-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SJjaquiZjvG4KIFFIN14u91Qn6RlVA9/daQM2rYq0XklyAOF1jDISNBrMTqV642e fcZ8MVi51F2xtbp+TfDUaA== 0000912057-97-012709.txt : 19970414 0000912057-97-012709.hdr.sgml : 19970414 ACCESSION NUMBER: 0000912057-97-012709 CONFORMED SUBMISSION TYPE: F-4/A PUBLIC DOCUMENT COUNT: 14 FILED AS OF DATE: 19970411 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEVECAP S A CENTRAL INDEX KEY: 0001034029 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] FILING VALUES: FORM TYPE: F-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-22267 FILM NUMBER: 97578973 BUSINESS ADDRESS: STREET 1: RUA DO ROCIO 313 CITY: SAO PAOLO BRAZIL ZIP: 04552-904 MAIL ADDRESS: STREET 1: RUA DO ROCIO 313 CITY: SAO PAOLO BRAZIL ZIP: 04552-904 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TVA SISTEMA DE TELEVISAO S A CENTRAL INDEX KEY: 0001034031 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: F-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-22267-01 FILM NUMBER: 97578974 BUSINESS ADDRESS: STREET 1: RUA DO ROCIO 313 CITY: SAO PAOLO BRAZIL ZIP: 04552-904 MAIL ADDRESS: STREET 1: RUA DO ROCIO 313 CITY: SAO PAOLO BRAZIL ZIP: 04552-904 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TVA COMMUNICATIONS LTD CENTRAL INDEX KEY: 0001034032 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: F-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-22267-02 FILM NUMBER: 97578975 BUSINESS ADDRESS: STREET 1: RUA DO ROCIO 313 CITY: SAO PAOLO BRAZIL ZIP: 04552-904 MAIL ADDRESS: STREET 1: RUA DO ROCIO 313 CITY: SAO PAOLO BRAZIL ZIP: 04552-904 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GALAXY BRASIL S A CENTRAL INDEX KEY: 0001034033 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: F-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-22267-03 FILM NUMBER: 97578976 BUSINESS ADDRESS: STREET 1: RUA DO ROCIO 313 CITY: SAO PAOLO BRAZIL ZIP: 04552-904 MAIL ADDRESS: STREET 1: RUA DO ROCIO 313 CITY: SAO PAOLO BRAZIL ZIP: 04552-904 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TVA SUL PARTICIPACOES S A CENTRAL INDEX KEY: 0001034034 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: F-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-22267-04 FILM NUMBER: 97578977 BUSINESS ADDRESS: STREET 1: RUA DO ROCIO 313 CITY: SAO PAOLO BRAZIL ZIP: 04552-904 MAIL ADDRESS: STREET 1: RUA DO ROCIO 313 CITY: SAO PAOLO BRAZIL ZIP: 04552-904 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMMERCIAL CABLE TV SAO PAULO LTD CENTRAL INDEX KEY: 0001034035 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: F-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-22267-05 FILM NUMBER: 97578978 BUSINESS ADDRESS: STREET 1: RUA DO ROCIO 313 CITY: SAO PAOLO BRAZIL ZIP: 04552-904 MAIL ADDRESS: STREET 1: RUA DO ROCIO 313 CITY: SAO PAOLO BRAZIL ZIP: 04552-904 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TVA PARANA LTD CENTRAL INDEX KEY: 0001034036 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: F-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-22267-06 FILM NUMBER: 97578979 BUSINESS ADDRESS: STREET 1: RUA DO ROCIO 313 CITY: SAO PAOLO BRAZIL ZIP: 04552-904 MAIL ADDRESS: STREET 1: RUA DO ROCIO 313 CITY: SAO PAOLO BRAZIL ZIP: 04552-904 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TVA ALFA CABO LTD CENTRAL INDEX KEY: 0001034037 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: F-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-22267-07 FILM NUMBER: 97578980 BUSINESS ADDRESS: STREET 1: RUA DO ROCIO 313 CITY: SAO PAOLO BRAZIL ZIP: 04552-904 MAIL ADDRESS: STREET 1: RUA DO ROCIO 313 CITY: SAO PAOLO BRAZIL ZIP: 04552-904 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CCS CAMBORIU CABLE SYSTEM DE TELECOMUNICACOES LTD CENTRAL INDEX KEY: 0001034038 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: F-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-22267-08 FILM NUMBER: 97578981 BUSINESS ADDRESS: STREET 1: RUA DO ROCIO 313 CITY: SAO PAOLO BRAZIL ZIP: 04552-904 MAIL ADDRESS: STREET 1: RUA DO ROCIO 313 CITY: SAO PAOLO BRAZIL ZIP: 04552-904 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TCC TV A CABO LTD CENTRAL INDEX KEY: 0001034039 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: F-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-22267-09 FILM NUMBER: 97578982 BUSINESS ADDRESS: STREET 1: RUA DO ROCIO 313 CITY: SAO PAOLO BRAZIL ZIP: 04552-904 MAIL ADDRESS: STREET 1: RUA DO ROCIO 313 CITY: SAO PAOLO BRAZIL ZIP: 04552-904 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TVA SUL FOZ DO IGUACU LTD CENTRAL INDEX KEY: 0001034040 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: F-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-22267-10 FILM NUMBER: 97578983 BUSINESS ADDRESS: STREET 1: RUA DO ROCIO 313 CITY: SAO PAOLO BRAZIL ZIP: 04552-904 MAIL ADDRESS: STREET 1: RUA DO ROCIO 313 CITY: SAO PAOLO BRAZIL ZIP: 04552-904 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TVA SUL SANTA CARARINA LTDA CENTRAL INDEX KEY: 0001037386 STANDARD INDUSTRIAL CLASSIFICATION: [] FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: F-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-22267-12 FILM NUMBER: 97578984 BUSINESS ADDRESS: STREET 1: RODOVIA SC 401 STREET 2: NO 867 CITY: FLORIANOPOLIS BUSINESS PHONE: 01155118218550 MAIL ADDRESS: STREET 1: RUA DO ROCIO 313 CITY: SAO PAULO SP F-4/A 1 FORM F-4/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 11, 1997 REGISTRATION NO. 333-22267 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 1 FORM F-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ TEVECAP S.A. (Exact Name of Registrant as Specified in its Charter) TEVECAP INC. (Translation of Registrant's name into English) THE FEDERATIVE REPUBLIC OF BRAZIL 4841 NOT APPLICABLE (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER) RUA DO ROCIO, 313 CT CORPORATION SYSTEM SAO PAULO, SP BRAZIL 1633 BROADWAY 04552-904 NEW YORK, NY 10019 (TELEPHONE: 55-11-821-8550) (TELEPHONE: 212-664-1666) (ADDRESS AND TELEPHONE NUMBER OF (NAME, ADDRESS AND TELEPHONE NUMBER REGISTRANT'S PRINCIPAL EXECUTIVE OF AGENT FOR SERVICE) OFFICES)
------------------------ COPY TO: PETER V. DARROW, ESQ. MAYER, BROWN & PLATT 1675 BROADWAY NEW YORK, NY 10019 ------------------------
NAME, ADDRESS AND TELEPHONE NUMBER TRANSLATION OF JURISDICTION OF OF ADDITIONAL REGISTRANTS ADDITIONAL REGISTRANTS' NAMES ORGANIZATION - --------------------------------------------------- --------------------------------------------------- ---------------------- TVA Sistema de Televisao S.A....................... TVA Television Systems Inc. The Federative Rua do Rocio, 313 Republic of Brazil Sao Paulo SP 04552-904 (Telephone: 55-11-821-8550) TVA Communications, Ltd............................ TVA Communications, Ltd. The British Virgin P.O. Box 71 Islands Craigmuir Chambers Road Town, British Virgin Islands (Telephone: 55-11-821-8550) Galaxy Brasil S.A.................................. Galaxy Brazil Inc. The Federative Rua do Rocio, 313 Republic of Brazil Sao Paulo SP 04552-904 (Telephone: 55-11-821-8550) TVA Sul Participacoes S.A.......................... TVA South Holdings Inc. The Federative Rua Martha Kateiva de Oliveira, 319 Republic of Brazil Curitiba PR (Telephone: 55-11-821-8550) Comercial Cabo TV Sao Paulo Ltda................... Commercial Cable TV Sao Paulo Ltd. The Federative Rua do Rocio, 313 Republic of Brazil Sao Paulo SP 04552-904 (Telephone: 55-11-821-8550) TVA Parana Ltda.................................... TVA Parana Ltd. The Federative Rua Martha Kateiva de Oliveira, 319 Republic of Brazil Curitiba PR (Telephone: 55-11-821-8550) TVA Alfa Cabo Ltda................................. TVA Alpha Cable Ltd. The Federative Rua Martha Kateiva de Oliveira, 319 Republic of Brazil Curitiba PR (Telephone: 55-11-821-8550) CCS Camboriu Cable System de....................... CCS Camboriu Cable The Federative Telecomunicacoes Ltda. Telecommunications Systems Republic of Brazil Avenida Brasil, 802 Ltd. Balneario de Camboriu SC (Telephone: 55-11-821-8550) TCC TV a Cabo Ltda................................. TCC Cable TV Ltd. The Federative Rua Martha Kateiva de Oliveira, 319 Republic of Brazil Curitiba PR (Telephone: 55-11-821-8550) TVA Sul Foz do Iguacu Ltda......................... TVA South Iguacu Falls Ltd. The Federative Rua Carlos Sbaraini, 410 Republic of Brazil Foz do Iguacu PR (Telephone: 55-11-821-8550) TVA Sul Santa Catarina Ltda........................ TVA South Santa Catarina Ltd. The Federative Rodovia SC 401, no. 867 Republic of Brazil Florianopolis, SC (Telephone: 55-11-821-8550) STANDARD NAME, ADDRESS AND INDUSTRIAL I.R.S. EMPLOYER TELEPHONE NUMBER CLASSIFICATION IDENTIFICATION OF ADDITIONAL REGISTRANTS CODE NUMBER NO. - --------------------------------------------------- -------------- ----------------- TVA Sistema de Televisao S.A....................... 4841 Not Applicable Rua do Rocio, 313 Sao Paulo SP 04552-904 (Telephone: 55-11-821-8550) TVA Communications, Ltd............................ 4841 Not Applicable P.O. Box 71 Craigmuir Chambers Road Town, British Virgin Islands (Telephone: 55-11-821-8550) Galaxy Brasil S.A.................................. 4841 Not Applicable Rua do Rocio, 313 Sao Paulo SP 04552-904 (Telephone: 55-11-821-8550) TVA Sul Participacoes S.A.......................... 4841 Not Applicable Rua Martha Kateiva de Oliveira, 319 Curitiba PR (Telephone: 55-11-821-8550) Comercial Cabo TV Sao Paulo Ltda................... 4841 Not Applicable Rua do Rocio, 313 Sao Paulo SP 04552-904 (Telephone: 55-11-821-8550) TVA Parana Ltda.................................... 4841 Not Applicable Rua Martha Kateiva de Oliveira, 319 Curitiba PR (Telephone: 55-11-821-8550) TVA Alfa Cabo Ltda................................. 4841 Not Applicable Rua Martha Kateiva de Oliveira, 319 Curitiba PR (Telephone: 55-11-821-8550) CCS Camboriu Cable System de....................... 4841 Not Applicable Telecomunicacoes Ltda. Avenida Brasil, 802 Ltd. Balneario de Camboriu SC (Telephone: 55-11-821-8550) TCC TV a Cabo Ltda................................. 4841 Not Applicable Rua Martha Kateiva de Oliveira, 319 Curitiba PR (Telephone: 55-11-821-8550) TVA Sul Foz do Iguacu Ltda......................... 4841 Not Applicable Rua Carlos Sbaraini, 410 Foz do Iguacu PR (Telephone: 55-11-821-8550) TVA Sul Santa Catarina Ltda........................ 4841 Not Applicable Rodovia SC 401, no. 867 Florianopolis, SC (Telephone: 55-11-821-8550)
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. ------------------------------ CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE PER OF SECURITIES TO BE REGISTERED REGISTERED UNIT(2)(3) 12 5/8% Senior Notes due 2004(1)................................... US$250,000,000 100% Subsidiary Guarantees of 12 5/8% Senior Notes Due 2004............. (5) (5) PROPOSED MAXIMUM TITLE OF EACH CLASS AGGREGATE OFFERING AMOUNT OF OF SECURITIES TO BE REGISTERED PRICE(2)(3) REGISTRATION FEE(4) 12 5/8% Senior Notes due 2004(1)................................... US$250,000,000 US$75,757.57 Subsidiary Guarantees of 12 5/8% Senior Notes Due 2004............. (5) (5)
(1) The Guarantees by TVA Sistema de Televisao S.A., TVA Communications, Ltd., Galaxy Brasil S.A., TVA Sul Participacoes S.A., Comercial Cabo TV Sao Paulo Ltda, TVA Parana Ltda., TVA Alfa Cabo Ltda., CCS Camboriu Cable System de Telecomunicacoes Ltda., TCC TV a Cabo Ltda. and TVA Sul Foz do Iguacu Ltda. of the payment of principal, premium, if any, and interest on the Notes are also being registered hereby. Pursuant to Rule 457(a), no registration fee is required with respect to such Guarantees. (2) Estimated solely for the purpose of calculating the registration fee. (3) Exclusive of accrued interest, if any. (4) Calculated pursuant to Rule 457. (5) No additional consideration will be paid for such securities. Pursuant to Rule 457 under the Securities Act of 1933, no separate fee is payable therefor. ------------------------------ THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SUBJECT TO COMPLETION, APRIL 11, 1997 PROSPECTUS INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. US$250,000,000 Offer for all Outstanding 12 5/8% Senior Notes due 2004 in Exchange for [LOGO] up to US$250,000,000 principal amount of 12 5/8% Senior Notes due 2004 of TEVECAP S.A. The Exchange Offer will expire at 5:00 P.M., New York City time, on , 1997, unless extended. ------------------------ Tevecap S.A., a Brazilian corporation ("Tevecap" and, together with its consolidated subsidiaries and affiliates, "TVA" or the "Company"), hereby offers, upon the terms and subject to the conditions set forth in this Prospectus and the accompanying Letter of Transmittal (which together constitute the "Registered Exchange Offer"), to exchange an aggregate principal amount of up to US$250,000,000 of its 12 5/8% Senior Notes due 2004 (the "Exchange Notes") together with the Subsidiary Guarantees (as defined and together with the Exchange Notes, the "Exchange Securities"), which have been registered under the Securities Act of 1933 (the "Securities Act"), pursuant to a Registration Statement of which this Prospectus constitutes a part, for a like principal amount of its outstanding 12 5/8% Senior Notes due 2004 (the "Old Notes"), of which US$250,000,000 aggregate principal amount is outstanding, together with the Subsidiary Guarantees of the Old Notes (such Subsidiary Guarantees together with the Old Notes, the "Old Securities"). The terms of the Exchange Notes are identical in all material respects to the terms of the Old Securities, except for certain transfer restrictions and registration rights relating to the Old Securities and except that, if the Registered Exchange Offer is not consummated by May 23, 1997, Tevecap will be obligated to pay each holder of the Old Notes an amount equal to $0.192 per week per $1,000 of the Old Notes until the Registered Exchange Offer is consummated. The Exchange Securities are being offered hereunder in order to satisfy certain obligations of Tevecap under the Purchase Agreement dated as of November 21, 1996 (the "Purchase Agreement") between Tevecap, the Guarantors (as defined) and the initial purchasers of the Old Notes (the "Initial Purchasers") and the Exchange and Registration Rights Agreement dated November 26, 1996 (the "Exchange and Registration Rights Agreement") among Tevecap, the Guarantors and the Initial Purchasers. The Exchange Notes will evidence the same debt as the Old Notes and will be issued under and be entitled to the same benefits under the Indenture (as defined) as the Old Notes. In addition, the Exchange Notes and the Old Notes will be treated as one series of securities under the Indenture. The Exchange Notes and the Old Notes are collectively referred to herein as the "Notes." See "Description of the Notes." Interest on the Notes will be payable in cash in US dollars semi-annually on May 26 and November 26 of each year, commencing on May 26, 1997. The Notes will mature on November 26, 2004. Except as described below, Tevecap may not redeem the Notes prior to November 26, 2004. In the event Tevecap receives Net Cash Proceeds (as defined) at any time on or prior to November 26, 2000 from one or more specified sales of equity, it may redeem up to $75.0 million of the aggregate principal amount of the Notes at a price equal to 112.625% of the principal amount to be redeemed, together with accrued and unpaid interest, if any, to the date of redemption. In addition, Tevecap may redeem the Notes at any time, in whole but not in part, at a price equal to 100% of their principal amount, together with accrued and unpaid interest, if any, to the date of redemption, in the event of certain changes affecting the withholding tax treatment of the Notes, with the occurrence of such events to be determined by the Company in accordance with the terms of the Notes. See "Description of the Notes-Redemption for Changes in Withholding Taxes." The Notes will not be subject to any sinking fund requirement. Upon the occurrence of a Change of Control (as defined), each holder will have the right to require Tevecap to make an offer to repurchase the Notes held by such holder at a price equal to 101% of the principal amount thereof, together with accrued and unpaid interest, if any, to the date of repurchase. See "Description of Notes." (CONTINUED ON NEXT PAGE) -------------------------- SEE "RISK FACTORS" BEGINNING ON PAGE 23 FOR A DISCUSSION OF CERTAIN FACTORS THAT HOLDERS OF THE OLD NOTES SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER AND THAT PROSPECTIVE INVESTORS IN THE EXCHANGE NOTES SHOULD CONSIDER IN CONNECTION WITH SUCH INVESTMENT. --------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. -------------------------- THE DATE OF THIS PROSPECTUS IS , 1997. The Notes will be unsecured, senior obligations of Tevecap ranking PARI PASSU in right of payment with all other existing and future unsecured, senior Indebtedness (as defined) of Tevecap and senior in right of payment to all other existing and future subordinated Indebtedness of Tevecap. The Notes will be jointly and severally guaranteed (the "Subsidiary Guarantees") by each Restricted Subsidiary (as defined) of Tevecap (the "Guarantors"). The Subsidiary Guarantees will be unsecured, senior obligations of the Guarantors ranking PARI PASSU in right of payment with all other existing and future unsecured, senior Indebtedness of the Guarantors and senior in right of payment to all other existing and future subordinated Indebtedness of the Guarantors. However, subject to certain limitations set forth in the Indenture, Tevecap and its Subsidiaries may incur other senior Indebtedness, including Indebtedness that is secured by the assets of Tevecap and its Subsidiaries. At September 30, 1996, after giving effect to the sale of the Old Securities and the application of the net proceeds therefrom, Tevecap would not have had any outstanding senior Indebtedness, other than the Notes (exclusive of unused commitments) and the aggregate principal amount of outstanding senior Indebtedness of the Guarantors, other than the Subsidiary Guarantees, would have been $4.6 million (exclusive of unused commitments and short term debt) all of which would have ranked pari passu with the Subsidiary Guarantees, but none of which was secured Indebtedness. As of April 1, 1997, Tevecap did not have any outstanding senior Indebtedness other than the Notes (exclusive of unused commitments and short term debt), and the aggregate principal amount of outstanding senior Indebtedness of the Guarantors was $6.1 million (exclusive of unused commitments and short term debt) all of which ranks pari passu with the Subsidiary Guarantees, and none of which is secured. Although the Notes are titled "senior" securities, Tevecap has not issued any Indebtedness to which the Notes would rank senior. See "Description of Notes--Ranking" and "Certain Other Indebtedness." The Indenture (as defined) under which the Old Securities were issued and the Exchange Securities would be issued contains covenants which, among other limitations, will limit the incurrence of additional indebtedness by Tevecap and its Restricted Subsidiaries. This limitation is subject to a number of important qualifications and exceptions. Absent access by the Company to additional financing (whether debt or equity) this limitation could, in circumstances in which the Company is unable to incur additional debt under this covenant, and has fully utilized the available exceptions, limit the ability of the Company to acquire future network assets, inventory and equipment. However, the Company retains the option to obtain additional equity financing through capital contributions from its shareholders, or by means of a public offering in the international capital markets. Tevecap's operations are conducted through, and substantially all of Tevecap's assets are owned by, Tevecap's direct and indirect subsidiaries. The ability of Tevecap to meet its obligations in respect of the Notes and any future indebtedness of Tevecap and the ability of Tevecap to refinance the Notes at their maturity (or upon early redemption or otherwise) will depend on, among other things, the future performance of such subsidiaries (including the Guarantors). In addition, the ability of Tevecap's subsidiaries to pay dividends and make other payments to Tevecap may be restricted by, among other things, applicable corporate and other laws and regulations and by the terms of agreements to which such subsidiaries become subject. Also, the property and assets of certain of such subsidiaries have had, or in the future may have, liens placed upon them pursuant to existing and future financings of such subsidiaries. Although the Indenture limits the ability of such subsidiaries to enter into consensual restrictions on their ability to pay dividends and make other payments to Tevecap and to permit liens to exist on their property and assets, such limitations are subject to a number of significant qualifications. See "Description of Notes--Certain Covenants." A portion of the Company's total assets (13.4% at September 30, 1996) represents interests in entities that are not majority-owned subsidiaries of Tevecap. The ability of Tevecap to receive funds from these entities may be limited by, among other things, shareholder agreements with the other investors in those entities, credit arrangements at those entities and the need of those entities to reinvest their cash flow in their own operations. In addition, applicable Brazilian law limits the amount of dividends which may be paid by Tevecap's minority-owned subsidiaries to the extent they do not have profits available for distribution. Other statutory and general law obligations may also affect the ability of those entities to make payments to Tevecap on account of intercompany loans. Tevecap is making the Registered Exchange Offer in reliance on the position of the staff of the Securities and Exchange Commission (the "Commission") as set forth in certain no-action letters addressed to other parties in other transactions. However, Tevecap has not sought its own no-action letter and there can be no assurance that the staff of the Commission would make a similar determination with respect to the Registered Exchange Offer as in such other circumstances. Based upon these interpretations by the staff of the Commission, Tevecap believes that Exchange Securities issued pursuant to this Registered Exchange Offer in exchange for Old Securities may be offered for resale, resold and otherwise transferred by a holder thereof (other than (i) a broker-dealer who acquired the Old Securities as a result of market making activities or other trading activities, (ii) an Initial Purchaser who acquired the Old Securities directly from the Company solely in order to resell pursuant to Rule 144A of the Securities Act or any other available exemption under the Securities Act, or (iii) a person that is an "affiliate" (as defined in Rule 405 of the Securities Act) of Tevecap) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Securities are acquired in the ordinary course of such holder's business and that such holder is not participating, and has no arrangement or understanding with any person to participate, in the distribution of such Exchange Securities. Holders of Old Securities accepting the Registered Exchange Offer will represent to Tevecap in the Letter of Transmittal that such conditions have been met. Any holder who participates in the Registered Exchange Offer for the purpose of participating in a distribution of the Exchange Securities may not rely on the position of the staff of the Commission as set forth in these no-action letters and would have to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any secondary resale transaction. Each broker-dealer who receives Exchange Securities for its own account pursuant to the Registered Exchange Offer must acknowledge that it acquired the Old Securities as a result of market-making activities or other trading activities and will deliver a prospectus in connection with any resale of such Exchange Securities. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Securities received in exchange for Old Securities where such Old Securities were acquired by such broker-dealer as a result of market-making activities or other trading activities. Each of Tevecap and the Subsidiary Guarantors has agreed that, for a period of 90 days after the date of this Prospectus, it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Exchange Offer," and "Plan of Distribution." The Exchange Securities are new securities for which there is currently no market. Tevecap presently does not intend to apply for listing of the Exchange Securities on any securities exchange or for quotation through the National Association of Securities Dealers Automated Quotation (Nasdaq) system. Tevecap has been advised by the Initial Purchasers, Chase 2 Securities Inc., Donaldson Lufkin & Jenrette Securities Corporation, Bear, Stearns & Co. Inc. and Bozano, Simonsen Securities, Inc., that, following completion of the Exchange Offer, they presently intend to make a market in the Exchange Securities and any Old Securities remaining outstanding; however, the Initial Purchasers are not obligated to do so and any market-making activities with respect to the Exchange Securities may be discontinued at any time without notice. There can be no assurance that an active public market for the Exchange Securities will develop. Any Old Securities not tendered and accepted in the Exchange Offer will remain outstanding and will be entitled to all the rights and preferences and will be subject to the limitations applicable thereto under the Indenture. Following consummation of the Registered Exchange Offer, the holders of Old Securities will continue to be subject to the existing restrictions upon transfer thereof. Except for certain limited shelf registration rights of the holders of Old Securities, Tevecap will have no further obligation to such holders to provide for the registration under the Securities Act of the Old Securities held by them. To the extent that Old Securities are tendered and accepted in the Registered Exchange Offer, a holder's ability to sell untendered Old Securities could be adversely affected. It is not expected that an active market for the Old Securities will develop while they are subject to restrictions on transfer. Tevecap will accept for exchange any and all Old Notes that are validly tendered and not withdrawn on or prior to 5:00 p.m., New York City time, on the date the Registered Exchange Offer expires, which will be , 1997 (the "Expiration Date"), unless the Registered Exchange Offer is extended by the Company in its sole discretion, in which case the term "Expiration Date" shall mean the latest date and time to which the Registered Exchange Offer is extended. Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. The Registered Exchange Offer is not conditioned upon any minimum principal amount of Old Notes being tendered for exchange. However, the Registered Exchange Offer is subject to certain conditions which may be waived by Tevecap and to the terms and provisions of the Exchange and Registration Rights Agreement. Tevecap has agreed to pay the expenses of the Registered Exchange Offer. See "The Registered Exchange Offer." The Exchange Notes will bear interest from the last interest payment date of the Old Notes to occur prior to the issue date of the Exchange Notes or, if no such interest has been paid, from November 26, 1996. Holders of the Old Notes whose Old Notes are accepted for exchange will not receive interest on such Old Notes for any period subsequent to the last interest payment date to occur prior to the issue date of the Exchange Notes, if any, and will be deemed to have waived the right to receive any interest payment on the Old Notes accrued from and after such interest payment date or, if not such interest has been paid, from November 26, 1996. This Prospectus, together with the Letter of Transmittal, is being sent to all registered holders of Old Securities as of , 1997. Tevecap will not receive any proceeds from this Registered Exchange Offer. No dealer-manager is being used in connection with this Registered Exchange Offer. See "Use of Proceeds" and "Plan of Distribution." 3 THE EXCHANGE SECURITIES MAY NOT BE OFFERED OR SOLD IN BRAZIL, EXCEPT UNDER CIRCUMSTANCES WHICH DO NOT CONSTITUTE A PUBLIC OFFERING OR DISTRIBUTION OF SECURITIES UNDER BRAZILIAN LAWS AND REGULATIONS. THE EXCHANGE SECURITIES HAVE NOT BEEN, AND WILL NOT BE, REGISTERED WITH THE COMISSAO DE VALORES MOBILIARIOS ("CVM"), THE SECURITIES COMMISSION OF BRAZIL. ------------------------ TABLE OF CONTENTS
PAGE ----- Enforceability of Civil Liabilities........................................................................ 5 Presentation of Certain Information........................................................................ 5 Summary.................................................................................................... 7 Summary Historical Financial and Other Data................................................................ 20 Risk Factors............................................................................................... 22 Use of Proceeds............................................................................................ 36 Exchange Rate Data......................................................................................... 36 Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 41 The Registered Exchange Offer.............................................................................. 54 Business................................................................................................... 62 Management................................................................................................. 90 Principal Shareholders..................................................................................... 95 Certain Transactions With Related Parties.................................................................. 98 Description of Certain Indebtedness........................................................................ 101 Description of Notes....................................................................................... 103 Income Tax Considerations.................................................................................. 137 Plan Of Distribution....................................................................................... 141 Experts.................................................................................................... 141 Legal Matters.............................................................................................. 142 Available Information...................................................................................... 142 Public Documents........................................................................................... 143 Report on Financial Statements............................................................................. F-1 The Federative Republic of Brazil.......................................................................... A-1 The Brazilian Economy...................................................................................... B-1 Glossary................................................................................................... C-1
Until , 1997, broker-dealers effecting transactions in the Exchange Notes, whether or not participating in the Registered Exchange Offer, may be required to deliver a Prospectus. This is in addition to the obligation of broker-dealers to deliver a Prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. No broker-dealer, salesperson or other individual has been authorized to give any information or to make any representations in connection with the Registered Exchange Offer other than those contained in this Prospectus and Letter of Transmittal and, if given or made, such information or representation must not be relied upon as having been authorized by the Company. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy the Exchange Notes in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction. The delivery of this Prospectus shall not, under any circumstances, create any implication that the information herein is correct at any time subsequent to its date. 4 ENFORCEABILITY OF CIVIL LIABILITIES Tevecap and each of the Guarantors are Brazilian corporations (other than TVA Communications Ltd., which is a corporation organized under the laws of the British Virgin Islands) with substantially all of their assets and operations located, and substantially all of their revenues derived, outside the United States. Each of Tevecap and the Guarantors has appointed CT Corporation System, New York, New York, as its agent to receive service of process with respect to any action brought against it in any federal or state court in the State of New York arising from the Registered Exchange Offer. However, it may not be possible for investors to enforce outside the United States judgments against Tevecap and the Guarantors obtained in the United States in any such actions, including actions predicated upon the civil liability provisions of the US federal and state securities laws. In addition, certain of the directors and officers of Tevecap and the Guarantors, and certain of their advisors named herein, are residents of Brazil, and all or substantially all of the assets of such persons may be located outside the United States. As a result, it may not be possible for investors to effect service of process within the United States upon such persons, or to enforce against them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the US federal and state securities laws. Tevecap has been advised by its Brazilian counsel, Basch & Rameh--Advogados e Consultores, that judgments of US courts for civil liabilities predicated upon the federal securities laws of the United States, subject to certain requirements described below, may be enforced in Brazil. A judgment against the directors and officers of Tevecap and the Guarantors or the advisors named herein who are residents of Brazil or against Tevecap or the Guarantors obtained outside of Brazil would be enforceable in Brazil against such persons or Tevecap or the Guarantors without reconsideration of the merits upon confirmation of that judgment by the Brazilian Supreme Court. That confirmation, generally, will occur if the foreign judgment (i) fulfills all formalities required for its enforceability under the laws of the country where the foreign judgment is granted, (ii) is issued by a competent court after proper service of process, (iii) is not subject to appeal, (iv) is authenticated by a Brazilian consular office in the country where the foreign judgment is issued and is accompanied by a certified Portuguese translation and (v) is not contrary to Brazilian national sovereignty or public policy or "good morals" (as set forth in Brazilian law). Notwithstanding the foregoing, no assurance can be given that confirmation would be obtained, that the process described above can be conducted in a timely manner or that a Brazilian court would enforce a monetary judgment for violation of the US securities laws with respect to the Notes or the Subsidiary Guarantees. Tevecap has been further advised by its Brazilian counsel that original actions predicated on the federal securities laws of the United States may be brought in Brazilian courts and that Brazilian courts may enforce civil liabilities in such actions against Tevecap or the Guarantors, their respective directors, certain of their respective officers and the advisors named herein. A plaintiff (whether Brazilian or non-Brazilian) who resides outside Brazil during the course of litigation in Brazil must provide a bond to guarantee court costs and legal fees if the plaintiff owns no real property in Brazil. PRESENTATION OF CERTAIN INFORMATION The accounts of the Company, which are maintained in Brazilian REAIS, were prepared in accordance with the accounting principles generally accepted in the United States of America and translated into United States dollars on the basis set forth in Note 2.3 of the Financial Statements of Tevecap and Subsidiaries (the "Tevecap Financial Statements" and together with the Financial Statements of TVA Sistema de Televisao S.A., TVA Sul Participacoes S.A., and the Unaudited Financial Information included elsewhere in this Prospectus, the "Financial Statements") of the Company. Certain amounts stated herein in U.S. dollars (other than as set forth in the Financial Statements and financial information derived therefrom) have been translated, for the convenience of the reader, from REAIS at the rate in effect on September 30, 1996 of R$1.0272 = US$1.00. Such translations should not be construed as a representation that REAIS could have been converted at such rate on such date or at any other date. See "Exchange Rate Data." All references in this Prospectus to (i) "US dollars," "$" or "US$" are to United 5 States dollars and (ii) "REAIS," "REAL" or "R$" are to Brazilian REAIS. Capitalized terms used in this Prospectus are defined, unless the context otherwise requires, in the Glossary attached hereto as Appendix C. Unless otherwise specified, data regarding population or homes in a licensed area are projections based on 1991 population census figures compiled by the Instituto Brasileiro de Geografia e Estastica ("IBGE"). There can be no assurance that the number of people or the number of households in a specified area has not increased or decreased by a higher or lower rate than those estimated by the IBGE since the 1991 census. Unless otherwise indicated, references to the number of the Company's subscribers are based on Company data as of September 30, 1996. The term DIRECTV-Registered Trademark- ("DIRECTV") (DIRECTV-Registered Trademark- is a registered trademark of Hughes Electronics Corporation ("Hughes Electronics")) refers to the Ku-Band service provided by Galaxy Brasil in conjunction with Galaxy Latin America. Data concerning total MMDS, Cable, C-Band or Ku-Band subscribers and penetration rates represent estimates made by the Company based on the January 1996 data of Kagan World Media, Inc., the Company's knowledge of the pay television systems of the Company and the Operating Ventures, and public statements of other Brazilian pay television providers. Although the Company believes such estimates are reasonable, no assurance can be made as to their accuracy. 6 SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION INCLUDING THE FINANCIAL STATEMENTS OF TEVECAP AND ITS SUBSIDIARIES (TOGETHER "TVA" OR THE "COMPANY") INCLUDED ELSEWHERE IN THIS PROSPECTUS. THE COMPANY TVA is a leading pay television operator in Brazil and is the country's largest pay television programming distributor. In 1989, TVA was the first to provide pay television services in Brazil and, in July 1996, the Company launched DIRECTV, Brazil's first digital Ku-Band service. With over 335,000 subscribers, TVA is the only operator in Brazil to offer pay television services utilizing five distribution technologies: MMDS, Cable, digital Ku-Band, digital C-Band and UHF. TVA believes that its ability to strategically deploy alternative technologies provides it with significant competitive advantages, including the ability to rapidly enter new markets, maximize penetration of existing markets and deliver service in the most cost effective manner. Additionally, TVA has interests in HBO Brasil Partners and ESPN Brasil Ltda., two programming joint ventures (the "Programming Ventures"). Through owned, affiliated and independent pay television operators, TVA programming reaches over 955,000 pay television households. TVA is a majority owned subsidiary of Abril, S.A. ("Abril"), Latin America's leading magazine publishing, printing and distribution company. TVA's other shareholders are Falcon International Communications (Bermuda) L.P. ("Falcon International"), The Hearst Corporation ("Hearst"), ABC, Inc. ("ABC") and Chase Manhattan International Finance Ltd. ("CMIF"). The Company conducts its pay television operations through three owned operating systems (the "Owned Systems"): TVA Sistema, TVA Sul and Galaxy Brasil. Through the MMDS and Cable systems of TVA Sistema and TVA Sul, the Company serves six cities with a combined population of approximately 18 million, including three of the seven largest cities in Brazil: Sao Paulo (population of 10.2 million), Rio de Janeiro (population of 5.7 million) and Curitiba (population of 1.5 million). The Company also holds minority interests in Canbras TVA and TV Filme (the "Operating Ventures"), which together provide pay television services to an additional seven cities with a total population of 6.5 million. In addition, the Company sells programming to, and receives a per subscriber fee from, unaffiliated pay television operators ("Independent Operators"). The Company, through Galaxy Brasil, is Brazil's exclusive provider of the premium programming service, DIRECTV. Galaxy Brasil receives programming, scheduling and related services for DIRECTV from Galaxy Latin America ("GLA"), in which TVA holds a 10.0% equity interest. The other owners of GLA are a unit of Hughes Electronics, a member of the Cisneros Group and a subsidiary of Grupo MVS. Through local operating companies such as Galaxy Brasil, GLA plans to provide DIRECTV service throughout much of Latin America and the Caribbean. The Company, through TVA Sistema, also currently provides Brazil's only digital C-Band television service (together with Galaxy Brasil, the "DBS Systems"). The DBS Systems enable the Company to deliver a greater number of channels than any other television operator in Brazil and provide TVA with access to substantially all of Brazil's 33.9 million TV Homes. 7 ORGANIZATIONAL STRUCTURE The organizational structure of the Company, including the Owned Systems, the Operating Ventures, the Programming Ventures and the License Subsidiaries, is summarized in the following chart. Percentages represent Tevecap's ownership interest in each entity. Organizational Chart - ------------------------ (a) License subsidiaries hold pay television licenses for the operation of certain of the Owned Systems. (b) TV Filme is publicly traded under the symbol "PYTV." TV Filme's market capitalization, as of September 30, 1996, was $139.8 million. Upon exercise of a warrant with a nominal exercise price, Tevecap's ownership interest will increase to 16.7%. (c) Equity interest held through TVA Communications Ltd., a wholly owned subsidiary of Tevecap ("TVA Communications"), and TVA Communications Aruba N.V., a wholly-owned subsidiary of TVA Communications. (d) Hughes Electronics and the Cisneros Group have a right to purchase, and have expressed an interest in purchasing, 25.0% of Galaxy Brasil. (e) Equity interest held through TVA Communications. (f) The capital stock of each of these companies is currently held by affiliates of TVA. Each company has agreed to transfer the licenses held by it to TVA at nominal cost. 8 OWNERSHIP Tevecap is a majority owned subsidiary of Abril, the leading magazine publishing, printing and distribution company in Latin America. Abril publishes over 266 weekly, bi-weekly and monthly titles. During 1995, the combined monthly paid circulation of Abril and its affiliates averaged 15.6 million copies. TVA benefits from Abril's extensive experience in the business of subscriptions and distribution, advertising synergies, common research resources and financial analysis and support. Certain of Tevecap's other shareholders provide the Company with access to additional international programming and certain technical and financial expertise. The Company's shareholders have invested, in aggregate, approximately $288 million in the Company. Tevecap's current ownership is as follows: Abril, 56.5%; Falcon International, 14.2%; Hearst, 10.0%; ABC, 10.0%; and CMIF, 9.3%. Each of Tevecap's corporate shareholders has agreed, with certain exceptions, to a reorganization of the ownership of Tevecap. As a result of the proposed reorganization a new Brazilian corporation would become an 80.0% shareholder in Tevecap and Hearst/ABC would remain a 20.0% shareholder in Tevecap. The new structure would not result in any change in the current beneficial equity participation of the Stockholders in Tevecap, and the transactions establishing the new structure and the new structure itself would have to conform to the restrictions of the Indenture. As of the date hereof, the timing of the restructuring is under discussion by the Stockholders. See "Principal Shareholders." THE BRAZILIAN PAY TELEVISION MARKET Brazil is the largest television and video market in Latin America with an estimated 33.9 million TV Homes which, as of December 31, 1995, watched on average more than 4.0 hours of television per day, as compared to an average of 4.5 hours in the United States. Approximately 6.2 million television sets and 1.9 million VCR units were sold in Brazil during 1995. The pay television industry in Brazil began in 1989 with the commencement by the Company of UHF service in Sao Paulo. As of September 30, 1996, there were an estimated 1.6 million pay television subscribers, representing approximately 4.7% of Brazilian TV Homes. By comparison, as of December 31, 1995, 51.1% of TV Homes in Argentina, 12.6% of TV Homes in Mexico, 21.7% of TV Homes in the United Kingdom and 69.2% of TV Homes in the United States subscribed to pay television. Management believes that the number of pay television subscribers in Brazil will continue to grow as pay television reaches more households both through the expansion of existing and new MMDS and Cable systems and through development of nationwide DBS systems. The Ministry of Communications estimates that Brazil will have 16.5 million pay television subscribers by 2003. COMPANY OPERATIONS MMDS AND CABLE SYSTEMS. TVA's strategy of rapidly deploying an extensive MMDS network has allowed it to enter new markets quickly and develop broad geographic coverage which the Company may expand utilizing signal repeaters. TVA has developed Brazil's largest MMDS network and, with the Operating Ventures, serves the country's major metropolitan areas. MMDS systems are typically easier to deploy and require relatively little capital investment for construction and maintenance as compared to Cable systems. The MMDS systems of the Company and the Operating Ventures currently provide 15 to 18 channels of programming. Management expects this number to increase to 31 soon after the Ministry of Communications grants additional channel rights as allowed under recently passed regulations. See "Business--Regulatory Framework." TVA has recently emphasized the strategic deployment of Cable service and currently operates Cable systems in Sao Paulo, Curitiba and three other cities. As of September 30, 1996, TVA had deployed approximately 900 kilometers of cable, including 80 kilometers of fiber optic cable, that passed approximately 270,000 homes. By the end of 1996, the Company added an additional 890 kilometers to its Cable systems. As part of this buildout plan, the Company constructed a 281 kilometer fiber optic network, including a 57 kilometer fiber optic loop in Sao Paulo and a 28 kilometer fiber optic network in 9 Curitiba and began upgrading or constructing four recently acquired Cable systems. As a result, management believes that TVA Cable systems, as of the end of 1996, passed more than 494,000 homes. Additionally, Canbras TVA is constructing Cable networks in ten cities within the greater Sao Paulo area with a combined population of over 2.8 million. All of these Cable systems have been designed for or are being upgraded to either 750 or 550 MHz bandwidth capacity, the latter of which is readily upgradeable to 750 MHz bandwidth capacity. The Cable systems of TVA and Canbras TVA currently offer between 31 and 44 analog channels of programming (including off-air channels). DBS SYSTEMS. In July 1996, the Company, through Galaxy Brasil, launched DIRECTV, Brazil's first Ku-Band service. GLA provides Galaxy Brasil with programming, scheduling and related services for Galaxy Brasil's DIRECTV service and Galaxy Brasil exclusively markets and sells the DIRECTV service in Brazil. With DIRECTV service, TVA provided 49 channels of video programming (including 19 pay-per-view channels) as of September 30, 1996, with the intention to provide up to 70 channels of video programming and 30 channels of audio programming. Since September 30, 1996, the number of channels offered by the Company with DIRECTV service has increased to 56. In addition, since September 30, 1996, a competitor has entered the Ku-Band market, but currently offers only 26 channels of programming (including four pay-per-view channels). As of September 30, 1996, the Company had commenced only a limited regional roll-out in the Sao Paulo area. The Company began a nationwide rollout of DIRECTV in November 1996, at which time TVA initiated a publicity campaign supported by a nationwide network of trained installers. By comparison, DIRECTV, Inc., a unit of Hughes Electronics, started its DIRECTV service in the United States in June 1994 and, as of September 30, 1996, had approximately 1.9 million subscribers. During 1997, management expects that a new Delaware limited liability company will be established, the principal asset of which will be GLA's satellite uplink facility. The new company will be owned by two subsidiaries of Hughes Electronics. In connection with the establishment of the new company, TVA Communications and Tevecap have agreed, pursuant to the Indemnification Agreement, to provide certain indemnities in favor of GLA, Hughes Communications GLA, the newly-established company and its shareholders. To secure its obligations under the Indemnification Agreement, Tevecap has agreed to pledge its equity interest in GLA, as well as any future notes or interests it may hold relating to the uplink facility. TVA has offered a C-Band service since 1993, and is the only pay television operator to deliver a digital C-Band signal in Brazil. Currently, TVA's C-Band service delivers 26 channels (including nine Second Audio Programming ("SAP") channels) and, with further digital compression, TVA expects to increase the number of channels to 38 (including SAP channels). By comparison, TVA's only significant C-Band competitor offers six analog channels. As of September 30, 1996, there were over 3.7 million C-Band dish antennae in Brazil, most of which were used to receive only off-air channels. This installed base represents the Company's target market for its digital C-Band service and the Company expects to attract these viewers through marketing and promotional initiatives. PROGRAMMING. Management believes its programming provides a significant competitive advantage by attracting and retaining subscribers. TVA holds equity interests in two Programming Ventures, ESPN Brasil Ltda. and HBO Brasil Partners, both of which provide programming to TVA. ESPN Brasil Ltda. produces and packages Brazilian sporting events and holds exclusive rights, as of January 1997, to many major Brazilian soccer championships. ESPN Brasil Ltda. also packages international sporting events and ESPN2 programming specifically for the Brazilian market. HBO Brasil Partners packages and distributes HBO Brasil, which airs popular first-run movies 24 hours a day, either dubbed or subtitled in Portuguese. TVA has exclusive distribution rights to ESPN Brasil in Sao Paulo, Rio de Janeiro, Curitiba, Brasilia, Belem and Goiania and is currently the sole distributor of HBO Brasil and has exclusive distribution rights to this channel in TVA's served markets. TVA, in addition to its interests in the Programming Ventures, has entered into agreements with international programmers such as ABC, Hearst, Time Warner and Sony to gain the rights to sports, movies, news, arts and entertainment programming for distribution in Brazil. Management expects TVA 10 to soon offer Cinemax as part of its DIRECTV service and to introduce CNA, a Brazilian news channel to be produced by Abril. TVA also generates revenue by selling its programming to the Operating Ventures and the Independent Operators as well as to GLA (to be packaged as part of GLA's DIRECTV service) and by selling advertising spots to be aired on its programming. SUBSCRIBERS AND HOUSEHOLDS RECEIVING TVA PROGRAMMING Through the Owned Systems, TVA directly serves over 335,000 subscribers. Together, these subscribers represent approximately 21.0% of all Brazilian pay television subscribers.
DECEMBER SEPTEMBER 31, 30, % SUBSCRIBERS--OWNED SYSTEMS 1995 1996 CHANGE ----------- ------------ ----------- MMDS(a).................................................. 188,893 229,656 21.6% Cable(b)................................................. 15,129 39,253 159.5 DIRECTV and Digital C-Band............................... 15,126 47,436 213.6 ----------- ------------ 219,148 316,345 44.4 Paid Subscribers Awaiting Installation(c)................ 18,343 19,691 7.3 ----------- ------------ Total Subscribers--Owned Systems......................... 237,491 336,036 41.5 ----------- ------------ ----------- ------------
- ------------------------ (a) Includes UHF subscribers which, as of September 30, 1996, totaled 11,453. (b) Reflects the purchase by the Company of existing cable systems in Curitiba, Foz do Iguacu and Camboriu, during 1996. (c) Subscribers who have paid an installation fee but are awaiting the installation of service. Through the Operating Ventures, TVA has minority interests in two pay television operators which, together, serve over 66,000 subscribers.
SEPTEMBER 30, SUBSCRIBERS--OPERATING VENTURES DECEMBER 31, 1995 1996 % CHANGE ----------------- ----------------- ----------- MMDS........................................... 35,572 62,774 76.5% Cable.......................................... -- 3,614 -- ------- ------- Total Subscribers--Operating Ventures.......... 35,572 66,388 86.6 ------- ------- ------- -------
Through the Owned Systems and the Operating Ventures, and through sales of programming to the Independent Operators, TVA's programming reaches over 955,000 pay television households, which represent approximately 60.0% of all Brazilian pay television households.
DECEMBER SEPTEMBER 31, 30, HOUSEHOLDS RECEIVING TVA PROGRAMMING 1995 1996 % CHANGE ----------- ------------ ----------- Owned Systems.......................................... 237,491 336,036 41.5% Operating Ventures..................................... 35,572 66,388 86.6 Independent Operators.................................. 341,699 555,049 62.4 ----------- ------------ Total.................................................. 614,762 957,473 55.7 ----------- ------------ ----------- ------------
11 COMPETITIVE ADVANTAGES Management believes that the Company has the following competitive advantages: SUPERIOR QUALITY PROGRAMMING LINEUP. TVA's programming line-up includes exclusive rights to ESPN Brasil in the Company's major markets, with exclusive coverage, as of January 1997, of many of Brazil's most important soccer championships, including the Brasil Cup, the Brazilian Championship and the Sao Paulo and Rio de Janeiro State Championships. The Company exclusively offers CMT Brasil and Bravo Brasil and is also the only pay television provider offering HBO programming in TVA's served markets. Management believes that as the pay television industry grows, programming will become the critical factor driving consumer selection of a pay television provider, and that with TVA's relationships with strong international partners and its exclusive soccer coverage, TVA will continue to offer superior quality programming. STRATEGIC DEPLOYMENT OF ALTERNATIVE DISTRIBUTION TECHNOLOGIES. The Company is the only pay television operator utilizing five distribution technologies: MMDS, Cable, Ku-Band, C-Band and UHF. The availability of multiple distribution technologies enables the Company to capitalize on the population and income characteristics, topography and competitive dynamics of each of its targeted markets. The Company has the ability to penetrate new markets quickly and efficiently and to offer tiered programming at low cost with MMDS. The Company is expanding its Cable systems, where warranted by economic and competitive conditions, to build its subscriber base and to prepare for future opportunities in interactive services and telecommunications. Additionally, management believes the Company can rapidly penetrate virtually any market through the continued deployment of its DBS Systems. DBS SYSTEMS: NATIONWIDE COVERAGE AND DIGITAL SERVICE. Through its DBS Systems, TVA is capable of offering programming to nearly all of Brazil's 33.9 million TV Homes, including those households in markets where Cable or MMDS systems are either not developed or not economically viable. Through its DIRECTV service, TVA was the first provider of Ku-Band pay television services in Brazil and expects to enroll as subscribers a significant share of those who are interested in broader, digital quality programming and pay-per-view services. Through its digital C-Band system, the Company provides 26 channels of programming (including nine SAP channels) and is capable of providing up to 38 channels of programming (including SAP channels). The Company's only significant competitor in C-Band pay television service provides six analog channels of programming in addition to off-air channels. The Company currently targets its C-Band service to the over 3.7 million C-Band satellite dish owners in Brazil, most of whom currently receive only the off-air channels. MODERN CABLE INFRASTRUCTURE. The Company's Cable systems are constructed with, or are being upgraded to, either 750 MHz or 550 MHz bandwidth capacity, the latter of which is readily upgradeable to 750 Mhz bandwidth capacity with only moderate investment. This Cable technology will enable the Company to provide data transmission and interactive services, including telecommunications, in the future. Management believes that the Company's major competitors for Cable service use narrower bandwidths over portions of their Cable systems and have installed certain types of Cable in households which currently may prevent them from providing telecommunications or high speed data delivery through these portions of their systems until substantial additional investments have been made for system reconstruction or upgrade. STRONG STRATEGIC PARTNERS. The Company's strategic equity partners continue to offer valuable expertise. TVA benefits from Abril's extensive experience in the business of subscriptions and distribution and from the collective experience of Falcon International, Hearst and ABC with regard to pay television operations and from access to programming. 12 BUSINESS STRATEGY TVA seeks to be Brazil's largest and most profitable pay television operator and programming distributor and intends to capitalize on the convergence and development of voice, video and telecommunications services. The Company intends to achieve these goals through the following strategies: MAXIMIZE PENETRATION IN EXISTING MARKETS. The Company seeks to increase its penetration of existing markets by: (i) expanding the range of TVA's Cable systems by extending its fiber optic and coaxial cable network and by seeking prewiring arrangements with residential housing developers, (ii) improving the signal quality and coverage of TVA's MMDS systems by using signal repeater technology, (iii) maximizing penetration by offering tiered subscription options and developing programming packages to appeal to more households and (iv) expanding its penetration in ABC Class households through its scheduled nationwide rollout of DIRECTV service and the continued development of C-Band service. MAXIMIZE CUSTOMER RETENTION THROUGH SUPERIOR CUSTOMER SERVICE. In order to maximize customer retention, the Company aims to provide a consistently high level of customer service. The Company has developed or has acquired the right to use proprietary management information systems which, among other things, provide Company representatives immediate access to customer records and correspondence history. This enables TVA to provide high quality service to its clients while monitoring subscriber payment patterns. The Company's Churn rate, which reflects the ability of the Company to retain subscribers, averaged approximately 2.0% per month during the nine month period ended September 30, 1996. The average monthly Churn rate for MMDS service in 1994 was 1.6%, in 1995 was 1.3%, and for the nine month period ended September 30, 1996, was 2.1%. The average monthly Churn rate for Cable service in 1994 (the year Cable service was initiated) was less than 1.0%, in 1995 was 1.1%, and for the nine month period ended September 30, 1996, was 0.7%. The average monthly Churn rate for C-Band service in 1994 was 5.3%, in 1995 was 0.1% and for the nine month period ended September 30, 1996, was 2.0%. Ku-Band service was initiated in July 1996. ENHANCE TVA'S PROGRAMMING PACKAGE. In order to maintain and enhance its position as a provider of superior programming in Brazil, TVA is developing new programming through the programming Ventures, as well as through Abril and other partners. TVA frequently evaluates the demographics of its subscribers and potential subscribers and seeks to provide programming most in demand. The Company also takes advantage of opportunities to enter into exclusive distribution agreements for popular television programming in Brazil. Management believes that its DIRECTV service, which includes both basic and premium channels, as well as pay-per-view movies and events from Brazil, other Latin American countries, Europe, Asia and the United States, further enhances TVA's programming offerings and positions the Company to be the provider of the widest selection of popular programming in Brazil. ENTER NEW MARKETS. The Company intends to enter new markets by: (i) acquiring existing MMDS and Cable operations, (ii) applying either independently, or in conjunction with the Operating Ventures, independent pay television providers or other appropriate third parties, for new MMDS and Cable licenses offered by the Brazilian Government, (iii) initiating the nationwide rollout of DIRECTV service and (iv) investing in new operating ventures with other MMDS and Cable operators. The Brazilian Government has recently announced its intention to auction MMDS licenses in 15 state capitals. Although no date has been set for these auctions, management expects them to occur during 1997. The Company has submitted proposals, either individually or in conjunction with local partners, for all such licenses, as well as for additional licenses throughout Brazil. CONTINUE NETWORK ENHANCEMENT. The Company is positioning itself to provide high-speed data transmission, interactive and other telecommunications service over its systems and to take advantage of possible deregulation and the growing demand for these services in Brazil. The Company is expanding its Cable systems with fiber optic and coaxial cable capable of being upgraded to provide such enhanced services. In addition, the Company continues to explore the development of digital compression of MMDS signals. 13 THE EXCHANGE OFFER The Exchange Offer.................. Tevecap is offering to exchange pursuant to the Exchange Offer an aggregate principal amount of up to US$250,000,000 principal amount of its 12 5/8% Senior Notes due 2004 (the "Exchange Notes") together with the Subsidiary Guarantees of the Exchange Notes (such Subsidiary Guarantees and the Exchange Notes together, the "Exchange Securities"), for a like principal amount of its 12 5/8% Senior Notes due 2004 (the "Old Notes") together with the Subsidiary Guarantees of the Old Notes (such Subsidiary Guarantees and Old Notes together, the "Old Securities"). Tevecap will issue the Exchange Securities on or promptly after the Expiration Date. As of the date of this Prospectus, US$250,000,000 aggregate principal amount of Old Notes is outstanding. The terms of the Exchange Securities are identical in all material respects to the terms of the Old Securities for which they may be exchanged pursuant to this offer, except that the Exchange Securities have been registered under the Securities Act and are issued free from any covenant regarding registration, and except that if the Registered Exchange Offer is not consummated by May 23, 1997, Tevecap will be obligated to pay each holder of the Old Notes an amount equal to $0.192 per week per $1000 of the Old Notes until the Registered Exchange Offer is consummated. The Exchange Securities will evidence the same debt as the Old Securities and will be issued under and be entitled to the same benefits under the Indenture as the Old Securities. The Issuance of the Exchange Securities and the Registered Exchange Offer is intended to satisfy certain obligations of Tevecap and the Subsidiary Guarantors under the Purchase Agreement and pursuant to certain registration rights granted under the Exchange and Registration Rights Agreement. See "The Registered Exchange Offer" and "Description of the Notes." Interest Payments................... Interest on the Exchange Notes shall accrue from the last Interest Payment Date (May 26 or November 26) on which interest was paid on the Old Notes surrendered or, if no interest has been paid on such Old Notes, from November 26, 1996. See "The Exchange Offer--Interest on the Exchange Notes." Expiration Date..................... The Registered Exchange Offer will expire at 5:00 p.m., New York City time, on , 1997, unless extended by Tevecap in its sole discretion. See "The Registered Exchange Offer--Expiration Date; Extensions." Exchange Date....................... The date of acceptance for exchange of the Old Notes and the consummation of the Registered Exchange Offer will be the first business day following the Expiration Date unless
14 extended. See "The Registered Exchange Offer--Terms of the Exchange." Withdrawal Rights................... Tenders may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date; otherwise, all tenders will be irrevocable. See "The Registered Exchange Offer--Withdrawal of Tenders." Procedures for Tendering Notes...... See "The Registered Exchange Offer--Exchange Offer Procedures." Federal Income Tax Consequences..... The exchange of Old Securities for the Exchange Securities pursuant to the Registered Exchange Offer will not result in any income, gain or loss to holders who participate in the Registered Exchange Offer or to Tevecap for U.S. income tax purposes. See "Income Tax Considerations." Resale.............................. Tevecap is making the Registered Exchange Offer in reliance on the position of the staff of the Commission as set forth in certain no-action letters addressed to other parties in other transactions. However, Tevecap has not sought its own no-action letter and there can be no assurance that the staff of the Commission would make a similar determination with respect to the Registered Exchange Offer as in such other circumstances. Based on these interpretations by the staff of the Commission, Tevecap believes that Exchange Securities issued pursuant to this Registered Exchange Offer in exchange for Old Securities may be offered for resale, resold and otherwise transferred by a holder thereof (other than (i) a broker-dealer who acquired the Old Securities as a result of market making activities or other trading activities, (ii) an Initial Purchaser who acquired the Old Securities directly from the Company solely in order to resell pursuant to Rule 144A of the Securities Act or any other available exemption under the Securities Act, or (iii) a person that is an "affiliate" (as defined in Rule 405 of the Securities Act) of Tevecap) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Securities are acquired in the ordinary course of such holder's business and that such holder is not participating, and has no arrangement or understanding with any person to participate, in the distribution of such Exchange Securities. Holders of Old Securities accepting the Registered Exchange Offer will represent to Tevecap in the Letter of Transmittal that such conditions have been met. Any holder who participates in the Registered Exchange Offer for the purpose of participating in a distribution of the Exchange Securities may not rely on the position of the staff of the Commission as set forth in these no-action letters and would have to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any secondary resale transaction. Each broker-dealer who
15 receives Exchange Securities for its own account pursuant to the Registered Exchange Offer must acknowledge that it acquired the Old Securities as the result of market-making activities or other trading activities and will deliver a prospectus in connection with any resale of such Exchange Securities. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Securities received in exchange for Old Securities where such Old Securities were acquired by such broker-dealer as a result of market-making activities or other trading activities. In addition, pursuant to Section 4(3) under the Securities Act, until , 1997, all dealers effecting transactions in the Exchange Securities, whether or not participating in the Registered Exchange Offer, may be required to deliver a Prospectus. Each of Tevecap and the Subsidiary Guarantors has agreed that, for a period of 90 days after the date of this Prospectus, it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "The Registered Exchange Offer" and "Plan of Distribution." Remaining Old Notes................. Holders of Old Securities who do not tender their Old Securities in the Registered Exchange Offer or whose Old Securities are not accepted for exchange will continue to hold such Old Securities and will be entitled to all the rights and preferences, and will be subject to the limitations, applicable thereto under the Indenture. All untendered and tendered but unaccepted Old Securities (collectively, the "Remaining Old Securities") will continue to bear legends restricting their transfer. In general, the Old Securities may not be offered or sold, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. To the extent that the Registered Exchange Offer is effected, the trading market, if any, for Remaining Old Securities could be adversely affected. See "Risk Factors--Factors Relating to the Company and the Exchange Securities--Consequences of Failure to Properly Tender Old Securities Pursuant to the Registered Exchange Offer." See "The Registered Exchange Offer--Terms of the Exchange." Exchange Agent...................... The exchange agent with respect to the Exchange Offer is The Chase Manhattan Bank (the "Exchange Agent"). The address and telephone number of the Exchange Agent are set forth in "The Exchange Offer--Exchange Agent."
16 Use of Proceeds..................... There will be no proceeds to Tevecap from the exchange pursuant to the Exchange Offer. See "Use of Proceeds."
THE EXCHANGE NOTES Issuer.............................. Tevecap S.A. Notes Offered....................... $250,000,000 aggregate principal amount of 12 5/8% Senior Notes due 2004 (the "Exchange Notes" and, together with the Old Notes, the "Notes"). Maturity............................ November 26, 2004. Interest Payment Dates.............. May 26 and November 26 of each year, commencing on May 26, 1997. Withholding Taxes; Additional Amounts........................... Payments in respect of the Notes are not subject to withholding taxes imposed by Brazil, provided that the Notes are not redeemed prior to November 26, 2004. If the Notes are redeemed for any reason prior to November 26, 2004, then Brazilian withholding taxes will be imposed retroactively on interest, fees and commissions paid by Tevecap in connection with the Notes from the date of issuance through the date of such redemption. Tevecap and the Guarantors have agreed to pay such Additional Amounts (as defined) in respect of such Brazilian withholding taxes as will result in receipt by the holders of Notes of such amounts as would have been received by them had no such withholding or deduction been required, except to the extent set forth under "Description of Notes-- Additional Amounts." See also "Income Tax Considerations--Brazil." Sinking Fund........................ None. Optional Redemption................. Except as described below, Tevecap may not redeem the Notes prior to November 26, 2004. In the event Tevecap receives Net Cash Proceeds (as defined) at any time, on or prior to November 26, 2000, from one or more (i) Significant Equity Offerings (as defined) or (ii) sales of Tevecap's Capital Stock to a Strategic Investor (as defined), Tevecap may redeem up to $75.0 million of the aggregate principal amount of the Notes at a price equal to 112.625% of the principal amount to be redeemed, together with accrued and unpaid interest, if any, to the date of redemption, provided that at least $175.0 million of the aggregate principal amount of the Notes remains outstanding after each such redemption. In addition, Tevecap may redeem the Notes at any time, in whole but not in part, at a price equal to 100% of their principal amount, together with accrued and unpaid interest, if any, to the date of redemption, in the event of certain changes affecting the withholding tax treatment of the Notes with the occurrence
17 of such events to be determined by the Company in accordance with the terms of the Notes. See "Description of Notes--Optional Redemption" and "--Redemption for Changes in Withholding Taxes." Change of Control................... Upon the occurrence of a Change of Control (as defined), each holder will have the right to require Tevecap to make an offer to repurchase the Notes held by such holder at a price equal to 101% of the principal amount thereof, together with accrued and unpaid interest, if any, to the date of repurchase. See "Description of Notes--Change of Control." Subsidiary Guarantees............... The Notes are jointly and severally guaranteed (the "Subsidiary Guarantees"), on a senior basis, by all of Tevecap's Restricted Subsidiaries (as defined) existing on the date the Notes were issued and each Restricted Subsidiary acquired thereafter (the "Guarantors"). See "Description of Notes--Subsidiary Guarantees." Ranking............................. The Notes are unsecured, senior obligations of Tevecap ranking PARI PASSU in right of payment with all other existing and future unsecured, senior Indebtedness (as defined) of Tevecap and senior in right of payment to all other existing and future subordinated Indebtedness of Tevecap. The Subsidiary Guarantees are unsecured, senior obligations of the Guarantors ranking PARI PASSU in right of payment with all other existing and future unsecured, senior Indebtedness of the Guarantors and senior in right of payment to all other existing and future subordinated Indebtedness of the Guarantors. However, subject to certain limitations set forth in the Indenture, Tevecap and its Subsidiaries may incur other senior Indebtedness, including Indebtedness that is secured by the assets of Tevecap and its Subsidiaries. At September 30, 1996, after giving effect to the issuance of the Old Notes and the application of the net proceeds therefrom, the Tevecap would not have had any outstanding senior Indebtedness of Tevecap, other than the Notes (exclusive of unused commitments) and the aggregate principal amount of outstanding senior Indebtedness of the Guarantors, other than the Subsidiary Guarantees, would have been $4.6 million (exclusive of unused commitments and short term indebtedness) all of which ranks pari passu with the Subsidiary Guarantees, but none of which was secured Indebtedness. As of April 1, 1997, Tevecap did not have any outstanding senior Indebtedness other than the Notes (exclusive of unused commitments and short term indebtedness), and the aggregate principal amount of outstanding senior Indebtedness of the Guarantors was $6.1 million (exclusive of unused commitments and short term indebtedness) all of which ranks pari passu with the Subsidiary Guarantees, and none of which is secured.
18 Although the Notes are titled "senior" securities, Tevecap has not issued any Indebtedness to which the Notes would rank senior. Restrictive Covenants............... The Indenture under which the Notes are issued (the "Indenture") contains certain covenants which will limit (i) the incurrence of additional indebtedness and the issuance of Disqualified Stock by Tevecap and its Restricted Subsidiaries, (ii) the payment of dividends on, and the redemption of, capital stock of Tevecap and the redemption of certain subordinated obligations of Tevecap, (iii) investments, (iv) sales of assets and stock of Restricted Subsidiaries, (v) transactions with affiliates, (vi) the creation and existence of liens, (vii) investments in Unrestricted Subsidiaries (as defined), (viii) the types of businesses Tevecap and its Restricted Subsidiaries may conduct and (ix) consolidations, mergers and transfers of all or substantially all of Tevecap's assets. The Indenture also prohibits certain restrictions on distributions from Restricted Subsidiaries. However, all of these limitations and prohibitions are subject to a number of important qualifications and exceptions. See "Descriptions of Notes-- Certain Covenants."
RISK FACTORS Prospective investors in the Notes should carefully consider all of the information set forth in this Prospectus and, in particular, should evaluate the specific factors set forth under "Risk Factors." 19 SUMMARY HISTORICAL FINANCIAL AND OTHER DATA The historical data as of December 31, 1995 and 1994, and for the three years in the period ended December 31, 1995 have been derived from, and should be read in conjunction with, the audited Financial Statements of the Company included elsewhere in this Prospectus. The unaudited financial data set forth below as of and for the nine month period ended September 30, 1996 and for the nine month period ended September 30, 1995 have been derived from the unaudited Financial Statements of the Company. The historical data as of December 31, 1992 and 1993 and for the year ended December 31, 1992 are derived from the audited Financial Statements of the Company that are not included elsewhere in this Prospectus. The historical data as of September 30, 1995 are derived from the unaudited Financial Statements of the Company that are not included elsewhere in this Prospectus. As required by Brazilian law, and in accordance with local accounting practices, the financial records of Tevecap and its subsidiaries are maintained in the applicable Brazilian currency (the REAL). However, the Financial Statements are presented in US dollars. In order to prepare the Financial Statements, the Company's accounts have been translated from the applicable Brazilian currency, on the basis described in Note 2.3 to the Financial Statements. Because of the differences between the evolution of the rates of inflation in Brazil and the changes in the rates of devaluation, amounts presented in US dollars may show distortions when compared on a period-to-period basis. The results of operations for the nine month period ended September 30, 1996 are not necessarily indicative of the results expected for the year ending December 31, 1996.
