directors of Eletroandina and Colbun in Chile, Cosern,
Coelba, CRT and Riogas in Brazil and Gas de Colombia. He holds a PHD in
economics from the University of Barcelona.
Fernando Maria Fournon Gonzales-Barcia, 40 years old, has served as member
of the Board of Directors since August 1998. He served as an associate and
research professor at Polytechnic University of Madrid, a systems engineer at
the European Space Agency, a projects engineer at Ericsson S.A. and as Head of
Projects and Director of New Projects at Telefonica Internacional. Since
February 1997 he has served as chief executive officer at CRT--Companhia
Riograndense de Telecomunicacoes. In addition to his position as member of the
Board of Directors of the Company, he is also a member of the Boards of
Directors of Companhia Telefonica da Borda do Campo--CTBC, CRT--Companhia
Riograndense de Telecomunicacoes, Telesp Participacoes S.A., Tele Sudeste
Celular Participacoes S.A. and Portugal Telecom. He is also a member of the
Consultive Board of ANATEL--Agencia Nacional de Telecomunicacoes, the Latin
American Committee at the New York Stock Exchange and the Global Information
Infrastructure Commission--GIIC. He holds a degree in telecommunications
engineering from the Polytechnic University of Madrid.
Eduardo Lopez-Aranguren Marcos, 57 years old, has served as a member of the
Board of Directors since August 1998. He joined Iberdrola S.A. in 1965 and has
served as chief executive officer of Iberdrola Energia
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S.A., the company which manages the Iberdrola Group's international energy
activities and Spanish investments in water, gas and services. He has also
served as President of Eletropaz in Bolivia and Coelba and Cosern in Brazil.
In addition to his position as a member of the Board of Directors of the
Company, he is also a member of the Boards of Directors of Tele Sudeste
Celular Participacoes S.A. and CEG in Brazil. He holds a degree in mining
engineering with additional post-graduate studies in energy from the Technical
School of Mining Engineering of the Polytechnic University of Madrid.
Alexandre Bertoldi, 37 years old, has served as a member of the Board of
Directors since August 1998. He has a law degree from the University of Sao
Paulo, a masters degree in Business Administration from Glasgow Business
School of the University of Glasgow--UK, and a post-graduate degree in Global
Finance from the London School of Economics--LSE.
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
---- --------
<S> <C>
Esteban Serra Mont......................................... President
Manuel Amado Sepena........................................ Vice-President
</TABLE>
Set forth below is a brief biographical description of the Executive Officer
not included above.
Manuel Amado Sepena, 59 years old, has served as Vice-President since August
1998. He joined Telefonica de Espana in 1958 and was responsible for network
maintenance in Barcelona and Southern Spain and served as assistant director
of the Barcelona area. He also served as general manager of Telefonica del
Peru, director of operations at CRT--Companhia Riograndense de
Telecomunicacoes and general sub-director of Client Assistance for Telefonica
de Espana in Madrid.
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 was approximately R$127.6 thousand.
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$18.3 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
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 Company. 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.
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
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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
financial statements prepared in accordance with the Brazilian Corporation
Law, which differ from 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 Registrant. These
earnings and reserves (which amount to R$164.1 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 Dividend 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 Dividend plus, in the event 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
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<PAGE>
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,
on 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 certain provisions of the By-laws. The Preferred Shares
are entitled to full voting rights with respect to any
55
<PAGE>
resolution submitted to the shareholders' meeting for the delisting of the
Registrant ("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 of 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 than 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 ADRs (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 5,000 Preferred Shares, or evidence of the right
to receive 5,000 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 execute and 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-Releasee") 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 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 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 ADSs outstanding (without giving effect to
ADSs evidenced by ADRs outstanding as a result of the Pre-Release), 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 ADSs evidenced by their
respective ADRs, additional ADRs evidencing an aggregate number of ADSs that
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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 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,
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 such
rights relate or unless the offering and sale thereof to such Owners are
exempt from registration under the
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Securities Act; however, the Registrant will have no obligation to file a
registration statement under the Securities Act to make available to Owners
any right to subscribe for or to purchase any of the Securities.
Whenever the Depositary receives any distribution other than cash, Preferred
Shares or rights in respect of the Deposited Securities, the Depositary will,
as promptly as 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
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.
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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 matter 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 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
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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) 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
63
<PAGE>
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.
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
64
<PAGE>
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, and 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 approximately R$84.3 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-30.
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 Statements of Financial Condition as of December 31, 1996
and 1997
Consolidated Statements of Revenues and Expenses for the Years Ended
December 31, 1995, 1996 and 1997
Consolidated Statements of Net Interdivisional Cash Distribution
(Receipt) for the Years Ended December 31, 1995, 1996 and 1997
Consolidated Statements of Changes in Divisional 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
10.1 Standard Concession Agreement for Mobile Cellular Service
10.2 Standard Concession Agreement for Mobile Cellular Service (English
translation)
23.1 Consent of KPMG Peat Marwick
66
<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.
Tele Leste Celular Participacoes
S.A.
/s/ Esteban Serra Mont
By: _________________________________
Name: Esteban Serra Mont
Title: President
/s/ Manuel Amado Sepena
By: _________________________________
Name: Manuel Amado Sepena
Title: Vice-President
Dated: September 18, 1998
67
<PAGE>
TELE LESTE CELULAR PARTICIPACOES S.A.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
CONTENTS
<TABLE>
<S> <C>
Independent Auditors' Report................................. F-2
Consolidated Statements of Financial Condition............... F-3
Consolidated Statements of Revenues and Expenses............. F-4
Consolidated Statements of Net Interdivisional Cash
Distribution (Receipt)...................................... F-5
Consolidated Statements of Changes in Divisional Equity...... F-6
Notes to the Consolidated Financial Statements............... F-7 through F-30
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Tele Leste Celular Participacoes S.A.
Brasilia--DF
We have audited the accompanying consolidated statements of financial
condition of Tele Leste Celular Participacoes S.A. as of December 31, 1996 and
1997, and the related consolidated statements of revenues and expenses, net
interdivisional cash distribution (receipt) and changes in divisional 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.
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in Brazil and on the
basis set out in Note 2 to the consolidated financial statements. Accordingly,
interest income, unallocated interest expense, income tax expense and the
related assets and liabilities are not included in the consolidated financial
statements.
In our opinion, based on our audits, the consolidated financial statements
referred to above present fairly, in all material respects, the financial
condition of Tele Leste Celular Participacoes S.A. as of December 31, 1996 and
1997, and its revenues and expenses and net interdivisional cash distribution
(receipt) for each of the years in the three-year period ended December 31,
1997, in conformity with accounting principles generally accepted in Brazil
and on the basis set out in Note 2, 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 revenues and expenses for each of the years in
the two-year period ended December 31, 1997 and the divisional equity as of
December 31, 1996 and 1997 to the extent summarized in Note 24 of the
consolidated financial statements.
July 17, 1998
Brasilia, Brazil
KPMG Peat Marwick
F-2
<PAGE>
TELE LESTE CELULAR PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 23)
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
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,
SEE NOTE 2B)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................... 9 - 9,825 8,801
Accounts receivable:
Trade, net.................................. 10 22,458 24,477 21,925
Receivable from related parties............. 19 177 543 486
Other assets................................ 11 5,650 174 156
------- ------- -------
Total current assets........................ 28,285 35,019 31,368
------- ------- -------
Permanent assets:
Property, plant and equipment, net.......... 12 324,686 373,928 334,941
------- ------- -------
Total assets................................ 352,971 408,947 366,309
======= ======= =======
Current liabilities:
Payroll and related accruals................ 13 1,233 463 415
Accounts payable:
Suppliers................................... 14 4,955 17,906 16,039
Payable to related parties.................. 19 2,990 819 733
Taxes other than income taxes............... 15 5,355 1,164 1,043
Deferred tax liabilities from indexation
adjustments................................ 2a 685 1,218 1,091
Loans....................................... 16 9,408 70,564 63,207
------- ------- -------
Total current liabilities................... 24,626 92,134 82,528
------- ------- -------
Noncurrent liabilities:
Deferred tax liabilities from indexation
adjustments................................ 2a 7,829 13,392 11,996
Loans....................................... 16 130,154 78,284 70,122
Provisions for contingencies................ 17 - 750 672
------- ------- -------
Total noncurrent liabilities................ 137,983 92,426 82,790
------- ------- -------
Minority interests........................... 2 13,744 30,058 26,923
------- ------- -------
Divisional equity............................ 176,618 194,329 174,068
------- ------- -------
Total liabilities and divisional equity..... 352,971 408,947 366,309
======= ======= =======
</TABLE>
See the accompanying notes to the consolidated financial statements.
F-3
<PAGE>
TELE LESTE CELULAR PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 23)
CONSOLIDATED STATEMENTS OF REVENUES AND EXPENSES
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,
SEE NOTE 2B)
<S> <C> <C> <C> <C> <C>
Net operating revenue from
cellular telecommunications
services:
Services provided to third
parties........................ 68,210 154,737 160,759 143,998
Services provided to the
Telebras operating companies... 19 15,966 33,807 59,682 53,459
------- ------- ------- -------
Total net operating revenue... 4 84,176 188,544 220,441 197,457
Cost of services:
Provided by third parties....... (7,634) (21,981) (19,880) (17,807)
Provided by the Telebras
operating companies............ 19 (23,189) (33,562) (48,836) (43,744)
------- ------- ------- -------
Total cost of services........ 5 (30,823) (55,543) (68,716) (61,551)
------- ------- ------- -------
Gross profit...................... 53,353 133,001 151,725 135,906
Operating expenses:
Selling expense................. (3,275) (19,229) (17,471) (15,649)
General and administrative
expense........................ (7,745) (16,015) (20,517) (18,378)
Other net operating income...... 6 3,441 5,301 1,568 1,405
------- ------- ------- -------
Operating income before interest.. 45,774 103,058 115,305 103,284
Allocated interest expense........ (9,614) (10,466) (10,333) (9,256)
------- ------- ------- -------
Operating income before interest
income and unallocated interest
expense.......................... 36,160 92,592 104,972 94,028
Net non-operating income.......... -- -- 57 51
Employees' profit share........... -- (209) (142) (127)
------- ------- ------- -------
Income before interest income,
unallocated interest expense,
taxes and minority interests..... 36,160 92,383 104,887 93,952
Minority interests before interest
income, unallocated interest
expense and taxes................ 2 (1,861) (6,468) (13,108) (11,741)
------- ------- ------- -------
Income before interest income,
unallocated interest expense and
taxes............................ 34,299 85,915 91,779 82,211
======= ======= ======= =======
</TABLE>
See the accompanying notes to the consolidated financial statements.
F-4
<PAGE>
TELE LESTE CELULAR PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 23)
CONSOLIDATED STATEMENTS OF NET INTERDIVISIONAL CASH DISTRIBUTION (RECEIPT)
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,
SEE NOTE 2B)
<S> <C> <C> <C> <C>
Operating Activities:
Income before interest income,
unallocated interest expense and
taxes.............................. 34,299 85,915 91,779 82,211
Adjustments to reconcile income
before interest income, unallocated
interest expense and taxes to cash
provided by operating activities:
Depreciation and amortization...... 6,125 17,338 22,531 20,182
Minority interests in income before
interest income, unallocated
interest expense and taxes........ 1,861 6,468 13,108 11,741
Increase in allowance for doubtful
accounts.......................... -- 10,956 7,212 6,460
Increase in accounts receivable.... (8,048) (20,300) (9,597) (8,597)
(Increase) decrease in other
current assets.................... (71) (5,736) 5,476 4,905
Increase (decrease) in payroll and
related accruals.................. 295 883 (770) (690)
Increase (decrease) in accounts
payable........................... 6,115 (1,560) 10,780 9,656
Increase (decrease) in taxes other
than income taxes................. 1,895 1,984 (4,191) (3,754)
Decrease in accrued interest....... (607) (1,779) (12) (11)
Increase in provision for
contingencies..................... -- -- 750 672
-------- -------- ------- -------
41,864 94,169 137,066 122,775
-------- -------- ------- -------
Investing activities:
Additions to property, plant and
equipment.......................... (135,507) (175,118) (68,542) (61,396)
Capitalized interest................ 59 (4,860) (5,318) (4,764)
Proceeds from asset disposals....... -- -- 2,946 2,639
-------- -------- ------- -------
(135,448) (179,978) (70,914) (63,521)
-------- -------- ------- -------
Financing activities:
Loans repaid........................ (1,877) (1,877) (6,367) (5,703)
New loans obtained.................. 88,262 40,568 15,665 14,032
-------- -------- ------- -------
86,385 38,691 9,298 8,329
-------- -------- ------- -------
Increase (decrease) in cash and cash
equivalents......................... (7,199) (47,118) 75,450 67,583
Cash and cash equivalents at the end
of the year......................... -- -- (9,825) (8,801)
-------- -------- ------- -------
Net interdivisional cash distribution
(receipt)........................... (7,199) (47,118) 65,625 58,782
======== ======== ======= =======
</TABLE>
See the accompanying notes to the consolidated financial statements.
F-5
<PAGE>
TELE LESTE CELULAR PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 23)
CONSOLIDATED STATEMENTS OF CHANGES IN DIVISIONAL EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS OF CONSTANT BRAZILIAN REAIS--R$,
OF DECEMBER 31, 1997)
<TABLE>
<CAPTION>
DIVISIONAL
EQUITY
----------
<S> <C>
Balance at December 31, 1994....................................... 13,870
Income before interest income, unallocated interest expense and
taxes............................................................. 34,299
Capitalized interest............................................... 1,239
Net interdivisional cash receipt................................... 7,199
Minority interests effects other than on income.................... (1,179)
-------
Balance at December 31, 1995....................................... 55,428
Income before interest income, unallocated interest expense and
taxes............................................................. 85,915
Capitalized interest............................................... 231
Deferred tax on full indexation.................................... (8,514)
Net interdivisional cash receipt................................... 47,118
Minority interests effects other than on income.................... (3,560)
-------
Balance at December 31, 1996....................................... 176,618
Income before interest income, unallocated interest expense and
taxes............................................................. 91,779
Capitalized interest............................................... 859
Deferred tax on full indexation.................................... (6,096)
Net interdivisional cash distribution.............................. (65,625)
Minority interests effects other than on income.................... (3,206)
-------
Balance at December 31, 1997....................................... 194,329
=======
</TABLE>
See the accompanying notes to the consolidated financial statements.
F-6
<PAGE>
TELE LESTE CELULAR PARTICIPACOES S.A.
(SEE NOTES, 1, 2 AND 23)
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 for the privatization of the Telebras system, the operating
subsidiaries 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. The cellular telecommunications businesses
have firstly been separated from the operating subsidiaries and subsequently
the fixed-line businesses, the new cellular businesses and the long distance
operator have been combined into the twelve separate groups (the "New Holding
Companies"). Both the separation of the cellular businesses and the subsequent
grouping of the former Telebras subsidiaries have been performed using a
procedure under Brazilian corporate law called cisao or "spin-off." As part of
this process Tele Leste Celular Participacoes S.A. (the "Holding Company") was
formed.
Tele Leste Celular Participacoes S.A. was formed on May 22, 1998, through
the spin-off of certain assets and liabilities of Telebras, including 89.3%
and 73.6% of the share capital of Telebahia Celular S.A. and Telergipe Celular
S.A., respectively.
Telebahia Celular S.A. and Telergipe Celular S.A. were formed on January 5,
1998 and subsequently received on January 30, 1998 from Telecomunicacoes da
Bahia S.A. ("Telebahia") and Telecomunicacoes de Sergipe S.A. ("Telergipe")
the assets and liabilities comprising their respective cellular
telecommunications services (the "Subsidiaries"). Tele Leste Celular
Participacoes S.A. and its subsidiaries (the "Companies") are the primary
suppliers of cellular telecommunications services in the states of Bahia and
Sergipe under the terms of concessions granted by the Federal Government on
November 4, 1997 (the "Concessions"). The Concessions will expire on June 29,
2008 with respect to Telebahia Celular S.A. and December 15, 2008 with respect
to Telergipe S.A. and may be renewed at the discretion of Anatel (as defined
below) for a further term of 15 years. Through its predecessors Telebahia and
Telergipe, the Companies have provided cellular telecommunications services in
the states of Bahia and Sergipe since April 1993 and December 1993,
respectively. Until August 4, 1998, the Companies were controlled by the
Federal Government (see Note 23(c)).
The Companies' businesses, including the services they may provide and the
rates they may charge are regulated by 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 FINANCIAL STATEMENTS
The consolidated financial statements present the financial condition and
revenues and expenses of the consolidated cellular telecommunication
businesses of Telebahia and Telergipe. The portion of the consolidated equity
and income before interest income, unallocated interest expense and taxes of
the Companies attributable to shareholders of the Companies 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 directly and indirectly owned 10.7% and 26.4% of the share
capital of Telebahia and Telergipe, respectively.
F-7
<PAGE>
TELE LESTE CELULAR PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 23)
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 and Telebahia Celular S.A. and
Telergipe Celular S.A. 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 cellular telecommunications businesses of Telebahia and
Telergipe were transferred to the Companies at their indexed historical cost.
The revenues and expenses associated with such assets and liabilities were
allocated to the Companies. Separate records of revenues and cost of services
of the cellular telecommunications businesses of Telebahia and Telergipe were
maintained historically. Accordingly, actual amounts were allocated for the
periods included herein. The consolidated statements of revenues and expenses
and net interdivisional cash distribution (receipt) have been prepared to
include the historical activity related to the assets and liabilities
transferred. The consolidated financial statements are not necessarily
indicative of what would have been the financial position and revenues and
expenses of the Companies as of December 31, 1997 and 1996 and for the three
year period ended December 31, 1997 had the cellular telecommunications
businesses of Telebahia and Telergipe been separate legal entities during such
period.
With respect to costs (other than costs of services), the methodologies
employed in transferring the assets and liabilities included the specific
identification of costs associated with those assets and liabilities, and the
allocation of costs where specific identification was not possible.
Allocations were made using criteria established by management that were
designed to ensure that all relevant costs were appropriately included in the
results of operations for the periods presented. Those allocation criteria
included: square footage (in relation to land and building related expenses),
number of terminals (in relation to general management, accounting, data
processing, legal department and other general staff functions), number of
employees (in relation to the human resource department), number of
requisitions issued (in relation to office material costs) and miles driven
(in relation to certain transport costs). Management believes that the amounts
included in the consolidated statements of revenues and expenses fairly
reflect the income before interest income, unallocated interest expense and
taxes of the businesses.
Prior to December 31, 1997 cash and certain non-specific debt could not be
segregated from Telebahia and Telergipe. Accordingly, these amounts have not
been included in the consolidated financial statements. Additionally, interest
income and unallocated interest expense relating to the cellular
telecommunications businesses could not be identified. Consequently, income
tax expense and related liabilities do not appear in the consolidated
financial statements. See Note 2(d) for additional information regarding
consolidated financial statements presentation.
The presentation of the consolidated financial statements is consistent with
the presentation of the published financial statements of Telebahia and
Telergipe, from which the financial information was extracted, except for
certain reclassifications within the consolidated statements of financial
condition and the consolidated statements of revenues and expenses which have
been made to conform previously published financial statement to the 1997
presentation within this registration statement.
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 carved out of the
statutory accounting records of Telebahia and Telergipe, maintained in
accordance with the practices described in Note 3, are as follows:
F-8
<PAGE>
TELE LESTE CELULAR PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 23)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS, OF DECEMBER 31,
1997)
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 Unidade Fiscal de Referencia (the Tax Reference Unit or the
"UFIR") through to December 31, 1995 and the Indice Geral de Precos-Mercado
(the General Prices Index-Market or the "IGP-M") of the Fundacao Getulio
Vargas in 1996 and 1997 following the cessation of the widespread use of the
UFIR that resulted from the change in Brazil's corporate law. Inflation for
the three year period ended December 31, 1997, as measured by the UFIR and the
IGP-M, was as follows:
<TABLE>
<CAPTION>
PERIOD INDEX ANNUAL INFLATION
------ ----- ----------------
%
<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 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 Companies as of December 31, 1997 will become the new basis
for accounting, and statement of revenue and expense items will no longer be
restated for inflation.
ii. Consolidated statements of revenues and expenses
Items in the consolidated statements of revenues and expenses are adjusted
by:
. allocating inflationary holding gains or losses on interest bearing
monetary assets and liabilities to their corresponding interest income
and expense captions;
. 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 to "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 liability of R$8,514 and R$6,096 in 1996 and 1997,
respectively, was recorded directly against divisional equity.
B. TRANSLATION OF CONSTANT BRAZILIAN REAL AMOUNTS INTO US DOLLAR AMOUNTS
The translation of Brazilian Real amounts into US 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
F-9
<PAGE>
TELE LESTE CELULAR PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 23)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS, OF DECEMBER 31,
1997)
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 US dollars at this or any other
rate.
C. DIVISIONAL EQUITY
As discussed in Note 1, the Companies were formed as a result of the
specific identification and spin-off of assets, liabilities and revenues and
expenses comprising the cellular telecommunications businesses of Telebahia
and Telergipe. Since Tele Leste Celular Participacoes S.A. did not exist prior
to January 1, 1998 no individual capital structure was maintained.
Consequently, the net assets contributed have been shown as "divisional
equity" in the consolidated statements of financial condition. Additionally,
consolidated statements of changes in divisional equity have been provided,
which show the changes in the divisional equity for the periods presented.
D. CONSOLIDATED STATEMENTS OF NET INTERDIVISIONAL CASH DISTRIBUTION (RECEIPT)
Because it was not possible to segregate the cash balances for the cellular
telecommunications businesses prior to December 31, 1997, a traditional
statement of cash flows could not be prepared for the periods presented. In
lieu of detailing the beginning and ending cash and cash equivalent balances,
and the net change in cash and cash equivalents between years, the net cash
transferred to/from the fixed-line telecommunications businesses of Telebahia
and Telergipe has been presented as "Net interdivisional cash distribution
(receipt)" in the consolidated statements of net interdivisional cash
distribution (receipt).
At December 31, 1997 cash and cash equivalents of R$9,825 were allocated
from Telebahia and Telergipe to the Companies to meet future estimated working
capital requirements.
E. PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include the financial records of the
Holding Company and its subsidiaries. All material intercompany accounts and
transactions have been eliminated.
3. SUMMARY OF THE PRINCIPAL ACCOUNTING PRACTICES
A. CASH AND CASH EQUIVALENTS
Cash equivalents are considered to be all highly liquid temporary cash
investments with original maturity dates of three months or less.
Any transfers of cash and cash equivalents have been recorded through
divisional equity.
B. TRADE ACCOUNTS RECEIVABLE
Accounts receivable from telephone subscribers are calculated at the tariff
rate on the date the services were rendered and discounted to their present
value at the consolidated statements of financial condition 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 consolidated statements of financial condition 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
F-10
<PAGE>
TELE LESTE CELULAR PARTICIPACOES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS, OF DECEMBER 31,
1997)
consolidated statements of financial condition date. Exchange differences are
recognized in the consolidated statements of revenues and expenses as they
occur.
E. 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. 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 12(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.
F. ACCOUNTS PAYABLE
Accounts payable to suppliers are discounted to their present value using
the ANBID interest rate.
G. VACATION PAY ACCRUAL
Cumulative vacation pay due to employees is accrued as earned.
H. INCOME AND SOCIAL CONTRIBUTION TAXES
As described in Note 2(a)(iii), the charge relating to deferred income tax
effects of indexation adjustments for 1996 and 1997 are recorded directly
against divisional equity.
I. LOANS AND FINANCING
Loans and financing include accrued interest to the consolidated statements
of financial condition date.
J. 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
consolidated statements of financial condition date.
K. REVENUE RECOGNITION
Revenues for all services are recognized when the service is provided.
Revenues from cellular telephone services consist of subscription charges,
usage charges, activation fees, network usage charges and charges for
maintenance and other customer services. Billings are monthly. Unbilled
revenues from the billing date to the month end are estimated and recognized
as revenue during the month in which the service was provided. Revenues from
activation fees are recognized upon the activation of a customer's services.
L. INTEREST EXPENSE
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 exchange gains/(losses) of R$379, (R$599)
and R$954 in 1995, 1996 and 1997, respectively.
F-11
<PAGE>
TELE LESTE CELULAR PARTICIPACOES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS, OF DECEMBER 31,
1997)
The Companies had no interest income during 1995, 1996 and 1997 as a result
of cash first being allocated on December 31, 1997.
M. PENSION AND POST-RETIREMENT BENEFITS
The Companies participate in a multi-employer plan that provides pension and
other post-retirement benefits for its employees. Current costs are determined
as the amount of required contribution for the period and are recorded on the
accrual basis.
N. EMPLOYEES' PROFIT SHARE
Accruals are made for granting employees the right to a share of profits.
The amount recorded is the employees' profit share attributable to those
employees in the cellular telecommunications businesses of Telebahia and
Telergipe.
O. EARNINGS PER SHARE
Earnings per share information has not been presented as the capital
structure of Tele Leste Celular Participacoes S.A. was not in place at
December 31, 1997.
P. SEGMENTAL INFORMATION
The Companies operate solely in one segment for local and regional cellular
telecommunications. All revenues are generated in relation to services
provided in or routed through the states of Bahia and Sergipe.
Q. 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 financial statements, and
the reported amounts of revenues and expenses during the period reported.
Actual results could differ from those estimates.
R. MINORITY INTERESTS
Minority interests reflected in the consolidated statements of financial
condition at December 31, 1996 and 1997 and in the consolidated statements of
revenues and expenses for the years ended December 31, 1995, 1996 and 1997
relate to the interests of shareholders other than Telebras in Telebahia and
Telergipe.
4. OPERATING REVENUE FROM CELLULAR TELECOMMUNICATIONS SERVICES
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Monthly subscription charges.................... 28,013 70,777 82,006
Activation fees................................. 14,154 26,354 13,470
Usage charges................................... 41,064 103,333 122,814
Network usage charges........................... 15,966 33,807 59,682
Other........................................... 4,744 2,911 1,640
------- ------- -------
Total gross operating revenue................... 103,941 237,182 279,612
Value added and other indirect taxes............ (19,765) (48,638) (59,171)
------- ------- -------
Net operating revenue from cellular
telecommunications services.................... 84,176 188,544 220,441
======= ======= =======
</TABLE>
F-12
<PAGE>
TELE LESTE CELULAR PARTICIPACOES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS, OF DECEMBER 31,
1997)
There are, excluding Telebahia and Telergipe, no customers who contribute
more than 5% of gross operating revenues.
5. COST OF SERVICES
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Depreciation and amortization........................... 4,410 15,353 19,988
Personnel............................................... 166 310 422
Materials and services.................................. 4,086 7,900 11,984
Fixed-line network expenses............................. 19,877 27,279 32,000
Fistel tax and other.................................... 2,284 4,701 4,322
------ ------ ------
30,823 55,543 68,716
====== ====== ======
</TABLE>
6. OTHER NET OPERATING INCOME (EXPENSE)
<TABLE>
<CAPTION>
1995 1996 1997
----- ------ -----
<S> <C> <C> <C>
Contingencies.......................................... -- -- (778)
Fines and expenses recovered........................... 2,686 7,034 2,607
Gain (losses) on non-monetary items.................... 826 (1,739) (271)
Other.................................................. (71) 6 10
----- ------ -----
3,441 5,301 1,568
===== ====== =====
</TABLE>
7. INCOME AND SOCIAL CONTRIBUTION TAXES
Brazilian income taxes comprise federal income tax and social contribution
tax. In 1995, 1996 and 1997 the statutory rates for income tax were 43%, 25%
and 25%, respectively, and for social contribution tax were 9.09%, 7.41% and
8.00%, respectively. As a result of legislation enacted in 1996, the social
contribution tax in 1997 was no longer deductible from its own computation
base. The changes produced a combined statutory rate of 48.18%, 30.56% and
33.00% in 1995, 1996 and 1997, respectively.
Income tax and social contribution tax expenses have not been included in
the consolidated statements of revenues and expenses as a result of interest
income and unallocated interest expense of the cellular telecommunications
businesses not being identified and segregated from Telebahia and Telergipe,
resulting in an incomplete presentation of income before taxes.
8. CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1995 1996 1997
----- ------ ------
<S> <C> <C> <C>
Interest paid............................................ 7,440 10,252 15,720
</TABLE>
9. CASH AND CASH EQUIVALENTS
As of December 31, 1997 the Companies were allocated R$9,825 in interest
bearing deposits with Banco do Brasil S.A., a government-controlled entity.
F-13
<PAGE>
TELE LESTE CELULAR PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 23)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS, OF DECEMBER 31,
1997)
10. TRADE ACCOUNTS RECEIVABLE, NET
<TABLE>
<CAPTION>
1996 1997
------- ------
<S> <C> <C>
Accrued amounts............................................. 3,520 4,555
Billed amounts.............................................. 29,894 28,666
Allowance for doubtful accounts............................. (10,956) (8,744)
------- ------
22,458 24,477
======= ======
</TABLE>
The changes in the allowance for doubtful accounts were as follows:
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Beginning balance............................................. -- 10,956
Provision charged to selling expense.......................... 10,956 7,212
Write-offs.................................................... -- (9,424)
------ ------
Ending balance................................................ 10,956 8,744
====== ======
</TABLE>
11. OTHER ASSETS
<TABLE>
<CAPTION>
1996 1997
----- ----
<S> <C> <C>
Prepayments....................................................... -- 49
Maintenance stocks................................................ 198 --
Insurance claims receivable ...................................... 5,120 --
Recoverable advances.............................................. 20 84
Other............................................................. 312 41
----- ---
5,650 174
===== ===
</TABLE>
12. PROPERTY, PLANT AND EQUIPMENT, NET
A. COMPOSITION:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Construction-in-progress................................... 57,998 44,954
Automatic switching equipment.............................. 34,933 51,926
Transmission and other equipment........................... 200,205 261,930
Buildings.................................................. 50,027 55,814
Other assets............................................... 7,269 9,404
------- -------
Total cost................................................. 350,432 424,028
Accumulated depreciation................................... (25,746) (50,100)
------- -------
Property, plant and equipment, net......................... 324,686 373,928
======= =======
</TABLE>
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......................................................... 4.00
Other assets (excluding land)..................................... 5.00-20.00
</TABLE>
F-14
<PAGE>
TELE LESTE CELULAR PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 23)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS, OF DECEMBER 31,
1997)
C. RENTALS
The Companies rent equipment and premises through a number of operating
agreements that expire at different dates. Total annual rent expense under
these agreements was as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Rent expense.................................................. 157 326 830
</TABLE>
The Companies have no noncancelable rental commitments.
13. PAYROLL AND RELATED ACCRUALS
<TABLE>
<CAPTION>
1996 1997
----- ----
<S> <C> <C>
Wages and salaries................................................ 268 186
Accrued social security charges................................... 533 277
Accrued benefits.................................................. 432 --
----- ---
1,233 463
===== ===
</TABLE>
14. ACCOUNTS PAYABLE
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Amounts payable to suppliers................................. 4,955 17,906
Payable to related parties................................... 2,990 819
------- -------
7,945 18,725
======= =======
15. TAXES OTHER THAN INCOME TAXES
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Value-added taxes............................................ 4,895 1,139
Other indirect taxes on operating revenues................... 460 25
------- -------
5,355 1,164
======= =======
All taxes payable at December 31, 1997, which are related to revenues (ICMS,
PASEP, COFINS), except for the amount related to taxes on unbilled revenues,
remained with Telebahia and Telergipe when the assets and liabilities of the
cellular telecommunications businesses were transferred to the Companies
because Telebahia and Telergipe have legal responsibility for their payment.
16. LOANS
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Loans........................................................ 136,541 145,839
Accrued interest............................................. 3,021 3,009
------- -------
139,562 148,848
======= =======
Current...................................................... 9,408 70,564
Noncurrent................................................... 130,154 78,284
</TABLE>
F-15
<PAGE>
TELE LESTE CELULAR PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 23)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS, OF DECEMBER 31,
1997)
A. LOANS
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Loans payable to NEC do Brasil S.A. ......................... 115,907 115,395
Other financing.............................................. 23,655 33,453
------- -------
139,562 148,848
======= =======
</TABLE>
Loans which are payable to NEC do Brasil S.A., and other financing at
December 31, 1997 consist of loans payable primarily in semi-annual
installments. Interest rates are both fixed and variable, ranging from 10.43%
to 10.88% per annum and from LIBOR plus 0.4% to 6% per annum, respectively
(LIBOR was 5.85% at December 31, 1997). All loans are denominated in US
dollars and are guaranteed by Telebras. The Companies do not hedge their
foreign currency liabilities. These loans are repayable in installments
through October 2, 2003.
B. REPAYMENT SCHEDULE
Noncurrent loans are scheduled to be repaid as follows:
<TABLE>
<S> <C>
1999.................................. 33,313
2000.................................. 24,252
2001.................................. 14,529
2002.................................. 3,220
2003.................................. 2,970
------
Total................................. 78,284
======
</TABLE>
C. CREDIT AGREEMENT DEFAULTS
The Companies are 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
Companies constituted, an event of default under such credit agreements. In
addition, most of the Companies' 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 Companies' debt is in default or accelerated. Approximately
R$84,321 of the Companies' outstanding debt as of December 31, 1997 is in
default or is expected to be in default as a result of the privatization. The
Companies are 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 Companies be unable to renegotiate their
credit agreements. The Companies believe that once the privatization is
finalized, the Companies' creditors will renegotiate the terms of their credit
agreements and/or provide appropriate waivers regarding such defaults.
17. PROVISIONS FOR CONTINGENCIES
Provisions for contingent liabilities were as follows:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Labor claims....................................................... -- 750
=== ===
</TABLE>
F-16
<PAGE>
TELE LESTE CELULAR PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 23)
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 is management's estimate of the most probable
losses in relation to various suits filed by current and former employees.
Potential Litigation
Telebras, Telebahia and Telergipe, the legal predecessors of the Holding
Company and Telebahia Celular S.A. and Telergipe Celular S.A., respectively,
are defendants in a number of legal proceedings and subject to certain other
claims and contingencies. Liability for any claims arising out of acts
committed by Telebahia and Telergipe prior to the effective date of the spin-
off of Telebahia's and Telergipe's cellular assets and liabilities to
Telebahia Celular S.A. and Telergipe Celular S.A. remains with Telebahia and
Telergipe, except for those liabilities for which specific accounting
provisions have been assigned to Telebahia Celular S.A. and Telergipe Celular
S.A. Any claims against Telebahia and Telergipe which are not met by Telebahia
and Telergipe could result in claims against Telebahia Celular S.A. and
Telergipe Celular S.A. to the extent that Telebahia Celular S.A. and Telergipe
Celular S.A. have received assets which might have been used to settle those
claims had they not been spun off from Telebahia and Telergipe. Under the
terms of the breakup of Telebras, 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 (in which case Telebras and the new
Holding Company are jointly and severally liable) and any liability for which
specific accounting provisions have been assigned to the Holding Company.
Creditors of Telebras may challenge this allocation of liability. Management
believes that the chances of any claims materializing and having a material
adverse financial effect on the Companies and/or the Holding Company are
remote and, therefore, no provision was made.
Taxes--ICMS on activation fees and other services
On June 19, 1998 the secretaries of the treasury of the individual Brazilian
states approved an agreement to interpret existing Brazilian tax law to
broaden the application of the ICMS (Imposto sobre Circulacao de Mercadorias e
Servicos), a state value-added tax, to cover not only telecommunications
services but also other services, including cellular activation, which had not
been previously subject to such tax. Pursuant to this new interpretation of
tax law, the ICMS tax may be applied retroactively for such services rendered
during the last five years.
The Company believes that the attempt by the state treasury secretaries to
extend the scope of ICMS tax to services which are supplementary to basic
telecommunications services is unlawful because: (i) the state secretaries
acted beyond the scope of their authority; (ii) their interpretation would
subject certain services to taxation which are not considered
telecommunications services; and (iii) new taxes may not be applied
retroactively. Accordingly, no provision for such taxes has been made in the
accompanying consolidated financial statements.
There can be no assurance that the Company will prevail in its position that
the new interpretation by the state treasury secretaries is unlawful. If the
25% ICMS tax was applied retroactively to services provided by the Company's
subsidiaries since its inception on January 5, 1998, it could have a material
negative impact on the financial condition and results of operations of the
Company subsequent to January 5, 1998.
18. PROVISION FOR PENSIONS
The Companies participate in a multi-employer defined benefit pension plan
and other post retirement benefit plans administered by the Fundacao Telebras
de Seguridade Social ("Sistel").
F-17
<PAGE>
TELE LESTE CELULAR PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 23)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS, OF DECEMBER 31,
1997)
All of the Companies' employees are covered by these plans. The Companies
contributed and charged to expense R$456 thousand, R$463 thousand and R$445
thousand during 1995, 1996 and 1997, respectively, in respect of pension fund
contributions. Information from the plans' administrators is not available to
permit the Companies to determine their share of unfunded vested benefits, if
any. Management has no intention of withdrawing from these plans, nor is there
any intention to terminate the plans. As a member of multi-employer plans, the
Companies' contributions are not segregated in separate accounts or restricted
to provide benefits only to employees of the Companies. The Companies are also
contingently liable for the total obligations of the 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 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 relating to the overall Sistel plan, in compliance with
accounting principles generally accepted in Brazil, is as follows:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Accumulated pension and other post retirement benefit
obligations.......................................... 3,235,223 3,775,898
Other obligations..................................... 244,724 255,751
--------- ---------
Total obligations................................... 3,479,947 4,031,649
========= =========
Combined plan assets:
Interest bearing deposits........................... 1,849,297 1,715,153
Stocks and shares................................... 1,548,629 2,360,786
Investment properties............................... 376,805 363,305
Loans to beneficiaries.............................. 115,921 123,428
Other investments................................... 56,228 52,195
--------- ---------
Total plan assets................................... 3,946,880 4,614,867
--------- ---------
Excess of total plan assets over total obligations.... 466,933 583,218
========= =========
</TABLE>
19. TRANSACTIONS WITH RELATED PARTIES
The principal related party transactions take place with Empresa Brasileira
de Telecomunicacoes S.A. ("Embratel"), a subsidiary of Telebras, in respect of
long-distance cellular telecommunications and with Telebahia and Telergipe
with respect to use of its communications network.
The Companies have operating agreements with Embratel, which define usage
charge fees for inter- or intrastate long-distance or international telephone
calls with origin or destination in the area specified by the
telecommunications concession granted to the Companies by the Federal
Government.
Interconnection agreements with Telebahia and Telergipe define the network
charges when cellular telecommunications takes place using their equipment.
F-18
<PAGE>
TELE LESTE CELULAR PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 23)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS, OF DECEMBER 31,
1997)
Agreements for automatic roaming have been entered into with the other seven
Band A operators in Brazil belonging to the Telebras group.
The Companies are responsible for billing cellular subscribers for long-
distance calls and collecting payments owed to other cellular and fixed-line
carriers. The collection of outgoing calls is the responsibility of the
Companies and the collection of incoming calls is the responsibility of the
originating telephone company. After the collection cycle is complete, the
Companies and the regional fixed-line and cellular companies jointly reconcile
the amounts collected against the amounts, if any, transferred to each party,
and pay the net amounts outstanding to the appropriate parties, including the
long-distance portion of the charges to Embratel.