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------------------ -------------------- 1992 1993 1994 1995 1995 1996 --------- --------- --------- --------- --------- --------- (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT SELECTED OPERATING DATA) STATEMENT OF OPERATING DATA: Gross revenues Monthly subscriptions.................................... $ 7,070 $ 12,544 $ 27,976 $ 62,496 $ 41,296 $ 85,301 Installation............................................. 1,857 4,350 6,997 26,045 17,995 39,396 Indirect programming(a).................................. 512 530 1,626 2,866 2,114 5,278 Other(b)................................................. 1,322 2,468 7,173 10,603 7,699 10,657 Revenue taxes(c)........................................... (305) (371) (872) (7,506) (5,171) (8,881) --------- --------- --------- --------- --------- --------- Total net revenue.......................................... 10,456 19,521 42,900 94,504 63,933 131,751 --------- --------- --------- --------- --------- --------- Direct operating expenses(d)............................... 32,905 29,779 28,659 62,026 42,279 75,557 Selling, general and administrative expenses............... 17,834 19,957 24,370 46,902 30,787 53,710 Depreciation and Amortization.............................. 2,704 4,813 6,177 13,268 8,865 18,547 Allowance for inventory obsolescence....................... -- -- -- -- -- 2,493 --------- --------- --------- --------- --------- --------- Total operating expenses................................... 53,443 54,549 59,206 122,196 81,931 150,307 --------- --------- --------- --------- --------- --------- Operating loss............................................. (42,987) (35,028) (16,306) (27,692) (17,998) (18,556) Nonoperating expenses Interest expense......................................... (13,538) (8,492) (16,413) (17,745) (12,493) (10,125) Equity in income (losses) of affiliates(e)............... -- -- 383 (3,672) (2,084) (6,642) Other nonoperating (expenses) income, net(f)............. 2,232 5,892 20,339 8,039 5,158 (1,592) Income tax expense....................................... -- -- -- -- -- (105) --------- --------- --------- --------- --------- --------- Net loss................................................... $ (54,293) $ (37,628) $ (11,997) $ (41,070) $ (27,417) $ (37,020) --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- OTHER DATA: EBITDA--TV Group(g)........................................ $ (40,283) $ (30,215) $ (10,129) $ (13,318) $ (8,462) $ 8,533 EBITDA--Galaxy Brasil(g)................................... -- -- -- (1,106) (671) (6,049) --------- --------- --------- --------- --------- --------- EBITDA(g)(h)............................................... (40,283) (30,215) (10,129) (14,424) (9,133) 2,484 Pro forma interest expense(i).............................. 38,623 29,940 Purchase of fixed assets................................... 7,627 11,379 22,369 93,029 52,987 72,538 Ratio of earnings to fixed charges(j)...................... -- -- -- -- -- -- CASH FLOW DATA: Cash provided by (used in) operating activities (h)........ (32,633) (19,180) (9,707) 22,989 1,099 (5,385) Cash provided by (used in) investing activities............ (11,761) (13,190) (24,334) (119,661) (68,541) (111,800) Cash provided by (used in) financing activities............ 44,088 32,348 38,666 116,229 62,837 93,603 SELECTED OPERATING DATA: Number of Subscribers to Owned Systems(k).................. 42,924 82,985 114,853 219,148 198,157 316,345 Average monthly revenue per Subscriber(l).................. $ 18.64 $ 21.30 $ 27.80 $ 33.24 $ 33.48 $ 37.66 BALANCE SHEET DATA (AT PERIOD END): Cash and cash equivalents................................ $ 41 $ 19 $ 4,644 $ 24,201 $ 39 $ 619 Property, plant and equipment............................ 29,561 35,859 51,426 131,266 95,756 188,063 Total assets............................................. 40,779 45,529 80,441 218,848 148,473 291,154 Loans from affiliated companies.......................... 42,577 89,769 -- 586 22,301 91,926 Long-term liabilities.................................... 67,736 97,105 4,523 9,604 29,816 105,330 Redeemable common shares................................. -- -- 19,754 149,534 69,754 163,225 Total shareholders' equity............................... (54,483) (92,111) 27,590 (18,260) 173 (68,971)
See accompanying Notes to Summary Historical Financial And Other Data 20 NOTES TO SUMMARY HISTORICAL FINANCIAL AND OTHER DATA (a) Represents revenues received by the Company for selling programming to the Independent Operators. (b) Includes Advertising and Other revenues. (c) Represents various non-income based taxes paid on certain of the Company's gross revenue items with rates ranging from 2.65% to 7.65%. (d) Represents costs directly related to Monthly subscriptions, and a portion of Installation, Indirect programming and Other revenues. (e) Represents the Company's pro rata share of the Net loss or income of its equity investments. (f) Includes Interest income, Translation gain or loss, Other nonoperating (expenses) income, net, and Minority interest. The amount included for the year ended December 31, 1994 includes Interest income totaling $21,806. During that year, the Company received capital contributions from stockholders which resulted in a surplus of cash invested during such period. (g) EBITDA represents the sum of (i) net income (loss), plus, without duplication, (ii) income tax expense, (iii) interest expense (income), net, (iv) other nonoperating (expenses) income, net (v) depreciation, amortization and all other non-cash charges, less (vi) non-cash items increasing net income (loss) (with the exception of amortized deferred sign-on and hookup fee revenue), in each case determined in accordance with GAAP. EBITDA-TV Group and EBITDA-Galaxy Brasil represent operating loss plus depreciation and amortization. The term "TV Group" refers to the operations of TVA, excluding the operations of Galaxy Brasil. The TV Group, which constitutes the operations of TVA, excluding the operations of Galaxy Brasil, represents the more mature operations of the Group while Galaxy Brasil remains in a start up phase and has yet to collect material revenues to offset the costs of initiating the Ku-Band service. EBITDA has been presented separately for the TV Group and Galaxy Brasil to take account of the different stages of development of these operations. (h) Cash provided by (used in) operating activities (hereinafter referred to as cash flows from operating activities) has been determined in accordance with GAAP while EBITDA has been calculated in accordance with the definition in footnote (g). In accordance with GAAP, cash flows from operating activities generally reflect the cash effects of transactions and other events that enter into the determination of net income. The principal difference between EBITDA and cash flows from operating activities arise as a result of the treatment of the changes in the balances of operating assets and liabilities from the beginning to the end of a reporting period. That is, in accordance with GAAP, such changes are components of cash flows from operating activities while there is no similar adjustment in the calculation of EBITDA. EBITDA has been presented as it is a financial measure commonly used in the Company's industry. EBITDA should not be considered as an alternative to cash provided by (used in) operating activities, as an indicator of operating performance or as a measure of liquidity. (i) Represents interest expense on a pro forma basis, resulting from the offering of Old Securities and the application of the net proceeds therefrom as follows:
NINE MONTH YEAR ENDED PERIOD ENDED DECEMBER 31, SEPTEMBER 30, 1995 1996 --------------- --------------- Historical interest expense...................................... $ 17,745 $ 10,125 Elimination of interest expense related to certain related indebtedness................................................... (11,788) (4,684) Interest resulting from the Notes based on an interest rate of 12.625%........................................................ 31,563 23,672 Amortization of deferred financing costs relating to the Notes... 1,103 827 --------------- --------------- $ 38,623 $ 29,940 --------------- --------------- --------------- ---------------
(j) For the four years ended December 31, 1995 and the nine months ended September 30, 1995 and 1996, earnings were insufficient to cover fixed charges by $54,487, $37,920, $13,100, $38,269, $25,905 and $31,911, respectively. In calculating the Ratio of earnings to fixed charges, earnings represents Net loss before minority interest, Equity in (losses) income of affiliates, less fixed charges. Fixed charges consist of the sum of Interest expense paid or accrued on indebtedness of the Company and its subsidiaries and affiliates and one third of operating rental expenses (such amount having been deemed by the Company to represent the interest portion of such payments). (k) Represents the number of Owned Systems' Subscribers as of the last day of each period. (l) Average monthly revenue per subscriber refers to the average monthly subscription fee as of the last day of each period. 21 RISK FACTORS BEFORE TENDERING OLD SECURITIES FOR EXCHANGE SECURITIES, PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY ALL THE INFORMATION SET FORTH HEREIN AND, IN PARTICULAR, THE SPECIAL FACTORS APPLICABLE TO AN INVESTMENT IN BRAZIL AND APPLICABLE TO AN INVESTMENT IN THE COMPANY, INCLUDING THOSE SET FORTH BELOW. IN GENERAL, INVESTING IN THE SECURITIES OF ISSUERS IN DEVELOPING COUNTRIES, SUCH AS BRAZIL, INVOLVES A HIGHER DEGREE OF RISK THAN INVESTING IN THE SECURITIES OF ISSUERS IN THE UNITED STATES AND OTHER JURISDICTIONS. FOR ADDITIONAL INFORMATION CONCERNING BRAZIL AND CERTAIN MATTERS DISCUSSED BELOW, SEE "ANNEX A--THE FEDERATIVE REPUBLIC OF BRAZIL." RISKS RELATING TO THE COMPANY LIMITED OPERATING HISTORY; EARLY STAGE COMPANY The Company, which began operating in 1989, has a limited operating history. Accordingly, prospective investors have limited historical financial information about the Company upon which to base an evaluation of the Company's performance and an investment in the Notes. Since inception, the Company has sustained substantial losses, due primarily to start-up costs, interest expense and charges for depreciation and amortization arising from the development of its pay television systems. Prospective investors should be aware of the difficulties encountered by enterprises in the early stages of development, particularly in light of the competitive nature of the Brazilian pay television industry. The Company derives most of its revenue from subscription revenue and installation revenue. Subscriber penetration rates and subscriber sensitivity to the price of installation and subscription fees will materially affect the Company's results of operations. As TVA's networks mature, installation fees will represent a declining portion of the Company's total revenues. The ability of the Company to generate subscription revenue will depend on the acceptance of its programming, which in turn will depend on the availability of programming at a competitive cost and the relative appeal to subscribers of such programming. There can be no assurance that the Company will be successful in establishing and maintaining a substantial subscriber base or that it will generate revenues which, when taken together with its sources of financing, will be sufficient to meet its operating needs or capital requirements or to service its indebtedness, including the Notes. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." OPERATING LOSSES AND NEGATIVE CASH FLOW As of September 30, 1996, the Company had incurred cumulative net losses of approximately $193 million since 1991 and as of September 30, 1996 the Company had negative working capital of $45,773. The Company may continue to generate net losses and negative funds from operations during the period in which the Company develops and expands its pay television distribution systems and builds its subscriber base. The Company's future operating profitability will depend upon many factors, including, among others, its ability to market its products and services successfully, achieve its projected market penetration, manage subscriber turnover rates effectively and price its pay television services competitively. There can be no assurance that the Company will achieve or sustain operating profitability and positive cash flows in the future. If the Company does not achieve and maintain operating profitability and positive cash flows on a timely basis, it may not be able to satisfy its future liquidity needs including funding its working capital requirements and capital expenditures and meeting its debt service requirements. Future capital expenditure requirements relate primarily to: (i) the construction of cable networks and the installation of equipment at subscribers' locations, (ii) the construction of additional transmission and headend facilities and related equipment purchases, and (iii) investments in, and maintenance of vehicles and administrative offices. In addition, the Company has certain commitments that must be, or have been funded, in connection with its Operating and Programming Ventures and minority interests. 22 These requirements and commitments are important to the future development of the business. To date, the Company has relied on contributions and loans from Abril and investments made by its other shareholders to fund its operations. The Company has net operating loss carryforwards ("NOLs") totaling approximately $118.6 million which are unexpirable. Although management believes the Company will be profitable in the future and will be able to realize the benefits from a portion of the NOLs, in accordance with Statement of Financial Accounting Standards No. 109 (Accounting for Income Taxes), the Company has established a valuation allowance for all of these net deferred tax assets due to its cumulative losses. See Note 12 to the Tevecap Financial Statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations." ADDITIONAL FINANCING If the Company fails to meet its projected operating results or its capital needs exceed its projected requirements, the Company may require substantial investment on a continuing basis to finance its corresponding capital expenditures. The Company may also require substantial additional capital for any new pay television license acquisitions or investments or acquisitions of entities holding such licenses, or for any investments in or acquisitions of other existing pay television operations in order to further expand the Company's operations. The amount and timing of the Company's future capital requirements will depend upon a number of factors, many of which are not within the Company's control, including subscriber growth and retention, programming costs, capital costs, marketing expenses, staffing levels, and competitive conditions. There can be no assurance that the Company's future cash requirements will not increase as a result of unexpected developments in the Brazilian pay television industry. Due to its highly leveraged capital structure, there can be no assurance that the Company will be able to arrange additional financing to fund capital or other requirements until the Company maintains positive operating cash flow or that any such financing will be on terms acceptable to the Company. Following the receipt of any additional financing, there can be no assurance that the Company will be able to generate sufficient funds to meet its fixed charges and other obligations. The Indenture restricts the amount of additional indebtedness the Company may incur, subject to certain qualifications and exceptions. Failure to obtain any required additional financing could adversely affect the growth of the Company and, ultimately, could have a material adverse effect on the Company. See "Description of Notes--Certain Covenants." COMPETITIVE INDUSTRY The pay television industry in Brazil is, and is expected to continue to be, highly competitive. The Company competes with providers of pay television services utilizing Cable, MMDS, C-Band technology and, in the near future, Ku-Band delivery systems and any new delivery systems which may be introduced, as well as existing off-air broadcast television networks, movie theaters, video rental stores and other entertainment and leisure activities generally. A number of the Company's current and potential competitors have greater experience in the television industry and greater resources, including financial resources, than the Company. TVA's principal competitors in Cable service are operations owned or controlled by Multicanal, Net Brasil, Globo Cabo and RBS. Multicanal and Net Brasil operate Cable service systems throughout much of Brazil, including Sao Paulo Rio de Janeiro, Curitiba and several other large metropolitan areas. Globo Cabo and RBS operate Cable systems in numerous smaller cities, including Brasilia. RBS also provides MMDS service in Porto Alegre. Net Brasil also provides MMDS service in Recife and has a license to provide MMDS service in Curitiba. Globo Par and TV Globo, the owners of Brazil's most popular off-air channels, control, or have significant interests, in each of Multicanal, Net Brasil and Globo Cabo. RBS also holds an interest in Multicanal. Management believes that the Company's only competitor in DBS service is Net Sat, which has a C-Band and has recently begun a Ku-Band service. TVA's C-Band service 23 offers a greater number of channels of programming than Net Sat's C-Band service. However, while monthly charges are comparable and TVA's digital C-Band service offers more channels, often with better picture quality, the analog decoder necessary for Net Sat's service is significantly less expensive than the digital decoder necessary for TVA's service. With respect to Ku-Band service, Net Sat uses a satellite which provides broader coverage of Brazil. The orbital location of the Galaxy III-R satellite enables GLA to offer DIRECTV service to substantially all of the TV Homes in Brazil. However, in the less populated northern and western regions of Brazil, reception of DIRECTV programming requires a dish antenna 1.1 meters in diameter and in the western third of Brazil (a sparsely populated area when compared to the southern and eastern regions) reception may not be practical due to the size of the antenna necessary for reception. Globo Par has a controlling interest in Net Sat while News Corporation plc, a subsidiary of The News Corporation Limited, and Grupo Televisa, S.A. of Mexico, also hold equity interests in Net Sat. The Company expects that a number of new MMDS and Cable licenses will be granted by the Brazilian Ministry of Communications beginning in the first half of 1997. It is possible that new licenses will be granted to competitors in areas in which the Company operates. Such awarding of competing licenses could result in further competition which, in turn, may materially adversely affect the Company's subscriber base, results of operations and financial condition. New competitors are likely to emerge in markets in which the Company operates or intends to operate and may include additional Cable, MMDS, C-Band service and other competitors. For additional information regarding the competitive environment in which the Company conducts its business, see "Business--Competition." The success of the Company's operating strategies is subject to factors that are beyond the control of the Company and difficult to predict due, in part, to the limited history of pay television services in Brazil. Consequently, the size of the Brazilian market for pay television, the rates of penetration of that market, the acceptance of pay television by subscribers and commercial advertisers, the sensitivity of potential subscribers to the price of installation and subscription fees, the extent and nature of the competitive environment and the long-term viability of pay television services in Brazil are uncertain. HUGHES ELECTRONICS INTEREST IN PANAMSAT Hughes Electronics, the majority owner of GLA and possible future shareholder of GLB, agreed in August 1996 to acquire a majority interest in PanAmSat Corporation ("PanAmSat") from PanAmSat's shareholders, pending regulatory approval. PanAmSat is the owner and operator of the PAS-3 satellite. Net Sat has leased transponder space on PAS-3 from PanAmSat to provide a competing Ku-Band service in Brazil. The ownership by Hughes Electronics of a majority interest in PanAmSat could have the potential of creating a conflict of interest, since Hughes Electronics will have an interest in the financial success of Net Sat's Ku-Band service. However, PanAmSat is not itself engaged in providing pay television service in conflict with the Company's Ku-Band service, but is only engaged in providing satellite transponders, on a leased basis, to third parties for a variety of uses. Furthermore, under the terms of the agreements among GLA and its partners, Hughes Electronics is only allowed to provide additional services to PanAmSat with the approval of the other GLA partners. As a consequence there are limitations on the extent to which Hughes Electronics may engage in activities which may compete with the Company. No assurances can be given as to the effect, if any, that the acquisition of a majority interest in PanAmSat by Hughes Electronics may have on the operations of the Company. CURRENCY RISK The Company expects substantially all of its long term debt obligations (including the Notes) to be denominated in US dollars while the Company generates revenues only in Brazilian reais. The Company also expects to incur a significant portion of its equipment costs, and most of its programming costs, in US dollars. Consequently, the devaluation of the REAL against the US dollar could significantly affect the Company's ability to meet its obligations and fund its capital expenditures, and could adversely affect its 24 results of operations. While the Company may consider entering into transactions to hedge the risk of exchange rate fluctuations, the Company, as of April 9, 1997, has not entered into any such transactions, and it may not be possible for the Company to obtain hedging arrangements on commercially satisfactory terms. In addition, shifts in currency exchange rates may have a material adverse effect on the Company and may force the Company to seek additional capital, which may not be available to it. Similarly, the Company expects that those entities in which it does not have a majority interest may incur a significant portion of their debt obligations and equipment and programming costs in US dollars and generate revenues only in Brazilian reais. Shifts in currency exchange rates may have a material adverse effect on those entities or make it necessary for those entities to request additional equity or debt contributions from the Company. CHANGE IN TECHNOLOGY The pay television industry as a whole is, and is likely to continue to be, subject to rapid and significant changes in technology. Although the Company believes that, for the foreseeable future, these existing and developing alternative technologies will not materially adversely affect the viability or competitiveness of its pay television business, there can be no assurance as to the effect of such technological changes on the Company or that the Company will not be required to expend substantial financial resources in the development or implementation of new competitive technologies. MMDS TRANSMISSION ISSUES Reception of MMDS programming generally requires a direct, unobstructed line-of-sight ("LOS") from the Company's headend to the subscriber's antenna. MMDS service can also be provided by use of signal repeaters. If the LOS is obstructed, the Company may not be able to supply service to certain potential subscribers or may be required to install additional signal repeaters. In addition to limitations resulting from terrain, extremely adverse weather can, in limited circumstances, damage transmission and receive-site antennas as well as other transmission equipment. Interference from other transmission systems can limit the ability of an MMDS system to serve any particular point, just as interference from one television station limits the ability of a viewer to receive another television station signal broadcasting on the same frequency. Under current regulations of the Ministry of Communications in Brazil, an MMDS license holder is generally protected from interference within a radius of up to 50 kilometers of the transmission site, depending on the technical capability of the operator. A prospective operator must demonstrate that its signal will not cause interference with the reception of other permitted channels. In the event that the Company acquires any new MMDS licenses, there can be no assurance that the Company will be allowed to transmit such MMDS signals up to the full 50 kilometer radius. DEPENDENCE UPON SATELLITES The Company's C-Band and Ku-Band service and the delivery of programming to the MMDS and Cable systems of the Owned Systems and the Operating Ventures outside Sao Paulo are dependent upon the operation of satellites by third parties. To deliver programming to the Owned Systems and the Operating Ventures and provide its C-Band service, the Company utilizes transponders on Brasilsat, a satellite owned and operated by Embratel, a Brazilian Government owned company. The Company uses the Galaxy III-R satellite, which is leased and operated by a unit of Hughes Electronics, to provide its Ku-Band service. Although the Company has not experienced any significant disruption of its transmissions to date, satellites are subject to significant risks that may prevent or impair proper commercial operations, including satellite defects, destruction and damage and incorrect orbital placement. On occasion, satellite launches have resulted in a total or constructive total loss due to launch failure, failure to achieve proper orbit or failure to operate upon reaching orbit. For example, the original PAS-3 satellite, which Net Sat originally planned to use for its Ku-Band service, was destroyed upon launch as a result of a 25 malfunction of the Ariane space launch vehicle. Disruption of the transmission of the Galaxy III-R satellite or the failure of the launch of any replacement satellite could have a material adverse effect on the Company. The ability of the Company to transmit its programming following the expected useful life of the Galaxy III-R satellite, which currently is approximately nine years, and to broadcast additional channels, will depend upon the ability of the Company to obtain rights to utilize transponders on other satellites. RISK OF SIGNAL THEFT The delivery of pay television programming requires the use of encryption technology to prevent signal theft. Historically, piracy in the cable television and DBS industries has been widely reported. With each of its services, the Company uses an access control system to prevent unauthorized reception of its programming. The Company's MMDS and Cable systems use various decoder technologies, and the Company's Ku-Band receiver employs Smart Card technology, allowing the Company to change the access control system in the event of a security breach. There can be no assurance, however, that the access control technology used in connection with each of the Company's delivery services will be, or remain, effective. If the access control technology is compromised and not promptly corrected, the Company's revenues and the Company's ability to market its pay television services would be adversely affected. REGULATION Substantially all of the Company's business activities are regulated by the Brazilian Ministry of Communications. Such regulation relates to, among other things, licensing, local access to Cable and MMDS systems, commercial advertising, and foreign investment in Cable and MMDS systems. Changes in the regulation of the Company's business activities, including decisions by regulators affecting the Company's operations (such as the granting or renewal of licenses or decisions as to the subscription rates the Company may charge its customers) or changes in interpretations of existing regulations by courts or regulators, could adversely affect the Company. The Company's Cable and MMDS licenses may not be transferred without regulatory approval. Under current regulations, the Brazilian Ministry of Communications will grant Cable and MMDS licenses pursuant to a public bidding process. The Company is unable to predict what impact, if any, such public bidding will have on its ability to launch and operate new systems. Any new regulations could have a material adverse effect on the subscription television industry as a whole and on the Company in particular. See "Business--Regulatory Framework." The construction and launch of broadcasting satellites and the operation of satellite broadcasting systems are subject to substantial regulation by the Brazilian Ministry of Communications. Ministry of Communications rules are subject to change in response to industry developments, new technology and political considerations. Certain aspects of television and telecommunications operations and ownership are governed by the Brazilian Constitution. It is expected that a new law enacting constitutional amendments, along with possible regulations thereunder, will be passed in 1996 or 1997. The Brazilian Government may enact additional or new regulations applicable to the activities of the Company's C-Band and Ku-Band satellite services. The Company's business and business prospects could be adversely affected by the adoption of new constitutional amendments, laws, policies or regulations or changes in the interpretation or application of existing laws, policies and regulations. There can be no assurance that the Company will succeed in obtaining all requisite regulatory approvals for its operations without the imposition of restrictions on, or adverse consequences to, the Company. There can also be no assurance that material adverse changes in regulations affecting the Company's C-Band and Ku-Band satellite services will not occur in the future. See "Business--Regulatory Framework." 26 AVAILABILITY OF PROGRAMMING AND EQUIPMENT The success of the Company's business will be dependent on its ability to obtain programming that is appealing to subscribers at commercially reasonable costs. The Company is dependent on third party suppliers for a significant amount of its programming. Most of the Company's programming is purchased from programming providers in the United States and Europe pursuant to contracts some of which will begin expiring within one year. Although the Company has no reason to believe that such contracts will be cancelled or will not be renewed upon expiration, in the event such contracts are cancelled or not renewed, the Company will have to seek programming from other sources. Such other sources include a large number of international programming providers as well as the Company's own programming production capabilities. There can be no assurance that other programming will be available to the Company on acceptable terms or at all or, if so available, that such programming will be acceptable to the Company's subscribers. See "Business--Programming." The Company currently purchases decoders and antennas from a limited number of sources. The inability to obtain sufficient components as required, or to develop alternative sources if and when required in the future, could result in delays or reductions in customer installations which, in turn, could have a material adverse effect on the results of operations and financial condition of the Company. MANAGEMENT OF GROWTH The Company is growing rapidly, which could place a significant strain on its operational and personnel resources. As the Company's business develops and expands, the Company will need to implement enhanced operational and financial systems and will require additional employees and management, operational and financial resources. There can be no assurance that the Company will successfully implement and maintain such operational and financial systems or successfully obtain, integrate and utilize the required employees and management or operational and financial resources in order to manage a developing and expanding business in a new industry. Failure to implement such systems successfully and use resources effectively could have a material adverse effect on the Company's results of operations and financial condition. TRANSACTIONS WITH RELATED PARTIES; RIGHTS TO PUT THE COMPANY'S STOCK Tevecap currently engages in, and expects from time to time to engage in, financial and commercial transactions with its shareholders, subsidiaries and other affiliates. Although transactions with affiliated persons are subject to the terms of the Indenture, the Company may continue to enter into certain transactions with affiliates in the future. While the Company believes that such transactions in the past have generally had a beneficial effect on the Company, no assurance can be given that any such transaction, or combination of transactions, will not have a material adverse effect on the Company in the future. See "Certain Transactions with Related Parties." Pursuant to a Stockholders Agreement among Tevecap and its stockholders, upon the occurrence of certain defined "triggering events," each of the Stockholders, other than Abril, may demand that Tevecap buy all or a portion of the shares of capital stock of Tevecap held by such Stockholder, unless the shares of capital stock held by such Stockholder are publicly registered, listed or traded (collectively referred to as an "Event Put"). The Indenture, however, contains restrictions on the ability of Tevecap to purchase shares of its capital stock. See "Description of Notes--Certain Covenants--Limitation on Restricted Payments." Accordingly, the parties to the Stockholders Agreement have unanimously amended the Stockholders Agreement to provide that if the terms of the Indenture prohibit Tevecap from purchasing shares that are subject to an Event Put ("Event Put Shares"), in whole or in part, the Company shall not be obligated to purchase such shares to the extent it is so restricted. However, in such event, the Company shall, subject to the terms of the Indenture, have the obligation to issue shares of preferred stock of the Company ("Special Preferred Shares") should the Tevecap stockholder elect to 27 convert Event Put Shares to Special Preferred Shares. The holders of Special Preferred Shares will be entitled to dividends required by law and a cumulative dividend equal to LIBOR plus a 4.0% margin, provided that if the terms of the Indenture prohibit the payment of dividends on the Special Preferred Shares, the Company shall not be obligated to make such dividend payments to the extent so restricted. However, under the terms of the Special Preferred Shares such unpaid dividends shall cumulate and will be paid in full when permissible under the Indenture or when the Indenture no longer restricts the payment of such dividends. After the payment of all dividends on the Special Preferred Shares, the Company must use any remaining profit or reserve to purchase the largest number of Event Put Shares and Special Preferred Shares, provided that, if the terms of the Indenture prohibit the purchasing of such shares, the Company shall not be obligated to make such purchases until permitted by the terms of the Indenture. In addition, pursuant to the Stockholders Agreement, Falcon International may demand that Tevecap buy all or any portion of the shares of capital stock of Tevecap held by Falcon International if such shares are not publicly registered, listed or traded by September 22, 2002 (the "Falcon Time Put"). If the terms of the Indenture prohibit it from purchasing such shares, Tevecap may, subject to the terms of the Indenture, delay the payment of such purchase price with three annual payments ("Put Annual Payments") or issue promissory notes denominated in US dollars for the amount of such price ("Put Promissory Notes"). The Put Promissory Notes would mature three years after issuance with interest payments due quarterly in arrears. The interest rate on the Put Promissory Notes would be equal to the rate applicable to US Treasury obligations of similar maturity plus a margin to be negotiated with the parties taking into account the risks associated with the type of obligor, Tevecap's creditworthiness and investments in Brazil. Under the provisions of the Stockholders Agreement, as amended, while the Put Promissory Notes are outstanding, Tevecap may not pay any dividends or make distributions with respect to its capital stock, including the Special Preferred Shares should they exist. To the extent dividends and distributions of payments under the Put Promissory Notes may be made under the Indenture, payments must be made first to satisfy the obligations under the outstanding Put Promissory Notes. If the terms of the Indenture prohibit the Company from making the Put Annual Payments, the Company shall not be required to make such payment, but shall be required to deliver Put Promissory Notes in the principal amount of the affected Put Annual Payments. The Indenture does not restrict the principal amount of Put Promissory Notes which the Company may issue, but does restrict the ability of the Company to make interest and principal payments on the Put Promissory Notes. If the terms of the Indenture prohibit the Company from making an interest payment required under any Put Promissory Note, the Company shall not be required to make such payment at such time, provided that any accrued and unpaid interest shall accumulate and interest on such unpaid amount shall compound quarterly and the Company shall make payments of interest as soon as such payment is no longer restricted under the Indenture. Pursuant to the terms of the proposed amendment to the Stockholders Agreement, payment of the principal and interest on the Put Promissory Notes would be subordinated to the prior payment in full of the Notes. See "Description of Notes--Certain Covenants--Limitation on Restricted Payments," "--Limitation on Indebtedness" and "Principal Shareholders." OWNERSHIP OF FUTURE CABLE TELEVISION LICENSES The Company holds a 36.0% equity interest in Canbras TVA Cabo and TV Cabo Santa Branca (the "Canbras TVA Companies"), two Cable operators holding Cable licenses for a number of smaller cities within the greater Sao Paulo metropolitan area. Canbras, a publicly-traded Canadian company and Canbras-Par, a Brazilian company, own the remaining interest in Canbras TVA Cabo, and Canbras-Par owns the remaining interest in TV Cabo Santa Branca. BCI, an affiliate of BCE, Inc., Canada's largest telecommunications group, holds a $27.0 million convertible debenture that, upon conversion, would permit BCI to become, INTER ALIA, a majority shareholder of Canbras-Par. Pursuant to the Canbras Association Agreement, dated June 14, 1995, among TVA, the Canbras TVA Companies, Canbras and Canbras-Par, the Company agreed to grant to Canbras-Par a "right of first refusal" to participate in other 28 Cable licenses that the Company may obtain, directly or indirectly, and Canbras-Par granted to the Company a similar "right of first refusal" to participate in Cable licenses acquired by Canbras-Par. The term of the Canbras Association Agreement is for so long as Canbras-Par or its assignee owns shares "in companies which have the objective of engaging in the cable TV business." The Canbras Association Agreement does not specify the terms and conditions on which any co-investments in Cable licenses are to be made, and the Company expects that such terms and conditions will be negotiated in good faith, on a case-by-case basis, in connection with any future Cable license investments. The Company does not believe that the implementation of the Canbras Association Agreement will have a material adverse effect on the Company and its on-going operations. Subsequent to the date of the Canbras Association Agreement, the Company, through TVA Sul, acquired two new Cable systems in Camboriu and Foz do Iguacu. Under the terms of the Canbras Association Agreement, the Company is required to offer to Canbras-Par the right to participate in these Cable systems. Although Canbras-Par has indicated a preliminary interest in participating in these two Cable systems, the Company has not yet made a formal offer to Canbras and, therefore, Canbras' precise level of participation is uncertain at this time. Additionally, Canbras-Par and the Company are contemplating Canbras-Par investing directly in TVA Sul, on terms to be agreed upon. The Canbras Association Agreement provides that to the extent programming is owned exclusively by TVA, programming will be supplied to the Canbras TVA Companies on an exclusive basis, and that TVA will not supply such programming to any other party within the geographic territories covered by the licenses held by the Canbras TVA Companies. The Canbras Association Agreement does not, by its terms, refer to Ku-Band or C-Band service. Canbras has taken exception to the Company's view that the programming provisions do not limit the Company's ability to offer such services in such geographic territories. The Company believes its on-going discussions with Canbras will lead to a clarification of these provisions in a manner which will have no material adverse effect on the Company or its on-going operations. However, there can be no assurance of such an outcome, and as of April 10, 1997, the Company and Canbras had not reached an agreement on such a clarification. DIVIDENDS TO SHAREHOLDERS Brazilian corporation law and the Stockholders Agreement among Tevecap and its stockholders require Tevecap to distribute to its shareholders a mandatory dividend equal to 25.0% of its net profits. Net profits are defined under the Brazilian corporation law as the income remaining after the deduction of payments due to employees, managers and individual shareholders in the service of the applicable company. In addition, a Brazilian company is allowed to distribute dividends only if, after a given fiscal year, its net profits exceed its accumulated losses. However, in accordance with Brazilian corporation law, Tevecap may suspend the mandatory dividend upon a unanimous decision of its shareholders. Pursuant to the terms of an amendment to the Stockholders Agreement, Tevecap's stockholders have unanimously agreed not to exercise their right to receive such mandatory dividends (without limiting their right to receive dividends payable in compliance with the "Limitation on Restricted Payments" covenant in the Indenture) until the first to occur of (x) the date that shares of Capital Stock of the Company are issued and listed on a Brazilian or United States securities exchange in connection with a bona fide public offering of such shares or the date that any shares of the Capital Stock of the Company are otherwise effectively listed and traded on any Brazilian or United States securities exchange, (y) the date that none of the Notes remain outstanding or (z) the date that such commitment is no longer effective, enforceable or legal under applicable Brazilian laws and regulations (including without limitation any construction or interpretation thereof by CVM, any court or any other governmental authority). Accordingly, although the Stockholders Agreement and Brazilian corporate law would allow Tevecap to pay certain dividends, the stockholders have waived their right to the payment of such dividends as described above, and such dividends shall not be paid to the extent such payment is restricted by the 29 Indenture as described above. The common stock dividends provided for by the Stockholders Agreement will cumulate and are required to be paid to the extent such payment is not restricted by the Indenture. See "Description of Notes--Certain Covenants--Limitation on Restricted Payments." RIGHTS TO DIRECTV PROGRAMMING Upon the occurrence of certain stipulated events, GLA, in which TVA has a 10.0% equity interest, has the right to terminate the Local Operating Agreement, dated March 3, 1995, between GLA and Galaxy Brasil (the "Local Operating Agreement"). Such termination would result in a cessation of the supply of programming from GLA to Galaxy Brasil. The events that would entitle GLA to terminate the Local Operating Agreement include breach of any material obligation of Galaxy Brasil under the Local Operating Agreement, failure to meet certain annual subscriber goals beginning August 1, 2000, and revocation of any required governmental licenses. In addition, GLA has the right to terminate Galaxy Brasil's exclusive rights to DIRECTV programming if Galaxy Brasil were to fail to reach certain annual subscriber goals beginning August 1, 1998. The loss of DIRECTV programming could have a material adverse effect on the revenues and business of the Company. RISKS RELATING TO THE NOTES LIMITED ASSETS OF TEVECAP AND DEPENDENCE ON SUBSIDIARIES FOR REPAYMENT OF NOTES Tevecap's operations are conducted through, and substantially all of Tevecap's assets are owned by, Tevecap's direct and indirect subsidiaries. The ability of Tevecap to meet its obligations in respect of the Notes and any future indebtedness of Tevecap will depend on, among other things, the future performance of such subsidiaries (including the Guarantors) and the ability of Tevecap to refinance the Notes at their maturity (or upon early redemption or otherwise). In addition, the ability of Tevecap's subsidiaries to pay dividends and make other payments to Tevecap may be restricted by, among other things, applicable corporate and other laws and regulations and by the terms of agreements to which such subsidiaries become subject. Also, the property and assets of certain of such subsidiaries have had, or in the future may have, liens placed upon them pursuant to existing and future financings of such subsidiaries. Although the Indenture limits the ability of such subsidiaries to enter into consensual restrictions on their ability to pay dividends and make other payments to Tevecap and to permit liens to exist on their property and assets, such limitations are subject to a number of significant qualifications. "See Description of the Notes--Certain Covenants--Limitations on Restrictions on Distributions from Restricted Subsidiaries," and "--Limitations on Liens". A portion of the Company's total assets (13.4% at September 30, 1996) represents interests in entities that are not majority-owned subsidiaries of Tevecap. The ability of Tevecap to receive funds from these entities may be limited by, among other things, shareholder agreements with the other investors in those entities, credit arrangements at those entities and the need of those entities to reinvest their cash flow in their own operations. In addition, applicable Brazilian law limits the amount of dividends which may be paid by Tevecap's minority-owned subsidiaries to the extent they do not have profits available for distribution. Other statutory and general law obligations may also affect the ability of those entities to declare dividends or the ability of those entities to make payments to Tevecap on account of intercompany loans. FRAUDULENT CONVEYANCE CONSIDERATIONS The Company has been advised by its Brazilian counsel, Basch & Rameh Advogados e Consultores, that, to the extent that the Subsidiary Guarantees given by the Guarantors are valid and enforceable in accordance with the laws of the State of New York and the United States, the laws of Brazil do not prevent such Subsidiary Guarantees from being valid, binding and enforceable against the Guarantors in accordance with their terms. In the event US federal and state fraudulent conveyance or 30 similar laws were applied to the issuance of a Subsidiary Guarantee, if any Guarantor, at the time it incurs such Subsidiary Guarantee, (a) (i) was or is insolvent or rendered insolvent by reason of such incurrence, (ii) was or is engaged in a business or transaction for which the assets remaining with such Guarantor constituted unreasonably small capital or (iii) intended or intends to incur, or believed or believes that it would incur, debts beyond its ability to pay such debts as they mature and (b) received or receives less than reasonably equivalent value or fair consideration, the obligations of such Guarantor under its Subsidiary Guarantee could be avoided, or claims in respect of such Subsidiary Guarantee could be subordinated to all other debts of such Guarantor. Among other things, a legal challenge of a Subsidiary Guarantee on fraudulent conveyance grounds may focus on the benefits, if any, realized by such Guarantor as a result of the issuance by Tevecap of the Notes. To the extent that any Subsidiary Guarantee were held to be a fraudulent conveyance or unenforceable for any other reason, the holders of the Notes would cease to have any claim in respect of the Guarantor issuing such Subsidiary Guarantee and would be solely creditors of Tevecap and any other Guarantors whose Subsidiary Guarantees were not avoided or held unenforceable. There can be no assurance that, after providing for all prior claims, there would be sufficient assets to satisfy claims of the holders of the Notes relating to any avoided portion of a Subsidiary Guarantee. ENFORCEABILITY OF JUDGMENTS The Company has been advised by its Brazilian counsel, Basch & Rameh Advogados e Consultores, that judgments for monetary claims obtained in US courts arising out of or in relation to the obligations of Tevecap and the Guarantors under the Indenture, the Notes or the Subsidiary Guarantees will be enforceable in Brazil, provided that such judgment has been previously confirmed by the Brazilian Federal Supreme Court. In order to be confirmed by the Brazilian Federal Supreme Court, such foreign judgment must meet the following conditions: (a) it must comply with all formalities required for its enforceability under the laws of the country where it was issued, (b) it must have been given by a competent court after the proper service of process on the parties, (c) it must not be subject to appeal, (d) it must not offend Brazilian national sovereignty, public policy or good morals and (e) it must be duly authenticated by a competent Brazilian consulate and be accompanied by a sworn translation thereof into Portuguese. No assurance can be given that such confirmation will be obtained, that the process described above can be conducted in a timely manner or that a Brazilian court will enforce such monetary judgment. Any judgment obtained against Tevecap or the Guarantors in a court in Brazil under the Notes, the Subsidiary Guarantees or under the Indenture will be expressed in the Brazilian currency equivalent of the US dollar judgment amount at the commercial exchange rate on the date on which such judgment is obtained, and such Brazilian currency amount will be adjusted in accordance with the exchange variation until the judgment holder receives effective payment. ABSENCE OF PUBLIC MARKET FOR THE EXCHANGE SECURITIES; RESTRICTIONS ON RESALE The Exchange Securities will be new securities for which there currently is no market. The Initial Purchasers have informed Tevecap that they currently intend to make a market in the Old Securities and, if issued, the Exchange Securities, but they are not obligated to do so, and any such market making may be discontinued at any time without notice. There can be no assurance as to the development or liquidity of any market for the Exchange Securities. Tevecap does not intend to apply for listing of the Notes or, if issued, the Exchange Notes on any securities exchange or for quotation through the National Association of Securities Dealers Automated Quotation (Nasdaq) system. 31 CONSEQUENCES OF FAILURE TO PROPERLY TENDER OLD NOTES IN THE EXCHANGE Issuance of the Exchange Securities in exchange for the Old Securities pursuant to the Registered Exchange Offer will be made only after timely receipt by the Exchange Agent of such Old Securities, a properly completed and duly executed Letter of Transmittal and all other required documents. Therefore, holders of the Old Securities desiring to tender such Old Securities in exchange for Exchange Securities should allow sufficient time to ensure timely delivery. Tevecap is under no duty to give notification of defects or irregularities with respect to tenders of Old Securities for exchange. Old Securities that are not tendered or that are tendered but not accepted by Tevecap for exchange, will, following consummation of the Registered Exchange Offer, continue to be subject to the existing restrictions upon transfer thereof under the Securities Act and, upon consummation of the Registered Exchange Offer, certain registration rights under the Exchange and Registration Rights Agreement will terminate. In the event the Registered Exchange Offer is consummated, Tevecap will not be required to register the Remaining Old Securities. Remaining Old Securities will continue to be subject to the following restrictions on transfer: (i) the Remaining Old Securities may be resold only if registered pursuant to the Securities Act, if any exemption from registration is available thereunder, or if neither such registration nor such exemption is required by law, and (ii) the Remaining Old Securities will bear a legend restricting transfer in the absence of registration or an exemption therefrom. Tevecap does not currently anticipate that it will register the Old Securities under the Securities Act. To the extent that Old Securities are tendered and accepted in connection with the Registered Exchange Offer, any trading market for Remaining Old Securities could be adversely affected. CONTROLS AND RESTRICTIONS ON US DOLLAR REMITTANCES; EXCHANGE REGULATION Brazilian law provides whenever there is, or is a serious risk of, a material imbalance in Brazil's balance of payments, the Brazilian Government may, for a limited period of time, impose restrictions on the remittance to foreign investors of the proceeds of their investments in Brazil. For approximately six months in 1989 and early 1990, for example, the Brazilian Government froze all dividend and capital repatriations that were owed to foreign equity investors and held by the Central Bank of Brazil (the "Central Bank") in order to conserve Brazil's foreign currency reserves. These amounts were subsequently released in accordance with Brazilian Government directives. There can be no assurance that similar measures will not be taken by the Brazilian Government in the future. The Brazilian Government currently restricts the ability of Brazilian or foreign persons or entities to convert Brazilian currency into US dollars or other currencies other than in connection with certain authorized transactions. The issuance of the Notes has been approved by the Central Bank. The Central Bank has issued a certificate of registration authorizing each of the scheduled payments of principal at maturity and interest on the Notes. Consent from the Central Bank will be needed for the payment of principal of and interest on the Notes upon acceleration of the Notes following an Event of Default (as defined) and for certain late payments of the Notes (i.e., payments made 181 days or more after a scheduled payment date). In addition, consent from the Central Bank will be needed for redemption of the Notes upon certain optional redemption events. See "Description of Notes." There can be no assurance that the Company will obtain the necessary consents and certificates from the Central Bank for the foregoing payments or redemptions. There can be no assurance that the Brazilian Government will not in the future impose more restrictive foreign exchange regulations that would have the effect of eliminating or restricting the Company's access to foreign currency that it would require to meet its foreign currency obligations, including its obligations under the Notes. The likelihood of the imposition of such restrictions by the Brazilian Government may be affected by, among other factors, the extent of Brazil's foreign currency reserves, the availability of foreign currency in the foreign exchange markets on the date a payment is 32 due, the size of Brazil's debt service burden relative to the economy as a whole, Brazil's policy towards the International Monetary Fund and political constraints to which Brazil may be subject. In addition, there are two legal foreign exchange markets in Brazil: the commercial rate exchange market (the "Commercial Market") and the floating rate exchange market (the "Floating Market"). The Commercial Market is reserved primarily for foreign trade transactions and transactions that generally require prior approval from Brazilian monetary authorities, such as the purchase and sale of registered investments by foreign persons and related remittances of funds abroad, such as a repurchase by the Company of the Notes. Purchases of foreign exchange in the Commercial Market may be carried out only through a financial institution in Brazil authorized to buy and sell currency in that market. The "Commercial Market Rate" is the commercial selling rate for Brazilian currency into US dollars, as reported by the Central Bank. The "Floating Market Rate" generally applies to transactions to which the Commercial Market Rate does not apply. Prior to the implementation of the Real Plan, the Commercial Market Rate and the Floating Market Rate differed significantly at times. Since the introduction of the REAL, the two rates have not differed significantly, although there can be no assurance that there will not be significant differences between the two rates in the future. Both the Commercial Market Rate and Floating Market Rate are reported by the Central Bank on a daily basis. Both the Commercial Market Rate and the Floating Market Rate are freely negotiated but are strongly influenced by the Central Bank, which typically intervened in the Commercial Market, prior to the implementation of the Real Plan, in order to control fluctuations and to regulate disparities between the Commercial Market Rate and the Floating Market Rate. After implementation of the Real Plan, the Central Bank allowed the real to float with minimal intervention. However, on March 6, 1995, the Central Bank announced its intention to intervene in the foreign exchange markets and has subsequently intervened in the markets and taken other actions affecting such markets. On March 6, 1995, the Central Bank announced that it would intervene in the market and buy or sell US dollars, establishing a band (faixa de flutuacao) in which the exchange rate between the REAL and the US dollar could fluctuate. The Central Bank initially set the band with a floor of R$0.86 per US$1.00 and a ceiling of R$0.90 per US$1.00 and provided that, from and after May 2, 1995, the band would fluctuate between R$0.86 and R$0.98 per US$1.00. Shortly thereafter, the Central Bank issued a new directive providing that the band would be between R$0.88 and R$0.93 per US$1.00. On June 22, 1995, the Central Bank issued another directive providing that the band would be between R$0.91 and R$0.99 per US$1.00 and subsequently reset the band on January 30, 1996 to between R$0.97 and R$1.06 per US$1.00. Upon resetting the band on January 30, 1996, the Central Bank adjusted the exchange rate within such band on a number of occasions, generally in increments of R$0.001, by means of buying and selling US dollars in electronic auctions. On February 18, 1997, the band was reset by the Central Bank to float between R$1.05 and $R1.14 per US$1.00. On April 7, 1997, the Commercial Market Rate was R$1.06 per US$1.00. RISKS RELATING TO BRAZIL GENERAL Social, economic or political instability, among other developments in Brazil, could adversely affect the financial condition and results of operations of the Company, the ability of the Company to repay the Notes and the market value and liquidity of the Notes. In the past, Brazil has suffered from high levels of inflation, low real growth rates and political uncertainty. Brazil is generally considered by investors to be an "emerging market" and thus political, economic, social or other developments in other such markets may adversely affect the market value and liquidity of the Notes. For example, in December 1994, the Mexican government sharply devalued the peso, resulting in an economic crisis in Mexico. The Mexican peso crisis adversely affected the market value and liquidity of securities issued by companies in many 33 of the "emerging markets," including Brazil. There can be no assurance that events in other such markets will not adversely affect the market value and liquidity of the Notes. POLITICAL AND ECONOMIC CONDITIONS During the past several years, the Brazilian economy has been affected by significant intervention by the Brazilian Government. The Brazilian Government has changed monetary, credit, tariff and other policies to influence the course of Brazil's economy. The Brazilian Government's actions to control inflation and effect other policies have often involved wage and price controls (including controls on the price of food and general merchandise) as well as other interventionist measures, such as freezing bank accounts and imposing capital controls. The stated policy of the present Government is to reduce gradually governmental control of the economy. However, Government policies involving tariffs, exchange controls, regulations and taxation may adversely affect the Company's business and financial condition, as could the Brazilian Government's response to inflation, devaluation, social instability and other political, economic or diplomatic developments. Brazilian politics have been marked by uncertainty since the country returned to civilian rule in 1985 after 20 years of military government. The death of a President-elect in 1985 and the resignation of another President in 1992 in the midst of his impeachment trial, and frequent turnovers at and below the cabinet level, particularly in the economic area, historically have resulted in the absence of a coherent and sustained policy to confront Brazil's economic problems. The election of Fernando Henrique Cardoso to the presidency of Brazil in 1994 and the reduction of the level of inflation in Brazil following the introduction of the Real Plan in 1994 have resulted in a more stable political and economic environment. However, there can be no assurance that future developments in Brazil will not result in a recurrence of political and economic instability. IMPACT OF EXTREME INFLATION Brazil in the past 20 years has experienced extremely high rates of inflation. In 1993, the annual rate of inflation in Brazil exceeded 2,700%. Inflation and certain governmental measures to fight inflation have in the past significantly and negatively affected the Brazilian economy. See "Annex A--The Federative Republic of Brazil." Actions taken to combat inflation and public speculation about possible future actions have contributed significantly to economic uncertainty in Brazil and the heightened volatility in the Brazilian securities markets. Future measures to combat inflation could materially and adversely affect the Brazilian economy and the Company. Prior to 1994, none of the numerous economic stabilization plans enacted by the Brazilian Government successfully reduced inflation over the long term. In 1994, the Brazilian Government introduced the Real Plan. The Real Plan has resulted in a sustained reduction in the level of Brazilian inflation. The annual rate of inflation for 1995 and 1996 was 14.8% and 9.34%, respectively. There can be no assurance, however, that inflation will not increase as a result of future Brazilian governmental actions or for other reasons. EFFECTS OF EXCHANGE RATE FLUCTUATIONS Primarily as a result of inflationary pressures, the Brazilian currency has been devalued repeatedly during the last four decades. Throughout this period, the Brazilian Government has implemented various economic plans and utilized a number of exchange rate policies, including sudden devaluations, periodic mini-devaluations (with the frequency of adjustments ranging from daily to monthly), floating exchange rate systems, exchange controls and dual exchange rate markets. Although over long periods of time devaluations of the Brazilian currency generally have correlated with the rate of inflation in Brazil, such governmental actions over shorter periods have resulted in significant fluctuations in the real exchange rate between the Brazilian currency and the US dollar. See "Exchange Rate Data." Substantially all of the Company's revenues are denominated in Brazilian reais. A substantial portion of the Company's indebtedness is, and may be expected to continue to be, denominated in US dollars (including the Notes). In addition, a portion of the Company's operating expenses, including 34 those relating to programming commitments and cable television equipment costs, are denominated in or indexed to US dollars. Any devaluation of the Brazilian currency relative to any foreign currency in which debt or other obligations of the Company are denominated, if such devaluation were in excess of inflation, would result in a foreign exchange loss with respect to such indebtedness and obligations. As a result, the relationship of Brazil's currency to the value of the US dollar and other currencies, and the rates of devaluation of Brazil's currency relative to the prevailing rates of inflation, may adversely affect the Company's financial condition and results of operations, as well as its ability to meet its debt service obligations (including payment of principal of, premium, if any, and interest on the Notes) and operating costs. If the Company cannot increase its prices to match the rate of inflation, even if the rate of inflation matches the rate of devaluation, the Company's ability to meet its debt service obligations and operating costs may be impaired. In addition, the financial records of Tevecap and its subsidiaries have been maintained in Brazilian reais. However, the Financial Statements are presented in US dollars. In order to prepare the Financial Statements, Tevecap's accounts have been translated from the applicable Brazilian currency on the basis described in Note 2.3 to the Tevecap Financial Statements. Because of differences between the evolution of the rates of inflation in Brazil and changes in the rates of devaluation, amounts presented in US dollars will show distortions when compared on a period-to-period basis. CONTROLS AND RESTRICTIONS ON US DOLLAR REMITTANCES Brazilian law provides that whenever there is, or is a serious risk of, a material imbalance in Brazil's balance of payments, the Brazilian Government may, for a limited period of time, impose restrictions on the remittance to foreign investors of the proceeds of their investments in Brazil. For approximately six months in 1989 and early 1990, for example, the Brazilian Government froze all dividend and capital repatriations that were owed to foreign equity investors and held by the Central Bank of Brazil (the "Central Bank") in order to conserve Brazil's foreign currency reserves. These amounts were subsequently released in accordance with Brazilian Government directives. There can be no assurance that similar measures will not be taken by the Brazilian Government in the future. The Brazilian Government currently restricts the ability of Brazilian or foreign persons or entities to convert Brazilian currency into US dollars or other currencies other than in connection with certain authorized transactions. The issuance of the Notes has been approved by the Central Bank. After the Notes are issued, the Central Bank is expected in due course to issue a certificate of registration authorizing each of the scheduled payments of principal at maturity and interest on the Notes. In addition, consent from the Central Bank will be needed for the payment of principal of and interest on the Notes upon acceleration of the Notes following an Event of Default (as defined) and for certain late payments of the Notes (I.E., payments made 181 days or more after a scheduled payment date). In addition, consent from the Central Bank will be needed for redemption of the Notes upon certain optional redemption events. See "Description of Notes." There can be no assurance that the Company will obtain the necessary consents and certificates from the Central Bank for the foregoing payments or redemptions. There can be no assurance that the Brazilian Government will not in the future impose more restrictive foreign exchange regulations that would have the effect of eliminating or restricting the Company's access to foreign currency that it would require to meet its foreign currency obligations, including its obligations under the Notes. The likelihood of the imposition of such restrictions by the Brazilian Government may be affected by, among other factors, the extent of Brazil's foreign currency reserves, the availability of foreign currency in the foreign exchange markets on the date a payment is due, the size of Brazil's debt service burden relative to the economy as a whole, Brazil's policy towards the International Monetary Fund and political constraints to which Brazil may be subject. 35 USE OF PROCEEDS The Company will not receive any cash proceeds from the issuance of the Exchange Securities offered hereby. In consideration for issuing the Exchange Securities as described in this Prospectus, the Company will receive in exchange Old Securities in like principal amount, the terms of which are identical in all material respects to those of the Exchange Securities, except that the Exchange Securities have been registered under the Securities Act and are issued free of any covenant regarding transfer restrictions. The Old Securities surrendered in exchange for the Exchange Securities will be retired and cancelled and cannot be reissued. Accordingly, the issuance of the Exchange Securities will not result in any change in the indebtedness of the Company. The net proceeds to the Company from the offering of the Old Securities was approximately $241.2 million after deducting discounts, commissions and estimated expenses of the Offering payable by the Company. The Company used the net proceeds of the offering of the Old Securities as follows:
(IN MILLIONS) ------------ Repayment of Short-term bank loans(a)........................................... $ 5.4 Repayment of Loans from affiliated companies(b)................................. 107.9 Capital expenditures, investments and general corporate purposes(c)............. 127.9 ------------ $ 241.2 ------------ ------------
- ------------------------ (a) The Company repaid all of its Short-term bank loans which it incurred in connection with the refinancing of certain deferred obligations for the purchase of property. The annual interest rate on such short-term debt is LIBOR plus a 1.5% margin. (b) Includes repayment of all outstanding indebtedness under the Abril Credit Facility ($105.8 million outstanding as of October 31, 1996). During the period from September 30, 1996 through October 31, 1996, the Company paid $16.8 million in connection with its capital spending program. As of , 1997, the Company had not redrawn any amounts under the Abril Credit Facility. See "Description of Certain Indebtedness." The interest rate payable by the Company to Abril has ranged from 1.79% to 3.01% per month. (c) The Company used this portion of the net proceeds to fund its capital spending needs in connection with its ongoing operations, including subscriber additions, subscriber equipment purchases, system construction, installation labor and other expansion activities and, pending such application, invested such amounts in short-term instruments. Additionally, based on its business plans and plans supplied by the Operating Ventures and Programming Ventures, management expects that an aggregate of approximately $13.2 million of this amount will be invested in HBO Brasil Partners, Canbras TVA and CNBC for the purpose of funding the Company's PRO RATA share of these entities' capital spending needs and operating losses, as well as in the California Broadcast Center (in the form of debt). See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." EXCHANGE RATE DATA There are two legal foreign exchange markets in Brazil: the commercial rate exchange market (the "Commercial Market") and the floating rate exchange market (the "Floating Market"). The Commercial Market is reserved primarily for foreign trade transactions and transactions that generally require prior approval from Brazilian monetary authorities, such as the purchase and sale of registered investments by foreign persons and related remittances of funds abroad, such as a repurchase by the Company of the Notes. Purchases of foreign exchange in the Commercial Market may be carried out only through a financial institution in Brazil authorized to buy and sell currency in that market. The "Commercial Market Rate" is the commercial selling rate for Brazilian currency into US dollars, as reported by the Central Bank. The "Floating Market Rate" generally applies to transactions to which the Commercial Market Rate does not apply. Prior to the implementation of the Real Plan, the Commercial Market Rate and the Floating Market Rate differed significantly at times. Since the introduction of the REAL, the two rates have not differed significantly, although there can be no assurance that there will not be significant differences between the two rates in the future. Both the Commercial Market Rate and the Floating Market Rate are reported by the Central Bank on a daily basis. 36 Both the Commercial Market Rate and the Floating Market Rate are freely negotiated but are strongly influenced by the Central Bank, which typically intervened in the Commercial Market, prior to the implementation of the Real Plan, in order to control fluctuations and to regulate disparities between the Commercial Market Rate and the Floating Market Rate. After implementation of the Real Plan, the Central Bank allowed the real to float with minimal intervention. However, as described below, on March 6, 1995, the Central Bank announced its intention to intervene in the foreign exchange markets and has subsequently intervened in the markets and taken other actions affecting such markets. On August 1, 1993, the CRUZEIRO REAL replaced the CRUZEIRO as the unit of Brazilian currency, with each CRUZEIRO REAL being equal to 1,000 CRUZEIROS. Beginning in December 1993, the Brazilian Government began implementation of the Real Plan, which was intended to reduce inflation. On July 1, 1994, the REAL replaced the CRUZEIRO REAL as the unit of Brazilian currency, with each REAL being equal to 2,750 CRUZEIROS REAIS and having an exchange rate of R$1.00 to US$1.00. According to Brazilian law, the issuance of REAIS is controlled by quantitative limits backed by a corresponding amount of US dollars in reserves, but the Brazilian Government subsequently expanded those quantitative limits and allowed the REAL to float, with parity between the REAL and the US dollar (R$1.00 to US$1.00) as a ceiling. On March 6, 1995, the Central Bank announced that it would intervene in the market and buy or sell US dollars, establishing a band (FAIXA DE FLUTUACAO) in which the exchange rate between the REAL and the US dollar could fluctuate. The Central Bank initially set the band with a floor of R$0.86 per US$1.00 and a ceiling of R$0.90 per US$1.00 and provided that, from and after May 2, 1995, the band would fluctuate between R$0.86 and R$0.98 per US$1.00. Shortly thereafter, the Central Bank issued a new directive providing that the band would be between R$0.88 and R$0.93 per US$1.00. On June 22, 1995, the Central Bank issued another directive providing that the band would be between R$0.91 and R$0.99 per US$1.00 and subsequently reset the band on January 30, 1996 to between R$0.97 and R$1.06 per US$1.00. Upon resetting the band on January 30, 1996, the Central Bank adjusted the exchange rate within such band on a number of occasions, generally in increments of R$.001, by means of buying and selling US dollars in electronic auctions. On February 18, 1997, the band was reset by the Central Bank to float between R$1.05 and R$1.14 per US$1.00. On April 7, 1997, the Commercial Market Rate was R$1.06 per US$1.00. There can be no assurance that the band will not be altered in the future. See "Risk Factors -- Risks Relating to the Notes -- Controls and Restrictions on US Dollar Remittances; Exchange Regulation" -- and "--Risks Relating to Brazil--Effects of Exchange Fluctuations" and "--Controls and Restrictions on US Dollar Restrictions." The following table sets forth the Commercial Market Rate for the periods indicated.
EXCHANGE RATES OF BRAZILIAN CURRENCY PER US$1.00(A) ------------------------------------------------------ PERIOD(B) LOW HIGH AVERAGE PERIOD END - ---------------------------------------------- ------------ ------------ ------------ ------------ 1991......................................... 0.000062 0.000389 0.000149 0.000389 1992......................................... 0.000393 0.004505 0.001655 0.004505 1993......................................... 0.004557 0.118584 0.032809 0.118584 1994......................................... 0.120444 0.940000 0.645000 0.846000 1995......................................... 0.834000 0.972600 0.917742 0.972500 1996......................................... 0.972600 1.040700 1.005000 1.039400
- ------------------------ (a) The information set forth in this table is based on information published by the Central Bank. (b) The historical information from 1991 through 1994 represents the nominal Brazilian currency expressed in current REAIS adjusted for depreciation and currency substitution. The exchange rates have been translated at the rates of exchange at the time the successor currencies took effect. 37 CAPITALIZATION The following table sets forth (i) the actual cash balance and capitalization of the Company at September 30, 1996 and (ii) the cash balance and capitalization of the Company at September 30, 1996 as adjusted to give effect to the offering of the Old Securities and the application of the net proceeds therefrom. This table should be read in conjunction with the Financial Statements of the Company appearing elsewhere in this Prospectus.
SEPTEMBER 30, 1996 ------------------------ ACTUAL AS ADJUSTED ---------- ------------ (DOLLARS IN THOUSANDS) Cash & cash equivalents............................................ $ 619 $ 128,432(a) ---------- ------------ ---------- ------------ Short-term bank loans.............................................. $ 5,441 $ -- ---------- ------------ ---------- ------------ Long-term liabilities Loans from affiliated companies.................................. $ 91,926 $ --(b) Loans from shareholders.......................................... 4,607 4,607 Senior Notes due 2004............................................ -- 250,000 ---------- ------------ Total long-term liabilities........................................ 96,533 254,607(c) Redeemable common shares........................................... 163,225 163,225 Shareholders' equity Paid-in capital.................................................. 142,495 142,495 Accumulated deficit.............................................. (211,466) (211,466) ---------- ------------ Total shareholders' equity......................................... (68,971) (68,371) ---------- ------------ Total capitalization............................................... $ 190,787 $ 348,861 ---------- ------------ ---------- ------------
- ------------------------ (a) A portion of the net proceeds from the offering of the Old Securities was invested in short-term instruments pending application as described under "Use of Proceeds." (b) Represents the repayment of all outstanding indebtedness under the Abril Credit Facility ($105,800 outstanding as of October 31, 1996) and the repayment of $2,121 of other related party indebtedness. During the period from September 30, 1996 through October 31, 1996, the Company paid $16,844 in connection with its capital spending program. The Abril Credit Facility will remain in place, with availability of up to $60,000, until December 1998. As of April 10, 1997, the Company had not redrawn any amounts under the Abril Credit Facility. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" and "Description of Certain Indebtedness." (c) Does not reflect the Company's unused availability under either (i) the pending Galaxy Brasil Leasing Facility, under which a maximum of $49,900 may be drawn, or (ii) the EximBank Facility, under which a maximum of approximately $29,350 may be drawn. The Company expects to draw during 1997 approximately $11,400 under the EximBank Facility and $19,599 under the Galaxy Brasil Leasing Facility. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" and "Description of Certain Indebtedness." 38 SELECTED HISTORICAL FINANCIAL AND OTHER DATA The historical data as of December 31, 1995 and 1994 and for the three years in the period ended December 31, 1995 have been derived from, and should be read in conjunction with, the audited Financial Statements of the Company included elsewhere in this Prospectus. The unaudited financial data set forth below as of and for the nine month period ended September 30, 1996 and for the nine month period ended September 30, 1995 have been derived from the unaudited Financial Statements of the Company. The historical data as of December 31, 1992 and 1993 and for the year ended December 31, 1992 are derived from the audited Financial Statements of the Company that are not included elsewhere in this Prospectus. The historical data as of September 30, 1995 are derived from the unaudited Financial Statements of the Company that are not included elsewhere in this Prospectus. As required by Brazilian law, and in accordance with local accounting practices, the financial records of Tevecap and its subsidiaries are maintained in the applicable Brazilian currency (the REAL). However, the Financial Statements are presented in US dollars. In order to prepare the Financial Statements, the Company's accounts have been translated from the applicable Brazilian currency, on the basis described in Note 2.3 to the audited Financial Statements. Because of the differences between the evolution of the rates of inflation in Brazil and the changes in the rates of devaluation, amounts presented in US dollars may show distortions when compared on a period-to-period basis. The results of operations for the nine month period ended September 30, 1996 are not necessarily indicative of the results expected for the year ending December 31, 1996.
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------------------ -------------------- 1992 1993 1994 1995 1995 1996 --------- --------- --------- --------- --------- --------- (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT SELECTED OPERATING DATA) STATEMENT OF OPERATING DATA: Gross revenues Monthly subscriptions.................................. $ 7,070 $ 12,544 $ 27,976 $ 62,496 $ 41,296 $ 85,301 Installation........................................... 1,857 4,350 6,997 26,045 17,995 39,396 Indirect programming(a)................................ 512 530 1,626 2,866 2,114 5,278 Other(b)............................................... 1,322 2,468 7,173 10,603 7,699 10,657 Revenue taxes(c)....................................... (305) (371) (872) (7,506) (5,171) (8,881) --------- --------- --------- --------- --------- --------- Total net revenue........................................ 10,456 19,521 42,900 94,504 63,933 131,751 --------- --------- --------- --------- --------- --------- Direct operating expenses(d)............................. 32,905 29,779 28,659 62,026 42,279 75,557 Selling, general and administrative expenses............. 17,834 19,957 24,370 46,902 30,787 53,710 Depreciation and Amortization............................ 2,704 4,813 6,177 13,268 8,865 18,547 Allowance for inventory obsolescence .................... -- -- -- -- -- 2,493 --------- --------- --------- --------- --------- --------- Total operating expenses................................. 53,443 54,549 59,206 122,196 81,931 150,307 --------- --------- --------- --------- --------- --------- Operating loss........................................... (42,987) (35,028) (16,306) (27,692) (17,998) (18,556) Nonoperating expenses.................................... Interest expense....................................... (13,538) (8,492) (16,413) (17,745) (12,493) (10,125) Equity in (losses) income of affiliates(e)............. -- -- 383 (3,672) (2,084) (6,642) Other nonoperating (expenses) income, net(f)........... 2,232 5,892 20,339 8,039 5,158 (1,592) Income tax expense..................................... -- -- -- -- -- (105) --------- --------- --------- --------- --------- --------- Net loss................................................. $ 54,293 $ (37,628) $ (11,997) $ (41,070) $ (27,417) $ (37,020) --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- OTHER DATA: EBITDA--TV Group(g)...................................... $ (40,283) $ (30,215) $ (10,129) $ (13,318) $ (8,462) $ 8,533 EBITDA--Galaxy Brasil(g)................................. -- -- -- (1,106) (671) (6,049) --------- --------- --------- --------- --------- --------- EBITDA(g)................................................ (40,283) (30,215) (10,129) (14,424) (9,133) 2,484 Pro forma interest expense(h)............................ 38,623 29,940 Purchase of fixed assets................................. 7,627 11,379 22,369 38,629 52,987 72,538 Ratio of earnings to fixed charges(i).................... -- -- -- -- -- -- CASH FLOW DATA: Cash provided by (used in) operating activities (h)...... (32,633) (19,180) (9,707) 22,989 1,099 (5,385) Cash provided by (used in) investing activities.......... (11,761) (13,190) (24,334) (119,661) (68,541) (111,800) Cash provided by (used in) financing activities.......... 44,088 32,348 38,666 116,229 62,837 93,603 SELECTED OPERATING DATA: Number of Subscribers to Owned Systems(j)................ 42,924 82,985 114,853 219,148 198,157 316,345 Average monthly revenue per Subscriber(k)................ $ 18.64 $ 21.30 $ 27.80 $ 33.24 $ 33.48 $ 37.66 BALANCE SHEET DATA (AT PERIOD END): Cash and cash equivalents................................ $ 41 $ 19 $ 4,644 $ 24,201 $ 39 $ 619 Property, plant and equipment............................ 29,561 35,859 51,426 131,266 95,756 188,063 Total assets............................................. 40,779 45,529 80,441 218,848 148,473 291,154 Loans from affiliated companies.......................... 42,577 89,769 -- 586 22,301 91,926 Long-term liabilities.................................... 67,736 97,105 4,523 9,604 29,816 105,330 Redeemable common shares................................. -- -- 19,754 149,534 69,754 163,225 Total shareholders' equity............................... (54,483) (92,111) 27,590 (18,260) 173 (68,971) STATEMENT OF OPERATING DATA: Gross revenues Monthly subscriptions.................................. Installation........................................... Indirect programming(a)................................ Other(b)............................................... Revenue taxes(c)....................................... - Total net revenue........................................ - Direct operating expenses(d)............................. Selling, general and administrative expenses............. Depreciation and Amortization............................ Allowance for inventory obsolescence .................... - Total operating expenses................................. - Operating loss........................................... Nonoperating expenses.................................... Interest expense....................................... Equity in (losses) income of affiliates(e)............. Other nonoperating (expenses) income, net(f)........... Income tax expense..................................... - Net loss................................................. - - OTHER DATA: EBITDA--TV Group(g)...................................... EBITDA--Galaxy Brasil(g)................................. - EBITDA(g)................................................ Pro forma interest expense(h)............................ Purchase of fixed assets................................. Ratio of earnings to fixed charges(i).................... CASH FLOW DATA: Cash provided by (used in) operating activities (h)...... Cash provided by (used in) investing activities.......... Cash provided by (used in) financing activities.......... SELECTED OPERATING DATA: Number of Subscribers to Owned Systems(j)................ Average monthly revenue per Subscriber(k)................ BALANCE SHEET DATA (AT PERIOD END): Cash and cash equivalents................................ Property, plant and equipment............................ Total assets............................................. Loans from affiliated companies.......................... Long-term liabilities.................................... Redeemable common shares................................. Total shareholders' equity...............................