Until the breakup of Telebras, Telebahia, Telergipe 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).
Following the breakup of Telebras, the research and development center will
become a private, independently administered foundation financed by
contributions from the New Holding Companies resulting from the breakup.
Pursuant to a three year contract signed in May 1998 between the foundation
and the Companies, the Companies are obligated to contribute a maximum of
R$800 to the research and development center during the three years ending May
2001. The actual amount spent in a given year may be adjusted downward at the
option of the foundation.
Additionally, Telebras charges a 1% per annum administration fee on the
allocation to the Companies of debt originally contracted by Telebras.
Telebras has also charged interest on the loan of its own funds at a rate
which is currently 1% plus the indexation of the principal in accordance with
the variation of the IGP-M inflation index.
A summary of the balances and transactions with these related parties is as
follows:
<TABLE>
<CAPTION>
1996 1997
----- ----
<S> <C> <C>
Current assets:
Trade accounts receivable....................................... 177 543
Current liabilities:
Accounts payable and accrued expenses........................... 2,990 819
</TABLE>
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Net operating revenue from cellular
telecommunications services......................... 15,966 33,807 59,682
Cost of services..................................... 23,189 33,562 48,836
Operating expenses................................... 7,879 15,682 18,817
</TABLE>
Other related parties are Federal, State and Municipal Governments. Revenues
from telephone calls made by government bodies and related organizations have
not been included above because details of the type of telephone users were
not maintained by the Companies.
The Companies believe that, except for interest income, unallocated interest
expense and income taxes, all the costs of doing business are reflected in the
consolidated financial statements and that no additional amounts should be
added to the consolidated financial statements as a result of the cessation of
the activities previously performed by Telebras.
F-19
<PAGE>
TELE LESTE CELULAR PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 23)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS, OF DECEMBER 31,
1997)
20. COMMITMENTS
At December 31, 1997 the Companies had approximately the following capital
expenditure commitments:
<TABLE>
<CAPTION>
EXPECTED YEAR OF EXPENDITURE
----------------------------
<S> <C>
1998............................................................... 65,100
</TABLE>
These commitments relate to the continuing expansion and modernization of
the cellular system, information technology, transmission equipment and the
messaging system.
21. INSURANCE
At December 31, 1997, in the opinion of management, all significant and high
risk assets and obligations were insured.
22. FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES
Estimated fair values of the Companies' financial assets and liabilities
have been determined using available market information and appropriate
valuation methodologies. However, considerable judgment 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 fully 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 values is believed to exist.
<TABLE>
<CAPTION>
1996 1996 1997 1997
BOOK FAIR BOOK FAIR
VALUE VALUE VALUE VALUE
------- ------- ------- -------
<S> <C> <C> <C> <C>
Liabilities:
Deferred tax from indexation adjustments
and other tax liabilities................. 13,869 13,854 15,774 15,761
Loans...................................... 136,541 110,016 145,839 140,779
</TABLE>
Cash, cash equivalents, trade accounts receivable, other current assets,
accounts payable and accrued expenses
The carrying value of cash, cash equivalents, trade 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.
Loans and financing
Interest rates that are currently available to the Companies for issuance of
debt with similar terms and maturities were used to estimate fair value.
F-20
<PAGE>
TELE LESTE CELULAR PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 23)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS, OF DECEMBER 31,
1997)
23. EVENTS SUBSEQUENT TO DECEMBER 31, 1997
A. INCORPORATION OF TELEBAHIA CELULAR S.A. AND TELERGIPE CELULAR S.A.
At December 31, 1997, Telebras, through its operating subsidiaries, was the
principal supplier of public telecommunications services in Brazil, which
included being the leading provider of cellular telecommunications services.
On January 30, 1998, as part of a spin-off of cellular telecommunications
businesses by all of Telebras' subsidiaries, Telebahia and Telergipe spun off
the assets and liabilities as of January 1, 1998 of their cellular
telecommunications businesses into two separate companies. These new
companies, called "Telebahia Celular S.A." and "Telergipe Celular S.A.," were
incorporated on January 5, 1998.
B. INCORPORATION OF TELE LESTE CELULAR PARTICIPACOES S.A.
On May 22, 1998 the shareholders of Telebras approved Telebras' division
into the New Holding Companies using a procedure under Brazilian corporate law
called a cisao, whereby existing shareholders received shares in the New
Holding 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,
. approximately 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 Tele Leste Celular 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 an increase of R$92,643 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 Companies, and the "Holding Company Consolidated Statement" column
summarizes the consolidated balance sheet of Tele Leste Celular 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, Tele Leste Celular Participacoes S.A.'s
legal capital structure was defined by the resolutions approved by the
Telebras shareholders' meeting of May 22, 1998 so that its shareholders'
equity of R$251,292 includes
F-21
<PAGE>
TELE LESTE CELULAR PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 23)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS, OF DECEMBER 31,
1997)
retained earnings of R$92,643. The allocated retained earnings and future
retained earnings will be the basis from which future dividends will be
payable.
The "Adjustments and Eliminations" column includes (i) the elimination of
the Telebras investment in the Companies and (ii) the elimination of inter
company loans, payable and receivables.
<TABLE>
<CAPTION>
DECEMBER 31, 1997 SPIN-OFF ADJUSTMENTS HOLDING COMPANY
HISTORICAL FROM AND CONSOLIDATED
BALANCE TELEBRAS ELIMINATIONS STATEMENT
----------------- -------- ------------ ---------------
<S> <C> <C> <C> <C>
Assets:
Cash and cash
equivalents.......... 9,825 57,000 -- 66,825
Accounts receivable
from related
parties.............. 543 -- -- 543
Other current assets.. 24,651 -- 24,651
------- ------- -------- -------
Total current assets.. 35,019 57,000 -- 92,019
------- ------- -------- -------
Investments in
subsidiaries......... -- 194,329 (194,329) --
Property, plant and
equipment, net....... 373,928 -- -- 373,928
------- ------- -------- -------
Total permanent
assets............... 373,928 194,329 (194,329) 373,928
------- ------- -------- -------
Total assets.......... 408,947 251,329 (194,329) 465,947
======= ======= ======== =======
Liabilities:
Loans................. 70,564 -- -- 70,564
Accounts payable to
related parties...... 819 -- -- 819
Other current
liabilities.......... 20,751 -- -- 20,751
------- ------- -------- -------
Total current
liabilities.......... 92,134 -- -- 92,134
Loans ................ 78,284 -- -- 78,284
Other noncurrent
liabilities.......... 14,142 -- -- 14,142
------- ------- -------- -------
Total noncurrent
liabilities.......... 92,426 -- -- 92,426
Minority interests.... 30,058 -- -- 30,058
Divisional equity..... 194,329 -- (194,329) --
Share capital......... -- 87,161 -- 87,161
Income reserves....... -- 71,488 -- 71,488
Retained earnings..... -- 92,643 -- 92,643
------- ------- -------- -------
Total shareholders'
equity............... 194,329 251,292 (194,329) 251,292
------- ------- -------- -------
Funds for capitaliza-
tion................. -- 37 -- 37
------- ------- -------- -------
Total liabilities and
shareholders'
equity............... 408,947 251,329 (194,329) 465,947
======= ======= ======== =======
</TABLE>
The formation of the Holding Company and of Telebahia Celular S.A. and
Telergipe Celular S.A. 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 spun off. Furthermore, as allowed by Brazilian corporate law, the
amounts shown in the "Spin-off from Telebras" column as "Investment in
subsidiaries" were determined based on the balance sheets of those
subsidiaries as of December 31, 1997. As a result, the consolidated financial
statements of the Holding Company will include the results of operations and
changes in financial condition of the subsidiaries from January 1, 1998 and
the effects of the cash allocated from Telebras as of March, 1998.
F-22
<PAGE>
TELE LESTE CELULAR PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 23)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS, OF DECEMBER 31,
1997)
Capital
The capital stock of Tele Leste Celular Participacoes S.A. 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 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 Tele Leste Celular
Participacoes S.A.
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.
On June 7, 1990, the Board of Directors of Telebras authorized an increase
in Telebras' 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. Nevertheless, the Federal Prosecutor decided to pursue the issue
through judicial channels. In April 1998, resolution was reached on the
disputed Telebras capital increase of 1990. In connection with the resolution
Telebras issued 13,718,350 thousand shares of preferred stock.
Dividends
Pursuant to its By-laws, Tele Leste Celular Participacoes S.A. 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 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 the purposes of the Brazilian Corporation Law, and in accordance with
Tele Leste Celular Participacoes S.A.'s By-laws, the "Adjusted Net Income" is
an amount equal to Tele Leste Celular 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.
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.
F-23
<PAGE>
TELE LESTE CELULAR PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 23)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS, OF DECEMBER 31,
1997)
24. SUMMARY OF THE DIFFERENCES BETWEEN BRAZILIAN AND US GAAP
The Companies' 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 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 own capital being credited
to capital reserves.
Under US GAAP, in accordance with the provisions of Statement of Financial
Accounting Standard ("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 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 (Being interest incurred on loans from the Companies'
parent and from third parties, except in years where total
loans exceeded total construction in progress, when
capitalized interest is reduced proportionately)............. 3,510 1,949
------ ------
Less Brazilian GAAP capitalized interest:
Interest capitalized and credited to income (Up to the limit
of interest incurred on loans obtained for financing capital
investments)................................................. (4,314) (4,657)
Interest capitalized and credited to reserves ............... (231) (859)
------ ------
(4,545) (5,516)
------ ------
US GAAP Difference............................................. (1,035) (3,567)
====== ======
AMORTIZATION OF CAPITALIZED INTEREST DIFFERENCE
Amortization under Brazilian GAAP............................ 202 593
Less amortization under US GAAP.............................. (174) (475)
------ ------
US GAAP Difference............................................. 28 118
====== ======
</TABLE>
F-24
<PAGE>
TELE LESTE CELULAR PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 23)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS, OF DECEMBER 31,
1997)
B. PENSION AND OTHER POST-RETIREMENT BENEFITS
The Companies participate in a multi-employer benefit plan that is operated
and administered by Sistel, and provide for the costs of pension and other
post-retirement benefits based on a fixed percentage of remuneration, as
recommended annually by independent actuaries. Note 25 shows the funded status
of Sistel. The provisions of SFAS No. 87, "Employers' Accounting for
Pensions," for the purposes of calculating the funded status, were applied
with effect from January 1, 1992, because it was not feasible to apply them
from the effective date specified in the standard.
C. DISCLOSURE REQUIREMENTS
US GAAP disclosure requirements differ from those required by Brazilian
GAAP. However, in these consolidated financial statements, the level of
disclosure has been expanded to comply with US GAAP.
D. INTEREST EXPENSE
Brazilian GAAP requires interest to be shown as part of operating income.
Under US GAAP interest expense would be shown after operating income and
accrued interest would be included in accounts payable and accrued expenses.
E. 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.
F. 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 noncurrent assets.
G. PRICE-LEVEL ADJUSTMENTS AND US GAAP PRESENTATION
The effects of price-level adjustments have not been eliminated in the
reconciliation to US GAAP nor are the 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 effects of price level changes in the Brazilian
economy and, as such, is considered a more meaningful presentation than
historical cost-based financial reporting for both Brazilian and US accounting
purposes.
H. ITEMS POSTED DIRECTLY TO DIVISIONAL EQUITY
Under Brazilian GAAP various items are posted directly to divisional equity,
which under US GAAP would be posted to the consolidated statements of revenues
and expenses. An example is capitalized interest. The posting of such items to
divisional equity gives rise to adjustments in the consolidated statements of
changes in divisional equity. Since the original postings to the equity
accounts would, under US GAAP, be made directly to the consolidated statements
of revenues and expenses, the adjustment is included in the reconciliation of
the income differences between US and Brazilian GAAP.
F-25
<PAGE>
TELE LESTE CELULAR PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 23)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS, OF DECEMBER 31,
1997)
I. INCOME TAXES
The Company has not presented income taxes since the consolidated financial
statements do not include interest income and unallocated interest expense as
a result of nonspecific cash and debt not being allocated from Telebahia and
Telergipe. However, for Brazilian GAAP, the deferred tax charges relating to
the deferred income tax effects of indexation adjustments for 1996 and 1997,
as described in Note 2(a)(iii), are recorded directly against divisional
equity.
J. EARNINGS PER SHARE
Earnings per share has not been presented for Brazilian GAAP as the capital
structure of the Holding Company was not in place at December 31, 1997.
Earnings per share has not been presented for US GAAP as the consolidated
statements of revenues and expenses exclude interest income and unallocated
interest expense and income taxes as a result of nonspecific cash and debt not
being allocated from Telebahia and Telergipe.
K. DEFERRED TAXES
The deferred income tax liability arising out of the indexation of permanent
assets of R$8,514 in 1996 and R$6,096 in 1997 was charged directly to
divisional equity in accordance with Brazilian GAAP, whereas for US GAAP the
charge would be to income for the year. This adjustment has not been reflected
in US GAAP income as noted in Note 24(i). Additionally, the deferred tax
effects of the US GAAP adjustments of R$135 and R$677 in 1996 and 1997,
respectively, are not included in the reconciliation of income differences
between US and Brazilian GAAP.
L. 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 a
current obligations unless creditors had provided the Companies 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$84,321)
of the Company's outstanding debt at December 31, 1997 is or is expected to be
in default and, accordingly, for US GAAP would be classified as current
liabilities.
M. VALUATION OF LONG-LIVED ASSETS
For US GAAP, effective January 1, 1996 the Companies adopted SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of." In accordance with this standard, the Companies
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. The
adoption of this standard did not have a material effect on the Companies'
results or financial condition.
Brazilian GAAP does not require cash flow computations in order to determine
potential asset impairment.
F-26
<PAGE>
TELE LESTE CELULAR PARTICIPACOES S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS, OF DECEMBER 31,
1997)
N. 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 U.S. 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 U.S. GAAP distributable capital of R$92,643.
O. REVENUE RECOGNITION
Until December 31, 1997, under both Brazilian and U.S. GAAP, revenues from
activation fees were recognized upon activation of a customer's services.
Under US GAAP, effective January 1, 1998, net revenues from activation fees
will be deferred and amortized over 12 months, the estimated effective
contract life.
RECONCILIATION OF THE INCOME DIFFERENCES BETWEEN US AND BRAZILIAN GAAP
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Income before interest income, unallocated interest
expense and taxes as reported.......................... 85,915 91,779
Add (deduct):
Different criteria for:
Capitalized interest................................ (1,035) (3,567)
Amortization of capitalized interest................ 28 118
Capitalized interest on construction-in-progress
posted directly to equity.......................... 231 859
Minority interests in the above adjustments......... 109 270
------- -------
US GAAP income before interest income, unallocated
interest expense and taxes............................. 85,248 89,459
======= =======
RECONCILIATION OF THE DIVISIONAL EQUITY DIFFERENCES BETWEEN US AND BRAZILIAN
GAAP
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Total divisional equity as reported..................... 176,618 194,329
Add (deduct):
Different criteria for:
Capitalized interest................................ (1,385) (4,952)
Amortization of capitalized interest................ (191) (73)
Deferred tax effects of the above adjustments....... 520 1,658
Minority interests in the above adjustments......... 171 520
------- -------
US GAAP divisional equity............................... 175,733 191,482
======= =======
US GAAP Supplementary information:
Total assets.......................................... 351,915 405,580
======= =======
Property, plant and equipment......................... 349,047 419,076
Accumulated depreciation.............................. (25,937) (50,173)
------- -------
Net property, plant and equipment..................... 323,110 368,903
======= =======
</TABLE>
F-27
<PAGE>
TELE LESTE CELULAR PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 23)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS, OF DECEMBER 31,
1997)
<TABLE>
STATEMENTS OF CHANGES IN DIVISIONAL EQUITY IN ACCORDANCE WITH US GAAP
<S> <C> <C>
Balance at December 31, 1995.................................. 55,093
Income before interest income, unallocated interest expense
and taxes.................................................... 85,248
Net interdivisional cash receipt.............................. 47,118
Deferred tax on indexation of permanent assets................ (8,514)
Deferred tax on other US GAAP adjustments..................... 346
Minority interest effects other than on income................ (3,558)
-------
Balance at December 31, 1996.................................. 175,733
Income before interest income, unallocated interest expense
and taxes.................................................... 89,459
Net interdivisional cash distribution......................... (65,625)
Deferred tax on indexation of permanent assets................ (6,096)
Deferred tax on other US GAAP adjustments..................... 1,139
Minority interest effects other than on income................ (3,128)
-------
Balance at December 31, 1997.................................. 191,482
=======
</TABLE>
25. ADDITIONAL DISCLOSURES REQUIRED BY US GAAP
A. PENSION AND POST-RETIREMENT BENEFITS
The Companies, together with substantially all of the other companies in the
Telebras group, participates in a multi-employer defined benefit pension and
other post-retirement benefit plans, which are operated and administered by
Sistel. The funded status of the Sistel pension and other post-retirement
benefit plans and the related actuarial assumptions, in accordance with US
GAAP, are as follows:
Pension benefit plan
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Funded status:
Accumulated benefit obligation:
Vested......................................... 1,793,943 1,919,975
Non vested..................................... 3,250,909 3,479,300
---------- ----------
Total.......................................... 5,044,852 5,399,275
========== ==========
Projected benefit obligation..................... 6,636,907 7,258,074
Fair value of plan assets........................ (3,430,572) (3,897,051)
---------- ----------
Projected obligation in excess of assets......... 3,206,335 3,361,023
========== ==========
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 and exclude inflation.
Amortization of the unrecognized liability at transition: 18.94 years
commencing on January 1, 1991.
F-28
<PAGE>
TELE LESTE CELULAR PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 23)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS, OF DECEMBER 31,
1997)
Other post-retirement benefits plan
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Funded status:
Accumulated post-retirement benefit obligations:
Retirees and dependents............................ 371,125 380,561
Fully eligible active plan participants............ 32,631 34,589
Other active plan participants..................... 885,917 997,791
--------- ---------
1,289,673 1,412,941
Fair value of plan assets............................ (76,600) (96,141)
--------- ---------
Obligation in excess of plan assets.................. 1,213,073 1,316,800
========= =========
</TABLE>
Amortization of the unrecognized liability at transition: 18.84 years
commencing on January 1, 1992.
Health care cost trend rates of increase were projected at annual rates
excluding inflation ranging from 6.48% in 1998 decreasing 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 benefits obligation
at December 31, 1997 by R$237,063. Measurement of the accumulated post-
retirement benefit obligation was based on the same assumptions as were used
in the pension fund liability 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 assumption 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$400,370 and R$487,269 in 1996 and 1997,
respectively.
B. CONCENTRATION OF RISKS
The Companies are prohibited from investing any surplus cash balances in
financial instruments other than government securities controlled by the
Central Bank of Brazil or the Federal Government owned bank, Banco do Brasil
S.A. There have been no losses in cash equivalents.
Credit risk with respect to trade accounts receivable is diversified. The
Companies continually monitor the level of trade accounts receivable and limit
the exposure to bad debts by cutting access to the telephone network if any
invoice is twenty days past due. Exceptions comprise telephone services that
must be maintained for reasons of safety or national security.
In conducting its businesses, Telebahia Celular S.A. and Telergipe Celular
S.A. are fully dependent upon the cellular telecommunications concession as
granted by the Federal Government.
Approximately 68% of all employees are members of state labor unions
associated with either the Federacao Nacional dos Trabalhadores em
Telecomunicacoes ("Fenattel"), or with the Federacao Interestadual dos
Trabalhadores em Telecomunicacoes ("Fittel"). The Companies negotiate new
collective labor agreements every year with the local union. The collective
agreements currently in force expire in November 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 the Companies' operations.
F-29
<PAGE>
TELE LESTE CELULAR PARTICIPACOES S.A.
(SEE NOTES 1, 2 AND 23)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS EXPRESSED IN THOUSANDS OF CONSTANT BRAZILIAN REAIS, OF DECEMBER 31,
1997)
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 consolidated 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 consolidated
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 POST-RETIREMENT
BENEFITS"
SFAS No. 132 revises and standardizes employers' disclosures about pension
and other post-retirement benefit plans. It does not change the measurement or
recognition of those plans.
The Companies will comply with the requirements of SFAS No. 130, 131 and 132
in 1998.
F-30
<PAGE>
TELE LESTE PARTICIPACOES S.A.
EXHIBIT VOLUME
SEPTEMBER 18, 1998
<PAGE>
TELE LESTE CELULAR 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 issued thereunder
10.1 Standard Concession Agreement for Mobile Cellular Service and
Schedule of Omitted Concession Agreements
10.2 Standard Concession Agreement for Mobile Cellular Service (English
translation)
23.1 Consent of KPMG Peat Marwick
<PAGE>
EXHIBIT 1.1
ESTATUTO SOCIAL
DA
TELE LESTE CELULAR PARTICIPACOES S.A.
CAPITULO I
DAS CARACTERISTICAS DA SOCIEDADE
Art. 1 - TELE LESTE CELULAR PARTICIPACOES S.A. e uma sociedade anonima,
vinculada ao Ministerio das Comunicacoes, controladora das empresas atuantes na
Area de Concessao 9 para exploracao do Servico Movel Celular.
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 das sociedades exploradoras do Servico Movel
Celular, na Area de Concessao 9.
II. promover, atraves de sociedades controladas ou coligadas, a expansao
e implantacao de servicos de telefonia movel, em sua respectiva area
de concessao;
III. promover, realizar ou orientar a captacao, em fontes internas e
externas, de recursos a serem aplicados pela Companhia ou pelas suas
controladas;
IV. promover e estimular atividades de estudos e pesquisas visando ao
desenvolvimento do setor de telefonia movel;
V. executar, atraves de sociedades controladas ou coligadas, servicos
tecnicos especializados afetos area de telefonia movel;
VI. promover, estimular e coordenar, atraves de sins sociedades
controladas ou coligadas, a formacao e o treinamento do pessoal
necessario ao setor de telefonia movel;
VII. realizar ou promover importacoes de bens e servicos para as suas
sociedades controladas e coligadas;
VIII. exercer outras atividades afins ou correlatas ao seu objeto social; e
<PAGE>
2
IX. 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$
87.160.567,41 (oitenta e sete milhoes, cento e sessenta mil, quinhentos e
sessenta e sete reais e quarenta e um centavos), representado por
334.399.027.592 (trezentos e trinta e quatro bilhoes, trezentos e noventa e nove
milhoes, vinte e sete mu, 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:
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;
<PAGE>
3
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
empresas controladas, 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
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;
<PAGE>
4
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 controladas;
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
Adrministracao, 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 empresas controladas;
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
limites do capital autorizado, observadas as disposicoes legais e
estatutarias;
<PAGE>
5
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 (S) 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 uico do art. 123 da Lei n(degree) 6.404/76.
Paragrafo Unico - Nas hipoteses do art. 136 da Lei n(degree) 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.
(S) 1 - A ata sera lavrada na forma de sumario dos fatos, inclusive
dissidencias e protestos.
(S) 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
do exercicio social, a Assembleia Geral se reunira, ordinariamente, para:
<PAGE>
6
I. tomar as contas dos administradores; examinar, discutir e votar as
demonstraoces financeiras;
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
Adminstracao e pela Diretoria.
(S) 1 - O Conselho de Administracao, orgao de deliberacao colegiada,
exercera a administracao superior da Companhia.
(S) 2 - A Diretoria e orgao executivo da administracao da Companhia,
atuando cada um de seus membros segundo a respectiva competencia.
(S) 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 e o Relatorio da Administracao da Companhia, neles
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 panicipacao 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
papers");
<PAGE>
8
XVII. executar outras atividades que lhe sejam cometidas pela lei,
pelo Estatuto, pela Assembleia Geral ou pelo Ministerio das
Comunicacoes.
Art. 21 - O Conselho de Administracao sera composto de 4 (quatro) membros,
ai incluidos um representante dos acionistas minoritrios 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 - O 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 - O 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 - O 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
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.
<PAGE>
9
Art. 27 - Cabera ao Conselho de 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.
COMPETENCIA COLEGIADA
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 empresas controladas 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 empresas controladas 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 empresas controladas,
para negociacao com o orgao regulador;
VII. resolver sobre a participacao da Companhia no capital de empresas
concessionarias de servicos de comunicacoes moveis celulares, ouvido
previamente o orgao regulador;
<PAGE>
l0
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 empresas
controladas;
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
as de controladas;
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 de Diretores e empregados para:
a) praticar atos que constituam ou alterem obrigacoes da Companhia,
bem como aqueles que desonerem terceiros para com ela;
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11
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 os de empresas controladas;
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. deliberar sobre proposicoes relativas a administracao e
desenvolvimento de recursos humanos formuladas pelas suas empresas
controladas, incluindo os respectivos quadros de pessoal;
XXIV. 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;
XXV. aprovar a constituicao de onus reais sobre bens da Companhia, para
concessao de garantia em operacoes de credito da Companhia e das suas
empresas controladas;
XXVI. deliberar sobre financiamentos, emprestimos e concessao de avais,
fiancas e outras garantias semelhantes e repasse de recursos as
empresas controladas;
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12
XXVII. aprovar proposta, a ser submetida a Agencia Nacional de
Telecomunicacoes - ANATEL, de reajuste das tarifas e precos dos
servicos de comunicacoes moveis celulares, nas areas de concessao da
empresa;
XXVIII. aprovar normas para concessao, com interveniencia da Companhia, de
emprestimos aos empregados por instituicoes financeiras;
XXIX. autorizar a alienacao, pelas empresas controladas, de bens do ativo
permanente vinculados a prestacao de servicos de comunicacoes moveis
celulares, e a constituicao de onus reais sobre eles;
XXX. 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 prepostos;
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 empresas
controladas e de outras de cujo capital participe;
7. determinar a publicacao do Relatorio Anual das Atividades da
Companhia;
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13
8. dirigir as atividades referentes ao gerenciamento da
regulamentacao, orientacao juridica e auditoria;
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 empresas controladas 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
miximo 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 suas controladas;
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 suas
controladas;
4. avaliar o desempenho das empresas 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.
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14
8. executar outras atividades delegadas pelo Presidente.
SECAO IV
DISPOSICOES COMUNS AOS ADMINISTRADORES
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.
(S) 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.
(S) 2 - No caso de vacancia de 2/3 (dois tercos) dos cargos do Conselho de
Administracao, os membros remanescentes convocarao imediatamente a Assembleia
Geral.
(S) 3 - No caso de vacancia de cargo da Diretoria, o Conselho promovera a
eleicao do substituto para completar o mandato do substituido.
(S) 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 - O empregado da Companhia ou de empresa do Sistema
TELEBRAS eleito administrador da Companhia podera optar por seu salario, segundo
criterios definidos pelo Conselho de Administracao.
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15
CAPITULO V
CONSELHO FISCAL
Art. 35 - O Conselho Fiscal e o orgao de fiscalizacao da administracao da
Companhia, devendo funcionar permanentemente.
Art. 36 - O Conseho Fiscal sera composto de 3 (tres) membros efetivos e 3
(tres) suplentes, acionistas ou nao, eleitos pela Assembleia, 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.
(S) 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.
(S) 2 - Os membros do Conselho Fiscal, em sua primeira reuniao, elegerao o
seu Presidente, a quem cabera dar cumprimento as deliberacoes do orgao.
(S) 3 - O Conselho Fiscal podera solicitar a Empresa a designacao de
pessoal qualificado pata 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;
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16
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;
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.
(S) 1 - As reunioes serao convocadas pelo Presidente da Companhia ou por
Qualquer dos membros do Conselho.
(S) 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.
(S) 1 - Ocorrendo a vacancia do cargo de membro do Conselho, a substituicao
se fara na forma do disposto no art. 39 deste Estatuto.
(S) 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.
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17
(S) 1 - A remuneracao sera paga de forma como o for aos membros da
Diretoria.
(S) 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 da 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.
(S) 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 dividendos 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.
(S) 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.
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18
(S) 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 & 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 distribuicao aos demais acionistas.
(S) 2 - Salvo deliberacao em contrario da Assembleia Geral, os dividendos
serao pagos "pro rata" dia, subsequente ao da realizacao do capital.
(S) 3 - Os orgaos da administracao poderao pagar ou creditar juros sobre o
capital proprio nos termos do (S) 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.
(S) 4 - Os dividendos nao reclamados no prazo de 3 (tres) anos reverterao
em favor da Companhia.
CAPITULO VII
DA LIQUIDACA0 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:
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19
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 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
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 (S)(S) 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
TELE LESTE CELULAR PARTICIPACOES S.A.
CHAPTER I
CHARACTERISTICS OF THE COMPANY
Art. 1 TELE LESTE CELULAR PARTICIPACOES S.A., a corporation, is subject to
the jurisdiction of the Ministry of Communication and is the controlling
shareholder of the companies that provide Cellular Mobile Service in Concession
Area 9.
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 companies providing Cellular Mobile Service
in Concession Area 9;
II. to promote, through subsidiaries or affiliates, the expansion and
establishment of mobile telephone services in its concession area;
III. to promote, carry out or direct the acquisition of funds from
external sources to by used by the Company or by its subsidiaries;
IV. to promote and foster study and research activities aimed at the
development of the mobile telephone sector;
V. to provide, through subsidiaries or affiliates, specialized
technical services in the mobile telephone sector;
VI. to promote, foster, and coordinate, through its subsidiaries or
affiliates, the education and training of the personnel required in
the mobile telephone sector;
VII. to carry out and promote the importation of goods and services for
its subsidiaries or affiliates;
VIII. to carry out other activities that are similar or related to its
corporate purposes; and
IX. to invest in shares of other companies.
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.
<PAGE>
2
CHAPTER II
CORPORATE CAPITAL
Art. 5 The corporate capital, fully subscribed and paid in, is
R$87,160,567.41 (eighty seven million, one hundred sixty thousand, five hundred
sixty seven reais and forty one 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 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 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.
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3
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;
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;
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4
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.
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.
<PAGE>
5
(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.
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;
<PAGE>
6
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;
Art. 21 The Board of Directors shall be composed of 4 (four) 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.
<PAGE>
7
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.
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.
<PAGE>
8
POWERS OF THE BOARD OF EXECUTIVE OFFICERS
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;
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;
<PAGE>
9
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;
XXII. to approve pay schedules and adjustments and benefits granted to
employees and their families;
XXIII. to decide on proposals regarding the management and development of
human resources that are formulated by its subsidiaries, including
those concerning workforce charts;
<PAGE>
10
XXIV. to approve the opening of accounts with financial institutions and
borrowings by the Company, in Brazil or abroad, in accordance with
applicable law;
XXV. to approve the creation of liens on property of the Company to
secure financings of the Company and its subsidiaries;
XXVI. to decide on financings, borrowings, and the granting of sureties,
bonds and other similar guaranties and the relending of funds to its
subsidiaries;
XXVII. 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 telecommunications services in accordance with the activities
and the concession areas of the Company;
XXVIII. to approve rules for the extension of loans to employees by
financial institutions with the participation of the Company;
XXIX. to authorize the disposal, by the Company's subsidiaries, of
permanent assets used in providing telecommunications services in
accordance with the activities and concession areas of the Company
and the constitution of liens on such assets; and
XXX. 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;
<PAGE>
11
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;
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.
<PAGE>
12
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, 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.
<PAGE>
13
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 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;
<PAGE>
14
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.
(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
<PAGE>
15
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
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.
<PAGE>
16
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
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
<PAGE>
17
Minister of Finance shall cease to have effect, and the permanent
character of the Committee shall be maintained.
<PAGE>
EXHIBIT 2.1
- --------------------------------------------------------------------------------
TELE LESTE CELULAR 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 TELE LESTE CELULAR
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.
WITNESSETH
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 [5,000] 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
<PAGE>
amount of Shares or Deposited Securities specified in such Sections.
SECTION 1.02. Benficial 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 Tele Leste Celular
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. Owner. 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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<PAGE>
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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<PAGE>
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 in 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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<PAGE>
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 of
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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<PAGE>
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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<PAGE>
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 reqords, 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 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.
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 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 of 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 excempt
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
Tele Leste Celular Participacoes S.A.
SCN - Quadra CN2
Lote F - 2- Andar
Sala 213
Brasilia - DF, 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 of 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, TELE LESTE CELULAR 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.
TELE LESTE CELULAR
PARTICIPACOES S.A.
By: /s/ Haroldo Wangler Cruzeiro
-----------------------------
Haroldo Wangler Cruzeiro
President and Director
of Investor Relations
By: /s/ Pedro de Jesus Silva
-----------------------------
Pedro de Jesus Silva
Vice President
THE BANK OF NEW YORK,
as Depositary
By: /s/ Hernan P. Rodriguez
-----------------------------
Hernan P. Rodriguez
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
TELE LESTE CELULAR 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
Tele Leste Celular 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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<PAGE>
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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<PAGE>
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 ie presented 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 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 warrarts 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 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 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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MODELO DE CONTRATO DE CONCESSAO
DE SERVICO MOVEL CELULAR
A UNIAO, por intermedio do MINISTERIO DAS COMUNICACOES, inscrito no
CGC/MF sob o n. 00394437/0003-19, neste ato representada pelo Ministro de Estado
das Comunicacoes, SERGIO MOTTA, doravante designada CONCEDENTE, e ***, doravante
designada CONCESSIONARIA, por este instrumento e na melhor forma de direito,
celebram o presente Contrato de Concessao, que se regera pela Lei n. 4.117, de
27 de agosto de 1962; pela Lei n. 9.295, de 19 de julho de 1996; pela Lei n.
8.987, de 13 de fevereiro de 1995; pela Lei n. 9.074, de 7 de julho de 1995;
pela Lei n. 9.472, de 16 de julho de 1997, pelo Decreto n. 2.056, de 04 de
novembro de 1996; pela NGT n. 20/96 Norma Geral de Telecomunicacoes -Servico
Movel Celular, aprovada pela Portaria MC n. 1.533, de 04 de novembro de 1996;
pela Portaria MC n. 1.716, de 20 de novembro de 1996; pela Portaria MC n. 2.512,
de 30 de dezembro de 1996; pelo Decreto de 23 de outubro de 1997, publicado no
Diario Oficial da Uniao, de 24 de outubro de 1997, pelos acordos, tratados e
convencoes internacionais em vigor no Pais; pelas demais normas legais
aplicaveis e, pelas clausulas e condicoes seguintes:
CAPITULO I - DO OBJETO, PRAZO E AREA DA CONCESSAO
CLAUSULA PRIMEIRA. O presente Contrato tem como objeto a Concessao para
exploracao do Servico Movel Celular, decorrente da transformacao da Permissao
outorgada para exploracao do Servico de Radio Comunicacao Movel Terrestre
Publico-Restrito, conforme disposto no Artigo 4 da Lei n. 9.295, de 19 de julho
de 1996.
(S) 1. O servico deve ser explorado com a utilizacao, em carater de
exclusividade, da subfaixa de frequencias abaixo indicada:
Subfaixa "A":
Transmissao da Estacao Movel: 824,0 a 835,0 Mhz
845,0 a 846,5 Mhz
Transmissao da Estaca Radio-Base: 869,0 a 880,0 Mhz
890,0 a 891,5 Mhz
(S) 2. O Servico Movel Celular, de acordo com a Lei n. 9.295, de 19 de
julho de 1996, e o servico de telecomunicacoes movel terrestre, aberto a
correspondencia publica, que utiliza sistema de radiocommunicacoes com tecnica
celular, interconectado a rede publica de telecomunicacoes, e acessado por meio
de terminais portateis, transportaveis ou veiculares, de uso individual.
(S) 3. O prazo da Concessao e o remanescente da Permissao
anteriormente outorgada, sendo renovavel por periodos sucessivos de 15 (quinze)
anos, a contar do termino do primeiro. O prazo remanescente consta do Anexo XIV
do presente Contrato.
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CLAUSULA SEGUNDA. A Area de Concessao correspondente ao presente Contrato esta
discriminada no Anexo III.
CAPITULO II - DO PRECO OFERTADO PELO DIREITO DE EXPLORACAO DO SERVICO E PELO USO
DE RADIOFREQUENCIAS ASSOCIADAS
CLAUSULA TERCEIRA. Observada a Clausula Primeira e seu (S).3, nao sera cobrado
pagamento pelo Direito de Exploracao do Servico e Pelo Uso de Radiofrequencias
Associadas.
CAPITULO III - DAS CONDICOES DE EXPLORACAO DO SERVICO
CLAUSULA QUARTA. A CONCESSIONARIA explorara o Servico Movel Celular na sua
respectiva Area de Concessao, por sua conta e risco e em regime de justa
competicao, sendo remunerada, basicamente, por tarifas e precos cobrados dos
usuarios.
PARAGRAFO UNICO. O servico sera explorado em conformidade com os termos do
presente Contrato, com as Condicoes Basicas de Prestacao do Servico, do Anexo IX
e com os termos da Projeto de Execucao do Anexo X.
CLAUSULA QUINTA. A CONCESSIONARIA devera observar, alem das disposicoes legais e
regulamentares aplicaveis, as normas regulamentares do servico.
CLAUSULA SEXTA. A CONCESSIONARIA podera contratar, com terceiros, o
desenvolvimento de atividades inerentes, acessorias ou complementares do servico
concedido, bem como a implementacao de projetos associados, sem prejuizo de sua
responsibilidade integral pela prestacao do servico e por prejuizos que,
eventualmente, os terceiros contratados vierem a causar a CONCEDENTE, aos
usuarios e a terceiros, em razao da exploracao do servico.
CLAUSULA SETIMA. Enquanto explorar o servico, obriga-se a CONCESSIONARIA a
manter, ao longo do periodo de concessao, os compromissos e condicoes assumidos
no presente Contrato, alem das exigencias legais de regularidade fiscal.
CAPITULO IV - DAS ESTACOES E DOS MEIOS DE TELECOMUNICACOES
CLAUSULA OITAVA. A CONCESSIONARIA mantera em condicoes de operacao e
funcionarnento estacoes de servico em quantidade e localizacao razoaveis,
necessarias a prestacao de servico adequado.
CLAUSULA NONA. A CONCESSIONARIA podera estabelecer, por melos proprios ou por
meios fornecidos por terceiros, incluindo os meios da Rede Publica de
Telecornunicacoes, enlaces para os entroncamentos entre as Centrais de Comutacao
e Controle, entre as Centrais de Comutacao e Controle e a Rede Publica de
Telecornunicacoes e entre as Centrais de Comutacao e Controle e as respectivas
Estacoes Radio-Base.
CLAUSULA DECIMA. A CONCESSIONARIA tem direito a interconexao da rede utilizada
na prestacao do Servico Movel Celular com a(s) rede(s) da(s) concessionaria(s)
do Servico Telefonico Publico e Servico Movel Celular na respectiva area de
prestacao do servico e com a
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rede da empresa exploradora de troncos interestaduais e internacionais, em
condicoes adequadas, equanimes e nao discriminatorias.
CAPITULO V - DO SERVIcO ADEQUADO
CLAUSULA DECIMA PRIMEIRA. A CONCESSIONARIA devera prestar servico adequado ao
pleno atendimento das necessidades dos usuarios, de forma a satisfazer as
condicoes de regularidade, continuidade, eficiencia, seguranca, atualidade,
generalidade, cortesia na sua prestacao e modicidade de tarifas.