See accompanying Notes to Selected Historical Financial And Other Data 39 NOTES TO SELECTED HISTORICAL FINANCIAL AND OTHER DATA (a) Represents revenues received by the Company for selling programming to the Independent Operators. (b) Includes Advertising and Other revenues. (c) Represents various non-income based taxes paid on certain of the Company's gross revenue items with rates ranging from 2.65% to 7.65%. (d) Represents costs directly related to Monthly subscriptions, and a portion of Installation, Indirect programming and Other revenues. (e) Represents the Company's pro rata share of the Net loss or income of its equity investments. (f) Includes Interest income, Translation gain or loss, Other nonoperating (expenses) income, net, and Minority interest. The amount included for the year ended December 31, 1994 includes Interest income totaling $21,806. During that year, the Company received capital contributions from stockholders which resulted in a surplus of cash invested during such period. (g) EBITDA represents the sum of (i) net income (loss), plus, without duplication (ii) income tax expense, (iii) interest expense (income), net, (iv) other nonoperating (expenses) income, net (v) depreciation, amortization and all other non-cash charges, less (vi) non-cash items increasing net income (loss) with the exception of amortized deferred sign-on and hookup fee revenue, in each case determined in accordance with GAAP. EBITDA-TV Group and EBITDA-Galaxy Brasil represent operating loss plus depreciation and amortization. The term "TV Group" refers to the operations of TVA, excluding the operations of Galaxy Brasil. The TV Group, which constitutes the operations of TVA, excluding the operations of Galaxy Brasil, represents the more mature operations of the Group while Galaxy Brasil remains in a start up phase and has yet to collect material revenues to offset the costs of initiating the Ku-Band service. EBITDA has been presented separately for the TV Group and Galaxy Brasil to take account of the different stages of development of these operations. (h) Cash provided by (used in) operating activities (hereinafter referred to as cash flows from operating activities) has been determined in accordance with GAAP while EBITDA has been calculated in accordance with the definition in footnote (g). In accordance with GAAP, cash flows from operating activities generally reflect the cash effects of transactions and other events that enter into the determination of net income. The principal difference between EBITDA and cash flows from operating activities arise as a result of the treatment of the changes in the balances of operating assets and liabilities from the beginning to the end of a reporting period. That is, in accordance with GAAP, such changes are components of cash flows from operating activities while there is no similar adjustment in the calculation of EBITDA. EBITDA has been presented as it is a financial measure commonly used in the Company's industry. EBITDA should not be considered as an alternative to cash provided by (used in) operating activities, as an indicator of operating performance or as a measure of liquidity. (i) Represents interest expense on a pro forma basis, resulting from the offering of Old Securities and the application of the net proceeds therefrom as follows:
NINE MONTH YEAR ENDED PERIOD ENDED DECEMBER 31, SEPTEMBER 30, 1995 1996 --------------- --------------- Historical interest expense...................................... $ 17,745 $ 10,125 Elimination of interest expense related to certain affiliated indebtedness................................................... (11,788) (4,684) Interest resulting from the Notes based on an interest rate of 12.625%........................................................ 31,563 23,672 Amortization of deferred financing costs relating to the Notes... 1,103 827 --------------- --------------- $ 38,623 $ 29,940 --------------- --------------- --------------- ---------------
(j) For the four years ended December 31, 1995 and the nine months ended September 30, 1995 and 1996, earnings were insufficient to cover fixed charges by $54,487, $37,920, $13,100, $38,269, $25,905 and $31,911, respectively. In calculating the Ratio of earnings to fixed charges, earnings represents Net loss before minority interest, Equity in (losses) income of affiliates, less fixed charges. Fixed charges consist of the sum of Interest expense paid or accrued on indebtedness of the Company and its subsidiaries and affiliates and one third of operating rental expenses (such amount having been deemed by the Company to represent the interest portion of such payments). (k) Represents the number of Owned Systems' Subscribers as of the last day of each period. (l) Average monthly revenue per subscriber refers to the average monthly subscription fee as of the last day of each period. 40 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Financial Statements (including the notes thereto) included elsewhere in this Prospectus. For the purposes of the following discussion, all dollar amounts are set forth in thousands of US dollars. This Management's Discussion and Analysis of Financial Condition and Results of Operations reflects the historical results of the Company. Due to the limited operating history, startup nature, translations of Brazilian currency into US dollars, and rapid growth of the Company, period-to-period comparisons of financial data are not necessarily indicative, and should not be relied upon as an indicator of the future performance of the Company. OVERVIEW Since its inception in 1989, the Company has been in a developmental or buildout stage. The TV Group, representing the more mature operations of the Company, has experienced, and continues to experience, rapid growth. In addition, the Company, through Galaxy Brasil, initiated Ku-Band DIRECTV service on a limited basis in July 1996. Despite its growth, the Company has sustained substantial net losses due primarily to insufficient revenue with which to fund startup costs, interest expense and charges for depreciation and amortization. However, the TV Group has been generating positive operating cash flow beginning with the three month period ended June 30, 1996, while Galaxy Brasil, representing the Company's less mature operations, remains in a start-up phase and has not yet collected material revenues to offset the costs of initiating the Ku-Band service. Net losses incurred by the Company since inception have been funded principally by (i) net contributions of approximately $288,000 from the Company's shareholders, (ii) borrowings from Abril under the Abril Credit Facility and (iii) short term borrowings made from time to time. Management expects the financial results of the Company to improve as the operation of the Ku-Band service matures and the number of subscribers for the Company's Ku-Band service and TV Group services continues to grow. There can be no assurance, however, that the number of the Company's subscribers will grow, or that the Company's financial performance will improve. 41 RESULTS OF OPERATIONS The following table sets forth for the periods indicated certain statements of operations data expressed in US dollar amounts and as a percentage of net revenue:
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ---------------------------------------------------------------------- ------------------------ 1993 1994 1995 1995 ---------------------- ---------------------- ---------------------- ------------------------ (DOLLARS IN THOUSANDS) % OF NET % OF NET % OF NET UNAUDITED % OF NET AMOUNT REVENUE AMOUNT REVENUE AMOUNT REVENUE AMOUNT REVENUE --------- ----------- --------- ----------- --------- ----------- ----------- ----------- STATEMENT OF OPERATIONS DATA: Gross revenues Monthly subscriptions......... $ 12,544 64.3% $ 27,976 65.2% $ 62,496 66.1% $ 41,296 64.6% Installation.................. 4,350 22.3 6,997 16.3 26,045 27.6 17,995 28.1 Indirect programming.......... 530 2.7 1,626 3.8 2,866 3.0 2,114 3.3 Other......................... 2,468 12.6 7,173 16.7 10,603 11.2 7,699 12.0 Revenue taxes................. (371) (1.9) (872) (2.0) (7,506) (7.9) (5,171) (8.0) --------- ----------- --------- ----------- --------- ----------- ----------- ----------- Net revenue................... 19,521 100.0 42,900 100.0 94,504 100.0 63,933 100.0 --------- ----------- --------- ----------- --------- ----------- ----------- ----------- Direct operating expenses..... 29,779 152.5 28,659 66.8 62,026 65.6 42,279 66.1 Selling, general and administrative expenses..... 19,957 102.2 24,370 56.8 46,902 49.6 30,787 48.2 Depreciation and Amortization................ 4,813 24.7 6,177 14.4 13,268 14.0 8,865 13.9 Allowance for inventory obsolescence................ -- -- -- -- -- -- -- -- --------- ----------- --------- ----------- --------- ----------- ----------- ----------- Total operating expenses...... 54,549 279.4 59,206 138.0 122,196 129.2 81,931 128.2 --------- ----------- --------- ----------- --------- ----------- ----------- ----------- Operating loss................ (35,028) (179.4) (16,306) (38.0) (27,692) (29.2) (17,998) (28.2) --------- ----------- --------- ----------- --------- ----------- ----------- ----------- Interest income............... 5,369 27.5 21,806 50.8 3,118 3.3 1,360 2.1 Interest expense.............. (8,492) (43.5) (16,413) (38.3) (17,745) (18.8) (12,493) (19.5) Translation (loss) gain....... 788 4.0 (914) (2.1) (339) (0.4) (41) (0.1) Equity in (losses) income of affiliates.................. -- -- 383 0.9 (3,672) (3.9) (2,084) (3.3) Other nonoperating (expenses) income, net................. (557) (2.9) (1,273) (3.0) 4,389 4.6 3,267 5.1 Minority interest............. 292 1.5 720 1.7 871 0.9 572 0.9 Income tax expense............ -- -- -- -- -- -- -- -- --------- ----------- --------- ----------- --------- ----------- ----------- ----------- Net loss...................... $ (37,628) (192.8)% $ (11,997) (28.0 )% $ (41,070) (43.5 )% $ (27,417 ) (42.8)% --------- ----------- --------- ----------- --------- ----------- ----------- ----------- --------- ----------- --------- ----------- --------- ----------- ----------- ----------- 1996 ------------------------ UNAUDITED % OF NET AMOUNT REVENUE ----------- ----------- STATEMENT OF OPERATIONS DATA: Gross revenues Monthly subscriptions......... $ 85,301 64.7% Installation.................. 39,396 29.9 Indirect programming.......... 5,278 4.0 Other......................... 10,657 8.1 Revenue taxes................. (8,881) (6.7) ----------- ----- Net revenue................... 131,751 100.0 ----------- ----- Direct operating expenses..... 75,557 57.3 Selling, general and administrative expenses..... 53,710 40.8 Depreciation and Amortization................ 18,547 14.1 Allowance for inventory obsolescence................ 2,493 1.9 ----------- ----- Total operating expenses...... 150,307 114.1 ----------- ----- Operating loss................ (18,556) (14.1) ----------- ----- Interest income............... 3,650 2.8 Interest expense.............. (10,125) (7.7) Translation (loss) gain....... 243 0.2 Equity in (losses) income of affiliates.................. (6,642) (5.0) Other nonoperating (expenses) income, net................. (7,018) (5.3) Minority interest............. 1,533 1.2 Income tax expense............ (105) (0.1) ----------- ----- Net loss...................... $ (37,020) (28 )% ----------- ----- ----------- -----
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1995 The table below sets forth the number of subscribers at September 30, 1995 and September 30, 1996 for the Owned Systems.
SEPTEMBER 30, SEPTEMBER 30, OWNED SYSTEMS SUBSCRIBERS 1995 1996 - ------------------------------------------------------------- -------------- -------------- MMDS(a)...................................................... 177,089 229,656 Cable........................................................ 11,087 39,253 DIRECTV and Digital C-Band................................... 9,981 47,436 -------------- -------------- 198,157 316,345 Paid Subscribers Awaiting Installation(b).................... 18,460 19,691 -------------- -------------- Total Owned Systems.......................................... 216,617 336,036 -------------- -------------- -------------- --------------
- ------------------------ (a) Includes UHF subscribers. (b) Subscribers who have paid an installation fee but are awaiting the installation of service. 42 The table below sets forth at September 30, 1995 and September 30, 1996 the approximate number of television households which received TVA's programming through the Owned Systems and the Operating Ventures and through sales of programming to the Independent Operators. HOUSEHOLDS RECEIVING TVA PROGRAMMING
SEPTEMBER 30, SEPTEMBER 30, 1995 1996 -------------- -------------- Total Owned Systems.......................................... 216,617 336,036 Operating Ventures........................................... 27,027 66,388 Independent Operators........................................ 252,000 555,049 -------------- -------------- Total........................................................ 495,644 957,473 -------------- -------------- -------------- --------------
REVENUES. Revenues consist primarily of Monthly subscriptions revenue (which principally consists of monthly fees paid by subscribers to the Company for programming services, including equipment use), Installation revenue, Indirect programming revenue (which consists of payments made to the Company for the sale of its programming to the Independent Operators) and Other revenue (which consists of Advertising revenues and Other revenues). Revenue taxes consist of a 2.65% tax on Advertising revenue and a 7.65% tax on the balance of revenues, in each case charged by the Brazilian Government. Monthly subscriptions revenue for the nine months ended September 30, 1996 was $85,301, as compared to $41,296 for the comparable period in 1995, an increase of $44,005. This increase was principally attributable to an increase in subscriber base and an increase in the amount of average monthly fees from $33.48 to $37.66 per subscriber. The average monthly subscription price during the nine month period ended September 30, 1996, was $46.83 for MMDS service, $39.84 for Cable service and, $37.89 for C-Band service, as compared to $44.32, $35.75 and $32.57 respectively, for the nine month period ended September 30, 1995. The average monthly subscription price for Ku-Band service from its introduction in July 1996 to September 30, 1996, was $56.40. Galaxy Brasil contributed $502 to monthly subscription revenue for the nine months ended September 30, 1996, as compared to $0 for the comparable period in 1996. Installation revenue for the nine months ended September 30, 1996 was $39,396, as compared to $17,995 for the comparable period in 1995, an increase of $21,401. This increase was principally attributable to the increase in the number of new subscribers and also to an increase in the average installation fee for C-Band service from $500.00 to $707.24. The average installation fee during the nine month period ended September 30, 1996, was $124.95 for MMDS service, $40.40 for Cable service, $569.01 for C-Band service, as compared to $187.63, $78.74 and $589.56, respectively, for the nine month period ended September 30, 1995. The average installation fee for Ku-Band service from its introduction in July 1996 to September 30, 1996, was $943.00. The net number of subscribers added to the Company's Owned Systems during the nine months ended September 30, 1996 was 97,197, as compared to 83,304 added during the same period of 1995. Galaxy Brasil contributed $3,200 to Installation revenue for the nine months ended September 30, 1996, as compared to $0 for the comparable period in 1995. After an initial rollout in July 1996 Galaxy Brasil began enrolling subscribers. Indirect programming revenue for the nine months ended September 30, 1996 was $5,278, as compared to $2,114 for the comparable period of 1995, an increase of $3,164. This increase was principally attributable to the increase in the number of Independent Operators' subscribers for the period. The number of Independent Operators' subscribers increased by 213,350 during the nine month period ended September 30, 1996, as compared to an increase of 162,327 during the same period of the prior year. Independent Operators pay a fee to the Company based on the number of subscribers to such Independent Operator's system and the number of channels purchased from the Company. The 43 average monthly fee paid to the Company by an Independent Operator during the nine months ended September 30, 1996 was $1.64 per subscriber. Other revenue for the nine months ended September 30, 1996 was $10,657, as compared to $7,699 for the comparable period of 1995, an increase of $2,958. This change included a decrease in Advertising revenue to $5,362 from $5,505, a decrease of $143, and an increase in Other to $5,295 from $2,194, an increase of $3,101. The decrease in Advertising revenue was attributable to a shift in advertising sales from advertising on ESPN International programming (the Advertising revenues from which were reported as Advertising revenues in the Company's consolidated financial statements), to advertising sales on ESPN Brasil Ltda. programming (the Advertising revenues from which were not reported in the Advertising revenues line of the Company's consolidated financial statements but as part of the Company's Equity in (losses) income of affiliates). Revenue taxes for the nine months ended September 30, 1996 were $8,881, as compared to $5,171 for the same period of the prior year, an increase of $3,710. Galaxy Brazil contributed $508 to revenue taxes for the nine months ended September 30, 1996, as compared to $0 for the comparable period of 1995. Galaxy Brazil began enrolling subscribers and collecting revenue in July 1996. For the reasons noted above, Net revenue for the nine months ended September 30, 1996 was $131,751, as compared to $63,933 for the comparable period in the previous year, an increase of $67,818. Galaxy Brasil contributed $3,194 to Net revenue for the nine months ended September 30, 1996, as compared to $0 for the comparable period in the previous year. DIRECT OPERATING EXPENSES. Direct operating expenses include Payroll and benefits, Programming, Transponder lease cost, Technical assistance expense, Vehicle rentals expense, TVA Magazine and Other expenses. These expenses, with the exception of Transponder lease costs, are variable expenses which increase as the number of subscribers increases and the Company's systems grow, and are also dependent on the type of service subscribers select. Direct operating expenses for the nine months ended September 30, 1996 were $75,557, as compared to $42,279 for the same period in 1995, an increase of $33,278. This increase was primarily attributable to expenses incurred to service the increase in the number of subscribers for such period in 1996 compared to the same period in 1995. Payroll and benefits expense increased to $19,467 from $8,868, an increase of $10,599, as a result of the hiring of more than 537 new employees. Programming costs increased to $25,477 from $14,105, an increase of $11,372, as a result of changes implemented in the programming purchased by the Company. Transponder lease cost increased to $6,575 from $5,357, an increase of $1,218, as a result of leasing a third transponder in 1996. Technical assistance costs increased to $4,923 from $3,913, an increase of $1,010; Vehicle rentals expense increased to $1,252 from $1,114, an increase of $138; and the expense of publishing TVA Magazine increased to $4,680 from $2,164, an increase of $2,516. Other costs include third party services, maintenance and other miscellaneous expenses. For the nine months ended September 30, 1996, Other costs were $13,183, as compared to $6,758 for the same period the prior year, an increase of $6,425. Galaxy Brasil contributed $5,111 to Direct operating expenses, as compared to $665 for the comparable period in 1995, an increase of $4,446 as Galaxy Brasil incurred Payroll and benefits, Vehicle rentals and other costs consistent with starting this operation. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses include Payroll and benefits expense for selling, administrative, financial, legal and human resources, Advertising and promotion, Rent expense, Other administrative expenses, and Other general expenses. Selling, general and administrative expenses for the nine months ended September 30, 1996 were $53,710, as compared to $30,787 for the same period of 1995, an increase of $22,923. The Company has experienced increasing Selling, general and administrative expenses as a result of its increased pay television activities and the associated administrative costs, including costs related to opening and maintaining additional facilities and an overall increase in Payroll and benefits expense resulting from an increase in the number of employees. Advertising and promotion expense increased to $12,794 from 44 $5,882, an increase of $6,912, as a result of an increase in the number of subscribers and promotional activity. Galaxy Brasil contributed $4,132 to Selling, general and administrative expenses for the nine months ended September 30, 1996, as compared to $6 for the comparable period in 1995, an increase of $4,126. Such increase at Galaxy Brasil was due to increases in Payroll and benefits expense and Other administrative expenses. DEPRECIATION, AMORTIZATION AND ALLOWANCE FOR INVENTORY OBSOLESCENCE. Depreciation and Amortization includes depreciation of systems, equipment, installation materials, installation personnel and organizational costs and amortization of concessions. Allowance for inventory obsolescence represents charges for obsolescence of certain equipment and material. Depreciation and Amortization for the nine months ended September 30, 1996 was $18,547, as compared to $8,865 for the same period of 1995, an increase of $9,682. Allowance for inventory obsolescence for the nine months ended September 30, 1996 was $2,493 as compared to $0 for the comparable period in 1995, an increase of $2,493. Galaxy Brasil contributed $1,059 to Depreciation, Amortization and Allowance for inventory obsolescence for the nine months ended September 30, 1996, as compared to $0 for the comparable period in 1995, an increase of $1,059. Such increase was due to depreciation expenses associated with the Tambore Facility. For the reasons noted above, Operating loss for the nine months ended September 30, 1996 was $18,556, as compared to $17,998 for the comparable period in 1995, an increase of $558. Galaxy Brasil contributed $7,108 of this loss for the nine months ended September 30, 1996, as compared to $671 for the comparable period in 1995, an increase of $6,437. INTEREST INCOME. Interest income for the nine months ended September 30, 1996 was $3,650, as compared to $1,360 for the same period in 1995, an increase of $2,290. INTEREST EXPENSE. Interest expense for the nine months ended September 30, 1996 was $10,125, as compared to $12,493 for the same period of 1995, a decrease of $2,368. This decrease was due primarily to the utilization of capital contributed to the Company by Falcon, Hearst and ABC, which occurred in the second half of 1995, to repay outstanding debt. EQUITY IN LOSSES (INCOME) OF AFFILIATES. For the nine months ended September 30, 1996, Equity in losses (income) of affiliates amounted to a loss of $6,642, as compared to a loss of $2,084 in the same period of 1995, an increase in loss of $4,558. The primary reason for this increase in loss was sustained losses at ESPN Brasil, which was formed on June 15, 1995. OTHER NON-OPERATING (EXPENSES) INCOME. Other non-operating (expenses) income for the nine months ended September 30, 1996 was an expense of $7,018, as compared to income of $3,267 in the same period in 1995, an increase in expense of $10,285. The Other non-operating expenses for the nine months ended September 30, 1996, consisted primarily of fees paid in connection with the investment of Falcon International and Hearst/ABC Parties in the Company. The Other non-operating income for the comparable period of 1995 consisted primarily of income from the sale of movie inventory and other assets. MINORITY INTEREST. The Minority interest of $1,533 for the nine months ended September 30, 1996 represents Mr. Leonardo Petrelli's 13.0% share of the $11,792 in aggregate losses of TVA Sul. NET LOSS. For the reasons noted above, Net loss for the nine months ended September 30, 1996 was $37,020, as compared to $27,417 for the comparable period in 1995, an increase of $9,603. 45 YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994 The table below sets forth the number of subscribers at December 31, 1995 and December 31, 1994 for the Owned Systems.
DECEMBER 31, DECEMBER 31, OWNED SYSTEM SUBSCRIBERS 1994 1995 - -------------------------------------------------------------- -------------- -------------- MMDS(a)....................................................... 111,771 188,893 Cable......................................................... 1,007 15,129 Digital C-Band................................................ 2,075 15,126 -------------- -------------- 114,853 219,148 Paid Subscribers Awaiting Installation(b)..................... 13,956 18,343 -------------- -------------- Total Owned Systems........................................... 128,809 237,491 -------------- -------------- -------------- --------------
- ------------------------ (a) Includes UHF subscribers. (b) Subscribers who have paid an installation fee but are awaiting the installation of service. The table below sets forth at December 31, 1995 and December 31, 1994 the approximate number of television households which received TVA's programming through the Owned Systems and the Operating Ventures and through sales of programming to the Independent Operators. HOUSEHOLDS RECEIVING TVA PROGRAMMING
DECEMBER 31, DECEMBER 31, 1994 1995 -------------- -------------- Total Owned Systems........................................... 128,809 237,491 Operating Ventures............................................ 7,640 35,572 Independent Operators......................................... 89,673 341,699 -------------- -------------- Total................................................... 226,122 614,762 -------------- -------------- -------------- --------------
REVENUES. Monthly subscriptions revenue for the year ended December 31, 1995 was $62,496, as compared to $27,976 for the comparable period in 1994, an increase of $34,520. This increase was attributable to the net addition of 104,295 subscribers to the Company's Owned Systems, and the increase in the average monthly fee for existing subscribers to $33.24 from $27.80, an increase of $5.44, and for new subscribers to $39.48 from $31.87, an increase of $7.61. The average monthly subscription price during the year ended December 31, 1995 was $44.04 for MMDS service and $38.12 for Cable service, as compared to $42.48 and $26.26, respectively, for the year ended December 31, 1994. The average monthly subscription price for C-Band service for the year ended December 31, 1995 was $41.37. In 1994, the Company's C-Band service was in its initial phase of operations. In addition, Galaxy Brasil's Ku-Band service was under development in 1995. The Company was able to increase the monthly fee as the market price for pay television increased. The increase in the number of subscribers was due to (i) the continued expansion and penetration of the Company's MMDS service, including the introduction of signal repeaters in Sao Paulo and Rio de Janeiro, (ii) the full year benefit of Cable system construction in Sao Paulo and (iii) the net addition of 13,051 C-Band subscribers through an aggressive national marketing campaign timed to coincide with the Company's main competitor focusing on its Cable systems. During each year, all revenues came from the operation of the TV Group as the operations of Galaxy Brasil were in development. Installation revenue for the year ended December 31, 1995 was $26,045, as compared to $6,997 for the comparable period in 1994, an increase of $19,048. This increase was principally attributable to the 46 increase in the number of installations and to the increase in the average fees for installations. The average fee for MMDS service installation increased to $169.70 from $119.75, an increase of $49.95, and the average fee for Cable service installation increased to $81.87 from $44.69, an increase of $37.18. The C-Band average installation fee increased to $586.79 from $500.00, an increase of $86.79. The growth in installations was aided by the continued growing awareness of pay television in Brazil and the Company's start-up of live broadcasts of the Brazilian National Soccer Championship, the Sao Paulo State Championship and other soccer events through ESPN Brasil. As with Monthly subscriptions revenue, all Installation revenue during each year came from the operations of the TV Group. Indirect programming revenue for the year ended December 31, 1995 was $2,866, as compared to $1,626 for the comparable period of 1994, an increase of $1,240. This increase was principally attributable to the increase in the number of Independent Operators' subscribers for the period, as compared to the same period in 1994. Such Independent Operators' subscribers increased to 341,699 at December 31, 1995, as compared to 89,673 at December 31, 1994, an increase of 252,026. The average fee paid during both 1995 and 1994 was $1.50 per subscriber per month. Other revenue for the year ended December 31, 1995 was $10,603, as compared to $7,173 for the comparable period of 1994, an increase of $3,430. This increase included an increase in Advertising revenue to $8,377 from $5,727, an increase of $2,650. The growth in Advertising revenue was due to the increase in the subscriber base, an increase in the amount of advertising time sold by the Company per hour of programming and an increase in the rate charged for advertising time. Revenue taxes for 1995 were $7,506, as compared to $872 for the prior year, an increase of $6,634. This increase was primarily attributable to a Government imposed 5.0% increase in the tax rate, which increased Revenue taxes to 7.65% from 2.65%, imposed on the Company's Gross revenues (excluding Advertising revenue, which is taxed at 2.65%). For the reasons noted above, Net revenue for the year ended December 31, 1995 was $94,504, as compared to $42,900 for the comparable period the previous year, an increase of $51,604. DIRECT OPERATING EXPENSES. Direct operating expenses for the year ended December 31, 1995 were $62,026, as compared to $28,659 for the same period of 1994, an increase of $33,367. This increase was attributable primarily to the increase in the number of subscribers to the Company's systems which led to increases in Payroll and benefits expense, Programming expense, Transponder lease cost, Technical assistance expense, Vehicle rentals expense, TVA Magazine expense and Other costs. Payroll and benefits expense increased to $12,520 from $8,022, an increase of $4,498, as the Company added approximately 450 employees. Programming costs increased to $21,609 from $12,133, an increase of $9,476, as the Company's subscriber base grew and the Company added four new channels to each of its distribution systems. Transponder lease cost increased to $7,568 from $1,555, an increase of $6,013, due to an increase in the cost of satellite transponder leases and the application of a 25.0% tax charged by the Brazilian Government on transponder lease payments beginning in June 1995. Technical assistance expense increased to $5,152 from $1,622, an increase of $3,530, due to an increase in the subscriber base and the upgrade of existing systems for the receipt of additional channels by subscribers, Vehicle rentals expense increased to $1,732 from $788, an increase of $944, and TVA Magazine expense increased to $3,318 from $1,430, an increase of $1,888. These expenses are variable and increased due to the costs associated with servicing the larger subscriber base and installing new subscribers. For the year ended December 31, 1995, Other costs were $10,127, as compared to $3,109 for the same period the prior year, an increase of $7,018. The Company experienced increased expenses as a result of its increased television activities and associated costs, including costs related to opening and maintaining additional facilities. Galaxy Brasil contributed $1,027 to Direct operating expenses for the year ended December 31, 1995, as compared to $0 for the same period of 1994. Galaxy Brasil incurred Payroll and benefits expense, Vehicle rentals expense and Other costs consistent with starting its DIRECTV service. 47 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses for the year ended December 31, 1995 were $46,902, as compared to $24,370 for the same period of 1994, an increase of $22,532. The Company experienced increased Selling, general and administrative expenses as a result of its increased pay television activities and associated administrative costs, including costs related to opening and maintaining additional facilities and an overall increase in payroll expenses resulting from an increase in the number of employees. Advertising and promotion expense increased to $11,122 from $3,540, an increase of $7,582, largely due to the Company's increased promotional activity, including nationwide C-Band promotion. Galaxy Brasil contributed $79 to Selling, general and administrative expenses for the year ended December 31, 1995, all of which constituted Advertising and rent expenses, as compared to $0 for the same period of 1994. DEPRECIATION AND AMORTIZATION. Depreciation and Amortization expense for the year ended December 31, 1995 was $13,268, as compared to $6,177 for the same period of 1994, an increase of $7,091. The increase was due primarily to increased capitalization of the costs associated with building the MMDS, Cable and C-Band systems and with the installation of new subscribers. Galaxy Brasil contributed $127 to Depreciation and Amortization expense (all of which constituted Depreciation expense) for the year ended December 31, 1995, as compared to $0 for the comparable period in 1994. For the reasons noted above, Operating loss for the year ended December 31, 1995 was $27,692, as compared to $16,306 for the comparable period in 1994, an increase in loss of $11,386. Galaxy Brasil contributed $1,233 to this loss for the year ended December 31, 1995, as compared to $0 for the comparable period in 1994. INTEREST INCOME. For the year ended December 31, 1995, Interest income totaled $3,118, as compared to $21,806 in the similar period in 1994, a decrease of $18,688. This reduction in Interest income was a result of the shorter period in which a capital contribution of $125,000 in 1995 earned interest relative to the length of time a capital contribution of $151,452 earned interest in 1994, as well as due to the sharp appreciation of the Brazilian real versus the US dollar upon introduction of the real in late 1994. INTEREST EXPENSE. Interest expense for the year ended December 31, 1995 was $17,745, as compared to $16,413 for the year ended December 31, 1994, an increase of $1,332. EQUITY IN LOSSES (INCOME) OF AFFILIATES. For the year ended December 31, 1995, Equity in losses (income) of affiliates was a loss of $3,672, as compared to income of $383 for the same period in 1994, a decrease of $4,055. The principal reasons for this reduction were the losses sustained by ESPN Brasil Ltda. which came into existence during June 1995, and HBO Brasil Partners, which came into existence in 1994. OTHER NON-OPERATING (EXPENSES) INCOME. For the year ended December 31, 1995, Other non-operating (expenses) income was income of $4,389, as compared to an expense of $1,273 for the same period of 1994, an increase of $5,662. The primary reasons for this increase were equipment rental income, sales of assets and a release of certain obligations, among others. MINORITY INTEREST. The Minority interest of $871 for the twelve months ended December 31, 1995 represents Mr. Leonardo Petrelli's 20.0% share of the $4,355 in aggregate losses of TVA Curitiba. NET LOSS. For the reasons noted above, Net loss for the year ended December 31, 1995 was $41,070, as compared to $11,997 for the comparable period in 1994, an increase of $29,073. 48 YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993 The table below sets forth the number of subscribers at December 31, 1994 and December 31, 1993 for the Owned Systems.
DECEMBER 31, DECEMBER 31, OWNED SYSTEM SUBSCRIBERS 1993 1994 - -------------------------------------------------------------- -------------- -------------- MMDS(a)....................................................... 82,474 111,771 Cable......................................................... 0 1,007 Digital C-Band................................................ 511 2,075 ------- -------------- 82,985 114,853 Paid Subscribers Awaiting Installation(b)..................... 7,438 13,956 ------- -------------- Total Owned Systems........................................... 90,423 128,809 ------- -------------- ------- --------------
- ------------------------ (a) Includes UHF subscribers. (b) Subscribers who have paid an installation fee but are awaiting the installation of service. The table below sets forth at December 31, 1994 and December 31, 1993 the approximate number of television households which received TVA's programming through the Owned Systems and the Operating Ventures and through sales of programming to the Independent Operators. HOUSEHOLDS RECEIVING TVA PROGRAMMING
DECEMBER 31, DECEMBER 31, 1993 1994 -------------- -------------- Total Owned Systems........................................... 90,423 128,809 Operating Ventures............................................ 1,505 7,640 Independent Operators......................................... 36,659 89,673 -------------- -------------- Total................................................... 128,587 226,122 -------------- -------------- -------------- --------------
REVENUES. Monthly subscriptions revenue for the year ended December 31, 1994 was $27,976, as compared to $12,544 for the comparable period of 1993, an increase of $15,432. This increase was attributable to the net addition of 31,868 subscribers to the Company's Owned Systems and the increase in the average monthly fee for existing subscribers to $27.80 from $21.30, an increase of $6.50, and for new subscribers to $31.87 from $23.63 over the same period, an increase of $8.24. The Company added three premium channels, including HBO Brasil, and suspended its "a la carte" channel offerings. The increase in the number of subscribers was due to the continued expansion and penetration of the Company's MMDS service, principally in Sao Paulo, Rio de Janeiro and Curitiba, the launch of a Cable system in Sao Paulo, and the net addition (after the December 1993 launch) of 1,564 C-Band subscribers. Installation revenue for the year ended December 31, 1994 was $6,997, as compared to $4,350 for the comparable period of 1993, an increase of $2,647. This increase was principally attributable to the growing number of subscriber installations and to the increase in the average revenue for installation of MMDS service, which increased to $119.75 from $91.33, an increase of $28.42. The growth in installations was aided by the growing awareness of pay television in Brazil, the Company's larger sales force and increased promotional activities, especially with respect to single family homes. Indirect programming revenue for the year ended December 31, 1994 was $1,626, as compared to $530 for the previous year, an increase of $1,096. This increase was principally attributable to the increase in the number of Independent Operators' subscribers for the period, as compared to the same period in 1994. Such subscribers increased to 89,673 at December 31, 1994, as compared to 36,659 at 49 December 31, 1993, an increase of 53,014. The average fee paid by the Independent Operators during both 1993 and 1994 was $1.50 per Independent Operator subscriber per month. Other revenue for the year ended December 31, 1994 was $7,173, as compared to $2,468 for the comparable period of 1993, an increase of $4,705. This increase included an increase in Advertising and promotion revenue to $5,727 from $2,099, an increase of $3,628. The growth in Advertising and promotion revenue was due to the increase in the subscriber base, an increase in the amount of advertising time sold by the Company per hour of programming and an increase in the rate charged for advertising time. Revenue taxes were $872 for the period ending December 31, 1994, as compared to $371 for the comparable period of 1993, an increase of $501. This increase was based on the growth of the subscriber base and an increase in revenue. For the reasons noted above, Net revenue for the year ended December 31, 1994 was $42,900, as compared to $19,521 for the previous year, an increase of $23,379. DIRECT OPERATING EXPENSES. Direct operating expenses for the year ended December 31, 1994 were $28,659, as compared to $29,779 for the same period of 1993, a decrease of $1,120. This decrease was attributable primarily to a decrease in Programming expense which was partially offset by the increase in the number of subscribers to the Company's systems, including the increase in Payroll and benefits expense. Payroll and benefits expense increased to $8,022 from $6,079, an increase of $1,943 as the Company added approximately 200 employees. Programming costs decreased to $12,133, from $18,156, a decrease of $6,023. This decrease was attributable to the termination of the production of the Showtime channel (a 24 hour per day movie channel), which was expensive relative to other channels, and the renegotiation of several other programming contracts. Transponder lease cost increased to $1,555 from $1,262, an increase of $293. Technical assistance expense decreased to $1,622 from $1,773, a decrease of $151. Vehicle rentals expense increased to $788 from $597, an increase of $191 and TVA Magazine expense increased to $1,430 from $725, an increase of $705. Other costs were $3,109, as compared to $1,187 for the same period the prior year, an increase of $1,922. The Company experienced increased expenses as a result of its increased television activities and associated costs, including costs related to opening and maintaining additional facilities. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses for the year ended December 31, 1994 were $24,370, as compared to $19,957 for 1993, an increase of $4,413. Selling, general and administrative expenses, excluding Advertising and promotion expenses, remained essentially unchanged due to the ability of the Company to increase its subscriber base without increasing Selling, general and administrative expenses, including human resource expense. Advertising and promotion expense increased to $3,540 from $2,205, an increase of $1,335. The increase was due to the Company's increase in promotional activity. DEPRECIATION AND AMORTIZATION. Depreciation and Amortization expense for the year ended December 31, 1994 was $6,177, as compared to $4,813 for the same period of 1993, an increase of $1,364 due primarily to increased capitalization of the costs associated with building the MMDS and Cable systems and installing new subscribers. For the reasons noted above, Operating loss for the year ended December 31, 1994 was $16,306, as compared to $35,028 for the year ended December 31, 1993, a decrease of $18,722. INTEREST INCOME. Interest income for the year ended December 31, 1994 was $21,806, as compared to $5,369 for the previous year, an increase of $16,437. This increase was due primarily to the contribution to the capital of the Company by Abril and CMIF of $151,452 in the aggregate and the investment of surplus funds from such contribution. 50 INTEREST EXPENSE. Interest expense for the year ended December 31, 1994 was $16,413, as compared to $8,492 for the previous year, an increase of $7,921. This increase was primarily due to increased borrowing from Abril to fund ongoing operations. EQUITY IN LOSSES (INCOME) OF AFFILIATES. For the year ended December 31, 1994, Equity in losses (income) of affiliates was income of $383, as compared to $0 in the same period in 1993. This increase was the result of the formation of Tevecap as the holding company of its various operating subsidiaries which became effective on June 30, 1994 and Equity in losses in HBO Brasil Partners, which came into existence in 1994. OTHER NON-OPERATING (EXPENSES) INCOME. For the year ended December 31, 1994, Other non-operating income and expenses was an expense of $1,273, as compared to an expense of $557 for the same period in 1993, an increase in expense of $716. The reasons for this increase in expense were the negative results of TVA Sistema prior to its acquisition by Tevecap. MINORITY INTEREST. The Minority interest of $720 for the twelve months ended December 31, 1994 represents Mr. Leonardo Petrelli's 20.0% share of the $3,601 in aggregate losses of TVA Parana. NET LOSS. For the reasons noted above, Net loss for the year ended December 31, 1994 was $11,997, as compared to $37,628 for the comparable period in 1993, a decrease of $25,631. SEASONALITY The Company's revenues are seasonal. Generally, during the Brazilian summer months of December and January the Company experiences lower demand for installation for each of its services and lower rates of retention of existing subscribers for each of its services. LIQUIDITY AND CAPITAL RESOURCES Since inception, the Company has sustained losses primarily due to insufficient revenue to fund start-up costs, interest expense and charges for depreciation and amortization arising from the development of its pay television systems. As of September 30, 1996, the Company had incurred cumulative net losses of approximately $193,000. During the periods under review, the Company required external funds to finance its capital expenditures, operating activities and make payments of principal and interest on its indebtedness. The sources of such funds have been as follows: (i) borrowings from Abril under the Abril Credit Facility ($90,205 outstanding as of September 30, 1996 which was repaid with the proceeds of the sale of the Old Securities and none of which has been redrawn), (ii) short-term borrowings under short-term lines of credit ($5,441 outstanding as of September 30, 1996 and $30.8 million outstanding as of April 1, 1997), (iii) net capital contributions of approximately $288,000 from shareholders and (iv) borrowings from shareholders (approximately $4,607 outstanding as of September 30, 1996 and $0 outstanding as of December 31, 1996). Although the Company had negative working capital of $45,773 at September 30, 1996, management believes that the Company has the ability to function on a going concern basis. See Note 23 to the Tevecap Financial Statements. The Company's liquidity needs will arise primarily from capital expenditures, debt service requirements and, in certain periods, the funding of its working capital requirements. As of September 30, 1996, on a pro forma basis after giving effect to the sale of the Old Securities and the application of the net proceeds therefrom, the Company would have had approximately $255,000 of indebtedness outstanding, primarily consisting of $250,000 principal amount of the Notes. In addition to debt service, the Company will require substantial amounts of capital for (i) the construction of cable networks and the installation of equipment at subscribers' locations, (ii) the construction of additional transmission and headend facilities and related equipment purchases, (iii) the continued funding of losses and working capital requirements and (iv) investments in, and maintenance of, vehicles and administrative offices. In addition, the Company continually evaluates opportunities to acquire, either directly or indirectly, pay television licenses and programming rights. 51 The Company made purchases of fixed assets of $11,379, $22,639, $93,029 and $72,538 in 1993, 1994, 1995 and in the nine month period ended September 30, 1996, respectively. The Company estimates that for the remaining three months of 1996, approximately $93,230 of capital expenditures will be required, primarily for subscriber installations, system construction and development and other expansion activities. Management also estimates that $292,708 and $239,202 of capital expenditures will be required in 1997 and 1998, respectively. Of these balances, management anticipates deferring payment of $108 million and $39 million respectively, for a period of 360 days. This is standard practice in Brazil. The Company also has certain commitments that must be, or have been, funded, including capital contributions of approximately $26,992 prior to December 1997 to GLA, TV Filme, ESPN Brasil Ltda., HBO Brasil Partners, Canbras TVA and CNBC, and programming payments of approximately $12,895 for the two-year period beginning January 1, 1997 and ending December 31, 1998. Actual amounts of funds required may vary materially from these estimates and additional funds could be required in the event of cost overruns, unanticipated expenses, regulatory changes, engineering design changes and other technological-driven changes. In connection therewith, the Company invested $13,273 in the Operating Ventures, the Programming Ventures and in other minority investments in the last quarter of 1996, and management expects to invest $13,719 and $0 in the Operating Ventures, the Programming Ventures and in other minority investments in 1997 and 1998, respectively. After application of the proceeds from the sale of the Old Securities the Company's principal sources of liquidity will be the Abril Credit Facility, the EximBank Facility, the Galaxy Brasil Leasing Facility and the Company's short-term line of credit (each as described below), together with net cash provided by operating activities. However, until sufficient cash flow is generated from operations, the Company will be required to utilize its current sources of debt funding to satisfy its liquidity needs. The Company would have had approximately $153,000 of cash and cash equivalents as of September 30, 1996 after consummation of the sale of the Old Securities and application of the proceeds therefrom. See "Use of Proceeds" and "Capitalization." For the nine months ended September 30, 1996, net cash used by operating activities was $5,385, primarily as the result of an increase in accounts receivable of $13,432, an increase in payments to suppliers of $1,177 and an increase in inventories of $5,257. The increase was partially offset by $17,436 of depreciation, a non-cash item. For the nine months ended September 30, 1996, cash used in investing activities was $111,800, primarily as the result of capital expenditures of $72,538 for the purchase of fixed assets and investments in equity and cost investments of $30,201. The purchases of fixed assets were principally related to the purchase of decoders, equipment, hardware and materials and labor used for new subscriber installations and the investments related to TVA Sul. For the nine month period ended September 30, 1996, net cash provided by financing activities was $93,603, consisting principally of $86,656 in net proceeds from loans under the Abril Credit Facility. The Abril Credit Facility allows the Company to borrow up to $60,000 on a revolving basis until December 1998. Since June 1996, the Company has from time to time requested, and Abril has provided, funds in excess of $60,000. The loans are generally denominated in reais and bear interest at a rate equal to 99.5% of the CDI rate, the Brazilian interbank lending rate, adjusted at the beginning of each month. During September 1996, the applicable interest rate was 1.79% per month. Since the application of the proceeds from the sale of the Old Securities the Company has not had any amounts outstanding under the Abril Credit Facility. However, the Company will be able to re-borrow the full amount of such facility, as required. See "Description of Certain Indebtedness." On December 9, 1996, TVA Sistema, as Borrower, and Tevecap, as Guarantor, entered into a credit agreement with The Chase Manhattan Bank for the financing of C-Band decoders and other related equipment (the "EximBank Facility"). The Export-Import Bank of the United States of America ("EximBank") will guarantee 85.0% of the amount of the loan. The loan is to be made on terms customary for credits supported by EximBank to Brazilian borrowers. The interest rate will be LIBOR plus 52 a specified margin. The principal amount of the loan will be $29,350, which will be dispersed in two tranches, the first in the principal amount of $11,400 with a term of five years and the second in the principal amount of $17,950 with a term of 4.5 years. Neither tranche has been dispersed. In addition, Galaxy Brasil expects to enter into the Galaxy Brasil Leasing Facility, a five-year $49,900 sale leaseback facility, during the fourth quarter of 1996. Under the Galaxy Brasil Leasing Facility, Galaxy Brasil will have access to financing for the purpose of acquiring dish antennae, decoder boxes and other equipment for its Ku-Band service. This facility will be available until 2002 and will bear interest at a margin over LIBOR. See "Description of Certain Indebtedness." The Company has also from time to time received contributions and loans from its shareholders to fund liquidity needs and may continue to receive such contributions and loans in the future. See "Description of Certain Indebtedness" and "Certain Transactions with Related Parties." In addition, as is standard business practice in Brazil, the Company frequently finances a portion of its working capital through the deferment of payment terms for the purchase price of property (typically up to 360 days). These amounts have often subsequently been refinanced by the Company with short-term bank indebtedness. The Company currently has lines of credit with terms of 360 days which will continue to be available after the Offering. The Company believes, based on management's internal forecasts and assumptions relating to its operations, that the aggregate net proceeds from the sale of the Old Securities, together with proceeds from the deferral of payments to suppliers of fixed assets, the Eximbank Facility, the Galaxy Brasil Leasing Facility, the Abril Credit Facility, and funds generated from operations will be sufficient to meet its working capital and capital expenditure requirements for at least the period through December 31, 1997. In the long term, the Company believes, based on management's internal forecasts and assumptions relating to its operations, that its existing cash and funds generated from operations, together with its existing financing facilities agreements, will be sufficient to meet its working capital and capital expenditure requirements. In the event that the Company's plans change, its assumptions change or prove inaccurate, or if the proceeds from the Offering, the Eximbank Facility, the Galaxy Brasil Leasing Facility, the Abril Credit Facility and projected cash flows otherwise prove insufficient to fund operations (due to unanticipated expenses, technical problems, difficulties or otherwise), the Company could be required to seek additional sources of financing. The Company has no current arrangements with respect to sources of additional financing and there can be no assurance that the Company would be able to obtain additional financing on terms acceptable to the Company, or at all. See "Risk Factors--Additional Financing" and "Risk Factors--Transactions with Related Parties; Rights to Put the Company's Stock." In addition, the Company's liquidity may also be adversely affected by statutory minimum dividend requirements under applicable Brazilian law. See "Risk Factors--Dividends to Shareholders" and "Description of Notes." ACCOUNTING FOR INCOME TAXES The Company has approximately $118,600 of net operating losses ("NOLs") to offset against regular taxes. These NOLs are unexpirable. Statement of Financial Accounting Standards No. 109 (Accounting for Income Taxes) ("SFAS 109") requires that the Company determine whether it is "more-likely-than-not" that the Company will realize the benefits associated with such losses and provides that in making such a determination, all negative and positive evidence should be considered (with more weight given to evidence that is "objective and verifiable"). SFAS No. 109 indicates that "forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence such as cumulative losses in recent years". The Company has a limited operating history and has generated losses since its inception. In view of this, the Company has established a full valuation allowance for the amount of NOL carryforwards in excess of net taxable temporary differences. This determination was based primarily on historical losses. Management does, however, believe that the Company will be profitable in the future and, as such, will be able to utilize these NOLs. 53 THE REGISTERED EXCHANGE OFFER PURPOSE OF THE EXCHANGE OFFER In connection with the sale of the Old Securities, Tevecap and the Subsidiary Guarantors entered into the Exchange and Registration Rights Agreement with the Initial Purchasers, pursuant to which Tevecap and each of the Subsidiary Guarantors agreed to use its best efforts to file with the Commission a registration statement with respect to the exchange of the Old Securities for a series of registered debt securities with terms identical in all material respects to the terms of the Old Securities, except that the Exchange Securities are issued free from any covenant regarding transfer restrictions, and except that if the Registered Exchange Offer is not consummated by May 23, 1997, Tevecap will be obligated to pay each holder of Old Notes an amount equal to $0.192 per week per $1,000 of the Old Notes until the Registered Exchange Offer is consummated. Tevecap together with the Subsidiary Guarantors is making the Registered Exchange Offer in reliance on the position of the staff of the Commission as set forth in certain no-action letters addressed to other parties in other transactions. However, Tevecap has not sought its own no-action letter and there can be no assurance that the staff of the Commission would make a similar determination with respect to the Registered Exchange Offer as in such other circumstances. Based upon these interpretations by the staff of the Commission, Tevecap believes that the Exchange Securities issued pursuant to this Registered Exchange Offer in exchange for Old Securities may be offered for resale, resold and otherwise transferred by a holder thereof (other than (i) a broker-dealer who acquired the Old Securities as a result of market making activities or other trading activities, (ii) an Initial Purchaser who acquired the Old Securities directly from the Company solely in order to resell pursuant to Rule 144A of the Securities Act or any other available exemption under the Securities Act, or (iii) a person that is an "affiliate" (as defined in Rule 405 of the Securities Act) of Tevecap) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Securities are acquired in the ordinary course of such holder's business and that such holder is not participating, and has no arrangement or understanding with any person to participate, in the distribution of such Exchange Securities. Holders of Old Securities accepting the Registered Exchange Offer will represent to Tevecap in the Letter of Transmittal that such conditions have been met. Any holder who participates in the Registered Exchange Offer for the purpose of participating in a distribution of the Exchange Securities may not rely on the position of the staff of the Commission as set forth in these no-action letters and would have to comply with the registration and prospectus delivery requirements of the Securities Act in connection any secondary resale transaction. Each broker-dealer that receives Exchange Securities for its own account in exchange for Old Securities, where such Old Securities were acquired by such broker-dealer as a result of market-making activities or other trading activities must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. See "Plan of Distribution." This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Securities received in exchange for Old Securities where such Old Securities were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Letter of Transmittal states that by acknowledging and delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. Tevecap has agreed that for a period of 90 days after the Expiration Date, it will make this Prospectus available to broker-dealers for use in connection with any such resale. See "Plan of Distribution." Except as aforesaid, this Prospectus may not be used for an offer to resell, resale or other retransfer of Exchange Securities. The Registered Exchange Offer is not being made to, nor will Tevecap accept tenders for exchange from, holders of Old Securities in any jurisdiction in which the Registered Exchange Offer or the acceptance thereof would not be in compliance with the securities or blue sky laws of such jurisdiction. 54 The Exchange and Registration Rights Agreement also provides that, if (i) because of any change in law or applicable interpretations thereof by the Commission's staff, the Company and the Subsidiary Guarantors determine that they are not permitted to effect the Registered Exchange Offer or (ii) any holder (including any Initial Purchaser but excluding a broker-dealer who acquired the Old Securities as a result of market making activities or other trading activities) either (A) is not eligible to participate in the Registered Exchange Offer or (B) participates in the Registered Exchange Offer and does not receive freely transferable Exchange Securities in exchange for tendered Securities (in each case under this clause (ii) other than as a result of applicable interpretations of the Commission's staff or applicable law in effect as of November 26, 1996 or (iii) if the Company so elects, then the following provisions shall apply: The Company and the Subsidiary Guarantors shall use all reasonable efforts to as promptly as practicable file with the Commission and thereafter shall use their best efforts to cause to be declared effective a shelf registration statement on an appropriate form under the Securities Act relating to the offer and sale of the Transfer Restricted Securities (as defined below) by the holders from time to time in accordance with the methods of distribution set forth in such registration statement (hereafter, a "Shelf Registration Statement"); PROVIDED, HOWEVER, that no holder of Old Securities or Exchange Securities (other than the Initial Purchasers) shall be entitled to have Securities or Exchange Securities held by it covered by such Shelf Registration Statement unless such holder agrees in writing to be bound by all the provisions of the Exchange and Registration Rights Agreement applicable to such holder. The Company and the Subsidiary Guarantors shall use their best efforts to keep the Shelf Registration Statement continuously effective in order to permit the prospectus forming part thereof to be usable by holders for a period of three years from November 26, 1996, or such shorter period that will terminate when all the Old Securities and Exchange Securities covered by the Shelf Registration Statement have been sold pursuant to the Shelf Registration Statement or pursuant to Rule 144 under the Securities Act (in any such case, such period being called the "Shelf Registration Period"). The Company and the Subsidiary Guarantors shall be deemed not to have used their best efforts to keep the Shelf Registration Statement effective during the requisite period if any of them voluntarily takes any action that would result in holders of Old Securities or Exchange Securities covered thereby not being able to offer and sell such Old Securities or Exchange Securities during that period, unless such action is required by applicable law. Notwithstanding any other provisions hereof, the Company and the Subsidiary Guarantors will ensure that (i) any Shelf Registration Statement and any amendment thereto and any prospectus forming part thereof and any supplement thereto complies in all material respects with the Securities Act and the rules and regulations thereunder, (ii) any Shelf Registration Statement and any amendment thereto (in either case, other than with respect to information included therein in reliance upon or in conformity with written information furnished to the Company by or on behalf of any holder specifically for use therein (the "Holders' Information")) does not, when it become effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any prospectus forming part of any Shelf Registration Statement, and any supplement to such prospectus (in either case, other than with respect to Holders' Information), does not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. TERMS OF THE EXCHANGE Upon the terms and subject to the conditions of the Registered Exchange Offer, Tevecap will, unless such Old Securities are withdrawn in accordance with the withdrawal rights specified in "--Withdrawal of Tenders" below, accept any and all Old Securities validly tendered prior to 5:00 p.m., New York City time, on the Expiration Date. Tevecap will issue, on or promptly after the Expiration Date, an aggregate principal amount of up to US$250,000,000 of Exchange Notes in exchange for a like principal amount of outstanding Old Notes tendered and accepted in connection with the Registered Exchange Offer. The Exchange Notes issued in connection with the Registered Exchange Offer will be delivered on the 55 earliest practicable date on or following the Expiration Date. Holders may tender some or all of their Old Notes in connection with the Registered Exchange Offer. The terms of the Exchange Securities are identical in all material respects to the terms of the Old Securities, except that the Exchange Securities have been registered under the Securities Act and are issued free from any covenant regarding transfer restrictions, and except that if the Registered Exchange Offer is not consummated by , 1997, Tevecap will be obligated to pay each holder of the Old Notes an amount equal to $0.192 per week per $1,000 of the Old Notes until the Registered Exchange Offer is consummated. The Exchange Notes will evidence the same debt as the Old Notes and will be issued under and be entitled to the same benefits under the Indenture as the Old Notes. As of the date of this Prospectus, US$250,000,000 aggregate principal amount of the Old Notes is outstanding. In connection with the issuance of the Old Notes, Tevecap arranged for the Old Notes originally purchased by qualified institutional buyers to be issued and transferable in book-entry form through the facilities of The Depository Trust Company ("DTC"), acting as depositary. Except as described in "Description of the Notes--Book-Entry; Delivery and Form," the Exchange Notes will be issued in the form of a global note registered in the name of DTC or its nominee and each holder's interest therein will be transferable in book-entry form through DTC. See "Description of the Notes--Book-Entry; Delivery and Form." Holders of Old Securities do not have any appraisal or dissenters' rights in connection with the Registered Exchange Offer. Old Securities which are not tendered for exchange or are tendered but not accepted in connection with the Registered Exchange Offer will remain outstanding and be entitled to the benefits of the Indenture, but will not be entitled to any registration rights under the Exchange and Registration Rights Agreement. Tevecap shall be deemed to have accepted validly tendered Old Securities when, as and if Tevecap has given oral or written notice thereof to the Exchange Agent. The Exchange Agent will act as agent for the tendering holders for the purposes of receiving the Exchange Securities from Tevecap. If any tendered Old Securities are not accepted for exchange because of an invalid tender, the occurrence of certain other events set forth herein or otherwise, certificates for any such unaccepted Old Securities will be returned, without expense, to the tendering holder thereof as promptly as practicable after the Expiration Date. Holders who tender Old Securities in connection with the Registered Exchange Offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of Old Securities in connection with the Registered Exchange Offer. Tevecap and the Guarantors will pay all charges and expenses, other than certain applicable taxes described below, in connection with the Registered Exchange Offer. See "--Fees and Expenses." EXPIRATION DATE; EXTENSIONS The term "Expiration Date" shall mean 5:00 p.m., New York City time, on , 1997, unless extended by the Company in its sole discretion, in which case the term "Expiration Date" shall mean the latest date and time to which the Registered Exchange Offer is extended. INTEREST ON THE EXCHANGE NOTES The Exchange Notes will bear interest at the rate of 12 5/8% per annum. Interest on the Exchange Notes shall accrue from the last Interest Payment Date on which interest was paid on the Old Notes surrendered or, if no interest has been paid on the Old Notes, from November 26, 1996. Interest on the Exchange Notes will be payable semiannually on May 26 or November 26 of each year, commencing on the first Interest Payment Date following the issuance thereof. 56 Holders of Old Notes whose Old Notes are accepted for exchange will not receive interest on such Old Notes for any period subsequent to the last interest payment date to occur prior to the issue date of the Exchange Notes, and will be deemed to have waived the right to receive any interest payment on the Old Notes accrued from and after such interest payment date. EXCHANGE OFFER PROCEDURES Only a holder of record of Old Securities on , 1997, may tender such Old Securities in connection with the Registered Exchange Offer. The tender to the Company of Old Securities by a holder thereof as set forth below and the acceptance thereof by the Company will constitute a binding agreement between the tendering holder and the Company upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying Letter of Transmittal. Except as set forth below, a holder who wishes to tender Old Securities for exchange pursuant to the Registered Exchange Offer must transmit a properly completed and duly executed Letter of Transmittal, including all other documents required by such Letter of Transmittal, to the Exchange Agent at one of the addresses set forth below under "Exchange Agent" prior to 5:00 p.m. New York City time on the Expiration Date. In addition, either (i) certificates for such Old Securities must be received by the Exchange Agent along, with the Letter of Transmittal, or (ii) a timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old Securities, if such procedure is available, into the Exchange Agent's account at DTC pursuant to the procedure for book-entry transfer described below, must be received by the Exchange Agent prior to 5:00 p.m. New York City time on the Expiration Date, or (iii) the holder must comply with the guaranteed delivery procedures described below. THE METHOD OF DELIVERY OF OLD SECURITIES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD SECURITIES SHOULD BE SENT TO THE COMPANY. Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed unless the Old Securities surrendered for exchange pursuant thereto are tendered (i) by a registered holder of the Old Securities who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution (as defined below). In the event that signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantees must be by a firm which is a member of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc. or by a commercial bank or trust company having an office or correspondent in the United States (collectively, "Eligible Institutions"). If Old Securities are registered in the name of a person other than the signer of a Letter of Transmittal, the Old Securities surrendered for exchange must be endorsed by, or be accompanied by a written instrument or instruments of transfer or exchange, in satisfactory form as determined by the Company in its sole discretion, duly executed by the registered holder with the signature thereon guaranteed by an Eligible Institution. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of Old Securities tendered for exchange will be determined by the Company in its sole discretion, which determination shall be final and binding. The Company reserves the absolute right to reject any and all tenders of any particular Old Securities not properly tendered or to not accept any particular Old Securities which acceptance might, in the judgment of the Company or its counsel, be unlawful. The Company also reserves the absolute right to waive any defects or irregularities or conditions of the Registered Exchange Offer as to any particular Old Securities either before or after the Expiration Date (including the right to waive the ineligibility of any holder who seeks to tender Old Securities in the Registered Exchange Offer). The interpretation of the terms and conditions of the Registered Exchange Offer as to any particular Old Securities either before or after the Expiration Date (including the Letter of 57 Transmittal and the instructions thereto) by the Company shall be final and binding on all parties. Unless waived, all defects or irregularities in connection with tenders of Old Securities for exchange must be cured within such reasonable period of time as the Company shall determine. Neither the Company, the Exchange Agent nor any other person shall be under any duty to give notification of any defect or irregularity with respect to any tender of Old Securities for exchange, nor shall any of them incur any liability for failure to give such notification. The Exchange Agent intends to use reasonable efforts to give notification of such defects or irregularities. If the Letter of Transmittal is signed by a person or persons other than the registered holder or holders of Old Securities, such Old Securities must be endorsed or accompanied by appropriate powers of attorney, in either case signed exactly as the name of names of the registered holder or holders that appear on the Old Securities. If the Letter of Transmittal or any Old Securities or powers of attorney are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of a corporation or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and, unless waived by the Company, proper evidence satisfactory to the Company of their authority to so act must be submitted. By tendering, each holder will represent to the Company that, among other things, the Exchange Securities acquired pursuant to the Registered Exchange Offer are being obtained in the ordinary course of business of the person receiving such Exchange Securities, whether or not such person is the holder and such person has no arrangement with any person to participate in the distribution of the Exchange Securities. If any holder or any such other person is an "affiliate," as defined under Rule 405 of the Securities Act, of the Company, is engaged in or intends to engage in or has an arrangement or understanding with any person to participate in a distribution of such Exchange Securities to be acquired pursuant to the Registered Exchange Offer, or acquired the Old Securities as a result of market making or other trading activities, such holder or any such other person (i) could not rely on the applicable interpretations of the staff of the Commission and (ii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer that receives Exchange Securities for its own account in exchange for Old Securities, where such Old Securities were acquired as a result of market making activities or other trading activities must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. ACCEPTANCE OF OLD SECURITIES FOR EXCHANGE; DELIVERY OF EXCHANGE SECURITIES The Company will accept, promptly after the Expiration Date, all Old Securities properly tendered and will issue the Exchange Securities promptly after acceptance of the Old Securities. For purposes of the Registered Exchange Offer, the Company shall be deemed to have accepted properly tendered Old Securities for exchange when, as and if the Company has given oral or written notice thereof to the Exchange Agent, with written confirmation of any oral notice to be given promptly thereafter. In all cases, issuance of Exchange Securities for Old Securities that are accepted for exchange pursuant to the Exchange Offer will be made only after timely receipt by the Exchange Agent of (i) certificates for such Old Securities or a timely confirmation of such Old Securities into the Exchange Agent's account at DTC, (ii) a properly completed and duly executed Letter of Transmittal and (iii) all other required documents. If any tendered Old Securities are not accepted for any reason set forth in the terms and conditions of the Exchange Offer, or if Old Securities are submitted for a greater amount than the holder desires to exchange, such unaccepted or unexchanged Old Securities will be returned without expense to the tendering holder thereof (or, in the case of Old Securities tendered by book-entry 58 transfer into the Exchange Agent's account at DTC pursuant to the book-entry procedures described below, such nonexchanged Old Securities will be credited to an account maintained with DTC) designated by the tendering holder as promptly as practicable after the expiration or termination of the Exchange Offer. BOOK-ENTRY TRANSFER The Exchange Agent will make a request to establish an account with respect to the Old Securities at DTC for purposes of the Registered Exchange Offer within two business days after the date of this Prospectus, and any financial institution that is a participant in the DTC systems may make book-entry delivery of Old Securities by causing DTC to transfer such Old Securities into the Exchange Agent's account at DTC in accordance with such DTC's procedures for transfer. However, although delivery of Old Securities may be effected through book-entry transfer at DTC, the Letter of Transmittal or facsimile thereof, with any required signature guarantees and any other required documents, must, in any case, be transmitted to and received by the Exchange Agent at one of the addresses set forth below under "--Exchange Agent" on or prior to the Expiration Date or the guaranteed delivery procedures described below must be complied with. GUARANTEED DELIVERY PROCEDURES If a registered holder of the Old Securities desires to tender such Old Securities and the Old Securities are not immediately available, or time will not permit such holder's Old Securities or other required documents to reach the Exchange Agent before the Expiration Date, or the procedure for book-entry transfer cannot be completed on a timely basis, a tender may be effected if (i) the tender is made through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange Agent has received from such Eligible Institution a properly completed and duly executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed Delivery, substantially in the form of the corresponding exhibit to the Registration Statement of which this Prospectus constitutes a part (by telegram, telex, facsimile transmission, mail or hand delivery), setting forth the name and address of the holder of Old Securities and the amount of Old Securities tendered, stating that the tender is being made thereby and guaranteeing that within three New York Stock Exchange ("NYSE") trading days after the date of execution of the Notice of Guaranteed Delivery, the certificates for all physically tendered Old Securities, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, and any other documents required by the Letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent, and (iii) the certificates for all physically tendered Old Securities, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, and all other documents required by the Letter of Transmittal, are received by the Exchange Agent within three NYSE trading days after the date of execution of the Notice of Guaranteed Delivery. WITHDRAWAL RIGHTS Tenders of Old Securities may be withdrawn at any time prior to the Expiration Date. For a withdrawal to be effective, a written notice of withdrawal must be received by the Exchange Agent at one of the addresses set forth below under "Exchange Agent." Any such notice of withdrawal must specify the name of the person having tendered the Old Securities to be withdrawn, identify the Old Securities to be withdrawn (including the amount of such Old Securities), and (where certificates for Old Securities have been transmitted) specify the name in which such Old Securities are registered, if different from that of the withdrawing holder. If certificates for Old Securities have been delivered or otherwise identified to the Exchange Agent, then, prior to the release of such certificates the withdrawing holder must also submit the serial numbers of the particular certificates to be withdrawn and a signed notice of withdrawal with signatures guaranteed by an Eligible Institution unless such holder is an Eligible Institution. If Old Securities have been tendered pursuant to the procedure for book-entry 59 transfer described above, any notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawn Old Securities and otherwise comply with the procedures of such facility. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company, whose determination shall be final and binding on all parties. Any Old Securities so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the Exchange Offer. Any Old Securities which have been tendered for exchange but which are not exchanged for any reason will be returned to the holder thereof without cost to such holder (or, in the case of Old Securities tendered by book-entry transfer into the Exchange Agent's account at DTC pursuant to the book-entry transfer procedures described above, such Old Securities will be credited to an account with DTC specified by the Holder) as soon as practicable after withdrawal, rejection of tender or termination of the Registered Exchange Offer. Properly withdrawn Old Securities may be retendered by following one of the procedures described under "--Exchange Offer Procedures" above at any time on or prior to the Expiration Date. EXCHANGE AGENT The Chase Manhattan Bank has been appointed as Exchange Agent in connection with the Exchange Offer. Questions and requests for assistance, requests for additional copies of this Prospectus or of the Letter of Transmittal should be directed to the Exchange Agent, at its offices at 450 West 33rd Street, 15th Floor, New York, New York 10001. The Exchange Agent's telephone number is (212) 946-3014 and facsimile number is (212) 946-8177. FEES AND EXPENSES Tevecap will not make any payment to brokers, dealers or others soliciting acceptances of the Registered Exchange Offer. Tevecap will pay certain other expenses to be incurred in connection with the Registered Exchange Offer, including the fees and expenses of the Trustee, accounting and certain legal fees. Holders who tender their Old Securities for exchange will not be obligated to pay any transfer taxes in connection therewith. If, however, Exchange Securities are to be delivered to, or are to be issued in the name of, any person other than the registered holder of the Old Securities tendered, or if tendered Old Securities are registered in the name of any person other than the person signing the Letter of Transmittal, or if a transfer tax is imposed for any reason other than the exchange of Old Securities in connection with the Registered Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendered holder. ACCOUNTING TREATMENT The Exchange Notes will be recorded at the same carrying value as the Old Notes as reflected in Tevecap's accounting records on the date of the exchange. Accordingly, no gain or loss for accounting purposes will be recognized by Tevecap upon the consummation of the Exchange Offer. Any expenses of the Registered Exchange Offer that are paid by Tevecap will be amortized by Tevecap over the term of the Exchange Notes under generally accepted accounting principles. CONSEQUENCES OF FAILURE TO PROPERLY TENDER OLD NOTES IN THE EXCHANGE Issuance of the Exchange Securities in exchange for the Old Securities pursuant to the Registered Exchange Offer will be made only after timely receipt by the Exchange Agent of such Old Securities, a properly completed and duly executed Letter of Transmittal and all other required documents. Therefore, holders of the Old Securities desiring to tender such Old Securities in exchange for Exchange Securities 60 should allow sufficient time to ensure timely delivery. Tevecap is under no duty to give notification of defects or irregularities with respect to tenders of Old Securities for exchange. Old Securities that are not tendered or that are tendered but not accepted by Tevecap for exchange, will, following consummation of the Registered Exchange Offer, continue to be subject to the existing restrictions upon transfer thereof under the Securities Act and, upon consummation of the Registered Exchange Offer, certain registration rights under the Exchange and Registration Rights Agreement will terminate. In the event the Registered Exchange Offer is consummated, Tevecap will not be required to register the Remaining Old Securities. Remaining Old Securities will continue to be subject to the following restrictions on transfer: (i) the Remaining Old Securities may be resold only if registered pursuant to the Securities Act, if any exemption from registration is available thereunder, or if neither such registration nor such exemption is required by law, and (ii) the Remaining Old Securities will bear a legend restricting transfer in the absence of registration or an exemption therefrom. Tevecap does not currently anticipate that it will register the Old Securities under the Securities Act. To the extent that Old Securities are tendered and accepted in connection with the Registered Exchange Offer, any trading market for Remaining Old Securities could be adversely affected. 61 BUSINESS TVA is a leading pay television operator in Brazil and is the country's largest pay television programming distributor. In 1989, TVA was the first to provide pay television services in Brazil and, in July 1996, the Company launched DIRECTV, Brazil's first digital Ku-Band service. With over 335,000 subscribers, TVA is the only operator in Brazil to offer pay television services utilizing five distribution technologies: MMDS, Cable, digital Ku-Band, digital C-Band and UHF. TVA believes that its ability to strategically deploy alternative technologies provides it with significant competitive advantages, including the ability to rapidly enter new markets, maximize penetration of existing markets and deliver service in the most cost effective manner. Additionally, TVA has interests in HBO Brasil Partners and ESPN Brasil Ltda., two programming joint ventures (the "Programming Ventures"). Through owned, affiliated and independent pay television operators, TVA programming reaches over 955,000 pay television households. TVA is a majority owned subsidiary of Abril, S.A. ("Abril"), Latin America's leading magazine publishing, printing and distribution company. TVA's other shareholders are Falcon International Communications (Bermuda) L.P. ("Falcon International"), The Hearst Corporation ("Hearst"), ABC, Inc. ("ABC") and Chase Manhattan International Finance Ltd. ("CMIF"). The Company conducts its pay television operations through three owned operating systems (the "Owned Systems"): TVA Sistema, TVA Sul and Galaxy Brasil. Through the MMDS and Cable systems of TVA Sistema and TVA Sul, the Company serves six cities with a combined population of approximately 18 million, including three of the seven largest cities in Brazil: Sao Paulo (population of 10.2 million), Rio de Janeiro (population of 5.7 million) and Curitiba (population of 1.5 million). The Company also holds minority interests in Canbras TVA and TV Filme (the "Operating Ventures"), which together provide pay television services to an additional seven cities with a total population of 6.5 million. In addition, the Company sells programming to, and receives a per subscriber fee from, unaffiliated pay television operators ("Independent Operators"). The Company, through Galaxy Brasil, is Brazil's exclusive provider of the premium programming service, DIRECTV, Brazil's first digital direct broadcast satellite Ku-Band service. Galaxy Brasil receives programming, scheduling and related services for DIRECTV from Galaxy Latin America ("GLA"), in which TVA holds a 10.0% equity interest. The other owners of GLA are a unit of Hughes Electronics, a member of the Cisneros Group and a subsidiary of Grupo MVS. Through local operating companies such as Galaxy Brasil, GLA plans to provide DIRECTV service throughout much of Latin America and the Caribbean. The Company, through TVA Sistema, also currently provides Brazil's only digital C-Band television service (together with Galaxy Brasil, the "DBS Systems"). The DBS Systems enable the Company to deliver a greater number of channels than any other television operator in Brazil and provide TVA with access to substantially all of Brazil's 33.9 million TV Homes. 62 PROGRAMMING DISTRIBUTION AND MARKETS The following table sets forth information regarding the markets in which TVA operates systems and distributes programming:
PAY TELEVISION AVERAGE REVENUE PROGRAMMING SERVICE LAUNCH CLASS ABC PER MONTH PER CHANNELS DATE TV HOMES HOUSEHOLDS(A) SUBSCRIBERS SUBSCRIBER(B) OFFERED --------------- ---------- --------------- ------------- ----------------- ----------------- OWNED SYSTEMS MMDS TVA Sistema Sao Paulo(c)........... September 1991 3,978,096 2,732,686 133,005 $ 39.98 18 Rio de Janeiro......... March 1992 2,659,472 1,694,193 75,921 38.61 15 TVA Sul Curitiba......... March 1992 502,512 364,707 20,730 32.90 15 CABLE(D) TVA Sistema Sao Paulo.............. October 1994 3,978,096 2,732,686 19,575 35.66 44 TVA Sul Curitiba......... January 1995 502,512 364,707 9,545 27.93 44 Camboriu............... June 1996 37,618 22,686 3,949 38.27 31 Foz do Iguacu.......... June 1996 46,669 28,145 6,184 29.17 34 Florianopolis.......... September 1996 155,382 93,706 -- -- -- ------------- TOTAL MMDS AND CABLE SUBSCRIBERS............ -- -- -- 268,909 -- -- ------------- DBS TVA Sistema/Galaxy Brasil(e)................ March 1995 33,900,000 19,568,310 47,436 $ 32.62 26(f) SUBSCRIBERS AWAITING INSTALLATION........... -- -- -- 19,691 -- -- ------------- TOTAL SUBSCRIBERS-OWNED SYSTEMS................ -- -- -- 336,036 -- -- ------------- ------------- HOUSEHOLDS RECEIVING TVA PROGRAMMING OWNED SYSTEMS............ -- -- -- 336,036 -- -- ------------- OPERATING VENTURES MMDS TV Filme, Inc. Brasilia............... July 1993 412,996 308,677 41,668 $ 44.49 16 Goiania................ December 1994 319,434 179,542 8,107 43.41 16 Belem.................. December 1994 221,370 135,020 12,999 46.49 15 CABLE Canbras TVA Four cities(g)......... April 1996 222,358 152,773 3,614 -- 38 ------------- TOTAL-OPERATING VENTURES............... -- -- -- 66,388 -- -- ------------- ------------- INDEPENDENT OPERATORS (53 Independent Operators)............. -- -- -- 555,049 -- -- ------------- TOTAL.................... -- -- -- 957,473 -- -- ------------- -------------
- ------------------------ (a) The number of Class ABC Households is based on information provided by Grupo Midia, IBGE and IBOPE. (b) As of September 30, 1996. Amount does not include installation fees paid. (c) The number of MMDS subscribers includes 11,453 UHF subscribers in the Sao Paulo metropolitan area. UHF subscribers are provided two channels of programming, HBO Brasil and ESPN Brasil. The average revenue per month per UHF subscriber, as of September 30, 1996, was approximately $22.80. (d) The Company's Cable Systems in Sao Paulo, Curitiba, Camboriu, Foz do Iguacu and Florianopolis had approximately 126,877, 92,550, 25,722, 20,404 and 6,069 Homes Passed, respectively, as of September 30, 1996. (e) This data principally reflects the Company's digital C-Band operations. TVA launched DIRECTV service, on a limited basis, in July 1996. As of September 30, 1996, the DIRECTV service offered 49 channels of programming at an average per month subscriber fee of $56.00. Since that date the number of channels offered through the DIRECTV service has increased to 56. TV Homes and Class ABC Households information is national information for all of Brazil. (f) The number includes nine SAP channels. (g) The four cities served by Canbras TVA are Santo Andre, Sao Bernardo, Guaruja and Sao Vicente. 63 BRAZILIAN PAY TELEVISION MARKET Brazil is the largest television and video market in Latin America with an estimated 33.9 million TV Homes which, as of December 31, 1995, watched on average more than 4.0 hours of television per day, as compared to an average of 4.5 hours in the United States. Approximately 6.2 million television sets and 1.9 million VCR units were sold in Brazil during 1995. The pay television industry in Brazil began in 1989 with the commencement by the Company of UHF service in Sao Paulo. As of September 30, 1996, there were an estimated 1.6 million pay television subscribers, representing approximately 4.7% of Brazilian TV Homes. By comparison, as of December 31, 1995, 51.1% of TV Homes in Argentina, 12.6% of TV Homes in Mexico, 21.7% of TV Homes in the United Kingdom and 69.2% of TV Homes in the United States subscribed to pay television. Management believes that the number of pay television subscribers in Brazil will continue to grow as pay television reaches more households both through the expansion of existing and new MMDS and Cable systems and through development of nationwide DBS systems. The Ministry of Communications estimates that Brazil will have 16.5 million pay television subscribers by 2003. The following table sets forth, as of December 31, 1995, TV Homes, Cable subscribers, MMDS subscribers, C-Band subscribers, Ku-Band subscribers, total subscribers and the ratio of total subscribers to TV Homes in Brazil, Argentina, Mexico, the United Kingdom and the United States.