CLAUSULA DECIMA SEGUNDA. Para fins de afericao da qualidade do servico, serao
observados os parametros indicados nas alineas seguintes, respectivamente,
quanto a:
a) regularidade e continuidade: prestacao continua do servico, nas condicoes
previstas neste contrato, nas normas regulamentares e nas tecnicas
aplicaveis;
b) eficiencia: oferta de servicos em padroes satisfatorios que assegurem,
qualitativa e quantitativamente, a satisfacao dos usuarios e o
cumprimento dos objetivos da concessao;
c) seguranca: adocao de medidas eficazes para conservacao e manutencao das
instalacoes utilizadas na prestacoes do servico e para prevencao de
acidentes;
d) atualidade: modernizacao das tecnicas, equipamentos e instalacoes
utilizados na prestacao do servico, assim como melhoria e expansao do
servico;
e) generalidade: universalidade na prestacao do servico, assim entendida a
disponibilidade do servico a todos os usuarios, sem discriminacao;
f) cortesia: disponibilidade de informacoes aos usuarios, adequada atencao
as suas ecessidades e polidez no atendirnento.
CLAUSULA DECIMA TERCEIRA. Considerando o interesse da coletividade, a
interrupcao do servico, em situacao de emergencia ou apos previo aviso, por
razoes de ordem tecnica, de seguranca de pessoas e bens ou de inadimplemento do
usuario, nao caracteriza descontinuidade do servico.
CAPITULO VI - DAS TARIFAS E PREcOS
CLAUSULA DECIMA QUARTA. As tarifas maximas do Plano de Servico Basico passiveis
de serem praticadas sao aquelas constantes nas Condicoes Tarifarias e Cesta de
Referencia do Anexo XII.
CLAUSULA DECIMA QUINTA. Na prestacao do servico do Plano de Servico Basico, a
CONCESSIONARIA observara os seguintes tempos limites, cujo computo so se
iniciara a partir do efetivo estabelecimento da comunicacao com o terminal fixo
ou movel destinatario da chamada:
a) Unidade de Tempo de Tarifacao: 6 (seis) segundos.
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b) Tempo Minimo de Tarifacao: 30 (trinta) segundos.
c) Chamadas Faturaveis: somente serao faturadas as chamadas com duracao
superior a 3 (tres) segundos.
CLAUSULA DECIMA SEXTA. Na definicao da area de mobilidade que sera considerada
como referencia para os itens tarifarios "Adicional por Chamada" e
"Deslocamento", do Plano de Servico Basico, a CONCESSIONARIA devera utilizar os
criterios especificados no Anexo XII.
CLAUSULA DECIMA SETIMA. As tarifas praticadas poderao, a criterio da
CONCESSIONARIA e durante a vigencia do Contrato, ser diferenciadas em funcao das
caracteristicas tecnicas e dos custos especificos provenientes do atendimento as
regioes geograficas, aos distintos segmentos ou classes de usuarios, vedado o
beneficio individual.
PARAGRAFO UNICO. A CONCESSIONARIA podera, a seu criterio e durante a vigencia do
Contrato, submeter a homologacao da CONCEDENTE Planos de Servico Alternativos,
cada qual com a estrutura, criterios e valores diferentes para os diversos itens
que os compoem.
CLAUSULA DECIMA OITAVA. A CONCESSIONARIA, a seu criterio, podera conceder
descontos tarifarios, bem assim realizar promocoes tarifarias, reducoes sazonais
e reducoes em dias e horarios de baixa demanda, sem que isso implique qualquer
direito a compensacao nos valores da tarifa pela CONCEDENTE.
CLAUSULA DECIMA NONA. Os servicos nao essenciais a fruicao do Servico Movel
Celular e as facilidades eventualmente oferecidas serao remunerados por preco,
sem qualquer repercussao no valor da tarifa do servico basico.
PARAGRAFO UNICO. Esses servicos opcionais e facilidades, quando oferecidos,
deverao estar a disposicao de todos os usuarios ou segmentos de usuarios,
conforme sua utilidade, e serao remunerados por preco cobrado apenas dos
usuarios que deles fizerem uso.
CLAUSULA VIGESIMA. As tarifas maximas referidas na Clausula Decima Quarta
sofrerao reajuste, de conformidade com a legislacao vigente e nas condicoes
estabelecidas no Anexo XII do presente Contrato.
CLAUSULA VIGESIMA PRIMEIRA. A revisao das tarifas referidas na Clausula Decima
Quarta dar-se-a por iniciativa da CONCEDENTE ou da CONCESSIONARIA, com vista a
manutencao e ao restabelecimento do equilibrio economico-financeiro da
Concessao, quando:
a) ocorrer modificacao das condicoes regulamentares do servico que implique
alteracao dos encargos da CONCESSIONARIA;
b) houver desequilibrio economico-financeiro da Concessao provocado pela
ocorrencia de fatos ou eventos imprevisiveis que alterem as condicoes
iniciais de prestacao do servico, nesse caso, a revisao far-se-a mediante
comprovacao de tal fato.
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(S) 1. Para fins de revisao, devera haver, conforme o caso, a
determinacao quantitativa da repercussao das alteracoes da legislacao reguladora
da prestacao do servico, ou dos fatos e eventos que resultarem em alteracoes das
condicoes iniciais do servico.
(S) 2. Ressalvados os impostos sobre a renda, a criacao, alteracao ou
extincao de quaisquer tributos ou encargos legais, apos a apresentacao da
proposta, quando comprovado seu impacto, implicara imediata revisao da tarifa
para mais ou para menos, conforme o caso.
CAPITULO VII - DOS DIREITOS, GARANTIAS E OBRIGACOES DA CONCEDENTE
CLAUSULA VIGESIMA SEGUNDA. Sem prejuizo das demais disposicoes deste
instrumento, incumbe a CONCENDENTE:
a) regulamentar e fiscalizar, permanentemente, a prestacao do Servico Movel
Celular;
b) aplicar as penalidades legais, regulamentares e contratuais;
c) extinguir a concessao, nos casos e na forma previstos neste contrato;
d) homologar reajustes e proceder a revisao de tarifa, na forma prevista
neste Contrato, nas normas, regulamentos e na legislacao aplicavel;
e) cumprir e fazer cumprir as disposicoes regulamentares do servico e as
clausulas contratuais, inclusive no que se refere ao estabelecimento da
interconexao com a rede publica;
f) zelar pela boa qualidade de servico, receber, apurar e solucionar queixas e
reclamacoes dos usuarios, observado o disposto nas Clausulas Decima Segunda
e Decima Terceira deste Contrato;
g) assegurar a justa competicao na prestacao do servico;
h) declarar de utilidade publica os bens necessarios a execucao do servico,
promovendo diretamente as correspondentes desapropriacoes;
i) declarar de necessidade ou utilidade publica, para fins de instituicao de
servidao administrativa, os bens necessarios a execucao do servico,
promovendo diretamente a instituicao dessa servidao.
PARAGRAFO UNICO. A fiscalizacao de servico sera realizada por intermedio de
orgao tecnico da CONCEDENTE, com a colaboracao de representante da
CONCESSIONARIA, cabendo a esta o direito de assistir as acoes de fiscalizacao.
CLAUSULA VIGESIMA TERCEIRA. A CONCEDENTE assegura a CONCESSIONARIA que, ate 31
de dezembro de 1999 (ou 31 de dezembro de 2001 para a Area de Concessao 8), nao
serao iniciadas operacoes de quaisquer outros servicos de telecomunicacoes
moveis terrestres abertos a correspondencia publica que utilizem sistema de
radiocomunicacoes com tecnica celular,
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interconectado a rede publica de telecocomunicacoes e acessado por meio de
terminais portateis, transportaveis ou veiculares, de uso individual, na mesma
Area de Concessao.
CAPITULO VIII - DOS DIREITOS, GARANTIAS E OBRIGACOES DA CONCESSIONARIA
Clausula Vigesima Quarta. Sem prejuizo das demais disposicoes deste instrumento,
incumbe a CONCESSIONARIA:
a) tornar disponivel e em operacao comercial regular o Servico Movel Celular
em conformidade com o Anexo IX do presente Contrato.
b) atender pedido de habilitacao de interessado nos prazos maximos, abaixo
indicados, compreendidos entre a data da solicitacao e a da habilitacao de
sua Estacao Movel, quando o Servico Movel Celular for colocado em operacao
comercial num determinado distrito, distrito sede de municipo ou capital de
Estado:
b1) ate 180 (cento e oitenta) dias corridos, no primeiro ano de vigencia
do presente contrato;
b2) ate 120 (cento e vinte) dias corridos, no segundo ano de vigencia do
presente contrato;
b3) ate 30 (trinta) dias corridos, no terceiro ano de vigencia do presente
Contrato;
b4) de ate 15 (quinze) dias corridos, no quarto ano de vigencia do
presente Contrato;
b5) de ate 5 (cinco) dias uteis, no quinto ano de vigencia do presente
Contrato.
c) prestar servico adequado na forma prevista neste Contrato e nas normas
regulamentares do Servico Movel Celular;
d) cobrar tarifas e precos, respeitados os termos do Anexo XII do presente
Contrato;
e) prestar contas da gestao do Servico Movel Celular a CONCEDENTE, mediante
apresentacao anual de relatorio circunstanciado, do qual deverao constar
informacoes quanto a atuacao da CONCESSIONARIA para implantacao, melhoria
ou expansao do servico, informacoes essas que, no interesse da manutencao
da justa competicao e da livre concorrencia, serao conservadas em sigilo
pela CONCEDENTE. Deverao ser tambem prestadas as informacoes especificadas
na Norma n 27/96;
f) cumprir e fazer cumprir as normas do servico e as clausulas contratuais;
g) indicar representante para acompanhar a atividade de fiscalizacao da
CONCEDENTE;
h) utilizar somente equipamentos certificados pela CONCEDENTE;
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i) permitir, aos encarregados da fiscalizacao, livre acesso, em qualquer
epoca, as obras, aos equipamentos e as instalacoes relacionados a
concessao, bem como aos seus registros contabeis, mantido o devido siglio;
j) zelar pela integridade dos bens utilizados na prestacao do Servico Movel
Celular, bem como segura-los adequadamente, podendo dar em garantia os
direitos emergentes da Concessao, inclusive creditos a receber, como as
tarifas e os equipamentos de sua propriedade nao utilizados na prestacao do
servico na forma de lei vigente;
k) manter em dia o inventario e o registro dos bens utilizados na prestacao do
Servico Movel Celular;
l) receber e solucionar, quando procedentes, as queixas e reclamacoes dos
usuarios;
m) publicar anualmente balanco e demonstracoes financeiros levantados ao final
de cada exercicio social, observadas as disposicoes pertinentes da Lei das
Sociedades Anonimas;
n) zelar pela manutencao e, quando for o caso, pelo restabelecimento do
equilibrio economico-financeiro do Contrato;
CAPITULO IX - DOS DIREITOS E OBRIGACOES DOS USARIOS
CLAUSULA VIGESIMA QUINTA. Alem da observancia das disposicoes legais, referentes
aos direitos dos usuarios, devera a CONCESSIONARIA, na prestacao do servico
respeitar os seguintes diretos dos usuarios:
a) receber servico adequado;
b) receber da CONCEDENTE e da CONCESSIONARIA informacoes previstas em leis e
no contrato de prestacao de servicos;
c) obter e utilizar o servico, com liberdade de escolha, observadas as
clausulas do respectivo contrato e as normas da CONCEDENTE;
d) reclamar solucoes da CONCESSIONARIA para as falhas do servico porventura
identificadas, recebendo informacoes quanto as providencias adotadas,
quanto cabiveis;
e) ver observados todos os termos do Contrato de Assinatura pelo qual foi
tomado o servico.
CLAUSULA VIGESIMA SEXTA. Para obtencao e utilizacao dos servicos, devera ser
exigida dos usuarios, no Contrato de Assinatura do Servico Movel Celular, a
observancia das seguintes obrigacoes:
a) contribuir para que sejam mantidos, em boas condicoes, os bens utilizados
na prestacao do servico;
7
<PAGE>
b) observar as normas legais e regulamentares relacionadas a fruicao dos
servicos, inclusive no que se refere a sua seguranca e a de terceiros;
c) efetivar, com pontualidade, o pagamento de taxas tarifas ou precos devidos
em razao da prestacao do servico;
d) observar os termos do Contrato de Assinatura do Servico Movel Celular, pelo
qual foi tomado o servico.
CAPITULO X - DA INTERVENCAO
CLAUSA VIGESIMA SETIMA. Com o fim de assegurar a adequada prestacao do servico,
bem como o fiel cumprimento das normas contratuais, regulamentares e legais
pertinentes, a CONCEDENTE podera intervir na Concessao.
CLAUSA VIGESIMA OITAVA. A intervencao far-se-a, em conformidade com a legislacao
aplicavel, por decreto da CONCEDENTE, que contera a designacao do interventor, o
prazo da intervencao, mediante adequada justificativa, os objetivos e limites da
medida.
CLAUSA VIGESIMA NONA. Declarada a intervencao, a CONCEDENTE, devera, no prazo de
30 (trinta) dias, instaurar procedimento administrativo para a comprovacao das
causas determinantes da medida e apurar responsabilidades, assegurado o direito
de ampla defesa.
(S) 1. A CONCESSIONARIA sera cientificada da instauracao do
procedimento administrativo, no qual lhe serao garantidos o contraditorio e a
ampla defesa, sendo-lhe facultado indicar representante para acompanhar todas as
diligencias realizadas.
(S) 2. Se ficar comprovado que a intervencao nao observou os
pressupostos legais e regulamentares sera declarada sua nulidade, com imediata
devolucao do servico a CONCESSIONARIA, sem prejuizo de seu direito a
indenizacao.
(S) 3. O procedimento administrativo de que trata a Clausula Vigesima
Nona devera ser concluido no prazo de 180 (cento e oitenta) dias, sob pena de se
considerar invalida a intervencao.
CLAUSULA TRIGESIMA. Cessada a intervencao, se nao for extinta a concessao, a
administracao do servico sera devolvida a CONCESSIONARIA precedida de prestacao
de contas do interventor, que respondera pelos atos praticados durante sua
intervencao.
CAPITULO XI - DA EXTINCAO DA CONCESSAO
CLAUSULA TRIGESIMA PRIMEIRA. Dar-se-a a extincao da CONCESSAO por:
a) advento do termo contratual, salvo quando pendente de apreciacao, pela
CONCEDENTE, pedido de renovacao;
b) encampacao;
8
<PAGE>
c) caducidade;
d) rescisao;
e) anulacao;
f) falencia ou extincao da CONCESSIONARIA.
CLAUSULA TRIGESIMA SEGUNDA. Ocorrendo a extincao da concessao pela CONCEDENTE,
cessarao todos os direitos e privilegios outorgados a CONCESSIONARIA.
(S) 1. A extincao implicara a imediata assuncao do servico pela
CONCEDENTE, procedendo-se, oportunamente, aos levantamentos, avaliacoes e
liquidacoes necessarias, e a ocupacao e utilizacao das instalacoes,
equipamentos, material e pessoal utilizados na prestacao do servico que forem
considerados essenciais a sua continuidade, resguardados os direitos da
CONCESSIONARIA quanto aos bens nao reversiveis. Entende-se por bens reversiveis
os bens que sao essenciais a continuacao do servico ou aqueles oportunamente
designados pelas partes contratantes, conforme o Art. 18, incisos X e XI da Lei
n. 8.987 e do Art. 26, inciso XII do Decreto n. 2.056/96.
(S) 2. Extinta a concessao, os bens reversiveis voltarao ao poder da
CONCEDENTE nos termos e na forma previstos na Lei n. 8.987, de 13 de
fevereiro de 1995.
CLAUSULA TRIGESIMA TERCEIRA. Dar-se-a a encampacao, com a retomada do servico
pela CONCEDENTE durante o prazo da concessao, por motive de interesse publico,
mediante lei autorizativa especifica e apos o pagamento de previa indenizacao,
adequada a equacao economico financeira do Contrato e a obrigacao de manutencao
de seu equilibrio, restituindo-se a CONCESSIONARIA a parcela ainda nao
amortizada do preco pago pela outorga da concessao.
CLAUSULA TRIGESIMA QUARTA. A inexecucao total ou parcial do presente Contrato
acarretara a aplicacao das sancoes legais, regulamentares, normativas e
contratuais cabivels, entre elas a pena de caducidade da concessao, nos termos
previstos no presente instrumento.
CLAUSULA TRIGESIMA QUINTA. Cabera a aplicacao da pena de caducidade da concessao
nos casos previstos na Lei n.8.987, de 13 de fevereiro de 1995.
(S) 1. Em qualquer caso, a aplicacao da pena de caducidade sera
precedida de verificacao de inadimplencia em processo administrativo, instruido
por comissao, assegurado o direito de ampla defensa da CONCESSIONARIA.
(S) 2. Nao sera instaurado processo administrativo de inadimplencia
antes de comunicada a CONCESSIONARIA, detalhadamente, a causa ensejadora da
medida, dando-lhe um prazo de, no minimo 60 (sessenta) dias, para corrigir as
falhas e transgressoes apontadas.
(S) 3. Quando, no processo administrativo instaurado, restar
caracterizada a inadimplencia, a caducidade sera declarada por ato motivado da
CONCEDENTE.
9
<PAGE>
(S) 4. Na hipotese do paragrafo anterior, sera apurado, no
prazo de cento e vinte dias, por comissao integrada por um representante da
CONCESSIONARIA julgada inadimplente, o montante da eventual indenizacao a ela
devida, da qual sera excluido o valor das multas cabiveis e dos prejuizos
apurados.
(S) 5. Declarada a caducidade, nos termos da lei, nao
resultara para a CONCEDENTE qualquer especie de responsabilidade em relacao aos
encargos, onus, obrigacoes ou compromissos com terceiros ou com empregados da
CONCESSIONARIA.
CLAUSULA TRIGESIMA SEXTA. E cabivel a rescisao por iniciativa da CONCESSIONARIA,
no caso de descumprimento das normas legais, regulamentares ou contratuais pela
CONCEDENTE, mediante acao especialmente intentada para este fim e apos proferida
a decisao favoravel a essa pretensao pelo Poder Judiciario.
CLAUSULA TRIGESIMA SETIMA. A rescisao bilateral ou consensual sera precedida de
justificativa da CONCEDENTE, que indique a conveniencia do distrato, devendo o
instrumento de rescisao conter regras detalhadas sobre a composicao patrimonial
decorrente da antecipacao do termino do contrato.
CLAUSULA TRIGESIMA OITAVA. A anulacao tera lugar diante de declaracao judicial
de invalidade do contrato, por vicio de ilegalidade na formalizacao do ajuste,
cabendo a CONCEDENTE apurar a responsabilidade de quem lhe deu causa,
resguardados os direitos de terceiros.
CAPITULO XII - DAS PENALIDADES
CLAUSULA TRIGESIMA NONA. Pelo inadimplemento total ou parcial de suas obrigacoes
sujeita-se a CONCESSIONARIA a aplicacao das sancoes previstas na NGT n.( 20/96
Norma Geral de Telecommunicacoes - Servico Movel Celular, aprovada pela Portaria
MC n. 1.533, de 04 de novembro de 1996, sem prejuizo da aplicacao das demais
penalidades previstas em lei e neste Contrato.
(S) 1. A multa podera ser aplicada, cumulativamente, por
infracao de qualquer dispositivo legal ou contractual, ou quando a
CONCESSIONARIA nao houver cumprido, dentro do prazo estipulado, exigencia que
tenha sido feita pela CONCEDENTE.
(S) 2. O valor maximo da multa, por infracao a qualquer
dispositivo legal, e fixado, na legislacao especifica, sendo, no momento, de
1.647,34 (um mil, seiscentos e quarenta e sete, virgula trinta e quarto) UFIR,
de acordo com a Lei n.(degree)4.117/62 e Portaria MC n. 85, de 28 de fevereiro
de 1994.
(S) 3. O valor da multa pelo descumprimento dos prazos
acordados no Plano de Atendimento descrito no Projecto de Execucao, relativos a
exigencia estipulada pela CONCEDENTE e de 0,05% da receita operacional liquida
da CONCESSIONARIA, por dia de mora, ate o atendimento pleno da exigencia feita.
10
<PAGE>
(S) 4. A CONCESSIONARIA inadimplente ficara impedida de
participar de licitacoes para a prestacao do Servico Movel Celular.
CAPITULO XIII-DA TRANSFERENCIA
CLAUSULA QUADRAGESIMA. Dependera de previa e expressa autorizacao da Concedente
a transferencia da concessao ou do controle societario da CONCESSIONARIA, nos
termos previstos na Lei n. 8.987, de 13 de fevereiro de 1995, e no Decreto n.
2.056, de 04 de novembro de 1996.
CLAUSULA QUADRAGESIMA PRIMEIRA. Autorizada a transferencia da concessao,
sub-roga-se a entidade successora em todos os direitos e obrigacoes da primitiva
CONCESSIONARIA.
PARAGRAFO UNICO. Em se tratando de autorizacao para transferencia do controle
societario, o(s) novo(s) acionista(s) controlador(es) deverao assinar termo de
expressa anuencia com as clausulas do Contrato em vigor.
CLAUSULA QUADRAGESIMA SEGUNDA. A transferencia da Concessao ou do Controle
Societario, sem a observancia das disposicoes anteriores, implicara a caducidade
da concessao, sem prejuizo da aplicacao das demais penalidades previstas, neste
Contrato, em lei e no regulamento especifico.
CAPITULO XIV - DA RENOVACAO
CLAUSULA QUADRAGESIMA QUARTA. O prazo da concessao para exploracao do Servico
Movel Celular podera, nos termos do art. 3 da Lei n 9.295/96, ser renovado,
desde que a CONCESSIONARIA tenha cumprido as condicoes da concessao e manifeste
expresso interesse na renovacao, pelo menos 30 (trinta) meses antes de expirar o
prazo da concessao, nos termos do Art. 42 do Regulamento do Servico Movel
Celular.
CLAUSULA QUADRAGESIMA QUINTA. A renovaco do prazo de concessao para exploracao
do Servico Movel Celular implicara o pagamento, pela CONCESSIONARIA, de preco
pelo direito de exploracao do servico e pelo uso de radiofrequencias associadas,
nos termos do Art. 43 do Regulamento do Servico Movel Celular.
(S) 1. O valor do pagamento referido neste artigo devera ser
acordado entre o Ministerio das Comunicacoes e a CONCESSIONARIA, pelo menos 24
(vinte e quatro) meses antes de expirar o prazo da concessao, levando-se em
consideracao as condicoes de prestacao do servico a epoca da renovacao.
(S) 2. Fica a CONCEDENTE autorizada a instaurar novo processo
de outorga de concessao para exploracao do Servico Movel Celular na Area de
Concessao objeto do presente Contrato caso nao se chegue a um acordo em ate 24
(vinte e quatro) meses antes de expirar o prazo da concessao.
11
<PAGE>
CLAUSULA QUADRAGESIMA SEXTA. O interesse publico na retomada dos servicos pela
CONCEDENTE para sua exploracao direta e a inobservancia, pela CONCESSIONARIA, de
normas legais, regulamentares e/ou contratuais, devidamente fundamentada, serao
elementos condicionantes da nao renovacao do prazo de concessao, capazes de
justifica-la, isoladamente, devendo ser comprovados em processo administrativo.
CAPITULO XV - DOS ANEXOS
CLAUSULA QUADRAGESIMA SETIMA. Fazem parte integrante do presente Contrato, como
se nele estivessem transcritos, os seguintes Anexos:
ANEXO I: Areas de Concessao para Prestacao do Servico Movel Celular;
ANEXO II: Facilidades para Interconexao;
ANEXO III: Areas de Atendimento da Concessao;
ANEXO III-A: Relacao dos Municipios abrangidos pela Concessao da Companhia
de Telecomunicacoes do Brasil Central - CTBC TELECOM
ANEXO IV: Relacao de Distritos com mais de 30 mil e menos de 50 mil
habitantes;
ANEXO V: Relacao de Distritos com mais de 50 mil e menos de 75 mil
habitantes;
ANEXO VI: Relacao de Distritos com mais de 75 mil e menos de 100 mil
habitantes;
ANEXO VII: Relacao de Distritos com mais de 100 mil e menos de 200 mil
habitantes;
ANEXO VIII: Relacao de Distritos com mais de 200 mil habitantes e Capitais
de Estados.
ANEXO XIX: Condicoes Basicas de Prestacao do Servico;
ANEXO X: Projeto de Execucao;
ANEXO XI: Valores de K1, K2, K3, K4, K5 e K6;
ANEXO XII: Condicoes Tarifarias e Cesta de Referencia do Plano de Servico
Basico;
ANEXO XIII: Cadastro Nacional das Localidades Ligadas e Nao Ligadas a Rede
Nacional de Telecomunicacoes;
ANEXO XIV: Portaria de Permissao e Vencimento por Area de Concessao.
CAPITULO XVI - DO FORO
CLAUSULA QUADRAGESIMA SETIMA. Para dirimir eventuais questoes futuras relativas
a este Contrato, deverao ser envidados esforcos visando a obtencao de solucao
amigavel, somente se
12
<PAGE>
devendo recorrer a solucao judicial, em caso de insucesso dessa via, hipotese em
que sera competente o Foro da Secao Judiciaria da Justica Federal da Cidade de
Brasilia, Distrito Federal.
E, por estarem assim justas e acordadas, as Partes firmam o presente contrato,
em 3 (tres) vias de igual teor e forma, cada uma com 18 (dezoito) folhas, todas
numeradas e rubricadas, com excecao da ultima que vai assinada, perante as
testemunhas a seguir nomeadas, que tambem rubricam e assinam este instrumento.
13
<PAGE>
Brasilia, Distrito Federal, 4 de novembro de 1997.
Pela CONCEDENTE: Pela CONCESSIONARIA:
___________________________________ ___________________________________
SERGIO MOTTA
Ministro de Estado das Comunicacoes
TESTEMUNHAS:
___________________________________ ___________________________________
Nome: Nome:
Doc. de Identificacao Doc. de Identificacao
14
<PAGE>
ANEXO I
AREAS DE CONCESSAO PARA PRESTACAO
DO SERVICO MOVEL CELULAR
Area 1 = Area geografica que inclui os seguintes municipios
pertencentes ao Estado de Sao Paulo: Aluminio, Aracariguama, Aruja, Atibaia,
Barueri, Biritiba-Mirim, Bom Jesus dos Perdoes, Braganca Paulista, Cabreuva,
Caieiras, Cajamar, Campo Limpo Paulista, Carapicuiba, Cotia, Diadema, Embu,
Embu-Guacu, Ferraz de Vasconcelos, Francisco Morato, Franco da Rocha, Guararema,
Guarulhos, Igarata, Itapecerica de Serra, Itapevi, Itaquaquecetuba, Itatiba,
Itu, Itupeva, Jandira, Jarinu, Joanopolis, Jundiai, Juquitiba, Mairinque,
Mairipora, Maua, Mogi das Cruzes, Morungaba, Nazare Paulista, Osasco, Pedra
Bela, Pinhalzinho, Piracaia, Pirapora do Bom Jesus, Poa, Ribeirao Pires, Rio
Grande da Serra, Salesopolis, Salto, Santa Izabel, Santana de Paranaiba, Santo
Andre, Sao Bernardo do Campo, Sao Caetano do Sul, Sao Lourenco da Serra, Sao
Paulo, Sao Roque, Suzano, Taboao da Serra, Tuiuti, Vargem, Vargem Grande
Paulista e Varzea Paulista.
Area 2 = Estado de Sao Paulo, excluidos os municipios contidos
na Area 1 anterior.
Area 3 = Estados de Rio de Janeiro e Espirito Santo.
Area 4 = Estado de Minas Gerais.
Area 5 = Estados do Parana e Santa Catarina
Area 6 = Estado do Rio Grande do Sul
Area 7 = Estados de Goias, Tocantins, Mato Grosso du Sul,
Mato Grosso, Rondonia, Acre e Distrito Federal.
Area 8 = Estados do Amazonas, Roraima, Amapa, Para e Maranhao
Area 9 = Estados da Bahia e Sergipe
Area 10 = Estados do Piaui, Ceara, Rio Grande do Notre,
Paraiba, Pernambuco e Alagoas.
15
<PAGE>
ANEXO II
FACILIDADES PARA INTERCONEXAO
Informacoes sobre os sistemas das operadoras de servicos publicos operando na
area correspondente, incluindo:
1. Facilidades de Interconexao
1.1 Grau de digitalizacao e indicadores de desempenho;
1.2 Elenco de servicos.
2. Descricao das Indicadores
3. Descricao de Servicos
4. Descricao dos Codigos Especiais
5. Facilidades para Interconexao por Empresas
6. Descricao das Facilidades por Ponto de Interconexao
Nota: Este ANEXO se encontra em separado, no Apendice "A"
16
<PAGE>
ANEXO III
AREAS DE ATENDIMENTO DA CONCESSAO
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------- -------------------------------------- --------------------------------------
AREA DE EMPRESA AREA DE
CONCESSAO CONCESSIONARIA ATENDIMENTO DA
CONCESSAO
- --------------------------------------- -------------------------------------- --------------------------------------
1 TELECOMUNICACOES DE AREA DE CONCESSAO 1
SAO PAULO S.A. - TELESP
- --------------------------------------- -------------------------------------- --------------------------------------
2 CENTRAIS TELEFONICAS MUNICIPIOS DE
DE RIBEIRAO PRETO S/A - RIBEIRAO PRETO,
CETERP GUATAPARA E O DISTRITO DE BONFIM
PAULISTA
- --------------------------------------- -------------------------------------- --------------------------------------
2 TELECOMUNICACOES DE AREA DE CONCESSAO 2
SAO PAULO S.A. - TELESP MENOS A AREA DA
CETERP E CTBC
TELECOM
- --------------------------------------- -------------------------------------- --------------------------------------
3 TELECOMUNICACOES DO ESTADO DO RIO DE
RIO DE JANEIRO S.A. - TELESP JANEIRO
- --------------------------------------- -------------------------------------- --------------------------------------
3 TELECOMUNICACOES DO ESTADO DO ESPIRITO
ESPIRITO SANTO - TELEST SANTO
- --------------------------------------- -------------------------------------- --------------------------------------
4 TELECOMUNICACOES DE AREA DE CONCESSAO 4
MINAS GERAIS S.A. - MENOS A AREA DA
TELEMIG CTBC TELECOM
- --------------------------------------- -------------------------------------- --------------------------------------
5 TELECOMUNICACOES DO ESTADO DO PARANA
PARANA S.A. - TELEPAR MENOS A AREA DA
SERCOMTEL
- --------------------------------------- -------------------------------------- --------------------------------------
5 TELECOMUNICACOES DE ESTADO DE SANTA
SANTA CATARINA S.A. - CATARINA
TELESC
- --------------------------------------- -------------------------------------- --------------------------------------
5 SERCOMTEL S/A - MUNICIPIO DE
TELECOMUNICACOES LONDRINA
- --------------------------------------- -------------------------------------- --------------------------------------
6 COMPANHIA TELEFONICA MUNICIPIO DE
MELHORAMENTO E PELOTAS, MORRO
RESISTENCIA - CTMR REDONDO, CAPAO DO
LEAO E TURUCU
- --------------------------------------- -------------------------------------- --------------------------------------
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------- -------------------------------------- --------------------------------------
AREA DE EMPRESA AREA DE
CONCESSAO CONCESSIONARIA ATENDIMENTO DA
CONCESSAO
- --------------------------------------- -------------------------------------- --------------------------------------
6 COMPANHIA ESTADO DO RIO
RIOGRANDENSE DE GRANDE DO SUL
TELECOMUNICACOES - MENOS A AREA DA
CRT CTMR
- --------------------------------------- -------------------------------------- --------------------------------------
7 TELECOMUNICACOES DE ESTADO DE GOIAS,
GOIAS S.A. - TELEGOIAS EXCETO A AREA DA
CTBC TELECOM E
ESTADO DO
TOCANTINS
- --------------------------------------- -------------------------------------- --------------------------------------
7 TELECOMUNICACOES DE ESTADO DE MATO
MATO GROSSO DO SUL GROSSO DO SUL
S.A. - TELEMS MENOS A AREA DA
CTBC-TELECOM
- --------------------------------------- -------------------------------------- --------------------------------------
7 TELECOMUNICACOES DE ESTADO DE MATO
MATO GROSSO S.A. - GROSSO
TELEMAT
- --------------------------------------- -------------------------------------- --------------------------------------
7 TELECOMUNICACOES DE ESTADO DE RONDONIA
RONDONIA S.A. -
TELERON
- --------------------------------------- -------------------------------------- --------------------------------------
7 TELECOMUNICACOES DO ESTADO DO ACRE
ACRE S.A. - TELEACRE
- --------------------------------------- -------------------------------------- --------------------------------------
7 TELECOMUNICACOES DE DISTRITO FEDERAL
BRASILIA S.A. -
TELEBRASILIA
- --------------------------------------- -------------------------------------- --------------------------------------
8 TELECOMUNICACOES DO ESTADO DO
AMAZONAS S.A. - AMAZONAS
TELAMAZON
- --------------------------------------- -------------------------------------- --------------------------------------
8 TELECOMUNICACOES DE ESTADO DE RORAIMA
RORAIMA S.A. - TELAIMA
- --------------------------------------- -------------------------------------- --------------------------------------
8 TELECOMUNICACOES DO ESTADO DO AMAPA
AMAPA S.A. - TELAMAPA
- --------------------------------------- -------------------------------------- --------------------------------------
8 TELECOMUNICACOES DO ESTADO DO PARA
PARA S.A. - TELEPARA
- --------------------------------------- -------------------------------------- --------------------------------------
8 TELECOMUNICACOES DO ESTADO DO
MARANHAO S.A. - TELMA MARANHAO
- --------------------------------------- -------------------------------------- --------------------------------------
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
AREA DE EMPRESA AREA DE
CONCESSAO CONCESSIONARIA ATENDIMENTO DA
CONCESSAO
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
9 TELECOMUNICACOES DA ESTADO DA BAHIA
BAHIA S.A. - TELEBAHIA
- ---------------------------------------------------------------------------------------------------------------------
9 TELECOMUNICACOES DE ESTADO DO SERGIPE
SERGIPE S.A. - TELERGIPE
- ---------------------------------------------------------------------------------------------------------------------
10 TELECOMUNICACOES DO ESTADO DO PIAUI
PIAUI S.A. - TELEPISA
- ---------------------------------------------------------------------------------------------------------------------
10 TELECOMUNICACOES DO ESTADO DO CEARA
CEARA S.A. - TELECEARA
- ---------------------------------------------------------------------------------------------------------------------
10 TELECOMUNICACOES DO ESTADO DO RIO
RIO GRANDE DO NORTE GRANDE DO NORTE
S.A. - TELERN
- ---------------------------------------------------------------------------------------------------------------------
10 TELECOMUNICACOES DA ESTADO DA PARAIBA
PARAIBA S.A. - TELPA
- ---------------------------------------------------------------------------------------------------------------------
10 TELECOMUNICACOES DE ESTADO DO
PERNAMBUCO S.A. - PERNAMBUCO
TELPE
- ---------------------------------------------------------------------------------------------------------------------
10 TELECOMUNICACOES DE ESTADO DE ALAGOAS
ALAGOAS S.A. - TELASA
- ---------------------------------------------------------------------------------------------------------------------
2,4,7 COMPANHIA DE AREAS CONSTANTES
TELECOMUNICACOES DO DO ANEXO III.A
BRASIL CENTRAL -
CTBC TELECOM
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
ANEXO III.A
MUNICIPIOS ABRANGIDOS PELA CONCESSAO DA
COMPANHIA DE TELECOMMUNICACOES DO BRASIL CENTRAL - CTBC TELECOM
1. ESTADO DE MINAS GERAIS
ARAPORA
ARAUJOS
CAMPINA VERDE
CAMPO FLORIDO
CAMPOS ALTOS
CANAPOLIS
CAPINOPOLIS
CARMO DO PARANAIBA
CARNEIRINHOS
CENTRALINA
COMENDADOR GOMES
CONCEICAO DAS ALAGOAS
CORREGO DANTA
CRUZEIRO DA FORTALEZA
FRUTAL
GURINHATA
IBIRACI
IGARATINGA
IGUATAMA
INDIANOPOLIS
IPIACU
ITAPAGIPE
ITUIUTABA
ITURAMA
LAGAMAR
LAGOA FORMOSA
LAGOA GRANDE
LIMEIRA D'OESTE
LUZ
MARAVILHAS
MOEMA
MONTE ALEGRE DE MINAS
MONTE SANTO DE MINAS
NOVA PONTE
NOVA SERRANA
20
<PAGE>
PAPAGAIOS
PARA DE MINAS
PATOS DE MINAS
PEDRINOPOLIS
PEQUI
PERDIGAO
PIRAJUBA
PITANGUI
PLANURA
PRATA
PRESIDENTE OLEGARIO
RIO PARANAIBA
SANTA JULIANA
SANTA VITORIA
SAO FRANCISCO DE SALES
SAO JOSE DA VARGINHA
TUPACIGUARA
UBERABA
UBERLANDIA
VAZANTE
2. ESTADO DE SAO PAULO
ALTINOPOLIS
ARAMINA
BATATAIS
BRODOWSKI (BRODOSQUI)
BURITIZAL
CAJURU
CASSIA DOS COQUEIROS
COLOMBIA
FRANCA
GUAIRA
GUARA
IPOA
ITUVERAVA
JARDINOPOLIS
MIGUELOPOLIS
MORRO AGUDO
NUPORANGA
ORLANDIA
RIBEIRAO CORRENTE
SALES DE OLIVEIRA
SANTA CRUZ DA ESPERANCA
SANTO ANTONIO DA ALEGRIA
21
<PAGE>
SAO JOAQUIM DA BARRA
3. ESTADO DE MATO GROSSO DO SUL
PARANAIBA
4. ESTADO DE GOIAS
BURITI ALEGRE
CACHOEIRA DOURADA
INACIOLANDIA
ITUMBIARA
PARANAIGUARA
SAO SIMAO
22
<PAGE>
ANEXO IV
RELACAO DE DISTRITOS E DISTRITOS SEDE DE MUNICIPIOS COM MAIS DE 30 MIL
HABITANTES E MENOS DE 50 MIL HABITANTES DA AREA DE CONCESSAO, DE ACORDO COM O
CENSO DEMOGRAFICO DO IBGE - INSTITUTO BRASILEIRO DE GEOGRAFIA E ESTATISTICA, DE
1991, QUE DEVERAO SER ATENDIDAS EM, NO MINIMO, 70% AO FINAL DO QUINTO ANO DE
VIGENCIA DO CONTRATO DE CONCESSAO.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
TABELA 1/5 (ANEXO IV)
AREAS 1 E 2
- -------------------------------------------------------------------------------------------------------
AREA 1 AREA 2
- -------------------------------------------------------------------------------------------------------
DISTRITO UF DISTRITO UF
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aruja SP Amparo SP
- -------------------------------------------------------------------------------------------------------
Caieiras SP Aparecida SP
- -------------------------------------------------------------------------------------------------------
Cajamar SP Barra Bonita SP
- -------------------------------------------------------------------------------------------------------
Campo Limpo Paulista SP Barao de Geraldo (Campinas) SP
- -------------------------------------------------------------------------------------------------------
Mairinque SP Batatais SP
- -------------------------------------------------------------------------------------------------------
Mairipora SP Adamantina SP
- -------------------------------------------------------------------------------------------------------
Santa Isabel SP Campos do Jordao SP
- -------------------------------------------------------------------------------------------------------
Santana Parnaiba SP Capao Bonito SP
- -------------------------------------------------------------------------------------------------------
Sao Roque SP Capivari SP
- -------------------------------------------------------------------------------------------------------
Caraguatatuba SP
- -------------------------------------------------------------------------------------------------------
Cosmopolis SP
- -------------------------------------------------------------------------------------------------------
Dracena SP
- -------------------------------------------------------------------------------------------------------
Espirito Santo Pinhal SP
- -------------------------------------------------------------------------------------------------------
Garca SP
- -------------------------------------------------------------------------------------------------------
Guaira SP
- -------------------------------------------------------------------------------------------------------
Ibitinga SP
- -------------------------------------------------------------------------------------------------------
Ibiuna SP
- -------------------------------------------------------------------------------------------------------
Itanhaen SP
- -------------------------------------------------------------------------------------------------------
Itarare SP
- -------------------------------------------------------------------------------------------------------
Jales SP
- -------------------------------------------------------------------------------------------------------
Lencol Paulista SP
- -------------------------------------------------------------------------------------------------------
Mirassol SP
- -------------------------------------------------------------------------------------------------------
Monte Alto SP
- -------------------------------------------------------------------------------------------------------
Nova Odessa SP
- -------------------------------------------------------------------------------------------------------
Orlandia SP
- -------------------------------------------------------------------------------------------------------
Paraguacu Paulista SP
- -------------------------------------------------------------------------------------------------------
Paulinia SP
- -------------------------------------------------------------------------------------------------------
Penapolis SP
- -------------------------------------------------------------------------------------------------------
Peruibe SP
- -------------------------------------------------------------------------------------------------------
Piedade SP
- -------------------------------------------------------------------------------------------------------
Pres. Venceslau SP
- -------------------------------------------------------------------------------------------------------
Olimpia SP
- -------------------------------------------------------------------------------------------------------
Porto Feliz SP
- -------------------------------------------------------------------------------------------------------
Porto Ferreira SP
- -------------------------------------------------------------------------------------------------------
Santa Teresinha Piracicaba (Piracic.) SP
- -------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------
Pres. Epitacio SP
- -------------------------------------------------------------------------------------------------------
Registro SP
- -------------------------------------------------------------------------------------------------------
Santa Cruz do Rio Pardo SP
- -------------------------------------------------------------------------------------------------------
Bela Vista Sao Carlense (Sao Carlos) SP
- -------------------------------------------------------------------------------------------------------
Sao Joaquim da Barra SP
- -------------------------------------------------------------------------------------------------------
Sao Jose Rio Pardo SP
- -------------------------------------------------------------------------------------------------------
Eugenio Melo (Sao J. dos Campos) SP
- -------------------------------------------------------------------------------------------------------
Socorro SP
- -------------------------------------------------------------------------------------------------------
Taquaritinga SP
- -------------------------------------------------------------------------------------------------------
Ubatuba SP
- -------------------------------------------------------------------------------------------------------
Vargem G. Sul SP
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
TABELA 2/5 (ANEXO IV)
AREAS 3 E 4
- ---------------------------------------------------------------------------------------------------------------------
AREA 3 AREA 4
- ---------------------------------------------------------------------------------------------------------------------
DISTRITO UF DISTRITO UF
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Angra dos Reis RJ Boa Esperanca MG
- ---------------------------------------------------------------------------------------------------------------------
Araruama RJ Bocaiuva MG
- ---------------------------------------------------------------------------------------------------------------------
Xerem RJ Bom Despacho MG
- ---------------------------------------------------------------------------------------------------------------------
Itambi (Itaborai) RJ Campo Bello MG
- ---------------------------------------------------------------------------------------------------------------------
Mage RJ Congonhas MG
- ---------------------------------------------------------------------------------------------------------------------
Itaipu (Niteroi) RJ Coronel Fabriciano MG
- ---------------------------------------------------------------------------------------------------------------------
Paracambi RJ Senador Melo Viana (Cel. Fabriciano) MG
- ---------------------------------------------------------------------------------------------------------------------
Rio Bonito RJ Frutal MG
- ---------------------------------------------------------------------------------------------------------------------
Sao Pedro da Aldeia RJ Guaxupe MG
- ---------------------------------------------------------------------------------------------------------------------
Valenca RJ Ibirite MG
- ---------------------------------------------------------------------------------------------------------------------
Aracruz ES Parque Durval de Barros (Ibirite) MG
- ---------------------------------------------------------------------------------------------------------------------
Itapemirim ES Itabirito MG
- ---------------------------------------------------------------------------------------------------------------------
Viana ES Janauba MG
- ---------------------------------------------------------------------------------------------------------------------
Argolas (Vila Velha) ES Januaria MG
- ---------------------------------------------------------------------------------------------------------------------
Lagoa da Prata MG
- ---------------------------------------------------------------------------------------------------------------------
Leopoldina MG
- ---------------------------------------------------------------------------------------------------------------------
Manhuacu MG
- ---------------------------------------------------------------------------------------------------------------------
Monte Carmelo MG
- ---------------------------------------------------------------------------------------------------------------------
Nanuque MG
- ---------------------------------------------------------------------------------------------------------------------
Ouro Preto MG
- ---------------------------------------------------------------------------------------------------------------------
Pedro Leopoldo MG
- ---------------------------------------------------------------------------------------------------------------------
Pirapora MG
- ---------------------------------------------------------------------------------------------------------------------
Ponte Nova MG
- ---------------------------------------------------------------------------------------------------------------------
Sabara MG
- ---------------------------------------------------------------------------------------------------------------------
Salinas MG
- ---------------------------------------------------------------------------------------------------------------------
Santa Luzia MG
- ---------------------------------------------------------------------------------------------------------------------
Santos Dumont MG
- ---------------------------------------------------------------------------------------------------------------------
Sao Francissco MG
- ---------------------------------------------------------------------------------------------------------------------
Sao Sebastiao do Paraiso MG
- ---------------------------------------------------------------------------------------------------------------------
Tres Pontas MG
- ---------------------------------------------------------------------------------------------------------------------
Vespasiano MG
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
TABELA 3/5 (ANEXO IV)
AREAS 5 E 6
- ---------------------------------------------------------------------------------------------------------------------
AREA 5 AREA 6
- ---------------------------------------------------------------------------------------------------------------------
DISTRITO UF DISTRITO UF
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Ararangua SC Vicosa MG
- ---------------------------------------------------------------------------------------------------------------------
Balneario Camboriu SC Camaqua RS
- ---------------------------------------------------------------------------------------------------------------------
Biguacu SC Campo Bom RS
- ---------------------------------------------------------------------------------------------------------------------
Cacador SC Dom Pedrito RS
- ---------------------------------------------------------------------------------------------------------------------
Canoinhas SC Farroupilha RS
- ---------------------------------------------------------------------------------------------------------------------
Rio Maina (Criciuma) SC Itaqui RS
- ---------------------------------------------------------------------------------------------------------------------
Curitibanos SC Lageado RS
- ---------------------------------------------------------------------------------------------------------------------
Gaspar SC Monte Negro RS
- ---------------------------------------------------------------------------------------------------------------------
Icara SC Palmeira das Missoes RS
- ---------------------------------------------------------------------------------------------------------------------
Indaial SC Rosario do Sul RS
- ---------------------------------------------------------------------------------------------------------------------
Laguna SC Santiago RS
- ---------------------------------------------------------------------------------------------------------------------
Mafra SC Sao Luiz Gonzaga RS
- ---------------------------------------------------------------------------------------------------------------------
Rio do Sul SC Taquara RS
- ---------------------------------------------------------------------------------------------------------------------
Sao Miguel d'Oeste SC Vacaria RS
- ---------------------------------------------------------------------------------------------------------------------
Videira SC Venancio Aires RS
- ---------------------------------------------------------------------------------------------------------------------
Xanxere SC
- ---------------------------------------------------------------------------------------------------------------------
Assis Chateaubriand PR
- ---------------------------------------------------------------------------------------------------------------------
Bandeirantes PR
- ---------------------------------------------------------------------------------------------------------------------
Castro PR
- ---------------------------------------------------------------------------------------------------------------------
Cianorte PR
- ---------------------------------------------------------------------------------------------------------------------
Cornelio Procopio PR
- ---------------------------------------------------------------------------------------------------------------------
Goio-Ere PR
- ---------------------------------------------------------------------------------------------------------------------
Ibipora PR
- ---------------------------------------------------------------------------------------------------------------------
Irati PR
- ---------------------------------------------------------------------------------------------------------------------
Jacarezinho PR
- ---------------------------------------------------------------------------------------------------------------------
Laranjeiras do Sul PR
- ---------------------------------------------------------------------------------------------------------------------
Medianeira PR
- ---------------------------------------------------------------------------------------------------------------------
Piraquara PR
- ---------------------------------------------------------------------------------------------------------------------
Pitanga PR
- ---------------------------------------------------------------------------------------------------------------------
Prudentopolis PR
- ---------------------------------------------------------------------------------------------------------------------
Rio Branco do Sul PR
- ---------------------------------------------------------------------------------------------------------------------
Rolandia PR
- ---------------------------------------------------------------------------------------------------------------------
Santo Antonio Platina PR
- ---------------------------------------------------------------------------------------------------------------------
Sarandi PR
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
TABELA 4/5 (ANEXO IV)
AREAS 7 E 8
- ---------------------------------------------------------------------------------------------------------------------
AREA 7 AREA 8
- ---------------------------------------------------------------------------------------------------------------------
DISTRITO UF DISTRITO UF
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Goianesia GO Alenquer PA
- ---------------------------------------------------------------------------------------------------------------------
Inhumas GO Barcarena PA
- ---------------------------------------------------------------------------------------------------------------------
Mineiros GO Benfica (Benevides) PA
- ---------------------------------------------------------------------------------------------------------------------
Morrinhos GO Breves PA
- ---------------------------------------------------------------------------------------------------------------------
Planaltina GO Cameta PA
- ---------------------------------------------------------------------------------------------------------------------
Porangatu GO Capanema PA
- ---------------------------------------------------------------------------------------------------------------------
Qurinopolis GO Capita Poco PA
- ---------------------------------------------------------------------------------------------------------------------
Santa Helena GO Curionopolis PA
- ---------------------------------------------------------------------------------------------------------------------
S.Antonio do Descoberto GO Irituia PA
- ---------------------------------------------------------------------------------------------------------------------
Uruacu GO Itupiranga PA
- ---------------------------------------------------------------------------------------------------------------------
Porto Nacional TO Jacunda PA
- ---------------------------------------------------------------------------------------------------------------------
Aquidauana MS Medicilandia PA
- ---------------------------------------------------------------------------------------------------------------------
Ivinhema MS Monte Alegre PA
- ---------------------------------------------------------------------------------------------------------------------
Navirai MS Obidos PA
- ---------------------------------------------------------------------------------------------------------------------
Nova Andradina MS Oriximina PA
- ---------------------------------------------------------------------------------------------------------------------
Parnaiba MS Pacaja PA
- ---------------------------------------------------------------------------------------------------------------------
Ponta Pora MS Sao Domingos do Capim PA
- ---------------------------------------------------------------------------------------------------------------------
Alta Floresta MT Sao Geraldo do Araguaia PA
- ---------------------------------------------------------------------------------------------------------------------
Barra Garcas MT Senador Jose Porfirio PA
- ---------------------------------------------------------------------------------------------------------------------
Colider MT Tome-Acu PA
- ---------------------------------------------------------------------------------------------------------------------
Juina MT Tucuma PA
- ---------------------------------------------------------------------------------------------------------------------
Peixoto Azevedo MT Vigia PA
- ---------------------------------------------------------------------------------------------------------------------
Pontes e Lacerda MT Xinguara PA
- ---------------------------------------------------------------------------------------------------------------------
Sinop MT Araioses MA
- ---------------------------------------------------------------------------------------------------------------------
Tangara da Serra MT Arame MA
- ---------------------------------------------------------------------------------------------------------------------
Alta Floresta D'Oesta RO Balsas MA
- ---------------------------------------------------------------------------------------------------------------------
Colorado do Oeste RO Barreirinhas MA
- ---------------------------------------------------------------------------------------------------------------------
Guajara-Mirim RO Bom Jardim MA
- ---------------------------------------------------------------------------------------------------------------------
Pimenta Bueno RO Coelho Neto MA
- ---------------------------------------------------------------------------------------------------------------------
Presidente Medice RO Colinas MA
- ---------------------------------------------------------------------------------------------------------------------
Vilhena RO Cururupu MA
- ---------------------------------------------------------------------------------------------------------------------
Brazlandia DF Esperantinopolis MA
- ---------------------------------------------------------------------------------------------------------------------
Nucleo Bandeirante DF Itapecuru-Mirim MA
- ---------------------------------------------------------------------------------------------------------------------
Lago da Pedra MA
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
TABELA 4/5 (ANEXO IV) - CONTINUACAO
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Pedreiras MA
- ---------------------------------------------------------------------------------------------------------------------
Porto Franco MA
- ---------------------------------------------------------------------------------------------------------------------
Presidente Dutra MA
- ---------------------------------------------------------------------------------------------------------------------
Rosario MA
- ---------------------------------------------------------------------------------------------------------------------
Santa Luzia do Purua MA
- ---------------------------------------------------------------------------------------------------------------------
Sao Domingos do Maranhao MA
- ---------------------------------------------------------------------------------------------------------------------
Mata (S.J. do Ribamar) MA
- ---------------------------------------------------------------------------------------------------------------------
Sao Jose do Ribamar MA
- ---------------------------------------------------------------------------------------------------------------------
Sao Mateus do Maranhao MA
- ---------------------------------------------------------------------------------------------------------------------
Turiacu MA
- ---------------------------------------------------------------------------------------------------------------------
Tutum MA
- ---------------------------------------------------------------------------------------------------------------------
Viana MA
- ---------------------------------------------------------------------------------------------------------------------
Vitoria do Mearim MA
- ---------------------------------------------------------------------------------------------------------------------
Vitorino Freire MA
- ---------------------------------------------------------------------------------------------------------------------
Careiro AM
- ---------------------------------------------------------------------------------------------------------------------
Coari AM
- ---------------------------------------------------------------------------------------------------------------------
Humaita AM
- ---------------------------------------------------------------------------------------------------------------------
Labrea AM
- ---------------------------------------------------------------------------------------------------------------------
Manicore AM
- ---------------------------------------------------------------------------------------------------------------------
Santana AP
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
TABELA 5/5 (ANEXO IV)
AREAS 9 E 10
- ---------------------------------------------------------------------------------------------------------------------
AREA 9 AREA 10
- ---------------------------------------------------------------------------------------------------------------------
DISTRITO UF DISTRITO UF
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Araci BA Campo Alegre AL
- ---------------------------------------------------------------------------------------------------------------------
Bom Jesus da Lapa BA Coruripe AL
- ---------------------------------------------------------------------------------------------------------------------
Brumado BA Delmiro Golveia AL
- ---------------------------------------------------------------------------------------------------------------------
Camacan BA Santana do Ipanema AL
- ---------------------------------------------------------------------------------------------------------------------
Cansancao BA S. Luiz do Quitunde AL
- ---------------------------------------------------------------------------------------------------------------------
Catu BA Tetonio Vilela AL
- ---------------------------------------------------------------------------------------------------------------------
Conceicao do Coite BA Uniao dos Palmares AL
- ---------------------------------------------------------------------------------------------------------------------
Cruz das Almas BA Acarau CE
- ---------------------------------------------------------------------------------------------------------------------
Dias d'Avila BA Acarati CE
- ---------------------------------------------------------------------------------------------------------------------
Euclides da Cunha BA Barbalha CE
- ---------------------------------------------------------------------------------------------------------------------
Ibicarai BA Camocim CE
- ---------------------------------------------------------------------------------------------------------------------
Ipiau BA Caninde CE
- ---------------------------------------------------------------------------------------------------------------------
Itapetinga BA Crateus CE
- ---------------------------------------------------------------------------------------------------------------------
Itiuba BA Ipu CE
- ---------------------------------------------------------------------------------------------------------------------
Jacobina BA Ico CE
- ---------------------------------------------------------------------------------------------------------------------
Jeremoabo BA Itapipoca CE
- ---------------------------------------------------------------------------------------------------------------------
Pocoes BA Limoeiro do Norte CE
- ---------------------------------------------------------------------------------------------------------------------
Riachao do Jacuipe BA Maranguape CE
- ---------------------------------------------------------------------------------------------------------------------
Ribeira do Pombal BA Quixada CE
- ---------------------------------------------------------------------------------------------------------------------
Santaluz BA Russas CE
- ---------------------------------------------------------------------------------------------------------------------
Santa Maria da Vitoria BA Tiangua CE
- ---------------------------------------------------------------------------------------------------------------------
Santo Amaro BA Alagoa Grande PB
- ---------------------------------------------------------------------------------------------------------------------
Santo Estevao BA Cajazeiras PB
- ---------------------------------------------------------------------------------------------------------------------
Serra do Ramalho BA Guarabira PB
- ---------------------------------------------------------------------------------------------------------------------
Sao Sebastiao do Passe BA Mamanguape PB
- ---------------------------------------------------------------------------------------------------------------------
Tucano BA Queimadas PB
- ---------------------------------------------------------------------------------------------------------------------
Urucuca BA Sape PB
- ---------------------------------------------------------------------------------------------------------------------
Valenca BA Solanea PB
- ---------------------------------------------------------------------------------------------------------------------
Xique-Xique BA Afogados da Ingazeira PE
- ---------------------------------------------------------------------------------------------------------------------
Itabaianinha SE Aguas Belas PE
- ---------------------------------------------------------------------------------------------------------------------
Sao Cristovao SE Araripina PE
- ---------------------------------------------------------------------------------------------------------------------
Simao Dias SE Barreiros PE
- ---------------------------------------------------------------------------------------------------------------------
Tobias Barreto SE Belo Jardim PE
- ---------------------------------------------------------------------------------------------------------------------
Bezerros PE
- ---------------------------------------------------------------------------------------------------------------------
Lageado PE
- ---------------------------------------------------------------------------------------------------------------------
Paudalho PE
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
TABELA 5/5 (ANEXO IV) - CONTINUACAO
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Ponte dos Carvalhos (Cabo) PE
- ---------------------------------------------------------------------------------------------------------------------
Escada PE
- ---------------------------------------------------------------------------------------------------------------------
Limoeiro PE
- ---------------------------------------------------------------------------------------------------------------------
Moreno PE
- ---------------------------------------------------------------------------------------------------------------------
Ouricuri PE
- ---------------------------------------------------------------------------------------------------------------------
Navarro (Paulista) PE
- ---------------------------------------------------------------------------------------------------------------------
Pesqueira PE
- ---------------------------------------------------------------------------------------------------------------------
Ribeirao PE
- ---------------------------------------------------------------------------------------------------------------------
Salgueiro PE
- ---------------------------------------------------------------------------------------------------------------------
Santa Cruz do Capibaribe PE
- ---------------------------------------------------------------------------------------------------------------------
Sao Bento do Uno PE
- ---------------------------------------------------------------------------------------------------------------------
Surubim PE
- ---------------------------------------------------------------------------------------------------------------------
Timbauba PE
- ---------------------------------------------------------------------------------------------------------------------
Altos PI
- ---------------------------------------------------------------------------------------------------------------------
Buriti dos Lopes PI
- ---------------------------------------------------------------------------------------------------------------------
Esperantina PI
- ---------------------------------------------------------------------------------------------------------------------
Luzilandia PI
- ---------------------------------------------------------------------------------------------------------------------
Paulistana PI
- ---------------------------------------------------------------------------------------------------------------------
Pedro II PI
- ---------------------------------------------------------------------------------------------------------------------
Sao Joao do Piaui PI
- ---------------------------------------------------------------------------------------------------------------------
Sao Raimundo Nonato PI
- ---------------------------------------------------------------------------------------------------------------------
Uniao PI
- ---------------------------------------------------------------------------------------------------------------------
Acu RN
- ---------------------------------------------------------------------------------------------------------------------
Apodi RN
- ---------------------------------------------------------------------------------------------------------------------
Currais Novos RN
- ---------------------------------------------------------------------------------------------------------------------
Macaiba RN
- ---------------------------------------------------------------------------------------------------------------------
Nova Cruz RN
- ---------------------------------------------------------------------------------------------------------------------
Redinha (Natal) RN
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
ANEXO V
RELACAO DE DISTRITOS E DISTRITOS SEDE DE MUNICIPIOS COM MAIS DE 50 MIL
HABITANTES E MENOS DE 75 MIL HABITANTES DA AREA DE CONCESSAO, DE ACORDO COM O
CENSO DEMOGRAFICO DO IBGE - INSTITUTO BRASILEIRO DE GEOGRAFIA E ESTATISTICA, DE
1991, QUE DEVERAO SER ATENDIDAS EM, NO MINIMO, 80% AO FINAL DO QUARTO ANO DE
VIGENCIA DO CONTRATO DE CONCESSAO.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
TABELA 1/5 (ANEXO V)
AREAS 1 E 2
- ---------------------------------------------------------------------------------------------------------------------
AREA 1 AREA 2
- -------------------------------------------------------- ------------------------------------------------------------
DISTRITO UF DISTRITO UF
- ------------------------------------------------ ------- --------------------------------------------------- --------
<S> <C> <C> <C>
Barueri SP Andradina SP
- ---------------------------------------------------------------------------------------------------------------------
Bras Cubas (Mogi Cruzes) SP Avare SP
- ---------------------------------------------------------------------------------------------------------------------
Ferraz Vasconcelos SP Bebedouro SP
- ---------------------------------------------------------------------------------------------------------------------
Itatiba SP Cacapava SP
- ---------------------------------------------------------------------------------------------------------------------
Jandira SP Bebedouro SP
- ---------------------------------------------------------------------------------------------------------------------
Poa SP Cruzeiro SP
- ---------------------------------------------------------------------------------------------------------------------
Ribeirao Pires SP Fernandopolis SP
- ---------------------------------------------------------------------------------------------------------------------
Salto SP Itapeva SP
- ---------------------------------------------------------------------------------------------------------------------
Tupa SP Itapira SP
- ---------------------------------------------------------------------------------------------------------------------
Varzea Paulista SP Jaboticabal SP
- ---------------------------------------------------------------------------------------------------------------------
Leme SP
- ---------------------------------------------------------------------------------------------------------------------
Lins SP
- ---------------------------------------------------------------------------------------------------------------------
Lorena SP
- ---------------------------------------------------------------------------------------------------------------------
Matao SP
- ---------------------------------------------------------------------------------------------------------------------
Mococa SP
- ---------------------------------------------------------------------------------------------------------------------
Mogi-Mirim SP
- ---------------------------------------------------------------------------------------------------------------------
Pirassununga SP
- ---------------------------------------------------------------------------------------------------------------------
S.J. Boa Vista SP
- ---------------------------------------------------------------------------------------------------------------------
Sertaozinho SP
- ---------------------------------------------------------------------------------------------------------------------
Sumare SP
- ---------------------------------------------------------------------------------------------------------------------
Valinhos SP
- ---------------------------------------------------------------------------------------------------------------------
Vila Dirce (Carapicuiba) SP
- ---------------------------------------------------------------------------------------------------------------------
Vila Xavier (Araraquara) SP
- ---------------------------------------------------------------------------------------------------------------------
Votuporanga SP
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
TABELA 2/5 (ANEXO V)
AREAS 3 E 4
- ---------------------------------------------------------------------------------------------------------------------
AREA 3 AREA 4
- ---------------------------------------------------------------------------------------------------------------------
DISTRITO UF DISTRITO UF
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Barra do Pirai RJ Alfenas MG
- ---------------------------------------------------------------------------------------------------------------------
Cabo Frio RJ Curvelo MG
- ---------------------------------------------------------------------------------------------------------------------
Itaborai RJ Itajuba MG
- ---------------------------------------------------------------------------------------------------------------------
Itaguai RJ Araxa MG
- ---------------------------------------------------------------------------------------------------------------------
Seropedica (Itaguai) RJ Joao Monlevade MG
- ---------------------------------------------------------------------------------------------------------------------
Itaperuna RJ Formiga MG
- ---------------------------------------------------------------------------------------------------------------------
Macae RJ Lavras MG
- ---------------------------------------------------------------------------------------------------------------------
Olinda (Nilopolis) RJ Caratinga MG
- ---------------------------------------------------------------------------------------------------------------------
Cava (Nova Iguacu) RJ Cataguases MG
- ---------------------------------------------------------------------------------------------------------------------
Japeri (N. Iguacu) RJ Manga MG
- ---------------------------------------------------------------------------------------------------------------------
Cascatinha (Petrop.) RJ Muriae MG
- ---------------------------------------------------------------------------------------------------------------------
Resende RJ Nova Lima MG
- ---------------------------------------------------------------------------------------------------------------------
Sete Pontes (Sao Goncalo) RJ Paracatu MG
- ---------------------------------------------------------------------------------------------------------------------
S. Mateus (S.J. Mereti) RJ Para de Minas MG
- ---------------------------------------------------------------------------------------------------------------------
Tres Rios RJ Patrocinio MG
- ---------------------------------------------------------------------------------------------------------------------
Guarapari ES Ribeirao das Neves MG
- ---------------------------------------------------------------------------------------------------------------------
Linhares ES Carval. Brito (Sabara) MG
- ---------------------------------------------------------------------------------------------------------------------
Serra ES S. Joao del Rei MG
- ---------------------------------------------------------------------------------------------------------------------
Goiabeiras (Vitoria) ES Timoteo MG
- ---------------------------------------------------------------------------------------------------------------------
Sao Mateus ES Tres Coracoes MG
- ---------------------------------------------------------------------------------------------------------------------
Uba MG
- ---------------------------------------------------------------------------------------------------------------------
Unai MG
- ---------------------------------------------------------------------------------------------------------------------
Barra Alegre (Ipatinga) MG
- ---------------------------------------------------------------------------------------------------------------------
Itauna MG
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
TABELA 3/5 (ANEXO V)
AREAS 5 E 6
- ---------------------------------------------------------------------------------------------------------------------
AREA 5 AREA 6
- ---------------------------------------------------------------------------------------------------------------------
DISTRITO UF DISTRITO UF
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Brusque SC Bento Goncalves RS
- ---------------------------------------------------------------------------------------------------------------------
Concordia SC Cachoeira do Sul RS
- ---------------------------------------------------------------------------------------------------------------------
Sao Bento do Sul SC Cangucu RS
- ---------------------------------------------------------------------------------------------------------------------
Barreiros (Sao Jose) SC Carazinho RS
- ---------------------------------------------------------------------------------------------------------------------
Sao Jose SC Cruz Alta RS
- ---------------------------------------------------------------------------------------------------------------------
Palhoca SC Erechim RS
- ---------------------------------------------------------------------------------------------------------------------
Almirante Tamandare PR Ijui RS
- ---------------------------------------------------------------------------------------------------------------------
Arapongas PR Santa Rosa RS
- ---------------------------------------------------------------------------------------------------------------------
Aracauria PR Santo Angelo RS
- ---------------------------------------------------------------------------------------------------------------------
Cambe PR Sao Gabriel RS
- ---------------------------------------------------------------------------------------------------------------------
Campo Largo PR Sapiranga RS
- ---------------------------------------------------------------------------------------------------------------------
N. Mundo (Curitiba) PR Sao Borja RS
- ---------------------------------------------------------------------------------------------------------------------
S. Felicidade (Curitiba) PR Passo do Sabao (Viamao) RS
- ---------------------------------------------------------------------------------------------------------------------
Umbara (Curitiba) PR Viamao RS
- ---------------------------------------------------------------------------------------------------------------------
Francisco Beltrao PR
- ---------------------------------------------------------------------------------------------------------------------
Paranavai PR
- ---------------------------------------------------------------------------------------------------------------------
Pato Branco PR
- ---------------------------------------------------------------------------------------------------------------------
Telemaco Borba PR
- ---------------------------------------------------------------------------------------------------------------------
Umuarama PR
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
TABELA 4/5 (ANEXO V)
AREAS 7 E 8
- ---------------------------------------------------------------------------------------------------------------------
AREA 7 AREA 8
- ---------------------------------------------------------------------------------------------------------------------
DISTRITO UF DISTRITO UF
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aparecida de Goiania GO Abaetetuba PA
- ---------------------------------------------------------------------------------------------------------------------
Catalao GO Altamira PA
- ---------------------------------------------------------------------------------------------------------------------
Formosa GO Braganca PA
- ---------------------------------------------------------------------------------------------------------------------
Jatai GO Conceicao do Araguaia PA
- ---------------------------------------------------------------------------------------------------------------------
Trindade GO Paragominas PA
- ---------------------------------------------------------------------------------------------------------------------
Gurupi TO Parauapebas PA
- ---------------------------------------------------------------------------------------------------------------------
Tres Lagoas MS Redencao PA
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
TABELA 4/5 (ANEXO V) - CONTINUACAO
AREAS 7 E 8
- ---------------------------------------------------------------------------------------------------------------------
AREA 7 AREA 8
- ---------------------------------------------------------------------------------------------------------------------
DISTRITO UF DISTRITO UF
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Caceres MT Chapadinha MA
- ---------------------------------------------------------------------------------------------------------------------
Porto Velho (VarzeaGrande) MT Coroata MA
- ---------------------------------------------------------------------------------------------------------------------
Cacoal RO Grajau MA
- ---------------------------------------------------------------------------------------------------------------------
Jaru RO Joao Lisboa MA
- ---------------------------------------------------------------------------------------------------------------------
Rolim de Moura RO Paco do Lumiar MA
- ---------------------------------------------------------------------------------------------------------------------
Cruzeiro do Sul AC Pinheiro MA
- ---------------------------------------------------------------------------------------------------------------------
Cruzeiro DF Santa Ines MA
- ---------------------------------------------------------------------------------------------------------------------
Paranoa DF Itacotiara AM
- ---------------------------------------------------------------------------------------------------------------------
Minacapuru AM
- ---------------------------------------------------------------------------------------------------------------------
Tefe AM
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
TABELA 5/5 (ANEXO V)
AREAS 9 E 10
- ---------------------------------------------------------------------------------------------------------------------
AREA 9 AREA 10
- ---------------------------------------------------------------------------------------------------------------------
DISTRITO UF DISTRITO UF
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Campo Formoso BA Floriano Peixoto (Maceio) AL
- ---------------------------------------------------------------------------------------------------------------------
Candeias BA Palmeira dos Indios AL
- ---------------------------------------------------------------------------------------------------------------------
Guanambi BA Penedo AL
- ---------------------------------------------------------------------------------------------------------------------
Ipira BA Rio Largo AL
- ---------------------------------------------------------------------------------------------------------------------
Irece BA S. Miguel Campos AL
- ---------------------------------------------------------------------------------------------------------------------
Itaberaba BA Caucaia CE
- ---------------------------------------------------------------------------------------------------------------------
Itamaraju BA Crato CE
- ---------------------------------------------------------------------------------------------------------------------
Monte Santo BA Iguatu CE
- ---------------------------------------------------------------------------------------------------------------------
Senhor do Bonfim BA Sousa PB
- ---------------------------------------------------------------------------------------------------------------------
Serrinha BA Arco Verde PE
- ---------------------------------------------------------------------------------------------------------------------
Simoes Filho BA Carpina PE
- ---------------------------------------------------------------------------------------------------------------------
Eunapolis BA Goiana PE
- ---------------------------------------------------------------------------------------------------------------------
Lauro de Freitas BA Gravata PE
- ---------------------------------------------------------------------------------------------------------------------
St. Antonio de Jesus BA Igarassu PE
- ---------------------------------------------------------------------------------------------------------------------
Estancia SE Palmares PE
- ---------------------------------------------------------------------------------------------------------------------
Itabaiana SE Santa Talhada PE
- ---------------------------------------------------------------------------------------------------------------------
Lagarto SE Barras PI
- ---------------------------------------------------------------------------------------------------------------------
N.S. Socorro SE Campo Maior PI
- ---------------------------------------------------------------------------------------------------------------------
Floriano PI
- ---------------------------------------------------------------------------------------------------------------------
Oeiras PI
- ---------------------------------------------------------------------------------------------------------------------
Piripiri PI
- ---------------------------------------------------------------------------------------------------------------------
Caico RN
- ---------------------------------------------------------------------------------------------------------------------
Ceara-Mirim RN
- ---------------------------------------------------------------------------------------------------------------------
Parnamirim RN
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
ANEXO VI
RELACAO DE DISTRITOS E DISTRITOS SEDE DE MUNICIPIOS COM MAIS DE 75 MIL
HABITANTES E MENOS DE 100 MIL HABITANTES DA AREA DE CONCESSAO, DE ACORDO COM O
CENSO DEMOGRAFICO DO IBGE - INSTITUTO BRASILEIRO DE GEOGRAFIA E ESTATISTICA, DE
1991, QUE DEVERAO SER ATENDIDAS EM, NO MINIMO, 90% AO FINAL DO TERCEIRO ANO DE
VIGENCIA DO CONTRATO DE CONCESSAO.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
TABELA 1/5 (ANEXO VI)
AREAS 1 E 2
- ---------------------------------------------------------------------------------------------------------------------
AREA 1 AREA 2
- ---------------------------------------------------------------------------------------------------------------------
DISTRITO UF DISTRITO UF
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Atibaia SP Araras SP
- ---------------------------------------------------------------------------------------------------------------------
Braganca Paulista SP Assis SP
- ---------------------------------------------------------------------------------------------------------------------
Cotia SP Barretos SP
- ---------------------------------------------------------------------------------------------------------------------
Francisco Morato SP Birigui SP
- ---------------------------------------------------------------------------------------------------------------------
Franco Rocha SP Botucatu SP
- ---------------------------------------------------------------------------------------------------------------------
Itapec. Serra SP Catanduva SP
- ---------------------------------------------------------------------------------------------------------------------
Itu SP Cubatao SP
- ---------------------------------------------------------------------------------------------------------------------
Capuava (Santo Andre) SP Guarantingueta SP
- ---------------------------------------------------------------------------------------------------------------------
Guaruja SP
- ---------------------------------------------------------------------------------------------------------------------
Itapetininga SP
- ---------------------------------------------------------------------------------------------------------------------
Jau SP
- ---------------------------------------------------------------------------------------------------------------------
Mogi-Guacu SP
- ---------------------------------------------------------------------------------------------------------------------
Ourinhos SP
- ---------------------------------------------------------------------------------------------------------------------
Pindamonhangaba SP
- ---------------------------------------------------------------------------------------------------------------------
Praia Grande SP
- ---------------------------------------------------------------------------------------------------------------------
Tutui SP
- ---------------------------------------------------------------------------------------------------------------------
Votorantim SP
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
TABELA 2/5 (ANEXO VI)
AREAS 3 E 4
- ---------------------------------------------------------------------------------------------------------------------
AREA 3 AREA 4
- ---------------------------------------------------------------------------------------------------------------------
DISTRITO UF DISTRITO UF
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Inhomirim (Mage) RJ Araguari MG
- ---------------------------------------------------------------------------------------------------------------------
Colatina ES Ituiutaba MG
- ---------------------------------------------------------------------------------------------------------------------
Ibes (Vila Velha) ES Patos de Minas MG
- ---------------------------------------------------------------------------------------------------------------------
Barbacena MG
- ---------------------------------------------------------------------------------------------------------------------
Pouso Alegre MG
- ---------------------------------------------------------------------------------------------------------------------
Passos MG
- ---------------------------------------------------------------------------------------------------------------------
Sao Benedito (Santa Luzia) MG
- ---------------------------------------------------------------------------------------------------------------------
Conselheiro Lafaiete MG
- ---------------------------------------------------------------------------------------------------------------------
Itabira MG
- ---------------------------------------------------------------------------------------------------------------------
Varginha MG
- ---------------------------------------------------------------------------------------------------------------------
Justinopolis (Rib. das Nevas) MG
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
TABELA 3/5 (ANEXO VI)
AREAS 5 E 6
- ---------------------------------------------------------------------------------------------------------------------
AREA 5 AREA 6
- ---------------------------------------------------------------------------------------------------------------------
DISTRITO UF DISTRITO UF
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Jaragua do Sul SC Alegrete RS
- ---------------------------------------------------------------------------------------------------------------------
Tubarao SC Bage RS
- ---------------------------------------------------------------------------------------------------------------------
Apucarana PR Cachoeirinha RS
- ---------------------------------------------------------------------------------------------------------------------
Campo Mourao PR Guaiba RS
- ---------------------------------------------------------------------------------------------------------------------
Paranagua PR S. Cruz do Sul RS
- ---------------------------------------------------------------------------------------------------------------------
Pinhais (Piraquara) PR Sant. Livramento RS
- ---------------------------------------------------------------------------------------------------------------------
Toledo PR
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
TABELA 4/5 (ANEXO VI)
AREAS 7 E 8
- ---------------------------------------------------------------------------------------------------------------------
AREA 5 AREA 6
- ---------------------------------------------------------------------------------------------------------------------
DISTRITO UF DISTRITO UF
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Itumbiara GO Ananindeua PA
- ---------------------------------------------------------------------------------------------------------------------
Rio Verde GO Castanhal PA
- ---------------------------------------------------------------------------------------------------------------------
Araguaina TO Tucurui PA
- ---------------------------------------------------------------------------------------------------------------------
Corumba MS Acailandia MA
- ---------------------------------------------------------------------------------------------------------------------
Rondonopolis MT Bacabal MA
- ---------------------------------------------------------------------------------------------------------------------
Varzea Grande MT Barra do Corda MA
- ---------------------------------------------------------------------------------------------------------------------
Ariquemes RO Codo MA
- ---------------------------------------------------------------------------------------------------------------------
Ji-Parana RO
- ---------------------------------------------------------------------------------------------------------------------
Ouro Preto Oeste RO
- ---------------------------------------------------------------------------------------------------------------------
Guara DF
- ---------------------------------------------------------------------------------------------------------------------
Planaltina DF
- ---------------------------------------------------------------------------------------------------------------------
Sobradinho DF
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
TABELA 5/5 (ANEXO VI)
AREAS 9 E 10
- ---------------------------------------------------------------------------------------------------------------------
AREA 9 AREA 10
- ---------------------------------------------------------------------------------------------------------------------
DISTRITO UF DISTRITO UF
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Barreiras BA Jurema (Caucaia) CE
- ---------------------------------------------------------------------------------------------------------------------
Paulo Afonso BA Boyeux PB
- ---------------------------------------------------------------------------------------------------------------------
Teixeira de Freitas BA Patos PB
- ---------------------------------------------------------------------------------------------------------------------
Camacari BA Santa Rita PB
- ---------------------------------------------------------------------------------------------------------------------
Abreu e Lima PE
- ---------------------------------------------------------------------------------------------------------------------
Cabo PE
- ---------------------------------------------------------------------------------------------------------------------
Camaragibe PE
- ---------------------------------------------------------------------------------------------------------------------
Garanhans PE
- ---------------------------------------------------------------------------------------------------------------------
Praia da Conceicao PE
- ---------------------------------------------------------------------------------------------------------------------
Sao Lourenco da Mata PE
- ---------------------------------------------------------------------------------------------------------------------
Vitoria Santo Antao PE
- ---------------------------------------------------------------------------------------------------------------------
Picos PI
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE>
ANEXO VII
RELACAO DE DISTRITOS E DISTRITOS SEDE DE MUNICIPIOS COM MAIS DE 100 MIL
HABITANTES E MENOS DE 200 MIL HABITANTES DA AREA DE CONCESSAO, DE ACORDO COM O
CENSO DEMOGRAFICO DO IBGE - INSTITUTO BRASILEIRO DE GEOGRAFIA E ESTATISTICA, DE
1991, QUE DEVERAO SER ATENDIDAS EM, 100% AO FINAL DO SEGUNDO ANO DE VIGENCIA DO
CONTRATO DE CONCESSAO.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
TABELA 1/5 (ANEXO VII)
AREAS 1 E 2
- ---------------------------------------------------------------------------------------------------------------------
AREA 1 AREA 2
- ---------------------------------------------------------------------------------------------------------------------
DISTRITO UF DISTRITO UF
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Embu SP Americana SP
- ---------------------------------------------------------------------------------------------------------------------
Itapevi SP Aracatuba SP
- ---------------------------------------------------------------------------------------------------------------------
Itaquaquecetuba SP Araraquara SP
- ---------------------------------------------------------------------------------------------------------------------
Mogi das Cruzes SP V. de Carvalho (Guaruja) SP
- ---------------------------------------------------------------------------------------------------------------------
Sao Caetano do Sul SP Indaiatuba SP
- ---------------------------------------------------------------------------------------------------------------------
Taboao da Serra SP Jacarei SP
- ---------------------------------------------------------------------------------------------------------------------
Suzano SP Marilia SP
- ---------------------------------------------------------------------------------------------------------------------
Pres. Prudente SP
- ---------------------------------------------------------------------------------------------------------------------
Rio Claro SP
- ---------------------------------------------------------------------------------------------------------------------
S. Barb. Oeste SP
- ---------------------------------------------------------------------------------------------------------------------
Sao Carlos SP
- ---------------------------------------------------------------------------------------------------------------------
Taubate SP
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
TABELA 2/5 (ANEXO VII)
AREAS 3 E 4
- ---------------------------------------------------------------------------------------------------------------------
AREA 3 AREA 4
- ---------------------------------------------------------------------------------------------------------------------
DISTRITO UF DISTRITO UF
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Barra Mansa RJ Betim MG
- ---------------------------------------------------------------------------------------------------------------------
Campos Elisios (D. Caxias) RJ Sete Lagoas MG
- ---------------------------------------------------------------------------------------------------------------------
Imbaarie (Duque Caxias) RJ Divinopolis MG
- ---------------------------------------------------------------------------------------------------------------------
Nilopolis RJ Teofilo Otoni MG
- ---------------------------------------------------------------------------------------------------------------------
Nova Friburgo RJ Ipatiinga MG
- ---------------------------------------------------------------------------------------------------------------------
Mesquita (N. Iguacu) RJ Pocos de Caldas MG
- ---------------------------------------------------------------------------------------------------------------------
Queimados (N. Iguacu) RJ
- ---------------------------------------------------------------------------------------------------------------------
Petropolis RJ
- ---------------------------------------------------------------------------------------------------------------------
Ipiiba (S. Goncalo) RJ
- ---------------------------------------------------------------------------------------------------------------------
Monjolo (S. Goncalo) RJ
- ---------------------------------------------------------------------------------------------------------------------
Neves (S. Goncalo) RJ
- ---------------------------------------------------------------------------------------------------------------------
Coelho Rocha (S.J. Mereti) RJ
- ---------------------------------------------------------------------------------------------------------------------
Teresopolis RJ
- ---------------------------------------------------------------------------------------------------------------------
Cachoeiro Itapemirim ES
- ---------------------------------------------------------------------------------------------------------------------
Cariacica ES
- ---------------------------------------------------------------------------------------------------------------------
Itaquari (Cariacica) ES
- ---------------------------------------------------------------------------------------------------------------------
Carapina (Serra) ES
- ---------------------------------------------------------------------------------------------------------------------
Vila Velha ES
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
TABELA 3/5 (ANEXO VII)
AREAS 5 E 6
- ---------------------------------------------------------------------------------------------------------------------
AREA 5 AREA 6
- ---------------------------------------------------------------------------------------------------------------------
DISTRITO UF DISTRITO UF
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Chapeco SC Alvorada RS
- ---------------------------------------------------------------------------------------------------------------------
Criciuma SC Gravatai RS
- ---------------------------------------------------------------------------------------------------------------------
Itajai SC Passo Fundo RS
- ---------------------------------------------------------------------------------------------------------------------
Lages SC Rio Grande RS
- ---------------------------------------------------------------------------------------------------------------------
Cascavel PR Santa Maria RS
- ---------------------------------------------------------------------------------------------------------------------
Colombo PR Sao Leopoldo RS
- ---------------------------------------------------------------------------------------------------------------------
C. Comprido (Curitiba) PR Sapucaia do Sul RS
- ---------------------------------------------------------------------------------------------------------------------
Pinheirinho (Curitiba) PR Uruguaiana RS
- ---------------------------------------------------------------------------------------------------------------------
Fox do Iguaci PR
- ---------------------------------------------------------------------------------------------------------------------
Guarapuava PR
- ---------------------------------------------------------------------------------------------------------------------
S. Jose dos Pinhais PR
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
TABELA 4/5 (ANEXO VII)
AREAS 7 E 8
- ---------------------------------------------------------------------------------------------------------------------
AREA 7 AREA 8
- ---------------------------------------------------------------------------------------------------------------------
DISTRITO UF DISTRITO UF
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nova Brasilia (Aparecida de Goiania) GO Itaituba PA
- ---------------------------------------------------------------------------------------------------------------------
Dourados MS Maraba PA
- ---------------------------------------------------------------------------------------------------------------------
Coxipo da Ponte (Cuiaba) MT Caxias MA
- ---------------------------------------------------------------------------------------------------------------------
Gama DF Santa Luzia MA
- ---------------------------------------------------------------------------------------------------------------------
Samambaia DF Timon MA
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
TABELA 4/5 (ANEXO VII)
AREAS 9 E 10
- ---------------------------------------------------------------------------------------------------------------------
AREA 9 AREA 10
- ---------------------------------------------------------------------------------------------------------------------
DISTRITO UF DISTRITO UF
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alagoinhas BA Arapiraca AL
- ---------------------------------------------------------------------------------------------------------------------
llheus BA Antonio Bezerra (Fortaleza) CE
- ---------------------------------------------------------------------------------------------------------------------
Itabuna BA Juazeiro do Norte CE
- ---------------------------------------------------------------------------------------------------------------------
Jequie BA Maracanau CE
- ---------------------------------------------------------------------------------------------------------------------
Juazeiro BA Caruaru PE
- ---------------------------------------------------------------------------------------------------------------------
Vitoria da Conquista BA Jaboatao (Jaboatao dos Guararapes) PE
- ---------------------------------------------------------------------------------------------------------------------
Cavaleiro (Jaboatao dos Guararapes) PE
- ---------------------------------------------------------------------------------------------------------------------
Petrolina PE
- ---------------------------------------------------------------------------------------------------------------------
Paraiba PI
- ---------------------------------------------------------------------------------------------------------------------
Igapo (Natal) RN
- ---------------------------------------------------------------------------------------------------------------------
Mossoro RN
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE>
ANEXO VIII
RELACAO DE CAPITAIS DE ESTADOS, DISTRITOS E DISTRITOS SEDE DE MUNCIPIOS COM MAIS
DE 200 MIL HABITANTES DA AREA DE CONCESSAO DE ACORDO COM O CENSO DEMOGRAFICO DO
IBGE - INSTITUTO BRASILIERO DE GEOGRAFIA E ESTATISTICA, DE 1991, QUE DEVERAO SER
ATENDIDOS EM 100% AO FINAL DO PRIMEIRO AND DE VIGENCIA DO CONTRATO DE CONCESSAO.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
TABELA 1/5 (ANEXO VIII)
AREAS 1 E 2
- ---------------------------------------------------------------------------------------------------------------------
AREA 1 AREA 2
- -------------------------------------------------------- ------------------------------------------------------------
DISTRITO UF DISTRITO UF
- ------------------------------------------------ ------- --------------------------------------------------- --------
<S> <C> <C> <C>
Carapicuiba SP Bauru SP
- ------------------------------------------------ ------- --------------------------------------------------- --------
Diadema SP Campinas SP
- ------------------------------------------------ ------- --------------------------------------------------- --------
Guarulhos SP Franca SP
- ------------------------------------------------ ------- --------------------------------------------------- --------
Jardim P. Dutra (Guarulhos) SP Limeira SP
- ------------------------------------------------ ------- --------------------------------------------------- --------
Jundiai SP Piracicaba SP
- ------------------------------------------------ ------- --------------------------------------------------- --------
Maua SP Ribeirao Preto SP
- ------------------------------------------------ ------- --------------------------------------------------- --------
Osasco SP Sao J. Rio Preto SP
- ------------------------------------------------ ------- --------------------------------------------------- --------
Santo Andre SP Sao Vicente SP
- ------------------------------------------------ ------- --------------------------------------------------- --------
S.B. Campo SP Sao J. Campos SP
- ------------------------------------------------ ------- --------------------------------------------------- --------
Sao Paulo Santos SP
- ------------------------------------------------ ------- --------------------------------------------------- --------
Sorocaba SP
- ------------------------------------------------ ------- --------------------------------------------------- --------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
TABELA 2/5 (ANEXO VIII)
AREAS 3 E 4
- ---------------------------------------------------------------------------------------------------------------------
AREA 3 AREA 4
- -------------------------------------------------------- ------------------------------------------------------------
DISTRITO UF DISTRITO UF
- ------------------------------------------------ ------- --------------------------------------------------- --------
<S> <C> <C> <C>
Bedford Roxo (Nova Iguacu) RJ Belo Horizonte MG
- ------------------------------------------------ ------- --------------------------------------------------- --------
C. Goytacazes RJ Contagem MG
- ------------------------------------------------ ------- --------------------------------------------------- --------
Duque de Caxias RJ Governador Valadares MG
- ------------------------------------------------ ------- --------------------------------------------------- --------
Niteroi RJ Juiz de Fora MG
- ------------------------------------------------ ------- --------------------------------------------------- --------
Nova Iguacu RJ Montes Claros MG
- ------------------------------------------------ ------- --------------------------------------------------- --------
Sao Goncalo RJ Parq. Industrial (Contagem) MG
- ------------------------------------------------ ------- --------------------------------------------------- --------
S. Joao Mereti RJ Uberaba MG
- ------------------------------------------------ ------- --------------------------------------------------- --------
Rio de Janeiro RJ Uberlandia MG
- ------------------------------------------------ ------- --------------------------------------------------- --------
Volta Redonda RJ Venda Nova (B.H.P.) MG
- ------------------------------------------------ ------- --------------------------------------------------- --------
Vitoria ES
- ------------------------------------------------ ------- --------------------------------------------------- --------
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
TABELA 3/5 (ANEXO VIII)
AREAS 5 E 6
- ---------------------------------------------------------------------------------------------------------------------
AREA 5 AREA 6
- -------------------------------------------------------- ------------------------------------------------------------
DISTRITO UF DISTRITO UF
- ------------------------------------------------ ------- --------------------------------------------------- --------
<S> <C> <C> <C>
Blumenau SC Canoas RS
- ------------------------------------------------ ------- --------------------------------------------------- --------
Florianopolis SC Caxias do Sul RS
- ------------------------------------------------ ------- --------------------------------------------------- --------
Joinville SC Novo Hamburgo RS
- ------------------------------------------------ ------- --------------------------------------------------- --------
Curitiba PR Petolas RS
- ------------------------------------------------ ------- --------------------------------------------------- --------
Londrina PR Porto Alegre RS
- ------------------------------------------------ ------- --------------------------------------------------- --------
Maringa PR
- ------------------------------------------------ ------- --------------------------------------------------- --------
Ponta Grossa PR
- ------------------------------------------------ ------- --------------------------------------------------- --------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
TABELA 4/5 (ANEXO VIII)
AREAS 7 E 8
- ---------------------------------------------------------------------------------------------------------------------
AREA 7 AREA 8
- -------------------------------------------------------- ------------------------------------------------------------
DISTRITO UF DISTRITO UF
- ------------------------------------------------ ------- --------------------------------------------------- --------
<S> <C> <C> <C>
Anapolis GO Boa Vista RR
- ------------------------------------------------ ------- --------------------------------------------------- --------
Goiania GO Belem PA
- ------------------------------------------------ ------- --------------------------------------------------- --------
Luziania GO Icoaraci PA
- ------------------------------------------------ ------- --------------------------------------------------- --------
Palmas TO Santarem PA
- ------------------------------------------------ ------- --------------------------------------------------- --------
Campo Grande MS Anil (Sao Luis) MA
- ------------------------------------------------ ------- --------------------------------------------------- --------
Cuiaba MT Imperatria MA
- ------------------------------------------------ ------- --------------------------------------------------- --------
Porto Velho RO Sao Luis MA
- ------------------------------------------------ ------- --------------------------------------------------- --------
Rio Branco AC Manaus AM
- ------------------------------------------------ ------- --------------------------------------------------- --------
Ceilandia DF Macapa AP
- ------------------------------------------------ ------- --------------------------------------------------- --------
Plano Piloto DF
- ------------------------------------------------ ------- --------------------------------------------------- --------
Taguatinga DF
- ------------------------------------------------ ------- --------------------------------------------------- --------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
TABELA 5/5 (ANEXO VIII)
AREAS 9 E 10
- ---------------------------------------------------------------------------------------------------------------------
AREA 9 AREA 10
- -------------------------------------------------------- ------------------------------------------------------------
DISTRITO UF DISTRITO UF
- ------------------------------------------------ ------- --------------------------------------------------- --------
<S> <C> <C> <C>
Feira de Santana BA Maceio AL
- ------------------------------------------------ ------- --------------------------------------------------- --------
Salvador BA Fortaleza CE
- ------------------------------------------------ ------- --------------------------------------------------- --------
Aracaju SE Messejana (Fortaleza) CE
- ------------------------------------------------ ------- --------------------------------------------------- --------
Mondubin (Fortaleza) CE
- ------------------------------------------------ ------- --------------------------------------------------- --------
Parangaba (Fortaleza) CE
- ------------------------------------------------ ------- --------------------------------------------------- --------
Campina Grande PB
- ------------------------------------------------ ------- --------------------------------------------------- --------
Joao Pessoa PB
- ------------------------------------------------ ------- --------------------------------------------------- --------
Jaboatao dos Guararapes PE
- ------------------------------------------------ ------- --------------------------------------------------- --------
Olinda PE
- ------------------------------------------------ ------- --------------------------------------------------- --------
Recife PE
- ------------------------------------------------ ------- --------------------------------------------------- --------
Teresina PI
- ------------------------------------------------ ------- --------------------------------------------------- --------
Natal RN
- ------------------------------------------------ ------- --------------------------------------------------- --------
</TABLE>
40
<PAGE>
ANEXO IX
CONDICOES BASICAS DE PRESTACAO DO SERVICO
1. Pelo menos 51% do capital votante da CONCESSIONARIA deve pertencer, direta
ou indiretamente, a brasileiros; ou a manutencao das condicoes de sua
constituicao, isoladamente ou em associacao, como entidade independente na
exploracao da concessao do Servico Movel Celular.
2. Tornar o Servico Movel Celular ao final do quinto ano de operacao comercial
regular nas areas urbanas de novos distritos e distritos sede de municipios,
indicados nos ANEXOS IV, V, VI, VII e VIII, compreendidos na Area de
Concessao, em condicoes de atender qualquer pedido de habilitacao em ate 5
(cinco) dias uteis.
3. Tornar o Servico Movel Celular disponivel e em operacao comercial regular,
obedecendo as relacoes constantes dos ANEXOS IV, V, VI, VII e VIII, que
trazem, respectivamente, a relacao de distritos e distritos sede de
municipios que serao atendidos:
a) em no minimo 70% dos distritos e distritos sede de municipios da relacao
do ANEXO IV ate o final do 5 ano de vigencia do Contrato de Concessao;
b) em no minimo 80% dos distritos e distritos sede de municipios da relacao
do ANEXO V, ate o final do 4 ano de vigencia do Contrato de Concessao;
c) em no minimo 90% dos distritos e distritos sede de municipios da relcao
do ANEXO VI, ate o final do 3 ano de vigencia do Contrato de Concessao;
d) em 100% dos distritos e distritos sede de municipios da relacao do ANEXO
VII, ate o final do 2 ano de vigencia do Contrato de Concessao;
e) em 100% das capitais, distritos e distritos sede de municipios da relacao
do ANEXO VIII, ate o final do 1 ano de vigencia do Contrato de
Concessao.
41
<PAGE>
ANEXO X
PROJETO DE EXECUCAO
1) O Projecto de Execucao deve conter, dentre outras, as informacoes abaixo
discriminadas, e ser encaminhado a Concedente no prazo de 120 (cento e
vinte) dias, contado a partir da assinatura do presente Contrato:
a) inicio de operacao comercial: numero inteiro de dias, contados da data de
assinatura do Contrato de Concessao ate a data em que as contas de
servico de assinante comecam a ser faturadas regularmente por
Concessionaria de Servico Movel Celular. A relacao minima de distritos,
distritos sede de municipios e capitais de estados, que deverao ser
atendidos esta especificada nos ANEXOS IV, V, VI, VII e VIII, valendo,
nos casos de divergencia, os dados fornecidos pelo IBGE (Instituto
Brasileiro de Geografia e Estatistica), no seu censo de 1991:
b) atendimento: numero inteiro de dias, contados da data de solicitcao de
assinatura pelo interessado ate a data de habilitacao de sua Estacao
Movel pela Concessionaria de Servico Movel Celular, considerado para um
determinado distrito, distrito sede de municipio ou capital de estado a
ser atendido:
b.1) de ate 180 (cento e oitenta) dias apos a data de solicitacao
da assinatura do servico, no primeiro ano de operacao
comercial ou deste Contrato;
b.2) de ate 120 (cento e vinte) dias apos a data de solicitacao
da assinatura do servico, no segundo ano de operacao
comercial ou deste Contrato;
b.3) de ate 30 (trinta) dias apos a data de solicitacao da
assinatura do servico, no terceiro ano de operacao comercial
ou deste Contrato;
b.4) de ate 15 (quinze) dias apos a data de solicitacao da
assinatura do servico, no quarto ano de operaca comercial ou
deste Contrato;
b.5) de ate 5 (cinco) dias uteis apos a data de solicitaocao da
assinatura do servico, no quinto ano de operacao comercial
ou deste Contrato.
c) A denominacao de distrito ou distrito sede de municipio encontra-se em
conformidade com o IBGE - Instututo Brasileiro de Geografia e
Estatistica.
d) populacao de distritos, distritos sede de municipios e capitais de
estados atendida: populacao urbana efetivamente contida na Area Registro
do Servico Movel Celular de um determinado distrito, distrito sede de
municipio e capital de estado, nao devendo ser inferior a 30% do
apresentado no censo demografico do IBGE de 1991, que devera estar com
seus prazos de atendimento em conformidade com o item b acima.
42
<PAGE>
2) As informacoes, indicadores e compromissos apresentados neste Anexo serao
parte integrante do Contrato de Concessao e aqueles que necessitarem de
melhoramentos, modernizacoes e alteracoes, durante o prazo de concessao,
quando devidamente justificados, terao suas mudancas autorizadas pelo
CONCEDENTE, observadas as disposicoes regulamentares pertinentes.
A. Plano de Atendimento
O Plano de Atendimento da Proponente devera conter as seguintes informacoes:
A.1 Inicio de Operacao Comercial: o mes de inicio de Operacao Comercial do
servico para cada um dos distritos, distritos sede de municipios e capitais de
estados citados nos ANEXOS IV, V, VI, VII e VIII;
A.2 Atendimento: prazos de Atendimento, do primeiro ao quinto ano apos inicio
da Operacao Comercial, para cada um dos distritos, distritos sede de municipios
e capitais de estados, citados nos ANEXOS IV, V, VI, VII e VIII;
A.3 Numero de distritos, distritos sede de municipios e capitais de estados
atendidos: quantidade atendida de distritos, distritos sede de municipios e
capitais de estados, do primeiro ao quinto ano de vigencia do Contrato de
Concessao, ano a ano, considerando as condicoes minimas de atendimento observada
a quantidade de distritos, distritos sede de municipios e capitais de estados
citados nos ANEXOS IV, V, VI, VII e VIII.
A.4 Populacao de distritos, distritos sede de municipios e capitais de estados
atendidos: populacao urbana atendida, que deve se encontrar dentro dos limites
de atendimento definidos no item X 1.d, para cada um dos distritos, distritos
sede de municipios e capitais de estados citados nos ANEXOS IV, V, VI VIII E
VIII.
b. Plano de Interconexao
O Plano de Interconexao devera conter as seguintes informacoes, em nivel e
detalhamento equivalentes aqueles fornecidos pelas operadoras de servicos
publicos operando na Area de Concessao correspondente, fornecidos no ANEXO II,
observadas as disposicoes regulamentares pertinentes:
43
<PAGE>
B.1 Localizacao fisica dos pontos de interconexao na Area de Concessao, que
apresentara pontos onde serao interconectadas a rede do Servico Movel Celular
com as demais redes de telecomunicacoes, indicando as datas de disponibilidade
dos pontos de interconexao, ano a ano, para cada ponto de interconexao, ao longo
dos 5 primeiros anos do Contrato de Concessao.
B.2 Caracteristicas tecnicas gerais de interconexao dos seus equipamentos, que
deverao ser compativeis com aquelas ja consagradas ou estabelecidas nas
especificacoes tecnicas brasileiras;
B.3 Nivel de qualidade de servico nos pontos de interconexao, indicando o grau
de servico entrante e sainte dos respectivos pontos de interconexao.
C. Plano de Operacao, Manutencao e Gerencia da Rede
O Plano de Operacao, Manutencao e Gerencia da Rede, que devera conter:
C.1 Planos de acesso a outras redes e servicos.
C.1.1 Planos de numeracao, sinalizacao, transmissao, sincronismo, encaminhamento
e de tarifacao da rede do Servico Movel Celular na Area Concessao;
C.1.2 Alternativas tecnicas de interoperabilidade com as redes das demais
operadoras do Servico Publico de Telecomunicacoes, tanto na Area de Operacao
quanto em relacao a interoperabilidade com as redes de outras areas.
C.2 Troca de informacoes.
C.2.1 Procedimentos de troca de informacoes com demais operadoras dos Servicos
Publicos de Telecomunicacoes, apresentando de que forma podera ser executada a
troca de informacoes para que seja obtido e mantido padrao de qualidade na
prestacao do Servico Movel Celular, comentando os sistemas em tempo real ou
sistemas segmentados por ordem de importancia operacional.
C.2.2 Informacoes de carater operacional, de manutencao e de gerencia, que
necessitam ser trocados com as demais operadoras de Servico Publicos de
Telecomunicacoes, para obtencao de adequada qualidade na prestacao do Servico
Movel Celular.
C.3 Sistematica de operacao e manutencao.
C.3.1 Principiais conceitos, estrategias e acoes a serem desenvolvidas na area
de operacao e manutencao, para a Area de Concessao.
C.3.2 Principais blocos e interrelacoes nas funcoes de operacao e manutencao do
Servico Movel Celular.
C.4 Gerencia da rede celular.
44
<PAGE>
C.4.1 Gerencia de rede que descreve a plataforma de gerencia de rede e
aplicacoes em casos de emergencia.
C.5 Criterios que serao seguidos no estabelecimento de area de mobilidade,
considerando o item 2.7 da Norma N.(degree)23/96 (Criterios para a elaboracao e
aplicacao de plano de servico na prestacao do Servico Movel Celular), os itens
associados ao encaminhamento de trafego, conforme item 5.10 da NGT 20/96 e as
informacoes para estabelecimentos do sistema de tarifacao conforme Portaria MC
N.(degree)195, de 30 de marco de 1994 (Area de Tarifacao do Servico Telefonico
Publico). Criterio utilizado para estabelecer a area de cobertura onde e
aplicado o Valor da Comunicacao 1 (VC-1), conforme item E do Anexo a Norma
N.(degree)23/96 (Plano de Servico Basico).
D. Compromisso de Dimensionamento da Rede do Servico Movel Celular
O Compromisso de dimensionamento da rede do Servico Movel Celular devera conter
as seguintes informacoes:
D.1 Utilizar os indicadores, procedimentos e informacoes abaixo discriminados
nos seus projetos de planejamento e implantacao da rede do Servico Movel
Celular.
. indice de disponibilidade do sistema na Area de Concessao mejor de ou = a
99,5%;
. nivel de sinal, em conformidade com os itens 6.13.2 e 6.13.2.1 da Norma
Geral de Telecomunicacoes NGT 20/96;
. bloqueio de canal de voz na ERB (Estacao Radio-Base) na (Hora de Maior
Movimento) HMM menos de ou = a 2%;
. taxa de erro do bit no canal de controle na HMM menos de ou = 10 E-6;
. taxa de erro de bit no canal de voz na HMM menos de ou = 10 E-3;
. indice de disponibilidade operacional mensal em cada ponto de interconexao
mejor de ou = a 99,8%;
. perda nos enlaces de interconexao na HMM menos de ou = a 1%;
. disponibilidade de servico em 90% da area composta das ERB e em 90% do
tempo.
E. Compromisso de Qualidade
O Compromisso de qualidade devera conter:
E.1 Manter os indicadores abaixo discriminados na sua atividade de atendimento
as necessidades de qualidade dos usuarios:
45
<PAGE>
. Indice de Disponibilidade de Sistema nos distritos, distritos sede de
municipios e capitais de estados atendidos da Area de Concessao mejor de
98%;
. perda nos enlaces ERB's - CCC's (Centrais de Comutacao e Controle) menos de
3%;
. bloqueio de canal de voz da ERB na HMM menos de 5%
. perda nos enlaces de interconexao na HMM menos de 3%.
. probabilidade de acesso na primeira tentativa mejor de ou = a 90%;
. reclamacao procedente por 100 assinantes menos de 5% ao mes;
E.2 Manter a disposicao dos usuarios e dos orgaos de fiscalizacao a relacao dos
servicos, facilidades e aplicacoes.
46
<PAGE>
ANEXO XI
VALORES DE K1, K2, K3, K4, K5, K6
A tabela abaixo apresenta, por Area de Concessao, os valores de K que deverao
ser considerados quando do calculo da cesta de referencia.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Area De
Concessao K1 K2 K3 K4 K5 K6
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 126 11 5 4 2 5
- -----------------------------------------------------------------------------------------------------------------
2 89 25 4 4 2 5
- -----------------------------------------------------------------------------------------------------------------
3 120 11 9 4 3 5
- -----------------------------------------------------------------------------------------------------------------
4 72 9 6 4 5 6
- -----------------------------------------------------------------------------------------------------------------
5 72 13 8 4 5 8
- -----------------------------------------------------------------------------------------------------------------
6 106 11 3 4 5 8
- -----------------------------------------------------------------------------------------------------------------
7 84 9 7 4 3 8
- -----------------------------------------------------------------------------------------------------------------
8 115 12 9 4 3 8
- -----------------------------------------------------------------------------------------------------------------
9 108 12 9 5 5 8
- -----------------------------------------------------------------------------------------------------------------
10 90 16 8 6 4 5
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
47
<PAGE>
ANEXO XII
CONDICOES TARIFARIAS E CESTA DE REFERENCIA DO PLANO
DE SERVICO BASICO
1. Condicoes Tarifarias
1.1 Os valores maximos das tarifas referidas no subitem 2.1 sofrerao
reajuste, de conformidade com a legislacao pertinente e conforme segue:
1.1.1 O reajuste dos valores do Plano de Servico e efetuado com base na
variacao do valor de uma Cesta de Referencia, indicada na Norma N. 22/96,
aprovada pela Portaria N. 1.535, de 04 de novembro de 1996.;
1.1.2 A variacao do valor da Cesta de Referencia correspondera a variacao do
Indice Geral de Precos - Disponibilidade Interna (IGP-DI) da Fundacao Getulio
Vargas considerando o periodo entre o mes anterior ao do ultimo reajuste de
valores e o mes anterior ao do novo reajuste.
1.1.3 A variacao do valor da Cesta de Referencia e obtida na forma que
segue:
Cesta de Referencia Futura = Cesta de Referencia Vigente x (1 + VIGP), sendo
VIGP = variacao do IGP-DI.
1.1.4. O reajuste do valor da Tarifa de Uso e efetuado na forma que segue:
TU-M Futura = TU-M Vigente x (1 + VIGP),
1.1.5. O intervalo entre os reajustes sera de, no minimo, 12 (doze) meses.
1.2 A revisao das tarifas referidas no subitem 2.1 se dara por iniciativa
do Ministerio das Comunicacoes ou da Concessionaria, com vistas ao
restabelecimento do equilibrio economico-financeiro da concessao, observado o
seguinte:
a) a modificacao das condicoes regulamentares do servico que implique aumento
dos encargos da Concessionaria correspondera a revisao das tarifas;
b) quando o desequilibrio economico-financeiro da concessao for provocado pela
ocorrencia de fatos ou eventos supervenientes e imprevisiveis que alterarem
as condicoes iniciais de prestacao do servico, a revisao se fara apos a
comprovacao de que tal ocorrencia guarda relacao com as alteracoes
verificadas;
1.2.1 A fim de precisar a proporcao da revisao, devera haver, conforme o
caso, a determinacao quantitativa da repercussao das alteracoes da legislacao
reguladora da prestacao do servico, ou dos fatos e eventos que resultaram em
alteracao das condicoes iniciais do servico.
48
<PAGE>
1.2.2 Ressalvados os impostos sobre a renda, a criacao, alteracao ou
extincao de quaisquer tributos ou encargos legais, apos a apesentacao da
Proposta, quando comprovado seu impacto, implicara a imediata revisao da tarifa
para mais ou para menos conforme o caso.
1.2.3 Nao tera lugar a revisao das tarifas quando a justificativa do pedido
de revisao se fundamentar na ocorrencia de erros ou omissoes quanto aos
elementos considerados na elaboracao da Proposta de Tarifas e de Preco pelo
Direito de Exploracao do Servico.
1.2.4 Decisoes a respeito de peticoes para rebalanceamento de tarifas
deverao ser fundamentadas e demonstrar que o processo de revisao seguiu as
disposicoes da Norma n. 22/96 (Criterios de Reajuste e Revisao de Valores para a
Prestacao do Servico Movel Celular). O Ministerio das Comunicacoes deve tornar
disponiveis as informacoes utilizadas para a fixacao de tarifas maximas e para o
rebalanceamento de tarifas, assegurando as Concessionarias do Servico Movel
Celular o direito a revisao administrativa e judicial das tarifas maximas
fixadas e o rebalanceamento de tarifas.
2. Plano de Servico Basico
2.1 A CONCESSIONARIA devera declarar o valor maximo, em Reais, liquido de
impostos e contribuicoes sociais, das tarifas que comporao seu Plano de Servico
Basico, tendo como data de referencia a data da ultima atualizacao da cesta de
tarifas.
2.1.1 O Plano de Servico Basico devera conter, os seguintes itens
tarifarios:
a) Valor maximo da Habilitacao;
b) Valor maximo da Assinatura;
c) Valor maximo de utilizacao por minuto do Valor da Comunicacao 1 - VC-
1;
d) Valor maximo de utilizacao por minuto do Valor da Comunicacao 2 - VC-
2;
e) Valor maximo de utilizacao por minuto do Valor da Comunicacao 3 - VC-
3;
f) Valor maximo do Adicional por Chamada, por evento;
g) Valor maximo do Deslocamento DSL-1, por minuto;
h) Valor maximo do Deslocamento DSL-2, por minuto;
i) Valor maximo da Tarifa de Uso da Rede Movel TU-M;
j) Mapa resumo para a cesta de referencia.
49
<PAGE>
2.1.1.1 As aplicacoes dos valores da comunicacao, em conformidade com a Norma
N. 23/96 (Plano de Servico Basico) e Norma N. 24/96 (Remuneracao pelo Uso das
Redes de Servico Movel Celular e de Servico Telefonico Publico), sao as
seguintes:
a) O Valor da Comunicacao 1 (VC-1) e aplicado a:
a1) comunicacao Movel-Fixo: quando a area de tarifacao associada a Area de
Registro onde o Assinante do Servico Movel Celular estiver localizado, no
momento da comunicacao, for a propria area de tarifacao do Assinante do Servico
Telefonico Publico;
a2) comunicacao Movel- Movel: quando a area de tarifacao
associada a Area de Registro onde o Assinante de origem estiver localizado, no
momento da comunicacao, for a propria area de tarifacao associada a Area de
Registro (contratual) do Assinante de destino;
a2.1) na comunicacao Movel-Movel, a criterio da Concessionaria do Servico
Movel Celular, podera ser aplicado acrescimo de ate 30% (trinta Por cento) sobre
o valor de VC-1.
b) O Valor da Communicacao 2 (VC-2) e aplicado a:
b1) comunicacao Movel-Fixo: quando a area de numeracao primaria, identificada
pelo primeiro digito do Codigo Nacional, a qual esta associada a Area de
Registro onde o Assinante do Servico Movel Celular estiver localizado, no
momemto da comunicacao, for a propria area de numeracao primaria do Assinante do
Servico Telefonico Publico e nao for aplicavel o disposto em al;
b2) comunicacao Movel-Movel: quando a area de numeracao primaria a qual
esta associada a Area de Registro onde o Assinante de origem estiver localizado,
no momento da comunicacao, for a propria area de numeracao primaria a qual esta
associada a Area de Registro (contratual) do Assinante de destino, e nao for
aplicavel o disposto em al.
c) O Valor da Comunicacao 3 (VC-3) e aplicado a:
c1) comunicacao Movel-Fixo: quando a area de numeracao primaria a qual
esta associada a Area de Registro onde o Assinante de origem estiver localizado,
no momento da comunicacao, for diferente da area de numeracao primaria do
Assinante do Servico Telefonico Publico;
c2) comunicacao Movel-Movel: quando a area de numeracao primaria a qual
esta associada a Area de Registro onde o Assinante de origem estiver localizado,
no momemto da comunicacao, for diferente da area de numeracao primaria a qual
esta associada a Area de Registro (contratual) do Assinante de destino;
2.1.1.2 O valor do deslocamento e aplicado a:
a) O Deslocamento 1 (DSL-1) e aplicado a comunicacao destinada ao
Assinante da Concessionaria de Servico Movel Celular, quando situado fora de sua
Area de Mobilidade, porem localizado dentro de sua area de numeracao primaria;
b) O Deslocamento 2 (DSL-2) e aplicado a comunicacao destinada ao
Assinante da Concessionaria de Servico Movel Celular, quando situado fora de sua
Area de Mobilidade e de sua area de numeracao primaria.
2.1.1.3 A Habilitacao (HAB) e o valor devido pelo Assinante a Concessionaria
do Servico Movel Celular no ato da ativacao de sua Estacao Movel, tornando-o
habilitado ao imediato e pleno uso do Servico;
50
<PAGE>
2.1.1.4 A Assinatura (AS) e o valor mensal, devido pelo Assinante a
Concessionaria do Servico Movel Celular, por ter ao seu dispor o Servico nas
condicoes previstas na regulamentacao do Servico.
2.1.1.5 O Adicional por Chamada (AD) e o valor devido pelo Assinante a
Concessionaria do Servico Movel Celular, na chamada por ele originada, ou a ele
destinada, a cobrar ou nao, quando ele estiver localizado fora de sua Area de
Mobilidade.
2.1.1.6 Tarifa de Uso da Rede Movel (TU-M) e o valor que remunera uma dada
Concessionaria do Servico Movel Celular, por unidade de tempo, pelo uso de sua
Rede Movel na realizacao de uma Chamada Inter-redes.
2.1.1.7 Tarifa de Uso de Rede Local: e o valor que remunera uma dada
Concessionaria do Servico Telefonico Publico, por unidade de tempo, pelo uso de
sua Rede Local na realizacao de uma Chamada Inter-redes.
2.1.2 A cesta de referencia e composta por itens do Plano de Servico Basico,
na forma que segue:
Cesta de Referencia = (HAB/36) + AS + (K1xVC-1) + (K2xVC-2) + (K3xVC-3)
+ (K4xDSL-1) + (K5xDSL-2) + (K6xAD)
onde:
K1, K2, K3, K4 e K5 = quantidade de minutos, para os itens VC-1, VC-2,
VC-3, DSL-1 e DSL-2, respectivamente;
K6 = quantidade de chamadas para o item AD;
HAB = valoe em Reais (R$) da habilitacao;
AS = valor em Reais (R$) da assinatura;
VC-1, VC-2 e VC-3 = valores em Reais (R$) referentes a utilizacao do
servico;
DSL-1 e DSL-2 = valores em Reais (R$) referentes ao item de
deslocamento;
AD = valor em Reais (R$) do adicional por chamada.
2.1.2.1 Os valores de K1, K2, K3, K4, K5 e K6, estao apresentados no ANEXO XI.
2.1.2.2 O valor de VC-1 nao podera ser inferior a soma da TU-M da Proponente e
da maior tarifa de uso da rede local das Concessionarias do Servico Telefonico
Publico da sua Area de Concessao.
51
<PAGE>
2.1.3 O valor da cesta de referencia nao podera ser superior ao Valor Maximo
da Cesta de Referencia para a Area de Concessao constante do ANEXO XII.
2.2. Elementos que deverao ser considerados na formulacao do Plano de
Servico Basico:
2.2.1 Na prestacao dos servicos a Concessionaria observara os seguintes
tempos limites, cujo computo so se iniciara a partir do efetivo estabelecimento
da comunicacao com o terminal fixo ou movel destinatario da chamada:
a) Unidade de tempo de Tarifacao: 6 (seis) segundos;
b) Tempo minimo de Tarifacao: 30 (trinta) segundos;
c) Chamadas faturaveis: somente serao faturadas as chamadas com duracao
superior a 3 (tres) segundos.
2.2.2 As areas de mobilidade associadas ao Plano de Servico Basico da
Proponente corresponderao as Areas de Tarifacao do Servico Intra e Inter-Areas
Tarifarias do Servico Telefonico Publico, definidas conforme Portaria MC n 195,
de 30 de marco de 1994, e seus anexos, constantes do ANEXO XIII.
2.2.3 As tarifas praticadas poderao ser diferenciadas em funcao das
caracteristicas tecnicas e dos custos especificos provenientes do atendimento
aos distintos segmentos ou classes de usuarios, vedado o beneficio individual.
2.2.4 A Concessionaria, a seu criterio, podera conceder descontos
tarifarios, bem assim realizar promocoes tarifarias, reducoes sazonais e
reducoes em dias e horarios de baixa demanda, sem que isso lhe gere qualquer
direito a compensacao nos valores de tarifa pelo CONCEDENTE.
2.2.5 Os servicos nao essenciais a fruicao do Servico Movel Celular ou
facilidades oferecidas serao remunerados por preco, sem qualquer repercussao no
valor da tarifa do servico basico.
2.2.5.1 Esses servicos opcionais e facilidades, quando oferecidos, deverao
estar a disposicao de todos os usuarios ou segmentos de usuarios conforme sua
utilidade, e serao remunerados por preco cobrado apenas dos usuarios que deles
fizerem uso.