UNITED UNITED BRAZIL(A) ARGENTINA(B) MEXICO(B) KINGDOM(B) STATES(C) ----------- ------------- ----------- ------------ ----------- (NUMBERS IN THOUSANDS, EXCEPT PERCENTAGES) TV Homes....................................... 33,900 9,000 13,200 22,347 95,000 ----------- ----- ----------- ------------ ----------- Cable Subscribers............................ 560 4,410 1,257 1,400 62,500 MMDS Subscribers............................. 295(d) 189 406 -- 800 C-Band Subscribers........................... 125 -- -- 3,447 2,460(e) Ku-Band Subscribers.......................... -- -- -- -- 2,460(e) ----------- ----- ----------- ------------ ----------- Total Subscribers.............................. 980 4,599 1,663 4,847 65,760 ----------- ----- ----------- ------------ ----------- ----------- ----- ----------- ------------ ----------- Total Subscribers/TV Homes (%)................. 2.9% 51.1% 12.6% 21.7% 69.2%
- ------------------------ (a) The information set forth for Brazil represents estimates made by the Company based upon figures compiled and published by the IBGE, management's knowledge of the Company's pay television systems and those of the Operating Ventures, and public statements of other pay television providers. Management believes such estimates are reasonable, but neither management nor any other party can provide assurances as to their accuracy. Kagan World Media, Inc. reports that there were, as of December 31, 1995, 464 MMDS subscribers, and 654 Cable subscribers and 100 C-Band subscribers in Brazil. (b) The information set forth for Argentina, Mexico and the United Kingdom is based on December 1995 data of Kagan World Media, Inc. and 1996 data of Paul Kagan Associates, Inc. (c) Source: National Cable Television Association. (d) The number of MMDS subscribers includes UHF subscribers. (e) The number represents C-Band and Ku-Band subscribers collectively. COMPETITIVE ADVANTAGES Management believes that the Company has the following competitive advantages: SUPERIOR QUALITY PROGRAMMING LINEUP. TVA's programming line-up includes exclusive rights to ESPN Brasil in the Company's major markets, with exclusive coverage, as of January 1997, of many of Brazil's most important soccer championships, including the Brasil Cup, the Brazilian Championship and the Sao Paulo and Rio de Janeiro State Championships. The Company exclusively offers CMT Brasil and Bravo Brasil and is also the only pay television provider offering HBO programming in TVA's served markets. Management believes that as the pay television industry grows, programming will become the 64 critical factor driving consumer selection of a pay television provider, and that with TVA's relationships with strong international partners and its exclusive soccer coverage, TVA will continue to offer superior quality programming. STRATEGIC DEPLOYMENT OF ALTERNATIVE DISTRIBUTION TECHNOLOGIES. The Company is the only pay television operator utilizing five distribution technologies: MMDS, Cable, Ku-Band, C-Band and UHF. The availability of multiple distribution technologies enables the Company to capitalize on the population and income characteristics, topography and competitive dynamics of each of its targeted markets. The Company has the ability to penetrate new markets quickly and efficiently and to offer tiered programming at low cost with MMDS. The Company is expanding its Cable systems, where warranted by economic and competitive conditions, to build its subscriber base and to prepare for future opportunities in interactive services and telecommunications. Additionally, management believes the Company can rapidly penetrate virtually any market through the continued deployment of its DBS Systems. DBS SYSTEMS: NATIONWIDE COVERAGE AND DIGITAL SERVICE. Through its DBS Systems, TVA is capable of offering programming to nearly all of Brazil's 33.9 million TV Homes, including those households in markets where Cable or MMDS systems are either not developed or not economically viable. Through its DIRECTV service, TVA is the first provider of Ku-Band pay television services in Brazil and expects to enroll as subscribers a significant share of those who are interested in broader, digital quality programming and pay-per-view services. Through its digital C-Band system, the Company provides 26 channels of programming (including nine SAP channels) and is capable of providing up to 38 channels of programming (including SAP channels). The Company's only significant competitor in C-Band pay television service provides six analog channels of programming in addition to off-air channels. The Company currently targets its C-Band service to the estimated 3.7 million C-Band satellite dish owners in Brazil, most of whom currently receive only the off-air channels. MODERN CABLE INFRASTRUCTURE. The Company's Cable systems are constructed with, or are being upgraded to, either 750 MHz or 550 MHz bandwidth capacity, the latter of which is readily upgradeable to 750 MHz bandwidth capacity with only moderate investment. This Cable technology will enable the Company to provide data transmission and interactive services, including telecommunications, in the future. Management believes that the Company's major competitors for Cable service use narrower bandwidths over portions of their Cable systems and have installed certain types of Cable in households which currently may prevent them from providing telecommunications or high speed data delivery through these portions of their systems until substantial additional investments have been made for system reconstruction or upgrade. STRONG STRATEGIC PARTNERS. The Company's strategic equity partners continue to offer valuable expertise. TVA benefits from Abril's extensive experience in the business of subscriptions and distribution and from the collective experience of Falcon International, Hearst and ABC with regard to pay television operations and from access to programming. BUSINESS STRATEGY TVA seeks to be Brazil's largest and most profitable pay television operator and programming distributor and intends to capitalize on the convergence and development of voice, video and telecommunications services. The Company intends to achieve these goals through the following strategies: MAXIMIZE PENETRATION IN EXISTING MARKETS. The Company seeks to increase its penetration of existing markets by: (i) expanding the range of TVA's Cable systems by extending its fiber optic and coaxial cable network and by seeking pre-wiring arrangements with residential housing developers, (ii) improving the signal quality and coverage of TVA's MMDS systems by using signal repeater technology, (iii) maximizing penetration by offering tiered subscription options and developing programming packages to appeal to more households and (iv) expanding its penetration in ABC Class households 65 through its scheduled nationwide rollout of DIRECTV service and the continued development of C-Band service. MAXIMIZE CUSTOMER RETENTION THROUGH SUPERIOR CUSTOMER SERVICE. In order to maximize customer retention, the Company aims to provide a consistently high level of customer service. The Company has developed or has acquired the right to use proprietary management information systems which, among other things, provide Company representatives immediate access to customer records and correspondence history. This enables TVA to provide high quality service to its clients while monitoring subscriber payment patterns. The Company's Churn rate, which reflects the ability of the Company to retain subscribers, averaged approximately 2.0% per month during the nine month period ended September 30, 1996. The average monthly Churn rate for MMDS service in 1994 was 1.6%, in 1995 ws 1.3% and for the nine month period ended September 30, 1996, was 2.1%. The average monthly Churn rate for Cable service in 1994 was less than 1.0%, in 1995 was 1.1%, and for the nine month period ended September 30, 1996 (the year Cable service was initiated), was 0.7%. The average monthly Churn rate for C-Band service in 1994 was 5.3%, in 1995 was 0.1% and for the nine month period ended September 30, 1996, was 2.0%. DIRECTV service was only initiated in July 1996. Ku-Band service was initiated in July 1996. ENHANCE TVA'S PROGRAMMING PACKAGE. In order to maintain and enhance its position as a provider of superior programming in Brazil, TVA is developing new programming through the Programming Ventures, as well as through Abril and other partners. TVA frequently evaluates the demographics of its subscribers and potential subscribers and seeks to provide programming most in demand. The Company also takes advantage of opportunities to enter into exclusive distribution agreements for popular television programming in Brazil. Management believes that its DIRECTV service, which includes both basic and premium channels, as well as pay-per-view movies and events from Brazil, other Latin American countries, Europe, Asia and the United States, further enhances TVA's programming offerings and positions the Company to be the provider of the widest selection of popular programming in Brazil. ENTER NEW MARKETS. The Company intends to enter new markets by: (i) acquiring existing MMDS and Cable operations, (ii) applying either independently, or in conjunction with the Operating Ventures, independent pay television providers or other appropriate third parties, for new MMDS and Cable licenses offered by the Brazilian Government, (iii) initiating the nationwide rollout of DIRECTV service and (iv) investing in new operating ventures with other MMDS and Cable operators. The Brazilian Government has recently announced its intention to auction MMDS licenses in 15 state capitals. Although no date has been set for these auctions, management expects them to occur during 1997. The Company has submitted proposals, either individually or in conjunction with local partners, for all such licenses, as well as for additional licenses throughout Brazil. CONTINUE NETWORK ENHANCEMENT. The Company is positioning itself to provide high speed data transmission, interactive and other telecommunications services over its systems and to take advantage of possible deregulation and the growing demand for these services in Brazil. The Company is expanding its Cable systems with fiber optic and coaxial cable capable of being upgraded to provide such enhanced services. In addition, the Company continues to explore the development of digital compression of MMDS signals. Through the implementation of the Company's strategy, the Company has been able to achieve rapid subscriber growth. The following chart sets forth information regarding (i) the number of subscribers to the Company's Owned Systems at December 31, 1993, 1994, 1995 and at September 30, 1996, (ii) the number of new installations during the years ended December 31, 1993, 1994, and 1995, and the nine month period ended September 30, 1996, and (iii) the average installation fee for the year ended December 31, 1995. 66
SUBSCRIBERS AT END OF PERIOD(A) NEW INSTALLATIONS ------------------------------------------------ DURING PERIOD SEPTEMBER 30, -------------------------------------------- 1993 1994 1995 1996 1993 1994 1995 1996(B) --------- --------- --------- --------------- --------- --------- --------- ----------- MMDS Sao Paulo................... 54,183 72,425 121,969 133,005 33,966 34,372 75,332 45,098 Rio de Janeiro.............. 20,490 28,234 51,664 75,921 12,961 13,855 31,733 36,952 Curitiba.................... 7,801 11,112 15,260 20,730 5,965 5,972 10,513 11,220 --------- --------- --------- --------------- --------- --------- --------- ----------- Total MMDS.................... 82,474 111,771 188,893 229,656 52,892 54,199 117,578 93,270 --------- --------- --------- --------------- --------- --------- --------- ----------- CABLE Sao Paulo................... -- 1,007 13,885 19,575 -- 482 6,546 5,082 Curitiba.................... -- -- 1,244 9,545 -- -- 434 2,712 Foz do Iguacu(c)............ -- -- -- 6,184 -- -- -- 1,325 Camboriu(c)................. -- -- -- 3,949 -- -- -- 436 Florianopolis(c)............ -- -- -- -- -- -- -- -- --------- --------- --------- --------------- --------- --------- --------- ----------- Total Cable................... -- 1,007 15,129 39,253 -- 482 6,980 9,555 --------- --------- --------- --------------- --------- --------- --------- ----------- DBS C--Band/DIRECTV(d)............ 511 2,075 15,126 47,436 511 1,914 16,873 36,834 --------- --------- --------- --------------- --------- --------- --------- ----------- TOTAL SUBSCRIBERS-OWNED SYSTEMS..................... 82,985 114,853 219,148 316,345 53,403 56,595 141,431 139,659 --------- --------- --------- --------------- --------- --------- --------- ----------- --------- --------- --------- --------------- --------- --------- --------- ----------- AVERAGE INSTALLATION FEE FOR THE YEAR ENDED DEC. 31, 1995 ----------- MMDS Sao Paulo................... $ 180.30 Rio de Janeiro.............. 163.52 Curitiba.................... 122.45 ----------- Total MMDS.................... -- ----------- CABLE Sao Paulo................... $ 81.97 Curitiba.................... 80.02 Foz do Iguacu(c)............ 150.00 Camboriu(c)................. 150.00 Florianopolis(c)............ 150.00 ----------- Total Cable................... -- ----------- DBS C--Band/DIRECTV(d)............ $ 586.79 ----------- TOTAL SUBSCRIBERS-OWNED SYSTEMS..................... -- ----------- -----------
- ------------------------ (a) Excludes backlog, reconnected and disconnected subscribers. (b) Includes installations for the nine months ended September 30, 1996. (c) Average Installation Fee for the period ended September 30, 1996. (d) DIRECTV service was launched, on a limited basis, in July 1996. The full list price for initiation of the service is $990.00. OWNERSHIP Tevecap is a majority owned subsidiary of Abril, the leading magazine publishing, printing and distribution company in Latin America. Abril publishes over 266 weekly, bi-weekly and monthly titles. During 1995, the combined monthly paid circulation of Abril and its affiliates averaged 15.6 million copies. TVA benefits from Abril's extensive experience in the business of subscriptions and distribution, advertising synergies, common research resources and financial analysis and support. Certain of Tevecap's other shareholders provide the Company with access to additional international programming and certain technical and financial expertise. The Company's shareholders have invested, in aggregate, approximately $288.0 million in the Company. Tevecap's current ownership is as follows: Abril, 56.5%; Falcon International, 14.2%; Hearst, 10.0%; ABC, 10.0%; and CMIF, 9.3%. Each of Tevecap's corporate shareholders has agreed, with certain exceptions, to a reorganization of the ownership of Tevecap. As a result of the proposed reorganization a new Brazilian corporation would become an 80.0% shareholder in Tevecap and Hearst/ABC would remain a 20.0% shareholder in Tevecap. The new structure would not result in any change in the current beneficial equity participation of the Stockholders in Tevecap, and the transactions establishing the new structure and the new structure itself would have to conform to the restrictions of the Indenture. As of the date hereof, the timing of the restructuring is under discussion by the Stockholders. See "Principal Shareholders." 67 DISTRIBUTION OPERATING SYSTEMS TVA and the Operating Ventures distribute programming through five different technologies: MMDS, Cable, Ku-Band, C-Band, and UHF. The availability of multiple distribution technologies enables the Company to exploit the population and income characteristics, topography and competitive dynamics of each of its markets. MMDS TVA's strategy of rapidly deploying an extensive MMDS network has allowed it to enter new markets quickly and develop broad geographic coverage which the Company may expand utilizing signal repeaters. TVA has developed Brazil's largest MMDS network, and with the Operating Ventures, serves the country's major metropolitan areas. MMDS systems are typically easier to deploy and require relatively little capital investment for construction and maintenance as compared to Cable systems. Programming is transmitted by signals through the air from microwave transmitters to a small receiving antenna located at a subscriber's home or dwelling unit. At the subscriber's location, the microwave signals are converted to frequencies that can pass through a conventional coaxial cable into a decoder located near a television set. Under recently passed Brazilian regulations, each MMDS license allows an MMDS operator to provide service to households in a circular area within a radius of up to 50 kilometers, depending on the technical capability of the operator. It is expected that expansion into such newly available territory would require minimal additional capital spending by the Company. However, tall buildings and other tall structures may block reception of an MMDS signal. See "Business--Regulatory Framework." MMDS is being used in other emerging pay television markets such as Venezuela and Hong Kong, and in Mexico, where Cable has a strong incumbent position. TVA owns eight MMDS licenses and operates MMDS systems in Sao Paulo, Rio de Janeiro and Curitiba, which have an aggregate population of approximately 17.4 million. TVA serves 229,656 MMDS subscribers in these three cities. During the 12-month period ended September 30, 1996, TVA averaged approximately 4,000 net new MMDS subscribers per month. The MMDS systems of TVA offer between 15 to 18 channels of programming. Management intends to increase its channel offerings to 31 soon after the Ministry of Communications grants additional channel rights as allowed under recently passed regulations. See "Business--Regulatory Framework." TV Filme, an Operating Venture, operates MMDS systems in Brasilia, Goiania and Belem and has 62,774 MMDS subscribers. See "Regulatory Framework--MMDS Regulation." During the 12-month period ended September 30, 1996, the Operating Ventures averaged approximately 2,700 net new MMDS subscribers per month. In addition, TVA provides UHF service to 11,453 subscribers in the Sao Paulo metropolitan area. CABLE TVA has recently emphasized the strategic deployment of Cable service and currently operates Cable systems in Sao Paulo, Curitiba and three other cities. Cable service involves a broad band network employing radio frequency transmission through coaxial and/or fiber optic cable. Cable systems consist of four major parts: a headend, a distribution network, a subscriber network and a house terminal. The programming is collected from the headend, then processed and fed into the distribution path consisting of trunk and distribution cable, which consists of coaxial and/or fiber optic cables. The signal is then fed into a subscriber network that is either located in an apartment building or a subscriber's home. Most of the Company's systems are constructed with either 750 MHz or 550 MHz bandwidth capacity, the latter of which is readily upgradeable to 750 MHz bandwidth capacity. The Company's four newly acquired systems in Curitiba (2), Camboriu and Foz do Iguacu are being upgraded to 550 MHz bandwidth capacity. The Company's new system in Florianopolis is being constructed to 550 MHz bandwidth capacity. It is expected that this technology will enable the Company to provide interactive services, including telecommunications in the future. In addition, the Company's Cable systems generally use addressable converters, which allow the provision of pay-per-view services 68 and enable TVA to upgrade, downgrade or disconnect a subscriber's service from the headend on short notice. TVA, through TVA Sistema and TVA Sul, owns eight Cable licenses and operates Cable systems in Sao Paulo, Curitiba, Camboriu, Florianopolis and Foz do Iguacu, which have an aggregate population of approximately 11.9 million and 39,253 subscribers. As of September 30, 1996, TVA had deployed approximately 900 kilometers of its Cable network, including 80 kilometers of fiber optic cable, and passed approximately 270,000 homes. By the end of 1996, the Company added an additional 890 kilometers to its Cable systems. As part of this build-out plan, the Company constructed a 281 kilometer fiber optic network, including a 57 kilometer fiber optic loop in Sao Paulo and a 28 kilometer fiber optic network in Curitiba, and is upgrading or constructing the three recently acquired Cable systems. As a result of this buildout, by the end of 1996, TVA Cable systems passed approximately 300,000 homes in Sao Paulo, approximately 118,000 homes in Curitiba and a total of 494,000 throughout all of the Company's Cable systems. As of September 30, 1996, Canbras TVA, an Operating Venture, had an existing Cable network of approximately 151 kilometers, with approximately 22,200 Homes Passed and approximately 3,614 subscribers. Canbras TVA is constructing Cable networks in ten cities in the greater Sao Paulo area with a combined population of over 2.8 million. By comparison, TVA's largest competitor in Sao Paulo for Cable service had, as of June 30, 1996, a Cable network in Sao Paulo of approximately 1,225 miles (including approximately 151 miles of fiber optic cable) with 463,900 Homes Passed. TVA and Canbras TVA currently offer between 31 and 44 analog channels of programming (including off-air channels) on their Cable systems, depending on the market, and have the capability of offering up to 78 analog channels. During the 12-month period ended September 30, 1996, TVA averaged approximately 2,200 net new Cable subscribers per month, and Canbras TVA, after its first five months of operation ended September 30, 1996, had 3,614 subscribers. DIRECTV In July 1996, TVA launched, on a limited basis, Brazil's DIRECTV service, Brazil's first Ku-Band service. A nationwide rollout of DIRECTV was launched in November 1996, at which time TVA initiated a publicity campaign supported by a nationwide network of trained installers. By comparison, DIRECTV, Inc., a unit of Hughes Electronics, started its DIRECTV service in the United States in June 1994 and had, as of September 30, 1996, approximately 1.9 million subscribers for this service. Galaxy Brasil receives programming from GLA, including programming which GLA purchases from TVA. Additionally, GLA provides scheduling and related services to Galaxy Brasil for use with DIRECTV. GLA distributes programming to Brazil through the transmission of an encoded signal via the Galaxy III-R satellite utilizing 12 transponders to a subscriber's 60 centimeter dish antenna which can be mounted outside a window or on a rooftop. The signal is then transmitted to an integrated receiver decoder in the subscriber's home. A single antenna may serve a single family dwelling or a multifamily dwelling, such as an apartment building, in which case each apartment needs to be equipped with a decoder. A unit of Hughes Electronics leases the Galaxy III-R satellite and provides the use of the satellite and related services to GLA pursuant to a technical service agreement, the term of which extends until October 31, 2010. GLA, in turn, charges Galaxy Brasil a royalty on a per subscriber basis for the use of the satellite transponders and related services. The orbital location of the Galaxy III-R satellite enables the Company to offer DIRECTV service to substantially all of the TV Homes in Brazil. However, in the less populated northern and western regions of Brazil, reception of DIRECTV programming requires a dish antenna 1.1 meters in diameter and in the western third of Brazil (a sparsely populated area when compared to the southern and eastern regions) reception may require an even larger antenna. In addition, tall buildings and other tall structures may block reception of the DIRECTV programming signal. The Galaxy III-R satellite was launched in December 1995 and has an expected useful life of nine years from the date of launch. Hughes Electronics expects to launch within the next 12 months a second satellite to provide 69 additional transponders for transmission of DIRECTV programming. With DIRECTV service, TVA provided 49 channels of video programming (including 19 pay-per-view channels) as of September 30, 1996, and is capable of, and expects to eventually distribute, up to 70 channels of video programming and 30 channels of audio programming. Since September 30, 1996, the number of channels offered by the Company with DIRECTV service has increased to 56. In addition, since September 30, 1996 a competitor has entered the Ku-Band market, but offers only 26 channels of programming (including four pay-per-view channels). TVA owns and has made a substantial investment in a satellite uplink center for the Brazilian DIRECTV service in Tambore in greater Sao Paulo (the "Tambore Facility"). The Tambore Facility is used to uplink programming to the Galaxy III-R satellite. At the original full installation price of $990, the purchase of DIRECTV service was affordable only for the affluent Class A households in Brazil. However, TVA expects to be able to reduce the installation fee after consummation of the Galaxy Brasil Leasing Facility and the consummation of financings under the SurFin Credit Facility and additional financings in the future. Management expects these financing arrangements to enable the Company to finance the acquisition and lease of antennae decoder boxes and other equipment, thereby permitting TVA to reduce the initial installation fee and to spread the expense to subscribers of installing such equipment over time. Management also expects the cost of decoders and associated equipment to decline as new manufacturers enter the market and proposed manufacturing facilities in Brazil open. Accordingly, as the cost of DIRECTV service is reduced, management expects the purchase of DIRECTV service to become more affordable to a broader segment of Class ABC Households including Class ABC Households outside the more affluent urban areas of Brazil. In addition, management expects to offer different tiers of service, charging different installation and subscription prices for each tier of service. Such tiered service will also allow the Company to offer DIRECTV service to a broader segment of Class ABC Households. In any case, management believes DIRECTV service may be profitable for the Company, even if purchase of DIRECTV service remains feasible only for affluent Brazilians. However, no assurances can be given that Galaxy Brasil Leasing Facility and the SurFin Credit Facility will provide the Company with the ability to reduce the installation fees for DIRECTV service to the extent necessary to attract less affluent purchasers, or that DIRECTV service will be attractive to a large segment of Brazilians whether or not affluent. C-BAND TVA has offered C-Band service since 1993, and is the only pay television operator to deliver a digital C-Band signal in Brazil. TVA's C-Band service consists of the transmission of a digital encoded signal via the Brasilsat satellite utilizing four transponders to a satellite antenna 1.1 meters in diameter located at a subscriber's home, where the signal passes through an integrated receiver decoder. A single antenna may serve a single family dwelling or a multifamily dwelling, such as an apartment building, in which case each apartment needs to be equipped with a decoder. The Brasilsat satellite was launched in July 1994 and is owned by EMPRESA BRASILEIRA DE TELECOMUNICACOES (Brazilian Telecommunications Company, or "Embratel"), the Brazilian Government-owned company authorized to provide satellite telecommunications services utilizing the SISTEMA BRASILEIRO DE TELECOMUNICACOES POR SATELITE (Brazilian Satellite Telecommunications System, or "SBTS"). TVA utilizes the Brasilsat satellite pursuant to three satellite transponder leases that expire on May 30, 2002, November 20, 2003, and November 24, 2003, respectively. The orbital location of the Brasilsat satellite enables TVA to provide C-Band service throughout Brazil with little or no interference. However, tall buildings and other tall structures may block reception of C-Band programming. The Brasilsat satellite has an expected useful life of approximately 12 to 15 years from the date of launch. TVA's C-Band service provides the Company with national coverage via satellite transmission and a large preinstalled market. As of September 30, 1996, there were approximately 3.7 million parabolic C-Band antennae in use in Brazil, most of which receive only off-air channels. This installed base represents the Company's target market for its digital C-Band service and the Company expects to attract 70 these viewers through marketing and promotional initiatives. TVA is able to deliver 38 channels of programming (including nine SAP channels) in addition to the off-air channels and currently delivers 26 channels (including nine SAP channels) as compared to the six channels in addition to the off-air channels offered by its only significant competitor for this service. TVA provides service to 41,637 C-Band subscribers throughout much of Brazil. During the twelve-month period ended September 1996, TVA averaged approximately 2,600 net new C-Band subscribers per month. UHF SERVICE TVA's UHF service is the broadcast of an encoded UHF signal over a geographic area. TVA provides UHF service only in Sao Paulo and has 11,453 subscribers for such service. TVA's UHF service provides two channels of programming, HBO Brasil and ESPN Brasil. This service is provided to subscribers who are unable to receive or have chosen not to have access to other pay television services. UHF subscribers pay on average approximately $22.80 per month for this limited service. RECENT ACQUISITIONS AND LICENSE APPLICATIONS TVA's expansion into new metropolitan areas is limited by the number of MMDS and Cable licenses held by TVA. In order to expand, TVA seeks to purchase existing operations and licenses, form new ventures such as the Operating Ventures to offer pay television in markets for which TVA does not hold a license, find new Independent Operators to purchase TVA programming, and, either individually or along with various partners and affiliated parties, apply for new MMDS and Cable licenses. Since January 1996, TVA has purchased four existing Cable systems, two in Curitiba and one in each of two other cities in southern Brazil, and has purchased a license to operate a Cable system in a fourth city. As of the respective dates of their acquisitions, the two systems in Curitiba had a total of 4,515 subscribers, and the systems in the two other cities had a total of 8,298 subscribers. The four acquired systems had in the aggregate, as of September 30, 1996, Cable networks comprising approximately 490 kilometers. The Company is upgrading the operations of the four existing Cable systems and is constructing a cable system in the fourth city. In addition, TVA has submitted proposals to the Ministry of Communications for concessions to provide service in numerous locations, including the 15 state capitals, currently being evaluated by the Ministry of Communications for pay television service (none of which currently receive either MMDS or Cable service). No date has been set for the auction of these concessions, in which TVA intends to participate either individually or in conjunction with local partners. See "Business--Regulatory Framework." Management expects the bidding process for new Cable licenses to begin in 1997. TVA SISTEMA AND TVA SUL TVA Sistema and TVA Sul operate the Company's MMDS, Cable and C-Band businesses. TVA holds a 98.0% equity interest in TVA Sistema, and the estate of Matias Machline, a Brazilian national, holds the remaining 2.0% equity interest. The Company holds an 87.0% equity interest in TVA Sul, and Leonardo Petrelli, a Brazilian national, holds the remaining 13.0%. Pursuant to an Association Agreement, dated February 15, 1996 (the "TVA Sul Agreement"), for so long as Mr. Petrelli controls at least 8.0% of the voting capital of TVA Sul, he is allowed to exercise veto power over a number of decisions relating to TVA Sul, including: any merger, split, liquidation or dissolution of TVA Sul; any sale, purchase of or lien on property of over R$50,000 in value; any acquisition or transfer of any debt of over R$50,000 in value; any guaranty or surety given by TVA Sul; approval of budget and business plans; approval of dividends of over 25.0% of net profit; and any modifications to TVA Sul's ESTATUTO SOCIAL (BYLAWS). Mr. Petrelli has irrevocably waived his veto rights and consented to the execution and delivery by TVA Sul of the Indenture and the Subsidiary Guarantee by TVA Sul and such other documents and agreements as may be required under the Indenture and the Subsidiary Guarantee and the performance by TVA Sul 71 of its rights and obligations under the Indenture, the Subsidiary Guarantee and such other documents and agreements to which TVA Sul may be a party pursuant to the Indenture. The TVA Sul Agreement has a term equal to the longer of 10 years or the duration of the licenses required to operate TVA Sul, and for equal successive periods thereafter. GLA AND GALAXY BRASIL Pursuant to a Partnership Agreement, dated February 13, 1995 (the "GLA Agreement"), GLA is managed by a seven-member Executive Committee to which Hughes Communications GLA ("HCGLA") can appoint four members and each of the other partners, including Tevecap, can appoint one member as long as such partner holds at least an eight percent equity interest in GLA. The GLA Agreement provides for local operating agreements between GLA and local operators throughout South America, Central America, Mexico and the Caribbean which will govern the relationship between GLA and such local operator. The GLA Agreement stipulates that the local operator in Brazil shall be Galaxy Brasil, 100.0% of the equity interest of which is currently owned by Tevecap, but up to 12.5% of which may be purchased by HCGLA and up to 12.5% of which may be purchased by Darlene Investments, a member of the Cisneros Group. Tevecap, in turn, has an option to purchase up to 15.0% of the equity interest of the local operator in Venezuela, all of which is currently owned by Darlene Investments. The current partners in GLA have also agreed to "seek and maintain" equity positions in other local operators. The Company has agreed to make capital contributions under the GLA Agreement of $33.5 million, which amount was paid in quarterly installments ending on January 1, 1997. The GLA Agreement places restrictions, including first negotiation, approval and tag-along rights, on the transfer of capital stock or voting securities of each of the current partners in GLA and in certain circumstances their parent entities. Management expects GLA to become a Delaware limited liability company by the end of 1997. The proposed limited liability company agreement would contain substantially the same rights and obligations as set forth in the GLA Agreement. In connection with the conversion of GLA into a limited liability company, it is anticipated that GLA's uplink facility, CBC, will be transferred to a newly-organized Delaware limited liability company, to be owned by two units of Hughes Electronics. Pursuant to a Local Operating Agreement (the "Local Operating Agreement") between GLA and Galaxy Brasil, dated March 3, 1995, GLA has agreed to provide to Galaxy Brasil the exclusive right and ability to supply the DIRECTV service in Brazil. In accordance with a formula based on the number of subscribers, Galaxy Brasil is obligated to pay a periodic royalty to GLA. In addition, TVA may not own or engage in any other Ku-Band service and GLA may not own or engage in any other pay television service in Brazil. GLA, upon the occurrence of certain events, has the right to terminate the Local Operating Agreement, or to terminate Galaxy Brasil's exclusive rights to distribute DIRECTV programming. Such events include breach of any material obligation of Galaxy Brasil to GLA and the failure of Galaxy Brasil to meet certain specified performance goals. See "Description of Certain Indebtedness" and "Risk Factors--Rights to DIRECTV Programming." THE OPERATING VENTURES The Operating Ventures also operate MMDS (TV Filme) or Cable (Canbras TVA) systems. TVA holds a 36.0% equity interest in each of Canbras TVA Cabo and TV Cabo Santa Branca (the "Canbras TVA Companies"). Canbras Communications Corp., a publicly-traded Canadian company ("Canbras"), and Canbras Participacoes Ltda., a Brazilian company ("Canbras-Par") hold the remaining interests in Canbras TVA Cabo and Canbras-Par owns the remaining interest in TV Cabo Santa Branca. Bell Canada International, Inc. ("BCI"), an affiliate of BCE Inc., Canada's largest telecommunications group, holds a $27.0 million convertible debenture that upon conversion, would permit BCI to become, inter alia, a majority shareholder of Canbras-Par. The Canbras Association Agreement provides for each of the Canbras TVA companies to be governed by a management committee of three members, one of which TVA has the right to designate. In addition, TVA agreed to supply to the Canbras TVA companies all 72 programming regularly supplied to the Owned Systems at "most favored prices" and other terms at which programming is provided to the Owned Systems or to third parties in arm's- length transactions. TVA will continue to provide MMDS service, where possible, to customers in the Santo Andre and Sao Bernardo operating area of the Canbras TVA Companies until cable service is available in these areas. Canbras TVA Cabo and TV Cabo Santa Branca will compensate TVA for each subscriber that transfers from TVA's MMDS system to a Canbras TVA Cable system. The Company agreed to grant to Canbras-Par a "right of first refusal" to participate in Cable licenses that the Company may obtain, directly or indirectly, and Canbras-Par granted to the Company a similar "right of first refusal" to participate in Cable licenses acquired by Canbras-Par. The term of the Canbras Association Agreement is for so long as Canbras-Par or its assignee owns shares "in companies which have the objective of engaging in the cable TV business." The Canbras Association Agreement does not specify the terms and conditions on which any co-investments in Cable licenses are to be made, and such terms and conditions will be negotiated in good faith, on a case-by-case basis, in connection with any future cable license investments. See "Risk Factors--Ownership of Future Cable Television Licenses." TVA holds a 14.3% equity interest (not including a 2.4% interest which may be acquired by TVA under an outstanding warrant having a nominal exercise price) in TV Filme. The remaining interests are held by Warburg, Pincus Investors, L.P., which currently holds a 41.2% equity interest; members of the Lins family, Brazilian nationals, who currently hold a 16.2% equity interest; and public shareholders, who currently hold a 28.3% equity interest. On July 29, 1996, TV Filme completed a public offering of 2.5 million shares of its common stock in the United States at an initial price of $10.00 per share. Pursuant to a programming agreement, TVA provides programming to TV Filme, and TV Filme has agreed to use 50.0% of the channel capacity of each of its MMDS systems in Brasilia, Goiania and Belem (the "TV Filme Service Area") to broadcast TVA programming so long as (i) the quality of TVA programming, in the reasonable judgment of TV Filme, remains compatible with the taste and standards of TV Filme's subscribers, (ii) TVA continues to own, directly or indirectly, 10.0% of TV Filme's common stock and (iii) TVA remains a subsidiary of Abril. Within the TV Filme Service Area, TVA may not provide TVA programming to any Cable or other MMDS pay television service provider and TVA may not compete with TV Filme as an MMDS service provider. TV Filme also has a nonexclusive license to TVA programming in 19 cities in which TV Filme has pending license applications, subject to any exclusive license previously granted by TVA to other pay television service providers in such cities and which exclusive license TVA, using its best efforts, is unable to renegotiate to allow TVA to provide for TV Filme to have a nonexclusive license. TVA may not charge TV Filme an amount greater than the minimum rates charged by TVA to other subscription television operators, nor may such charges exceed comparable rates for other programming of a similar nature. The terms of the programming agreement terminate on July 20, 2004. From time to time, in connection with the programming agreement, TV Filme has agreed to enter into additional agreements with the Company regarding specified channels. The agreements typically have two year terms and determine the monthly fees which TV Filme pays for such channels. PROGRAMMING TVA TVA, through its MMDS, Cable and C-Band systems, currently provides a programming package consisting of 15 to 44 television channels. TVA programming emphasizes sports, movies, and news with a secondary emphasis on general entertainment. With respect to MMDS and Cable service in TVA's market, TVA is currently the sole provider of ESPN Brasil, HBO Brasil, CMT Brasil, Bravo Brasil, the Superstation, RTPi and Eurochannel. In addition, as of January 1997, TVA has exclusive distribution rights to certain of Brazil's most important soccer championships, including the Brasil Cup, the Brazilian Championship and the Sao Paulo and Rio de Janeiro State Championships. TVA has entered into two Programming Ventures, ESPN do Brasil Ltda. ("ESPN Brasil Ltda.") and HBO Brasil Partners, through which it distributes a large volume of programming 73 which management believes is especially important to its subscribers. ESPN Brasil Ltda. is a joint venture between Tevecap and ESPN Brazil, Inc. (a subsidiary of ESPN, Inc.), each of which holds a 50.0% equity interest. ESPN, Inc. is a joint venture between ABC and Hearst. ESPN, Inc. provides the programming of the US channel ESPN2 to ESPN Brasil Ltda., which packages such programming with Brazilian and other international content and provides such packaged programming to TVA. Pursuant to a Quotaholders Agreement, dated June 26, 1995 (the "ESPN Agreement"), ESPN Brasil has the right to transmit "ESPN2 Service" programming as well as all library programming of ESPN. The Company has the exclusive right to broadcast the programming of ESPN Brasil Ltda. in Sao Paulo, Rio de Janeiro, Curitiba, Brasilia, Belem and Goiania. The Company also acts as the exclusive sales representative of ESPN Brasil programming with respect to sales to other Brazilian pay television providers and receives a commission in connection therewith. The Company is also the sole advertising agent for ESPN Brasil until June 1999 and receives a commission on advertising sales. ESPN Brasil Ltda., in turn, receives on an exclusive basis from the Company all rights to soccer and other sporting events acquired by the Company after February 24, 1995. ESPN Brazil, Inc. has the right to terminate the ESPN Agreement and dissolve ESPN Brasil Ltda. in the event that a Brazilian court issues a non-appealable decision that the Company did not have the right to grant these rights to ESPN Brasil. TVA's mandatory capital contributions to ESPN Brasil Ltda. are subject to a maximum aggregate amount of $5.0 million, whether in the form of loans or subscriptions for additional quotas. The ESPN Agreement is effective until June 17, 2045 and automatically renewable for a 50-year period. HBO Brasil Partners is a joint venture between TVA, which holds a 33.3% equity interest, and HBO Ole Partners, which holds the remaining 66.7% equity interest. HBO Ole Partners is, in turn, a joint venture among Time-Warner, Sony and Ole Communications, Inc. HBO Brasil Partners has exclusive programming contracts with Sony, Time-Warner and certain independent programming distributors. HBO Brasil Partners, through an affiliate, provides the programming for HBO Brasil to TVA. Pursuant to a Partnership Agreement dated April 15, 1994 (the "HBO Agreement"), HBO Brasil Partners is managed by a Partners' Committee comprised of an equal number of agents appointed by TVA and HBO Ole Partners, the other partner. The HBO Agreement provides for the Company to enter into an affiliation agreement with HBO Brasil Partners, pursuant to which the Company pays a monthly fee per subscriber to the partnership. In addition to the Programming Ventures, TVA has entered into a number of other programming agreements. Since June 1991, TVA has had a programming agreement with De Santi & Vallone to broadcast SuperStation programming in Brazil, with exclusivity in Sao Paulo, Rio de Janeiro, Curitiba, Brasilia, Belem and Goiania, as well as throughout all of Brazil via C-Band. Through the SuperStation, TVA provides exclusive attractions from the news departments of two major US television networks (CBS and NBC) as well as general interest programming. In December 1996, TVA began transmitting programming from the History Channel on the SuperStation. TVA acquired the rights to transmit the History Channel programming through an agreement with A&E Networks Television. The Bravo Company, a joint venture among NBC and certain other parties, provides international movies and arts programming for the Bravo Brasil channel on an exclusive basis to TVA for distribution in Brazil. TVA customizes Bravo Brasil with the insertion of Brazilian arts and movie programming. Country Music Television, which is owned by Group W Broadcasting, Inc. and Gaylord Entertainment Company, provides programming for CMT Brasil, which TVA customizes with Brazilian content. Pursuant to a Letter of Understanding, dated January 18, 1996, TVA and Country Music Television ("CMT") agreed to form CMT Brasil as a joint venture entity, in which TVA will hold a 75.0% equity interest and CMT will hold the remaining 25.0% equity interest. The formation of this joint venture is still under discussion by the parties. Eurochannel is a channel assembled exclusively by TVA with programming from the German channel Deutsche Welle, the Spanish channel Radiotelevision Espanola, European movies, and series acquired from the BBC. Additionally, pursuant to existing agreements, TVA is planning, through DIRECTV service, to become the first provider of Cinemax programming in Brazil (expected by March 1997). TVA also plans to transmit CNA, a Brazilian news channel to be produced by Abril with programming from SBT, a Brazilian off-air 74 channel. TVA distributes its programming through its own operations and through sales of programming to the Operating Ventures, Galaxy Latin America, the Independent Operators and, to a lesser extent, to competing pay television providers. In addition, TVA offers non-exclusive programming from major international subscription television programming providers, including such channels as ESPN International, CNN, TNT, Fox, and the Discovery Channel. TVA currently offers subscribers the following channels, among others: HBO BRASIL is the dominant first-run pay television movie channel in Brazil. HBO Brasil airs 24 hours a day offering an average of 12 different films per day with limited commercial slots. All films are either subtitled or dubbed into Portuguese. In the case of dubbed versions, viewers can listen to the original soundtrack on an SAP channel. Recently, in some locations, TVA began offering HBO Brasil2, transmitting HBO Brasil films with a six hour time shift. ESPN BRASIL, offered exclusively by TVA, began transmission on June 17, 1995. TVA negotiated agreements with the major Brazilian soccer confederations, providing TVA, as of the 1997 season, exclusive first choice coverage of soccer games of the Brazilian Soccer Championship, the Sao Paulo State Championship and the Brazil Cup. ESPN Brasil's programming centers around these exclusive soccer games and other exclusive Brazilian and international sports entertainment programs, mixed with programming from ESPN2. ESPN INTERNATIONAL is the second sports channel offered by TVA, for which TVA recently signed a new non-exclusive 50-year contract automatically renewable for another 50-year period. ESPN International offers a number of different sporting events, which include auto racing, National Football League games, professional tennis matches, Major League Baseball games, and National Basketball Association games. ESPN International also currently provides Portuguese language commentaries exclusively to TVA. CNN INTERNATIONAL features news and information programming, offering international news coverage concerning politics, business, financial and economic developments, 24 hours a day. TNT is a movie channel which, pursuant to a non-exclusive agreement with Turner International, Inc., offers the Turner Network Television movie collection, including over 5,000 classic movie titles from MGM. In addition, TNT airs children's programming, documentaries and sporting events. The movies presented by TNT are broadcast in stereo sound and subtitled or dubbed in Portuguese or Spanish. In the case of dubbed versions, viewers can listen to the original soundtrack on a SAP channel. CARTOON NETWORK is an animated cartoon channel targeted to children that offers programs such as THE FLINTSTONES, THE JETSONS, THE SMURFS, YOGI BEAR and other classic series. DISCOVERY BRASIL is comprised of programming shown on the US Discovery Channel, based on topics in the areas of nature, science and technology, history, adventure and world cultures. THE FOX CHANNEL presents movies, as well as programs from the 2,000 titles in Fox's library. Fox also presents American television series, such as L.A. LAW, M*A*S*H, and THE SIMPSONS, among many others. THE SUPERSTATION is a general entertainment channel programmed by a third party for TVA's distribution in Brazil. This third party has entered into exclusive contracts with leading American networks for the transmission of documentary, variety, music and news programming. The SuperStation offers popular programs, such as THE LATE SHOW WITH DAVID LETTERMAN, E! ENTERTAINMENT programs, NBC and CBS news, as well as a variety of other programs, including programming from the History Channel, interviews, and programs on such topics as food and cooking, travel and fashion. 75 EUROCHANNEL is specially assembled and packaged by TVA and offers subscribers European programming. The channel presents programs from the Spanish Radiotelevision Espanola, the German Deutsche Welle, the BBC, the news from the French TF1, as well as a variety of quality European films. News, sports, music and variety shows are also offered. MTV BRASIL is a 24-hour channel produced by MTV Brasil, a joint venture company owned by Abril and an indirect subsidiary of Viacom International. MTV Brasil is entirely produced in Brazil in Portuguese. MTV Brasil has licensing agreements with the MTV Network, a division of Viacom International, and transmits a combination of music and other video clips, cartoons and local programming. MTV LATINO presents original programming from MTV Latin America, which includes music and other video clips and cartoons in Spanish. CMT BRASIL is a country music channel with programming supplied from the US version of Country Music Television channel exclusively to TVA and customized for Brazil with Brazilian country music and local events. SONY ENTERTAINMENT is primarily a situation-comedy channel, consisting of Sony's film library, including FRIENDS, SEINFELD, MAD ABOUT YOU and E.R. THE WARNER CHANNEL is a family entertainment channel, with new and classic cartoons, children's programs and movies. BRAVO BRASIL is an arts and movie channel, following the same concept as the US version of the Bravo channel, showing high quality, cultural events, such as classical music, jazz, opera, ballet and European movies. TVA inserts local programming, such as Brazilian music and movies, as well as shows performed in Brazil by international artists. RTPI, Radiotelevisao Portuguesa Internacional, is a Portuguese state-owned general entertainment channel produced and assembled in Portugal, airing music events, talk shows, movies, news, documentaries, exclusive to TVA. 76 TVA's complete channel offerings as of September 1996 were as follows:
CHANNEL DESCRIPTION - -------------------------------------------------------- -------------------------------------------------------- HBO Brasil.............................................. movie channel HBO Brasil 2............................................ HBO Brasil with a six-hour time shift ESPN Brasil............................................. sports channel ESPN International...................................... sports channel CNN International....................................... news channel TNT..................................................... movie channel Cartoon Network......................................... cartoon channel Discovery Brasil........................................ science and documentary channel Fox Channel............................................. movie channel SuperStation............................................ variety programming channel Eurochannel............................................. European variety programming channel MTV Brasil.............................................. music channel MTV Latino.............................................. music channel RTPi.................................................... Portugal's state television channel CMT Brasil.............................................. music channel TV5..................................................... French variety programming channel WorldNet................................................ American news and variety channel RTVE.................................................... Spanish variety channel Deutsche Welle.......................................... German variety channel America 2............................................... Argentine variety channel CV Noticias............................................. Argentine news channel CV Sports............................................... Argentine sports channel Canal de Noticias NBC................................... NBC news channel in Spanish TeleUno................................................. Spanish variety channel Sony Entertainment...................................... situation comedy channel The Warner Channel...................................... family entertainment channel Bravo Brasil............................................ arts and movie channel Globo................................................... national off-air channel SBT..................................................... national off-air channel Gazeta/CNT.............................................. national off-air channel Bandeirantes............................................ national off-air channel Record.................................................. national off-air channel Manchete................................................ national off-air channel Cultura................................................. national off-air channel CBI..................................................... local off-air channel Rede Mulher............................................. local off-air channel Rede Vida............................................... local off-air channel TV Senado............................................... local off-air channel TV Educativa Rio........................................ local off-air channel
77 The following additional channels are under development and are expected to be offered by TVA to the Brazilian subscription television marketplace.
CHANNEL DESCRIPTION - -------------------------------------------------------- -------------------------------------------------------- Cinemax................................................. movie channel CNA..................................................... news channel Mundo................................................... variety channel E! Entertainment........................................ entertainment news channel
DIRECTV The DIRECTV programming package currently offered by Galaxy Brasil as of September 30, 1996 consisted of 49 video channels (including 19 pay-per-view channels), certain of which, such as Bravo Brasil and CMT Brasil, are provided by TVA. Since September 30, 1996, the number of channels offered by Galaxy Brasil has increased to 56. The Company expects that the number of channels will increase to approximately 70 video and 30 audio channels in the first quarter of 1997. Programming includes movies, news, athletic events and other programs available on a pay-per-view basis. The complete DIRECTV service channel offerings, other than pay-per-view, as of September 1996 were as follows:
CHANNEL DESCRIPTION - -------------------------------------------------------- -------------------------------------------------------- HBO Brasil.............................................. movie channel HBO Brasil 2............................................ HBO Brasil with a six-hour time shift ESPN Brasil............................................. sports channel ESPN International...................................... sports channel Eurochannel............................................. European variety programming channel CMT Brasil.............................................. music channel MTV Brasil.............................................. music channel MTV Latino.............................................. music channel RTPi.................................................... Portugal's state television channel CNN International....................................... news channel TNT..................................................... movie channel Cartoon Network......................................... cartoon channel Discovery Brasil........................................ science and documentary channel Sony Entertainment...................................... sit-com channel Bravo Brasil............................................ art and movie channel Deutsche Welle.......................................... German variety channel RTVE.................................................... Spanish variety channel Tele Uno................................................ Spanish variety channel Warner Channel.......................................... family entertainment channel CBS Telenoticias........................................ CBS news channel in Spanish Bloomberg............................................... business news channel Multipremier............................................ Mexican movie channel ZAZ..................................................... Mexican children's programming channel Travel Channel.......................................... travel programming channel NHK..................................................... Japanese general entertainment channel BBC..................................................... U.K. news channel TVN..................................................... Chilean programming channel Gazeta/CNT.............................................. national off-air channel TV Senado............................................... local off-air channel TV Educativa Rio........................................ local off-air channel TV Cultura.............................................. local off-air channel
78 Since September 30, 1996, the Company has added the following channels to the DIRECTV service:
CHANNEL DESCRIPTION - -------------------------------------------------------- -------------------------------------------------------- Nickelodeon............................................. children's programming channel Discovery Kids.......................................... children's programming channel Locomotion.............................................. children's programming channel BBC World............................................... world news channel TV Chile................................................ Chilean programming channel Playboy TV.............................................. adult programming channel AdulTVision............................................. adult programming channel
OPERATIONS MARKETING. The Company periodically conducts marketing surveys to gauge consumer preferences and evaluate new and existing markets. TVA also frequently evaluates the demographics of the subscribers to its programming, seeking to provide programming most in demand. In each market, TVA's marketing staff typically applies one or more of the following programs to attract subscribers: (i) extensive marketing tied to regional events such as soccer matches, (ii) neighborhood promotional events featuring large screen broadcasts of its channel offerings, (iii) direct mailings, (iv) telemarketing, (v) television, billboard, magazine and newspaper advertisements, (vi) prewiring arrangements with residential housing developers and (vii) other promotional marketing activities, including referral programs and promotional gifts. INSTALLATION. The installation package delivered to a new subscriber depends upon the type of programming delivery service chosen by the subscriber. The MMDS installation package features a standard rooftop mount linked to an antenna and related equipment, including a decoder, located at the subscriber's location. Cable service requires the installation of a cable line and a decoder at the subscriber's dwelling. Ku-Band satellite service typically involves installation of a 60-centimeter dish antenna, which can be mounted outside a subscriber's window or on the rooftop of a subscriber's building or house, together with a decoder located at the subscriber's dwelling. As with Ku-Band service, C-Band service installation includes the installation of a dish antenna, although of a greater size (1.1 meters in diameter) and a decoder and related equipment at the subscriber's home. DBS installations at single-family homes require an entire installation package, while installations at multiple dwelling units in which drop lines are installed require only a decoder at each subscriber's location and therefore are less costly to the Company. Once a new subscriber has requested service, the amount of time a subscriber waits for the commencement of service depends on several factors, including type of service, whether the subscriber has access to Cable, whether the subscriber is in a single family home or multiple dwelling unit, whether the topography of the surrounding area makes MMDS service viable and whether the subscriber is located in an area of Brazil that can be reached by C-Band or Ku-Band service. TVA provides installation service with its own personnel and through local subcontractors. TVA or such subcontractor attempts to complete installation and begin service within 30 days of a subscription order. UPLINK FACILITIES. A major part of the delivery of TVA's DBS service, whether Ku-Band or C-Band, is the collection of programming and the transmission, or uplinking, of such programming to the Galaxy III-R satellite and the Brasilsat satellite, respectively. Upon receipt of programming, the Company processes, compresses, encrypts, multiplexes (combines with other channels) and modulates (prepares for transmission to the satellite at a designated carrier frequency) such programming. The Company uses uplink facilities of Embratel in Sao Paulo to service its existing C-Band service. TVA delivers its programming to the Embratel uplink center via microwave transmission, where it is prepared for transmission to the Brasilsat satellite using equipment provided by TVA. For its DIRECTV service, the Company has built the Tambore Facility, an uplink center, for a total cost of approximately $20 million in 79 Tambore in the State of Sao Paulo consisting of an uplink antenna and ancillary equipment. The Tambore Facility has operated since June 1996 and is used to uplink Brazilian programming to the Galaxy III-R satellite. Through the Galaxy III-R satellite, programming from Galaxy Brasil is mixed with programming from the California Broadcast Center (the "CBC") in Long Beach and with programming provided by members of the Cisneros Group through an uplink facility in Venezuela and by Grupo Frequencia Modulada Television through its uplink facility in Mexico, for delivery to subscribers in Brazil and other countries to which GLA provides DIRECTV service. The Tambore Facility and the uplink facilities in Venezuela, Mexico and the United States are equipped with full emergency power generation equipment and other emergency facilities to enable GLA to avoid signal disruptions. During 1997, management expects that a new Delaware limited liability company will be established, the principal asset of which will be GLA's satellite uplink facility. The new company will be owned by two subsidiaries of Hughes Electronics. In connection with the establishment of the new company, TVA Communications and Tevecap have agreed, pursuant to the Indemnification Agreement, to provide certain indemnities in favor of GLA, Hughes Communications GLA, the newly-established company and its shareholders. To secure its obligations under the Indemnification Agreement, Tevecap has agreed to pledge its equity interest in GLA, as well as any future notes or interest it may hold relating to the uplink facility. PROGRAMMING FACILITIES. Programming equipment is used to prepare the programming material for transmission via the Company's MMDS, Cable or DBS systems, including compression with respect to Cable and Ku-Band service. The programming equipment inserts commercial or promotional material, if appropriate, monitors the quality of the picture and sound, and delivers the material to the multiplexing system. For programming delivered to TVA as taped material, the programming equipment also compiles the various programming segments, inserting commercial and promotional material. COMPRESSION SYSTEM. The Company also uses its programming facilities to digitize the programming signals used in TVA's Cable and Ku-Band service. Digital technology permits the compression and transmission of a digital signal to facilitate multiple channel transmission through a single channel's bandwidth, thereby giving broadcasters the ability to offer significantly more channels than is currently the case with analog systems. Digitized signals are compressed using the MPEG-2 standard. (Moving Pictures Expert Group-2, the international video compression standard). CONDITIONAL ACCESS SYSTEM. GLA and News Digital Systems Limited ("NDS"), a wholly-owned subsidiary of News Corporation, are parties to a System Implementation and License Agreement. Under the Local Operating Agreement, GLA provides to Galaxy Brasil the use of the access control system licensed from NDS and the Smart Cards provided by NDS. The Company expects the access control system to adequately protect DIRECTV programming from unauthorized access. With Smart Card technology, it is possible to change the access control system in the event of a security breach allowing TVA to reestablish security. Management believes that the ability to take electronic measures and to replace the Smart Cards will provide an effective means to combat unauthorized programming access. SUBSCRIBER SERVICE. Management believes that delivering high levels of subscriber service in installation and maintenance enables it to maintain high levels of subscriber satisfaction and to maximize subscriber retention. To this end, TVA attempts to promptly schedule installations, provides a subscriber service hotline in each of the metropolitan areas in which TVA operates, attempts to promptly provide response repair service, and attempts to make follow-up calls to new subscribers shortly after installation to ensure subscriber satisfaction. TVA seeks to instill a subscriber service focus in all its employees through ongoing training and has established an intra-company electronic mail system to provide a forum for employees to exchange ideas concerning ways to increase subscriber satisfaction. TVA also has various employee bonus programs linked to measures of subscriber satisfaction. To enable its employees to provide quicker service, TVA is working to decentralize its subscriber service operations by opening small service offices throughout TVA's served markets. 80 MANAGEMENT INFORMATION SYSTEMS AND BILLING. Management believes that TVA's proprietary management information systems enable TVA to deliver superior subscriber service, monitor subscriber payment patterns and facilitate the efficient management of each of its operating systems. Management believes that TVA's billing procedures are an integral part of its strategy to maintain high levels of subscriber satisfaction and to maximize subscriber retention. Subscribers select the day of the month on which payment for that month's service is due, and pay their bills at a bank through direct transfers, which is the standard payment method in Brazil. After disconnection and the removal of the delinquent subscribers decoder box, the Company generally offers to reconnect the delinquent subscribers for a fee of approximately $50.00. COMPETITION GENERAL TVA and the Operating Ventures compete with pay television service providers using Cable, MMDS and DBS transmission technologies. The Company expects to continue to face competition from a number of existing and future sources, including potential competition as a result of new and developing technologies and the easing of regulation in the pay television industry. TVA believes that competition is and will continue to be primarily based upon program offerings, customer satisfaction, quality of the system network and price. Since there is a very limited history of pay television services in Brazil, there can be no assurance that, based on the potential size of the Brazilian pay television industry, the pay television market will be able to sustain a number of competing pay television providers. The Company and the Operating Ventures also compete with national broadcast networks and regional and local broadcast stations. TVA's MMDS and Cable operations and its C-Band satellite service and Ku-Band satellite service may compete for the same subscribers. MMDS AND CABLE SERVICE TVA's principal competitors in Cable service are operations owned or controlled by Multicanal Participacoes S.A. ("Multicanal"), Net Brasil S.A. ("Net Brasil"), Globo Cabo S.A. ("Globo Cabo") and RBS Participacoes S.A. ("RBS"). Multicanal and Net Brasil operate Cable systems throughout much of Brazil, including Sao Paulo, Rio de Janeiro, Curitiba and several other large metropolitan areas. Globo Cabo has Cable systems in approximately 18 cities including Brasilia. RBS operates Cable services in 19 cities in Brazil and provides MMDS service in Porto Alegre. Net Brasil also provides MMDS service in Recife, and has a license to provide MMDS service in Curitiba. Globo Comunicacoes e Participacoes Ltda. ("Globo Par") and TV Globo, the owners of Brazil's most popular off-air channels (together, "Globo"), control, or have significant interests, in each of Multicanal, Net Brasil and Globo Cabo. RBS also holds an interest in Multicanal. The systems controlled by Multicanal, Net Brasil, Globo Cabo and RBS offer a similar number of channels of programming at prices comparable to those charged for TVA's MMDS and Cable Service. Each of these systems broadcasts programming purchased from TVA as well as from other services. DBS SERVICE Management believes its only competitor in DBS service is Net Sat Servicos Ltda. ("Net Sat") in which Globo Par also has a controlling interest and whose other equity holders include News Corporation plc, a subsidiary of The News Corporation Limited and Grupo Televisa, S.A., of Mexico. TVA offers 26 channels of programming with its C-Band service, compared to the six channels offered by Net Sat's C-Band service. However, while monthly charges are comparable and TVA's digital C-Band service offers more channels, often with better picture quality, the analog decoder necessary for Net Sat's C-Band service is significantly less expensive than the digital decoder TVA's subscribers must purchase. With respect to Ku-Band service, Net Sat uses a satellite which provides broader coverage of Brazil. The orbital location of the Galaxy III-R satellite enables GLA to offer DIRECTV service to substantially all of the 81 TV Homes in Brazil. However, in the less populated northern and western regions of Brazil, reception of DIRECTV programming requires a dish antenna up to 1.1 meters in diameter and in the western third of Brazil (a sparsely populated area when compared to the southern and eastern regions) reception may not be practical due to the size of the antenna necessary for reception. TVA's Ku-Band service currently offers 56 channels of programming, including 9 SAP channels and 19 pay-per-view channels, as compared to the 26 channels of programming, including 4 pay-per-view channels, offered by Net Sat. OFF-AIR BROADCAST TELEVISION Broadcasting services are currently available to substantially all of the Brazilian population without payment of a subscription fee by six privately-owned national broadcast television networks and a government-owned national public television network. The six national broadcast television networks and their local affiliates currently provide services to nearly all Brazilian TV Homes without payment of a subscription fee. The national broadcast television networks and local broadcast stations receive a significant portion of their revenues from the sale of television advertising, which revenues are based in part on the audience share and ratings for the networks' programs. Programming offered by pay television providers, including TVA, directly competes for audience share and ratings with the programming offered by broadcast television networks as well as regional and local television broadcasters. The six national broadcast television networks are Globo, SBT, Bandeirantes, TV Manchete, TV Record and Gazeta/CNT. The national television networks utilize one or more satellites to retransmit their signals to their local affiliates throughout Brazil. PROGRAMMING SALES TVA competes with a variety of Brazilian and international programming providers for sales of its programming to the Operating Ventures and Independent Operators. In addition, TVA competes with other pay television operators to purchase programming from some of these Brazilian and international sources. REGULATORY FRAMEWORK The subscription television industry in Brazil is subject to regulation by the Brazilian Ministry of Communications pursuant to the Brazilian Telecommunications Code of 1962, as amended (the "Telecommunications Code"). The Ministry of Communications grants concessions for MMDS, Cable, DBS, and UHF licenses. MMDS REGULATIONS GENERAL. The Telecommunications Code empowers the Ministry of Communications, among other things, to issue, revoke, modify and renew licenses within the spectrum available to MMDS systems, to approve the assignments and transfer of control of such licenses, to approve the location of channels that comprise MMDS systems, to regulate the kind, configuration and operation of equipment used by MMDS systems, and to impose certain other reporting requirements on channel license holders and MMDS operators. The licensing and operation of MMDS channels are currently governed by Rule No. 002/94 ("Rule 002/94"), adopted by Ministry of Communications Administrative Rule No. 043/94 ("Rule 043/94"). Under Rule 002/94, MMDS is defined as the special service of telecommunication which uses microwaves to transmit codified signals to be received in pre-established points on a contractual basis. On September 9, 1996, the Ministry of Communications issued Ordinance No. 1,085 ("Ordinance 1085"), which revised Rule 002/94 and imposed restrictions on the granting and use of MMDS licenses. LICENSES. The Ministry of Communications grants licenses and regulates the use of channels by MMDS operators to transmit video programming, entertainment services and other information. A 82 maximum of 31 MMDS channels (constituting a spectrum bandwidth of 186 MHz) may be authorized for use in an MMDS market. While licenses are usually granted for the use of up to 16 channels, depending on technical feasibility and the existence of competition, the Ministry of Communications can grant a license for all 31 channels available in one specific area. If the license is for 16 or more channels, at least two channels must be reserved for educational and cultural programming. If the license involves less than 15 channels, only one channel must be reserved for educational and cultural purposes. If a license is for fewer than 15 channels, there is no obligation to reserve any channel for educational and cultural purposes. In each of the Company's operating or targeted markets, up to 31 MMDS channels are available for MMDS (in addition to any local off-air VHF/UHF channels which are offered). Any company in which nationals of Brazil own at least 51.0% of the voting capital is eligible to be granted a license to operate an MMDS service. For purposes of this regulation, "national" means any native Brazilian or a naturalized Brazilian who has held Brazilian citizenship for at least ten years. The license is granted for a renewable period of 15 years. The application for renewal of a license must be filed with the Ministry of Communications during the period from 180 to 120 days before the end of the license term. To renew the license, the license holder must (i) meet applicable legal and regulatory requirements, (ii) have complied with all legal and contractual obligations during the term of such license, (iii) meet certain technical and financial requirements and (iv) provide educational and cultural programming. Under the most recently promulgated rules of Ordinance 1085, each license holder and its affiliates may be granted permission to operate MMDS systems in different areas of Brazil, provided that no holder may be granted licenses for (i) more than seven municipalities with a population equal to or exceeding 700,000 inhabitants and (ii) more than 12 municipalities with a population between 300,000 and 700,000 inhabitants. The restrictions only apply to areas in which the MMDS system operator (or an affiliate thereof) faces no competition from other pay television services, excluding services that utilize a satellite to transmit their signal. Ordinance 1085 grants the Ministry of Communications full discretion to alter or eliminate the restrictions. The term affiliate is defined by Ordinance 1085 as "(i) any legal entity that directly or indirectly holds at least 20% of the voting capital of another legal entity or any of two legal entities under common ownership of at least 20% of their respective voting capital, (ii) any of two legal entities that have at least one officer or director in common, (iii) any of two legal entities when, due to a financial relationship between them, one entity is dependent on the other." The Company currently controls four MMDS licenses in cities of more than 700,000 inhabitants (Sao Paulo, Rio de Janeiro, Curitiba and Porto Alegre), but in each such city TVA has at least one competitor. No assurance can be given as to the number of licenses that will be granted, if any. Prices for pay television services may be freely established by the system operator, although the Ministry of Communications may interfere in the event of abusive pricing. The Ministry of Communications may impose penalties including fines, suspension or revocation of the license if the license holder fails to comply with applicable regulations or becomes legally, technically or financially unable to provide MMDS service. The Ministry of Communications also may intervene to the extent operators engage in unfair practices intended to eliminate competition. The Ministry of Communications awards licenses to use MMDS channels based upon applications demonstrating that the applicant is qualified to hold the license, that the proposed market is viable and that the operation of the proposed channels will not cause impermissible interference to other permitted channels. After the Ministry of Communications determines that an application has met these requirements, it publishes a notice requesting comments from all parties interested in providing the same services in the same or a near area. Depending on the comments received, the Ministry of Communications may decide to open a public bid for the service in that area, although it has not done so in the past. In the case of a public bid, applicants would be evaluated based on a number of factors including the applicant's proposed schedule for implementing service aspects of the applicant's community relations, such as involvement of local residents as stockholders of the applicant, the applicant's commitment to 83 local programming and the extent to which the applicant provides free programming to local cultural and educational institutions. Once an MMDS license application is granted by the Ministry of Communications, the license holder must finalize construction and begin operations within 12 months, which period may be extended by an additional 12 months. In addition to qualifying under the application process described above, a license holder must also demonstrate that its proposed signal does not violate interference standards in the area of another MMDS channel license holder. To this end, existing license holders are given a 30-day period in which to ascertain and comment to the Ministry of Communications whether the new license holder's proposed signal will interfere with existing signals. The area covered by the services is exclusive to a radius of five to 50 kilometers around the transmission site, depending on the technical capability of the operator. On November 28, 1995, the President of Brazil enacted Decree No. 1719, which provides that all granting of concessions and licenses for the rendering of commercial telecommunications services in Brazil shall be made through bidding procedures. As of March 31, 1996, the Ministry of Communications had not granted any new licenses for the operation of MMDS systems pursuant to such Decree. OTHER REGULATIONS. MMDS license holders are subject to regulation with respect to the construction, marketing and lighting of transmission towers pursuant to the Brazilian Aviation Code and certain local zoning regulations affecting construction of towers and other facilities. There may also be restrictions imposed by local authorities. The subscription television industry also is subject to the Brazilian Consumer Code. The Consumer Code entitles the purchasers of goods or services to certain rights, including the right to discontinue a service and obtain a refund if the services are deemed to be of low quality or not rendered adequately. For instance, in case of a suspension of the transmission for a given period, the subscriber shall be entitled to a discount on the monthly fees. Rule No. 002/94 and Ordinance 1085 have certain provisions relating to consumer rights, including a provision for mandatory discounts in the event of interruption of service. The Company as of April , 1997, has not been required to repay any amounts or provide any discounts due to interruptions of service. However, the Company does refund prepaid installation service fees, when the Company discovers such service is unavailable for whatever reason. Due to the regulated nature of the subscription television industry, the adoption of new, or changes to existing, laws or regulations or the interpretations thereof may impede the Company's growth and may otherwise have a material adverse effect on the Company's results of operations and financial condition. See "Risk Factors--Risk Factors Relating to the Company--Government Regulation." CABLE REGULATION GENERAL. Cable services in Brazil are licensed and regulated by the Ministry of Communications pursuant to Law No. 8977, enacted by the Brazilian National Congress on January 6, 1995 ("Law 8977"), and Decree No. 1718, enacted by the President of Brazil on November 28, 1995 ("Decree 1718"). Until Law 8977 was enacted in 1995, the Brazilian Cable industry had been governed by two principal regulatory measures since its inception in 1989: Ordinance No. 250, issued by the Ministry of Communications on December 13, 1989 ("Ordinance 250"), and its successor, Ordinance No. 36, issued by the Ministry of Communications on March 21, 1991 ("Ordinance 36"). On September 9, 1996, the Ministry of Communications issued Ordinance 1086 ("Ordinance 1086") regulating the granting and use of Cable Licenses. Ordinance 250 regulated the distribution of television signals ("DISTV") by physical means (I.E., by Cable) to end-users. DISTV services generally are limited only to the reception and transmission of signals without any interference by a DISTV operator with the signal content. Under Ordinance 250, 101 authorizations were granted by the Ministry of Communications to local operators to commercially exploit DISTV services. Although Ordinance 250 did not specifically address Cable services, a number of DISTV operators (including the Company's Cable systems) began to offer Cable services based on DISTV authorizations. 84 By issuing Ordinance 36 in March 1991, the Ministry of Communications suspended Ordinance 250, although it allowed the DISTV authorizations issued during the preceding 15 months to remain valid. The Ministry of Communications submitted proposed regulations relating to Cable services for public comment at the same time Ordinance 36 was issued. These proposed regulations were never adopted and no further regulatory action was taken until the enactment of Law 8977 in 1995. Currently Law 8977, together with Decree 1718 (which provides the implementing procedures for Law 8977) and Ordinance 1086, constitute the regulatory framework for Cable services in Brazil. LICENSES. Under Law 8977, a Cable operator must obtain a license from the Ministry of Communications in order to provide Cable services in Brazil. All Cable licenses are nonexclusive licenses to provide Cable services in a service area. Cable licenses are granted by the Ministry of Communications for a period of 15 years and are renewable for equal and successive periods. Renewal of the Cable license by the Ministry of Communications is mandatory if the Cable system operator has (i) complied with the terms of the license grant and applicable governmental regulations and (ii) agrees to meet certain technical and economic requirements relating to the furnishing of adequate service to subscribers, including system modernization standards. Ordinance 1086 imposes restrictions on the number of areas that can be served by a Cable television system operator (or an affiliate thereof). Pursuant to Ordinance 1086, a Cable system operator (or an affiliate thereof) may only hold licenses with respect to (i) a maximum of seven areas with a population of 700,000 and above and (ii) a maximum of 12 areas with a population of 300,000 or more and less than 700,000. The restrictions only apply to areas in which the Cable system operator (or an affiliate thereof) faces no competition from other pay television services, excluding services that utilize a satellite to transmit their signal. Ordinance 1086 grants the Ministry of Communications full discretion to alter or eliminate the restrictions. The term affiliate is defined by Ordinance 1086 as "(i) any legal entity that directly or indirectly holds at least 20% of the voting capital of another legal entity or any of two legal entities under common ownership of at least 20% of their respective voting capital, (ii) any of two legal entities that have at least one officer or director in common, (iii) any of two legal entities when, due to a financial relationship between them, one entity is dependent on the other." The Company currently controls four Cable licenses in cities of more than 700,000 inhabitants (Sao Paulo and Curitiba), but in each such city TVA has at least one competitor. Generally, only legal entities that are headquartered in Brazil and that have 51.0% of their voting capital by Brazilian-born citizens or persons who have held Brazilian citizenship for more than 10 years are eligible to receive a license to operate Cable systems in Brazil. In the event that no private entity displays an interest in providing Cable services in a particular service area, the Ministry of Communications may grant the local public telecommunications operator a license to provide Cable services. Cable operators that presently provide Cable services under a DISTV authorization granted under Ordinance 250 are required under Law 8977 to file applications to have their DISTV authorizations converted into Cable licenses. Ordinance 1086 grants a one year period from the date a DISTV authorization is converted into a cable television license for any Cable system operator to comply with the restrictions. The Company's Cable systems, all of which are operating under DISTV authorizations, have applied for conversion of their DISTV authorizations. Cable licenses for service areas not covered by existing authorizations will be granted pursuant to a public bidding process administered by the Ministry of Communications after prior public consultation. All such licenses shall be nonexclusive licenses. In order to submit a bid for a license, a bidder must meet certain financial and legal prerequisites. After such prerequisites are met, a bidder must then submit a detailed bid describing its plan to provide Cable services in the service area. In the qualification phase of the bidding process, the Ministry of Communications assigns a number of points to each bid based on certain weighted criteria, including the degree of ownership of the bidder by residents of the local service area; the channel capacity of the proposed system; the timetable for installing the Cable 85 system; the timetable for offering subscription programming and amount of such programming; the time allocated to local public interest programming; the number of channels allocated to educational and cultural programming; the number of establishments, such as schools, hospitals and community centers, to which basic service programming will be offered free of charge; and the proposed basic subscription rate. After calculating the number of points awarded to each bidder, the Ministry of Communications will then apply a formula based on the population of the service area to select the winning bid from among those bidders that meet certain defined minimum qualifying thresholds. For service areas with a population of 700,000 or more inhabitants, the qualified bidder that submits the highest bid for the license will be selected. For service areas with a population between 300,000 and 700,000 inhabitants, the winning bid is selected based on the highest product obtained by multiplying the number of points awarded in the qualification phase and the amount bid for the license. For service areas with less than 300,000 inhabitants, the winning bid is selected on the basis of the number of points awarded in the qualification phase and the payment of a fixed fee. Once a Cable license is granted, the licensee has an 18 month period from the date of the license grant to complete the initial stage of the installation of the Cable system and to commence providing Cable services to subscribers in the service area. The 18 month period is subject to a single 12 month extension for cause at the discretion of the Ministry of Communications. Any transfer of a Cable license is subject to the prior approval of the Ministry of Communications. A license generally may not be transferred by a licensee until it has commenced providing Cable services in its service area. Transfers of shares causing a change in the control of a license or the legal entity which controls a license also is subject to the prior approval of the Ministry of Communications. The Ministry of Communications must receive notice of any change in the capital structure of a licensee, including any transfer of shares or increase of capital that do not result in a change of control. A license can be revoked, upon the issue of a judicial decision, in the event the licensee lacks technical, financial or legal capacity to continue to operate a Cable system; is under the management of individuals, or under the control of individuals or corporations who, according to Law 8977, do not qualify for such positions; has its license transferred, either directly or by virtue of a change in control, without the prior consent of the Ministry of Communications; does not start to provide Cable services within the time limit specified by Law 8977; or suspends its activities for more than thirty consecutive days without justification, unless previously authorized by the Ministry of Communications. CABLE RELATED SERVICE REGULATION GENERAL. Brazilian telecommunications services are governed primarily by (i) Article 21 of the Federal Constitution, as amended by Amendment No. 8 of August 15, 1995 ("Amendment 8"), and (ii) the Telecommunications Code (Law No. 4117 of August 27, 1962, as amended). The Brazilian Government also has issued detailed regulations covering specific areas of telecommunications services, including radio broadcasting, paging, trunking, subscription television, Cable television and cellular telephony. The Ministry of Communications presently is responsible for the regulation of telecommunications services in Brazil. Prior to its amendment in 1995, Article 21 of the Federal Constitution required the Brazilian Government to operate directly, or through concessions granted to companies whose shares are controlled by the Brazilian Government, all telephone, telegraph, data transmission and other public telecommunications services. This constitutional requirement was the basis for the establishment of the state-owned telephone monopoly, Telebras, which holds controlling interests in 27 regional telephone operating companies. With the adoption of Amendment 8, Article 21 was modified to permit the Brazilian Government to operate telecommunications services either directly or through authorizations, concessions or permissions granted to private entities. In particular, Amendment 8 removed the constitutional requirement that the Brazilian Government must either directly operate or control the shares of companies which operate telecommunications services. Even with the adoption of Amendment 8, the Brazilian Government still retains broad regulatory powers over telecommunications 86 services. Notwithstanding the existence of the Telebras monopoly, private companies have been permitted under Brazilian law to provide a number of telecommunications services other than telephony, including radio broadcasting, paging, trunking, subscription television and cable television services. However, fixed public telephony and cellular telephony were exclusively provided by Telebras through its regional telephone operating companies. While Amendment 8 permits the Brazilian Government to authorize private companies to provide such services, further action on the part of the Brazilian legislature will be required before private entities may actually provide fixed telephony services. HIGH-SPEED CABLE DATA SERVICES. Law 8977 and Decree 1718, among other things, authorize cable television operators, such as the Company, in addition to furnishing video and audio signals on their cable networks, to utilize their networks for the transmission of meteorological, banking, financial, cultural, prices and other data. This broad grant of authority by the Ministry of Communications is understood to permit Cable television operators to furnish services such as interactive home banking and high-speed Cable data services to subscribers through their cable television networks. CABLE TELEPHONY. Under present Brazilian law, only Telebras' regional telephone operating companies are permitted to furnish fixed telephone services in Brazil. Therefore, absent a change in Brazilian law, the Company would not be permitted to furnish cable telephony on its network. There are, however, certain limited regulatory exceptions pursuant to which private entities other than Telebras and the regional telephone operating companies have been permitted to provide limited fixed telephony services in Brazil. Under one particular exception, certain private telephone networks (CENTRAIS PRIVADAS DE COMUTACAO TELEFONICA or "CPCT") serving "condominiums" (as such term is defined under Brazilian law) have been permitted to interconnect their private telephone networks to the public telephone network operated by the local telephone operating company. A CPCT is comparable to a private branch exchange (PBX) found in some larger apartment complexes, hotels and businesses in the United States. Under Brazilian law, the term "condominium" refers to residential and nonresidential buildings or building complexes that have entered into a legal association. In practice, a condominium desiring to establish a CPCT will generally contract with a private service provider to install, operate and maintain the CPCT and to secure interconnection with the public telephone network. Ordinance No. 119/90 of the 10 December 1990 ("Ordinance 119"), which was issued by the predecessor to the Ministry of Communications, sets forth requirements for the interconnection of CPCTs with the public telephone network. In general the installation, operation and maintenance of a CPCT does not require any authorization from the Ministry of Communications or Telebras. In order to interconnect with the public telephone network, a CPCT must comply with the requirements set forth in Ordinance 119. Such requirements primarily relate to meeting technical equipment certification and acceptance standards. Assuming that such standards are met, the regional telephone operating company is required under Ordinance 119 to interconnect the CPCT requesting interconnection to the public telephone network. The Company believes that, under current Brazilian law, Cable television operators can utilize their Cable television networks in order to facilitate the installation and operation of a CPCT. Furthermore, under the authority granted by Ordinance 119, CPCTs may be interconnected through Cable television networks to the public telephone network. SATELLITE SERVICE REGULATION. On October 1, 1991, the Ministry of Communications enacted Ordinance No. 230 to regulate telecommunications services via satellite in Brazil ("Ordinance 230"). Under Ordinance 230 any company authorized to broadcast television by any means is also authorized to broadcast by satellite transmission. The Company has operated satellite pay-television services since 1993 through a contract signed with Embratel. Ordinance No. 281, issued by the Ministry of Communications on November 28, 1995, partially amended Ordinance 230 allowing only companies to which a concession, permission or authorization had been granted previously by the Ministry of Communications to provide telecommunications services via satellite. Companies that were already operating satellite telecommunications services without 87 such authorization were given a period of 60 days to seek such authorization. The Company applied for such authorization within the 60-day period, and on April 23, 1996, the Ministry of Communications issued Ordinance No. 87/96 ("Ordinance 87"), granting TVA the non-exclusive permission to operate a pay television service via satellite. Such authorization is valid for a term of fifteen years, commencing October 26, 1994. Ordinance 87 further provides that TVA has the obligation to (a) render services continuously and efficiently in order to fully satisfy users, (b) in an emergency or disaster, render services to the entities that require services without charge, and (c) meet the technical adequacy requirements which the Ministry of Communications considers essential to guarantee fulfillment of the obligations under the permission granted. In addition, on April 23, 1996, Galaxy Brasil received approval from the Ministry of Communications, pursuant to Ordinance No. 86/96 ("Ordinance 86"), to operate satellite services via the Galaxy III-R satellite, leased by Hughes Electronics. Galaxy Brasil also received approval to operate the corresponding ground transmission station pursuant to Ordinance 86. On May 31, 1996, the Ministry of Communications presented Ordinance No. 23 ("Ordinance 23") for a 30-day period of public review and comment. Ordinance 23 is a proposed general rule which would govern the granting of licenses to provide satellite pay television services. Under the proposed rule, licenseholders would be required to be legal entities at least 51.0% of whose voting capital is owned by (a) Brazilian citizens who are either born in Brazil or naturalized for at least ten years or (b) a corporation organized in Brazil and controlled by Brazilian citizens who are either born in Brazil or naturalized for at least ten years. Furthermore, licenses would be granted for a renewable period of ten years, and could be transferred only with prior approval of the Ministry of Communications. If issued as currently drafted, these proposed rules will not have a material impact on the Ku-Band and C-Band operations of TVA. PROPERTIES The Company owns most of the assets essential to its operations. The major fixed assets of the Company are coaxial and fiber optic cable, converters for subscribers' homes, electronic transmission, receiving, processing and distribution equipment, microwave equipment and antennae. The Company leases certain distribution facilities from third parties, including space on utility poles, roof rights and land leases for the placement of certain of its hub sights and head ends and space for other portions of its distribution system. The Company leases its offices from third parties, with the exception of certain offices of TVA Sul, located in Curitiba, State of Parana, and the offices and uplink facility for Galaxy Brasil, located in Tambore, Sao Paulo State, all of which are owned by the Company. The Company also owns its data processing facilities and test equipment. EMPLOYEES TVA had 1,666 employees as of September 30, 1996. TVA utilizes third-party contract employees in connection with the construction of its broadcast system network and certain other activities. Substantially all of the employees of TVA are represented by unions. TVA believes that it has good employee and labor relations. LEGAL PROCEEDINGS The Company is party to certain legal actions arising in the ordinary course of its business which, individually or in the aggregate, are not expected to have a material adverse effect on the combined financial position of the Company. As of September 30, 1996, the Company had reserved approximately $5.9 million as contingent liabilities in connection with certain litigation contingencies, including a number of claims by persons arising in connection with the termination of their employment (approximately $1.8 million) and claims relating to the payment by the Company of certain taxes on imported materials (approximately $4.1 million). See Note 21 to the Financial Statements of the Company. As a result of an agreement between the Company and governmental authorities regarding an installment payment schedule for one such tax (the IMPOSTO SOBRE CIRCULACAO DE MERCADORIAS E SERVICOS, or 88 "ICMS"), the Company reduced its reserve for litigation contingencies to approximately $4.3 million as of December 31, 1996, which amount includes a provision for claims described in the succeeding paragraph. The Company's operating companies are currently defending a lawsuit brought by the Escritorio Central de Arrecadacao e Distribuicao (Central Collection and Distribution Office, or "ECAD"), a government-created entity authorized to enforce copyright laws relating to musical works. ECAD filed a lawsuit in 1993 against all pay-television operators in Brazil seeking to collect royalty payments in connection with musical works broadcast by the operators. The suit was filed against TVA in the Tribunal de Justica do Estado de Sao Paulo, the 16 Vara Civil do Estado de Sao Paulo, the Tribunal de Justica do Estado do Parana and the Tribunal de Justica do Estado de Santa Catarina. The suit was filed against TV Filme in the Tribunal de Justica do Estado de Goias, the Tribunal de Justica do Distrito Federal and the Tribunal de Justica do Estado do Para and against Canbras TVA in the Tribunal de Justica do Estado de Sao Paulo. ECAD is seeking a judgment award of 2.55% of all past and present revenues generated by the operators. The Company and all such cable operators are currently in the process of responding to this suit. Although the Company intends to vigorously defend this suit, the loss of such suit may have a material adverse effect on the consolidated financial position of the Company. Based on agreements reached by ECAD with other Brazilian television operators, however, management believes that it can reach a negotiated settlement to this suit whereby the Company would make monthly payments to ECAD in an amount significantly lower than that sought by ECAD. As of December 31, 1996, the Company had reserved approximately $770,000 for claims related to the ECAD suit. 89 MANAGEMENT The Company is managed by its CONSELHO DE ADMINISTRACAO ("Board of Directors"), CONSELHO CONSULTIVO ("Advisory Board") and DIRETORIA ("Committee of Officers"). Members of the Board of Directors and Committee of Officers are elected for a two-year period, currently expiring on April 30, 1998. Day-to-day operations of the Company are managed by the Company's EXECUTIVOS ("Executive Officers"). BOARD OF DIRECTORS
MEMBER AGE POSITION - ---------------------------------------------------------------------------------------------- --- ----------- Robert Civita................................................................................. 60 President Jose Augusto P. Moreira....................................................................... 53 Member Robert Hefley Blocker......................................................................... 61 Member Giancarlo Francesco Civita.................................................................... 33 Member Thomaz Souza Correa Neto...................................................................... 58 Member Francisco Savio Couto Pinheiro................................................................ 43 Member Arnaldo Bonoldi Dutra......................................................................... 44 Member Sergio Vladimirschi Junior.................................................................... 31 Member Jose Luis de Salles Freire.................................................................... 48 Member Jorge Fernando Koury Lopes.................................................................... 46 Member Oswaldo Leite de Moraes Filho................................................................. 47 Member
ADVISORY BOARD
MEMBER AGE POSITION - ---------------------------------------------------------------------------------------------- --- ----------- Robert Civita................................................................................. 60 President Jose Augusto P. Moreira....................................................................... 53 Member Robert Hefley Blocker......................................................................... 61 Member Claudio Dascal................................................................................ 53 Member Angelo Silvio Rossi........................................................................... 50 Member Francisco Savio Couto Pinheiro................................................................ 43 Member Stephen Vaccaro............................................................................... 42 Member Marc Nathanson................................................................................ 51 Member Tully M. Friedman............................................................................. 54 Member Raymond E. Joslin............................................................................. 60 Member Herbert A. Granath............................................................................ 68 Member
COMMITTEE OF OFFICERS
MEMBER AGE POSITION - ----------------------------------------------------------------------------------------------- --- ---------- Jose Augusto Pinto Moreira..................................................................... 53 Member Angelo Silvio Rossi............................................................................ 50 Member Claudio Cesar D`Emilio......................................................................... 46 Member Sergio Vladimirschi Junior..................................................................... 31 Member
90 EXECUTIVE OFFICERS
MEMBER AGE POSITION - ----------------------------------------------------- --- ----------------------------------------------------- Gene Musselman....................................... 52 Executive Vice President and Chief Operating Officer Douglas Duran........................................ 43 Chief Financial Officer Jose Antonio de Camargo Barros....................... 50 Development Officer Luis Alberto Villaca Leao............................ 38 Management Information System Officer Virgilio Jose Carreira Amaral........................ 43 Engineering Officer Jose Luiz Navarro Frauendorf......................... 51 Operations Officer Antonio Alberto Teixeira Filho....................... 43 Technology Officer Roseli Terezinha Parrella............................ 38 Human Resources Officer Jacques Wladimirski.................................. 35 Galaxy Brasil Officer Leonardo Petrelli Neto............................... 36 Curitiba Officer Luiz Eduardo B.P. Rocha.............................. 36 Rio de Janeiro Officer
ROBERT CIVITA has been President of the Board of Directors since July 1994 and President of the Advisory Board since September 1995. Mr. Civita has been Chairman and Chief Executive Officer of Abril since 1990 and previously served as its President for eight years. Mr. Civita attended Columbia University's graduate program in sociology, and holds a degree in economics, with a minor in publishing, from the University of Pennsylvania. In 1991 Mr. Civita was elected "Person of the Year" by the Brazilian American Chamber of Commerce in New York. Mr. Civita is the father of Giancarlo Francesco Civita. JOSE AUGUSTO P. MOREIRA has been a member of the Board of Directors since July 1994, a member of the Advisory Board since September 1995 and a member of the Committee of Officers since July 1992. Mr. Moreira has been associated with Abril since 1965, and currently serves as Abril's Vice President of Finance and Administration. Mr. Moreira has a degree in Economics from the Faculdade de Economia Sao Luis in Sao Paulo, and participates in the Program for Management Development at Harvard Business School. ROBERT HEFLEY BLOCKER has been a member of the Board of Directors since April 1995 and a member of the Advisory Board since September 1995. Mr. Blocker was associated with the Chase Manhattan Bank for 22 years, the last nine of which he served as President Director. Mr. Blocker is currently President and Managing Partner of Blocker Assessoria de Investimentos e Participacoes S.A., a consulting firm for national and multinational companies. Mr. Blocker is also a member of several other Boards of Directors, including those of Arno S.A. and the American Chamber of Commerce in Sao Paulo. GIANCARLO FRANCESCO CIVITA has been a member of the Board of Directors since August 1994. Mr. Civita has been associated with Abril since 1986, and currently serves as the General Director of MTV Brasil. From 1992 to 1994 Mr. Civita was the General Director of the Programming Unit at TVA Brasil. Mr. Civita holds an M.B.A. from Harvard Graduate School of Business Administration, as well as an undergraduate degree in Social Communication from the Escola Superior de Propaganda e Marketing in Sao Paulo. Mr. Civita is the son of Robert Civita. THOMAZ SOUTO CORREA NETO has been a member of the Board of Directors since November 1995. Mr. Correa is Executive Vice President and Editorial Director of Abril, and has served as Editor-in-Chief of several of Abril's major magazines. Mr. Correa is also the President of the Brazilian Publishers Association. Mr. Correa studied Economics at Universidade MacKenzie. FRANCISCO SAVIO COUTO PINHEIRO has been a member of the Board of Directors since September 1995 and a member of the Advisory Board since September 1995. Mr. Pinheiro is a former Secretary of Communications who has also held posts at Embratel and Radiobras, the Brazilian government- 91 owned broadcasting company. Mr. Pinheiro is currently a consultant and General Manager of SP Communications. Mr. Pinheiro holds undergraduate and graduate degrees in Telecommunications. ARNALDO BONOTRI DUTRA has been a member of the Board of Directors since April 1996. Mr. Dutra is the Country General Counsel of Banco Chase Manhattan S.A., an affiliate of The Chase Manhattan Bank. Mr. Dutra is also the legal advisor to all the Chase companies in Brazil. Mr. Dutra holds a law degree from the Pontificia Universidade Catolica de Sao Paulo and a master of laws degree from the Universidade de Sao Paulo. SERGIO VLADIMIRSCHI JUNIOR has been a member of the Board of Directors since September 1995 and a member of the Committee of Officers since April 1996. Mr. Vladimirschi was associated with Drexel Burnham Lambert, where he worked as an analyst for two years, and is an executive with Fechaduras Brasil S.A., one of Brazil's leading hardware manufacturers, where he served as Marketing Officer for seven years. Mr. Vladimirschi holds a B.S. in Finance from the Wharton School at the University of Pennsylvania. Mr. Vladimirschi is the nephew of Marc Nathanson. JOSE LUIS DE SALLES FREIRE has been a member of the Board of Directors since September 1995. Mr. Freire has been active in the areas of banking, corporate finance and corporate law, and is a member of the Board of Directors of the BOLSA DE VALORES DE SAO PAULO (Sao Paulo Stock Exchange). Mr. Freire holds a law degree from the Universidade de Sao Paulo and a master of laws degree in Comparative Law from New York University Law School. JORGE FERNANDO KOURY LOPES has been a member of the Board of Directors since November 1995. Mr. Lopes holds a law degree from the Faculdade de Direito Sorocaba and a master of laws degree in Corporate Jurisprudence from New York University. OSWALDO LEITE DE MORAES FILHO has been a member of the Board of Directors since November 1995. Mr. Moraes holds a law degree from the Universidade de Sao Paulo and a master of laws degree in Corporate Jurisprudence from New York University. Mr. Moraes is a member of the Instituto Brasileiro de Direitos Tributarios (Brazilian Tax Law Institute). ANGELO SILVIO ROSSI has been a member of the Advisory Board since April 1996 and a member of the Committee of Officers since July 1994. Mr. Rossi has been associated with Abril since 1968, and holds a graduate degree in Economics from the Fundacao Getulio Vargas, as well as an undergraduate degree in Economics from Universidade MacKenzie. STEPHEN VACCARO has been a member of the Advisory Board since April 1996. Mr. Vaccaro has been a Managing Director of The Chase Manhattan Bank since February 1990 and is currently responsible for the bank's Media and Telecommunications business in Latin America. Mr. Vaccaro has been employed by The Chase Manhattan Bank in various positions since 1977. He is a graduate of Cornell University with a B.A. in Economics. MARC NATHANSON has been a member of the Advisory Board since September 1995. Mr. Nathanson is the Chairman and Chief Executive Officer of Falcon International and Falcon Holding Group, L.P., one of the largest cable TV operators in the United States. Mr. Nathanson is a 27 year veteran of the cable TV industry and a Director and member of the Executive Committee of the National Cable Television Association. He was appointed by President Clinton and confirmed by the U.S. Senate for a three year term as a member of the International Broadcasting Board of Governors of the United States Information Agency. He holds an M.A. from the University of California and a B.A. from the University of Denver. Mr. Nathanson is the uncle of Sergio Vladimirschi Junior. TULLY M. FRIEDMAN has been a member of the Advisory Board since September 1995. Mr. Friedman is a General Partner of Hellman & Friedman. He is currently a member of the board of directors of: Falcon International Communications LLC, APL Limited, Levi Strauss & Co., Mattel, Inc., McKesson Corporation and MobileMedia Corporation. Mr. Friedman is a member of the Executive Committee and a Trustee of 92 the American Enterprise Institute, and a Director of the Stanford Management Company. Mr. Friedman holds a J.D. from Harvard Law School and a B.A. from Stanford University. RAYMOND E. JOSLIN has been a member of the Advisory Board since April 1996. Mr. Joslin is group head of Hearst Entertainment & Syndication and is a vice president and member of the board of directors of The Hearst Corporation. Mr. Joslin has 30 years of experience in the cable communications industry, and holds executive positions at The A&E Television Networks, The History Channel, Lifetime Television and ESPN. Mr. Joslin attended the Carnegie Institute of Technology and Harvard Business School, and holds a B.A. in Economics from Trinity College. HERBERT A. GRANATH has been a member of the Advisory Board since April 1996. Mr. Granath was recently promoted to Chairman, Disney/ABC International Television; before that he was President of ABC Cable and International Broadcast Group. Mr. Granath is also the Chairman of the Board of ESPN and A&E Television Networks. From 1982 to 1993, Mr. Granath served as President of Capital Cities/ABC Video Enterprises. Mr. Granath holds a B.S. degree from Fordham University's College of Arts and Sciences. He later did graduate work in communication arts. CLAUDIO CESAR D`EMILIO has been a member of the Committee of Officers since July 1992. Mr. D`Emilio has been associated with Abril since 1975, and currently holds the position of Finance Officer of Abril. Mr. D`Emilio holds undergraduate degrees in Corporate Management and Accounting and a master's degree in Finance from the Universidade de Sao Paulo. CLAUDIO DASCAL has been a member of the Advisory Board since April 1996. Mr. Dascal has also been an Executive Vice President of Abril since April 1996. Mr. Dascal served as Access General Director at Alcatel Standard Electrica in Spain and Chief Operating Officer of Alcatel Telecommunicacoes in Brazil and Senior Vice President of Alcatel Access Business Division Worldwide, before joining the Company. Mr. Dascal holds a degree in Electrical Engineering and Electronics from the Polytechnic School at the Universidade de Sao Paulo and the IESE of Navarra University in Madrid, Spain. GENE MUSSELMAN has been Executive Vice President and Chief Operating Officer of the Company since January 1996. Mr. Musselman, who is also a Managing Director of Falcon International, has been involved in the Cable industry since 1974, and has held positions such as Executive Vice President of Hearst CableVision of California, Inc. and Director of New Business Development for the Hearst Corporation. Mr. Musselman has also spent five years developing pay-television systems throughout Eastern Europe. Mr. Musselman holds a master's degree from Loyola College of Chicago. DOUGLAS DURAN has been the Chief Financial Officer of the Company since April 1992. Mr. Duran has 25 years of experience in corporate finance, and has held positions at Abril such as Manager of Financial Operations and Corporate Treasury Officer. Mr. Duran holds a degree in Business Administration from Amador Aguiar College and has completed several extension courses in Finance at the Universidade de Sao Paulo. JOSE ANTONIO DE CAMARGO BARROS has been the Development Officer of the Company since March 1996. Mr. Camargo has extensive experience as a journalist, administrator and marketing and sales executive. Mr. Camargo has worked at various Brazilian newspapers as a reporter and editor, and as a director of marketing and sales at Gazeta Mercantil, Brazil's leading financial newspaper. Mr. Camargo holds a B.A. in Communication and Arts from the Universidade de Sao Paulo. LUIZ ALBERTO VILLACA LEAO has been the Management Information System Officer of the Company since December 1995. Mr. Leao was associated for six years with Citibank, N.A. as a vice-president, as well as another six years with Banco Itau S.A., the third-largest commercial bank in Brazil. Mr. Leao has an undergraduate degree in Electronic Engineering from the Instituto Tecnologico de Aeronautica and a master's degree from Carnegie-Mellon University. 93 VIRGILIO JOSE CARREIRA AMARAL has been the Engineering Officer of the Company since February 1995. Mr. Amaral has extensive experience in the field of broadcasting technology, including 18 years developing and installing television transmission systems for TV Globo. Mr. Amaral holds a degree in Electronic Engineering from the Universidade de Sao Paulo. JOSE LUIZ NAVARRO FRAUENDORF has been the Operations Officer of the Company since August 1994. Mr. Frauendorf has held technical and executive positions at various telecommunications-related companies, including Phillips do Brasil and Digital do Brasil. Mr. Frauendorf holds degrees in Industrial Management from the Universidade de Sao Paulo and Electronic Engineering from the Escola de Engenharia Maua. ANTONIO ALBERTO TEIXEIRA FILHO has been the Technology Officer of the Company since August 1994. Mr. Teixeira has held various positions in the field of telecommunications, including that of Division Chief at Light Servicos de Eletricidade S.A. Mr. Teixeira holds a degree in Electrical/Telecommunication Engineering. ROSELI TEREZINHA PARRELLA has been the Human Resources Officer of the Company since February 1997. Ms. Parrella has been associated with Abril since 1991 and has 16 years of experience in the human resources area, having held management positions at several multinational companies. Ms. Parrella holds an undergraduate degree in Psychology from the Pontificia Universidade Catolica de Sao Paulo and has also studied at Stanford Business School. JACQUES WLADIMIRSKI has been the Galaxy Brasil Officer of the Company since February 1996. Mr. Wladimirski has 12 years of experience in business, marketing, and the development of new companies in Latin America, the United States and Europe. Mr. Wladimirski holds an undergraduate degree in Corporate Management from Universidade MacKenzie and a graduate degree in Marketing from the Fundacao Getulio Vargas. LEONARDO PETRELLI NETO has been the Curitiba Officer of the Company since March 1992. Mr. Petrelli has extensive experience in the telecommunication industry, and is currently a shareholder and officer of TVA Sul and SSC--Sistema Sul de Comunicacao, a radio and television holding company. Mr. Petrelli holds degrees in Telecommunications from Grossmont College in San Diego, California and Cinema from the University of Sound and Arts in Hollywood, California. LUIZ EDUARDO B. P. ROCHA has been the Rio de Janeiro Officer of the Company since March 1996. Mr. Rocha has held several high-level positions, such as Superintendent of Purchasing, at two of the largest department store chains in Brazil: Lojas Americanas S.A. and Mesbla Lojas de Departamento, with which he was associated for 11 years. Mr. Rocha holds an undergraduate degree in Civil Engineering from the Universidade Federal do Rio de Janeiro and a masters degree in Finance and Marketing from COPPEAD. COMPENSATION FOR DIRECTORS, OFFICERS AND EXECUTIVE OFFICERS For the year ended December 31, 1995, the aggregate compensation, including bonuses, of all Directors, Officers and Executive Officers of the Company was R$2,317,688. Members of the Board of Directors, the Advisory Board and the Committee of Officers do not receive a salary from the Company. For the year ended December 31, 1995, the aggregate amount set aside by the Company to provide pension, retirement or similar benefits to Directors, Officers and Executive Officers was approximately $64,000. 94 PRINCIPAL SHAREHOLDERS Tevecap has one class of capital stock, common shares, authorized and outstanding. As of September 30, 1996, 196,712,855 common shares were outstanding representing authorized social capital of R$366,000,715. The following table sets forth as of September 30, 1996, information regarding the beneficial ownership of Tevecap's common shares:
NUMBER OF COMMON SHAREHOLDER SHARES OWNED PERCENTAGE - ------------------------------------------------------------------------------ -------------------- ------------- Abril S.A..................................................................... 111,075,318 56.47% Falcon International Communications (Bermuda) L.P.(a)......................... 27,930,827 14.20 Hearst/ABC Video Services II(b)............................................... 34,714,031 17.65 Cable Participacoes Ltda.(b).................................................. 4,628,536 2.35 Chase Manhattan International Finance Ltd.(c)................................. 18,364,122 9.33 All directors and executive officers as a group............................... 21 --(d)
- ------------------------ (a) A subsidiary of Falcon International Communications L.L.C. (b) Each of Hearst and ABC indirectly holds a 50.0% equity interest in each of Hearst/ABC Video Services II and Cable Participacoes Ltda. (c) 11,496,329 and 6,867,793 of the shares beneficially owned by Chase Manhattan International Finance Ltd. ("CMIF") are held of record by two wholly-owned subsidiaries of CMIF (the "Chase Parties"). In December 1995, CMIF sold a portion of the shares beneficially owned by it to Hearst and ABC. (d) Less than 1.0%. The relations among the Company's equity holders are governed by a Stockholders Agreement (the "Stockholders Agreement"), dated December 6, 1995, among Tevecap, Robert Civita, Abril, the Chase Parties, Falcon International and HABC II and CPL (together with HABC II, "Hearst/ABC Parties" and together with Robert Civita, Abril, the Chase Parties and Falcon International, the "Stockholders"). The following describes certain terms of the Stockholders Agreement, as amended. TRANSFER OF SHARES. Any Stockholder desiring to transfer shares of capital stock to any third party, including another Stockholder, must first offer such shares to Tevecap and all of the other Stockholders. Tevecap has the right to determine first whether to purchase such shares; if Tevecap elects not to exercise its right to purchase the shares, the other Stockholders may elect to purchase such shares. If Tevecap or the other Stockholders decide to purchase the offered shares, all of such shares must be purchased. If neither Tevecap nor the other Stockholders offer to purchase all of the offered shares, the Stockholder desiring to sell such shares may sell the shares to any person, provided that (i) all of the shares are sold simultaneously within six months after the decision by Tevecap and the Stockholders not to purchase the shares, (ii) Tevecap has not determined that the person making such purchase is a stockholder of undesirable character, lacks necessary financial capacity or competes with the Company, and (iii) the price for sale to such third party is at least 90.0% of the price offered to the Company and the other Stockholders. The provisions regarding transfers of shares do not apply to transfers to certain affiliates of the Stockholders. In addition, the Stockholders have preference over all other persons or entities to subscribe for new issuances of capital stock by the Company in proportion to their existing ownership of capital stock. EVENT PUT OPTIONS. Upon the occurrence of certain defined "triggering events" each of the Stockholders, other than Abril, may demand that Tevecap buy all or a portion of the shares of capital stock of Tevecap held by such Stockholder, unless the shares of capital stock held by such Stockholder are publicly registered, listed or traded (collectively referred to as an "Event Put"). The triggering events are: (i) the amount of capital stock held by such Stockholder exceeds the amount allowed under any legal restriction to which such Stockholder may be subject ("Regulatory Put"); (ii) a breach without cure within 95 a designated period by Robert Civita, Abril, any of the respective affiliates of Robert Civita or Abril or Tevecap of any representation, warranty, covenant or duty made or owed pursuant to the Stockholders Agreement, the Stock Purchase Agreement, dated August 25, 1995, among Robert Civita, Abril, the Chase Parties, and certain other parties, or the Stock Purchase Agreement, dated December 6, 1995, among Tevecap, Robert Civita, Abril, HABC Parties, the Chase Parties, Falcon International and certain other parties; (iii) a breach without cure within a designated period by Abril of the Abril Credit Facility; (iv) Robert Civita ceases to directly or indirectly hold without the approval of the Stockholders 31.258% of the capital stock and voting capital stock of Tevecap or he ceases to control the voting capital stock held by his affiliates representing 50% or more of the voting capital stock of Tevecap; (v) the Service Agreement, dated July 22, 1994, as amended, among Tevecap, Televisao Show Time Ltda. ("TV Show Time"), TVA Brasil Radioenlaces Ltda. ("TVA Brasil") and Abril, each of which holds certain licenses covering certain operations of TVA, ceases to be valid or effective or TV Show Time, TVA Brasil or Abril is liquidated or dissolved or files voluntarily, or has filed against it involuntarily, any petition in bankruptcy or (vi) another Stockholder exercises an Event Put, other than a Regulatory Put. The price to be paid in connection with an Event Put is set at fair market value determined by appraisal or by a multiple of Tevecap's most recent quarterly earnings. The Indenture, however, contains restrictions on the ability of Tevecap to purchase shares of its capital stock. See "Description of Notes--Certain Covenants-- Limitation on Restricted Payments." Accordingly, the parties to the Stockholders Agreement have agreed to amend the Stockholders Agreement prior to the Offering to provide that if the terms of the Indenture prohibit the Company from purchasing shares that are subject to an Event Put ("Event Put Shares"), in whole or in part, the Company shall not be obligated to purchase such shares to the extent it is so restricted. However, in such event, the Company shall, subject to the terms of the Indenture, have the obligation to issue shares of preferred stock of the Company ("Special Preferred Shares") should the Tevecap Stockholder elect to convert Event Put Shares to Special Preferred Shares. The holders of Special Preferred Shares will be entitled to dividends required by law and a cumulative dividend equal to LIBOR plus a 4.0% margin, provided that if the terms of the Indenture prohibit the payment of dividends on the Special Preferred Shares, the Company shall not be obligated to make such dividend payments to the extent so restricted. However, under the terms of the Special Preferred Shares such unpaid dividends shall cumulate and will be paid in full when permissible under the Indenture or when the Indenture no longer restricts the payment of such dividends. After the payment of all dividends on the Special Preferred Shares, the Company must use any remaining profit or reserve to purchase the largest number of Event Put Shares and Special Preferred Shares, provided that, if the terms of the Indenture prohibit the purchase of such shares, the Company shall not be obligated to make such purchases until permitted by the terms of the Indenture. TIME PUT OPTIONS. In addition, pursuant to the Stockholders Agreement, Falcon International may demand that Tevecap buy all or any portion of the shares of capital stock of Tevecap held by Falcon International if such shares are not publicly registered, listed or traded by September 22, 2002 (the "Falcon Time Put"). The price to be paid in connection with the Falcon Time Put is fair market value determined in the same manner as an Event Put. If Tevecap determines that the terms of the Indenture prohibit it from purchasing such shares, Tevecap may, subject to the terms of the Indenture, delay the payment of such purchase price with three annual payments ("Put Annual Payments") or issue promissory notes denominated in US dollars for the amount of such price ("Put Promissory Notes"). The Put Promissory Notes would mature three years after issuance with interest payments due quarterly in arrears. The interest rate on the Put Promissory Notes would be equal to the rate applicable to US Treasury obligations of similar maturity plus a margin to be negotiated, with the parties taking into account the risks associated with the type of obligor, Tevecap's creditworthiness and investments in Brazil. Under the provisions of the Stockholders Agreement, as amended, while the Put Promissory Notes are outstanding, Tevecap may not pay any dividends or make distributions with respect to its capital stock, including the Special Preferred Shares, should they exist. To the extent dividends, distributions or payments under the Put Promissory Notes may be made under the Indenture, payments must 96 be made first to satisfy the obligations under the outstanding Put Promissory Notes. If the terms of the Indenture prohibit the Company from making the Put Annual Payments, the Company shall not be required to make such payment, but shall be required to deliver Put Promissory Notes in the principal amount of the affected Put Annual Payments. If the terms of Indenture prohibit the Company from making an interest payment required under any Put Promissory Note, the Company shall not be required to make such payment at such time, provided that any accrued and unpaid interest shall accumulate and interest on such unpaid amount shall compound quarterly and the Company shall make payments of interest as soon as such payment is no longer restricted under the Indenture. Pursuant to the terms of the proposed amendment to the Stockholders Agreement, payment of the principal and interest on the Put Promissory Notes would be subordinated to the prior payment in full of the Notes. See "Description of Notes--Certain Covenants--Limitation on Restricted Payments" and "--Limitation on Indebtedness." REGISTRATION RIGHTS. At any time after December 6, 1997, the Chase Parties, considered together, the Hearst/ABC Parties or Falcon International may request that the Company effect the registration of any or all of the capital stock held by such Stockholder. However, the Company is not obligated to effect more than one registration requested by a Stockholder in any 12 month period or more than three registrations requested by a Stockholder in total. Also, the capital stock that is the subject of the registration demand must be of a certain minimum amount. In addition, Tevecap must offer each Stockholder other than Abril the opportunity to register capital stock held by such Stockholder, subject to standard reductions in amount such Stockholder may register as recommended by the managing underwriter. Tevecap is obligated to pay all registration expenses other than underwriting discounts and commissions or transfer taxes, and Tevecap is only obligated to pay for the fees and expenses of Tevecap's counsel and accountants. BOARD OF DIRECTORS AND ADVISORY BOARD. Tevecap is governed by a board of directors with 11 members. Under the Stockholders Agreement, Abril designates six members, Falcon International designates two members, the Chase Parties together designate one member, and Hearst/ABC Parties designates 2 members. The affirmative vote of members of the board representing the Chase Parties, Falcon International and Hearst/ABC Parties is required for: acquisition of ownership interests in other companies; acquisition or liens on equity in other companies or liens on assets other than in ordinary course and in aggregate less than $500,000; incurrence of indebtedness of less than one year maturity and in an amount greater than $1,000,000; incurrence of indebtedness of greater than one year maturity except trade debt and in an aggregate amount of less than $500,000; loans on advance payments; non-financial guarantees in aggregate totalling more than $100,000; transactions with affiliates; and modifications to Service Agreement. Tevecap must get the approval of Hearst/ABC Parties before entering into contracts in excess of $1,000,000 in value and making any material programming decisions. Tevecap must get the approval of Falcon International before entering into contracts in excess of $1,000,000. Tevecap must get the approval of each of Hearst/ABC Parties, the Chase Parties and Falcon International before any corporate restructuring or any public offering of securities of Tevecap. REQUIRED DIVIDEND. Tevecap is required by the terms of the Stockholders Agreement to pay annual dividends equal to the net cash flow of Tevecap or 25.0% of the net consolidated profit (as defined by Brazilian law) of Tevecap. However, Tevecap may delay the payment of such dividends to the extent the payment of such dividends is prohibited by the Indenture, and such dividends will accumulate and be payable to the extent allowed under the Indenture. See "Risk Factors--Risks Relating to the Company-- Dividends to Shareholders." 97 CERTAIN TRANSACTIONS WITH RELATED PARTIES OVERVIEW Tevecap has engaged in a significant number and variety of related party transactions, including, without limitation, the transactions described below. Tevecap has not performed any studies or analyses to determine whether the terms of past transactions with related parties have been equivalent to arm's-length transactions and cannot state with any certainty the extent to which such transactions are comparable to those which might have been obtained from a non-affiliated third party. TRANSACTIONS AMONG SHAREHOLDERS On December 6, 1995, Tevecap's shareholders executed a Stock Purchase Agreement and a Stockholders Agreement relating to the investment of ABC and Hearst in the Company through Hearst/ ABC Parties. See "Principal Shareholders." On that date, the Tevecap shareholders also executed a series of inter-shareholder agreements relating to, among other things, the provision of services and programming among the shareholders. These agreements supplemented other existing agreements among Shareholders. The following contracts are the principal agreements among the Company and the Tevecap shareholders (each of which, unless specified otherwise, is dated as of December 6, 1995). GENERAL AND ADVISORY SERVICES Under an Advisory Services Agreement, each of Hearst, ABC and HABC II has agreed, upon a request from the Company, to use its reasonable efforts to arrange for the investors to furnish personnel to provide advisory services to the Company. To date, the Company and Hearst, ABC and HABC II have not entered into a supplemental agreement to provide specific personnel or services at a particular cost. In addition, on April 1, 1996, Tevecap entered into a separate Advisory Services Agreement with Falcon International Communications, L.L.C. Pursuant to this agreement, which has a renewable two-year term, Falcon International Communications, L.L.C. has agreed to provide a range of advisory services to the Company, encompassing such areas as accounting, budget and billing procedures, financial and operation statements, customer, employee and government relations, the design, purchase and maintenance of equipment and supplies, negotiations with programmers and other such matters as the Company may reasonably request. In exchange for such services, the Company has agreed to pay Falcon International Communications, L.L.C. an annual fee of $200,000, which amount may be revised on each anniversary of the agreement. PROGRAMMING In connection with the investment by Hearst and ABC in Tevecap, Tevecap and these two parties entered into a Programming Agreement (the "Hearst/ABC Programming Agreement"). Pursuant to the Hearst/ABC Programming Agreement, each of Hearst and ABC has agreed to offer first to Tevecap pay programming that Hearst or ABC (or any subsidiary of which either Hearst or ABC owns at least 80.0% of the outstanding equity interests) intends to license for use in Brazil in the pay television markets served by TVA. The parties also agreed to consider future co-production activities which could enhance TVA's business and competitive position. Tevecap agreed to pay to each of Hearst and ABC such fees and expenses as are agreed upon at the time such programming or co-production services are provided. The Hearst/ABC Programming Agreement does not apply to The Walt Disney Company or its subsidiaries other than ABC and ABC's subsidiaries. In addition, the Hearst/ABC Programming Agreement does not apply to the activities of The A&E Television Networks, Lifetime Television and ESPN, including agreements relating to ESPN Brasil. OTHER TRANSACTIONS AMONG SHAREHOLDERS Each of Tevecap's corporate shareholders has entered into a side letter to the Stock Purchase Agreement and the Stockholders Agreement pursuant to which each of Abril, Falcon and the Chase 98 Parties agreed, with certain exceptions, to exchange all of its respective shares in Tevecap for a corresponding number of shares of a newly-formed Brazilian corporation. The new corporation would become an 80.0% shareholder in Tevecap and Hearst/ABC would remain a 20.0% shareholder in Tevecap, which would be reorganized as a Brazilian limitada. This new structure would not result in any change in the current beneficial equity participation of the Stockholders in Tevecap. In addition, the transactions in establishing the new structure and the new structure itself would have to conform to the restrictions of the Indenture. As of the date hereof, the timing of the restructuring is under discussion by the Stockholders. TRANSACTIONS AMONG RELATED PARTIES GENERAL AND ADVISORY SERVICES TVA Sistema and MTV Brasil have entered into various agreements, dated August 27, 1996, governing reciprocal services between the Company and MTV Brasil. The services covered by the agreement include billing, subleasing, equipment use, administrative, financial, accounting, human resources, engineering, infrastructure and satellite services. TVA Sistema and Abril have also entered into an agreement, dated January 1995, with Uniser, a division of Abril, pursuant to which Uniser provides telecommunications, maintenance, human resources, travel, legal other services in exchange for a monthly payment of approximately $20,000. In addition, pursuant to an agreement dated January 10, 1995, Tevecap has agreed to provide various financial services to Canbras, in return for which Tevecap receives a monthly payment of approximately $5,000. Tevecap provides similar financial services to Galaxy Brasil, in return for which the Company receives a monthly payment of $5,000 pursuant to an agreement dated March 9, 1995. Tevecap also provides to ESPN Brasil Ltda. financial services, for which it receives a payment of approximately $7,500 per month, and satellite and other engineering services, for which it receives a payment of approximately $78,000 per month, pursuant to an agreement dated June 26, 1995. The Company has also entered into an agreement with SMC Marketing Ltda. ("SMC"), dated September 1, 1995, to provide space, equipment and personnel to SMC, in return for which the Company receives a monthly payment of approximately US$29,000. PUBLISHING AND ADVERTISING The Company publishes a monthly magazine detailing the Company's programming options in a given month. In connection with this magazine, TVA Sistema has entered into an agreement with Abril, dated September 1992, pursuant to which Abril publishes approximately 300,000 copies of the Company's monthly magazine in return for a monthly payment of approximately $240,000. The monthly magazine is distributed in accordance with a distribution agreement, dated September 1992, between the Company and Irmaos Reis, pursuant to which the Company pays Irmaos Reis approximately $60,000 per month. TVA Sistema and Abril also have a reciprocal advertising agreement in which the Company publishes advertisements for Abril in the Company's monthly magazine in exchange for advertisements for the Company (and third parties through the Company) in the magazines published by Abril. In addition, the Company has an agreement with SMC, dated September 1, 1995, pursuant to which the Company assists SMC in selling advertising, in return for which the Company receives 25.0% of SMC's advertising revenues. INSURANCE TVA currently reimburses TVA Sistema for payments made by TVA Sistema pursuant to an insurance policy covering the operations of TVA Sistema, TVA Brasil Abril Video da Amazonia and the former MTV Division of Abril (collectively, the "Insureds"). TVA Sistema makes such payments pursuant to an 99 agreement among the Insureds dated September 30, 1996. The annual premiums paid by TVA Sistema and reimbursed by the Company amount to approximately $84,000. ABRIL CREDIT FACILITY Tevecap has entered, as the borrower, into a revolving credit facility (the "Abril Credit Facility") with Abril, as the lender. The Abril Credit Facility, effective December 6, 1995 and valid for a period of 36 months, allows the Company to draw down amounts not to exceed a maximum aggregate principal amount of $60,000,000. Since June 1996, Tevecap has from time to time requested, and Abril has provided, funding in excess of the aggregate maximum principal amount. The loans provided under the Abril Credit Facility are denominated in reais, unless the loan is a pass-through loan that Abril has funded in US dollars, in which case the loan is funded in a real-equivalent amount. Abril has agreed to use its reasonable commercial efforts to obtain the lowest possible interest rates for its loans to Tevecap under the Abril Credit Facility. As of October 31, 1996, the aggregate principal amount of loans outstanding under the Abril Credit Facility was approximately $105.8 million, which was fully repaid to Abril with the proceeds of the offering of the Old Securities. As of April 10, 1997, the Company had not redrawn any amounts under the Abril Credit Facility. See Note 11 to the Consolidated Financial Statements of the Company. OTHER INTERCOMPANY/SHAREHOLDER LOANS Tevecap has used the proceeds from the Abril Credit Facility to make capital contributions to TVA Sistema and Galaxy Brasil, as well as to extend loans to various interrelated companies. The aggregate outstanding amounts under these loans as of September 30, 1996 were: $12.7 million to TVA Communications; $14.1 million to TVA Sul; $304,000 to Canbras-Par; and $179,000 to Comercial Cabo Sao Paulo. In addition to the funding from Abril under the Abril Credit Facility, Tevecap has received loans from Canbras TVA, which loans, as of September 30, 1996, had an aggregate outstanding amount of $1.7 million. Furthermore, Abril has received loans from ESPN Brasil Ltda., which loans, as of September 30, 1996, had an aggregate principal outstanding amount of $1.6 million. In addition, TVA Sistema has made loans to various interrelated companies. The aggregate principal outstanding amounts under these loans as of September 30, 1996 were $2.8 million to TVA Sul and $126,000 to TV Show Time. TV Show Time has loans outstanding to Abril, which loans, as of September 30, 1996, had an aggregate outstanding amount of approximately $2.8 million. All other Intercompany and shareholder loans outstanding as of September 30, 1996 equalled an aggregate principal amount of approximately $283,000. ADVANCES OF CAPITAL CONTRIBUTIONS As of September 30, 1996, the Company had made advance capital contributions to Canbras TVA of approximately $1.7 million. SERVICE AGREEMENT WITH LICENSEHOLDERS Pursuant to a Service Agreement, dated July 22, 1994, as amended, TVA Brasil and TV Show Time (the "Licenseholders") agreed to transfer to TVA all the rights and benefits associated with their current and future pay-television licenses, with the exception of licenses operated by companies in which TVA has minority interests. While the Licenseholders retained the title to such licenses, the Licenseholders promised to take all steps necessary to transfer the title of such licenses to Tevecap. Such steps included the appropriate procedures required by the Ministry of Communications and any other governmental authority regulating the transfers. The transfer of the title to such licenses is currently either pending, subject to approval by the Ministry of Communications, or waiting for the passage of certain statutory or regulatory waiting periods. AFFILIATE INTERESTS IN THE OFFERING The Company will use a portion of the net proceeds of the Offering to repay the amount currently outstanding under the Abril Credit Facility. See "Use of Proceeds" and "Description of Certain Indebtedness." 