2.2.6 Os valores declarados para o Plano de Servico Basico devem considerar
as despesas que a Concessionaria incorrera com a remuneracao da sua propria rede
e das redes de outras concessionarias de Servico Movel Celular, de Servico
Telefonico Publico e empresa exploradora de troncos interestaduais e
internacionais, utilizadas na prestacao do Servico Movel Celular.
2.2.7 O Plano de Servico Basico apresentado pela Proponente vencedora sera
homologado pelo Poder Concedente e vinculara a Concessionaria na prestacao do
Servico Movel Celular, constituindo-se parte integrante do Contrato de
Concessao.
52
<PAGE>
TABELA DO VALOR MAXIMO DA CESTA DE REFERENCIA
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
VALOR MAXIMO
DA CESTA DE REFERENCIA
AREA DE CONCESSAO
(R$ x 1,00)
- ----------------------------------------------------------------------------------
<S> <C>
1 84,43
- ----------------------------------------------------------------------------------
2 81,90
- ----------------------------------------------------------------------------------
3 87,15
- ----------------------------------------------------------------------------------
4 71,78
- ----------------------------------------------------------------------------------
5 74,35
- ----------------------------------------------------------------------------------
6 78,80
- ----------------------------------------------------------------------------------
7 73,23
- ----------------------------------------------------------------------------------
8 84,66
- ----------------------------------------------------------------------------------
9 83,09
- ----------------------------------------------------------------------------------
10 78,38
- ----------------------------------------------------------------------------------
</TABLE>
Nota: Os valores acima sao liquidos de impostos e contribuicoes sociais e
basicos para janeiro de 1997.
53
<PAGE>
ANEXO XIII
CADASTRO NACIONAL DAS LOCALIDADES LIGADAS E NAO LIGADAS
A REDE NACIONAL DE TELECOMUNICACOES
Nota: Este ANEXO se encontra no Apendice "B" que faz parte do Edital de
Concorrencia n.001/96-SFO/MC
54
<PAGE>
ANEXO XIV
PORTARIA DE PERMISSAO E VENCIMENTO POR AREA DE
CONCESSAO
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PERMISSIONARIA OUTORGA VENCIMENTO
--------------------------------------
PORTARIA D.O.U.
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TELECOMUNICACOES DE SAO PAULO S.A. - TELESP 1603/93 08.11.93 05.08.2008
- -----------------------------------------------------------------------------------------------------------------------
TELECOMUNICACOES DE RIO DE JANEIRO S.A. - 0064/94 24.02.94 30.11.2005
TELERJ
- -----------------------------------------------------------------------------------------------------------------------
TELECOMUNICACOES DO ESPIRITO SANTO - TELEST 0074/94 28.02.94 30.11.2008
- -----------------------------------------------------------------------------------------------------------------------
TELECOMUNICACOES DE MINAS GERAIS S.A. - 0141/94 25.11.93 29.04.2008
TELEMIG
- -----------------------------------------------------------------------------------------------------------------------
TELECOMUNICACOES DO PARANA S.A. - TELEPAR 1580/93 04.11.93 03.09.2007
- -----------------------------------------------------------------------------------------------------------------------
TELECOMUNICACOES DE SANTA CATARINA S.A. - 0272/94 03.05.94 30.09.2008
TELESC
- -----------------------------------------------------------------------------------------------------------------------
COMPANHIA TELEFONICA MELHORAMENTO E 0290/94 06.05.94 14.04.2009
RESISTENCIA - CTMR
- -----------------------------------------------------------------------------------------------------------------------
TELECOMUNICACOES DE GOIAS S.A. - TELEGOIAS 1748/93 10.12.93 29.10.2008
- -----------------------------------------------------------------------------------------------------------------------
TELECOMUNICACOES DE MATO GROSSO DO SUL S.A. - 0254/95 24.10.95 28.09.2009
TELEMS
- -----------------------------------------------------------------------------------------------------------------------
TELECOMUNICACOES DE MATO GROSSO S.A. - TELEMAT 0255/95 24.10.95 30.03.2009
- -----------------------------------------------------------------------------------------------------------------------
TELECOMUNICACOES DE RONDONIA S.A. - TELERON 0875/94 14.11.94 21.07.2009
- -----------------------------------------------------------------------------------------------------------------------
TELECOMUNICACOES DO ACRE S.A. - TELEACRE 0023/96 22.02.96 15.07.2009
- -----------------------------------------------------------------------------------------------------------------------
TELECOMUNICACOES DE BRASILIA S.A. - 0087/91 25.07.91 24.07.2006
TELEBRASILIA
- -----------------------------------------------------------------------------------------------------------------------
TELECOMUNICACOES DO AMAZONAS S.A. - TELEAMAZON 0676/94 12.09.94 16.08.2009
- -----------------------------------------------------------------------------------------------------------------------
TELECOMUNICACOES DE RORAIMA S.A. - TELAIMA 0022/86 22.02.96 31.07.2009
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
PERMISSIONARIA OUTORGA VENCIMENTO
--------------------------------------
PORTARIA D.O.U.
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TELECOMUNICACOES DO AMAPA S.A. - TELEAMAPA 0253/95 24.10.95 14.05.2009
- -----------------------------------------------------------------------------------------------------------------------
TELECOMUNICACOES DO PARA S.A. - TELEPARA 0627/94 26.08.94 30.03.2009
- -----------------------------------------------------------------------------------------------------------------------
TELECOMUNICACOES DO MARANHAO S.A. - TELMA 0390/94 05.07.94 06.04.2009
- -----------------------------------------------------------------------------------------------------------------------
TELECOMUNICACOES DA BAHIA S.A. - TELEBAHIA 1346/93 23.09.93 29.06.2008
- -----------------------------------------------------------------------------------------------------------------------
TELECOMUNICACOES DE SERGIPE S.A. - TELERGIPE 0274/94 03.05.94 15.12.2008
- -----------------------------------------------------------------------------------------------------------------------
TELECOMUNICACOES DO PIAUI S.A. - TELEPISA 0339/94 06.06.94 27.03.2009
- -----------------------------------------------------------------------------------------------------------------------
TELECOMUNICACOES DO CEARA S.A. - TELECEARA 0063/94 24.02.94 28.11.2008
- -----------------------------------------------------------------------------------------------------------------------
TELECOMUNICACOES DO RIO GRANDE DO NORTE S.A. 0139/94 23.03.94 31.12.2008
- TELERN
- -----------------------------------------------------------------------------------------------------------------------
TELECOMUNICACOES DA PARAIBA S.A. - TELPA 0140/94 23.03.94 31.12.2008
- -----------------------------------------------------------------------------------------------------------------------
TELECOMUNICACOES DE PERNAMBUCO S.A. - TELEPE 0391/94 05.07.94 15.05.2009
- -----------------------------------------------------------------------------------------------------------------------
TELECOMUNICACOES DO ALAGOAS S.A. - TELASA 0138/94 23.03.94 15.12.2008
- -----------------------------------------------------------------------------------------------------------------------
CENTRAIS TELEFONICAS DE RIBEIRAO PRETO - 0392/94 05.07.94 20.01.2009
CETERP
- -----------------------------------------------------------------------------------------------------------------------
COMPANHIA DE TELECOMUNICACOES DO BRASIL 1690/93 25.11.93 21.01.2008
CENTRAL - CTBC TELECOM
- -----------------------------------------------------------------------------------------------------------------------
SERVICO DE COMUNICACOES TELEFONICAS DE 1604/93 08.11.93 31.03.2008
LONDRINA - SERCOMTEL
- --------------------------------------------------- ------------------ ------------------- ----------------------------
COMPANHIA RIOGRANDENSE DE TELECOMUNICACOES - 0273/94 27.04.94 17.12.2007
CRT
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
56
<PAGE>
Schedule Identifying Omitted Concession Agreements and setting forth the
Material Details in which such Agreements differ from the Form of Concession
Agreement filed as Exhibit 10.1
1. Agreement: Concession Agreement between Ministerio das Comunicacoes
("Ministry of Communications") and Telecomunicacoes da Bahia S.A.
Material Differences:
name of concessionaire (see pages 1 and 14):
Telecomunicacoes da Bahia S.A.
2. Agreement: Concession Agreement between Ministry of Communications and
Telecomunicacoes de Sergipe S.A.
Material Differences:
name of concessionaire (see pages 1 and 14):
Telecomunicacoes de Sergipe S.A.
<PAGE>
STANDARD CONCESSION AGREEMENT
FOR MOBILE CELLULAR SERVICE
The present Concession Agreement is hereby entered into by the Brazilian Federal
Government, represented by the Ministry of Communications, recorded in the
General Commercial Registry/Ministry of Finance under No. ***, represented
herein by State Minister of Communications, Sergio Motta, hereinafter referred
to as the Grantor; and [name and identification], hereinafter referred to as the
Concessionaire. By way of this instrument and in compliance with the law, the
above parties hereby enter into this Concession Agreement which shall be
governed by Law No. 4117 of August 1962; by Law No. 9,295 of July 19, 1996; by
Law No. 8,987 of February 13, 1995; by Law No. 9074 of July 7, 1995; by Law No.
9472 of July 16, 1997, by Decree No. 2056 of November 4, 1996; by TGS No. 20/96
General Telecommunications Standard - Cellular Mobile Service; by the Ministry
of Communications' Memorandum No. 1533 of November 4, 1996, approved by Ministry
of Communications Memorandum No. 1716 of November 20, 1996; by Ministry of
Communications Memorandum No. 2512 of December 30, 1996; by the Decree of
October 23, 1997, published in the October 24th issue of the Diario Oficial da
Uniao (Official Federal Journal), and by the international agreements, treaties
and conventions in effect in Brazil; by other applicable legal standards; and by
the following:
Chapter 1 - Purpose, Duration and Concession Area
Clause One - The purpose of this Agreement is the Concession for the operation
of Mobile Cellular Service, arising from the change in the Authorization granted
for the operation of Public/Restricted Mobile Terrestrial Radio Communication in
accordance with Article 4 of Law No. 9,295 of July 19, 1996.
(S). 1 - The service is exclusively restricted to the frequency
sub-bands indicated below:
Sub-band A:
Mobile Station Transmission: 824.0 to 835.0 MHz
845.0 to 846.5MHz
Radio-to-Base Transmission: 869.0 to 880.0 MHz
890.0 to 891.5 MHz
(S). 2 - Mobile Cellular Service, in accordance with Law No. 9,295 of
July 19, 1996 is the service of terrestrial mobile telecommunications, open to
public use, which uses a radiocommunications system with cellular technology,
interconnected to the public telecommunications network and accessed by way of
portable, transportable or vehicular terminals for individual use.
(S). 3 - The term of the Concession [is the term remaining from the
previously granted Authorization] and is renewable for successive periods of 15
(fifteen) years as of
1
<PAGE>
the expiration of the Authorization. The terms remaining from the previous
Authorization are set forth in Annex XIV of this Agreement.
CLAUSE TWO - The Concession Area of this Agreement is set forth in Annex III.
CHAPTER II - THE SELLING PRICE FOR THE RIGHT TO OPERATE THE SERVICE AND USE THE
RADIO FREQUENCIES ASSOCIATED THEREWITH
CLAUSE THREE - In accordance with Clause One Section 3, no payment will be
charged for the Right to Operate the Service and Use the Radio Frequencies
Associated therewith.
CHAPTER III - CONDITIONS FOR OPERATION OF THE SERVICE
CLAUSE FOUR - The Concessionaire shall operate the Cellular Mobile Service in
its respective Concession Area for its own account and at its own risk in
accordance with the principle of fair competition with remuneration coming,
basically, from rates and prices charged to users.
SOLE PARAGRAPH: The service shall be operated in accordance with the terms and
conditions of this Agreement, the terms and conditions in the Basic Conditions
for Provision of Service in Annex IX and the terms and conditions of the
Implementation Plan in Annex X.
CLAUSE FIVE - The Concessionaire must observe the standard service rules in
addition to the applicable legal and regulatory provisions.
CLAUSE SIX - The Concessionaire may contract with third parties to develop
activities that are part of, in addition or complementary to the service granted
as well as to implement plans related thereto notwithstanding the
Concessionaire's full responsibility for providing service and liability for any
damages that said third parties might cause to the Grantor, users or other third
parties, by operating the service.
CLAUSE SEVEN - While operating the service, the Concessionaire is obliged to
abide, for the duration of the concession, by the commitments and conditions
undertaken and agreed to under this Agreement, in addition to observing the
legal requirements of tax regulations.
CHAPTER IV - STATIONS AND TELECOMMUNICATIONS FACILITIES
CLAUSE EIGHT - The Concessionaire shall operate and manage a reasonable number
of service stations in a reasonable number of areas as required to provide
adequate service.
CLAUSE NINE - The Concessionaire may establish, on its own or through
third-party facilities, including those of the Public Telecommunications
Network, trunk links between the Central Switching and Control Stations, between
the Central Switching and Control Stations and the Public Telecommunications
Network and between the Central Switching and
2
<PAGE>
Control Stations and the Radio-Base Stations related thereto.
CLAUSE TEN - The Concessionaire may link the network used in providing Mobile
Cellular Service with the network(s) of the Public Telephone Service and Mobile
Cellular Service providers in the respective service area and with the network
operator of interstate and international trunk lines, in accordance with terms
that are adequate, fair and non-discriminatory.
CHAPTER V - ADEQUACY OF SERVICE
CLAUSE ELEVEN - The Concessionaire shall provide service that is adequate to
fully serve and satisfy the needs of the users in terms of consistency,
continuity, efficiency, safety, technological innovation, general availability,
courteous service and reasonable rates.
CLAUSE TWELVE - For the purposes of inspecting service quality, the guidelines
in the following paragraphs shall be respectively observed with regard to:
I) for #ing purposes
a) Consistency and continuity: continuous provision of service as determined
by the terms of this agreement, by regulatory standards and by applicable
techniques;
b) Efficiency: provision of services with satisfactory standards that ensure
qualitatively and quantitatively the satisfaction of the user and the
fulfillment of the purposes of the concession;
c) Safety: adoption of effective measures for keeping up and maintaining the
facilities used in the provision of services, and for preventing
accidents;
d) Technological innovation: ensuring that the techniques, equipment and
facilities used in providing service are up-to-date, and improving and
expanding the service;
e) General availability: universal availability of the service provided,
understood as the availability of the service to all users without
discrimination;
f) Courtesy: availability of information for users, adequate attention to
their needs and politeness in serving them.
CLAUSE THIRTEEN - Taking into account the interests of the general public, the
interruption of service in an emergency situation or after prior notice for
technical reasons, for reasons related to the security of persons or property,
or due to noncompliance on the part of a user does not characterize
non-continuity of service.
CHAPTER VI - RATES AND PRICES
CLAUSE FOURTEEN - The maximum rates of the Basic Service Plan that may be
applied are those outlined under the Rate Terms and Reference Basket in
Annex XII.
3
<PAGE>
CLAUSE FIFTEEN - In providing service under the Basic Service Plan, the
Concessionaire shall observe the following time limits, the calculation of which
shall begin only as of the actual commencement of the call from the mobile or
fixed terminal of the party called:
a) Billing Unit: 6 (six) seconds.
b) Minimum Billing Time: 30 (thirty) seconds.
c) Billable Calls: only calls lasting over 3 (three) seconds shall be billed
CLAUSE SIXTEEN - In defining the area of mobility that shall be considered as a
reference for items charged as "Additional per Call" or "Displacement" of the
Basic Service Plan, the Concessionaire must use the criteria specified in
Annex XII.
CLAUSE SEVENTEEN - At the discretion of the Concessionaire and during the life
of the Agreement, the rates charged may be structured based on technical
characteristics and the specific costs arising from serving different
geographical regions and different segments or classes of users, without
discrimination on an individual basis.
SOLE PARAGRAPH - The Concessionaire may, at its own discretion and during the
life of the Agreement, submit Alternative Service Plans for approval by the
Grantor, each one differing with regard to a structure, criteria and values for
each of the various items therein.
CLAUSE EIGHTEEN - The Concessionaire, at its own discretion, may give rate
discounts as well as have special rate plans, seasonal reductions and reductions
on days and at times of low demand, without implicating any right to
compensation in the value of the rates by the Grantor.
CLAUSE NINETEEN - The services that are not essential to the enjoyment of the
Mobile Cellular Service and any other extra services offered shall be
remunerated by prices without any effect on the value of the rate for basic
service.
SOLE PARAGRAPH - These optional and extra services, when offered, must be made
available to all users or user segments, depending on their utility, and shall
be remunerated by prices charged solely to those users who use them.
CLAUSE TWENTY - The maximum rates referred to in Clause Fourteen shall be
adjusted in accordance with the laws in effect and the conditions set forth in
Annex XII of this Agreement.
CLAUSE TWENTY-ONE - The revision of rates referred to in Clause Fourteen shall
be undertaken at the initiative of the Grantor or the Concessionaire with a view
to maintaining and re-establishing the business/financial balance of the
Concession in the event:
4
<PAGE>
a) modification of service regulations occurs that implies a change in the
responsibilities of the Concessionaire;
b) a business/financial imbalance of the Concession occurs brought on by
unforeseeable facts or events that modify the initial conditions of service
provision, in which case the revision shall be made by verifying said fact.
(S). 1 - For purposes of the revision, there must be, depending on the
case, a quantitative determination of the repercussion of the changes in the
regulatory law on service provision or of the facts or events resulting in
changes of the initial conditions of service.
(S). 2 - Except for income tax, the creation, change or repeal of any
legal fees or taxes--once the proposed revision has been presented and its
impact has been verified--shall imply the immediate upward or downward revision
of the rate, as the case may be.
CHAPTER VII - RIGHTS, GUARANTEES AND RESPONSIBILITIES OF THE GRANTOR
CLAUSE TWENTY-TWO - Notwithstanding the other provisions of this Agreement, the
Grantor shall:
a) regulate and assess on a permanent basis the provision of Mobile Cellular
Service;
b) apply legal penalties, both contractual and regulatory;
c) rescind the concession in the events and in the manner provided for in this
agreement;
d) approve adjustments and revise rates in the manner provided for in this
agreement, by following applicable standards, regulations and law;
e) comply with or enforce the regulatory provisions of the service and the
contractual clauses, including that which is related to establishing links
to the public network;
f) ensure high quality of service, receive, expedite or resolve complaints
and formal complaints from users by observing Clauses Twelve and Thirteen
in this Agreement;
g) ensure fair competition in provision of service;
h) declare the property needed for establishing the service in the public
interest and directly promoting the expropriation thereof;
i) declare the property needed for establishing the service to be necessary or
of public interest for purposes of exercising eminent domain and directly
promoting such eminent domain.
SOLE PARAGRAPH - The inspection of the service shall be carried out by the
Grantor's
5
<PAGE>
technical body with the collaboration of the representative of the
Concessionaire, who has the right to be present at all acts of inspection.
CLAUSE TWENTY-THREE - The Grantor assures the Concessionaire that until December
31, 1999 (or December 31, 2001 in the case of Concession Area 8) no operations
whatsoever shall be initiated in the same Concession Area which involve any
other mobile terrestrial telecommunications services open to public use using
the radio communications system with cellular technology, linked to the public
network of telecommunications and accessed by portable, transportable or
vehicular terminals, for use by individuals.
CHAPTER VIII - RIGHTS, GUARANTEES AND RESPONSIBILITIES OF THE CONCESSIONAIRE
CLAUSE TWENTY-FOUR - Notwithstanding the other provisions of this Agreement, the
Concessionaire shall:
a) make Mobile Cellular Service available and operational on a regular
commercial basis in accordance with Annex IX of this Agreement.
b) answer requests for service activation by a user within the maximum
timeframes indicated below, which include the date the request was made and
the date the Mobile Station is activated, when Mobile Cellular Service is
brought into commercial operation in a particular district, a district that
is a headquarters for a municipality or a State capital:
b1) up to 180 (one hundred and eighty) calendar days, in the first
year this Agreement is in effect;
b2) up to 120 (one hundred and twenty) calendar days, in the second
year this Agreement is in effect;
b3) up to 30 (thirty) calendar days, in the third year this Agreement
is in effect;
b4) up to 15 (fifteen) calendar days, in the fourth year this
Agreement is in effect;
b5) up to 5 (five) calendar days, in the fifth year this Agreement is
in effect;
c) provide adequate service as set forth in this Agreement and in the
regulatory standards of Mobile Cellular Service;
d) charge rates and prices in accordance with the provisions of Annex XII of
this Agreement;
e) provide the Grantor with statements of the management of the Mobile
Cellular Service through the annual presentation of a detailed report which
should include
6
<PAGE>
information on the status of the Concessionaire in setting up, improving or
expanding the service; information which, in the interests of maintaining
fair and free competition, shall be kept confidential by the Grantor. The
information prescribed in Standard No. 27/96 shall also be provided.
f) comply with and enforce the service standards and contractual clauses;
g) indicate the representative that shall follow the inspections of the
Grantor;
h) use only equipment certified by the Grantor;
i) allow those in charge of inspection, while maintaining due confidentiality,
to have free access, at any time of the year, to the facilities, equipment
and installations related to the concession as well as accounting records;
j) ensure the integrity of the assets used in the provision of Mobile Cellular
Service and adequately insure them, having the ability to pledge the rights
arising from the Concession, including accounts receivables, and rates and
equipment belonging to the Concessionaire that are not used in providing
the service, as determined by current law;
k) maintain updated inventory and records of the assets/goods used in
providing Mobile Cellular Service;
l) receive and resolve, when they arise, complaints and formal complaints from
users;
m) publish annual financial statements drawn up at the end of each fiscal in
accordance with the relevant provisions of the Corporation Law (sociedades
anonimas);
n) ensure, and should the case arise, re-establish the economic-financial
balance of the Agreement.
CHAPTER IX - RIGHTS AND RESPONSIBILITIES OF USERS
CLAUSE TWENTY-FIVE - In addition to observing the legal provisions regarding
users' rights, the Concessionaire, in providing service, shall respect the
rights of users to:
receive adequate service;
b) receive information from the Grantor and Concessionaire as provided for
called for under the law and in the service contract;
c) obtain and use the service, freely chosen, observing the clauses of the
respective contract and the rules of the Grantor;
7
<PAGE>
d) demand solutions from the Concessionaire for possible service failures and
receive information on the measures taken, when applicable;
e) full observance of all the terms of the Subscription Contract by which the
service was ordered.
CLAUSE TWENTY-SIX - To obtain and use services, users should be required, by way
of the Mobile Service Subscription Contract to abide by the following
obligations:
a) contribute to maintaining in good condition the property used in providing
service;
b) observe the legal and regulatory standards related to the enjoyment of the
services, including those pertaining to the safety of users and third
parties;
c) effectuate, punctually, the payment of taxes, rates or prices due as a
result of the service provided;
d) comply with the terms of the Mobile Service Subscription Contract by which
the service was ordered.
CHAPTER X. - INTERVENTION
CLAUSE TWENTY-SEVEN - In order to ensure the adequate provision of service, as
well as the faithful fulfillment of pertinent contractual, regulatory and legal
standards, the Grantor may intervene in the Concession.
CLAUSE TWENTY-EIGHT - The intervention shall be carried out in accordance with
applicable law, by decree of the Grantor, through adequate justification and it
shall designate the intervening party, the duration of the intervention, the
objectives and limits of the measure.
CLAUSE TWENTY-NINE - Once the intervention is declared, the Grantor, shall,
within 30 (thirty) days, initiate administrative proceedings to verify the
determinant causes of the measure and designate responsibilities, with full
rights of defense ensured.
(S). 1 - The Concessionaire shall be informed of the initiation of the
administrative proceeding in which it shall be guaranteed the right of reply and
full rights of defense and shall have the right to appoint a representative to
follow all the due diligence carried out.
(S). 2 - Should it be found that the intervention was not carried out
in observance of legal and regulatory norms, it shall be declared null and the
service shall immediately return to the Concessionaire notwithstanding its right
to indemnification .
(S). 3 - The administrative proceedings to which Clause Twenty-Nine
refers must be concluded within 180 (one hundred and eighty) days, otherwise the
intervention may be considered invalid.
8
<PAGE>
CLAUSE THIRTY - Once the intervention has ceased, should the concession not have
expired, the administration of the service shall be returned to the
Concessionaire preceded by a rendering of accounts by the intervening party,
which shall be responsible for the acts that took place during its intervention.
CHAPTER XI - TERMINATION OF THE CONCESSION
CLAUSE THIRTY-ONE - The Concession shall be terminated due to:
a) the expiration of the contract, except when an answer to a request for
renewal is still pending from the Grantor;
b) expropriation;
c) forfeiture;
d) rescission;
e) annulment;
f) bankruptcy or termination of the Concessionaire;
CLAUSE THIRTY-TWO - Should the Grantor terminate the concession, all rights and
privileges granted to the Concessionaire shall cease.
(S). 1 - Termination implies the Grantor shall immediately take over
the service and shall proceed in a timely manner to undertake all necessary
inventories, assessments and settlements as well as gain control and use of the
facilities, equipment, supplies and personnel used in providing service that are
considered essential to its continuity, safeguarding the rights of the
Concessionaire with regard to non-revertible assets. Revertible assets are
understood to be assets that are essential to the continuity of the service or
those assets which are so named by the parties to the agreement in accordance
with Article 18, clauses X and XI of Law No. 8987/95 and Article 26, Clause XII
of Decree No. 2056/96.
(S). 2 - Once the concession is terminated, revertible assets shall be
returned to the Grantor in the manner and terms set forth in Law No. 8987 of
February 13, 1995.
CLAUSE THIRTY-THREE - Expropriation shall occur when the Grantor repossesses the
service before the expiration of the concession through a specific authorizing
law due to motives of public interest, subsequent to prescribed compensation
that adequately fulfills the financial-economic equation of the Agreement and
the responsibility to maintain its balance, with restitution to the
Concessionaire of the unamortized portion of the purchase price of the
concession.
CLAUSE THIRTY-FOUR - The total or partial non-execution of this Agreement shall
cause
9
<PAGE>
the relevant legal, regulatory, normative and contractual penalties to be
applied, which include the penalty of forfeiture of the concession according to
the conditions set forth in this instrument.
CLAUSE THIRTY-FIVE - The penalty of forfeiture of the concession shall be
applied as set forth in Law No. 8987 of February 13, 1995.
(S). 1 - In any case, prior to application of the penalty of
forfeiture, a verification of bankruptcy shall be carried out in an
administrative proceeding presided over by the commission, which ensures the
Concessionaire full rights of defense.
(S). 2 - No administrative proceeding for bankruptcy shall begin prior
to informing the Concessionaire in detail of the motivating cause of the
measure, granting the Concessionaire at least 60 (sixty) days notice to amend
the failures and mistakes indicated.
(S). 3 - Should bankruptcy be declared in the course of the
administrative proceeding, forfeiture shall be declared by the Grantor by way of
a justificatory document.
(S). 4 - Should forfeiture occur as described above, the amount of the
possible compensation owed to the Concessionaire found in breach of contract
shall be adjudged within one hundred and twenty days by a commission on which a
representative of said Concessionaire sits, and said amount shall not include
the amount of applicable fines and damages so adjudged.
(S). 5 - Once forfeiture is declared, under the law, the liability of
the Grantor with regard to the duties, burdens, responsibilities or commitments
to third parties or employees of the Concessionaire shall cease.
CLAUSE THIRTY-SIX - The Grantor may initiate rescission in the event of
noncompliance with legal, regulatory or contractual provisions by the
Concessionaire by undertaking special action to this end once a favorable
decision on this claim has been granted by the Judicial Authority.
CLAUSE THIRTY-SEVEN - Bilateral or consensual rescission shall be preceded by
the issuance of a document from the Grantor specifying the interests in so doing
and setting forth in the instrument of rescission detailed rules on the share
capital elements arising from early termination of the agreement.
CLAUSE THIRTY-EIGHT - Annulment shall take place through a judicial declaration
of invalidity of the agreement due to illegality in its formalization, with
responsibility for showing cause resting with the Grantor, ensuring that the
rights of third parties are safeguarded.
10
<PAGE>
CHAPTER XII - PENALTIES
CLAUSE THIRTY-NINE - Partial or total noncompliance with its responsibilities
subjects the Concessionaire to the penalties set forth in GTN No. 20/96 General
Telecommunications Standard - Mobile Cellular Service approved by Ministry of
Communications Memorandum No. 1533 of November 4, 1996, notwithstanding the
application of other sanctions of the law and this Agreement.
(S) 1 - The fine may be levied cumulatively for the infraction of any
legal or contractual provision, or in the event the Concessionaire does not
comply with a requirement set forth by the Grantor within a stipulated time
period.
(S) 2 - The maximum amount of the fine, for the infraction of any legal
provision, is determined by specific legislation and currently amounts to
1,647.34 (one thousand six hundred and forty-seven point thirty-four) UFIRs
[accounting units], in accordance with Law No. 4117/62 and Ministry of
Communications Memorandum No. 85 of February 28, 1994.
(S) 3 - The amount of the fine for noncompliance of the schedules,
agreed upon in the Service Plan described in the Implementation Plan, regarding
the requirement stipulated by the Grantor, is 0.05% of the Concessionaire's net
operating revenue per day of noncompliance, until such time as the requirement
is fully met.
(S) 4 - The noncompliant Concessionaire shall not be able to
participate in bidding on the provision of Mobile Cellular Service.
CHAPTER XIII - TRANSFER
CLAUSE FORTY - The transfer of the concession or Concessionaire's majority
interest in the corporation depends on the prior and express authorization of
the Grantor according to the provisions of Law No. 8987 of February 13, 1995 and
Decree No. 2056 of November 1996.
CLAUSE FORTY-ONE - The authorization of transfer of the concession confers upon
the successor entity all the rights and responsibilities of the former
Concessionaire.
SOLE PARAGRAPH - With regard to the authorization for the transfer of the
majority interest in the corporation, the new majority shareholders must execute
an express agreement, with the clauses of the Agreement in effect.
CLAUSE FORTY-TWO - The transfer of the Concession or Majority Interest without
observance of the foregoing provisions shall imply the forfeiture of the
Concession, notwithstanding the application of other prescribed penalties in the
Agreement, law and specific regulations.
11
<PAGE>
CHAPTER XIV - RENEWAL
CLAUSE FORTY-FOUR - Note: Clause Forty-Three does not exist in the original. The
term of the concession for the operation of Mobile Cellular Service may, under
the terms of Art. 3 of Law No. 9,295/96, be renewed, on the condition that the
Concessionaire has fulfilled the requirements of the concession and expressly
states his interest in renewing at least 30 (thirty) months prior to the
expiration of the term of the concession, as determined by Art. 42 of the
Regulations on Mobile Cellular Service.
CLAUSE FORTY-FIVE - The renewal of the term of the concession for the operation
of Mobile Cellular Service shall imply the payment by the Concessionaire of a
price for the right to operate the service and for the use of the radio
frequencies related thereto, in accordance with Article 43 of the Regulations on
Mobile Cellular Service.
(S) 1 - The amount of the payment referred to herein shall be agreed
upon by the Ministry of Communications and the Concessionaire at least 24
(twenty-four) months prior to the expiration of the concession term, taking into
consideration the conditions for the provision of service at the time of
renewal.
(S) 2 - The Grantor is authorized to initiate a new procedure to grant
a concession for the provision of Mobile Cellular Service in the Concession
Area, which is the purpose of this Agreement, should an agreement not be reached
24 (twenty-four) months prior to the expiration of the term of the concession.
CLAUSE FORTY-SIX - The public interest in the repossession and direct operation
of the services by the Grantor, and noncompliance by the Concessionaire with
well-founded legal, regulatory and contractual provisions, are grounds and
possible sole justification for nonrenewal of the term of the concession, and
must be verified through an administrative proceeding.
CHAPTER XV - ANNEXES
CLAUSE FORTY-SEVEN - The Annexes listed below are part of this Agreement as if
they had been transcribed therein:
Annex I: Mobile Cellular Service Concession Areas
Annex II: Interconnection Facilities;
Annex III: Concession Service Areas
Annex III-A Municipalities Covered by the Concession of the Companhia de
Telecomunicacoes do Brasil Central - CTBC TELECOM
Annex IV: Districts with more than 30 thousand and less than 50
thousand inhabitants;
Annex V: Districts with more than 50 thousand and less than 75
thousand inhabitants;
Annex VI: Districts with more than 75 thousand and less than 100 thousand
12
<PAGE>
inhabitants;
Annex VII: Districts with more than 100 thousand and less than 200
thousand inhabitants
Annex VIII: Districts with more than 200 thousand and State capitals;
Annex IX: Basic Terms for Service Provision
Annex X: Implementation Plan
Annex XI: Values of K1, K2, K3, K4, K5 and K6;
Annex XII: Rate Terms and Reference Basket of the Basic Service Plan
Annex XIII: National Registry of Localities Linked and Not Linked to the
National Telecommunications Network
Annex XIV: Decree of Authorization and Expiration by Concession Area
CHAPTER XVI - VENUE
CLAUSE FORTY-SEVEN - [Note: Clause Forty-Seven is repeated in the original.] To
obviate possible future issues regarding the Agreement, sustained efforts should
be made to find an amicable solution, and a judicial one should be sought solely
should this attempt fail, in which case the Federal District Court of Brasilia
(Foro da Secao Judiciaria da Justica Federal de Brasilia, Distrito Federal)
shall have competent jurisdiction.
13
<PAGE>
In order to signify their full acceptance of the provisions and terms of this
Agreement, the parties hereby execute it in triplicate, each one with 18
(eighteen) pages, numbered and initialed, except for the last which is signed
before the witnesses named below, who also sign it.
Brasilia, Federal District,_________, 1997
GRANTOR: CONCESSIONAIRE:
[Signature] [Signature]
Sergio Motta
State Minister of Communications
WITNESSES:
[signature] [signature]
14
<PAGE>
ANNEX I
CONCESSION AREAS OF CELLULAR MOBILE SERVICE
Area 1 = Geographic area which includes the following municipalities of the
State of Sao Paulo: Aluminio, Aracariguama, Aruja, Atibaia,
Barueri, Biritiba-Mirim, Bom Jesus dos Perdoes, Braganca Paulista,
Cabreuva, Caieiras, Cajamar, Campo Limpo Paulista, Carapicuiba,
Cotia, Diadema, Embu, Embu-Guacu, Ferraz de Vasconcelos, Francisco
Morato, Franco da Rocha, Guararema, Guarulhos, Igarata,
Itapecerica da Serra, Itapevi, Itaquaquecetuba, Itatiba, Itu,
Itupeva, Jandira, Jarinu, Joanopolis, Jundiai, Juquitiba,
Mairinque, Mairipora, Maua, Mogi das Cruzes, Morungaba, Nazare
Paulista, Osasco, Pedra Bela, Pinhalzinho, Piracaia, Pirapora do
Bom Jesus, Poa, Ribeirao Pires, Rio Grande da Serra, Salesopolis,
Salto, Santa Izabel, Santana de Paranaiba, Santo Andre, Sao
Bernardo do Campo, Sao Caetano do Sul, Sao Lourenco da Serra, Sao
Paulo, Sao Roque, Suzano, Taboao da Serra, Tuiuti, Vargem, Vargem
Grande Paulista e Varzea Paulista.
Area 2 = State of Sao Paulo, excluding the municipalities in Area 1 above.
Area 3 = States of Rio de Janeiro and Espirito Santo.
Area 4 = State of Minas Gerais.
Area 5 = States of Parana and Santa Catarina.
Area 6 = State of Rio Grande do Sul.
Area 7 = States of Goias, Tocantins, Mato Grosso do Sul, Mato Grosso,
Rondonia, Acre and Federal District.
Area 8 = States of Amazonas, Roraima, Amapa, Para and Maranhao.
Area 9 = States of Bahia and Sergipe.
Area 10= States of Piaui, Ceara, Rio Grande do Norte, Paraiba, Pernambuco
and Alagoas.
15
<PAGE>
ANNEX II
INTERCONNECTION FACILITIES
Information on the systems of the public service operators operating in the
corresponding area, including:
1. Interconnection Facilities
1.1 Degree of Digitalization and performance indicators;
1.2 List of Services
2. Description of Indicators
3. Description of Services
4. Description of Special Codes
5. Interconnection Facilities by Companies
6. Description of Facilities by Interconnection Points
NB: This Annex is in Attachment A.