100 DESCRIPTION OF CERTAIN INDEBTEDNESS The Company has entered into, or will soon enter into, certain arrangements for the purpose of obtaining financing for its operations, including the purchase of decoders for use in its DBS operations and for working capital. Set forth below is a summary of these arrangements. The Abril Credit Facility allows the Company to borrow up to $60.0 million on a revolving basis until December 1998. Since June 1996, the Company has from time to time requested, and Abril has provided, funds in excess of $60.0 million. The loans are generally denominated in reais and bear interest at a rate equal to 99.5% of the CDI rate, the Brazilian interbank lending rate, adjusted at the beginning of each month. During June 1996, the applicable interest rate was 2.013% per month. As of September 30, 1996, after giving effect to the Offering and the application of approximately $105.78 million of the proceeds from the Notes to reduce the amounts outstanding thereunder, the Company had no amounts outstanding under the Abril Credit Facility. As of April 1, 1997, the Company had not redrawn any amounts under the Abril Credit Facility. However, the Company will be able to re-borrow the full amount of such facility, as required. On December 9, 1996, TVA Sistema, as Borrower, and Tevecap, as Guarantor, entered into a credit agreement with The Chase Manhattan Bank to finance the acquisition of C-Band decoders and other related equipment. The Export-Import Bank of the United States (the "EximBank") will guarantee 85.0% of amounts borrowed under the credit facility (the "EximBank Facility"). The credit facility will be made available to TVA on terms customary for credits to Brazilian companies that are supported by the EximBank, and will bear interest at LIBOR plus a specified margin. The EximBank Facility is in the amount of $29,349,780, which will be dispersed in two tranches, the first in the principal amount of $11,400,000, with a term of 4.5 years, and the second in the principal amount of $17,949,780, with a term of five years. TVA Sistema's obligations under the EximBank Facility will be unconditionally guaranteed by Tevecap. On March , 1997, Galaxy Brasil entered into a five-year, $49.9 million lease and sale-leaseback facility (the "Galaxy Brasil Leasing Facility") with Citibank, N.A. Management expects the first fundings under the Galaxy Brasil Leasing Facility to occur in May 1997. No assurances can be given that such fundings will occur. Under the Galaxy Brasil Leasing Facility, Galaxy Brasil obtained financing for the purpose of acquiring dish antennas, decoder boxes and other equipment for Ku-Band service. The amount financed under the Galaxy Brasil Leasing Facility bears interest at a margin over LIBOR. The lease payment obligation of Galaxy Brasil is secured by a pledge of subscriber revenues, together with a secured guarantee by the partners of GLA. The terms of the Galaxy Brasil Leasing Facility (i) prohibit the payment of dividends by Galaxy Brasil if, after giving effect to such payment, Galaxy Brasil's ratio of debt (including capital lease obligations and guarantees) to tangible net worth would be greater than three to one (3:1) and (ii) prohibit the incurrence of debt to third parties and affiliates if such ratio would be greater than four to one (4:1) and three to one (3:1), respectively. However, Citibank N.A. has provided exceptions to these provisions to allow the guarantee of the Notes by Galaxy Brasil. The partners of GLA severally guarantee the obligations of Galaxy Brasil under the Galaxy Brasil Leasing Facility, in each case up to a negotiated limit. The obligations of Tevecap under the guarantee are limited to approximately $25.5 million of principal and a proportionate share of interest, fees, and other amounts. The guarantors, including Tevecap, have entered into a contribution agreement, pursuant to which each partner agrees to contribute to payments required to be made by any partner under the guaranty. Under the contribution agreement, the obligations of Tevecap are limited to $25.5 million of principal and a proportionate share of interest, fees, and other amounts. Tevecap's obligations under the contribution agreement are secured by a pledge of its equity interests in GLA and SurFin, as well as by an agreement to pledge any future debt or equity interests it may hold relating to CBC. In connection with the operations of GLA and Galaxy Brasil, TVA and the other members of GLA have formed SurFin Ltd. ("SurFin"), a corporation organized under the laws of the Bahamas, to provide 101 financing to local operating companies for the purchase of equipment provided to subscribers. TVA owns 20.5% of the capital stock of SurFin. The other (direct and indirect) shareholders of SurFin Ltd. are affiliates of (i) Hughes Electronics, with 39.3% of the capital stock, (ii) Darlene Investments, with 20.4% of the capital stock, and (iii) Grupo MVS, with 19.8% of the capital stock. On September 24, 1996, SurFin entered into a syndicated credit agreement with Citicorp USA, Inc., as administrative agent, which establishes a three-year, $150.0 million revolving credit facility (the "SurFin Credit Facility"). Proceeds from the SurFin Credit Facility will be used by SurFin to provide financing to DIRECTV local operating companies in Latin America, which are (in most cases) affiliates of GLA and/or one or more of GLA's shareholders, including Galaxy Brasil. Such local operating companies will use the funds borrowed from SurFin for the purpose of financing the acquisition of dish antennas, decoder boxes and other equipment for Ku-Band service. Loans under the SurFin Credit Facility will bear interest, at SurFin's option, at a rate equal to LIBOR plus a specified margin, or at a rate equal to Citibank's prime rate. Loans made by SurFin to such local operating companies will bear interest at rates to be negotiated. Each of the partners of GLA (other than TVA) has jointly and severally guaranteed the full amount of the obligations of SurFin under the SurFin Credit Facility. TVA has also guaranteed the obligations of SurFin to the syndicate of lenders, but TVA's obligations under such guaranty are limited to $10.5 million of principal and a proportionate share of interest, fees, and other amounts. The guarantors, including TVA, have entered into a contribution agreement, setting forth their obligations to contribute to each other in connection with their respective obligations under their respective guarantees. Under the contribution agreement, the obligations of TVA are limited to $10.5 million of principal and a proportionate share of interest, fees, and other amounts. TVA's obligations under the contribution agreement are secured by a pledge of its equity interests in GLA and SurFin, as well as by an agreement to pledge any future debt or equity interests it may hold relating to CBC. Management expects the SurFin Credit Facility to facilitate the expansion of GLA by enabling local operating companies (including, possibly, Galaxy Brasil) to finance the acquisition of dish antennae decoder boxes and other equipment, thereby permitting subscribers to spread the expense of installing such equipment over time. During 1997, management expects that a new Delaware limited liability company will be established, the principal asset of which will be GLA's uplink facility, CBC. The new company will be owned by two subsidiaries of Hughes Electronics. In connection with the establishment of the new company, TVA Communications and Tevecap have agreed, pursuant to the Indemnification Agreement, to provide certain indemnities in favor of GLA, Hughes Communications GLA, the newly-established company and its shareholders. To secure its obligations under the Indemnification Agreement, Tevecap has agreed to pledge its equity interest in GLA, as well as any future notes or interests it may hold relating to CBC. 102 DESCRIPTION OF NOTES GENERAL The Old Notes were issued and the Exchange Notes are to be issued under an Indenture, dated as of November 26, 1996 and amended as of March 19, 1997 and supplemented as of April , 1997 (the "Indenture"), between the Company, the Guarantors, The Chase Manhattan Bank, as Trustee (the "Trustee") and Chase Trust Bank, as Paying Agent, a copy of which is available upon request to the Company. The terms of the Exchange Notes are identical in all material respects to the terms of the Old Notes, except for certain transfer restrictions and registration rights relating to the Old Notes and except that, if the Registered Exchange Offer is not consummated by May 23, 1997, Tevecap will be obligated to pay each holder of the Old Notes an amount equal to $0.192 per week per $1,000 of the Old Notes until the Registered Exchange Offer is consummated. The Exchange Notes and the Old Notes are deemed the same class of notes under the Indenture and are entitled to the benefit thereof. Unless specifically stated otherwise, this description applies to both the Exchange Notes and the Old Notes. The statements under this caption relating to the Notes and the Indenture are summaries and do not purport to be complete, and where reference is made to particular provisions of the Indenture, such provisions, including the definitions of certain terms, are incorporated by reference as a part of such summaries or terms, which are qualified in their entirety by such reference. A summary of certain defined terms used in the Indenture and referred to in the following summary description of the Notes is set forth under "Certain Definitions." The Indenture was amended by Amendment No. 1 to Indenture, dated as of March 19, 1997, to clarify language in the definition of Permitted Liens and was supplemented by Supplement to Indenture, dated as of April , 1997, to provide for TVA Sul Santa Catarina Ltd. to be a Guarantor. Principal of, premium, if any, and interest on, the Notes will be payable, and the Notes may be exchanged or transferred, at the office or agency of the Company in the Borough of Manhattan, The City of New York (which initially shall be the corporate trust office of the Trustee in New York, New York), except that, at the option of the Company, payment of interest may be made by check mailed to the address of the holders as such address appears in the Note Register. The Notes will be issued only in fully registered form, without coupons, in denominations of $1,000 and any integral multiple of $1,000. No service charge will be made for any registration of transfer or exchange of Notes, but the Company may require payment of a sum sufficient to cover any transfer tax or other similar governmental charge payable in connection therewith. The Notes have been designated for trading in the PORTAL market. TERMS OF THE NOTES The Notes will be unsecured, senior obligations of the Company, limited to $250 million aggregate principal amount, and will mature on November 26, 2004. Each Note will bear interest at the rate per annum shown on the front cover of this Prospectus from the date of issuance, or from the most recent date to which interest has been paid or provided for, payable semiannually in cash on May 26 and November 26 of each year commencing May 26, 1997 to holders of record at the close of business on the May 1 or November 1 immediately preceding the interest payment date. OPTIONAL REDEMPTION At any time and from time to time prior to November 26, 2000, if the Company receives Net Cash Proceeds from one or more (i) Significant Equity Offerings or (ii) sales of the Company's Capital Stock to a Strategic Investor, the Company may redeem in the aggregate up to $75.0 million principal amount of Notes, at a redemption price (expressed as a percentage of principal amount) of 112.625%, plus accrued and unpaid interest, if any, to the redemption date (subject to the right of holders of record on 103 the relevant record date to receive interest due on the relevant interest payment date); PROVIDED, HOWEVER, that at least $175.0 million aggregate principal amount of the Notes must remain outstanding after each such redemption. ADDITIONAL AMOUNTS All payments made by the Company or any Guarantor under or with respect to the Notes or any Guarantee will be made free and clear of and without withholding or deduction for or on account of any present or future taxes, duties, assessments or governmental charges of whatever nature imposed or levied by or on behalf of the Federative Republic of Brazil or Japan or any political subdivision or taxing authority thereof or therein ("Taxes"), unless the Company or such Guarantor, as the case may be, is required to withhold or deduct any amount for or on account of Taxes by law or by the interpretation or administration thereof. If the Company or any Guarantor is so required to withhold or deduct any amount for or on account of Taxes from any payment made under or with respect to the Notes or the Subsidiary Guarantee of such Guarantor, the Company or such Guarantor, as the case may be, will pay such additional amounts ("Additional Amounts") as may be necessary so that the net amount received by each holder of Notes (including Additional Amounts) after such withholding or deduction will not be less than the amount the holder would have received if such Taxes had not been withheld or deducted. Provided, however, that no such Additional Amounts will be payable with respect to a payment made to a holder of Notes with respect to any Tax which would not have been imposed, payable or due (i) but for the fact that the holder or a beneficial owner of a Note is or was a domiciliary, national or resident of, or engages or engaged in business, maintains or maintained a permanent establishment or is or was physically present in Brazil or Japan, or otherwise has some present or former connection with Brazil or Japan other than the mere holding of such Notes or the receipt of principal or interest in respect thereof; (ii) but for the failure of the holder or beneficial owner of Notes to comply with a request by the Company or any Guarantor to satisfy any certification, identification or other reporting requirements which the holder or such beneficial owner is legally entitled to satisfy, whether imposed by statute, treaty, regulation or administrative practices, concerning the nationality, residence or connection with Brazil or Japan of such holder or beneficial owner; or (iii) if, where presentation is required, the presentation for payment had occurred within 30 days after the date such payment was due and payable or was provided for, whichever is later. Notwithstanding the preceding sentence, the limitations on the Company's obligation to pay Additional Amounts set forth in clause (ii) of the preceding sentence shall not apply if a certification, identification, or other reporting requirement described in clause (ii) would be materially more onerous, in form, in procedure or in the substance of information disclosed, to such Holders or beneficial owners (taking into account any relevant differences between U.S. and Brazilian law, regulation or administrative practice) than comparable information or other reporting requirements imposed under U.S. tax law, regulation (including proposed regulations) and administrative practice or other reporting requirements imposed as of the date of this Prospectus under U.S. tax law, regulation (including proposed regulations) and administrative practice (such as IRS Forms 1001, W-8 and W-9). The obligation of the Company or any Guarantor to pay Additional Amounts in respect of Taxes shall not apply with respect to (x) any estate, inheritance, gift, sales, transfer, personal property or any similar Tax or (y) any Tax which is payable otherwise than by deduction or withholding from payments made under or with respect to the Notes. The Company and the Guarantor, as applicable, will (i) make any required withholding or deduction, (ii) remit the full amount deducted or withheld to the relevant authority (the "Taxing Authority") in accordance with applicable law, (iii) use their best efforts to obtain certified copies of tax receipts evidencing the payment of any Taxes so deducted or withheld from each Taxing Authority imposing such Taxes and (iv) in the event that such certified copies of tax receipts are obtained, promptly send such certified copies of tax receipts to the Principal Paying Agent for prompt forwarding to any holder that has made a written demand therefor of the Principal Paying Agent. The Company or the Guarantor will attach to each certified copy a certificate stating (x) that the amount of withholding tax evidenced by the certified copy was paid in connection with payments in respect of the principal amount 104 of Notes then outstanding and (y) the amount of such withholding tax paid per US$1,000 of principal amount of the Notes. See "Income Tax Considerations--United States--Effect of Brazilian Withholding Taxes." If, notwithstanding the Company's or such Guarantor's efforts to obtain such receipts, the same are not obtainable, the Company or such Guarantor will provide to the Principal Paying Agent such other evidence of such payments as the Company or such Guarantor may reasonably obtain. At least 30 days prior to each date on which any payment under or with respect to the Notes is due and payable (unless such obligation to pay Additional Amounts arises after the 30th day prior to such date, in which case it shall be promptly thereafter), if the Company or any Guarantor will be obligated to pay Additional Amounts with respect to such payment, the Company or such Guarantor will deliver to the Trustee and each Paying Agent an Officers' Certificate stating the fact that such Additional Amount will be payable and the amounts so payable and will set forth such other information necessary to enable the Trustee and each Paying Agent to pay such Additional Amounts to holders of Notes on the payment date. Each Officers' Certificate shall be relied upon until receipt of a further Officers' Certificate addressing such matters. Whenever in the Indenture or in this "Description of Notes" there is mentioned, in any context, the payment of amounts based upon the payment of principal, premium, if any, interest or of any other amount payable under or with respect to any Note, such mention shall be deemed to include mention of the payment of Additional Amounts as are, were or would be payable in respect thereof. REDEMPTION FOR CHANGES IN WITHHOLDING TAXES The Notes may be redeemed at the option of the Company, in whole but not in part, at any time prior to maturity if (i) there is any change in or amendment to the Treaty to Avoid Double Taxation entered into between Brazil and Japan, approved by Legislative Decree No. 43 dated November 23, 1967, and enacted in Brazil by Decree No. 61,899 dated December 14, 1967, as amended by Decree No. 81,194 dated January 9, 1978, which has the effect of increasing the rate of tax applicable under such treaty to a rate exceeding 15.0% of interest payable; or (ii) as the result of any change in or amendment to the laws, regulations or rulings of Brazil or Japan or any political subdivision or taxing authority thereof or therein, or any change in the application or official interpretation of such laws, regulations or rulings (including the holding of a court of competent jurisdiction), the Company or any Guarantor has or will become obligated to pay Additional Amounts (excluding interest and penalties) in excess of the Additional Amounts that the Company or any Guarantor would be obligated to pay if Taxes (excluding interest and penalties) were imposed with respect to such payments of interest at a rate of 15.0%, and such obligation cannot be avoided by the Company or the Guarantors, as the case may be, taking reasonable measures available to them, then the Company may, at its option, redeem or cause the redemption of the Notes, as a whole but not in part, upon not more than 60 nor less than 30 days' notice to the holders of such Notes (with copies to the Trustee and each Paying Agent) at 100.0% of their principal amount, together with accrued interest to (but excluding) the date fixed for redemption, plus any such Additional Amounts payable with respect to such principal amount and interest as provided under "--Additional Amounts." Prior to the giving of notice of redemption of the Notes as described herein and as a condition to any such redemption, the Company will deliver to the Trustee an Officers' Certificate (together with a copy of the written opinion of counsel to the effect that the applicable rate has so increased, or the Company or any Guarantor has or will become so obligated to pay Additional Amounts as a result of such change or amendment), stating that the Company is entitled to effect such redemption and setting forth in reasonable detail a statement of facts relating thereto. No notice of redemption shall be given earlier than 90 days prior to the earliest date on which the Company or any Guarantor would be obligated to pay such Additional Amounts were a payment in respect of the Notes then due and, at the time such notice of redemption is given, such obligation to pay such Additional Amounts remains in effect. 105 SELECTION In the case of any partial redemption or repurchase, selection of the Notes for redemption or repurchase will be made by the Trustee on a pro rata basis, by lot or by such other method as the Trustee in its sole discretion shall deem to be fair and appropriate, although no Note of $1,000 in original principal amount or less will be redeemed or repurchased in part. If any Note is to be redeemed or repurchased in part only, the notice of redemption or repurchase relating to such Note shall state the portion of the principal amount thereof to be redeemed or repurchased. A new Note in principal amount equal to the unredeemed or unrepurchased portion thereof will be issued in the name of the holder thereof upon cancellation of the original Note. RANKING The Notes will be unsecured, senior obligations of the Company ranking PARI PASSU in right of payment with all other existing and future unsecured, senior Indebtedness of the Company and senior in right of payment to all other existing and future subordinated Indebtedness of the Company. The Subsidiary Guarantees will be unsecured, senior obligations of the Guarantors ranking PARI PASSU in right of payment with all other existing and future unsecured, senior Indebtedness of the Guarantors and senior in right of payment to all other existing and future subordinated Indebtedness of the Guarantors. Subject to certain limitations set forth in the Indenture, the Company and its Subsidiaries may Incur other senior Indebtedness, including Indebtedness that is secured by certain assets of the Company and its Subsidiaries. At September 30, 1996, after giving effect to the sale of the Old Securities and the application of the net proceeds therefrom, Tevecap would not have had any outstanding senior Indebtedness Tevecap, other than the Notes (exclusive of unused commitments and short term debt) and the aggregate principal amount of outstanding senior Indebtedness of the Guarantors, other than the Subsidiary Guarantees, would have been $4.6 million (exclusive of unused commitments and short term debt) all of which ranks pari passu with the Subsidiary Guarantees, but none of which was secured Indebtedness. As of April 1, 1997, Tevecap did not have any outstanding senior Indebtedness other than the Notes (exclusive of unused commitments and short term debt), and the aggregate principal amount of outstanding senior Indebtedness of the Guarantors was $6.1 million (exclusive of unused commitments and short term debt) all of which ranks pari passu with the Subsidiary Guarantees, and none of which is secured. See "Certain Other Indebtedness." SUBSIDIARY GUARANTEES Each of the Company's existing and future Restricted Subsidiaries (the "Guarantors"), as primary obligor and not merely as surety, will jointly and severally, irrevocably and fully and unconditionally Guarantee, on a senior basis, the performance and punctual payment when due, whether at Stated Maturity, by acceleration or otherwise, of all obligations of the Company under the Indenture and the Notes, whether for principal of or interest on the Notes, expenses, indemnification or otherwise (all such obligations guaranteed by such Guarantors being herein called the "Guaranteed Obligations"). Such Guarantors will agree to pay, in addition to the amount stated above, any and all expenses (including reasonable counsel fees and expenses) incurred by the Trustee or the Holders in enforcing any rights under the Subsidiary Guarantees. Each Subsidiary Guarantee will be limited to an amount not to exceed the maximum amount that can be Guaranteed, as it relates to such Guarantor, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally. See "Risk Factors--Fraudulent Conveyance Considerations." Each Subsidiary Guarantee is a continuing Guarantee and shall (i) remain in full force and effect until payment in full of all the Guaranteed Obligations, (ii) be binding upon such Guarantor and (iii) inure 106 to the benefit of and be enforceable by the Trustee, the Holders and their successors, transferees and assigns. The Indenture provides that, subject to the provisions described in the next succeeding paragraph, no Guarantor may consolidate or merge with or into (whether or not such Guarantor is the surviving entity or Person) another corporation, entity or Person unless (i) the entity or Person formed by or surviving any such consolidation or merger (if other than such Guarantor) assumes all the obligations of such Guarantor under the Subsidiary Guarantee and the Indenture pursuant to a supplemental indenture, in form satisfactory to the Trustee, (ii) immediately after such transaction, no Default or Event of Default exists, (iii) immediately after such transaction, the Company will have Consolidated Net Worth equal to or greater than the Consolidated Net Worth of the Company immediately preceding such transaction and (iv) the Company will, at the time of such transaction after giving pro forma effect thereto, be permitted to Incur at least $1.00 of additional Indebtedness pursuant to paragraph (a) under "Certain Covenants--Limitation on Indebtedness." Notwithstanding the preceding paragraph, if no Default exists or would exist under the Indenture, concurrently with any sale or disposition (by merger or otherwise) of any Guarantor in accordance with the terms of the Indenture (including the covenant described under "Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock") (other than a transaction subject to the provisions described under "Merger and Consolidation") by the Company or a Restricted Subsidiary to any Person that is not an Affiliate of the Company or any of the Restricted Subsidiaries, such Guarantor will automatically and unconditionally be released from all obligations under its Subsidiary Guarantee; PROVIDED, HOWEVER, that any such release shall occur only to the extent that all obligations of such Guarantor under, and all of its guarantees of, and all of its pledges of assets or other security interests which secure, any other Indebtedness of the Company shall also terminate upon such release, sale or transfer. CHANGE OF CONTROL Upon the occurrence of any of the following events (each a "Change of Control"), each holder will have the right to require the Company to repurchase all or any part of such holder's Notes at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date): (i) an event or series of events by which any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders, is or becomes after the date of issuance of the Notes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act as in effect on the date of the Indenture), of more than 35.0% of the total voting power of all Voting Stock of the Company outstanding; (ii) (A) another corporation merges into the Company or the Company consolidates with or merges into any other corporation or (B) the Company conveys, transfers or leases all or substantially all its assets to any person or group (other than any conveyance, transfer or lease between the Company and a Wholly-Owned Subsidiary of the Company), in each case, in one transaction or a series of related transactions with the effect that a person or group other than one or more Permitted Holders becomes the "beneficial owner" of more than 35.0% of all Voting Stock of the Company then outstanding; (iii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (or equivalent governing body) of the Company (together with any new Directors (or equivalent persons) whose election by the Company's Board of Directors (or equivalent governing body), or whose nomination for election by such entity's shareholders, was approved by a vote of a majority of the Directors (or equivalent persons) then still in office who were either Directors (or equivalent persons) at the beginning of such period or whose election or 107 nomination for election was previously so approved) cease for any reason to constitute a majority of the Directors (or equivalent persons) then in office; or (iv) the Permitted Holders collectively shall fail to beneficially own at least 35.0% of all Voting Stock of the Company then outstanding. The Company's other senior Indebtedness may contain prohibitions of certain events that would constitute a Change of Control. In addition, the exercise by the Holders of Notes of their right to require the Company to repurchase the Notes could cause a default under such other senior Indebtedness, even if the Change of Control itself does not, due to the financial effect of such repurchases on the Company. Finally, the Company's ability to pay cash to the Holders of Notes upon a repurchase may be limited by the Company's then existing financial resources. The consent of the Brazilian Central Bank will be required prior to the funding of the repurchase of the Notes. Within 30 days following any Change of Control, unless the Company has mailed a redemption notice with respect to all the outstanding Notes after such Change of Control, the Company shall mail a notice to each holder with a copy to the Trustee stating: (i) that a Change of Control has occurred and that such holder has the right to require the Company to purchase such holder's Notes at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of Holders of record on a record date to receive interest on the relevant interest payment date); (ii) the circumstances and relevant facts and financial information concerning such Change of Control; (iii) the repurchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed); and (iv) the procedures determined by the Company, consistent with the Indenture, that a Holder must follow in order to have its Notes purchased. The Company will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes pursuant to this covenant. To the extent that the provisions of any securities laws or regulations conflict with provisions of the Indenture, the Company will comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations described in the Indenture by virtue thereof. The definition of "Change of Control" includes a disposition of all or substantially all of the property and assets of the Company and its Subsidiaries. With respect to the disposition of property or assets, the phrase "all or substantially all" as used in the Indenture varies according to the facts and circumstances of the subject transaction, has no clearly established meaning under New York law (which is the choice of law under the Indenture) and is subject to judicial interpretation. Accordingly, in certain circumstances there may be a degree of uncertainty in ascertaining whether a particular transaction would involve a disposition of "all or substantially all" of the property or assets of a Person, and therefore it may be unclear as to whether a Change of Control has occurred and whether the Company is required to make an offer to repurchase the Notes as described above. CERTAIN COVENANTS The Indenture contains certain covenants including, among others, the following: LIMITATION ON INDEBTEDNESS. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, Incur any Indebtedness, and the Company shall not issue any Disqualified Stock; PROVIDED, HOWEVER, that the Company and any Restricted Subsidiary may Incur Indebtedness, and the Company may issue shares of Disqualified Stock, if on the date thereof the Indebtedness to Annualized Operating Cash Flow Ratio of the Company would have been less than or equal to (i) 6.5 to 1.0 in the case of Indebtedness Incurred prior to November 26, 1999 and (ii) 6.0 to 1.0 in the case of Indebtedness Incurred on and after November 26, 1999, in each case determined on a pro forma basis. 108 (b) The foregoing limitation shall not apply to the Incurrence of: (i) Indebtedness of the Company or any Restricted Subsidiary under any Senior Credit Facility or the Abril Credit Facility in an aggregate principal amount at any one time outstanding not to exceed $50.0 million; (ii) Indebtedness of the Company to any Restricted Subsidiary and Indebtedness of a Restricted Subsidiary to the Company or another Restricted Subsidiary; PROVIDED, HOWEVER, that any subsequent issuance or transfer of any Capital Stock which results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any subsequent transfer of such Indebtedness (other than to another Restricted Subsidiary) will be deemed, in each case, to constitute the Incurrence of such Indebtedness by the issuer thereof; (iii) Indebtedness represented by the Notes (including the Subsidiary Guarantees); (iv) Indebtedness outstanding on the Issue Date (other than Indebtedness described in clause (i), (ii) or (iii) of this paragraph); (v) Refinancing Indebtedness in respect of Indebtedness of the Company or any Restricted Subsidiary Incurred pursuant to clauses (i) through (iv) above, this clause (v), or clause (xiv) below in a principal amount (or, for original issue discount Indebtedness, the accredited principal thereof) so refinanced; (vi) Hedging Obligations consisting of Interest Rate Agreements and Currency Agreements related to Indebtedness otherwise permitted to be Incurred pursuant to the Indenture or otherwise entered into in the ordinary course of business, PROVIDED that in each case the notional amount shall not exceed the underlying obligations or assets; (vii) Guarantees by the Company of Indebtedness or other obligations of any of its Restricted Subsidiaries so long as the Incurrence of such Indebtedness or obligations by such Restricted Subsidiary is permitted under the terms of the Indenture; (viii) Indebtedness of Galaxy Brasil in an aggregate principal amount at any one time outstanding not to exceed the lesser of (A) an amount equal to the sum of (I) the product of (1) $480.0 multiplied by (2) the number of Galaxy Brasil Subscribers at the date of Incurrence plus (II) $20 million and (B) $130.0 million; (ix) Indebtedness of any Special Restricted Subsidiary if, after giving effect to such Incurrence, the ratio of (A) the aggregate principal amount of all Indebtedness of such Special Restricted Subsidiary outstanding as of the date of determination to (B) the total shareholders' equity (excluding any retained earnings or accumulated deficit) of such Special Restricted Subsidiary as of the date of determination is less than or equal to 2:1; (x) Indebtedness of the Company represented by Subordinated Shareholder Loans in an aggregate principal amount at any one time outstanding not to exceed $100.0 million; (xi) Indebtedness consisting of performance and other similar bonds and reimbursement obligations Incurred in the ordinary course of business securing the performance of contractual, franchise or license obligations of the Company or a Restricted Subsidiary, or in respect of a letter of credit obtained to secure such performance; (xii) Indebtedness arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, or from Guarantees or letters of credit, surety bonds or performance bonds securing any obligations of the Company or any Restricted Subsidiary pursuant to such agreements, Incurred in connection with any Asset Disposition; (xiii) Indebtedness of the Company represented by the SurFin Guarantee in an aggregate principal amount at any one time outstanding not to exceed $25.0 million; (xiv) Indebtedness of TVA Sistema under the EximBank Credit Agreement in an aggregate principal amount at any one time outstanding not to exceed $30.0 million; (xv) Indebtedness of the Company represented by the Put Promissory Notes; (xvi) Indebtedness of Galaxy Brasil in an aggregate principal amount at any one time outstanding not to exceed $25.0 million; and (xvii) other Indebtedness in an aggregate principal amount which, together with all other Indebtedness of the Company then outstanding (other than Indebtedness permitted by clauses (i) through (xvi) above or the preceding paragraph) does not exceed $50.0 million. LIMITATION ON RESTRICTED PAYMENTS. (a) The Company shall not, and shall not permit any Restricted Subsidiary, directly or indirectly, to (i) declare or pay any dividend or make any distribution on or in respect of its Capital Stock (including any payment in connection with any merger or consolidation involving the Company) except (1) dividends or distributions payable in its Capital Stock (other than Disqualified Stock) and (2) dividends or distributions payable solely to the Company or another Restricted Subsidiary (and, if such Restricted Subsidiary is not a Wholly-Owned Subsidiary, to its other stockholders on a PRO RATA basis), (ii) purchase, redeem, retire or otherwise acquire for value any Capital 109 Stock (including options or warrants to acquire such Capital Stock) of the Company or any Restricted Subsidiary, (iii) purchase, repurchase, redeem, prepay interest, defease or otherwise acquire or retire for value, prior to scheduled maturity, scheduled repayment, scheduled interest payment date or scheduled sinking fund payment, any Subordinated Obligations, or make any cash interest payment on Subordinated Shareholder Loans or (iv) make any Investment (other than a Permitted Investment) in any Person (any such dividend, distribution, purchase, redemption, repurchase, defeasance, other acquisition, retirement, interest payment or Investment being herein referred to as a "Restricted Payment"), if at the time the Company or such Restricted Subsidiary makes such Restricted Payment: (x) after giving effect to such Restricted Payment, a Default shall have occurred and be continuing (or would result therefrom); or (y) the Company could not incur at least an additional $1.00 of Indebtedness under the covenant described under "Certain Covenants--Limitation on Indebtedness"; or (z) the aggregate amount of such Restricted Payment and all other Restricted Payments declared (the amount so expended, if other than in cash, to be determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a resolution of the Board of Directors) or made subsequent to the Issue Date would exceed the sum of: (A) an amount equal to the Company's Cumulative Operating Cash Flow less 1.6 times the Company's Cumulative Consolidated Interest Expense; plus (B) the aggregate Net Cash Proceeds received by the Company from the issue or sale of its Capital Stock (other than Disqualified Stock) or other cash contributions to its capital subsequent to the Issue Date (other than an issuance or sale to a Subsidiary of the Company or an employee stock ownership plan or other trust established by the Company or any of its Subsidiaries); plus (C) the amount by which Indebtedness of the Company is reduced on the Company's balance sheet upon conversion or exchange (other than by a Restricted Subsidiary of the Company) subsequent to the Issue Date of any Indebtedness of the Company convertible or exchangeable for Capital Stock (other than Disqualified Stock) of the Company (less the amount of any cash or other property distributed by the Company upon such conversion or exchange); and plus (D) in the case of the disposition or repayment of any Investment constituting a Restricted Payment other than an Investment made pursuant to clause (v) of paragraph (b) below made after the Issue Date, an amount equal to the lesser of the return of capital with respect to such Investment and the cost of such Investment, in either case, less the cost of the disposition of such Investment. For purposes of determining the amount expended for Restricted Payments, cash distributed shall be valued at the face amount thereof and property or services distributed or transferred other than cash shall be valued at its Fair Market Value. (b) So long as there is no Default or Event of Default continuing, the provisions of paragraph (a) shall not prohibit: (i) any purchase or redemption of Capital Stock or Subordinated Obligations of the Company or Capital Stock of any Restricted Subsidiary made by exchange for, or out of the Net Cash Proceeds from a substantially concurrent sale (other than to a Restricted Subsidiary of the Company) of, Capital Stock of the Company (other than Disqualified Stock) or any purchase of Capital Stock made with Put Promissory Notes; PROVIDED, HOWEVER, that (A) such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds from such sale shall be excluded from the calculation of amounts under clause (B) of paragraph (a); (ii) any purchase or redemption of Subordinated Obligations of the Company made by exchange for, or out of the proceeds from a substantially concurrent sale of, Subordinated Obligations of the Company; PROVIDED, HOWEVER, that (A) the final maturity date of such Subordinated Obligations, determined as of the date of Incurrence, occurs not earlier than the Stated Maturity of the Notes and (B) the Average Life of such Subordinated Obligations is equal to or greater than the Average Life of the Subordinated Obligations being purchased or redeemed; and PROVIDED, FURTHER, that such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments; (iii) dividends paid within 60 days after the date of declaration if at such date of declaration such dividend would have complied with this provision; PROVIDED, HOWEVER, that such dividends shall be included in the calculation of the amount of Restricted Payments; (iv) Investments in Galaxy Latin America or its Affiliates made subsequent to the Issue Date in an aggregate amount at any time outstanding not to exceed $15.0 million; (v) Investments 110 in a Permitted Business financed with the net proceeds of this Offering as described under "Use of Proceeds"; and (vi) Minority Investments made subsequent to the Issue Date constituting a Restricted Payment by the Company or any Restricted Subsidiary in any Person that operates principally, or has been formed to operate principally, a Permitted Business in an aggregate amount at any time outstanding not to exceed $45.0 million. The Indenture will provide that the Company will be required, as a condition to the issuance of the Notes, and to thereafter maintain enforceable written commitments (the Shareholder Commitments") from each shareholder of the Company agreeing that such shareholder will not exercise its voting rights to receive mandatory statutory dividends (without limiting such shareholder's right otherwise to receive dividends pursuant to and in compliance with this covenant "Limitation on Restricted Payments"), PROVIDED that the Shareholder Commitments will cease to be effective on the first to occur of (x) the date that shares of Capital Stock of the Company are issued and listed on a Brazilian or United States securities exchange in connection with a bona fide public offering of such shares or the date that any shares of the Capital Stock of the Company are otherwise effectively listed and traded on any Brazilian or United States securities exchange, (y) the date that none of the Notes remain outstanding or (z) the date that such commitment is no longer effective, enforceable or legal under applicable Brazilian laws and regulations (including without limitation any construction or interpretation thereof by CVM, any court or any other governmental authority). The Indenture will provide that the Company will obtain Shareholder Commitments in connection with any future issuances of Capital Stock to the extent the Shareholder Commitments would then be effective, enforceable and legal under the terms of the foregoing proviso. Notwithstanding the foregoing, but provided it would not render any of the other Shareholder Commitments unenforceable, the Company need not obtain and/or maintain Shareholder Commitments from persons that are not shareholders of the Company on the Issue Date or any Affiliate of any such shareholder to the extent it does not relate to more than 10.0% of the outstanding shares of Capital Stock of the Company. LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED SUBSIDIARIES. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, create or permit to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any such Restricted Subsidiary to (i) pay dividends or make any other distributions on its Capital Stock or pay any Indebtedness or other obligation owed to the Company or another Restricted Subsidiary of the Company, (ii) make any Investment in the Company or another Restricted Subsidiary of the Company or (iii) transfer any of its property or assets to the Company or another Restricted Subsidiary of the Company; except: (A) any encumbrance or restriction pursuant to an agreement in effect on the date of Issuance of the Notes and described in this Prospectus; (B) any encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement relating to any Indebtedness Incurred by a Restricted Subsidiary prior to the date on which such Restricted Subsidiary was acquired by the Company (other than Indebtedness Incurred as consideration in, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of related transactions pursuant to which such Restricted Subsidiary was acquired by the Company) and outstanding on such date; (C) any encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement effecting a refinancing of Indebtedness Incurred pursuant to an agreement referred to in clauses (A) or (B) or this clause (C) or contained in any amendment to an agreement referred to in clauses (A) or (B) or this clause (C); PROVIDED, HOWEVER, that the encumbrances and restrictions contained in any such refinancing agreement or amendment are no less favorable to the holders of the Notes than encumbrances and restrictions contained in such agreements; (D) any such customary encumbrance or restriction contained in a security document creating a Lien permitted under the Indenture to the extent relating to the property or asset subject to such Lien following a default in respect of the applicable obligation; (E) in the case of clause (iii), any encumbrance or restriction (1) that restricts in a customary manner the subletting, assignment or transfer of any property or asset that is subject to a lease, license, or similar contract, or (2) contained in security agreements securing Indebtedness of a Restricted Subsidiary to the extent such encumbrance 111 or restrictions restrict the transfer of the property subject to such security agreements; (F) any restriction with respect to a Restricted Subsidiary imposed pursuant to an agreement in effect for the sale or disposition thereof and the duration of which does not exceed 60 days; or (G) any encumbrance or restriction contained in an agreement pursuant to which Galaxy Brasil Incurs Indebtedness in compliance with the terms of the Indenture, PROVIDED, HOWEVER, that the terms of such encumbrance or restriction are no more restrictive than those contained in the Equipment Agreements as they exist on the Issue Date. LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, make any Asset Disposition, unless (i) the Company or such Restricted Subsidiary receives consideration (including by way of relief from, or by any other Person assuming sole responsibility for, any liabilities, contingent or otherwise) at the time of such Asset Disposition at least equal to the Fair Market Value of the shares and assets subject to such Asset Disposition, (ii)(A) at least 75.0% of the consideration thereof received by the Company or such Restricted Subsidiary is in the form of cash or Cash Equivalents or (B) at least 75.0% of the consideration thereof received by the Company or such Restricted Subsidiary consists of assets used in connection with a Permitted Business; and (iii) an amount equal to 100.0% of the Net Available Cash from such Asset Disposition is applied by the Company (or such Restricted Subsidiary, as the case may be) (A) FIRST, to the extent the Company elects (or is required by the terms of any senior Indebtedness of the Company or Indebtedness of a Restricted Subsidiary), to prepay, repay or purchase such senior Indebtedness, or such Indebtedness of a Restricted Subsidiary (in each case other than Indebtedness owed to the Company or an Affiliate of the Company) within 365 days from the later of the date of such Asset Disposition or the receipt of such Net Available Cash; (B) SECOND, to the extent of the balance of Net Available Cash after application in accordance with clause (A), to the extent the Company or such Restricted Subsidiary elects, to reinvest in Additional Assets (including by means of an Investment in Additional Assets by a Restricted Subsidiary with Net Available Cash received by the Company or another Restricted Subsidiary) within 365 days from the later of the date of such Asset Disposition or the receipt of such Net Available Cash; (C) THIRD, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A) and (B) ("Excess Proceeds"), to make an offer ("Asset Sale Offer") to purchase Notes pursuant and subject to the conditions of the Indenture to the Noteholders at a purchase price of 100.0% of the principal amount thereof plus accrued and unpaid interest to the purchase date, and (D) FOURTH, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A), (B) and (C), for general corporate purposes. Notwithstanding the foregoing provisions, the Company and its Restricted Subsidiaries shall not be required to apply any Net Available Cash in accordance herewith except to the extent that the aggregate Net Available Cash from all Asset Dispositions which are not applied in accordance with this covenant at any time exceed $10 million. Upon completion of any Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero. For the purposes of this covenant, the following will be deemed to be cash or Cash Equivalents: (i) the assumption of Indebtedness (other than Disqualified Stock) of the Company or any Restricted Subsidiary and the release of the Company or such Restricted Subsidiary from all liability on such Indebtedness in connection with such Asset Disposition and (ii) securities received by the Company or any Restricted Subsidiary of the Company from the transferee that are promptly converted by the Company or such Restricted Subsidiary into cash at its face value. (b) In the event of an Asset Disposition that requires the purchase of Notes pursuant to clause (a)(iii)(C), the Company will be required to purchase Notes tendered pursuant to an offer by the Company for the Notes at a purchase price of 100.0% of their principal amount plus accrued interest to the purchase date in accordance with the procedures (including prorating in the event of oversubscription) set forth in the Indenture. If the aggregate purchase price of the Notes tendered pursuant to the offer is less than the Net Available Cash allotted to the purchase of the Notes, the Company will apply the remaining Net Available Cash in accordance with clause (a)(iii)(D) above. 112 (c) The Company will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes pursuant to the Indenture. To the extent that the provisions of any securities laws or regulations conflict with provisions of this covenant, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Indenture by virtue thereof. LIMITATION ON AFFILIATE TRANSACTIONS. (a) The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, enter into or conduct any transaction (including the purchase, sale, lease or exchange of any property, or the rendering of any service) with any Affiliate of the Company (an "Affiliate Transaction") unless: (i) the terms of such Affiliate Transaction are no less favorable to the Company or such Restricted Subsidiary, as the case may be, than those that could be obtained at the time of such transaction in arm's-length dealings with a Person who is not such an Affiliate; (ii) in the event such Affiliate Transaction involves an aggregate amount in excess of $2.0 million, the terms of such transaction have been approved by a majority of the members of the Board of Directors of the Company and by a majority of the members of such Board having no personal stake in such Affiliate Transaction, if any; and (iii) in the event such Affiliate Transaction involves an aggregate amount in excess of $10.0 million, the Company has received a written opinion from an independent investment banking firm of nationally recognized standing in the United States that such Affiliate Transaction is fair to the Company or such Restricted Subsidiary, as the case may be, from a financial point of view; PROVIDED that, in the case of an Affiliate Transaction described in clause (ii) or (iii), the Company shall promptly after consummation thereof deliver an Officers' certificate to the Trustee certifying as to the compliance by the Company with clauses (i) and (ii) or (i) and (iii) as the case may be, of this covenant; and PROVIDED FURTHER that in the case of an Affiliate Transaction with Galaxy Latin America, the Company or such Restricted Subsidiary shall only be required to obtain the opinion described in clause (iii) if such Affiliate Transaction involves an aggregate amount in excess of $20.0 million. (b) The provisions of the foregoing paragraph (a) will not apply to (i) transactions with or among the Company and/or any of the Restricted Subsidiaries; PROVIDED in any such case, no officer, director or beneficial holder of 5% or more of any class of Capital Stock of the Company shall beneficially own any Capital Stock of any such Restricted Subsidiary, (ii) transactions between the Company and any Restricted Subsidiary that are solely for the benefit of the Company or a Subsidiary Guarantor, (iii) transactions between or among Unrestricted Subsidiaries, (iv) any dividend permitted by the covenant described under "Certain Covenants--Limitation on Restricted Payments," (v) directors' fees, indemnification and similar arrangements, officers' indemnification, employee stock option or employee benefit plans, employee salaries and bonuses or legal fees paid or created in the ordinary course of business and (vi) transactions and arrangements pursuant to agreements in existence on the Issue Date and described in the Prospectus. In addition, paragraph (a) shall not apply (x) to Indebtedness Incurred by the Company from Abril under the Abril Credit Facility or from shareholders pursuant to Subordinated Shareholder Loans and (y) to any transaction entered into in connection with the reorganization of the Company's ownership structure or the restructuring of its legal form described under "Certain Transactions with Related Parties--Transactions Among Shareholders" in the Prospectus. LIMITATION ON LIENS. The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, create or permit to exist any Lien, other than Permitted Liens, on any of its property or assets (including Capital Stock of any Restricted Subsidiary), whether owned on the Issue Date or thereafter acquired, securing any obligation, unless the obligations due under the Indenture and the Notes and the Subsidiary Guarantees are secured, on an equal and ratable basis (or on a senior basis, in the case of Indebtedness subordinated in right of payment to the Notes or the Subsidiary Guarantees), with the obligations so secured. 113 LIMITATION ON SALES OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES. The Company will not (i) sell, and will not permit any Restricted Subsidiary of the Company to issue, sell or transfer, any Capital Stock of a Restricted Subsidiary or (ii) permit any Person (other than the Company or a Wholly-Owned Restricted Subsidiary) to acquire Capital Stock of any Restricted Subsidiary, if in either case as the result thereof such Restricted Subsidiary would no longer be a Restricted Subsidiary of the Company, except for (A) Capital Stock issued, sold or transferred to the Company or a Wholly-Owned Restricted Subsidiary and (B) Capital Stock issued by a Person prior to the time (1) such Person becomes a Restricted Subsidiary, (2) such Person merges with or into a Restricted Subsidiary or (3) a Restricted Subsidiary merges with or into such Person, PROVIDED, that such Capital Stock was not issued by such Person in anticipation of the type of transaction contemplated by subclause (1), (2) or (3). This provision shall not prohibit the Company or any of its Restricted Subsidiaries from selling or otherwise disposing of all of the Capital Stock of any Restricted Subsidiary; PROVIDED that any such sale constitutes an Asset Disposition for purposes of, and the Net Cash Proceeds from any such sale are applied in accordance with, the covenant described under "Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock." ADDITIONAL SUBSIDIARY GUARANTEES. The Indenture will provide that if the Company or any of its Restricted Subsidiaries shall acquire or create another Restricted Subsidiary after the Issue Date, then such newly acquired or created Restricted Subsidiary shall execute a Subsidiary Guarantee and deliver an opinion of counsel, in accordance with the terms of the Indenture. MERGER AND CONSOLIDATION. The Company shall not consolidate with or merge with or into, or convey, transfer or lease all or substantially all its assets to, any Person and the Company will not permit any of its Restricted Subsidiaries to enter into such a transaction if such transaction, in the aggregate, would result in the conveyance or transfer of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole, to any Person, unless: (i) the resulting, surviving or transferee Person (the "Successor Company") is a corporation organized and existing under the laws of the Federative Republic of Brazil or any State or political subdivision thereof and the Successor Company (if not the Company) expressly assumes, by supplemental indenture, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the Notes and the Indenture; (ii) immediately after giving effect to such transaction (and treating any Indebtedness that becomes an obligation of the Successor Company or any Restricted Subsidiary of the Successor Company as a result of such transaction as having been Incurred by the Successor Company or such Restricted Subsidiary at the time of such transaction), no Default shall have occurred and be continuing; (iii) immediately after giving effect to such transaction, the Successor Company would be able to Incur at least an additional $1.00 of Indebtedness pursuant to paragraph (a) of the covenant described under "Certain Covenants--Limitation on Indebtedness"; (iv) immediately after giving effect to such transaction, the Successor Company will have Consolidated Net Worth in an amount which is not less than the Consolidated Net Worth of the Company immediately prior to such transaction; (v) each Guarantor shall have delivered a written instrument in form satisfactory to the Trustee confirming its Guarantee; and (vi) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture (if any) comply with the Indenture; PROVIDED, HOWEVER, that clause (iii) shall not apply to the merger of Cable Participacoes Ltda., or Hearst/ABC Video Services II, each an entity owned by The Hearst Corporation and ABC, Inc., or Falcon International Communications (Bermuda) L.P. with and into the Company in connection with the reorganization of the Company's ownership structure described under "Certain Transactions with Related Parties--Transactions Among Shareholders" in the Prospectus. The Successor Company will succeed to, and be substituted for, and may exercise every right and power of, the Company under the Indenture, but the Company, in the case of a lease of all or substantially all its assets, will not be released from the obligation to pay the principal of and interest on the Notes. 114 SEC REPORTS. The Indenture will provide that, whether or not the Company has a class of securities registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), following any Exchange Offer or the effectiveness of any Shelf Registration Statement, the Company shall furnish without cost to each holder of Notes, the Trustee and the Initial Purchasers and file with the Commission (whether or not the Company is a public reporting company at the time): (i) within 140 days after the end of each fiscal year of the Company, annual reports on Form 20-F (or any successor form) containing the information required to be contained therein (or required in such successor form); (ii) within 60 days after the end of each of the first three fiscal quarters of each fiscal year, reports on Form 6-K (or any successor form) containing substantially the same information required to be contained therein; and (iii) promptly from time to time after the occurrence of an event required to be therein reported, such other reports on Form 6-K (or any successor form) containing substantially the same information required to be contained in Form 8-K (or required in any successor form). Prior to the effectiveness of the Exchange Offer Registration Statement with the Commission, the Company will file with the Trustee and provide the Initial Purchasers, all of the information that would have been required to have been filed with the Commission pursuant to clauses (i), (ii) and (iii) above. Each of the reports will be prepared in accordance with US GAAP consistently applied, will include the amounts of EBITDA (as defined herein), based on US GAAP financial data and will be prepared in accordance with the applicable rules and regulations of the Commission. The Company will agree to use its reasonable best efforts to schedule, disseminate in a customary manner for public companies information concerning, and conduct a conference call for holders of Notes to discuss with appropriate senior officers of the Company the results of operating and financial conditions of the Company within 30 days of filing any reports described in clause (i) and (ii) above with the Commission. LIMITATION ON DESIGNATIONS OF SPECIAL RESTRICTED SUBSIDIARIES. The Indenture will provide that the Company may designate any Restricted Subsidiary as a "Special Restricted Subsidiary" under the Indenture (a "Special Designation") if such Special Restricted Subsidiary engages in, or will engage principally in, a Permitted Business in a Newly-Licensed Service Area. Such Special Designation may be revoked at any time if all Indebtedness of such Special Restricted Subsidiary that is outstanding immediately following such revocation would, if Incurred at such time, have been permitted to be Incurred for all purposes under the Indenture. All Special Designations and revocations thereof must be evidenced by Board Resolutions of the Company delivered to the Trustee certifying compliance with the foregoing provisions. In any event, a Special Restricted Subsidiary will remain a Restricted Subsidiary for all purposes of the Indenture, except that a Special Restricted Subsidiary shall be treated as an Unrestricted Subsidiary for purposes of calculating Operating Cash Flow, Consolidated Income Tax Expense, Consolidated Interest Expense and Consolidated Net Income. LIMITATION ON DESIGNATIONS OF UNRESTRICTED SUBSIDIARIES. The Indenture will provide that the Board of Directors may designate any Subsidiary of the Company (other than a Guarantor, but including any newly acquired or newly formed Subsidiary) (a "Designation") to be an Unrestricted Subsidiary if: (a) no Default shall have occurred and be continuing at the time of or after giving effect to such Designation; (b) the Company would be permitted under the Indenture to make an Investment under all applicable provisions of the covenant described under "Certain Covenants--Limitation on Restricted Payments" at the time of Designation (assuming the effectiveness of such Designation) in an amount (the "Designation Amount") equal to the Fair Market Value of such Subsidiary on such date; and (c) such Subsidiary and its Subsidiaries own no Capital Stock or Indebtedness of, and hold no Lien on any property of, the Company or any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary (a "Revocation"); PROVIDED, HOWEVER, that immediately after giving effect to such designation (x) no Default shall have occurred and be continuing and (y) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding immediately following such Revocation would, if Incurred at such time, have been permitted to be Incurred for all purposes of the Indenture. Any such Designation and Revocation by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee 115 a copy of the board resolution giving effect thereto and an Officers' Certificate certifying that such action complied with the foregoing provisions. LIMITATION ON INVESTMENTS IN UNRESTRICTED SUBSIDIARIES. The Company will not make, and will not permit its Restricted Subsidiaries to make, any Investment in Unrestricted Subsidiaries if, at the time thereof, such Investment, together with the aggregate amount of all Investments previously made (other than Permitted Investments), would exceed the amount of Restricted Payments then permitted to be made pursuant to the covenant described under "Certain Covenants--Limitation on Restricted Payments". Any Investments in Unrestricted Subsidiaries permitted to be made pursuant to this covenant (i) will be treated as a Restricted Payment in calculating the amount of Restricted Payments made by the Company and (ii) may be made in cash or property. BUSINESS OF THE COMPANY; RESTRICTIONS ON TRANSFERS OF EXISTING BUSINESS. The Indenture will provide that the Company will not, and will not permit any of the Restricted Subsidiaries to, be principally engaged in any business or activity other than a Permitted Business. In addition, the Company and the Restricted Subsidiaries will not be permitted to, directly or indirectly, transfer to any Unrestricted Subsidiary (i) any of the licenses, permits or authorizations used in the Permitted Business of the Company and the Restricted Subsidiaries on the Issue Date or (ii) any material portion of the "property and equipment" (as such term is used in the Company's consolidated financial statements) of the Company or any Restricted Subsidiary used in the licensed service areas of the Company and the Restricted Subsidiaries as they exist on the Issue Date; PROVIDED that the Company and the Restricted Subsidiaries may make Asset Dispositions in compliance with the covenant described under "Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock" and pledge property and assets to the extent permitted in the covenant described under "Certain Covenants--Limitations on Liens." DEFAULTS An Event of Default is defined in the Indenture as (i) a default in any payment of interest on any Note when due, continued for 30 days, (ii) a default in the payment of principal or premium, if any, of any Note when due at its Stated Maturity, upon optional redemption, upon required repurchase, upon declaration or otherwise, (iii) the failure by the Company or any Restricted Subsidiary to comply with its obligations under "Certain Covenants--Merger and Consolidation" above, (iv) the failure by the Company or any Restricted Subsidiary to comply with any covenants (other than the covenant described under "Certain Covenants--Merger and Consolidation") or any other agreements contained in the Indenture for 45 days after notice (in each case, other than a failure to purchase Notes which shall constitute an Event of Default under clause (ii) above), (v) Indebtedness of the Company or any Restricted Subsidiary is not paid within any applicable grace period after failure to pay when due or is accelerated by the holders thereof because of a default and the total amount of such Indebtedness unpaid or accelerated exceeds $10.0 million (or the US Dollar Equivalent) (the "cross acceleration provision"), (vi) certain events of bankruptcy, insolvency or reorganization of the Company or a Restricted Subsidiary (the "bankruptcy provisions"), (vii) any judgment or decree for the payment of money in excess of $10.0 million (or the US Dollar Equivalent) (to the extent not covered by insurance as acknowledged in writing by the insurer) is rendered against the Company or a Restricted Subsidiary and such judgment or decree shall remain undischarged or unstayed for a period of 60 days after such judgment becomes final and non-appealable (the "judgment default provision"), (viii) there shall have occurred any seizure, compulsory acquisition, expropriation or nationalization of material assets of the Company and its Subsidiaries or (ix) the failure of any Subsidiary Guarantee to be in full force and effect (except as contemplated by the terms thereof) or the denial or disaffirmation by any Guarantor of its obligations under the Indenture or any Subsidiary Guarantee if such default continues for 10 days, unless otherwise released from such Guarantee obligation pursuant to the Indenture. However, a default under clause (iv) will not constitute an Event of Default until the Trustee or the holders of 25.0% in principal amount of the outstanding Notes 116 notify the Company of the default and the Company does not cure such default within the time specified in clause (iv) hereof after receipt of such notice. If an Event of Default occurs and is continuing, the Trustee or the holders of at least 25.0% in principal amount of the outstanding Notes by notice to the Company may declare the principal of and accrued and unpaid interest on all the Notes to be due and payable. Upon such a declaration, such principal and accrued and unpaid interest shall be due and payable immediately. If an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of the Company occurs and is continuing, the principal of and accrued and unpaid interest on all the Notes will become and be immediately due and payable without any declaration or other act on the part of the Trustee or any holders. Under certain circumstances, the holders of a majority in principal amount of the outstanding Notes may rescind any such acceleration with respect to the Notes and its consequences. Subject to the provisions of the Indenture relating to the duties of the Trustee, if an Event of Default occurs and is continuing, the Trustee will be under no obligation to exercise any of the rights or powers under the Indenture at the request or direction of any of the holders unless such holders have offered to the Trustee reasonable indemnity or security against any loss, liability or expense. Except to enforce the right to receive payment of principal, premium (if any) or interest when due, no holder may pursue any remedy with respect to the Indenture or the Notes unless (i) such holder has previously given the Trustee notice that an Event of Default is continuing, (ii) holders of at least 25.0% in principal amount of the outstanding Notes have requested the Trustee to pursue the remedy, (iii) such holders have offered the Trustee reasonable security or indemnity against any loss, liability or expense, (iv) the Trustee has not complied with such request within 60 days after the receipt of the request and the offer of security or indemnity and (v) the holders of a majority in principal amount of the outstanding Notes have not given the Trustee a direction that, in the opinion of the Trustee, is inconsistent with such request within such 60-day period. Subject to certain restrictions, the holders of a majority in principal amount of the outstanding Notes are given the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. The Trustee, however, may refuse to follow any direction that conflicts with law or the Indenture or that the Trustee determines is unduly prejudicial to the rights of any other holder or that would involve the Trustee in personal liability. Prior to taking any action under the Indenture, the Trustee shall be entitled to indemnification satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action. The Indenture provides that if a Default occurs and is continuing and is known to the Trustee, the Trustee must mail to each holder notice of the Default within 90 days after it occurs. Except in the case of a Default in the payment of principal of, premium (if any) or interest on any Note, the Trustee may withhold notice if and so long as a committee of its Trust officers in good faith determines that withholding notice is in the interests of the Noteholders. In addition, the Company is required to deliver to the Trustee, within 120 days after the end of each fiscal year, a certificate indicating whether the signers thereof know of any Default that occurred during the previous year. The Company also is required to deliver to the Trustee, within 30 days after the occurrence thereof, written notice of any events which would constitute certain Defaults, their status and what action the Company is taking or proposes to take in respect thereof. AMENDMENTS AND WAIVERS Subject to certain exceptions, the Indenture may be amended with the consent of the holders of a majority in principal amount of the Notes then outstanding and any past default or compliance with any provisions may be waived with the consent of the holders of a majority in principal amount of the Notes then outstanding. However, without the consent of each holder of an outstanding Note affected, no amendment may, among other things, (i) reduce the amount of Notes whose holders must consent to an amendment, (ii) reduce the rate of or extend the time for payment of interest on any Note, (iii) reduce the 117 principal of or extend the Stated Maturity of any Note, (iv) reduce the premium payable upon the redemption or repurchase of any Note or change the time at which any Note may be redeemed as described under "Optional Redemption" above, (v) make any Note payable in money other than that stated in the Note, (vi) amend or modify any of the provisions of the Indenture relating to the ranking of the Notes or the Subsidiary Guarantees in any manner that adversely affects the rights of any holder of the Notes, (vii) impair the right of any holder to receive payment of principal of and interest on such holder's Notes on or after the due dates therefor or to institute suit for the enforcement of any payment on or with respect to such holder's Notes, (viii) release any Guarantor from any of its obligations under its Subsidiary Guarantee or the Indenture, except in compliance with the terms thereof or (ix) make any change in the amendment provisions which require each holder's consent or in the waiver provisions. Without the consent of any holder, the Company and the Trustee may amend the Indenture to cure any ambiguity, omission, defect or inconsistency, to provide for the assumption by a successor corporation of the obligations of the Company under the Indenture, to provide for uncertificated Notes in addition to or in place of certificated Notes (provided that the uncertificated Notes are issued in registered form for purposes of Section 163(f) of the Code, to secure the Notes, to add to the covenants of the Company for the benefit of the Noteholders or to surrender any right or power conferred upon Company, to make any change that does not adversely affect the rights of any holder or to comply with any requirement of the Commission in connection with the qualification of the Indenture under the Trust Indenture Act. The consent of the holders is not necessary under the Indenture to approve the particular form of any proposed amendment. It is sufficient if such consent approves the substance of the proposed amendment. After an amendment under the Indenture becomes effective, the Company is required to mail to the holders a notice briefly describing such amendment. However, the failure to give such notice to all the holders, or any defect therein, will not impair or affect the validity of the amendment. TRANSFER AND EXCHANGE A Noteholder may transfer or exchange Notes in accordance with the Indenture. Upon any transfer or exchange, the registrar and the Trustee may require a Noteholder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Noteholder to pay any taxes or other charges required by law. The Company is not required to transfer or exchange any Note selected for redemption or to transfer or exchange any Note for a period of 15 days prior to a selection of Notes to be redeemed. The Notes will be issued in registered form and the registered holder of a Note will be treated as the owner of such Note for all purposes. DEFEASANCE The Company at any time may terminate all its obligations under the Notes and the Indenture ("legal defeasance"), except for certain obligations, including those respecting the defeasance trust and obligations to register the transfer or exchange of the Notes, to replace mutilated, destroyed, lost or stolen Notes and to maintain a registrar and paying agent in respect of the Notes. The Company at any time may terminate its obligations under the covenants described under "--Certain Covenants" (other than the covenant described under "Certain Covenants--Merger and Consolidation"), the operation of the cross acceleration provision, the bankruptcy provisions with respect to Restricted Subsidiaries and the judgment default provision described under "Defaults" above and the limitations contained in clauses (iii) and (iv) under "Certain Covenants--Merger and Consolidation" above ("covenant defeasance"). The Company may exercise its legal defeasance option notwithstanding its prior exercise of its covenant defeasance option. If the Company exercises its legal defeasance option, payment of the Notes may not be accelerated because of an Event of Default with respect thereto. If the Company exercises its covenant defeasance option, payment of the Notes may not be accelerated because of an 118 Event of Default specified in clause (iv), (v) and (vi) (with respect only to Restricted Subsidiaries), or (vii) or (ix) under "Defaults" above or because of the failure of the Company to comply with clause (iii) or (iv) under "Certain Covenants--Merger and Consolidation" above. In order to exercise either defeasance option, the Company must irrevocably deposit in trust (the "defeasance trust") with the Trustee money or US Government Obligations for the payment of principal, premium (if any) and interest on the Notes to redemption or maturity, as the case may be, and must comply with certain other conditions, including delivery to the Trustee of an Opinion of Counsel to the effect that holders of the Notes will not recognize income, gain or loss for U.S. Federal income tax purposes as a result of such deposit and defeasance and will be subject to U.S. Federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred (and, in the case of legal defeasance only, such Opinion of Counsel must be based on a ruling of the Internal Revenue Service or other change in applicable Federal income tax law). FOREIGN EXCHANGE RESTRICTIONS; CURRENCY INDEMNITY Payments in respect of the Notes or any Subsidiary Guarantee shall be made in US dollars as shall be legal tender at the time of payment for the payment of public and private debts in that currency. In the event that on any payment date in respect of the Notes or any Subsidiary Guarantee, any restrictions or prohibition of access to the Brazilian foreign exchange market exists, the Company and each Guarantor agree to pay all amounts payable under the Notes in the currency of such Notes by means of any legal procedure existing in Brazil (except commencing legal proceedings against the Brazilian Central Bank), on any due date for payment under the Notes. All costs and taxes payable in connection with the procedures referred to in this covenant shall be borne by the Company and the Guarantors. US dollars are the sole currency of account and payment for all sums payable by the Company and the Guarantors under or in connection with the Notes and the Subsidiary Guarantees, including damages. Any amount received or recovered in a currency other than US dollars (whether as a result of, or of the enforcement of, a judgment or order of a court of any jurisdiction, in the winding-up or dissolution of the Company and the Guarantors or otherwise) by any holder of a Note in respect of any sum expressed to be due to it from the Company and the Guarantors shall only constitute a discharge to the Company and the Guarantors to the extent of the dollar amount which the recipient is able to purchase with the amount so received or recovered in that other currency on the date of that receipt or recovery (or, if it is not practicable to make that purchase on that date, on the first date on which it is practicable to do so). If that dollar amount is less than the dollar amount expressed to be due to the recipient under any Note, the Company and the Guarantors shall, jointly and severally, indemnify it against any loss sustained by it as a result. In any event the Company and the Guarantors shall, jointly and severally, indemnify the recipient against the cost of making any such purchase. For the purposes of this paragraph, it will be sufficient for the holder of a Note to certify in a satisfactory manner (indicating sources of information used) that it would have suffered a loss had an actual purchase of dollars been made with the amount so received in that other currency on the date of receipt or recovery (or, if a purchase of dollars on such date had not been practicable, on the first date on which it would have been practicable, it being required that the need for a change of date be certified in the manner mentioned above). These indemnities constitute a separate and independent obligation from other obligations of the Company and the Guarantors, shall give rise to a separate and independent cause of action, shall apply irrespective of any indulgence granted by any holder of a Note and shall continue in full force and effect despite any other judgment, order, claim or proof for a liquidated amount in respect of any sum due under any Note. ENFORCEABILITY OF JUDGMENTS WITH RESPECT TO THE NOTES AND SUBSIDIARY GUARANTEES Service of process upon the Company or any Guarantor in an action (other than an insolvency, liquidation or bankruptcy proceeding or any other proceeding in the nature of an IN REM or QUASI IN REM 119 proceeding) to enforce their obligations under the Indenture, the Notes or the Subsidiary Guarantees may be obtained within the United States by service upon CT Corporation System. See "Risk Factors-- Risks Relating to the Notes--Enforceability of Judgments." Since substantially all of the assets of the Company and its subsidiaries are outside the United States, any judgment obtained in the United States against the Company or any Guarantor, including judgments with respect to the payment of amounts owing with respect to the Notes or the Subsidiary Guarantees, may not be collectible within the United States. Judgments for monetary claims obtained in US courts arising out of or in relation to the obligations of the Company and the Guarantors under the Indenture and the Notes will be enforceable in Brazil, provided that such judgment has been previously confirmed by the Brazilian Federal Supreme Court. In order to be confirmed by the Brazilian Federal Supreme Court of Brazil, such foreign judgment must meet the following conditions: (a) it must comply with all formalities required for its enforceability under the laws of the country where it was issued; (b) it must have been given by a competent court after the proper service of process on the parties; (c) it must not be subject to appeal; (d) it must not offend Brazilian national sovereignty, public policy or good morals; and (e) it must be duly authenticated by a competent Brazilian consulate and be accompanied by a sworn translation thereof into Portuguese. Notwithstanding the foregoing, no assurance can be given that such confirmation will be obtained, that the process described above can be conducted in a timely manner or that a Brazilian court will enforce such monetary judgment. See "Enforceability of Civil Liabilities." Any judgment obtained against the Company or the Guarantors in a court in Brazil under any Note or under the Indenture will be expressed in the Brazilian currency equivalent to the US dollar amount of such sum at the commercial exchange rate of the date at which such judgment is obtained, and such Brazilian currency amount will be corrected in accordance with the exchange variation until the judgment holder receives effective payment. CERTAIN BANKRUPTCY LAW CONSIDERATIONS Brazilian Bankruptcy Law (Decree-law No. 7,661, of June 21, 1945, the "Brazilian Bankruptcy Law") establishes two different proceedings for the resolution of debts of commercial companies which are insolvent or do not pay their obligations when due; the bankruptcy proceeding ("FALENCIA") and the reorganization proceeding ("CONCORDATA"). Both proceedings apply to all unsecured creditors of a company which is declared bankrupt or which is under a reorganization proceeding. In the event that the Company or any of the Guarantors is declared bankrupt or enters into a CONCORDATA, the Notes will be considered general unsecured indebtedness of the Company and the Guarantors and therefore will be subject to such proceedings. Under a bankruptcy proceeding (essentially a liquidation proceeding), payments in respect of the Notes will be subject to an order of priority. Generally, Brazilian Bankruptcy Law and other applicable rules establish that claims of employees for wages or indemnity and tax claims have priority over other claims against the bankrupt estate. Other claims are subject to the following order of priority: (i) secured credits, (ii) credits with special privileges over certain assets, (iii) credits with general privilege and (iv) unsecured credits (including the Notes). Credits in foreign currency are converted into Brazilian currency on the date the company is declared bankrupt and are not subject to adjustment in accordance with the exchange variation. Such amount in Brazilian currency must be monetarily adjusted to account for inflation (in accordance with the rules applicable from time to time) and bear no interest. Under a CONCORDATA proceeding, which is a protection available under the Brazilian Bankruptcy Law for commercial companies experiencing financial distress to avoid the declaration of bankruptcy, the company's unsecured credits existing at the time the CONCORDATA is declared are rescheduled for one of the periods defined in the law which in virtually all cases is 24 months (in which event 40.0% of the debt must be paid in the first year). The benefit may be given by the court without any prior consultation with 120 or manifestation by the creditors, so long as the beneficiary demonstrates, INTER ALIA, that its assets are worth at least 50.0% of its unsecured indebtedness. The CONCORDATA proceeding has the following basic characteristics: (i) it only affects unsecured creditors; (ii) it does not affect the day-to-day management of the company, the other commercial obligations of the company and the obligations assumed after the date on which the CONCORDATA is declared; (iii) amounts due in foreign currency subject to the CONCORDATA are converted into local currency on the date on which the CONCORDATA is accepted by the court and are not subject to adjustment in accordance with the exchange variation; (iv) amounts due under the CONCORDATA, either in local currency or converted into local currency, must be monetarily adjusted to account for inflation (in accordance with the rules applicable from time to time) and bear interest at the rate of 12.0% per annum; and (v) a company under CONCORDATA which fails to meet its rescheduled obligations will be declared bankrupt. CONSENT TO JURISDICTION AND SERVICE The Indenture will provide that the Company and the Guarantors will appoint CT Corporation System as their agent for service of process in any suit, action or proceeding with respect to the Indenture, the Notes or the Subsidiary Guarantees and for actions brought under Federal or state securities laws brought in any Federal or state court located in the City of New York and will submit to such jurisdiction. See "Risk Factors--Risks Relating to the Notes--Enforceability of Judgments." CONCERNING THE TRUSTEE The Chase Manhattan Bank is to be the Trustee under the Indenture and has been appointed by the Company as Registrar, and Chase Trust Bank has been appointed as Paying Agent with regard to the Notes. Affiliates of the Trustee own approximately 9.3% of the common shares of the Company. GOVERNING LAW The Indenture provides that it and the Notes will be governed by, and construed in accordance with, the laws of the State of New York without giving effect to applicable principles of conflicts of law to the extent that the application of the law of another jurisdiction would be required thereby. 121 CERTAIN DEFINITIONS For purposes of the following definitions and the Indenture generally, all calculations and determinations shall be made in accordance with US GAAP and shall be based upon the consolidated financial statements of the Company and its Subsidiaries prepared in accordance with US GAAP. For purposes of this "Description of Notes," the term "Company" means Tevecap S.A. excluding its Subsidiaries. "Abril Credit Facility" means the Revolving Credit Agreement, dated December 6, 1995 between the Company and Abril S.A., as lender, as amended, refinanced or replaced from time to time. "Acquired Indebtedness" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such Person merges with or into or consolidates with or becomes a Restricted Subsidiary of such specified Person and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person, which Indebtedness was not incurred in anticipation of, and was outstanding prior to, such merger, consolidation or acquisition. "Additional Assets" means (i) any property or assets (other than Indebtedness and Capital Stock) to be used by the Company or a Restricted Subsidiary in a Permitted Business; (ii) the Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by the Company or another Restricted Subsidiary; or (iii) Capital Stock constituting a minority interest in any Person that at such time is a Restricted Subsidiary; PROVIDED, HOWEVER, that, in the case of clauses (ii) and (iii), such Restricted Subsidiary is primarily engaged in a Permitted Business. "Affiliate" of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. For purposes of the covenants described under "Certain Covenants-- Limitation on Sales of Assets and Subsidiary Stock" and "Certain Covenants--Limitation on Affiliate Transactions", "Affiliate" shall also include any beneficial owner of shares representing 10.0% or more of the total voting power of the Voting Stock (on a fully diluted basis) of the Company or of rights or warrants to purchase such Voting Stock (whether or not currently exercisable) and any Person who would be an Affiliate of any such beneficial owner pursuant to the first sentence hereof, and for the purposes of the covenant described under "Certain Covenants--Limitation on Affiliate Transactions" only, shall include (i) Bell Canada, (ii) Canbras Communications Corp., (iii) Canbras Participacoes Ltda., (iv) Canbras TVA Cabo Ltda., (v) TV Cabo Santa Branca Comercio Ltda. and (vi) Galaxy Latin America. "Asset Disposition" means any sale, lease, transfer, issuance or other disposition (or series of related sales, leases, transfers, issuances or dispositions that are part of a common plan) of shares of Capital Stock of a Restricted Subsidiary (other than directors' qualifying shares), property, services or other assets (each referred to for the purposes of this definition as a "disposition") by the Company or any of its Restricted Subsidiaries (including any disposition by means of a merger, consolidation or similar transaction) other than (i) a disposition by a Restricted Subsidiary to the Company or by the Company or a Restricted Subsidiary to a Wholly-Owned Restricted Subsidiary, (ii) a disposition of inventory, services or accounts receivable in the ordinary course of business consistent with market practice, (iii) a disposition of obsolete or worn out equipment or equipment that is no longer useful in the conduct of the business of the Company and its Subsidiaries and that is disposed of in each case in the ordinary course of business, and (iv) a disposition by Galaxy Brasil of up to 25.0% of its Capital Stock to Hughes Communications GLA and Darlene Investments, a member of the Cisneros Group, or their respective affiliates, pursuant to the Galaxy Latin America Partnership Agreement as it exists on the Issue Date. 122 "Attributable Indebtedness" in respect of a Sale/Leaseback Transaction means, as at the time of determination, the present value (discounted at the interest rate borne by the Notes, compounded annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale/Leaseback Transaction (including any period for which such lease has been extended). "Average Life" means, as of the date of determination, with respect to any Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum of the products of the numbers of years from the date of determination to the dates of each successive scheduled principal payment of such Indebtedness or redemption or similar payment with respect to such Preferred Stock multiplied by the amount of such payment by (ii) the sum of all such payments. "Board of Directors" means the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of such Board. "California Broadcast Center" or "CBC" means the California Broadcast Center LLC, the owner of an uplink center located in Long Beach, California, which provides certain uplink services to Galaxy Latin America. "Capital Stock" of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such Person, including any Preferred Stock and Disqualified Stock, but excluding any debt securities convertible into such equity. "Capitalized Lease Obligations" means an obligation that is required to be classified and accounted for as a capitalized lease for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligation shall be the capitalized amount of such obligation determined in accordance with GAAP, and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date such lease may be terminated without penalty. "Cash Equivalents" means, at any time, (i) any direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America or the Federative Republic of Brazil (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America or the Federative Republic of Brazil is pledged and which are not callable or redeemable at the issuer's option, each with a maturity of 180 days or less from the date of acquisition; (ii) certificates of deposit, money market deposit accounts and acceptances with a maturity of 180 days or less from the date of acquisition of any financial institution that is a Brazilian regulated Bank or a member of the Federal Reserve System having combined capital and surplus and undivided profits of not less than $500.0 million (or the US dollar equivalent); and (iii) commercial paper with a maturity of 180 days or less from the date of acquisition issued by a corporation that is not an Affiliate of the Company or any of its Subsidiaries and is organized under the laws of any state of the United States or the District of Columbia whose debt rating, at the time as of which such investment is made, is at least "A-1" by Standard & Poor's Corporation or at least "P-1" by Moody's Investors Service, Inc. or rated at least an equivalent rating category of another nationally recognized securities rating agency. "Code" means the Internal Revenue Code of 1986, as amended. "Consolidated Income Tax Expense" means, with respect to any Person, for any period the aggregate of the federal, state, local and foreign income tax expense of such Person and its Subsidiaries for such period, on a consolidated basis as determined in accordance with GAAP. "Consolidated Interest Expense" means, for any period, the total interest expense of the Company and its consolidated Restricted Subsidiaries, plus, to the extent not included in such total interest expense, and to the extent incurred by the Company or its Restricted Subsidiaries, (i) interest expense 123 attributable to Capitalized Lease Obligations, (ii) amortization of debt discount, (iii) capitalized interest, (iv) non-cash interest expenses, (v) commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, (vi) the net costs associated with Hedging Obligations (including amortization of fees), (vii) Preferred Stock dividends in respect of all Preferred Stock of the Company or a Wholly-Owned Restricted Subsidiary, (viii) interest accruing on any Indebtedness of any other Person to the extent such Indebtedness is Guaranteed by the Company or any Restricted Subsidiary and (ix) the cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than the Company) in connection with Indebtedness Incurred by such plan or trust. "Consolidated Net Income" means, for any period, the net income (loss) of the Company and its consolidated Subsidiaries; PROVIDED, HOWEVER, that there shall not be included in such Consolidated Net Income: (i) any net income (loss) of any Person if such Person is not a Restricted Subsidiary, except that (A) subject to the limitations contained in clause (iv) below, the Company's equity in the net income of any such Person for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such period to the Company or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution paid to a Restricted Subsidiary, to the limitations contained in clause (iii) below) and (B) the Company's equity in a net loss of any such Person (other than an Unrestricted Subsidiary) for such period shall be included in determining such Consolidated Net Income; (ii) any net income (loss) of any person acquired by the Company or a Subsidiary in a pooling of interests transaction for any period prior to the date of such acquisition; (iii) any net income (loss) of any Restricted Subsidiary if such Restricted Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Restricted Subsidiary, directly or indirectly, to the Company, except that (A) subject to the limitations contained in (iv) below, the Company's equity in the net income of any such Restricted Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash that could have been distributed by such Restricted Subsidiary during such period to the Company or another Restricted Subsidiary as a dividend (subject, in the case of a dividend that could have been made to another Restricted Subsidiary, to the limitation contained in this clause) and (B) the Company's equity in a net loss of any such Restricted Subsidiary for such period shall be included in determining such Consolidated Net Income; (iv) any gain (but not loss) realized upon the sale or other disposition of any assets of the Company or its consolidated Subsidiaries which are not sold or otherwise disposed of in the ordinary course of business and any gain (but not loss) realized upon the sale or other disposition of any Capital Stock of any Person; (v) any extraordinary gain or loss; and (vi) the cumulative effect of a change in accounting principles. "Consolidated Net Worth" means the total of the amounts shown on the balance sheet of the Company and the Restricted Subsidiaries, determined on a consolidated basis in accordance with GAAP, as of the end of the most recent fiscal quarter of the Company ending at least 45 days prior to the taking of any action for the purpose of which the determination is being made as (i) the par or stated value of all outstanding Capital Stock of the Company plus (ii) paid in capital or capital surplus relating to such Capital Stock plus (iii) any retained earnings or earned surplus less (A) any accumulated deficit and (B) any amounts attributable to Disqualified Stock. "Cumulative Consolidated Interest Expense" means, as of any date of determination, Consolidated Interest Expense from October 1, 1996 to the end of the Company's most recently ended full fiscal quarter for which financial statements are available prior to such date, taken as a single accounting period. "Cumulative Operating Cash Flow" means, as of any date of determination, Operating Cash Flow from October 1, 1996 to the end of the Company's most recently ended full fiscal quarter for which financial statements are available prior to such date, taken as a single accounting period. 124 "Currency Agreement" means in respect of a Person any foreign exchange contract, currency swap agreement or other similar agreement as to which such Person is a party or a beneficiary. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. "Disqualified Stock" means, with respect to any Person, any Capital Stock of such Person which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable) or upon the happening of any event (i) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or Disqualified Stock or (iii) is redeemable at the option of the holder thereof, in whole or in part, in each case on or prior to the first anniversary of the Stated Maturity of the Notes. "Equipment Agreements" means the Equipment Lease Agreement, dated as of July 30, 1996, between Citibank N.A., as lessor, and Galaxy Brasil, as lessee, and related agreements, and the Equipment Sale and Leaseback Agreement, dated as of July 30, 1996, between Citibank N.A., as lessor, and Galaxy Brasil, as lessee, and related agreements, as each such agreement may be amended, supplemented or otherwise modified from time to time. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "EximBank Credit Agreement" mean the Credit Agreement to be entered into among the Company, The Chase Manhattan Bank, as lender, and the Export-Import Bank of the United States, as amended, supplemented or otherwise modified from time to time. "Fair Market Value" means, with respect to any asset, the price which could be negotiated in an arm's-length free market transaction, for cash, between a willing seller and a willing buyer, neither of which is under compulsion to complete the transaction. The Fair Market Value of any asset or assets shall be determined by the Board of Directors of the Company, acting in good faith, and shall be evidenced by a resolution of such Board of Directors provided to the Trustee; PROVIDED that, solely for purposes of clause (i) of the covenant described under "Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock" the Company shall be deemed not to have received Fair Market Value for an Asset Disposition unless (a) in the event such Asset Disposition involves an aggregate amount in excess of $2.0 million, the terms of such transaction have been approved by a majority of the members of the Board of Directors of the Company and by a majority of the members of such Board having no personal stake in such Asset Disposition, if any, and (b) in the event such Asset Disposition involves an aggregate amount in excess of $20.0 million, the Company has received a written opinion from an independent investment banking firm of nationally recognized standing in the United States that such Asset Disposition is fair to the Company or such Restricted Subsidiary, as the case may be, from a financial point of view (except that no such opinion shall be required in connection with a public offering of common stock of a Restricted Subsidiary either (A) registered under the Securities Act and/or (B) registered with the CVM and listed on the Sao Paulo Stock Exchange or Rio de Janeiro Stock Exchange). "Galaxy Brasil" means Galaxy Brasil S.A., a Restricted Subsidiary of the Company on the Issue Date. "Galaxy Brasil Subscribers" means, as of any date, the number of subscribers to the pay television services offered by Galaxy Brasil, excluding subscribers who have paid an installation fee to Galaxy Brasil at such date but who are awaiting installation of such services. "Galaxy Latin America" means Galaxy Latin America, a Delaware general partnership in which the Company holds a 10% equity interest on the Issue Date. 125 "Galaxy Latin America Partnership Agreement" means the Partnership Agreement, dated February 13, 1995, as in effect on the Issue Date, among Galaxy Brasil and a unit of Hughes Electronics, a member of the Cisneros Group and a subsidiary of Grupo MVS. "GAAP" means generally accepted accounting principles in the United States of America as in effect from time to time, including those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession. All ratios and computations based on GAAP contained in the Indenture shall be computed in conformity with GAAP as in effect on the Issue Date. "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of any other Person and any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation of any other Person (whether arising by virtue of partnership arrangements, or by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for purposes of assuring in any other manner the obligee of such Indebtedness of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); PROVIDED, HOWEVER, that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Guarantor" means any Subsidiary that has issued a Guarantee. "Hedging Obligations" of any Person means the obligations of such Person pursuant to any Interest Rate Agreement or Currency Agreement. "Holder," "holder" or "Noteholder" means the Person in whose name a Note is registered on the Registrar's books. "Incur" or "incur" means issue, assume, Guarantee, incur or otherwise become liable for; PROVIDED, HOWEVER, that any Indebtedness or Capital Stock of a Person existing at the time such person becomes a Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be incurred by such Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used as a noun shall have a correlative meaning. "Indebtedness" means, with respect to any Person on any date of determination (without duplication), (i) the principal of and premium (if any) in respect of indebtedness of such Person for borrowed money, (ii) the principal of and premium (if any) in respect of obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person in respect of letters of credit or other similar instruments (including reimbursement obligations with respect thereto), (iv) all obligations of such Person to pay the deferred and unpaid purchase price of property or services, which purchase price is due more than six months after the date of placing such property in service or taking delivery and title thereto or the completion of such services, (v) all Capitalized Lease Obligations of such Person and all Attributable Indebtedness of such Person, (vi) all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person, PROVIDED, HOWEVER, that the amount of Indebtedness of such Person shall be the lesser of (A) the fair market value of such asset at such date of determination and (B) the amount of such Indebtedness of such other Persons, (vii) all Indebtedness of other Persons to the extent Guaranteed by such Person, (viii) the amount of all obligations of such Person with respect to the redemption, repayment or other repurchase of any Disqualified Stock or, with respect to any Subsidiary of the Company, any Preferred Stock (but excluding, in each case, any accrued dividends) and (ix) to the extent not otherwise included 126 in this definition, Hedging Obligations of such Person; PROVIDED, HOWEVER, that in no event shall Indebtedness include Trade Payables not overdue or being contested in good faith. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date. "Indebtedness to Annualized Operating Cash Flow Ratio" means, as of any date of determination, the ratio of (i) the aggregate principal amount of all outstanding Indebtedness of the Company and its Restricted Subsidiaries as of such date plus, without duplication, the aggregate liquidation preference or redemption amount of all Disqualified Stock of the Company (excluding any such Disqualified Stock (x) held by the Company or a Wholly-Owned Restricted Subsidiary of the Company or (y) outstanding on the Issue Date), to (ii) Operating Cash Flow of the Company and its Restricted Subsidiaries for the most recently ended fiscal quarter for which financial statements are available prior to such date multiplied by four, determined on a pro forma basis (and after giving pro forma effect to (A) the incurrence of such Indebtedness and (if applicable) the application of the net proceeds therefrom, including to refinance other Indebtedness, as if such Indebtedness was incurred, and the application of such proceeds occurred, at the beginning of such period; (B) the incurrence, repayment or retirement of any other Indebtedness by the Company and its Restricted Subsidiaries since the first day of such period as if such Indebtedness was incurred, repaid or retired at the beginning of such period (except that, in making such computation, the amount of Indebtedness under any revolving credit facility shall be computed based upon the average balance of such Indebtedness at the end of each month during such period); (C) in the case of Acquired Indebtedness, the related acquisition as if such acquisition had occurred at the beginning of such period; and (D) any acquisition or disposition by the Company and its Restricted Subsidiaries (or by any Person that subsequently became a Restricted Subsidiary or was merged with or into the Company or any Restricted Subsidiary since the beginning of such period) of any company or any business or any assets out of the ordinary course of business, or any related repayment of Indebtedness, in each case since the first day of such period, assuming such acquisition or disposition had been consummated on the first day of such period). For purposes of this definition, whenever pro forma effect is to be given to a transaction, the pro forma calculation shall be made in good faith by a responsible financial or accounting officer of the Company. "Indemnification Agreement" means the Indemnification Agreement to be entered into among the Company, Galaxy Latin America, Hughes Communications GLA and affiliates thereof, California Broadcast Center, TVA Communications Ltd., Darlene Investments, Inversiones Divtel, D.T., C.A., Grupo Frecuencia Modulada Television and Grupo MVS. "Interest Rate Agreement" means with respect to any Person any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement as to which such Person is party or a beneficiary. "Investment" in any Person means any direct or indirect advance, loan (other than advances to customers in the ordinary course of business that are recorded as accounts receivable on the balance sheet of such Person) or other extension of credit (including by way of Guarantee or similar arrangement, but excluding any debt or extension of credit represented by a bank deposit other than a time deposit) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, Indebtedness or other similar instruments issued by such Person. "Issue Date" means the date on which the Notes are originally issued. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof). 127 "Minority Investment" means any Investment by the Company or any Restricted Subsidiary in an entity or Person in which the Company or such Restricted Subsidiary owns or controls 50.0% or less of the total voting power of the Capital Stock or other equity interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees of any such entity or Person. "Net Available Cash" from an Asset Disposition means cash payments received (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring Person of Indebtedness or other obligations relating to the properties or assets that are the subject of such Asset Disposition or received in any other noncash form) therefrom, in each case net of (i) all legal, title and recording tax expenses, commissions and other fees and expenses incurred, and all Federal, state, foreign and local taxes required to be paid or accrued as a liability under GAAP, as a consequence of such Asset Disposition, (ii) all payments made on any Indebtedness which is secured by any assets subject to such Asset Disposition, in accordance with the terms of any Lien upon such assets, or which must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law, be repaid out of the proceeds from such Asset Disposition, (iii) all distributions and other payments required to be made to any Person owning a beneficial interest in assets subject to sale or minority interest holders in Subsidiaries or joint ventures as a result of such Asset Disposition and (iv) the deduction of appropriate amounts to be provided by the seller as a reserve, in accordance with GAAP, against any liabilities associated with the assets disposed of in such Asset Disposition and retained by the Company or any Restricted Subsidiary of the Company after such Asset Disposition. "Net Cash Proceeds", with respect to any issuance or sale of Capital Stock, means the cash proceeds of such issuance or sale net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultant and other fees actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result of such issuance or sale. "Newly-Licensed Service Area" means a service area in which (i) such Special Restricted Subsidiary is licensed to provide any of Cable or MMDS service and (ii) neither the Company nor any Restricted Subsidiary is then licensed to provide such Cable or MMDS service in such service area on the Issue Date. "Officers' Certificate" means a certificate signed by two Officers. "Operating Cash Flow" means, for any period, the Consolidated Net Income (Loss) of the Company and its Restricted Subsidiaries for such period, plus, without duplication, (i) extraordinary net losses and net losses on sales of assets outside the ordinary course of business during such period, to the extent such losses were deducted in computing Consolidated Net Income (Loss), plus (ii) Consolidated Income Tax Expense, and any provision for taxes utilized in computing the net losses under clause (i) hereof, plus (iii) Consolidated Interest Expense (income), net, plus (iv) Other nonoperating (expenses) income, net (v) depreciation, amortization and all other non-cash charges, to the extent such depreciation, amortization and other non-cash charges were deducted in computing such Consolidated Net Income (Loss) (including amortization of goodwill and other intangibles) (other than non-cash charges which require an accrual or reserve for cash charges in future periods), less (vi) non-cash items increasing Consolidated Net Income (Loss) of such Person for such period (excluding any items which represent the reversal of any accrual of, or cash reserve for, anticipated cash charges in any prior period and excluding the amortization of deferred sign-on and hook-up fee revenue). "Opinion of Counsel" means a written opinion from legal counsel who is acceptable to the Trustee. The counsel may be an employee of or counsel to the Company or the Trustee. 128 "Permitted Business" means (i) the delivery or distribution of television, radio, paging or other telecommunications services in Latin America and Portugal and (ii) any business or activity reasonably related thereto, including, without limitation, any business conducted by the Company or any Restricted Subsidiary on the Issue Date, the acquisition, holding or exploitation of any license relating to the delivery of the services described in clause (i) of this definition, the development or acquisition of rights to programming for delivery or distribution in accordance with clause (i) of this definition and any other business involving voice, data or video telecommunications services. "Permitted Holders" means each of Abril S.A., Falcon International Communications LLC, Falcon International Communications L.P., Falcon International Communications (Bermuda) L.P., The Hearst Corporation, ABC, Inc. and Chase Manhattan International Finance Ltd. and any entity of which any of the foregoing, individually or collectively, beneficially owns more than 50.0% of the Voting Stock. "Permitted Investment" means (i) an Investment by the Company or any of its Restricted Subsidiaries in the Company or a Restricted Subsidiary of the Company or a Person which will, upon making such Investment, become a Restricted Subsidiary; PROVIDED, HOWEVER, that the primary business of such Restricted Subsidiary is a Permitted Business; (ii) any Investment in the California Broadcast Center by the Company or a Restricted Subsidiary in an amount not to exceed $10.0 million and, upon the repayment in full of such Investment by the California Broadcast Center to the Company, the Investment of such amount in Galaxy Latin America; and (iii) Temporary Cash Investments. "Permitted Liens" means, (i) Liens for taxes, assessments or other governmental charges not yet delinquent or which are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of the Company or such Subsidiary, as the case may be, in accordance with GAAP; (ii) carriers', warehousemen's, mechanics', landlords', materialmen's, repairmen's or other like Liens arising in the ordinary course of business in respect of obligations which are not yet due or which are bonded or which are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of the Company or such Restricted Subsidiary, as the case may be, in accordance with GAAP; (iii) pledges or deposits in connection with workmen's compensation, unemployment insurance and other social security legislation; (iv) deposits to secure the performance of bids, tenders, trade or government contracts (other than for borrowed money), leases, licenses, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (v) judgment or attachment Liens against the Company or any of its Restricted Subsidiaries not giving rise to an Event of Default; (vi) Liens arising by operation of law; (vii) Liens in favor of the Company or any Wholly-Owned Restricted Subsidiary of the Company; (viii) Liens securing Indebtedness Incurred by the Company in compliance with to clause (i) of paragraph (b) of the covenant described under "Certain Covenants--Limitation on Indebtedness"; (ix) Liens on property and assets (together with accounts receivable arising from such property and assets) of Galaxy Brasil acquired with the proceeds of Indebtedness Incurred by Galaxy Brasil in compliance with clause (viii) of paragraph (b) of the covenant described under "Certain Covenants--Limitation on Indebtedness" or with the proceeds of other Indebtedness Incurred in compliance with the Indenture, PROVIDED that such Liens may not secure Indebtedness exceeding an amount equal to the greater of (A) the amount permitted to be Incurred pursuant to such clause (viii) and (B) an amount equal to the Operating Cash Flow of Galaxy Brasil for the four most recent fiscal quarters for which financial statements are available prior to the date of Incurrence; (x) Liens on real or personal property of the Company or a Restricted Subsidiary of the Company acquired, constructed or constituting improvements made after the Issue Date to secure Purchase Money Indebtedness Incurred after the Issue Date in compliance with the Indenture; PROVIDED, that (A) such Liens do not extend to any assets other than the assets so acquired, (B) such Liens shall be created no later than 10 days after the acquisition of such assets and (C) the principal amount of such Indebtedness secured by such a Lien does not exceed 80% of such purchase price or cost of construction or improvement of the property subject to such Lien; (xi) Liens existing on the Issue Date; (xii) the 129 pledge by the Company (A) to the other members of Galaxy Latin America of warrants and promissory notes the Company holds in the California Broadcast Center and the Company's equity interest in Galaxy Latin America and SurFin to secure its obligations under the Equipment Agreements and the contribution agreements to be entered into in connection with the Equipment Agreements and the SurFin Guarantee, and the pledge of such warrants and promissory notes in the California Broadcast Center, and equity interest in Galaxy Latin America to secure the Company's tax indemnity obligations under the Indemnification Agreement and (B) to Falcon International of the shares of Capital Stock of the Company purchased with Put Promissory Notes; and (xiii) Liens to secure Indebtedness Incurred to extend, renew, refinance or refund (or successive extensions, renewals, refinancings or refundings), in whole or in part, Indebtedness secured by any Lien referred to in the foregoing clauses (vii), (viii), (ix), (x) and (xi) so long as such Lien does not extend to any other property and the principal amount of Indebtedness so secured is not increased except as otherwise permitted under the definition of Refinancing Indebtedness. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision hereof or any other entity. "Preferred Stock", as applied to the Capital Stock of any corporation, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such corporation, over shares of Capital Stock of any other class of such corporation. "principal" of a Note means the principal of the Note plus the premium, if any, payable on the note which is due or overdue or is to become due at the relevant time. "Purchase Money Indebtedness" means Indebtedness (i) consisting of the deferred purchase price of property, conditional sale obligations, obligations under any title retention agreement and other purchase money obligations, in each case where the maturity of such Indebtedness does not exceed the anticipated useful life of the asset being financed, and (ii) incurred to finance the acquisition by the Company or a Restricted Subsidiary of such asset, including additions or improvements. "Put Promissory Notes" means any promissory notes which may be issued by the Company to Falcon International pursuant to the Stockholders Agreement, as amended, in the event the Indenture prohibits the Company from purchasing shares of Capital Stock held by such stockholder; PROVIDED that (a) such notes have been expressly subordinated in right of payment in full to the Notes (including principal, interest and premium, if any, and as a consequence of any repurchase, redemption, or other repayment of the Notes, by way of optional redemption, Asset Sale Offer or Change of Control Offer to the extent any applicable rights to repayment are exercised by the Noteholders), (b) such notes are not Guaranteed by any of the Company's Subsidiaries and are not secured by any Lien on any property or asset of the Company or any Restricted Subsidiary (other than by the pledge of the shares of Capital Stock of the Company purchased with Put Promissory Notes), (c) such notes do not have a Stated Maturity of principal or any redemption or repurchase or other similar provision (upon a default or otherwise) earlier than a date at least one year after the final Stated Maturity of the Notes; and (d) such notes bear interest at a rate consistent with the terms of the Stockholders Agreement, as amended; PROVIDED, FURTHER, that payments of interest on such notes may be made solely to the extent Restricted Payments in like amount may then be made in accordance with the covenant described under "Certain Covenants--Limitation on Restricted Payments," with any such interest payment being included in the calculation of whether the conditions of clause (z) of paragraph (a) of such covenant have been met with respect to any subsequent Restricted Payments. "Refinancing Indebtedness" means Indebtedness that is Incurred to refund, refinance, replace, renew, repay or extend (including pursuant to any defeasance or discharge mechanism) (collectively, "refinances," and "refinanced" shall have a correlative meaning) any Indebtedness existing on the date 130 of the Indenture or Incurred in compliance with the Indenture (including Indebtedness of the Company that refinances Indebtedness of any Restricted Subsidiary and Indebtedness of any Restricted Subsidiary that refinances Indebtedness of another Restricted Subsidiary) including Indebtedness that refinances Refinancing Indebtedness, PROVIDED, HOWEVER, that (i) in respect of Indebtedness having a Stated Maturity after the Stated Maturity of the Notes, the Refinancing Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the Indebtedness being refinanced, (ii) in respect of Indebtedness having a Stated Maturity prior to the Stated Maturity of the Notes, the Refinancing Indebtedness bears an interest rate materially lower than that of the Indebtedness being refinanced, (iii) the Refinancing Indebtedness has an Average Life at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the Average Life of the Indebtedness being refinanced, (iv) such Refinancing Indebtedness is Incurred in an aggregate principal amount (or if issued with original issue discount, an aggregate issue price) that is equal to or less than the sum of the aggregate principal amount (or if issued with original issue discount, the aggregate accredited value) then outstanding of the Indebtedness being refinanced and (v) the Refinancing Indebtedness shall be subordinated or PARI PASSU (whichever is applicable) in right of payment to the Notes to the same extent as the Indebtedness being refinanced is subordinated or PARI PASSU in right of payment to the Notes; PROVIDED, FURTHER, that Refinancing Indebtedness shall not include Indebtedness of a Restricted Subsidiary which refinances Indebtedness of the Company or Indebtedness of the Company or a Restricted Subsidiary that refinances Indebtedness of an Unrestricted Subsidiary. Notwithstanding the foregoing, in the case of Indebtedness represented by obligations described in clause (iv) of the definition of "Indebtedness," the re-incurrence of such Indebtedness within 60 days after the repayment thereof shall be deemed to be Refinancing Indebtedness for purposes of this definition; PROVIDED, HOWEVER, that it otherwise complies with the terms of this definition and that the amount of such Indebtedness deemed to be Refinancing Indebtedness hereunder shall not exceed $50.0 million at any one time. "Representative" means any trustee, agent or representative (if any) of an issue of Senior Indebtedness. "Restricted Subsidiary" means any Subsidiary of the Company that is not an Unrestricted Subsidiary. "Sale/Leaseback Transaction" means an arrangement relating to property now owned or hereafter acquired whereby the Person owning such property transfers such property to another Person and leases it back from such Person. "SEC" or "Commission" means the Securities and Exchange Commission. "Senior Credit Facility" means any senior credit facility (whether a term or a revolving facility) as such credit facility may be amended, modified, supplemented, restated or replaced from time to time. 131 "Significant Equity Offering" means either (i) a public offering of Common Stock of the Company either (A) registered under the Securities Act and/or (B) registered with the CVM and listed on the Sao Paulo Stock Exchange or Rio de Janeiro Stock Exchange or (ii) an offering on behalf of the Company pursuant to Rule 144A under the Securities Act of Common Stock of the Company to 100 or more beneficial holders if such Common Stock is thereafter included for trading privileges in the PORTAL trading system of Nasdaq. "Special Restricted Subsidiary" means any Restricted Subsidiary of the Company that has been designated by the Board of Directors, by a Board Resolution delivered to the Trustee, as a Special Restricted Subsidiary and as to which there has not been an effective revocation, in each case in accordance with the covenant under "Certain Covenants--Limitation on Designations of Special Restricted Subsidiaries." "Stated Maturity" means, with respect to any security, the date specified in such security as the fixed date on which the payment of principal of such security is due and payable. "Strategic Investor" means any Person engaged in a Permitted Business that as of the date of determination has a Total Equity Market Capitalization of at least $1.0 billion. "Subordinated Obligation" means any Indebtedness of the Company (whether outstanding on the Issue Date or thereafter Incurred) which is subordinate or junior in right of payment to the Notes pursuant to a written agreement. "Subordinated Shareholder Loans" means Indebtedness of the Company for money borrowed from a shareholder beneficially owning at least 5.0% of the issued and outstanding shares of common stock of the Company (or any Affiliate of such shareholder), PROVIDED that (A) such Indebtedness (and any refinancing thereof) has been expressly subordinated in right of payment to the prior payment in full of all Indebtedness (including principal, interest and premium, if any, under the Notes and the Indenture) of the Company (including as a consequence of any repurchase, redemption or other repayment of the Notes, by way of optional redemption, Asset Sale Offer, or Change of Control Offer to the extent any applicable rights to repayment are exercised by the Noteholders), (B) such Indebtedness (and any refinancing thereof) is not Guaranteed by any of the Company's Subsidiaries and is not secured by any Lien on any property or asset of the Company or any Restricted Subsidiary, (C) such Indebtedness (and any refinancing thereof) does not have a Stated Maturity of principal or any redemption or repurchase or other similar provision (upon a default or otherwise) earlier than a date at least one year after the final Stated Maturity of the Notes and (D) such Indebtedness bears interest at a rate consistent with prevailing market practice for subordinated loans; PROVIDED FURTHER that payments of interest on such Indebtedness (and any refinancing thereof) may be made solely to the extent Restricted Payments in like amount may then be made in accordance with the covenant described under "Certain Covenants--Limitation on Restricted Payments," with any such interest payment being included in the calculation of whether the conditions of clause (z) of paragraph (a) of such covenant have been met with respect to any subsequent Restricted Payments. "Subsidiary" of any Person means any corporation, association, partnership, joint venture or other business entity (i) of which more than 50.0% of the total voting power of shares of Capital Stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by (A) such Person, (B) such Person and one or more Subsidiaries of such Person or (C) one or more Subsidiaries of such Person and (ii) which is controlled by such Person. Unless otherwise specified herein, each reference to a Subsidiary shall refer to a Subsidiary of the Company. "Subsidiary Guarantee" means, individually, any Guarantee of payment of the Notes which may from time to time be executed and delivered by a Subsidiary or affiliate of the Company pursuant to the 132 terms of the Indenture, and, collectively, all such Guarantees. Each such Subsidiary Guarantee will be in the form prescribed in the Indenture. "SurFin Guarantee" means the Guarantee, dated as of September 18, 1996, by the Company in favor of Citicorp USA, Inc. as such guarantee may be amended, modified, supplemented or restated from time to time. "Temporary Cash Investments" means any of the following: (i) any Investment in direct obligations of the United States of America or any agency thereof or obligations Guaranteed by the United States of America or any agency thereof, (ii) Investments in time deposit accounts, certificates of deposit and money market deposits maturing within 180 days of the date of acquisition thereof issued by a bank or trust company which is organized under the laws of the United States of America, any state thereof or any foreign country recognized by the United States of America having capital, surplus and undivided profits aggregating in excess of $250 million (or the foreign currency equivalent thereof) and whose long-term debt, or whose parent holding company's long-term debt, is rated "A" (or such similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act), (iii) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (i) above entered into with a bank meeting the qualifications described in clause (ii) above, (iv) Investments in commercial paper, maturing not more than 180 days after the date of acquisition, issued by a corporation (other than an Affiliate of the Company) organized and in existence under the laws of the United States of America or any foreign country recognized by the United States of America with a rating at the time as of which any investment therein is made of "P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1" (or higher) according to Standard and Poor's Ratings Group. "Total Equity Market Capitalization" of any Person means, as of any date of determination, the product of (i) the aggregate number of outstanding shares of Common Stock of such Person on such date (which shall not include any options or warrants on, or securities convertible or exchangeable into, shares of Common Stock of such Person) and (ii) the average closing price of such Common Stock over the 20 consecutive trading days immediately preceding such date. If no such closing price exists with respect to shares of any such class, the value of such shares shall be determined by the Board of Directors in good faith and evidenced by a resolution of the Board of Directors filed with the Trustee. "Trade Payables" means, with respect to any Person, any accounts payable or any indebtedness or monetary obligation to trade creditors created, assumed or Guaranteed by such Person (including letters of credit issued in respect thereof) arising in the ordinary course of business in connection with the acquisition of either (x) current assets as characterized in accordance with GAAP or (y) services which are currently expensed in accordance with GAAP. "Unrestricted Subsidiary" means (i) any Subsidiary of the Company (other than a Guarantor) designated as such pursuant to and in compliance with the covenant described under "Certain Covenants--Limitation on Designations of Unrestricted Subsidiaries" and (ii) any Subsidiary of an Unrestricted Subsidiary. "US Dollar Equivalent" means, with respect to any monetary amount in a currency other than the US dollar at any one time for the determination thereof, the amount of US dollars obtained by converting such foreign currency involved in such computation into US dollars at the spot rate for the purchase of US dollars with the applicable foreign currency as quoted by Reuters at approximately 11:00 a.m. (New York time) on the date not more than two business days prior to such determination. For purposes of determining whether any Indebtedness can be incurred (including Permitted Indebtedness), any Investment can be made and any Affiliate Transaction can be undertaken (a "Tested Transaction"), the "US Dollar Equivalent" of such Indebtedness, Investment or Affiliate Transaction shall be determined on the date incurred, made or undertaken and no subsequent change in the US Dollar Equivalent shall cause such Tested Transaction to have been incurred, made or undertaken in violation of the Indenture. 133 "US Government Obligations" means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable or redeemable at the issuer's option. "Voting Stock" of a corporation means all classes of Capital Stock of such corporation then outstanding and normally entitled to vote in the election of directors. "Wholly-Owned Subsidiary" means a Subsidiary of the Company, at least 95.0% of the Capital Stock of which (other than directors' qualifying shares) is owned by the Company or another Wholly-Owned Subsidiary of the Company. BOOK-ENTRY; DELIVERY AND FORM Except as set forth below, the Exchange Notes will be issued in the form of one or more registered notes in global form without coupons (each a "Global Note"). Upon issuance, each Global Note will be deposited with, or on behalf of, The Depository Trust Company ("DTC") and registered in the name of Cede & Co., as nominee of DTC. Old Notes originally purchased by or transferred to (i) institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) who are not "qualified institutional buyers" (as defined in Rule 144A under the Securities Act and referred to as "QIBs"), (ii) QIBs who elected to take physical delivery of their certificates instead of holding their interest in Global Notes, or (iii) any other holders who are not QIBs, which Old Notes were issued in registered form without coupons (the "Old Certificated Notes") are exchangeable for Exchange Notes in registered form without coupons (the "Exchange Certificated Notes"). Interests in the Global Notes will be exchangeable or transferable, as the case may be, for Exchange Certificated Notes if (i) DTC notifies Tevecap that it is unwilling or unable to continue as depositary for such Global Notes, or DTC ceases to be a "Clearing Agency" registered under the Exchange Act, and a successor depositary is not appointed by Tevecap within 90 days, or (ii) an Event of Default has occurred and is continuing with respect to such Notes. Upon the occurrence of any of the events described in the preceding sentence, Tevecap will cause the appropriate Exchange Certificated Notes to be delivered. The Depository has advised the Company that it is (i) a limited purpose trust company organized under the laws of the State of New York, (ii) a member of the Federal Reserve System, (iii) a "clearing corporation" within the meaning of the Uniform Commercial Code, as amended, and (iv) a "Clearing Agency" registered pursuant to Section 17A of the Exchange Act. The Depository was created to hold securities for its participants (collectively, the "Participants") and facilitates the clearance and settlement of securities transactions between Participants through electronic book entry changes to the accounts of its Participants, thereby eliminating the need for physical transfer and delivery of certificates. The Depository's Participants include securities brokers and dealers (including the Initial Purchasers), banks and trust companies, clearing corporations and certain other organizations. Access to the Depository's system is also available to other entities such as banks, brokers, dealers and trust companies (collectively, the "Indirect Participants") that clear through or maintain a custodial relationship with a Participant, either directly or indirectly. QIBs who are not Participants may beneficially own securities held by or on behalf of the Depository only through Participants or Indirect Participants. The Company expects that pursuant to procedures established by the Depository (i) upon deposit of the Global Notes, the Depository or its custodian will credit the accounts of Participants designated by the Initial Purchasers with an interest in a Global Note and (ii) ownership of the Notes will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by the Depository (with respect to the interest of Participants), the Participants and the Indirect Participants. The laws of some states require that certain persons take physical delivery in definitive form of securities that they 134 own and that security interests in negotiable instruments can only be perfected by delivery of certificates representing the instruments. Consequently, the ability to transfer Notes or to pledge the Notes as collateral will be limited to such extent. So long as the Depository or its nominee is the registered owner of a Global Note, the Depository or such nominee, as the case may be, will be considered the sole owner or Holder of the Notes represented by such Global Note for all purposes under the Indenture. Except as provided below, owners of beneficial interests in a Global Note will not be entitled to have Notes represented by such Global Note registered in their names, will not receive or be entitled to receive physical delivery of Certificated Securities, and will not be considered the owners or holders thereof under the Indenture for any purpose, including with respect to giving of any directions, instruction or approval to the Trustee thereunder. As a result, the ability of a person having a beneficial interest in Notes represented by a Global Note to pledge such interest to persons or entities that do not participate in the Depository's system or to otherwise take action with respect to such interest, may be affected by the lack of a physical certificate evidencing such interest. Accordingly, each person owning a beneficial interest in a Global Note must rely on the procedures of the Depository and, if such beneficial owner is not a Participant or an Indirect Participant, on the procedures of the Participant through which such person owns its interest, to exercise any rights of a Holder under the Indenture or such Global Note. The Company understands that under existing industry practice, in the event the Company requests any action of holders or a person that is an owner of a beneficial interest in a Global Note desires to take any action that the Depository, as the Holder of such Global Note, is entitled to take, the Depository would authorize the Participants to take such action and the Participant would authorize beneficial owners owning through such Participants to take such action or would otherwise act upon the instruction of such beneficial owners. Neither the Company nor the Trustee will have any responsibility or liability for any aspect of the records relating to or payments made on account of Notes by the Depository, or for maintaining, supervising or reviewing any records of the Depository relating to such Notes. Payments with respect to the principal of, premium, if any, and interest on any Notes represented by a Global Note registered in the name of the Depository or its nominee on the applicable record date will be payable by the Trustee to or at the direction of the Depository or its nominee in its capacity as the registered Holder of such Global Note representing such Notes under the Indenture. Under the terms of the Indenture, the Company and the Trustee may treat the persons in whose names the Notes, including the Global Notes, are registered as the owners thereof for the purpose of receiving such payment and for any and all other purposes whatsoever. Consequently, neither the Company nor the Trustee has or will have any responsibility or liability for the payment of such amounts to beneficial owners of Notes (including principal, premium, if any, and interest), or to immediately credit the accounts of the relevant Participants with such payment, in amounts proportionate to their respective holdings in principal amount of beneficial interest in a Global Note as shown on the records of the Depository. Payments by the Participants and the Indirect Participants to the beneficial owners of Notes will be governed by standing instructions and customary practice and will be the responsibility of the Participants or the Indirect Participants. CERTIFICATED SECURITIES If (i) the Company notifies the Trustee in writing that the Depository is no longer willing or able to act as a depository and the Company is unable to locate a qualified successor within 90 days, (ii) the Company, at its option, notifies the Trustee in writing that it elects to cause the issuance of Notes in definitive form under the Indenture, or (iii) upon the occurrence of certain other events, then, upon surrender by the Depository of its Global Notes, Certificated Securities will be issued to each person that the Depository identifies as the beneficial owner of the Notes represented by the Global Note. In addition, subject to certain conditions, any person having a beneficial interest in a Global Note may, 135 upon request to the Trustee, exchange such beneficial interest for Certificated Securities. Upon any such issuance, the Trustee is required to register such Certificated Securities in the name of such person or persons (or the nominee of any thereof), and cause the same to be delivered thereto. Neither the Company nor the Trustee shall be liable for any delay by the Depository or any Participant or Indirect Participant in identifying the beneficial owners of the related Notes and each such person may conclusively rely on, and shall be protected in relying on, instructions from the Depository for all purposes (including with respect to the registration and delivery, and the respective principal amounts, of the Notes to be issued). SAME-DAY SETTLEMENT AND PAYMENT Settlement for the Notes will be made in immediately available funds. So long as the Notes are represented by a permanent Global Note or Notes, all payments of principal, premium, if any, and interest will be made by the Company in immediately available funds. Secondary trading in long-term notes and debentures of corporate issuers is generally settled in clearing-house or next-day funds. So long as the Notes are represented by a permanent Global Note or Notes registered in the name of the Depositary or its nominee, except for trades between Euroclear and Cedel participants, interests in the Notes are expected to trade in the Depositary's Same-Day Funds Settlement System, and secondary market trading activity in the Notes will therefore be required by the Depositary to settle in immediately available funds. No assurance can be given as to the effect, if any, of settlement in immediately available funds on the trading activity in the Notes. 136 INCOME TAX CONSIDERATIONS BRAZIL The following is a summary of the material Brazilian income tax consequences to Tevecap in connection with the sale and repayment of the Notes (including any interest thereon) and to beneficial owners of the Notes that are non-residents of Brazil in connection with the purchase, ownership and disposition of such Notes. This summary is limited to Tevecap and to non-residents of Brazil which acquire the Notes at the issue price from the Initial Purchasers, and does not address investors who purchase Notes at a premium or market discount. In addition, this summary is based on the Brazilian tax regulations as presently in effect and does not take into account possible future changes in such tax laws. Prospective purchasers of the Notes are advised to consult their tax advisers as to the consequences of a purchase and sale of the Notes. Individuals domiciled in Brazil and Brazilian companies are taxed in Brazil on the basis of their worldwide income (which includes earnings of Brazilian companies' foreign subsidiaries, branches and affiliates). The earnings of branches of foreign companies and non- Brazilian residents in general are taxed in Brazil only when derived from Brazilian sources. Interest, fees, commissions and any other income (which for the purposes of this paragraph includes any deemed income on the difference between the issue price of the Notes and the price at which the Notes are redeemed) payable by a Brazilian obligor to an individual, company, entity, trust or organization domiciled outside Brazil is considered derived from Brazilian sources and is therefore subject to income tax withheld at the source. Brazilian tax laws expressly authorize the paying source to pay the income or earnings net of taxes and, therefore, to assume the cost of the applicable tax. The rate of withholding is 15.0% or such other lower rate as is provided for in an applicable tax treaty between Brazil and such other country where the recipient of the payment has its domicile. Notwithstanding the foregoing, the applicable withholding tax rate for negotiable instruments such as the Notes was reduced to zero, pursuant to Resolutions 1853 of July 31, 1991 and 644 of October 22, 1980 of the Central Bank, subject to Central Bank Circular 2661 of February 8, 1996, which restricts such withholding tax reductions to negotiable instruments having a minimum maturity of 96 months. As a result, since the Notes have an original maturity of 96 months, such reduction will apply to payments of interest and other income with respect to the Notes. If, however, any Note is redeemed prior to November 26, 2004, such reduction will not apply and, therefore, upon such redemption the Brazilian withholding tax will be imposed on the amount of interest, fees and commissions paid on such Notes from the date of issue through the date of redemption. Based on the advice of its Brazilian tax counsel, Tevecap believes and intends to take the position for tax reporting purposes that, in the event of any such early redemption to which such withholding tax applies, so long as the Principal Paying Agent is located in Japan and payment to the Principal Paying Agent discharges the obligations of Tevecap to make payments in respect of the Notes, interest and other income with respect to the Notes will be subject to Brazilian withholding tax at a rate of 12.5% under the tax treaty in effect between Brazil and Japan. In any event, under the terms of the Notes, Tevecap would be required to gross up Noteholders for any Brazilian withholding tax, subject to customary exceptions. See "Description of the Notes--Additional Amounts." Tevecap has the right to redeem the Notes at par in the event that it is required to gross up for Brazilian withholding tax imposed at a rate in excess of 15.0%. See "Description of the Notes--Redemption for Changes in Withholding Taxes." Any earnings or capital gains resulting from the sale (whether inside or outside Brazil) of any Notes by a non-resident of Brazil to another non-resident of Brazil are not subject to tax in Brazil. Earnings or capital gains resulting from the sale (whether inside or outside Brazil) of any Notes by a non-resident of Brazil to a resident of Brazil should not be subject to tax in Brazil, although the matter is not free from doubt. On February 8, 1996, the Brazilian Federal Government issued Decree No. 1815, implemented by Portaria No. 28 (as amended from time to time), which imposed a tax on Brazilian issuers with respect to 137 foreign exchange transactions ("IOF Tax") related to the entering into Brazil of proceeds resulting from foreign loans (including the issuance of securities such as the Notes). The IOF Tax has varying rates depending on the final maturity of the transaction as follows: (i) foreign loans with a minimum average maturity of less than 3 years are subject to a 3.0% IOF Tax; (ii) foreign loans with a minimum average maturity of 3 years or more but less than 4 years are subject to a 2.0% IOF Tax; (iii) foreign loans with a minimum average maturity of 4 years or more but less than 5 years are subject to a 1.0% IOF Tax; and (iv) foreign loans with a minimum average maturity of 5 years or more are not subject to IOF Tax. Only Brazilian issuers, and not holders of foreign loans such as the Notes are liable for payment of IOF Tax. There is no stamp, transfer or other similar tax in Brazil with respect to the transfer, assignment or sale or any debt instrument--outside Brazil (including the Notes). UNITED STATES The following is a summary of the material United States Federal income tax consequences to beneficial owners of the Notes that are citizens or residents of the United States, corporations, partnerships or other entities created or organized in or under the laws of the United States or any State thereof, or estates or trusts the income of which is subject to United States Federal income taxation regardless of its source, as well as other persons subject to United States Federal income taxation on a net income basis in respect of the purchase, ownership and disposition of a Note ("US Holders"). Such tax treatment may vary depending upon the particular situation of a US Holder. This summary does not discuss all of the tax consequences that may be relevant to certain types of investors subject to special treatment under the United States Federal income tax laws (such as individual retirement accounts and other tax deferred accounts, banks, securities broker- dealers, life insurance companies, tax-exempt organizations, foreign persons, persons whose "functional currency" is other than the US dollar or persons which hold Notes as part of a "straddle" or "conversion transaction" or otherwise as part of a "synthetic asset") and is limited to investors which hold Notes as capital assets. In addition, this summary is limited to US Holders which acquire the Notes at their issue price from the Initial Purchasers and does not address investors who purchase Notes at a premium or market discount. This summary is based on the Internal Revenue Code of 1986, as amended (the "Code"), final, temporary and proposed Treasury regulations thereunder (the "Regulations"), revenue rulings, court cases, and other legal authorities as now in effect (or proposed) and as currently interpreted, and does not take into account possible changes in such tax laws or other legal authorities or such interpretations. No rulings on any of the issues discussed below will be sought from the United States Internal Revenue Service (the "IRS"). PROSPECTIVE PURCHASERS OF THE NOTES ARE ADVISED TO CONSULT THEIR TAX ADVISERS AS TO THE CONSEQUENCES OF A PURCHASE AND SALE OF NOTES, INCLUDING, WITHOUT LIMITATION, (I) THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR NON-US TAX LAWS TO WHICH THEY MAY BE SUBJECT, AND OF ANY POSSIBLE LEGISLATIVE OR ADMINISTRATIVE CHANGES IN LAW, (II) THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE POSSIBLE DEDUCTION BY THE ISSUER OF BRAZILIAN TAXES (AND OF THE PAYMENT BY THE ISSUER OF ADDITIONAL AMOUNTS WITH RESPECT THERETO) FROM PAYMENTS ON THE NOTES, (III) THE AVAILABILITY FOR UNITED STATES FEDERAL INCOME TAX PURPOSES OF A CREDIT OR DEDUCTION FOR ANY BRAZILIAN TAXES SO DEDUCTED AND (IV) THE CONSEQUENCES OF PURCHASING THE NOTES AT A PRICE OTHER THAN THEIR ISSUE PRICE. INTEREST ON THE NOTES Interest on the Notes will be taxable to a US Holder as ordinary income at the time it accrues or is received in accordance with the US Holder's method of accounting for tax purposes. The amount includible in the income of a US Holder will be the gross amount of interest, including any Additional Amounts, if any, payable to holders of Notes (i.e., the amount before deduction of any Brazilian withholding taxes). 138 DISPOSITION OF A NOTE Generally, any sale, redemption or other taxable disposition of a Note by a US Holder will result in taxable gain or loss equal to the difference between (1) the sum of the amount of cash and the fair market value of other property received with respect to such taxable sale, redemption or other distribution (other than consideration attributable to accrued interest not previously taken into account, which consideration would be treated as interest received) and (2) the US Holder's tax basis in the Note. Any gain or loss upon a sale or other disposition of a Note will be capital gain or loss (which will be long-term if the Note is held for more than one year). EXCHANGE OFFER The exchange of Old Notes for Exchange Notes pursuant to the Exchange Offer will not be considered a recognition event for United States Federal income tax purposes and accordingly a US Holder will not recognize taxable gain or loss as a result thereof. For the purposes of determining the amount and character of gain or loss upon the subsequent sale or exchange of Exchange Notes, a US Holder would have the same tax basis and holding period in an Exchange Note as such US Holder's tax basis and holding period in the Note exchanged therefor. EFFECT OF BRAZILIAN WITHHOLDING TAXES It is believed that payments with respect to a Note will not be subject to Brazilian withholding tax unless the Note is redeemed prior to November 26, 2004. See "--Brazil." In the case of any Note which is so redeemed, withholding taxes in respect of interest previously paid may be imposed by Brazil at the time of redemption. Any Brazilian tax withheld generally will be treated as a foreign income tax that US Holders may elect to deduct in computing their taxable income or, subject to the limitations on foreign tax credits generally, to credit against their United States Federal income tax liability. No such deduction or credit will be available to the extent Brazil pays a subsidy to a US Holder, a related person or Tevecap, the amount of which is determined (directly or indirectly) by reference to the amount of the withholding tax. While Brazil does not have a program or policy of paying such subsidies at present, it has had programs of that nature in the past and could implement such programs again in the future. For purposes of determining a US Holder's United States foreign tax credit, the gain or loss on the sale, redemption or other taxable disposition of a Note will generally constitute United States source income. Interest (including any Additional Amounts payable by Tevecap) will generally constitute foreign source passive income or financial services income for United States foreign tax credit purposes. However, if a Note is redeemed prior to November 26, 2004, and payments with respect to the Note are subject to Brazilian withholding tax imposed at a rate of 5.0% or more, the IRS might retroactively treat interest paid with respect to the Note as high withholding tax interest. In any event, because the amount of foreign taxes for which the foreign tax credit may be taken for the taxable year is generally limited to an amount equal to the US Holder's United States Federal income tax rate multiplied by its foreign source income for the taxable year, a US Holder may have insufficient foreign source income to utilize fully any foreign tax credit attributable to such Brazilian withholding taxes (but such US Holder may be entitled to utilize the foreign tax credit attributable to such withholding taxes for the holders' previous two or succeeding five taxable years, or such withholding taxes may instead be deductible by the US Holder). A US Holder may be required to provide the IRS with a certified copy of the receipt evidencing payment of withholding tax imposed in respect of payments on the Notes (a "Certified Copy") in order to claim a foreign tax credit in respect of such withholding tax. A US Holder (or its agent) may obtain a Certified Copy by providing written demand therefor to the Principal Paying Agent. The Principal Paying Agent will contact Tevecap, which will provide such Certified Copy to the Principal Paying Agent for prompt forwarding to the relevant US Holder. Tevecap will attach to each Certified Copy a certificate stating (x) that the amount of withholding tax evidenced by the Certified Copy was paid in connection with payments in respect of 139 the principal amount of Notes then outstanding and (y) the amount of such withholding tax paid per US$1,000 of principal amount of the Notes. INFORMATION REPORTING AND BACKUP WITHHOLDING For each calendar year in which the Notes are outstanding, each DTC participant or indirect participant holding an interest in a Note on behalf of a US Holder and each paying agent making payments in respect of a Note will generally be required to provide the IRS with certain information, including such US Holder's name, address and taxpayer identification number (either such US Holder's Social Security number or its employer identification number, as the case may be), and the aggregate amount of interest and principal paid to such US Holder during the calendar year. These reporting requirements, however, do not apply with respect to certain US Holders, including corporations, securities dealers, other financial institutions, tax-exempt organizations, qualified pension and profit sharing trusts, individual retirement accounts. In the event that a US Holder fails to establish its exemption from such information reporting requirements or is subject to the reporting requirements described above and fails to supply its correct taxpayer identification number in the manner required by applicable law, or underreports its tax liability, the direct or indirect DTC participant holding such interest on behalf of such US Holder or paying agent making payments in respect of a Note may be required to "backup" withhold a tax equal to 31.0% of each payment of interest and principal with respect to the Notes. This backup withholding tax is not an additional tax and may be credited against the US Holder's United States Federal income tax liability if the required information is furnished to the IRS. 140 PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Securities for its own account pursuant to the Registered Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resales of such Exchange Securities. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Securities received in exchange for Securities where such Securities were acquired as a result of market-making activities or other trading activities. Each of the Company and the Subsidiary Guarantors has agreed that, for a period of 90 days after the Expiration Date, it will make this Prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until , 1997, all dealers effecting transactions in the Exchange Securities may be required to deliver a prospectus. The Company will not receive any proceeds from any sale of Exchange Securities by broker-dealers. Exchange Securities received by broker-dealers for their own account pursuant to the Registered Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Securities or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or at negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such Exchange Securities. Any broker-dealer that resells Exchange Securities that were received by it for its own account pursuant to the Registered Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Securities may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Securities and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 90 days after the Expiration Date the Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Company and the Subsidiary Guarantors have jointly and severally agreed to pay all expenses incident to the Registered Exchange Offer (including the expenses of one counsel for the Holders of the Securities) other than commissions or concessions of any broker-dealers and will indemnify the Holders of the Securities (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. EXPERTS The consolidated balance sheets of Tevecap S.A. and subsidiaries as of December 31, 1995 and 1994 and the related statements of income, changes in shareholders' equity and cash flows for the two years in the period ended December 31, 1995 and the combined statements of income, shareholders' equity and cash flows of the Tevecap S.A. and subsidiaries for the year ended December 31, 1993 have been included herein in reliance on the report of Coopers & Lybrand, independent public accountants, given on the authority of that firm as experts in auditing and accounting. The balance sheets of TVA Sistema De Televisao S.A. as of December 31, 1995 and 1994 and the related statements of income, changes in shareholders' equity and cash flows for the three years in the period ended December 31, 1995 have been included herein in reliance on the report of Coopers & Lybrand, independent public accountants, given on the authority of that firm as experts in auditing and accounting. The combined balance sheets of TVA Sul Participacoes S.A. and subsidiaries as of December 31, 1995 and 1994 and the related statements of income, changes in shareholders' equity and cash flows for 141 the three years in the period ended December 31, 1995 have been included herein in reliance on the report of Coopers & Lybrand, independent public accountants, given on the authority of that firm as experts in auditing and accounting. The Statements of Revenues and Direct Operating Expenses of TVA Alfa Cabo Ltda., TCC TV a Cabo Ltda., CCS Camboriu Cable System de Telecommunicacoes Ltda., TVA Sul Foz do Iguacu Ltda., and TVA Sul Santa Catarina Ltda. for the three years in the period ended December 31, 1995 have been included herein in reliance on the reports of Coopers & Lybrand, independent public accountants, given on the authority of that firm as experts in auditing and accounting. With respect to the unaudited interim financial information of Tevecap S.A. and subsidiaries for the nine-months ended September 30, 1995 and 1996, Coopers & Lybrand reported that they have applied limited procedures in accordance with professional standards for a review of such information. However, their report dated November 21, 1996, states that they did not audit and they do not express opinions on the aforementioned unaudited interim financial information. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied. Coopers & Lybrand are not subject to the liability provisions of Section 11 of the Securities Act of 1933 (the "Act") for their report on the aforementioned unaudited interim condensed financial statements because this report is not a "report" or a "part" of the registration statement prepared or certified by Coopers & Lybrand within the meaning of Sections 7 and 11 of the Act. LEGAL MATTERS Certain legal matters with respect to the legality of the issuance of the Exchange Notes being offered hereby will be passed upon for the Company by Basch & Rameh--Advogados e Consultores, Sao Paulo, with respect to matters of Brazilian law, and by Mayer, Brown & Platt, New York, with respect to matters of United States federal law and New York law. The matters referred to under "Income Tax Considerations--United States" will be passed upon for the Company by Mayer, Brown & Platt, New York. AVAILABLE INFORMATION Tevecap and the Guarantors have filed with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form F-4 under the Securities Act of 1933 (the "Securities Act"), with respect to the Exchange Securities offered hereby (the "Exchange Offer Registration Statement"). This Prospectus, which constitutes a part of the Exchange Offer Registration Statement, does not contain all the information set forth in the Exchange Offer Registration Statement, certain parts of which have been omitted from the Prospectus in accordance with the rules and regulations of the Commission. For further information with respect to Tevecap, the Guarantors and the Exchange Securities offered hereby, reference is made to the Exchange Offer Registration Statement, including the exhibits and schedules filed therewith, and the financial statements and notes filed as a part thereof. Statements made in the Prospectus concerning the contents of any document referred to herein are not necessarily complete. With respect to each such document filed with the Commission as an exhibit to the Exchange Offer Registration Statement, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirely by such reference. Tevecap is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith is required to file reports with the Commission. All reports and other information filed by Tevecap, and the Exchange Offer Registration Statement, including the exhibits and schedules thereto, may be inspected and copied at the Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the Commission located at Seven World Trade Center, New York, New York 10048, and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, 142 Illinois 60661. Copies of such materials may be obtained from the Public Reference Section of the Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and its public reference facilities in New York, New York, and Chicago, Illinois, at the prescribed rates. As a result of the filing of the Exchange Offer Registration Statement with the Commission, the Guarantors will become subject to the informational requirements of the Exchange Act, and in accordance therewith will be required to file reports and other information with the Commission. The Indenture provides that, whether or not Tevecap has a class of securities registered under the Exchange Act, Tevecap shall furnish without cost to each holder of Notes and file with the Commission (whether or not Tevecap is a public reporting company at the time), the Trustee and the Initial Purchasers: (i) within 140 days after the end of each fiscal year of Tevecap, annual reports on Form 20-F (or any successor form) containing the information required to be contained therein (or required in such successor form); (ii) within 60 days after the end of each of the first three fiscal quarters of each fiscal year, reports on Form 6-K (or any successor form); and (iii) promptly from time to time after the occurrence of any event required to be therein reported, such other reports on Form 6-K (or any successor form) containing substantially the same information required to be contained in Form 8-K (or required in any successor form). Each of the reports will be prepared in accordance with US GAAP consistently applied and will be prepared in accordance with the applicable rules and regulations of the Commission. As foreign private issuers, Tevecap and the Guarantors are exempt from certain provisions of the Exchange Act prescribing the furnishing and content of proxy statements. PUBLIC DOCUMENTS The information presented in the section entitled "Annex A--The Federative Republic of Brazil" is based upon material obtained from the Central Bank of Brazil, the Sao Paulo and Rio de Janeiro Stock Exchanges, the IBGE and from other publicly available information referred to therein. The information is believed to be accurate but has not been independently verified by Tevecap or any of its advisors in connection with the Offering. 143 TEVECAP S.A. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS CONTENTS Report of Independent Accountants.................................................... F- 3 Balance Sheets at September 30, 1996 (unaudited) and December 31, 1995 and 1994...... F- 4 Statements of Operations for the nine months ended September 30, 1996 (unaudited), and September 30, 1995 (unaudited) and each of the three years ended December 31, 1995............................................................................... F- 6 Statements of Changes in Shareholders' Equity and Statement of Redeemable Common Stock for the nine months ended September 30, 1996 (unaudited), and September 30, 1995 (unaudited) and each of the three years ended December 31, 1995............... F- 7 Statements of Cash Flows for the nine months ended September 30, 1996 (unaudited) and September 30, 1995 (unaudited) and each of the three years ended December 31, 1995............................................................................... F- 8 Notes to these Financial Statements.................................................. F-10
TVA SISTEMA DE TELEVISAO S.A. CONTENTS Report of Independent Accountants.................................................... F-42 Balance Sheets at September 30, 1996 (unaudited) and December 31, 1995 and 1994...... F-43 Statements of Operations for the nine months ended September 30, 1996 (unaudited) and September 30, 1995 (unaudited) and each of the three years ended December 31, 1995............................................................................... F-45 Statements of Changes in Shareholders' Equity for the nine months ended September 30, 1996 (unaudited) and September 30, 1995 (unaudited) and each of the three years ended December 31, 1995............................................................ F-46 Statements of Cash Flows for the nine months ended September 30, 1996 (unaudited) and September 30, 1995 (unaudited) and each of the three years ended December 31, 1995............................................................................... F-47 Notes to these Financial Statements.................................................. F-48