16
<PAGE>
ANNEX III
CONCESSION SERVICE AREAS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
CONCESSION AREA CONCESSIONAIRE CONCESSION SERVICE AREA
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
1 TELECOMINCACOES DE CONCESSION AREA I
SAO PAULO S. A. - TELESP
- -----------------------------------------------------------------------------------------------------------
2 CENTRAIS TELEFONICAS MUNICIPALITIES OF RIBEIRAO
DE RIBEIRAO PRETO S/A - CETERP PRETO, GUATAPARA AND THE
DISTRICT OF BONFIM PAULISTA
- -----------------------------------------------------------------------------------------------------------
2 TELECOMUNICACOES DE SAO PAULO - CONCESSION AREA 2 MINUS THE
TELESP AREA OF CETERP AND CTBC TELECOM
- -----------------------------------------------------------------------------------------------------------
3 TELECOMUNICACOES DO RIO DE RIO DE JANEIRO STATE
JANEIRO S.A. - TELERJ
- -----------------------------------------------------------------------------------------------------------
3 TELECOMUNICACOES DO ESPIRITO STATE OF ESPIRITO SANTO
SANTO - TELEST
- -----------------------------------------------------------------------------------------------------------
4 TELECOMUNICACOES DE MINAS GERAIS CONCESSION AREA 4 MINUS THE
S.A. - TELEMIG AREA OF CTBC TELECOM
- -----------------------------------------------------------------------------------------------------------
5 TELECOMUNICACOES DO PARANA S.A. STATE OF PARANA MINUS THE AREA
- TELEPAR OF SERCOMTEL
- -----------------------------------------------------------------------------------------------------------
5 TELECOMUNICACOES DE SANTA SANTA CATARINA STATE
CATARINA S.A. - TELESC
- -----------------------------------------------------------------------------------------------------------
5 SERCOMTEL S/A - TELECOMUNICACOES MUNICIPALITY OF LONDRINA
- -----------------------------------------------------------------------------------------------------------
6 COMPANHIA TELEFONICA MUNICIPALITIES OF PELOTAS,
MELHORAMENTO E RESISTENCIA - CTMR MORRO REDONDO, CAPAO DO LEAO E
TURUCU
- -----------------------------------------------------------------------------------------------------------
6 COMPANHIA RIOGRANDENSE DE STATE OF RIO GRANDE DO SUL
TELECOMUNICACOES - CRT MINUS THE AREA OF CTMR
- -----------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------
TELECOMUNICACOES DE GOLAS STATE OF GOIAS MINUS THE AREA
S.A - TELEGOLAS OF CTBC TELECOM AND STATE OF
TOCANTINS
- -----------------------------------------------------------------------------------------------------------
7 TELECOMUNICACOES DE MATO GROSSO STATE OF MATO GROSSO DO SUL
DO SUL S.A. - TELEMS MINUS THE AREA OF CTBC - TELECOM
- -----------------------------------------------------------------------------------------------------------
7 TELECOMUNICACOES DE MATO GROSSO STATE OF MATO GROSS
S.A. - TELEMAT
- -----------------------------------------------------------------------------------------------------------
7 TELECOMUNICACOES DE RONDONIA STATE OF RONDONIA
S.A. - TELERON
- -----------------------------------------------------------------------------------------------------------
7 TELECOMUNICACOES DO ACRE S.A. - STATE OF ACRE
TELEACRE
- -----------------------------------------------------------------------------------------------------------
7 TELECOMUNICACOES DE BRASILIA FEDERAL DISTRICT
S.A. - TELE BRASILIA
- -----------------------------------------------------------------------------------------------------------
8 TELECOMUNICACOES DO AMAZONAS STATE OF AMAZONAS
S.A. - TELAMAZON
- -----------------------------------------------------------------------------------------------------------
8 TELECOMUNICACOES DE RORAIMA S.A. STATE OF RORAIMA
- TELAIMA
- -----------------------------------------------------------------------------------------------------------
8 TELECOMUNICACOES DO AMAPA S.A. - STATE OF AMAPA
TELAMAPA
- -----------------------------------------------------------------------------------------------------------
8 TELECOMUNICACOES DO PARA S.A. - STATE OF PARA
TELEPARA
- -----------------------------------------------------------------------------------------------------------
8 TELECOMUNICACOES DO MARANHAO STATE OF MARANHAO
S.A. - TELMA
- -----------------------------------------------------------------------------------------------------------
9 TELECOMUNICACOES DA BAHIA S.A. - STATE OF BAHIA
TELEBAHIA
- -----------------------------------------------------------------------------------------------------------
9 TELECOMUNICACOES DE SERGIPE S.A. STATE OF SERGIPE
- TELERGIPE
- -----------------------------------------------------------------------------------------------------------
10 TELECOMUNICACOES DO PIAUI S.A.- STATE OF PIAUI
TELEPISA
- -----------------------------------------------------------------------------------------------------------
10 TELECOMUNICACOES DO CEARA S.A.- STATE OF CEARA
TELECEARA
- -----------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------
10 TELECOMUNICACOES DO RIO GRANDE STATE OF RIO
DO NORTE S.A. - TELERN GRANDE DO NORTE
- -----------------------------------------------------------------------------------------------------------
10 TELECOMUNICACOES DA PARAIBA S.A. STATE OF PARAIBA
- TELPA
- -----------------------------------------------------------------------------------------------------------
10 TELECOMUNICACOES DE PERNAMBUCO STATE OF PERNAMBUCO
S.A. - TELPE
- -----------------------------------------------------------------------------------------------------------
10 TELECOMUNICACOES DE ALAGOAS S.A. STATE OF ALAGOAS
- TELASA
- -----------------------------------------------------------------------------------------------------------
2, 4, 7 COMPANHIA DE TELECOMUNICACOES DO AREAS REFERRED TO IN
BRASIL CENTRAL - CTBC TELECOM ANNEX III-A
- -----------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
ANNEX III-A
MUNICIPALITIES COVERED BY THE CONCESSION OF THE COMPANHIA DE
TELECOMUNICACOES DO BRASIL CENTRAL - CTBC TELECOM TELECOM
1. STATE OF MINAS GERAIS
ARAPORA
ARAUJOS
CAMPINA VERDE
CAMPO FLORIDO
CAMPOS ALTOS
CANAPOLIS
CAPINOPOLIS
CARMO DO PARANAIBA
CARNEHEIRINHOS
CENTRALINA
COMENDADOR GOMES
CONCEICAO DAS ALAGOAS
CORREGO DANTA
CRUZEIRO DA FORTALEZA
FRUTAL
GURINHATA
IBIRACI
IGARATINGA
IGUATAMA
INDIANOPOLIS
IPIACU
ITAPAGIPE
ITUIUTABA
ITURAMA
LAGAMAR
LAGOA FORMOSA
LAGOA GRANDE
LIMEIRA D'OESTE
LUZ
MARAVILHAS
MOEMA
MONTE ALEGRE DE MINAS
MONTE SANTO DE MINAS
NOVA PONTE
NOVA SERRANA
PAPAGAIOS
PARA DE MINAS
PATOS DE MINA
20
<PAGE>
PEDRINOPOLIS
PEQUI
PERDIGAO
PIRAJUBA
PITANGUI
PLANURA
PRATA
PRESIDENTE OLEGARIO
RIO PARANAIBA
SANTA JULIANA
SANTA VITORIA
SAO FRANCISCO DE SALES
SAO JOSE DA VARGINHA
TUPACIGUARA
UBERABA
UBERLANDIA
VAZANTE
2. STATE OF SAO PAULO
ALTINOPOLIS
ARAMINA
BATATAIS
BRODOWSKI (BRODOSQUI)
BURITIZAL
CAJURU
CASSIA DOS COQUEIROS
COLOMBIA FRANCA GUAIRA GUARA IPOA ITUVERAVA JARDINOPOLIS MIGUELOPOLIS
MORRO AGUDO NUPORANGA ORLANDIA
RIBEIRAO CORRENTE
SALES DE OLIVEIRA
SANTA CRUZ DA ESPERANCA
SANTO ANTONIO DA ALEGRIA
SAO JOAQUIM DA BARRA
21
<PAGE>
3. STATE OF MATO GROSSO DO SUL
PARANAIBA
4. STATE OF GOIAS
BURITI ALEGRE
CACHOEIRA DOURADA
INACIOLANDIA
ITUMBIARA
PARANAIGUARA
SAO SIMAO
22
<PAGE>
ANNEX IV
The list of districts and municipal district headquarters with more than 30
thousand inhabitants and less than 50 thousand inhabitants in the Concession
Area, as shown in the 1991 census of the Brazilian Institute of Geography and
Statistics (IBGE), 70% of which must be serviced by the end of the fifth year
the Concession Agreement is in effect.
- -----------------------------------------------------------------------------
TABLE 1/5 (ANNEX IV)
AREAS 1 AND 2
- -----------------------------------------------------------------------------
AREA 1 AREA 2
- -----------------------------------------------------------------------------
DISTRICT State DISTRICT State
- -----------------------------------------------------------------------------
Aruju SP Amparo SP
- -----------------------------------------------------------------------------
Caieiras SP Aparecida SP
- -----------------------------------------------------------------------------
Cajamar SP Barra Bonita SP
- -----------------------------------------------------------------------------
Campo Limpo Paulista SP Barao de Geraldo (Campinas) SP
- -----------------------------------------------------------------------------
Mairinque SP Batatais SP
- -----------------------------------------------------------------------------
Mairipora SP Adamantina SP
- -----------------------------------------------------------------------------
Santa Isabel SP Campos do Jordao SP
- -----------------------------------------------------------------------------
Santana Parnaiba SP Capao Bonito SP
- -----------------------------------------------------------------------------
Sao Roque SP Capivari SP
- -----------------------------------------------------------------------------
Caraguatatuba SP
- -----------------------------------------------------------------------------
Cosmopolis SP
- -----------------------------------------------------------------------------
Dracena SP
- -----------------------------------------------------------------------------
Espiritu Santo Pinhal SP
- -----------------------------------------------------------------------------
Garca SP
- -----------------------------------------------------------------------------
Guaira SP
- -----------------------------------------------------------------------------
Ibitinga SP
- -----------------------------------------------------------------------------
Ibiuna SP
- -----------------------------------------------------------------------------
Itanhaen SP
- -----------------------------------------------------------------------------
Itarare SP
- -----------------------------------------------------------------------------
Jales SP
- -----------------------------------------------------------------------------
Lencol Paulista SP
- -----------------------------------------------------------------------------
Mirassol SP
- -----------------------------------------------------------------------------
Monte Alto SP
- -----------------------------------------------------------------------------
Nova Odessa SP
- -----------------------------------------------------------------------------
Orlandia SP
- -----------------------------------------------------------------------------
Paraguacu Paulista SP
- -----------------------------------------------------------------------------
Paulinia SP
- -----------------------------------------------------------------------------
Penapolis SP
- -----------------------------------------------------------------------------
Peruibe SP
- -----------------------------------------------------------------------------
Piedade SP
- -----------------------------------------------------------------------------
Pres. Venceslau SP
- -----------------------------------------------------------------------------
Olimpia SP
- -----------------------------------------------------------------------------
Porto Feliz SP
- -----------------------------------------------------------------------------
Porto Ferreira SP
- -----------------------------------------------------------------------------
Santa Teresinha Piracicaba SP
(Piracic.)
- -----------------------------------------------------------------------------
Pres. Epitacio SP
- -----------------------------------------------------------------------------
23
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
TABLE 1/5 (ANNEX IV) - Continued
- -----------------------------------------------------------------------------------
<S> <C> <C>
Registro SP
- -----------------------------------------------------------------------------------
Santa Cruz do Rio Pardo SP
- -----------------------------------------------------------------------------------
Bela Vista Sao Carlense (Sao SP
Carlos)
- -----------------------------------------------------------------------------------
Sao Joaquim da Barra SP
- -----------------------------------------------------------------------------------
Sao Jose Rio Pardo SP
- -----------------------------------------------------------------------------------
Eugenio Melo (Sao J. dos Campos) SP
- -----------------------------------------------------------------------------------
Socorro SP
- -----------------------------------------------------------------------------------
Taquaritinga SP
- -----------------------------------------------------------------------------------
Ubatuba SP
- -----------------------------------------------------------------------------------
Vargem G. Sul SP
- -----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
TABLE 2/5 (ANNEX IV)
AREAS 3 AND 4
- -----------------------------------------------------------------------------------
AREA 3 AREA 4
- -----------------------------------------------------------------------------------
DISTRICT STATE DISTRICT STATE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Angra dos Reis RJ Boa Esperanca MG
- -----------------------------------------------------------------------------------
Araruama RJ Bocaiuva MG
- -----------------------------------------------------------------------------------
Xerem RJ Bom Despacho MG
- -----------------------------------------------------------------------------------
Itambi (Itaborai) RJ Campo Belo MG
- -----------------------------------------------------------------------------------
Mage RJ Congonhas MG
- -----------------------------------------------------------------------------------
Itaipu (Niteroi) RJ Coronel Fabriciano MG
- -----------------------------------------------------------------------------------
Paracambi RJ Senador Melo Viana (Cel. MG
Fabriciano)
- -----------------------------------------------------------------------------------
Rio Bonito RJ Frutal MG
- -----------------------------------------------------------------------------------
Sao Pedro da Aldeia RJ Guaxupe MG
- -----------------------------------------------------------------------------------
Valenca RJ Ibirite MG
- -----------------------------------------------------------------------------------
Aracruz ES Parque Durval de Barros (Ibirite) MG
- -----------------------------------------------------------------------------------
Itapemirim ES Itabirito MG
- -----------------------------------------------------------------------------------
Viana ES Janauba MG
- -----------------------------------------------------------------------------------
Argolas (Vila Velha) ES Januaria MG
- -----------------------------------------------------------------------------------
Lagoa da Prata MG
- -----------------------------------------------------------------------------------
Leopoldina MG
- -----------------------------------------------------------------------------------
Manhuacu MG
- -----------------------------------------------------------------------------------
Monte Carmelo MG
- -----------------------------------------------------------------------------------
Nanuque MG
- -----------------------------------------------------------------------------------
Ouro Preto MG
- -----------------------------------------------------------------------------------
Pedro Leopoldo MG
- -----------------------------------------------------------------------------------
Pirapora MG
- -----------------------------------------------------------------------------------
Ponte Nova MG
- -----------------------------------------------------------------------------------
Sabara MG
- -----------------------------------------------------------------------------------
Salinas MG
- -----------------------------------------------------------------------------------
Santa Luzia MG
- -----------------------------------------------------------------------------------
Santos Dumont MG
- -----------------------------------------------------------------------------------
Sao Francisco MG
- -----------------------------------------------------------------------------------
Sao Sebastiao do Paraiso MG
- -----------------------------------------------------------------------------------
Tres Pontas MG
- -----------------------------------------------------------------------------------
Vespasiano MG
- -----------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
TABLE 3/5 (ANNEX IV)
AREAS 5 AND 6
- -----------------------------------------------------------------------------------
AREA 5 AREA 6
- -----------------------------------------------------------------------------------
DISTRICT STATE DISTRICT STATE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Ararangua SC Vicosa MG
- -----------------------------------------------------------------------------------
Balneario Camboriu SC Camaqua RS
- -----------------------------------------------------------------------------------
Biguacu SC Campo Bom RS
- -----------------------------------------------------------------------------------
Cacador SC Dom Pedrito RS
- -----------------------------------------------------------------------------------
Canoinhas SC Farroupilha RS
- -----------------------------------------------------------------------------------
Rio Maina (Criciuma) SC Itaqui RS
- -----------------------------------------------------------------------------------
Curitibanos SC Lageado RS
- -----------------------------------------------------------------------------------
Gaspar SC Monte Negro RS
- -----------------------------------------------------------------------------------
Icara SC Palmeira das Missoes RS
- -----------------------------------------------------------------------------------
Indaial SC Rosario do Sul RS
- -----------------------------------------------------------------------------------
Laguna SC Santiago RS
- -----------------------------------------------------------------------------------
Mafra SC Sao Luiz Gonzaga RS
- -----------------------------------------------------------------------------------
Rio do Sul SC Taquara RS
- -----------------------------------------------------------------------------------
Sao Miguel d'Oeste SC Vacaira RS
- -----------------------------------------------------------------------------------
Videira SC Venancio Aires RS
- -----------------------------------------------------------------------------------
Xanxere SC
- -----------------------------------------------------------------------------------
Assis Chateaubriand PR
- -----------------------------------------------------------------------------------
Bandeirantes PR
- -----------------------------------------------------------------------------------
Castro PR
- -----------------------------------------------------------------------------------
Cianorte PR
- -----------------------------------------------------------------------------------
Cornelio Procopio PR
- -----------------------------------------------------------------------------------
Goio-Ere PR
- -----------------------------------------------------------------------------------
Ibipora PR
- -----------------------------------------------------------------------------------
Irati PR
- -----------------------------------------------------------------------------------
Jacarezinho PR
- -----------------------------------------------------------------------------------
Laranjeiras do Sul PR
- -----------------------------------------------------------------------------------
Medianeira PR
- -----------------------------------------------------------------------------------
Piraquara PR
- -----------------------------------------------------------------------------------
Pitanga PR
- -----------------------------------------------------------------------------------
Prudentopolis PR
- -----------------------------------------------------------------------------------
Rio Branco do Sul PR
- -----------------------------------------------------------------------------------
Rolandia PR
- -----------------------------------------------------------------------------------
Santo Antonio Platina PR
- -----------------------------------------------------------------------------------
Sarandi PR
- -----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
TABLE 4/5 (ANNEX IV)
AREAS 7 AND 8
- -----------------------------------------------------------------------------------
AREA 7 AREA 8
- -----------------------------------------------------------------------------------
DISTRICT STATE DISTRICT STATE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Goianesia GO Alenquer PA
- -----------------------------------------------------------------------------------
Inhumas GO Barcarena PA
- -----------------------------------------------------------------------------------
Mineiros GO Benfica (Benevides) PA
- -----------------------------------------------------------------------------------
Morrinhos GO Breves PA
- -----------------------------------------------------------------------------------
Planaltina GO Cameta PA
- -----------------------------------------------------------------------------------
Porangatu GO Capanema PA
- -----------------------------------------------------------------------------------
Qurinopolis GO Capitao Poco PA
- -----------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
TABLE 4/5 (ANNEX IV) - Continued
AREAS 7 AND 8
- -----------------------------------------------------------------------------------
AREA 7 AREA 8
- -----------------------------------------------------------------------------------
DISTRICT State DISTRICT State
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
S. Antonio do Descoberto GO Irituia PA
- -----------------------------------------------------------------------------------
Uruacu GO Itupiranga PA
- -----------------------------------------------------------------------------------
Porto Nacional TO Jacunda PA
- -----------------------------------------------------------------------------------
Aquidauana MS Medicilandia PA
- -----------------------------------------------------------------------------------
Ivinhema MS Monte Alegre PA
- -----------------------------------------------------------------------------------
Navirai MS Obidos PA
- -----------------------------------------------------------------------------------
Nova Andradina MS Oriximina PA
- -----------------------------------------------------------------------------------
Parnaiba MS Pacaja PA
- -----------------------------------------------------------------------------------
Ponta Pora MS Sao Domingos do Capim PA
- -----------------------------------------------------------------------------------
Alta Floresta MT Sao Geraldo do Araguaia PA
- -----------------------------------------------------------------------------------
Barra Gracas MT Senator Jose Porfirio PA
- -----------------------------------------------------------------------------------
Colider MT Tome-Acu PA
- -----------------------------------------------------------------------------------
Juina MT Tucuma PA
- -----------------------------------------------------------------------------------
Peixoto Azevedo MT Vigia PA
- -----------------------------------------------------------------------------------
Pontes e Lacerda MT Xinguara PA
- -----------------------------------------------------------------------------------
Sinop MT Araioses MA
- -----------------------------------------------------------------------------------
Tangara da Serra MT Arame MA
- -----------------------------------------------------------------------------------
Alta Floresta d'Oeste RO Balsas MA
- -----------------------------------------------------------------------------------
Colorado do Oeste RO Barreirinhas MA
- -----------------------------------------------------------------------------------
Guajara-Mirim RO Bom Jardim MA
- -----------------------------------------------------------------------------------
Pimenta Bueno RO Coelho Neto MA
- -----------------------------------------------------------------------------------
Presidente Medice RO Colinas MA
- -----------------------------------------------------------------------------------
Vilhena RO Cururupu MA
- -----------------------------------------------------------------------------------
Brazlandia DF Esperantinopolis MA
- -----------------------------------------------------------------------------------
Nucleo Bandeirante DF Itapecuru-Mirim MA
- -----------------------------------------------------------------------------------
Lago da Pedra MA
- -----------------------------------------------------------------------------------
Pedreiras MA
- -----------------------------------------------------------------------------------
Porto Franco MA
- -----------------------------------------------------------------------------------
Presindente Dutra MA
- -----------------------------------------------------------------------------------
Rosario MA
- -----------------------------------------------------------------------------------
Santa Luzia do Purua MA
- -----------------------------------------------------------------------------------
Sao Domingos do Maranhao MA
- -----------------------------------------------------------------------------------
Mata (S.J. do Ribamar) MA
- -----------------------------------------------------------------------------------
Sao Jose do Ribamar MA
- -----------------------------------------------------------------------------------
Sao Mateus do Maranhao MA
- -----------------------------------------------------------------------------------
Turiacu MA
- -----------------------------------------------------------------------------------
Tutum MA
- -----------------------------------------------------------------------------------
Viana MA
- -----------------------------------------------------------------------------------
Vitoria do Mearim MA
- -----------------------------------------------------------------------------------
Vitorino Freire MA
- -----------------------------------------------------------------------------------
Careiro AM
- -----------------------------------------------------------------------------------
Coari AM
- -----------------------------------------------------------------------------------
Humaita AM
- -----------------------------------------------------------------------------------
Labrea AM
- -----------------------------------------------------------------------------------
Manicore AM
- -----------------------------------------------------------------------------------
Santana AP
- -----------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
TABLE 5/5 (ANNEX IV)
AREAS 9 AND 10
- -----------------------------------------------------------------------------------
AREA 9 AREA 10
- -----------------------------------------------------------------------------------
DISTRICT State DISTRICT State
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Araci BA Campo Alegre AL
- -----------------------------------------------------------------------------------
Bom Jesus da Lapa BA Coruripe AL
- -----------------------------------------------------------------------------------
Brumado BA Delmiro Golveia AL
- -----------------------------------------------------------------------------------
Camacan BA Santana do Ipanema AL
- -----------------------------------------------------------------------------------
Cansancao BA S. Luiz do Quitunde AL
- -----------------------------------------------------------------------------------
Catu BA Tetonio Vilela AL
- -----------------------------------------------------------------------------------
Conceicao do Coite BA Uniao dos Palmeras AL
- -----------------------------------------------------------------------------------
Cruz das Almas BA Acarau CE
- -----------------------------------------------------------------------------------
Dias d'Avila BA Acarati CE
- -----------------------------------------------------------------------------------
Euclides da Cunha BA Barbalha CE
- -----------------------------------------------------------------------------------
Ibicarai BA Camocim CE
- -----------------------------------------------------------------------------------
Ipiau BA Caninde CE
- -----------------------------------------------------------------------------------
itapetinga BA Crateus CE
- -----------------------------------------------------------------------------------
Itiuba BA Ipu CE
- -----------------------------------------------------------------------------------
Jacobina BA Ico CE
- -----------------------------------------------------------------------------------
Jeremoabo BA Itapipoca CE
- -----------------------------------------------------------------------------------
Pocoes BA Limoeiro do Norte CE
- -----------------------------------------------------------------------------------
Riachao do Jacuipe BA Maranguape CE
- -----------------------------------------------------------------------------------
Ribeira do Pombal BA Quixada CE
- -----------------------------------------------------------------------------------
Santaluz BA Russas CE
- -----------------------------------------------------------------------------------
Santa Maria da Vitoria BA Tiangua CE
- -----------------------------------------------------------------------------------
Santo Amaro BA Alagoa Grande PB
- -----------------------------------------------------------------------------------
Santo Estevao BA Cajazeiras PB
- -----------------------------------------------------------------------------------
Serra do Ramalho BA Guarabira PB
- -----------------------------------------------------------------------------------
Sao Sebastiao do Passe BA Mamanguape PB
- -----------------------------------------------------------------------------------
Tucano BA Queimadas PB
- -----------------------------------------------------------------------------------
Urucuca BA Sape PB
- -----------------------------------------------------------------------------------
Valenca BA Solanea PB
- -----------------------------------------------------------------------------------
Xique-Xique BA Afogados da Ingazeira PE
- -----------------------------------------------------------------------------------
Itabaianinha SE Aguas Belas PE
- -----------------------------------------------------------------------------------
Sao Cristovao SE Araripina PE
- -----------------------------------------------------------------------------------
Simao Dias SE Barreiros PE
- -----------------------------------------------------------------------------------
Tobias Barreto SE Belo Jardim PE
- -----------------------------------------------------------------------------------
Bezerros PE
- -----------------------------------------------------------------------------------
Lageado PE
- -----------------------------------------------------------------------------------
Paudalho PE
- -----------------------------------------------------------------------------------
Ponte dos Carvalhos (Cabo) PE
- -----------------------------------------------------------------------------------
Escada PE
- -----------------------------------------------------------------------------------
Limoeiro PE
- -----------------------------------------------------------------------------------
Moreno PE
- -----------------------------------------------------------------------------------
Ouricuri PE
- -----------------------------------------------------------------------------------
Navarro (Paulista) PE
- -----------------------------------------------------------------------------------
Pesqueira PE
- -----------------------------------------------------------------------------------
Ribeirao PE
- -----------------------------------------------------------------------------------
Salgueiro PE
- -----------------------------------------------------------------------------------
Santa Cruz do Capibaribe PE
- -----------------------------------------------------------------------------------
Sao Bento do Uno PE
- -----------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
TABLE 5/5 (ANNEX IV) - Continued
AREAS 9 AND 10
- -----------------------------------------------------------------------------------
AREA 9 AREA 10 PE
- -----------------------------------------------------------------------------------
DISTRICT State DISTRICT PE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Altos PI
- -----------------------------------------------------------------------------------
Buriti dos Lopes PI
- -----------------------------------------------------------------------------------
Esperantina PI
- -----------------------------------------------------------------------------------
Luzilandia PI
- -----------------------------------------------------------------------------------
Paulistana PI
- -----------------------------------------------------------------------------------
Pedro II PI
- -----------------------------------------------------------------------------------
Sao Joao do Piaui PI
- -----------------------------------------------------------------------------------
Sao Raimundo Nonato PI
- -----------------------------------------------------------------------------------
Uniao PI
- -----------------------------------------------------------------------------------
Acu RN
- -----------------------------------------------------------------------------------
Apodi RN
- -----------------------------------------------------------------------------------
Currais Novos RN
- -----------------------------------------------------------------------------------
Macaiba RN
- -----------------------------------------------------------------------------------
Nova Cruz RN
- -----------------------------------------------------------------------------------
Redinha (Natal) RN
- -----------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
ANNEX V
The list of districts and municipal district headquarters with more than 50
thousand inhabitants and less than 75 thousand inhabitants in the Concession
Area, as shown in the 1991 census of the Brazilian Institute of Geography and
Statistics (IBGE), 80% of which must be serviced by the end of the fourth year
the Concession Agreement is in effect.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
TABLE 1/5 (ANNEX V)
AREAS 1 AND 2
- -----------------------------------------------------------------------------------
AREA 1 AREA 2
- -----------------------------------------------------------------------------------
DISTRICT State DISTRICT State
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Barueri SP Andradina SP
- -----------------------------------------------------------------------------------
Bras Cubas (Mogi Cruzes) SP Avare SP
- -----------------------------------------------------------------------------------
Ferraz Vasconcelos SP Bebedouro SP
- -----------------------------------------------------------------------------------
Itatiba SP Cacapava SP
- -----------------------------------------------------------------------------------
Jandira SP Bebedouro SP
- -----------------------------------------------------------------------------------
Poa SP Cruzeiro SP
- -----------------------------------------------------------------------------------
Ribeirao Pires SP Fernandopolis SP
- -----------------------------------------------------------------------------------
Salto SP Itapeva SP
- -----------------------------------------------------------------------------------
Tupa SP Itapira SP
- -----------------------------------------------------------------------------------
Varzea Paulista SP Jaboticabal SP
- -----------------------------------------------------------------------------------
Leme SP
- -----------------------------------------------------------------------------------
Lins SP
- -----------------------------------------------------------------------------------
Lorena SP
- -----------------------------------------------------------------------------------
Matao SP
- -----------------------------------------------------------------------------------
Mococa SP
- -----------------------------------------------------------------------------------
Mogi-Mirim SP
- -----------------------------------------------------------------------------------
Pirassununga SP
- -----------------------------------------------------------------------------------
S.J. Boa Vista SP
- -----------------------------------------------------------------------------------
Sertaozinho SP
- -----------------------------------------------------------------------------------
Sumare SP
- -----------------------------------------------------------------------------------
Valinhos SP
- -----------------------------------------------------------------------------------
Vila Dirce (Carapicuiba) SP
- -----------------------------------------------------------------------------------
Vila Xavier (Araraquara) SP
- -----------------------------------------------------------------------------------
Votuporanga SP
- -----------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------
TABLE 2/5 (ANNEX V)
AREAS 3 AND 4
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
AREA 3 AREA 4
- -----------------------------------------------------------------------------------
DISTRICT State DISTRICT State
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Barra do Pirai RJ Alfenas MG
- -----------------------------------------------------------------------------------
Cabo Frio RJ Curvelo MG
- -----------------------------------------------------------------------------------
Itaborai RJ Itajuba MG
- -----------------------------------------------------------------------------------
Itaguai RJ Araxa MG
- -----------------------------------------------------------------------------------
Soropedica (Itaguai) RJ Joao Monlevade MG
- -----------------------------------------------------------------------------------
Itaperuna RJ Formica MG
- -----------------------------------------------------------------------------------
Macae RJ Lavras MG
- -----------------------------------------------------------------------------------
Olinda (Nilopolis) RJ Caratinga MG
- -----------------------------------------------------------------------------------
Cava (Nova Iguacu) RJ Cataguases MG
- -----------------------------------------------------------------------------------
Japeri (N. Iguacu) RJ Manga MG
- -----------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------
TABLE 2/5 (ANNEX V) - Continued
AREAS 3 AND 4
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
AREA 3 AREA 4
- -----------------------------------------------------------------------------------
DISTRICT State DISTRICT State
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
</TABLE>
29
<PAGE>
<TABLE>
<S> <C> <C> <C>
Cascatinha (Petrop.) RJ Muriae MG
- -----------------------------------------------------------------------------------
Resende RJ Nova Lima MG
- -----------------------------------------------------------------------------------
Sete Pontes (Sao Goncalo) RJ Paracatu MG
- -----------------------------------------------------------------------------------
S, Mateus (S.J.Mereti) RJ Para Minas MG
- -----------------------------------------------------------------------------------
Tres Rios RJ Patrocinio MG
- -----------------------------------------------------------------------------------
Guarapari ES Riberao das Neves MG
- -----------------------------------------------------------------------------------
Linhares ES Carval. Brito (Sabara) MG
- -----------------------------------------------------------------------------------
Serra ES S. Joao del Rei MG
- -----------------------------------------------------------------------------------
Goiabeiras (Vitoria) ES Timoteo MG
- -----------------------------------------------------------------------------------
Sao Mateus ES Tres Coracoes MG
- -----------------------------------------------------------------------------------
Uba MG
- -----------------------------------------------------------------------------------
Unai MG
- -----------------------------------------------------------------------------------
Barra Alegre (Ipatinga) MG
- -----------------------------------------------------------------------------------
Itauna MG
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
<CAPTION>
TABLE 3/5 (ANNEX V)
AREAS 5 AND 6
- -----------------------------------------------------------------------------------
AREA 5 AREA 6
- -----------------------------------------------------------------------------------
DISTRICT State DISTRICT State
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Brusque SC Bento Goncalves RS
- -----------------------------------------------------------------------------------
Concordia SC Cachoeira do Sul RS
- -----------------------------------------------------------------------------------
Sao Bento do Sul SC Cangucu RS
- -----------------------------------------------------------------------------------
Barreiros (Sao Jose) SC Carazinho RS
- -----------------------------------------------------------------------------------
Sao Jose SC Cruz Alta RS
- -----------------------------------------------------------------------------------
Palhoca SC Erechim RS
- -----------------------------------------------------------------------------------
Almirante Tamandare PR Ijui RS
- -----------------------------------------------------------------------------------
Arapongas PR Santa Rosa RS
- -----------------------------------------------------------------------------------
Aracauria PR Santo Angelo RS
- -----------------------------------------------------------------------------------
Cambe PR Sao Gabriel RS
- -----------------------------------------------------------------------------------
Campo Largo PR Sapiranga RS
- -----------------------------------------------------------------------------------
N. Mundo (Curitiba) PR Sao Borja RS
- -----------------------------------------------------------------------------------
S. Felicidade (Curitiba) PR Passo do Sabao (Viamao) RS
- -----------------------------------------------------------------------------------
Umbara (Curitiba) PR Viamao RS
- -----------------------------------------------------------------------------------
Francisco Beltrao PR
- -----------------------------------------------------------------------------------
Paranavai PR
- -----------------------------------------------------------------------------------
Pato Branco PR
- -----------------------------------------------------------------------------------
Telemaco Borba PR
- -----------------------------------------------------------------------------------
Umuarama PR
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
<CAPTION>
TABLE 4/5 (ANNEX V)
AREAS 7 AND 8
- -----------------------------------------------------------------------------------
AREA 7 AREA 8
- -----------------------------------------------------------------------------------
DISTRICT State DISTRICT State
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Aparecida de Goiania GO Abaetetuba PA
- -----------------------------------------------------------------------------------
Catalao GO Altamira PA
- -----------------------------------------------------------------------------------
Formosa GO Braganca PA
- -----------------------------------------------------------------------------------
Jatai GO Conceicao do Araguaia PA
- -----------------------------------------------------------------------------------
Trindade GO Paragominas PA
- -----------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
TABLE 4/5 (ANNEX V) - Continued
AREAS 7 AND 8
- -----------------------------------------------------------------------------------
AREA 7 AREA 8
- -----------------------------------------------------------------------------------
DISTRICT State DISTRICT State
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------
Gurupi GO Parauapebas PA
- -----------------------------------------------------------------------------------
Tres Lagoas MS Redencao PA
- -----------------------------------------------------------------------------------
Caceres MT Chapadinha MA
- -----------------------------------------------------------------------------------
Porto Velho (Varzea Grande) MT Coroata MA
- -----------------------------------------------------------------------------------
Cacoal RO Grajau MA
- -----------------------------------------------------------------------------------
Jaru RO Joao Lisboa MA
- -----------------------------------------------------------------------------------
Rolim de Moura RO Paco do Lumiar MA
- -----------------------------------------------------------------------------------
Cruzeiro do Sul AC Pinheiro MA
- -----------------------------------------------------------------------------------
Cruzeiro DF Santa Ines MA
- -----------------------------------------------------------------------------------
Paranoa DF Itacotiara AM
- -----------------------------------------------------------------------------------
Minacapuru AM
- -----------------------------------------------------------------------------------
Tefe AM
- -----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
TABLE 5/5 (ANNEX V)
AREAS 9 AND 10
- -----------------------------------------------------------------------------------
AREA 9 AREA 10
- -----------------------------------------------------------------------------------
DISTRICT State DISTRICT State
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------
Campo Formoso BA Floriano Peixoto (Maceio) AL
- -----------------------------------------------------------------------------------
Candeias Palmeira dos Indios AL
- -----------------------------------------------------------------------------------
Guanambi BA Penedo AL
- -----------------------------------------------------------------------------------
Ipira BA Rio Largo AL
- -----------------------------------------------------------------------------------
Irece BA S. Miguel Campos AL
- -----------------------------------------------------------------------------------
Itaberaba BA Caucacia CE
- -----------------------------------------------------------------------------------
Itamaraju BA Crato CE
- -----------------------------------------------------------------------------------
Monte Santo BA Iguatu CE
- -----------------------------------------------------------------------------------
Senhor do Bonfim BA Sousa PB
- -----------------------------------------------------------------------------------
Serrinha BA Arco Verde PE
- -----------------------------------------------------------------------------------
Simoes Filho BA Carpina PE
- -----------------------------------------------------------------------------------
Eunapolis BA Goiana PE
- -----------------------------------------------------------------------------------
Lauro de Freitas BA Gravata PE
- -----------------------------------------------------------------------------------
St. Antonio de Jesus BA Igarassu PE
- -----------------------------------------------------------------------------------
Estancia SE Palmares PE
- -----------------------------------------------------------------------------------
Itabaiana SE Santa Talhada PE
- -----------------------------------------------------------------------------------
Lagarto SE Barras PI
- -----------------------------------------------------------------------------------
N.S. Socorro SE Campo Maior PI
- -----------------------------------------------------------------------------------
Floriano PI
- -----------------------------------------------------------------------------------
Oeiras PI
- -----------------------------------------------------------------------------------
Piripiri PI
- -----------------------------------------------------------------------------------
Caico RN
- -----------------------------------------------------------------------------------
Ceara-Mirim RN
- -----------------------------------------------------------------------------------
Parnamirim RN
- -----------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
ANNEX VI
The list of districts and municipal district headquarters with more than 75
thousand inhabitants and less than 100 thousand inhabitants in the Concession
Area, as shown in the 1991 census of the Brazilian Institute of Geography and
Statistics (IBGE), 90% of which must be serviced by the end of the third year
the Concession Agreement is in effect.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
TABLE 1/5 (ANNEX VI)
AREAS 1 AND 2
- -----------------------------------------------------------------------------------
AREA 1 AREA 2
- -----------------------------------------------------------------------------------
DISTRICT State DISTRICT State
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Atibaia SP Araras SP
- -----------------------------------------------------------------------------------
Braganca Paulista SP Assis SP
- -----------------------------------------------------------------------------------
Cotia SP Barretos SP
- -----------------------------------------------------------------------------------
Francisco Morato SP Birigui SP
- -----------------------------------------------------------------------------------
Franco Rocha SP Botacatu SP
- -----------------------------------------------------------------------------------
Itapec. Serra SP Catanduva SP
- -----------------------------------------------------------------------------------
Itu SP Cubatao SP
- -----------------------------------------------------------------------------------
Capuava (Santo Andre) SP Guaratingueta SP
- -----------------------------------------------------------------------------------
Guaruja SP
- -----------------------------------------------------------------------------------
Itapetininga SP
- -----------------------------------------------------------------------------------
Jau SP
- -----------------------------------------------------------------------------------
Mogi-Guacu SP
- -----------------------------------------------------------------------------------
Ourinhos SP
- -----------------------------------------------------------------------------------
Pindamonhagnaba SP
- -----------------------------------------------------------------------------------
Praia Grande SP
- -----------------------------------------------------------------------------------
Tutui SP
- -----------------------------------------------------------------------------------
Votorantim SP
- -----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
TABLE 2/5 (ANNEX VI)
AREAS 3 AND 4
- -----------------------------------------------------------------------------------
AREA 3 AREA 4
- -----------------------------------------------------------------------------------
DISTRICT State DISTRICT State
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Inhomirim (Mage) RJ Araguari MG
- -----------------------------------------------------------------------------------
Colatina ES Ituiutaba MG
- -----------------------------------------------------------------------------------
Ibes (Vila Velha) ES Patos de Minas MG
- -----------------------------------------------------------------------------------
Barbacena MG
- -----------------------------------------------------------------------------------
Pouso Alegre MG
- -----------------------------------------------------------------------------------
Passos MG
- -----------------------------------------------------------------------------------
Sao Benedito (Santa Luzia) MG
- -----------------------------------------------------------------------------------
Conselheiro Lafaiete MG
- -----------------------------------------------------------------------------------
Itabira MG
- -----------------------------------------------------------------------------------
Varginha MG
- -----------------------------------------------------------------------------------
Justinopolis (Rib. das Neves) MG
- -----------------------------------------------------------------------------------
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TABLE 3/5 (ANNEX VI)
AREAS 5 AND 6
- --------------------------------------------------------------------------------
AREA 5 AREA 6
- --------------------------------------------------------------------------------
DISTRICT State DISTRICT State
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Jaragua do Sul SC Alegrete RS
- --------------------------------------------------------------------------------
Tubarao SC Bage RS
- --------------------------------------------------------------------------------
Apucarana PR Cachoerinha RS
- --------------------------------------------------------------------------------
Campo Mourao PR Guaiba RS
- --------------------------------------------------------------------------------
Paranagua PR S. Cruz do Sul RS
- --------------------------------------------------------------------------------
Pinhais (Piraquara) PR Sant. Livramento RS
- --------------------------------------------------------------------------------
Toledo PR
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TABLE 4/5 (ANNEX VI)
AREAS 7 AND 8
- --------------------------------------------------------------------------------
AREA 7 AREA 8
- --------------------------------------------------------------------------------
DISTRICT State DISTRICT State
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Itumbiara GO Ananindeua PA
- --------------------------------------------------------------------------------
Rio Verde GO Castanhal PA
- --------------------------------------------------------------------------------
Araguaina TO Tucurui PA
- --------------------------------------------------------------------------------
Corumba MS Acailandia MA
- --------------------------------------------------------------------------------
Rondonopolis MT Bacabal MA
- --------------------------------------------------------------------------------
Varzea Grande MT Barra do Corda MA
- --------------------------------------------------------------------------------
Ariquemes RO Codo MA
- --------------------------------------------------------------------------------
Ji-Parana RO
- --------------------------------------------------------------------------------
Ouro Preto Oeste RO
- --------------------------------------------------------------------------------
Guara DF
- --------------------------------------------------------------------------------
Planaltina DF
- --------------------------------------------------------------------------------
Sobradinho DF
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TABLE 5/5 (ANNEX VI)
AREAS 9 AND 10
- --------------------------------------------------------------------------------
AREA 9 AREA 10
- --------------------------------------------------------------------------------
DISTRICT State DISTRICT State
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Barreiras BA Jurema (Caucaia) CE
- --------------------------------------------------------------------------------
Paulo Alfonso BA Boyeux PB
- --------------------------------------------------------------------------------
Texeira de Freitas BA Patos PB
- --------------------------------------------------------------------------------
Camacari BA Santa Rita PB
- --------------------------------------------------------------------------------
Abreu e Lima PE
- --------------------------------------------------------------------------------
Cabo PE
- --------------------------------------------------------------------------------
Camaragibe PE
- --------------------------------------------------------------------------------
Garanhans PE
- --------------------------------------------------------------------------------
Praia da Conceicao PE
- --------------------------------------------------------------------------------
Sao Lourenco da Mata PE
- --------------------------------------------------------------------------------
Vitoria Santo Antao PE
- --------------------------------------------------------------------------------
Picos PI
- --------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
ANNEX VII
The list of districts and municipal district headquarters with more than 100
thousand inhabitants and less than 200 thousand inhabitants in the Concession
Area, as shown in the 1991 census of the Brazilian Institute of Geography and
Statistics (IBGE), 100% of which must be serviced by the end of the second year
the Concession Agreement is in effect.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
TABLE 1/5 (ANNEX VII)
AREAS 1 AND 2
- --------------------------------------------------------------------------
AREA 1 AREA 2
- --------------------------------------------------------------------------
DISTRICT State DISTRICT State
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Embu SP Americana SP
- --------------------------------------------------------------------------
Itapevi SP Aracatuba SP
- --------------------------------------------------------------------------
Itaquaquecetuba SP Araraquara SP
- --------------------------------------------------------------------------
Mogi das Cruzes SP V. de Carvalho (Guaruja) SP
- --------------------------------------------------------------------------
Sao Caetano do Sul SP Indaiatuba SP
- --------------------------------------------------------------------------
Taboao da Serra SP Jacarei SP
- --------------------------------------------------------------------------
Suzano SP Marilia SP
- --------------------------------------------------------------------------
Pres. Prudente SP
- --------------------------------------------------------------------------
Rio Claro SP
- --------------------------------------------------------------------------
S. Barb. Oeste SP
- --------------------------------------------------------------------------
Sao Carlos SP
- --------------------------------------------------------------------------
Taubate SP
- --------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
TABLE 2/5 (ANNEX VII)
AREAS 3 AND 4
- --------------------------------------------------------------------------
AREA 3 AREA 4
- --------------------------------------------------------------------------
DISTRICT State DISTRICT State
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Barra Mansa RJ Betim MG
- --------------------------------------------------------------------------
Campos Eliseos (D. Caxias) RJ Sete Lagoas MG
- --------------------------------------------------------------------------
Imbaarie (Duque Caixas) RJ Divinopolis MG
- --------------------------------------------------------------------------
Nilopolis RJ Teofilo Otoni MG
- --------------------------------------------------------------------------
Nova Friburgo RJ Ipatiinga MG
- --------------------------------------------------------------------------
Mesquita (N.Iguacu) RJ Pocos de Caldas MG
- --------------------------------------------------------------------------
Queimados (N.Iguacu) RJ
- --------------------------------------------------------------------------
Petropolis RJ
- --------------------------------------------------------------------------
Ipiiba (S. Goncalo) RJ
- --------------------------------------------------------------------------
Monjolo (S. Goncalo) RJ
- --------------------------------------------------------------------------
Neves (S. Goncalo) RJ
- --------------------------------------------------------------------------
Coelho Rocha (S.J. Mereli) RJ
- --------------------------------------------------------------------------
Teresopolis RJ
- --------------------------------------------------------------------------
Cachoeiro Itapemirim ES
- --------------------------------------------------------------------------
Cariacica ES
- --------------------------------------------------------------------------
Itaquari (Cariacica) ES
- --------------------------------------------------------------------------
Carapina (Serra) ES
- --------------------------------------------------------------------------
Vila Velha ES
- --------------------------------------------------------------------------
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TABLE 3/5 (ANNEX VII)
AREAS 5 AND 6
- --------------------------------------------------------------------------------
AREA 5 AREA 6
- --------------------------------------------------------------------------------
DISTRICT State DISTRICT State
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Chapeco SC Alvorada RS
- --------------------------------------------------------------------------------
Criciuma SC Gravatai RS
- --------------------------------------------------------------------------------
Itajai SC Passo Fundo RS
- --------------------------------------------------------------------------------
Lages SC Rio Grande RS
- --------------------------------------------------------------------------------
Cascavel PR Santa Maria RS
- --------------------------------------------------------------------------------
Colombo PR Sao Leopoldo RS
- --------------------------------------------------------------------------------
C. Comprido (Curitiba) PR Sapucaia do Sul RS
- --------------------------------------------------------------------------------
Pinheirinho (Curitiba) PR Uruguaiana RS
- --------------------------------------------------------------------------------
Foz do Iguacu PR RS
- --------------------------------------------------------------------------------
Guarapuava PR RS
- --------------------------------------------------------------------------------
S. Jose dos Pinhais PR RS
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
TABLE 4/5 (ANNEX VII)
AREAS 7 AND 8
- -------------------------------------------------------------------------------
AREA 7 AREA 8
- -------------------------------------------------------------------------------
DISTRICT State DISTRICT State
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Nova Brasilia (Aparecida de GO Itaituba PA
Goiania)
- -------------------------------------------------------------------------------
Dourados MS Maraba PA
- -------------------------------------------------------------------------------
Coxipo da Ponte (Cuiaba) MT Caxias MA
- -------------------------------------------------------------------------------
Gama DF Santa Luzia MA
- -------------------------------------------------------------------------------
Samambaia DF Timon MA
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
TABLE 5/5 (ANNEX VII)
AREAS 9 AND 10
- -------------------------------------------------------------------------------
AREA 9 AREA 10
- -------------------------------------------------------------------------------
DISTRICT State DISTRICT State
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Alagoinhas BA Arapiraca AL
- -------------------------------------------------------------------------------
Ilheus BA Antonio Bezerra CE
(Fortaleza)
- -------------------------------------------------------------------------------
Itabuna BA Juazeiro do Norte CE
- -------------------------------------------------------------------------------
Jequie BA Macaranau CE
- -------------------------------------------------------------------------------
Juazeiro BA Caruaru PE
- -------------------------------------------------------------------------------
Vitoria da Conquista BA Jaboatao (Jaboatao PE
dos Guararapes)
- -------------------------------------------------------------------------------
Cavaleiro (Jaboatao PE
dos Guararapes)
- -------------------------------------------------------------------------------
Petrolina PE
- -------------------------------------------------------------------------------
Parnaiba PI
- -------------------------------------------------------------------------------
Igapo (Natal) RN
- -------------------------------------------------------------------------------
Mossoro RN
- -------------------------------------------------------------------------------
</TABLE>
35
<PAGE>
ANNEX VIII
The list of districts and municipal district headquarters with more than 200
thousand in the Concession Area, as shown in the 1991 census of the Brazilian
Institute of Geography and Statistics (IBGE), 100% of which must be serviced by
the end of the second year the Concession Agreement is in effect.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
TABLE 1/5 (ANNEX VII)
AREAS 1 AND 2
- --------------------------------------------------------------------------------
AREA 1 AREA 2
- --------------------------------------------------------------------------------
DISTRICT State DISTRICT State
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Carapicuiba SP Bauru SP
- --------------------------------------------------------------------------------
Diadema SP Campinas SP
- --------------------------------------------------------------------------------
Guarulhos SP Franca SP
- --------------------------------------------------------------------------------
Jardim P. Dutra (Guarulhos) SP Limeira SP
- --------------------------------------------------------------------------------
Jundiai SP Piracicaba SP
- --------------------------------------------------------------------------------
Maua SP Ribeirao Preto SP
- --------------------------------------------------------------------------------
Osasco SP Sao J.Rio Preto SP
- --------------------------------------------------------------------------------
Santo Andre SP Sao Vicente SP
- --------------------------------------------------------------------------------
S.B. Campo SP Sao J. Campos SP
- --------------------------------------------------------------------------------
Sao Paulo SP Santos SP
- --------------------------------------------------------------------------------
Sorocaba SP
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
TABLE 5/5 (ANNEX VII)
AREAS 3 AND 4
- -------------------------------------------------------------------------------
AREA 3 AREA 4
- -------------------------------------------------------------------------------
DISTRICT State DISTRICT State
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Belford Roxo (Nova Iguacu) RJ Belo Horizonte MG
- -------------------------------------------------------------------------------
C. Goytacazes RJ Contagem MG
- -------------------------------------------------------------------------------
Duque de Caxias RJ Governador Valadares MG
- -------------------------------------------------------------------------------
Niteroi RJ Juiz de Fora MG
- -------------------------------------------------------------------------------
Nova Iguacu RJ Montes Claros MG
- -------------------------------------------------------------------------------
Sao Goncalo RJ Parq. Industrial (Contagem) MG
- -------------------------------------------------------------------------------
S. Joao Mereti RJ Uberaba MG
- -------------------------------------------------------------------------------
Rio de Janeiro RJ Uberlandia MG
- -------------------------------------------------------------------------------
Volta Redonda RJ Venda Nova (B.H.) MG
- -------------------------------------------------------------------------------
Vitoria ES
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
TABLE 3/5 (ANNEX VIII)
AREAS 5 AND 6
- --------------------------------------------------------------------------------
AREA 5 AREA 6
- --------------------------------------------------------------------------------
DISTRICT State DISTRICT State
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Blumenau SC Canoas RS
- --------------------------------------------------------------------------------
Florianopolis SC Caxias do Sul RS
- --------------------------------------------------------------------------------
Joinville SC Novo Hamburgo RS
- --------------------------------------------------------------------------------
Curitiba PR Pelotas RS
- --------------------------------------------------------------------------------
Londrina PR Porto Alegre RS
- --------------------------------------------------------------------------------
Maringa PR
- --------------------------------------------------------------------------------
Ponta Grossa PR
- --------------------------------------------------------------------------------
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
TABLE 4/5 (ANNEX VIII)
AREAS 7 AND 8
- --------------------------------------------------------------------------------
AREA 5 AREA 6
- --------------------------------------------------------------------------------
DISTRICT State DISTRICT State
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Anapolis GO Boa Vista RR
- --------------------------------------------------------------------------------
Goiania GO Belem PA
- --------------------------------------------------------------------------------
Luziania GO Icoaraci PA
- --------------------------------------------------------------------------------
Palmas TO Santarem PA
- --------------------------------------------------------------------------------
Campo Grande MS Anil (Sao Luis) MA
- --------------------------------------------------------------------------------
Cuiaba MT Imperatriz MA
- --------------------------------------------------------------------------------
Porto Velho RO Sao Luis MA
- --------------------------------------------------------------------------------
Rio Branco AC Manaus AM
- --------------------------------------------------------------------------------
Ceilandia DF Macapa AP
- --------------------------------------------------------------------------------
Plano Piloto DF
- --------------------------------------------------------------------------------
Taguatinga DF
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TABLE 5/5 (ANNEX VIII)
AREAS 7 AND 8
- --------------------------------------------------------------------------------
AREA 5 AREA 6
- --------------------------------------------------------------------------------
DISTRICT State DISTRICT State
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Feira de Santana BA Maceio AL
- --------------------------------------------------------------------------------
Salvador BA Fortaleza CE
- --------------------------------------------------------------------------------
Aracaju SE Messejana (Fortaleza) CE
- --------------------------------------------------------------------------------
Mondubim (Fortaleza) CE
- --------------------------------------------------------------------------------
Parangaba (Fortaleza) CE
- --------------------------------------------------------------------------------
Campina Grande PB
- --------------------------------------------------------------------------------
Jao Pessoa PB
- --------------------------------------------------------------------------------
Jaboatao dos Guararapes PE
- --------------------------------------------------------------------------------
Olinda PE
- --------------------------------------------------------------------------------
Recife PE
- --------------------------------------------------------------------------------
Teresina PI
- --------------------------------------------------------------------------------
Natal RN
- --------------------------------------------------------------------------------
</TABLE>
37
<PAGE>
ANNEX IX
BASIC TERMS FOR SERVICE PROVISION
1. At least 51% of the voting capital of the Concessionaire company must be
owned directly or indirectly by Brazilians; or the terms under which it was
created must be maintained, on its own or by association, as an independent
entity in the operation of the concession for Mobile Cellular Service.
2. To provide regular Mobile Cellular Service by the end of the fifth year of
regular commercial operation in the urban areas of the new districts and
municipal district headquarters indicated in Annexes IV, V, VI, VII and
VIII, and which are included in the Concession Area, under conditions such
that any activation request may be handled within 5 (five) working days.
3. To make the Mobile Cellular Service available and commercially operational
on a regular basis, in keeping with the lists included in Annexes IV, V,
VI, VII and VIII, which indicate that service is to provided:
a) in a minimum of 70% of the districts and municipal district
headquarters listed in Annex IV by the end of the 5th year the
Concession Agreement is in effect:
b) in a minimum of 80% of the districts and municipal district
headquarters listed in Annex V by the end of the 4th year the
Concession Agreement is in effect;
c) in a minimum of 90% of the districts and municipal district
headquarters listed in Annex VI by the end of the 3rd year the
Concession Agreement is in effect;
d) in 100% of the districts and municipal district headquarters listed in
Annex VII by the end of the 2nd year the Concession Agreement is in
effect;
e) in 100% of the capitals, districts and municipal district headquarters
listed in Annex VIII by the end of the 1st year the Concession
Agreement is in effect.
38
<PAGE>
ANNEX X
IMPLEMENTATION PLAN
1. The Implementation Plan must contain, among other items, the information
below and be delivered to the Grantor within 120 (one hundred and twenty)
days, as of the execution of this Agreement:
a) commercial operations start-up: whole number of days,
starting from the date of execution of the Concession Agreement up
to the date on which the subscribers' bills for service start
being billed regularly by the Mobile Cellular Service
Concessionaire. The minimum number of districts, municipal
district headquarters and state capitals that must be serviced is
specified in Annexes IV, V, VI, VII and VIII, and the data
supplied by the 1991 census of the IBGE (Brazilian Institute of
Geography and Statistics) takes precedence in case of
discrepancies.
b) service: whole number of days, starting as of the date on
which a subscription was requested by a party up to the activation
date of the party's Mobile Station by the Mobile Cellular Service
Concessionaire for a determined district, municipal district
headquarters or state capital to be serviced:
1) up to 180 (one hundred and eighty) days after the
subscription request date in the first year of commercial
operation or of this Agreement;
2) up to 120 (one hundred and twenty) days after the
subscription request date in the second year of commercial
operation or of this Agreement;
3) up to 30 (thirty) days after the subscription request
date in the third year of commercial operation or of this
Agreement;
4) up to 15 (fifteen ) days after the subscription request
date in the fourth year of commercial operation or of this
Agreement;
5) up to 5 (five) days after the subscription request date
in the fifth year of commercial operation or of this
Agreement;
c) The name of the district or municipal district headquarters
shall conform to the names used by the Brazilian Institute of
Geography and Statistics (IBGE).
d) The population of districts, municipal district headquarters
or state capitals serviced: the urban population actually
contained in the Mobile Cellular Service Area Registry for a
specific district, municipal district headquarters or state
capital, and shall not be less than 30% of the results of
39
<PAGE>
the IBGE's 1991 demographic census, and shall include service
timeframes in accordance with item b) above.
2. The information, indicators and commitments presented in this Annex shall
be an integral part of the Concession Agreement and those requiring
improvements, modernization and modifications during the term of the
agreement, when duly justified, shall be changed through authorization by
the Grantor and shall be carried out in observance of the pertinent
regulatory provisions.
A - SERVICE PLAN
The Service Plan of the Bidder must contain the following information:
A.1 Start-up of Commercial Operation: the month of the start-up of the
Commercial Operation of the service for each of the districts,
municipal district headquarters and state capitals listed in Annexes
IV, V, VI, VII and VIII;
A.2 Service: length of Service, from the first to the fifth year after the
start-up of the Commercial Operation for each of the districts,
municipal district headquarters and state capitals listed in Annexes
IV, V, VI, VII and VIII;
A.3 Number of districts, municipal district headquarters and state capitals
serviced: quantity of districts, municipal district headquarters and
state capitals serviced in the first to the fifth year the Concession
Agreement is in effect, year by year, taking the minimal service terms
observed into consideration and the quantity of the districts,
municipal district headquarters and state capitals listed in Annexes
IV, V, VI, VII and VIII;
A.4 Population of the districts, municipal district headquarters and state
capitals serviced: urban population serviced, which must be within the
service area limits in Annex X, item 1 d), for each of the districts,
municipal district headquarters and state capitals listed in Annexes
IV, V, VI, VII and VIII.
B - INTERCONNECTION PLAN
The Interconnection Plan must include the following information, with a level of
detail and presentation equivalent to the information provided by the public
service operators operating within the corresponding Concession Area, as
indicated in Annex II, in accordance with relevant regulatory provisions:
B.1 The physical location of the interconnection points in the Concession
Area that have points where the network of the Mobile Cellular Service
shall be connected to the other telecommunications networks, indicating
the dates of assessibility of the interconnection points, year to year,
for each connection point during the 5 first years of the Concession
Agreement.
40
<PAGE>
B.2 General technical interconnection characteristics for its equipment
which should already be compatible with equipment which is already
accepted or established in the Brazilian technical specifications;
B.3 Level of quality of service at the interconnection points, showing the
degree of incoming and outgoing service of the respective
interconnection points.
C - OPERATION, MAINTENANCE AND NETWORK MANAGEMENT PLAN
The Operation, Maintenance and Network Management Plan must contain:
1. Plans for accessing other networks and services.
- ---------------------------------------------------
C.1.1 Plans on numbering, signals, transmission, synchronization, routing and
rates of the network of the Mobile Cellular Service in the Concession
area;
C.1.2 Alternative interoperability techniques with other Telecommunications
Public Service network operators both in the Operation Area and as
regards interoperability with networks in other areas.
C.2 - Exchange of Information.
C.2.1 Procedures for exchange of information with other Public Service
Telecommunications operators, showing in what manner the exchange of
information can be carried out in order to obtain and maintain a level
of quality in providing Mobile Cellular Service with comments on the
systems in real time or segmented systems in order of operational
importance.
C.2.2 Operational, maintenance and management information that needs to be
exchanged with the other Public Service Telecommunications operators in
order to achieve adequate quality in providing Mobile Cellular Service.
C.3 - Systematic Operation and Maintenance.
C.3.1 Main concepts, strategies and actions to be developed in the area of
operation and maintenance for the Concession Area.
C.3.2 Main blocks and interrelations in the functions of operation and
maintenance of the Mobile Cellular Service.
C.4 - Management of the Cellular Network.
C.4.1 Management of the network that describes the network management
platform and applications in cases of emergency.
41
<PAGE>
C.5 - Criteria to be followed in establishing the area of mobility, taking
into consideration item 2.7 of Standard No. 23/96 (Criteria for the
Elaboration and Application of the Service Plan in Providing Mobile
Cellular Service), the items related to traffic routing, in accordance
with item 5.10 of TGN 20/96 and information for setting up the rate
system in accordance with Ministry of Communications Memorandum No. 195
of March 30, 1994 (Rate Areas of Public Telephone Service). The
criterion used to set up the coverage area where the Call Value 1 is
applied (CV-1) in accordance with item E of the Annex to Standard No.
23/96 (Basic Service Plan).
D - COMMITMENT ON THE DIMENSIONS OF THE MOBILE CELLULAR SERVICE NETWORK
The Commitment on the dimension of the Mobile Cellular Service must contain the
following information:
D.1 - Use of the indicators, procedures and information listed below in
planning and network installation of the Mobile Cellular Network.
. rate of availability of the system in the Concession Area greater than or =
to 99.5%;
. signal level in accordance with items 6.13.2 and 6.13.2.1 of General
Telecommunications Standard TGN 20/96;
. blocking of voice channel on the RSB (Radio Station-Base) at High Traffic
Time (HTT) less than or = to 2%
. bit error rate on the HTT control channel less than or = 10E-6;
. bit error rate on the HTT voice channel less than or = 10 E-3;
. monthly operational accessibility rate at each interconnection point greater
than or = to 99.8%;
. loss of HTT connection links less than or = to 1%
. availability of service over 90% of the area comprising the RSB 90% of
the time;
E - QUALITY COMMITMENT
The Commitment to quality must contain:
E.1 - Maintenance of the indicators listed below in activities relating to
users' service quality needs:
. Rate of System Availability in the district, municipal district
headquarters and state capitals serviced in the Concession Area greater
than 98%;
. loss of RSBs-SCSs (Switching and Control Stations) less than 3%;
. blocking of voice channel on the RSB (Radio Station-Base) at HTT (High
Traffic Time) less than 5%;
42
<PAGE>
. loss of HTT connection links less than 3%;
. probability of access on first try greater than or = to 90%;
. complaints from 100 subscribers less than 5% a month.
E.2 - Maintain at the disposal of users and inspectors the list of services,
facilities and applications.
43
<PAGE>
ANNEX XI
VALUES OF K1, K2, K3, K4, K5 and K6
The table below shows the value of K by Concession Area that should be
considered when calculating the reference basket.
<TABLE>
<CAPTION>
===============================================================================
Concession K1 K2 K3 K4 K5 K6
Area
===============================================================================
<S> <C> <C> <C> <C> <C> <C>
1 126 11 5 4 2 5
- -------------------------------------------------------------------------------
2 89 25 4 4 2 5
- -------------------------------------------------------------------------------
3 120 11 9 4 3 5
- -------------------------------------------------------------------------------
4 72 9 6 4 5 6
- -------------------------------------------------------------------------------
5 72 13 8 4 5 8
- -------------------------------------------------------------------------------
6 106 11 3 4 5 8
- -------------------------------------------------------------------------------
7 84 9 7 4 3 8
- -------------------------------------------------------------------------------
8 115 12 9 4 3 8
- -------------------------------------------------------------------------------
9 108 12 9 5 5 8
- -------------------------------------------------------------------------------
10 90 16 8 6 4 5
===============================================================================
</TABLE>
<PAGE>
ANNEX XII
RATE TERMS AND REFERENCE BASKET OF THE BASIC SERVICE PLAN
1 - RATE TERMS
1.1 The maximum values of the rates referred to in sub-item 2.1 shall be
readjusted according to relevant legislation and as follows:
1.1.1 The readjustment of the values of the Service Plan is carried out based
on the variation in the value of a Reference Basket, shown in Standard
No. 22/96, approved by Memorandum No. 1535 of November 4, 1996;
1.1.2 The variation in the value of the Reference Basket shall correspond to
the variation in the General Price Index - Domestic Availability
(GPI-DA) of the Fundacao Getulio Vargas taking into consideration the
period between the month prior to the last readjustment of values and
the month before the new readjustment.
1.1.3 The variation in the value of the Reference Basket is obtained as
follows:
Future Reference Basket = Reference Basket in effect x (1 + VGPI) with
VGPI = variation in the GPI-DA).
1.1.4 The readjustment in the value of the Use Rate is calculated as follows:
Future UR-M = UR-M in effect x (1+VGPI),
1.1.5 The time period between the readjustments shall be a minimum of 12
(twelve) months.
1.2 The revision of the rates referred to in sub-item 2.1 shall be
undertaken at the initiative of the Ministry of Communications or the
Grantor with a view to re-establishing the business/financial balance
of the concession while observing the following:
a) changes in the regulatory conditions of the service which entail an
increase of the Concessionaire's expenses shall correspond to a rate
revision;
b) in the event the business/financial imbalance of the concession is
occasioned by the occurrence of extraordinary and unforeseeable facts
or events that might change the initial conditions of provision of
service, the revision shall be undertaken subsequent to verification
that such occurrence is related to the changes verified.
<PAGE>
1.2.1 In order to specify the proportion of the revision, there must be,
depending on the case, a quantitative determination of the repercussion
of the changes in regulatory legislation on service provision or of the
facts and events that might result in changing the initial conditions
of service.
1.2.2 Except for income tax, the creation, change or termination of any taxes
or legal expenses, subsequent to the presentation of the Proposal, once
their impact has been verified, shall imply the immediate upward or
downward revision of rates, depending on the case.
1.2.3 There shall be no revision of rates when the reason for the rate
revision request is based on errors or omissions regarding elements
considered in the elaboration of the Rate Proposal and the Price for
the Right to Operate the Service.
1.2.4 Decisions regarding requests for revising rates must be founded and
demonstrate that the revision process was carried out according to the
provisions of Standard No. 22/96 (Criteria for Readjustment and
Revision of Values in the Provision of Mobile Cellular Service). The
Ministry of Communications must make available the information used in
setting the maximum rates and for re-balancing the rates, ensuring the
Concessionaires of Mobile Cellular Service the right to an
administrative and judicial review of the maximum rates set and the
rebalancing of rates.
2. BASIC SERVICE PLAN
2.1 The Concessionaire must declare the maximum value--in Reais and net of
taxes and social contributions--of the rates in its Basic Service Plan,
using the last date on which the rate basket was updated as the
reference date.
2.1.1 The Basic Service Plan must contain the following rate items:
a) Maximum activation value;
b) Maximum subscription value;
c) Maximum value of per minute usage of the Call Value 1 - CV-1;
d) Maximum value of per minute usage of the Call Value 2 - CV-2;
e) Maximum value of per minute usage of the Call Value 3 - CV-3;
f) Maximum value of the Additional Value Per Call, per event;
g) Maximum value of the Displacement DPL-1, per minute;
h) Maximum value of the Displacement DPL-2, per minute;
i) Maximum Value of the Use Rate of the Mobile Network UR-M;
j) Map summary for the reference basket.
<PAGE>
2.1.1.1 The applications of the call values according to Standard No. 23/96
(Basic Service Plan) and Standard No. 24/96 (Remuneration for Use of
the Networks of Mobile Cellular Service and Public Telephone Service)
are the following:
a) The Call Value 1 (CV-1) is applied to:
1) Fixed-to-Mobile call: when the rate area related to the Registration
Area where the Cellular Mobile Service Subscriber is located, at the
time of the call, is the Subscriber's own rate area for Public
Telephone Service;
2) Mobile-to-Mobile call: when the rate area related to the Registration
Area where the source Subscriber is located, at the time of the call,
is the rate area related to the target Subscriber's (contractual)
Registration Area;
2.1) In a Mobile-to-Mobile call, up to a 30% surcharge (thirty percent) over
the CV-1 value may be applied based on the criteria of the Mobile
Cellular Service Concessionaire.
b) The Call Value 2 ( CV-2) is applied to:
1) Fixed-to-Mobile call: when the primary numbering area--identified by
the first digit of the National Code and related to the Registration
Area where the Cellular Mobile Service Subscriber is located at the
time of the call--is the Public Telephone System Subscriber's own
primary numbering area, and the provision of 2.1.1.1 a) 1) is not
applicable;
2) Mobile-to-Mobile call: when the primary numbering area related to the
Registration Area where the original Subscriber is located at the time
of the call, is the primary numbering area to which the (contractual)
Registration Area of the target Subscriber is related, and the
provision of 2.1.1.1 a) 1) is not applicable.
c) The Call Value 3 ( CV-3) is applied to:
1) Fixed-to-Mobile call: when the primary numbering area related to the
Registration Area where the source Subscriber is located at the time of
the call, is different from the primary numbering area of the Public
Telephone Service Subscriber.
2) Mobile-to-Mobile call: when the primary numbering area related to the
Registration Area where the source Subscriber is located at the time of
the call is different from the primary numbering area to which the
(contractual) Registration Area of the target Subscriber is related;
2.1.1.2 The displacement value is applied to:
a) Displacement 1 (DPL-1) is applied to calls to Cellular Mobile Service
Subscribers when subscribers are outside their Mobility Areas but within
their primary numbering areas;
b) Displacement 2 (DPL-2) is applied to calls to Cellular Mobile Service
Subscribers when subscribers are both outside their Mobility Areas and
outside their primary numbering areas.
<PAGE>
2.1.1.3 Activation (ACT) is the value due by a Subscriber to the Cellular
Mobile Service Concessionaire for the act of activation of his/her
Mobile Station, that immediately and fully activates it to use the
Service.
2.1.1.4 The Subscription (SUB) is the monthly value, due by a Subscriber to the
Cellular Mobile Service Concessionaire Station, for having Service
available to him/her under terms set forth in the Service regulations.
2.1.1.5 Additional Value per Call (AD) is the value due by Subscribers to the
Cellular Mobile Service Concessionaire for calls they make or calls to
them, whether collect or not, when they are outside their Mobility
Areas.
2.1.1.6 The Mobile Network Useage Rate (UR-M) is the value that remunerates a
given Cellular Mobile Service Concessionaire by time unit for use of
its Mobile Network to make Inter-Network Calls.
2.1.1.7 The Mobile Local Network Usage Rate is the value that remunerates a
given Cellular Mobile Service Concessionaire by time unit for use of
its Local Network to make Inter-Network Calls.
2.1.2. The Reference Basket is comprised of Basic Service Items as follows:
Reference Basket = (ACT divided by 36) + SUB + (K1 x CV-1) + (K2 x CV-2) +
(K3 x CV-3) + (K4 x DPL-1) + (K5 x DPL-2) + (K6 x AD)
Where:
K1, K2, K3, K4 and K5 = the quantity of minutes for the items VC-
1, VC-2, VC-3, DPL-1 and DPL-2
respectively;
K6 = quantity of calls for item AD;
ACT = value in Reais ($R) of activation;
SUB = value in Reais ($R) of the subscription;
VC-1, VC-2 and VC-3 = value in Reais for use of the service;
DPL-1 and DPL-2 = value in Reais ($R) of displacement
AD = value in Reais ($R) of the additional
value per call.
2.1.2.1 The values of K1, K2, K3, K4 and K5 are shown in Annex XI.
<PAGE>
2.1.2.2 The value of VC-1 may not be less than the sum of UR-M of the Bidder
and the highest use rate of the local network of Public Telephone
Service Providers in its Concession Area.
2.1.3 The value of the reference basket may not be higher than the Maximum
Value of the Reference Basket for the Concession Area listed in Annex
XII.
2.2 Elements that should be taken into account in the formulation of the Basic
Service Plan:
2.2.1 In providing services, the Concessionaire must observe the following
time limits to be calculated solely as of the actual time the call is
established with the fixed or mobile call target terminal:
a) Billing Increment: 6 (six) seconds;
b) Minimum Billed Time: 30 (thirty) seconds;
c) Billable calls: only calls lasting more than 3 (three) seconds shall be
billed.
2.2.2 The mobility areas of the Bidder's Basic Service Plan shall correspond
to the Rate Areas for Service in Intra- and Inter-Rate Areas of Public
Telephone Service defined according to Ministry of Communications
Memorandum No. 195 of March 30, 1994 and the Annexes thereof, listed in
Annex XIII.
2.2.3 The rates may be differentiated based on the technical characteristics
and specific costs resulting from serving different segments or classes
of users, with no distinctions on an individual basis.
2.2.4 The Concessionaire, at its own discretion, may give rate discounts as
well as have special rate plans, seasonal reductions and reductions on
days and at times of low demand, without this implying any right to
compensation in the value of the rates by the Grantor.
2.2.5 The services that are not essential to the enjoyment of the Mobile
Cellular Service and any extra services which may be offered shall be
remunerated by prices without any effect on the value of the rate for
basic service.
2.2.5.1 These optional and extra services, when offered, must be made available
to all users or user segments, depending on their utility, and shall be
remunerated by prices charged to those users who use them.
2.2.6 The stated values for the Basic Service Plan should take into account
the expenses the Concessionaire incurs in remunerating its own network
and the networks of other Mobile Cellular Service Concessionaires and
companies operating interstate and international trunks lines used in
providing Mobile Cellular Service.
<PAGE>
2.2.7 The Basic Service Plan presented by the winning Bidder shall be
approved by the Granting Authority and shall be binding on the
Concessionaire in the provision of Mobile Cellular Service. Said Plan
shall constitute an integral part of the Concession Agreement.
TABLE OF MAXIMUM VALUES OF REFERENCE BASKET
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
MAXIMUM VALUES OF
CONCESSION AREA REFERENCE BASKET (R$ x 1.00)
- --------------------------------------------------------------------------------
<S> <C>
1 84.43
- --------------------------------------------------------------------------------
2 81.90
- --------------------------------------------------------------------------------
3 87.15
- --------------------------------------------------------------------------------
4 71.78
- --------------------------------------------------------------------------------
5 74.35
- --------------------------------------------------------------------------------
6 78.80
- --------------------------------------------------------------------------------
7 73.23
- --------------------------------------------------------------------------------
8 84.66
- --------------------------------------------------------------------------------
9 83.09
- --------------------------------------------------------------------------------
10 78.38
- --------------------------------------------------------------------------------
</TABLE>
Note : The above basic amounts are net of taxes and social contributions at
January 1997.
50
<PAGE>
ANNEX XIII
NATIONAL REGISTRY OF LOCALITIES LINKED AND NOT LINKED TO THE NATIONAL
TELECOMMUNICATIONS NETWORK
NB: This Annex is in Attachment B which is part of Competition Notice No.
001/96-SFO/MC (of the Secretariat of Inspection and Grants/Ministry of
Communications)
51
<PAGE>
ANNEX XIV
MEMORANDUM OF LICENSES AND EXPIRATION BY CONCESSION AREA
<TABLE>
<CAPTION>
<S> <C> <C>
- ------------------------------------------- ---------------------------------- ---------------------
LICENSEE GRANT EXPIRATION
- ------------------------------------------- -------------- -------------------
MEMO-RANDUM DIARIO OFFICIAL
DA UNIAO
- ------------------------------------------- -------------- ------------------- ---------------------
TELECOMUNICACOES DE 1603/93 11/8/93 8/5/2008
SAO PAULO S. A. - TELESP
- ------------------------------------------- -------------- ------------------- ---------------------
TELECOMUNICACOES DO RIO DE JANEIRO S.A. - 0064/94 2/24/94 11/30/2005
TELERJ
- ------------------------------------------- -------------- ------------------- ---------------------
TELECOMUNICACOES DO ESPIRITO SANTO - 0074/94 2/28/94 11/30/2008
TELEST
- ------------------------------------------- -------------- ------------------- ---------------------
TELECOMUNICACOES DE MINAS GERAIS - TELEMIG 0141/94 11/25/93 4/29/2008
- ------------------------------------------- -------------- ------------------- ---------------------
TELECOMUNICACOES DO PARANA S.A. - TELEPAR 1580/93 11/4/93 9/3/2007
- ------------------------------------------- -------------- ------------------- ---------------------
TELECOMUNICACOES DE SANTA CATARINA S.A. - 0272/94 5/3/94 9/30/2008
TELESC
- ------------------------------------------- -------------- ------------------- ---------------------
COMPANHIA TELEFONICA MELHORAMENTO E 0290/94 5/6/94 4/14/2009
RESISTENCIA - CTMR
- ------------------------------------------- -------------- ------------------- ---------------------
TELECOMUNICACOES DE GOIAS S.A. - TELEGOIAS 1748/93 12/10/93 10/29/2008
- ------------------------------------------- -------------- ------------------- ---------------------
TELECOMUNICACOES DE MATO GROSSO DO SUL 0254/95 10/24/95 9/28/2009
S.A. - TELEMS
- ------------------------------------------- -------------- ------------------- ---------------------
TELECOMUNICACOES DE MATO GROSSO S.A. - 0255/95 10/24/95 3/30/2009
TELEMAT
- ------------------------------------------- -------------- ------------------- ---------------------
TELECOMUNICACOES DE RONDONIA S.A. - 0875/94 11/14/94 7/21/2009
TELERON
- ------------------------------------------- -------------- ------------------- ---------------------
TELECOMUNICACOES DO ACRE S.A. - TELEACRE 0023/96 2/22/96 7/15/2009
- ------------------------------------------- -------------- ------------------- ---------------------
TELECOMUNICACOES DE BRASILIA S.A. - 0087/91 7/25/91 7/24/2006
TELEBRASILIA
- ------------------------------------------- -------------- ------------------- ---------------------
TELECOMUNICACOES DO AMAZONAS S.A. - 0676/94 9/12/94 8/16/2009
TELAMAZON
- ------------------------------------------- -------------- ------------------- ---------------------
TELECOMUNICACOES DE RORAIMA S.A. - TELAIMA 0022/96 2/22/96 7/31/2009
- ------------------------------------------- -------------- ------------------- ---------------------
TELECOMUNICACOES DO AMAPA S.A. - TELAMAPA 0253/95 10/24/95 5/14/2009
- ------------------------------------------- -------------- ------------------- ---------------------
TELECOMUNICACOES DO PARA S.A. - TELEPARA 0627/94 8/26/94 3/30/2009
- ------------------------------------------- -------------- ------------------- ---------------------
</TABLE>
52
<PAGE>
ANNEX XIV - CONTINUED
MEMORANDUM OF LICENCES AND EXPIRATION BY CONCESSION AREA
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------- -------------- --------------- -------------------------
TELECOMUNICACOES DO MARANHAO S.A. - TELMA 0390/94 7/5/94 4/6/2009
- ------------------------------------------- -------------- --------------- -------------------------
TELECOMUNICACOES DA BAHIA S.A. - TELEBAHIA 1346/93 9/23/93 6/29/2008
- ------------------------------------------- -------------- --------------- -------------------------
TELECOMUNICACOES DE SERGIPE S.A. - 0274/94 5/3/94 12/15/2008
TELERGIPE
- ------------------------------------------- -------------- --------------- -------------------------
TELECOMUNICACOES DO PIAUI S.A.- TELEPISA 0339/94 6/6/94 3/27/2009
- ------------------------------------------- -------------- --------------- -------------------------
TELECOMUNICACOES DO CEARA S.A.- TELECEARA 0063/94 2/24/94 11/28/2008
- ------------------------------------------- -------------- --------------- -------------------------
TELECOMUNICACOES DO RIO GRANDE DO NORTE 0139/94 3/23/94 12/31/2008
S.A. - TELERN
- ------------------------------------------- -------------- --------------- -------------------------
TELECOMUNICACOES DA PARAIBA S.A. - TELPA 0140/94 3/23/94 12/31/2008
- ------------------------------------------- -------------- --------------- -------------------------
TELECOMUNICACOES DE PERNAMBUCO S.A. - 0391/94 7/5/94 5/15/2009
TELPE
- ------------------------------------------- -------------- --------------- -------------------------
TELECOMUNICACOES DE ALAGOAS S.A. - TELASA 0138/94 3/23/94 12/15/2008
- ------------------------------------------- -------------- --------------- -------------------------
CENTRAIS TELEFONICAS DE RIBEIRAO PRETO - 0392/94 7/5/94 1/20/2009
CETERP
- ------------------------------------------- -------------- --------------- -------------------------
COMPANHIA DE TELECOMUNICACOES DO BRASIL 1690/93 11/25/93 1/21/2008
CENTRAL-CTBC TELECOM
- ------------------------------------------- -------------- --------------- -------------------------
SERVICO DE COMUNICACOES TELEFONICAS DE 1604/93 11/8/93 3/31/2008
LONDRINA -SERCOMTEL
- ------------------------------------------- -------------- --------------- -------------------------
COMPANHIA RIOGRANDENSE DE 0273/94 4.27.94 12/17/2007
TELECOMUNICACOES - CRT
- ------------------------------------------- -------------- --------------- -------------------------
</TABLE>
(i)
53
<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 18, 1998, for Tele Leste
Celular Participacoes S.A. of our report dated July 17, 1998 relating to the
consolidated financial statements of Tele Leste Celular 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 18, 1998