TVA SUL PARTICIPACOES S.A. AND SUBSIDIARIES CONTENTS Report of Independent Accountants.................................................... F-60 Balance Sheets at September 30, 1996 (unaudited) and December 31, 1995 and 1994...... F-61 Statements of Operations for the nine months ended September 30, 1996 (unaudited) and September 30, 1995 (unaudited) and each of the three years in the period ended December 31, 1995.................................................................. F-63 Statements of Changes in Shareholders' Equity for the nine months ended September 30, 1996 (unaudited) and September 30, 1995 (unaudited) and each of the three years in the period ended December 31, 1995................................................. F-64 Statements of Cash Flows for the nine months ended September 30, 1996 (unaudited) and September 30, 1995 (unaudited) and each of the three years in the period ended December 31, 1995.................................................................. F-65 Notes to these Financial Statements.................................................. F-67
TV ALFA CABO LTDA. CONTENTS Report of Independent Accountants.................................................... F-76 Statements of Revenues and Direct Operating Expenses................................. F-77 Notes to Statements of Revenues and Direct Operating Expenses........................ F-78
TCC TV A CABO LTDA. CONTENTS Report of Independent Accountants.................................................... F-79 Statements of Revenues and Direct Operating Expenses................................. F-80 Notes to Statements of Revenues and Direct Operating Expenses........................ F-81
F-1 CSS CAMBORIU CABLE SYSTEMS DE TELECOMUNICACOES LTDA. CONTENTS Report of Independent Accountants.................................................... F-82 Statements of Revenues and Direct Operating Expenses................................. F-83 Notes to Statements of Revenues and Direct Operating Expenses........................ F-84
TVA SUL FOZ DO IGUACU LTDA. (FORMERLY TCI TV A CABO IGUACU LTDA.) CONTENTS Report of Independent Accountants.................................................... F-85 Statements of Revenues and Direct Operating Expenses................................. F-86 Notes to Statements of Revenues and Direct Operating Expenses........................ F-87
TVA SUL SANTA CATARINA LTDA. (FORMERLY TV CABO SERVICOS SANTA CATARINA LTDA. CONTENTS Report of Independent Accountants.................................................... F-88 Statements of Revenues and Direct Operating Expenses................................. F-89 Notes to Statements of Revenues and Direct Operating Expenses........................ F-90
TVA ALFA CABO LTDA.("TV ALFA"); TCC TV A CABO LTDA. ("TCC"); CCS CAMBORIU CABLE SYSTEM DE TELECOMUNICACOES LTDA. ("CCS");TVA SUL PARANA LTDA.("TVA PARANA); TVA SUL FOZ DO IGUACU LTDA.("FOZ DO IGUACU");AND, TVA SUL SANTA CATARINA LTDA ("SSC") (UNAUDITED FINANCIAL INFORMATION) CONTENTS Balance Sheets at September 30, 1996 (unaudited)..................................... F-91 Statements of Income for the nine months ended September 30, 1996 (unaudited)........ F-92 Statements of Changes in Shareholders' Equity for the nine months ended September 30, 1996 (unaudited)................................................................... F-93 Statements of Cash Flows for the nine months ended September 30, 1996 (unaudited).... F-94 Notes to these Unaudited Financial Information....................................... F-95
F-2 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Directors of TEVECAP S.A. We have audited the accompanying a) consolidated balance sheets of TEVECAP S.A. and subsidiaries (the "Company") as of December 31, 1995 and 1994 and the related consolidated statements of operations, changes in shareholders' equity and redeemable common stock and cash flows for the two years in the period ended December 31, 1995; and, b) combined statements of operations, shareholders' equity and cash flows of the Company for the year ended December 31, 1993, all expressed in United States dollars. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, a) the consolidated financial position of the Company as of December 31, 1995 and 1994 and the consolidated results of operations and cash flows for the two years in the period ended December 31, 1995; and, b) the combined results of operations and cash flows of the Company for the year ended December 31, 1993, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 3 to these financial statements, the Company has retroactively changed its method of accounting for installation equipment costs and operating costs incurred during the period of constructing their television systems. As discussed in Note 4, the previously issued financial statements as of December 31, 1994 and 1995 and for each of the two years in the period ended December 31, 1995 have been restated to reflect the reclassification of common stock subject to redemption separately from equity and the reporting of an investment on the equity method. Coopers & Lybrand Sao Paulo, Brazil August 23, 1996, except as to the information presented in Notes 4, 20, 25 and 26 for which the date is February 5, 1997. F-3 TEVECAP S.A. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1996 (UNAUDITED), AND DECEMBER 31, 1995 AND 1994 (IN THOUSANDS OF U.S. DOLLARS)
DECEMBER 31, SEPTEMBER 30, ---------------------- 1996 1995 1994 -------------- ----------- --------- (UNAUDITED) ASSETS Current assets Cash and cash equivalents (Note 5).................................... $ 619 $ 24,201 $ 4,644 Accounts receivable, net (Note 6)..................................... 21,645 11,253 7,541 Inventories (Note 7).................................................. 15,840 13,076 5,703 Film exhibition rights (Note 8)....................................... 725 30 1,417 Prepaid and other assets (Note 9)..................................... 2,511 2,968 1,699 Other accounts receivable (Note 10)................................... 2,259 985 384 -------------- ----------- --------- Total current assets................................................ 43,599 52,513 21,388 -------------- ----------- --------- Property, plant and equipment (Note 14)................................. 188,063 131,266 51,426 Investments (Note 13) Equity affiliates..................................................... 6,231 3,462 1,856 Cost basis investees.................................................. 16,371 11,240 39 Concessions, net...................................................... 18,743 7,978 2,035 Loans to related companies (Note 11).................................... 15,793 6,732 1,019 Other................................................................... 2,354 3,657 2,678 -------------- ----------- --------- Total assets........................................................ $ 291,154 $ 216,848 $ 80,441 -------------- ----------- --------- -------------- ----------- ---------
The accompanying notes are an integral part of these financial statements. F-4 TEVECAP S.A. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1996 (UNAUDITED), AND DECEMBER 31, 1995, 1994 (IN THOUSANDS OF U.S. DOLLARS)
DECEMBER 31, SEPTEMBER 30, -------------------------- 1996 1995 1994 -------------- ------------ ------------ (UNAUDITED) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Short-term bank loans (Note 15).................................... $ 5,441 -- -- Film suppliers..................................................... 5,738 $ 5,892 $ 6,586 Other suppliers.................................................... 51,055 52,078 15,109 Taxes payable other than income taxes.............................. 8,205 6,171 1,290 Accrued payroll and related liabilities............................ 7,777 4,571 2,935 Advance payments received from subscribers......................... 7,473 3,986 1,030 Other accounts payable (Note 16)................................... 3,683 3,272 1,624 -------------- ------------ ------------ Total current liabilities........................................ 89,372 75,970 28,574 -------------- ------------ ------------ Long-term liabilities Loans from related companies (Note 11)............................. 91,926 586 -- Loans from shareholders (Note 17).................................. 4,607 3,086 2,864 Provision for claims (Note 21)..................................... 5,854 3,763 1,075 Liability to fund equity investee (Note 13)........................ -- 2,169 584 Deferred hook up fee revenue....................................... 2,943 -- -- -------------- ------------ ------------ Total long-term liabilities...................................... 105,330 9,604 4,523 -------------- ------------ ------------ Commitments and contingencies (Note 19) Minority interest.................................................... 2,198 -- -- Redeemable common stock, no par value, 85,637,516, 85,637,516 and 22,992,650 shares issued and outstanding........................... 163,225 149,534 19,754 Shareholders' equity Common stock, no par value, 111,075,339 shares issued and outstanding (Note 20)............................................ 142,495 142,495 142,495 Accumulated deficit................................................ (211,466) (160,755) (114,905) -------------- ------------ ------------ Total shareholders' equity....................................... (68,971) (18,260) 27,590 -------------- ------------ ------------ Total liabilities and shareholders' equity....................... $ 291,154 $ 216,848 $ 80,441 -------------- ------------ ------------ -------------- ------------ ------------
The accompanying notes are an integral part of these financial statements. F-5 TEVECAP S.A. AND SUBSIDIARIES STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND SEPTEMBER 30, 1995 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (IN THOUSANDS OF U.S. DOLLARS)
SEPTEMBER 30, DECEMBER 31, ------------------------------ ------------------------------------------- 1996 1995 1995 1994 1993 (CONSOLIDATED) (CONSOLIDATED) (CONSOLIDATED) (CONSOLIDATED) (COMBINED) -------------- -------------- -------------- -------------- ----------- (UNAUDITED) (UNAUDITED) Gross revenues Monthly subscriptions........... $ 85,301 $ 41,296 $ 62,496 $ 27,976 $ 12,544 Installation.................... 39,396 17,995 26,045 6,997 4,350 Advertising..................... 5,362 5,505 8,377 5,727 2,099 Indirect programming............ 5,278 2,114 2,866 1,626 530 Other........................... 5,295 2,194 2,226 1,446 369 Revenue taxes................... (8,881) (5,171) (7,506) (872) (371) -------------- -------------- -------------- -------------- ----------- Net revenue............... 131,751 63,933 94,504 42,900 19,521 -------------- -------------- -------------- -------------- ----------- Direct operating expenses Payroll and benefits............ 19,467 8,868 12,520 8,022 6,079 Programming..................... 25,477 14,105 21,609 12,133 18,156 Transponder lease cost.......... 6,575 5,357 7,568 1,555 1,262 Technical assistance............ 4,923 3,913 5,152 1,622 1,773 Vehicle rentals................. 1,252 1,114 1,732 788 597 TVA magazine.................... 4,680 2,164 3,318 1,430 725 Other costs..................... 13,183 6,758 10,127 3,109 1,187 -------------- -------------- -------------- -------------- ----------- 75,557 42,279 62,026 28,659 29,779 -------------- -------------- -------------- -------------- ----------- Selling, general and administrative expenses Payroll and benefits............ 21,521 15,790 21,627 14,241 10,945 Advertising and promotion....... 12,794 5,882 11,122 3,540 2,205 Rent............................ 2,323 770 1,073 656 847 Other administrative expenses... 9,989 4,557 6,673 2,206 2,265 Other general expenses.......... 7,083 3,788 6,407 3,727 3,695 -------------- -------------- -------------- -------------- ----------- 53,710 30,787 46,902 24,370 19,957 -------------- -------------- -------------- -------------- ----------- Allowance for obsolescence........ 2,493 -- -- -- -- Depreciation...................... 17,436 8,657 12,848 6,177 4,813 Amortization...................... 1,111 208 420 -- -- -------------- -------------- -------------- -------------- ----------- Operating loss............ (18,556) (17,998) (27,692) (16,306) (35,028) -------------- -------------- -------------- -------------- ----------- Interest income................... 3,650 1,360 3,118 21,806 5,369 Interest expense.................. (10,125) (12,493) (17,745) (16,413) (8,492) Translation (loss) gain........... 243 (41) (339) (914) 788 Equity in (losses) income of affiliates...................... (6,642) (2,084) (3,672) 383 -- Other nonoperating (expenses) income, net..................... (7,018) 3,267 4,389 (1,273) (557) -------------- -------------- -------------- -------------- ----------- Loss before income taxes and minority interest... (38,448) (27,989) (41,941) (12,717) (37,920) Income taxes (Note 12).......... (105) -- -- -- -- -------------- -------------- -------------- -------------- ----------- Net loss before minority interest........................ (38,553) (27,989) (41,941) (12,717) (37,920) Minority interest................. 1,533 572 871 720 292 -------------- -------------- -------------- -------------- ----------- Net loss.................. $ (37,020) $ (27,417) $ (41,070) $ (11,997) $ (37,628) -------------- -------------- -------------- -------------- ----------- -------------- -------------- -------------- -------------- -----------
The accompanying notes are an integral part of these financial statements. F-6 TEVECAP S.A AND SUBSIDIARIES STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AND STATEMENT OF REDEEMABLE COMMON STOCK FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND SEPTEMBER 30, 1995 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (IN THOUSANDS OF U.S. DOLLARS)
REDEEMABLE PAID-IN TOTAL COMMON CAPITAL ACCUMULATED SHAREHOLDERS STOCK (NOTE 19) DEFICIT EQUITY (NOTE 19) ----------- ------------- ------------- ------------ Balance at December 31, 1992 (combined)................ $ 10,797 $ (65,280) $ (54,483) -- Net loss for the year.................................. -- (37,628) (37,628) -- ----------- ------------- ------------- ------------ Balance at December 31, 1993 (combined)............ 10,797 (102,908) (92,111) -- ----------- ------------- ------------- ------------ Capital contributed on: June 30, 1994........................................ 131,698 -- 131,698 -- July 25, 1994........................................ -- -- -- $ 19,754 Net loss for the period................................ -- (11,997) (11,997) -- ----------- ------------- ------------- ------------ Balance at December 31, 1994 (consolidated).......... 142,495 (114,905) 27,590 19,754 ----------- ------------- ------------- ------------ Capital contributed on: September 22, 1995................................... -- -- -- 2,000 September 25, 1995................................... -- -- -- 8,000 September 26, 1995................................... -- -- -- 40,000 December 8, 1995..................................... -- -- -- 75,000 Net loss for the period................................ -- (41,070) (41,070) -- Accretion related to Redeemable Common Stock........... -- (4,780) (4,780) 4,780 ----------- ------------- ------------- ------------ Balance at December 31, 1995 (consolidated).......... 142,495 (160,755) (18,260) 149,534 Net loss for the period (unaudited).................... -- (37,020) (37,020) -- Accretion related to Redeemable Common Stock........... -- (13,691) (13,691) 13,691 ----------- ------------- ------------- ------------ Balance at September 30, 1996 (consolidated)......... $ 142,495 $ (211,466) $ (68,971) $ 163,225 ----------- ------------- ------------- ------------ ----------- ------------- ------------- ------------ FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED): Balance at December 31, 1994 (consolidated).......... $ 142,495 $ (114,905) $ 27,590 19,754 Capital contributed on: September 22, 1995................................... -- -- -- 2,000 September 25, 1996................................... -- -- -- 8,000 September 26, 1995................................... -- -- -- 40,000 Net loss for the period (unaudited).................... -- (27,417) (27,417) -- ----------- ------------- ------------- ------------ Balance at September 30, 1995 (consolidated)......... $ 142,495 $ (142,322) $ 173 $ 69,754 ----------- ------------- ------------- ------------ ----------- ------------- ------------- ------------
On June 30, 1994 the paid in capital of the entities previously under common control was transferred to Tevecap in exchange for shares in Tevecap. Accordingly, the paid in capital of the combined entities became that of Tevecap. The accompanying notes are an integral part of these financial statements. F-7 TEVECAP S.A. AND SUBSIDIARIES STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED), AND SEPTEMBER 30, 1995 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (IN THOUSANDS OF U.S. DOLLARS)
SEPTEMBER 30, DECEMBER 31, ---------------------------- ------------------------------------------ 1996 1995 1995 1994 1993 CONSOLIDATED CONSOLIDATED CONSOLIDATED CONSOLIDATED COMBINED ------------- ------------- ------------- ------------- ------------ (UNAUDITED) (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss................................... $ (37,020) $ (27,417) $ (41,070) $ (11,997) $ (37,628) ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES: Depreciation........................... 17,436 8,657 12,848 6,141 5,081 Amortization........................... 1,111 208 420 -- -- Allowance for exhibition costs......... -- -- 827 -- -- Allowance for doubtful accounts........ 3,040 -- 2,196 848 -- Allowance for obsolescence............. 2,493 -- -- -- -- Provision for claims................... 2,091 2,411 2,688 864 (131) Minority interest...................... (1,533) (571) (871) (721) (292) Disposal and write-off of fixed assets............................... 1,163 -- 341 662 -- Equity in losses (earnings) of affiliates........................... 6,642 2,084 3,672 (383) -- CHANGES IN OPERATING ASSETS AND LIABILITIES: Film exhibition rights................. (695) 213 560 (114) 4,843 Accounts receivable.................... (13,432) (4,899) (5,908) (7,007) (181) Prepaid and other assets............... 457 (1,496) (1,269) (1,364) 113 Other accounts receivable.............. (1,188) (947) (601) (199) (90) Other.................................. 5,168 856 -- (2,450) (221) Accrued Interest....................... 4,700 9,509 9,241 723 8,368 Inventories............................ (5,257) (6,716) (7,373) (2,383) (533) Legal deposits......................... (134) (953) (108) (154) (415) Suppliers.............................. (1,177) 14,807 36,275 5,309 40 Taxes payable other than income taxes................................ 2,034 466 4,881 685 167 Accrued payroll and related liabilities.......................... 3,206 2,681 1,636 1,454 140 Advances received from subscribers..... 3,487 (127) 2,956 (496) 1,415 Deferred accounts payable.............. 2,943 -- -- -- -- Other accounts payable................. (920) 2,333 1,648 1,341 144 ------------- ------------- ------------- ------------- ------------ Net cash (used in) provided by operating activities............... (5,385) 1,099 22,989 (9,707) (19,180) ------------- ------------- ------------- ------------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of fixed assets................... (72,538) (52,987) (93,029) (22,369) (11,379) Loans to related companies................. (22,669) (3,501) (7,967) (3,482) (1,811) Cash received on loans to affiliated companies................................ 13,608 1,981 2,591 4,481 -- Acquisiton of businesses, net of cash acquired................................. (13,490) (8,398) (6,393) (2,035) -- Investments in equity and cost investments.............................. (16,711) (5,636) (14,863) (929) -- ------------- ------------- ------------- ------------- ------------
The accompanying notes are an integral part of these financial statements. F-8 TEVECAP S.A. AND SUBSIDIARIES STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED), AND SEPTEMBER 30, 1995 (UNAUDITED) AND YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (IN THOUSANDS OF U.S. DOLLARS)
SEPTEMBER 30, DECEMBER 31, ---------------------------- ------------------------------------------ 1996 1995 1995 1994 1993 CONSOLIDATED CONSOLIDATED CONSOLIDATED CONSOLIDATED COMBINED ------------- ------------- ------------- ------------- ------------ (UNAUDITED) (UNAUDITED) Net cash used in investing activities......................... (111,800) (68,541) (119,661) (24,334) (13,190) ------------- ------------- ------------- ------------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Short-term bank loans...................... $ 5,441 $ -- $ -- $ -- $ -- Capital contributions...................... -- 49,998 125,000 151,452 -- Repayments of loans from shareholders...... -- -- -- (3,082) -- Loans from shareholders.................... 1,522 -- -- -- 3,299 Loans to shareholders...................... -- -- -- -- (3,298) Loans from related companies............... 116,178 103,284 131,860 96,986 106,023 Repayments of loans from related companies................................ (29,538) (90,445) (140,631) (186,755) (67,056) Repayments of loans from banks............. -- -- -- (19,935) (6,620) ------------- ------------- ------------- ------------- ------------ Net cash provided by financing activities......................... 93,603 62,837 116,229 38,666 32,348 ------------- ------------- ------------- ------------- ------------ Net (decrease) increase in cash and cash equivalents................................ (23,582) (4,605) 19,557 4,625 (22) Cash and cash equivalents at beginning of the period..................................... 24,201 4,644 4,644 19 41 ------------- ------------- ------------- ------------- ------------ Cash and cash equivalents at end of the period......................... $ 619 $ 39 $ 24,201 $ 4,644 $ 19 ------------- ------------- ------------- ------------- ------------ ------------- ------------- ------------- ------------- ------------ SUPPLEMENTAL CASH DISCLOSURE: Cash paid for interest..................... $ -- $ 2,435 $ 8,390 $ 16,413 $ 1,183 ------------- ------------- ------------- ------------- ------------ ------------- ------------- ------------- ------------- ------------ SUPPLEMENTAL NON CASH FINANCING ACTIVITIES: Accrued interest on related company loans refinanced as principal balance.......... $ 4,684 $ 7,027 $ 9,355 $ -- $ 8,225 ------------- ------------- ------------- ------------- ------------ ------------- ------------- ------------- ------------- ------------ DETAILS OF ACQUISITIONS: Fair value of assets acquired.............. 14,895 -- -- -- -- Liabilities assumed........................ (1,330) -- -- -- -- ------------- ------------- ------------- ------------- ------------ Cash paid.................................. 13,565 -- -- -- -- Less: cash acquired........................ (75) -- -- -- -- ------------- ------------- ------------- ------------- ------------ Net cash paid for acquisitions............. $ 13,490 -- -- -- -- ------------- ------------- ------------- ------------- ------------ ------------- ------------- ------------- ------------- ------------
The accompanying notes are an integral part of these financial statements. F-9 TEVECAP S.A. AND SUBSIDIARIES NOTES TO THESE FINANCIAL STATEMENTS 1. THE COMPANY AND ITS PRINCIPAL OPERATIONS The accompanying financial statements have been prepared to reflect the consolidated results of TEVECAP S.A. and its subsidiaries (the "Company") and the combined results of commonly controlled entities which became subsidiaries of TEVECAP S.A. ("Tevecap") on June 30, 1994 (see Note 2.1). TEVECAP is a holding company, the subsidiaries of which render services related to wireless cable and cable and parabolic antenna television systems, including marketing and advertising, production, distribution and licensing of domestic and foreign television programs. The Company has wireless cable channel rights primarily in major urban markets in Brazil. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Significant policies followed in the preparation of the accompanying consolidated and combined financial statements are described below: 2.1 BASIS OF PRESENTATION; CONSOLIDATION AND COMBINED A) BASIS OF PRESENTATION The consolidated and combined financial statements are presented in US Dollars and have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP), which differ in certain respects from accounting principles applied by the Company in its local currency financial statements, which are prepared in accordance with accounting principles generally accepted in Brazil ("Brazilian GAAP"). The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the financial statement dates and the reported amount of revenues and expenses during the reporting periods. Since management's judgment involves making estimates concerning the likelihood of future events, the actual results could differ from those estimates which will have a positive or negative effect on future period results. B) CONSOLIDATION AS OF AND FOR THE TWO YEARS ENDED DECEMBER 31, 1995 On June 30, 1994, Tevecap was established as a holding company for certain entities which were under common control. Subsequent to this date, additional entities were formed under, or acquired by Tevecap, as described elsewhere in these financial statements. Accordingly, the financial statements as of and for the year ended December 31, 1994 and thereafter are prepared on a consolidated basis. The consolidated financial statements include the accounts of all majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated on consolidation. C) COMBINED PRESENTATION FOR THE YEAR ENDED DECEMBER 31, 1993 The combined financial statements for the year ended December 31, 1993, reflect the results of certain entities which were under common control and which were acquired by Tevecap on June 30, 1994. All significant intercompany balances have been eliminated on combination. 2.2 ACCOUNTING RECORDS As required by Brazilian Law, and in accordance with local accounting practices, the accounting records of the Company are maintained in Brazilian currency (REAL). In order to present the financial F-10 TEVECAP S.A. AND SUBSIDIARIES NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED) statements in conformity with accounting principles generally accepted in the United States of America, the Company maintains additional accounting records which are used solely for this purpose. 2.3 CURRENCY REMEASUREMENT In accordance with Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Transactions," the United States dollar has been assumed to be the functional currency as Brazil is a "hyperinflationary" country. As such, the local accounts of the Company are translated into United States dollars as follows: - Nonmonetary assets and liabilities are translated at historical rates. All other assets and liabilities are translated at the official rate of exchange of R$1.022 to US$1 in effect on September 30, 1996; R$0.973 to US$1 in effect on December 31, 1995; and, R$0.846 to US$1 on December 31, 1994. - Income and expenses are translated at the average exchange rates in effect each month, except for those related to assets and liabilities which are translated at historical exchange rates, and deferred income taxes, which are translated at the current rate. Translation gains/losses are recognized in the income statement. 2.4 CONSOLIDATED FINANCIAL STATEMENTS The Company's consolidated operating subsidiaries included in the consolidated financial statements are:
OWNERSHIP INTEREST AS OF ------------------------------- SEPTEMBER 30, DECEMBER 31, 1996 1995 --------------- -------------- OWNED SYSTEMS: TVA Sistema de Televisao S.A........................... 98.00% 98.00% TVA Sul Participacoes S.A.............................. 87.00% -- TVA Sul Parana Ltda.(a), (b)......................... 87.00% 80.00% TVA Sul Santa Catarina Ltda. (b)..................... 87.00% -- TVA Sul Foz do Iguacu Ltda. (b)...................... 87.00% -- TCC TV a Cabo Ltda. (b).............................. 100.00% -- TV Alfa Cabo Ltda. (b)............................... 100.00% -- CCS Camboriu Cable Systems de Telecomunicacoes Ltda................................................. 52.20% -- Galaxy Brasil S.A...................................... 100.00% 100.00% LICENSE SUBSIDIARY: Comercial Cabo TV Sao Paulo Ltda. (c).................. 100.00% 100.00% PROGRAMMING VENTURES: TVA Communications Ltd 100.00% 100.00% TVA Communications Aruba N.V. 100.00% --
- ------------------------ (a) In August 1996, TVA Curitiba Servicos Telecomunicacoes Ltda. changed its name to TVA Parana Ltda. ("Parana"). The Company's initial investment in Parana together with its contributions of $18,963 relating to the acquisition of 27,212,345 shares during the nine months ended September 30, 1996, was in excess of the Company's share of the book value of Parana after the contribution. This resulted in a loss of $2,727. F-11 TEVECAP S.A. AND SUBSIDIARIES NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED) 2.4 CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (b) One common share in each of these entities is owned by a Brazilian National pursuant to local legislative requirements. (c) 0.00149% of the common shares in this entity are owned by the controlling shareholder of the parent company pursuant to local legislative requirements. 2.5 ACQUISITIONS During the nine month period ending September 30, 1996 (unaudited), the Company acquired control of the following entities which were accounted for under the purchase method of accounting: i) In February 1996, the Company acquired TVA Sul Santa Catarina ("TVA SSC"); ii) In March 1996, the Company acquired TCC TV a Cabo Ltda. ("TCC") and TV Alfa Cabo Ltda. ("TV Alfa"); and iii) In May 1996, the Company acquired TVA Sul Foz do Iguacu Ltda ("TVA SF") and CCS Camboriu Cable Systems de Telecomunicacoes Ltda. ("CCS"). In each case, the excess of the purchase price over the fair value of assets acquired represents the value of concessions of certain television stations. These concessions are being amortized on a straight line basis over 10 years. The operating results of these acquired businesses, which hold licenses to operate cable TV, have been included in the consolidated statements of operations from the dates of acquisition. The purchase prices have been allocated to the assets purchased and the liabilities assumed based upon the fair values on the dates of acquisition, as follows:
TVA SSC TVA SF CCS TCC TV ALFA ----------- --------- --------- --------- --------- Current assets, other than cash.............................. $ -- $ 23 $ 4 $ 51 $ 5 Property, plant and equipment................................ 25 319 2,101 238 176 Other assets................................................. -- 3 -- -- -- Concessions.................................................. 45 5,348 1,424 2,629 2,429 Other liabilities............................................ (55) (377) (84) (127) (687) ----------- --------- --------- --------- --------- Purchase price, net of cash received......................... $ 15 $ 5,316 $ 3,445 $ 2,791 $ 1,923 ----------- --------- --------- --------- --------- ----------- --------- --------- --------- --------- Total purchase price......................................... $ 15 $ 5,326 $ 3,445 $ 2,841 $ 1,939 ----------- --------- --------- --------- --------- ----------- --------- --------- --------- ---------
The Company is unable to present pro forma results as if the acquisitions had taken place at the beginning of 1995 and 1996 because, although management attempted to obtain such information from the owners, it was not available. These entities were acquired for the purpose of expanding the cable TV system penetration of the Company. The assets purchased will be operated under the Company's management, using the Company's programming and employees. 2.6 CASH AND CASH EQUIVALENTS Cash and cash equivalents are defined as cash and cash in banks and investments in interest-bearing securities and are carried at cost plus accrued interest. Short-term investments with original maturities of three months or less at the time of purchase are considered cash equivalents. 2.7 FINANCIAL INSTRUMENTS In accordance with SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," information is provided about the fair value of certain financial instruments for which it is practicable to estimate that value. F-12 TEVECAP S.A. AND SUBSIDIARIES NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED) 2.7 FINANCIAL INSTRUMENTS (CONTINUED) For the purposes of SFAS No. 107, the estimated fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The carrying values of the Company's financial instruments as of September 30, 1996, December 31, 1995 and December 31, 1994 approximate management's best estimate of their estimated fair values. The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value: - The fair value of certain financial assets carried at cost, including cash, accounts receivable, other accounts receivables, and certain other short-term assets is considered to approximate their respective carrying value due to their short-term nature. - The fair value of payables to film suppliers and other suppliers, other accounts payable, loans to related companies and certain other short-term liabilities are considered to approximate their respective carrying values due to their short-term nature. - The fair value of loans from related companies approximates their respective carrying values as interest on these loans is at market rates. 2.8 ACCOUNTS RECEIVABLE Accounts receivable are stated at their estimated realizable values. An allowance for doubtful accounts is established on the basis of an analysis of the accounts receivable, in light of the risks involved, and is considered sufficient to cover any losses incurred in realization of credits. 2.9 INVENTORIES Inventories consist of materials and supplies and imports in transit. Materials and supplies are used to provide service to new customers, and to ensure continuity of service to existing customers. Imports in transit represent materials purchased from foreign countries that have not yet been received. Inventories are stated at the lower of cost or market. Cost is determined principally under the average cost method. An allowance for obsolescence has been established on the basis of an analysis of slow-moving materials and supplies. 2.10 FILM EXHIBITION RIGHTS AND PROGRAM LICENSING Film exhibition rights and program licensing costs are deferred and recognized as the films and/or programs are exhibited. The allowance for exhibition expiration is determined based on management's estimate of the Company's capacity to telecast the films and projected revenue streams. 2.11 PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost and depreciated using the straight-line method, over the remaining useful lives, as described in Note 14. 2.12 ADVERTISING Advertising revenues are recognized, and the production cost of commercials and programming are charged to expense, when the commercial is telecast. F-13 TEVECAP S.A. AND SUBSIDIARIES NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED) 2.13 RECOVERABILITY OF LONG-LIVED ASSETS TO BE HELD AND USED IN THE BUSINESS Management reviews long-lived assets, primarily the Company's licenses and its property and equipment to be held and used in the business, for the purposes of determining and measuring impairment on a recurring basis or when events or changes in circumstances indicate that the carrying value of an asset or group of assets may not be recoverable. Assets are grouped and evaluated for possible impairment at the level of each cable television system; impairment is assessed on the basis of the forecasted undiscounted cash flows of the businesses over the estimated remaining lives of the assets related to those systems. A write-down of the carrying value of the assets or group of assets to estimated fair value will be made, when appropriate. The Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be disposed of", from January 1, 1996, and the effect on the consolidated financial statements as a result of the adoption was not significant. 2.14 SUBSCRIPTIONS Installation fees are recognized as revenue on the equipment installation date to the extent of direct selling costs incurred. The remainder is deferred and amortized to income over the estimated average period that subscribers are expected to remain connected to the system. Subscription revenues are recognized as earned on an accrual basis. 2.15 LICENSES Televisao Show Time Ltda. ("TV Show Time") and TVA Brasil Radioenlaces Ltda. ("TVA Brasil") hold certain licenses covering certain operations of the Company. The use of such licenses is provided to the Company, for a nominal fee, under a Service Agreement dated July 22, 1994, as amended, among Tevecap, TV Show Time, TVA Brasil and Abril. Pursuant to the Service Agreement, TV Show Time and TVA Brasil have agreed to transfer the licenses, which are carried at nil value, to Tevecap at nominal cost. 2.16 ACCOUNTING FOR SALES OF STOCK BY SUBSIDIARIES Gains or losses arising from the sale of shares by subsidiaries are recognized in the profit and loss account as non-operating income to the extent that the net book value of the shares owned by the parent after the sale exceeds or is lower than the net book value per share immediately prior to the sale of the shares by the subsidiary. 2.17 FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED) The unaudited consolidated financial statements as of September 30, 1996 and for the nine months ended September 30, 1996 and 1995 have been derived from the Company's records and reflect all F-14 TEVECAP S.A. AND SUBSIDIARIES NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED) adjustments which are, in the opinion of management, necessary for a fair presentation of the financial data. 3. ACCOUNTING CHANGES To more appropriately account for the cost of (i) installation equipment and (ii) operating costs incurred during the period of constructing their television systems, the Company has restated all prior year amounts as compared to those previously reported by the separate combined and consolidating entities: (i) Installation equipment The Company has changed the estimated useful life of installation equipment to five years. The costs of such equipment had previously been accounted for as period costs. (ii) Operating costs incurred during the period of construction of television systems The Company has changed its policy of deferring operating costs during the period of construction of its television systems, to treat such costs as period costs. 4. RESTATEMENT The Company's financial statements as of and for the two years in the period ended December 31, 1995 and as of and for the nine months ended September 30, 1996 (unaudited) have been restated to reflect the reclassification of common stock subject to redemption separately from equity. See also Note 20. In addition, the Company's financial statements as of and for the two years in the period ended December 31, 1995 and as of and for the nine months ended September 30, 1996 (unaudited) have been restated to reflect the recognition of the Company's share in the earnings and losses of HBO Brasil Partners after the date of acquisition. The Company holds a 33.33% interest in this partnership. Historically, such interest was accounted for at cost as financial information on the performance of the venture was unavailable. In January 1997, the Company received audited financial statements covering the two years in the period ending December 31, 1995. The Company's financial statements for the nine months ended September 30, 1996 (unaudited) have also been restated to reflect the consolidation of subsidiaries previously treated as advances for investments. The net impact of this change on the result for this period was a loss of $555,000. F-15 TEVECAP S.A. AND SUBSIDIARIES NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED) 4. RESTATEMENT (CONTINUED) The following summarizes the impact on previously issued financial statements resulting from the adjustments as of and for the two years in the period ended December 31, 1995 and as of and for the nine months ended September 30, 1996 (unaudited):
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1996 1995 1994 ----------------------------- ----------------------------- ----------------------------- AS PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY REPORTED AS RESTATED REPORTED AS RESTATED REPORTED AS RESTATED -------------- ------------- -------------- ------------- -------------- ------------- BALANCE SHEETS Equity affiliates.. 5,946 6,231 2,352 3,462 1,856 1,856 Advances payments for investments... 16,683 -- 3,117 -- -- -- Liability to fund equity investee... -- -- 2,169 2,169 4 584 Redeemable Common Stock............. -- 163,225 -- 149,534 -- 19,754 Common Stock....... 287,962 142,495 287,962 142,495 162,962 142,495 STATEMENTS OF OPERATIONS Equity in (losses) income of affiliates........ (5,817) (6,642) (2,245) (3,672) 963 383 Net loss........... (35,460) (37,020) (39,643) (41,070) (13,500) (11,997) Accretion related to Redeemable Common Stock...... -- 13,691 -- 4,780 -- --
5. CASH AND CASH EQUIVALENTS At September 30, 1996, December 31, 1995 and 1994, cash was comprised of:
1996 1995 1994 ------------ --------- --------- (UNAUDITED) Cash on hand and in banks..................................................... $ 609 $ 640 $ 178 Short-term investments........................................................ 10 23,561 4,466 ------------ --------- --------- $ 619 $ 24,201 $ 4,644 ------------ --------- --------- ------------ --------- ---------
F-16 TEVECAP S.A. AND SUBSIDIARIES NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED) 6. ACCOUNTS RECEIVABLE At September 30, 1996, December 31, 1995 and 1994, accounts receivable were comprised of:
1996 1995 1994 ------------ --------- --------- (UNAUDITED) Subscriptions................................................................. $ 6,521 $ 5,154 $ 1,879 Installation fees............................................................. 10,425 4,637 1,686 Advertising & programming..................................................... 2,359 1,810 1,560 Barter........................................................................ 4,977 2,989 3,627 Others........................................................................ 200 70 -- Allowance for doubtful accounts............................................... (2,837) (3,407) (1,211) ------------ --------- --------- $ 21,645 $ 11,253 $ 7,541 ------------ --------- --------- ------------ --------- ---------
7. INVENTORIES At September 30, 1996, December 31, 1995 and 1994, inventories were comprised of:
1996 1995 1994 ------------ --------- --------- (UNAUDITED) Materials and supplies........................................................ $ 16,660 $ 10,913 $ 4,985 Imports in transit............................................................ 1,673 2,163 718 Allowance for obsolescence.................................................... (2,493) -- -- ------------ --------- --------- $ 15,840 $ 13,076 $ 5,703 ------------ --------- --------- ------------ --------- ---------
8. FILM EXHIBITION RIGHTS At September 30, 1996, December 31, 1995 and 1994, film exhibition rights were comprised of:
1996 1995 1994 ------------ --------- --------- (UNAUDITED) Exhibition rights.............................................................. $ 1,887 $ 1,192 $ 1,752 Allowance for exhibition expiration............................................ (1,162) (1,162) (335) ------------ --------- --------- $ 725 $ 30 $ 1,417 ------------ --------- --------- ------------ --------- ---------
9. PREPAID AND OTHER ASSETS At September 30, 1996, December 31, 1995 and 1994, prepaid expenses were comprised of:
1996 1995 1994 ------------ --------- --------- (UNAUDITED) Advances to suppliers.......................................................... $ 1,124 $ 2,078 $ 977 Prepaid TVA magazine publishing expenses....................................... 845 562 379 Prepaid meals and transportation............................................... 189 171 197 Others......................................................................... 353 157 146 ------------ --------- --------- $ 2,511 $ 2,968 $ 1,699 ------------ --------- --------- ------------ --------- ---------
F-17 TEVECAP S.A. AND SUBSIDIARIES NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED) 10. OTHER ACCOUNTS RECEIVABLE At September 30, 1996, December 31, 1995 and 1994, other accounts receivable were comprised of:
1996 1995 1994 ------------ --------- --------- (UNAUDITED) Advances to employees.............................................................. $ 805 $ 491 $ 58 Accounts receivable from related companies (Note 11)............................... 953 389 281 Others............................................................................. 501 105 45 ------------ --------- --------- $ 2,259 $ 985 $ 384 ------------ --------- --------- ------------ --------- ---------
11. RELATED-PARTY TRANSACTIONS The following tables summarize the transactions between the Company and related companies at September 30, 1996 (unaudited) and December 31, 1995, and 1994 and for the nine month periods ended September 30, 1996 (unaudited) and 1995 (unaudited) and the three years ended December 31, 1995:
AT DECEMBER 31, -------------------- 1995 1994 AT SEPTEMBER 30, --------- --------- ----------------- 1996 ----------------- (UNAUDITED) Abril S.A. Loans payable ................................................. $ 90,205 $ 39 -- ESPN do Brasil Ltda Loans receivable .............................................. -- 3,913 -- Accounts payable .............................................. -- 963 -- Canbras TV a Cabo Ltda Loans receivable .............................................. 3,000 815 $ 33 Accounts payable .............................................. 1,721 -- -- Canbras Partcipacoes Loans receivable .............................................. 304 -- -- HBO Partners Loans receivable .............................................. 1,792 -- -- Aico Loans receivable .............................................. 7,930 -- -- TV Aico Loans receivable .............................................. 1,640 -- --
F-18 TEVECAP S.A. AND SUBSIDIARIES NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED) 11. RELATED-PARTY TRANSACTIONS (CONTINUED)
NINE MONTH PERIOD ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31, ---------------------- ------------------------------- 1996 1995 1995 1994 1993 ----------- --------- --------- --------- --------- (UNAUDITED) Abril S.A. Net interest expense.................................... $ 4,684 $ 9,461 $ 9,324 -- -- ESPN do Brasil Ltda Programming costs....................................... 2,560 851 646 -- -- Net interest expense.................................... -- -- 330 -- -- Abril Communications Ltda Net interest expense.................................... -- -- -- -- $ 8,379
The Abril S.A. and other related company loans receivable are denominated in REAIS and are subject to monetary restatement plus interest charges at the market rate which was 1.79% per month in September 1996 (3.44% per month in December 1995). The loans payable to Abril S.A. are pursuant to a revolving credit facility. This facility, effective December 31, 1995, is valid for a period of 36 months. Additionally, Abril S.A. provided a guarantee in the amount of $28,847 on September 30, 1996, for equipment imported by Galaxy Brasil S.A., TVAST, TV Filme and TVA Parana. The Company and Falcon International Communications Services Inc., one of the Company's shareholders, signed a consulting service agreement on April 1, 1996 related to the Company's operations and technologies. Initially, the duration of this agreement is two years, renewable every subsequent two-year period thereafter. The payment for the consulting services amounts to $200 per annum. 12. DEFERRED INCOME TAX The tax effects of temporary differences that give rise to a significant portion of the deferred tax asset and deferred tax liability at September 30, 1996 and at December 31, 1995 and 1994 are as follows:
1996 1995 1994 ----------- --------- --------- (UNAUDITED) Deferred tax assets: Net operating loss carryforwards........................................... $ 37,981 $ 33,964 $ 22,764 Deferred charges........................................................... 7,485 7,720 11,818 Deferred hook-up fee revenue............................................... 1,030 -- -- Others..................................................................... 1,015 175 920 ----------- --------- --------- Total gross deferred tax asset......................................... 47,511 41,859 35,502 ----------- --------- --------- Less, valuation allowance................................................ (42,610) (34,568) (28,913) ----------- --------- --------- Net deferred tax asset....................................................... 4,901 7,291 6,589 Deferred tax liability: Inflationary profit........................................................ -- -- (4,107) Installation costs......................................................... (4,901) (7,291) (2,482) ----------- --------- --------- Total gross deferred tax liability..................................... (4,901) (7,291) (6,589) ----------- --------- --------- Net deferred tax asset................................................... $ -- $ -- $ -- ----------- --------- --------- ----------- --------- ---------
F-19 TEVECAP S.A. AND SUBSIDIARIES NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED) 12. DEFERRED INCOME TAX (CONTINUED) The Company has a limited operating history and has generated losses since its inception. The valuation allowance has been established in accordance with the requirements of SFAS No. 109 and relates to the amount of net operating loss carryforwards in excess of net taxable temporary differences. As of September 30, 1996, the Company has unexpirable accumulated tax losses of $118,569. The consolidated and combined income tax credit was different from the amount computed using the Brazilian statutory income tax for the reasons set forth in the following table:
DECEMBER, 31 SEPTEMBER 30, ------------------------------------ 1996 1995 1994 1993 -------------- ------------ ---------- ---------- (UNAUDITED) Loss before income taxes and minority interest............ $ 38,448 $ 41,941 $ 12,717 $ 37,920 Statutory income tax rate................................. 30.56% 30.56% 43.0% 35.2% -------------- ------------ ---------- ---------- 11,750 12,817 5,468 13,348 Profit on intercompany transaction not eliminated on fiscal books............................................ -- -- -- (7,762) Expiration of tax losses.................................. -- -- -- (691) Increase (decrease) in the income tax rate................ -- (8,639) 3,373 -- Monetary correction net of unallowable amortization....... (1,129) 308 -- -- Monetary correction of deferred charges................... (905) 1,342 4,899 3,003 Translation rate difference on exhibition rights.......... -- 381 (476) -- Monetary correction over U.S. Dollar on tax losses........ -- -- 1,668 -- Others.................................................... (1,779) (554) (1,964) (620) -------------- ------------ ---------- ---------- Net income tax benefit for the period..................... 7,937 5,655 12,968 7,278 Increase in valuation allowance........................... (8,042) (5,655) (12,968) (7,278) -------------- ------------ ---------- ---------- $ (105) $ -- $ -- $ -- -------------- ------------ ---------- ---------- -------------- ------------ ---------- ----------
Income tax payable represents amounts owing by subsidiaries calculated on a unitary basis. F-20 TEVECAP S.A. AND SUBSIDIARIES NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED) 13. INVESTMENTS Investments at September 30, 1996, December 31, 1995 and 1994 were comprised of:
PERCENTAGE OF CONTROL 1996 1995 1994 ------------- ----------- --------- --------- (UNAUDITED) Equity basis investments: TV Filme, Inc. ............................................... 14.3(a) $ 4,628 $ 2,352 $ 1,856 ESPN Brasil Ltda.............................................. 50 1,234 -- -- Canbras TV a Cabo............................................. 36 84 -- -- HBO Brasil Partners........................................... 33 285 1,110 -- ----------- --------- --------- $ 6,231 $ 3,462 $ 1,856 ----------- --------- --------- ----------- --------- --------- Liability to Fund Joint Venture and Equity Investee: ESPN Brasil Ltda.............................................. 50 $ -- $ (2,009) -- Canbras TV a Cabo............................................. -- (160) (4) HBO Brasil Partners........................................... -- -- (580) ----------- --------- --------- $ -- $ (2,169) $ (584) ----------- --------- --------- ----------- --------- --------- Cost Basis Investments: Galaxy Latin America.......................................... 10 $ 16,320 $ 11,220 $ -- Others........................................................ 51 20 39 ----------- --------- --------- $ 16,371 $ 11,240 $ 39 ----------- --------- --------- ----------- --------- --------- Concessions, net: Stations in south of Brazil................................... $ 11,876 $ -- $ -- Ype Radio e Televisao Ltda Concessions........................ 6,363 6,363 -- Comercial Cabo Ltda........................................... 1,970 1,970 1,970 Other......................................................... 65 65 65 Amortization.................................................. (1,531) (420) -- ----------- --------- --------- $ 18,743 $ 7,978 $ 2,035 ----------- --------- --------- ----------- --------- ---------
- ------------------------ (a) Accounted for under the equity method because the Company has one seat out of six on the Board of Directors, is dependent on the Company for a substantial portion of its revenue and has an option to acquire an additional 2% interest. On February 3, 1995, an agreement was signed between Tevecap, Hughes (GLA Inc./USA), Inversiones Divtel (ODC Cisneiros/Venezuela) and Multivision (MVS/Mexico) for the incorporation of Galaxy Latin America in August 1995. On March 3, 1995, the operational agreement between Galaxy Latin America and Tevecap was formalized with the purchase of 10% of the shares of Galaxy Latin America for $7,194. On March 9, 1995, Galaxy Brasil S.A. was created, with 99.5% of the shares held by Tevecap. Galaxy Brasil S.A. provides distribution services of multichannel TV programs to all national regions. The transmission commenced February 1996. Galaxy Latin America will charge Galaxy Brasil for the use of a satellite. The ESPN Brasil joint venture was formed in June 1995, with Tevecap and ESPN International each holding 50% of ESPN Brasil's shares. Operations commenced on June 15, 1995, and the objective of F-21 TEVECAP S.A. AND SUBSIDIARIES NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED) 13. INVESTMENTS (CONTINUED) ESPN Brasil is the transmission of ESPN's international sport programs. Condensed financial information of the joint venture as of and for the nine month period ended September 30, 1996 and as of and for the year ended December 31, 1995 are as follows:
1996 1995 --------- --------- Current Assets.......................................................... $ 3,546 $ 2,905 Non-current Assets...................................................... 2,163 262 Current Liabilities..................................................... 3,241 3,272 Long-Term Liabilities................................................... -- 3,913 Revenues................................................................ 8,538 4,748 Gross Losses............................................................ (9,536) (2,884) Loss before Taxes....................................................... (10,330) (4,020) Net Loss................................................................ (10,330) (4,020)
On April 3, 1995, Tevecap acquired 49% of the common shares and 49% of the preferred shares of Ype Radio e Televisao Ltda., for $6,363, obtaining the concession of certain television channels. The concessions are being amortized over 10 years. In previous years the Company acquired Comercial Cabo Ltda., obtaining the concessions for certain television channels and other minor investments. The consessions are being amortized over ten years. F-22 TEVECAP S.A. AND SUBSIDIARIES NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED) 14. PROPERTY, PLANT AND EQUIPMENT At September 30, 1996, December, 31, 1995 and 1994, property, plant and equipment were comprised of:
ANNUAL DEPRECIATION RATE % 1996 1995 1994 ------------- ----------- ----------- ---------- (UNAUDITED) Machinery and Equipment.................................... 10 $ 46,613 $ 37,877 $ 25,512 Converters................................................. 10 76,067 36,485 10,809 Leasehold Improvements..................................... 25 5,449 1,830 1,477 Furniture and Fixtures..................................... 10 2,136 1,226 704 Premises................................................... 10 2,286 1,116 559 Vehicles................................................... 20 1,404 457 161 Software................................................... 20 2,646 1,529 472 Tools...................................................... 10 715 621 439 Reception Equipment........................................ 20 65,470 45,711 19,265 Cable Plant................................................ 10 11,482 6,513 -- Building................................................... 4 8,326 342 155 ----------- ----------- ---------- 222,594 133,707 59,553 Accumulated Depreciation................................... (41,448) (23,373) (10,184) Telephone Line Use Rights.................................. 2,219 1,453 787 Trademarks, Patents and Others............................. 164 577 186 Fixed Assets in Transit.................................... 3,779 18,902 1,084 Others..................................................... 755 -- -- ----------- ----------- ---------- $ 188,063 $ 131,266 $ 51,426 ----------- ----------- ---------- ----------- ----------- ----------
15. SHORT-TERM BANK LOANS Short-term bank loans at September 30, 1996 represent the refinancing of certain supplier payables. The average short-term interest rate on such loans is LIBOR plus 1.5%. 16. OTHER ACCOUNTS PAYABLE At September 30, 1996, December, 31, 1995 and 1994, other accounts payable were comprised of:
1996 1995 1994 ----------- --------- --------- (UNAUDITED) Accounts payable to related companies (Note 11)................................ $ 252 $ 1,122 $ 13 Advertising.................................................................... 1,088 427 851 Importation expenses payable................................................... 667 599 86 Others......................................................................... 1,676 1,124 674 ----------- --------- --------- $ 3,683 $ 3,272 $ 1,624 ----------- --------- --------- ----------- --------- ---------
F-23 TEVECAP S.A. AND SUBSIDIARIES NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED) 17. LOANS FROM SHAREHOLDERS Loans from shareholders at September 30, 1996, December 31, 1995 and 1994, were comprised of:
1996 1995 1994 ----------- --------- --------- (UNAUDITED) Roberto Civita................................................................. $ 2,490 $ 2,616 $ 2,455 Maricla I. R. Rossi............................................................ 59 61 58 Edgard Silvio Faria............................................................ 175 184 174 Angelo Silvio Rossi............................................................ 42 45 42 Leonardo Petrelli.............................................................. 1,841 180 135 ----------- --------- --------- $ 4,607 $ 3,086 $ 2,864 ----------- --------- --------- ----------- --------- ---------
Interest on loans from shareholders is based on the UFIR (Fiscal Reference Unit) variation which was 0% during the nine-month period ended September 30, 1996 (22.46% in December 1995). 18. INSURANCE The Company maintains insurance coverage for its fixed assets and inventories in an amount considered sufficient to cover the risks involved. 19. LEASED ASSETS AND COMMITMENTS The Company has entered into film distribution contracts and licensing agreements with film producers for programming for future periods. Such contracts and agreements, which range in life from 1 to 9 years with the exception of a specific contract with ESPN which has a life of 50 years, require a per-subscriber fee to be paid by the Company on a monthly basis. The Company has funding commitments related to Galaxy Latin America, TV Filme, ESPN Brasil Ltda., HBO Brasil Partners, Canbras TVA and CNBC of approximately $26,992 which must be met prior to December, 1997. The Company has rented its office space until the year 2001. At December 31, 1995 future minimum rental payments applicable to operating leases in respect of this space aggregate approximately $4,874 as follows: 1996............................................................... $ 1,588 1997............................................................... 769 1998............................................................... 663 1999............................................................... 643 2000............................................................... 608 2001............................................................... 603 --------- Total.............................................................. $ 4,874 --------- ---------
F-24 TEVECAP S.A. AND SUBSIDIARIES NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED) 19. LEASED ASSETS AND COMMITMENTS (CONTINUED) At December 31, 1995, the Company had contractual commitments with Embratel for transponder use until the year 2003. Based on the contract provisions, these commitments are currently estimated to aggregate approximately $52,361, as follows: 1996.............................................................. $ 8,302 1997.............................................................. 8,302 1998.............................................................. 8,302 1999.............................................................. 8,035 2000.............................................................. 7,768 2001.............................................................. 7,768 2002.............................................................. 3,884 --------- Total............................................................. $ 52,361 --------- ---------
20. COMMON STOCK Common stock at September 30, 1996, December 31, 1995 and 1994, was comprised of:
1996 1995 1994 ------------------------ ------------------------ ------------------------ US$ SHARES US$ SHARES US$ SHARES --------- ------------- --------- ------------- --------- ------------- Common stock subject to redemption....................... 144,754 85,637,516 144,754 85,637,516 19,754 22,992,650 --------- ------------- --------- ------------- --------- ------------- --------- ------------- --------- ------------- --------- ------------- Paid-in capital.................... 142,495 111,075,339 142,495 111,075,339 142,495 111,075,339 --------- ------------- --------- ------------- --------- ------------- --------- ------------- --------- ------------- --------- -------------
(a) COMMON STOCK SUBJECT TO REDEMPTION As at September 30, 1996 and December 31, 1995, 43.5% of the common stock of Tevecap was subject to an Event Put i.e. a "triggering event" under the Stockholders Agreement pursuant to which each of the shareholders (other that Abril) may, in certain circumstances, demand that Tevecap purchase all or a portion of its shares, unless the shares of capital stock held by such Stockholder are publicly registered, listed or traded. In addition, as at September 30, 1996 and December 31, 1995, 14.2% of these shares are also subject to Time Put whereby, pursuant to the Stockholders Agreement, Falcon International may demand that Tevecap buy all or a portion of their shares of capital stock held in Tevecap if such shares are not publicly registered, listed or traded by September 22, 2002. For purposes of the Event Put, triggering events are: (i) the amount of the capital stock held by a stockholder with an Event Put exceeds the amount allowed under any legal restriction to which such Stockholder may be subject ("Regulatory Put"); (ii) a breach without cure within a designated period by certain specified entities/individuals of any representation, warranty, covenant or duty made or owed pursuant to certain agreements; (iii) a breach without cure within a designated period by Abril of the Abril Credit Facility; (iv) the controlling shareholder of Abril ceases to directly or indirectly hold a specified percentage of Tevecap without the approval of the Stockholders or ceases to control the voting capital stock held by his affiliates representing 50% or more of the voting capital stock of Tevecap; (v) the Service Agreement as amended, among Tevecap, TV Show Time, TVA Brasil and Abril ceases to be valid or effective or TV Show Time, TVA Brasil and Abril is liquidated or dissolved or files voluntarily, or has filed F-25 TEVECAP S.A. AND SUBSIDIARIES NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED) 20. COMMON STOCK (CONTINUED) against it involuntarily, any petition in bankruptcy; or (vi) another Stockholder exercises an Event Put other than a Regulatory Put. The Company's management believes that the probability of occurrence of the triggering events which would permit any of its shareholders to exercise its Event Put is remote. However, a company that is public in the United States, and which therefore is required to register its securities with the United States Securities and Exchange Commission (the "SEC"), is required for accounting purposes to present redeemable equity securities separately from shareholders' equity, if redemption of such securities is beyond the control of the registrant. That presentation is required even if the likelihood of redemption is remote. As the Company's financial statements are to be included in a registration statement to be filed with the SEC, the presentation of redeemable common stock separately from shareholders' equity differs from the presentation of such stock in the Company's previously issued financial statements. The Common Shares subject to the Time Put are redeemable at fair value determined by appraisal or by a multiple of the Company's most recent quarterly earnings. The Company has recorded an accretion on these shares to fair market value of $4,780 and $13,691 with respect to the year ended December 31, 1995 and the nine months ended September 30, 1996. (b) PAID-IN CAPITAL Paid-in capital represents registered common shares without par value. The Company's shareholders are entitled to minimum dividends of 25% of net income for the year, adjusted according to Corporation Law. As the Company has not recorded net income since its inception, no such dividends are payable. 21. LITIGATION CONTINGENCIES Certain claims and lawsuits arising in the ordinary course of business have been filed or are pending against the Company which were not recognized in the financial statements. The Company has also recorded provisions related to certain claims in amounts that management considers to be adequate after considering a number of factors including (but not limited to) the views of legal counsel, the nature of the claims and the prior experience of the Company. In management's opinion, all contingencies have been adequately provided for or are without merit, or are of such kind that if disposed of unfavorably, would not have a material adverse effect on the financial position or future results of operations of the Company. 22. PENSION PLAN In April 1996, the Company became a co-sponsor of the private pension entity named Abrilprev Sociedade de Previdencia Privada, the primary objective of which is to grant employees benefits other than those provided by Social Security. The plan is optional to all employees of the sponsoring entities. Abrilprev operates as a Defined Contribution Plan. Company contributions are made based on a fixed percentage applied to the payroll of the sponsoring entities based on actuarial calculations. Plan expenses amounted to $263 in 1996. 23. WORKING CAPITAL DEFICIENCY The Company's consolidated financial statements for the period ended September 30, 1996 were prepared on a going concern basis which contemplates the realization of assets and settlement of F-26 TEVECAP S.A. AND SUBSIDIARIES NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED) 23. WORKING CAPITAL DEFICIENCY (CONTINUED) liabilities and commitments in the normal course of business. The Company incurred net losses of $37,020, $41,070 and $11,997 and cash (used in)/provided by operating activities was $(5,385), $22,989 and $(9,474) for the nine months ended September 30, 1996 and the two years in the period ended December 31, 1995, respectively. In addition, the Company had negative working capital of $45,773 at September 30, 1996. The continuation of the Company as a going concern is dependent upon its ability to generate sufficient cash from operations and financing activities. In this regard, managements' plans include: (i) raising additional debt financing through a private placement of Senior Notes; (ii) entering into a credit agreement for a total of $29,350 with a Bank; and, (iii) entering into a five-year $49,900 sale leaseback of certain assets. The financial statements do not include any adjustments related to the recoverability and classification of recorded amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. 24. SUPPLEMENTARY INFORMATION--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
DEFERRED ALLOWANCE FOR ALLOWANCE FOR TAXATION DOUBTFUL ALLOWANCE FOR EXHIBITION VALUATION PROVISION ACCOUNTS OBSOLESCENCE EXPIRATION ALLOWANCE FOR CLAIMS -------------- -------------- -------------- ----------- ----------- December 31, 1993 (combined)............. $ 363 $ 91 $ 3,367 $ 15,251 210 Additions Charged to expense............. 848 -- -- -- 920 Reduction................................ -- (91) (3,032) 12,968 (55) ------- ------- ------- ----------- ----------- Balance at December 31, 1994 (consolidated)......................... 1,211 -- 335 28,219 1,075 Additions Charged to expense............. 2,196 -- 827 5,655 2,688 ------- ------- ------- ----------- ----------- Balance at December 31, 1995 (consolidated)......................... 3,407 -- 1,162 33,874 3,763 Additions Charged to expense (unaudited)............................ 3,040 2,493 -- 7,937 1,940 Reduction (unaudited).................... (3,610) -- -- -- -- ------- ------- ------- ----------- ----------- Balance at September 30, 1996 (unaudited) (consolidated)......................... $ 2,837 $ 2,493 $ 1,162 $ 41,811 $ 5,703 ------- ------- ------- ----------- ----------- ------- ------- ------- ----------- -----------
25. SUBSEQUENT EVENTS. The Company generated additional debt financing of approximately $241,200 (net proceeds) in November, 1996 through a private placement of $250 million 12 5/8% Senior Notes issued to certain qualified institutional buyers. These proceeds were used to repay short term loans from affiliated companies. It is management's intention to use the remaining proceeds for capital expenditures, investments and other general corporate purposes. In addition, management entered into a credit agreement for a total of $29,350 with a Bank. 26. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR SUBSIDIARIES Tevecap conducts a significant portion of its business through subsidiaries. The $250 million 12 5/8% Senior Notes issued to certain qualified institutional buyers in November, 1996 are jointly and severally, irrevocably and fully and unconditionally guaranteed, on a senior basis, by all of Tevecap's direct and indirect subsidiaries except for TVA Communications Aruba N.A. and TVA TCG Sistema TV. F-27 TEVECAP S.A. AND SUBSIDIARIES NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED) 26. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR SUBSIDIARIES (CONTINUED) Presented below is condensed consolidating and combined financial information for: i) Tevecap on a parent company only basis; ii) the Wholly-Owned Guarantor Subsidiaries; iii) the Majority-Owned Guarantor Subsidiaries; iv) Non-Guarantor Subsidiaries; v) Eliminations; and, vi) Consolidated Tevecap S.A. and Subsidiaries. The equity method has been used by Tevecap, the Wholly-Owned Guarantor Subsidiaries and the Majority-Owned Guarantor Subsidiaries with respect to investments in their subsidiaries. The following sets forth the Wholly-Owned Guarantor Subsidiaries, the Majority-Owned Guarantor Subsidiaries and the Non-Guarantor Subsidiaries: A) WHOLLY OWNED GUARANTOR SUBSIDIARIES TVA Communications Ltd. Galaxy Brasil S.A. Comercial Cabo TV Sao Paulo Ltda. B) MAJORITY-OWNED GUARANTOR SUBSIDIARIES TVA Sistema de Televisao S.A. TVA Sul Participacoes S.A. TVA Parana Ltda. TVA Alfa Cabo Ltda. CCS Camboriu Cable System de Telecomunicacoes Ltda. TCC TV a Cabo Ltda. TVA Sul Foz do Iguacu Ltda. TVA Sul Santa Catarina Ltda. C) NON-GUARANTOR SUBSIDIARIES TVA Communications Aruba N.A TVA TCG Sistema de Televisao de Porto Alegre S.A. Separate financial statements for TVA Sistema de Televisao S.A. have been presented as of September 30, 1996 (unaudited) and 1995 (unaudited) and December 31, 1995 and 1994, and the related statements of operations, changes in shareholders' equity and cash flows for the nine months ended September 30, 1996 (unaudited) and 1995 (unaudited) and the three years in the period ended December 31, 1995. Separate consolidated and combined financial statements for TVA Sul Partipacoes S.A. have also been presented as of September 30, 1996 and 1995 (unaudited) and December 31, 1995 and 1994, and the related statements of operations, changes in shareholders' equity and cash flows for the nine months ended September 30, 1996 (unaudited) and 1995 (unaudited) and the three years in the period ended December 31, 1995. Unaudited financial information has also been included for TVA Alfa Cabo Ltda., CCS Camboriu Cable System de Telecomunicacoes Ltda, TVA Sul Santa Catarina Ltda., TCC TV a Cabo Ltda, TVA Sul Parana Ltda, and TVA Sul Foz do Iguacu Ltda of as and for the nine months ended September 30, 1996. Separate financial statements for the Wholly-Owned Guarantor Subsidiaries have not been presented based on management's determination that they do not provide additional information that is material to investors. F-28 TEVECAP S.A. AND SUBSIDIARIES NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED) 26. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR SUBSIDIARIES (CONTINUED) CONDENSED CONSOLIDATING BALANCE SHEET AT SEPTEMBER 30, 1996 (IN THOUSANDS OF U.S. DOLLARS)
MAJORITY- NON- PARENT WHOLLY-OWNED OWNED GUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- --------------- ------------ --------------- ------------ ------------- ASSETS Current assets Cash and cash equivalents........... $ 1 $ 26 $ 592 -- -- $ 619 Accounts receivable, net................... -- 2,922 18,909 -- $ (186) 21,645 Accounts receivable from related companies..... -- -- 2,639 -- (2,639) -- Inventories............. -- -- 15,840 -- 15,840 Film exhibition rights................ -- -- 725 -- -- 725 Prepaid and other assets................ -- 284 2,227 -- -- 2,511 Other accounts receivable............ 117 -- 1,950 -- 192 2,259 ----------- --------------- ------------ ----- ------------ ------------- Total current assets...... 118 3,232 42,882 -- (2,633) 43,599 ----------- --------------- ------------ ----- ------------ ------------- Property, plant and equipment............... -- 33,552 154,255 -- 256 188,063 Investments Equity affiliates....... 22,685 240 -- $ 285 (16,979) 6,231 Cost basis investees.... -- 16,371 -- -- -- 16,371 Concessions, net........ 7,348 -- 11,395 -- -- 18,743 Loans to related companies............... 344,272 16,125 2,953 -- (347,557) 15,793 Other..................... -- -- 2,642 -- (288) 2,354 ----------- --------------- ------------ ----- ------------ ------------- Total assets.............. $ 374,423 $ 69,520 $ 214,127 $ 285 $ (367,201) $ 291,154 ----------- --------------- ------------ ----- ------------ ------------- ----------- --------------- ------------ ----- ------------ -------------
F-29 TEVECAP S.A. AND SUBSIDIARIES NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED) 26. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR SUBSIDIARIES (CONTINUED) CONDENSED CONSOLIDATING BALANCE SHEET AT SEPTEMBER 30, 1996 (IN THOUSANDS OF U.S. DOLLARS)
MAJORITY- NON- PARENT WHOLLY-OWNED OWNED GUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- -------------- ------------ ------------- ------------ ------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Short term bank loan.... -- -- $ 5,441 -- -- $ 5,441 Film suppliers.......... -- 18,544 $ (12,806) 5,738 Other suppliers......... -- $ 14,757 36,298 -- -- 51,055 Taxes payable other than income taxes.......... -- 1,338 6,867 -- -- 8,205 Accrued payroll and related liabilities... -- 623 7,154 -- -- 7,777 Advance payments received from subscribers........... -- -- 7,473 -- -- 7,473 Other accounts payable.. $ 790 25 4,341 -- (1,473) 3,683 ----------- -------------- ------------ ------------- ------------ ------------- Total current liabilities......... 790 16,743 86,118 -- (14,279) 89,372 ----------- -------------- ------------ ------------- ------------ ------------- Long-term liabilities Loans from related companies............. 91,324 44,274 291,695 -- (335,367) 91,926 Loans from shareholders.......... -- -- 4,607 -- -- 4,607 Provision for claims.... -- -- 5,854 -- -- 5,854 Deferred hook up fee.... -- 2,943 -- -- -- 2,943 Liability to Fund Equity investee.............. 160,484 -- -- -- (160,484) -- ----------- -------------- ------------ ------------- ------------ ------------- Total long-term liabilities......... 251,808 47,217 302,156 -- (495,851) 105,330 ----------- -------------- ------------ ------------- ------------ ------------- Commitments and contingencies Minority interest......... -- -- 1,361 -- 837 2,198 Redeemable common stock, no par value............ 144,754 -- -- -- -- 144,754 Shareholders' equity Paid-in capital......... 142,495 22,251 35,267 $ 3,117 (60,635) 142,495 Accumulated deficit..... (165,424) (16,691) (210,775) (2,832) 202,727 (192,995) ----------- -------------- ------------ ------------- ------------ ------------- Total shareholders' equity.............. (22,929) 5,560 (175,508) 285 142,092 (50,500) ----------- -------------- ------------ ------------- ------------ ------------- Total liabilities and shareholders' equity.............. $ 374,423 $ 69,520 $ 214,127 $ 285 $ (367,201) $ 291,154 ----------- -------------- ------------ ------------- ------------ ------------- ----------- -------------- ------------ ------------- ------------ -------------
F-30 TEVECAP S.A. AND SUBSIDIARIES NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED) 26. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR SUBSIDIARIES (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (IN THOUSANDS OF U.S. DOLLARS)
MAJORITY- NON- PARENT WHOLLY-OWNED OWNED GUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- -------------- ------------- ------------- ------------ ------------- Gross revenues Monthly subscriptions......... -- $ 501 $ 84,800 -- -- $ 85,301 Installation.................. -- 3,200 36,196 -- -- 39,396 Advertising................... -- -- 5,362 -- -- 5,362 Indirect programming.......... -- -- 5,278 -- -- 5,278 Other......................... -- 1 5,294 -- -- 5,295 Revenue taxes................. -- (508) (8,373) -- -- (8,881) ----------- -------------- ------------- ------------- ------------ ------------- Net revenue................. -- 3,194 128,557 -- -- 131,751 ----------- -------------- ------------- ------------- ------------ ------------- Direct operating expenses Payroll and benefits.......... -- 2,100 17,367 -- -- 19,467 Programming................... -- -- 25,477 -- -- 25,477 Transponder lease cost........ -- 4 6,571 -- -- 6,575 Technical assistance.......... -- -- 4,923 -- -- 4,923 Vehicle rentals............... -- -- 1,252 -- -- 1,252 TVA magazine.................. -- -- 4,680 -- -- 4,680 Other costs................... -- 3,006 10,177 -- -- 13,183 ----------- -------------- ------------- ------------- ------------ ------------- -- 5,110 70,447 -- -- 75,557 ----------- -------------- ------------- ------------- ------------ ------------- Selling, general and administrative expenses Payroll and benefits.......... -- 525 20,996 -- -- 21,521 Advertising and promotion..... -- 1,761 11,033 -- -- 12,794 Rent.......................... -- -- 2,323 -- -- 2,323 Other administrative expenses.................... $ 463 1,871 7,655 -- -- 9,989 Other general expenses........ -- -- 7,083 -- -- 7,083 ----------- -------------- ------------- ------------- ------------ ------------- 463 4,157 49,090 -- -- 53,710 Allowance for obsolescence...... -- -- 2,493 -- -- 2,493 Depreciation.................... -- 1,059 16,377 -- -- 17,436 Amortization.................... 630 -- 481 -- -- 1,111 ----------- -------------- ------------- ------------- ------------ ------------- Operating loss.............. (1,093) (7,132) (10,331) -- -- (18,556) Interest income................. 358 8 5,779 -- $ (2,495) 3,650 Interest expense................ (6,095) (890) (5,635) -- 2,495 (10,125) Translation (loss) gain......... 275 (168) 136 -- -- 243 Equity in (losses) income of affiliates.................... (26,703) (825) -- $ (825) 21,711 (6,642) Other nonoperating (expenses) income, net................... (3,382) (1,689) (1,947) -- -- (7,018) ----------- -------------- ------------- ------------- ------------ ------------- Loss before income taxes and minority interest......... (36,640) (10,696) (11,998) (825) 21,711 (38,448) Income taxes.................... -- -- (105) -- -- (105) ----------- -------------- ------------- ------------- ------------ ------------- Net loss before minority interest...................... (36,640) (10,696) (12,103) (825) 21,711 (38,553) Minority interest............... -- -- (14) -- 1,547 1,533 ----------- -------------- ------------- ------------- ------------ ------------- Net loss.................... $ (36,640) $ (10,696) $ (12,117) $ (825) $ 23,258 $ (37,020) ----------- -------------- ------------- ------------- ------------ ------------- ----------- -------------- ------------- ------------- ------------ -------------
F-31 TEVECAP S.A. AND SUBSIDIARIES NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED) 26. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR SUBSIDIARIES (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (IN THOUSANDS OF U.S. DOLLARS)
MAJORITY- NON- PARENT WHOLLY-OWNED OWNED GUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- -------------- ------------- --------------- ------------ ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss...................... $ (36,640) $ (10,696) $ (12,117) $ (825) $ 23,258 $ (37,020) ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES: Depreciation................ -- 1,059 16,377 -- -- 17,436 Amortization................ 630 -- 481 -- -- 1,111 Allowance for exhibition costs..................... -- -- -- -- -- -- Allowance for doubtful accounts.................. -- -- 3,040 -- -- 3,040 Allowance for obsolescence.. -- -- 2,493 -- -- 2,493 Provision for claims........ -- -- 2,091 -- -- 2,091 Minority interest........... -- -- -- -- (1,533) (1,533) Disposal and write-off of fixed assets.............. -- -- 1,163 -- -- 1,163 Equity in losses (earnings) of affiliates............. 6,682 825 -- 825 (1,690) 6,642 CHANGES IN OPERATING ASSETS AND LIABILITIES: Film exhibition rights...... -- -- (695) -- -- (695) Accounts receivable......... -- (2,922) (10,696) -- 186 (13,432) Prepaid and other assets.... -- -- 686 -- (229) 457 Other accounts receivable... (115) (228) (3,013) -- 2,168 (1,188) Other....................... -- -- 190 -- 4,978 5,168 Accrued Interest............ 5,461 (491) (1,675) -- 1,405 4,700 Inventories................. -- -- (5,257) -- (5,257) Legal deposits.............. -- -- (306) -- 172 (134) Suppliers................... -- 8,898 (891) -- (9,184) (1,177) Taxes payable other than income taxes.............. -- 243 1,791 -- -- 2,034 Accrued payroll and related liabilities............... -- 555 2,651 -- -- 3,206 Advances received from subscribers............... -- -- 3,487 -- -- 3,487 Deferred hook up fee........ -- 2,943 -- -- -- 2,943 Other accounts payable...... 13 (235) 184 -- (882) (920) ----------- -------------- ------------- ------ ------------ ------------- Net cash (used in) provided by operating activities.......... (23,969) (49) (16) -- 18,649 (5,385) ----------- -------------- ------------- ------ ------------ -------------
F-32 TEVECAP S.A. AND SUBSIDIARIES NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED) 26. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR SUBSIDIARIES (CONTINUED)
MAJORITY- NON- PARENT WHOLLY-OWNED OWNED GUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- -------------- ------------- --------------- ------------ ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of fixed assets...... -- (21,956) (50,835) -- 253 (72,538) Loans to related companies.... (77,586) (10,700) (1,468) -- 67,085 (22,669) Cash received on loans to affiliated companies........ 3,333 1,474 9,315 -- (514) 13,608 Purchase of concessions....... 13,490 -- (13,490) -- (13,490) (13,490) Investments in equity and cost investments................. (24,474) (5,100) -- -- 12,863 (16,711) ----------- -------------- ------------- ------ ------------ ------------- Net cash used in investing activities.................... (85,237) (36,282) (56,478) -- 67,197 (111,800) ----------- -------------- ------------- ------ ------------ ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Short term bank loans......... -- -- 5,441 -- -- 5,441 Capital contributions......... -- 16,036 18,964 -- (35,000) -- Repayments of loans from shareholders................ -- -- (162) -- 1,684 1,522 Loans from shareholders....... -- 3,963 1,822 -- (5,785) -- Loans from related companies.. 126,227 17,349 38,232 -- (65,630) 116,178 Repayments of loans from related companies........... (40,466) (1,003) (9,315) -- 21,246 (29,538) Minority interest............. -- -- 1,361 -- (1,361) -- ----------- -------------- ------------- ------ ------------ ------------- Net cash provided by financing activities.................... 85,761 36,345 56,343 -- (84,846) 93,603 ----------- -------------- ------------- ------ ------------ ------------- Net (decrease) increase in cash and cash equivalents (23,445) 14 (151) -- -- (23,582) Cash and cash equivalents at beginning of the period....... 23,446 12 743 -- -- 24,201 ----------- -------------- ------------- ------ ------------ ------------- Cash and cash equivalents at end of the period................. $ 1 $ 26 $ 592 $ -- $ -- $ 619 ----------- -------------- ------------- ------ ------------ ------------- ----------- -------------- ------------- ------ ------------ ------------- SUPPLEMENTAL CASH DISCLOSURE: Cash paid for interest........ -- -- -- -- -- -- ----------- -------------- ------------- ------ ------------ ------------- ----------- -------------- ------------- ------ ------------ ------------- SUPPLEMENTAL NON CASH FINANCING ACTIVITIES: Accrued interest on related company loans refinanced as principal balance........... 4,684 -- 1,272 -- (1,272) 4,684 ----------- -------------- ------------- ------ ------------ ------------- ----------- -------------- ------------- ------ ------------ ------------- DETAILS OF ACQUISITIONS: Fair value of assets acquired.................... -- -- 14,895 -- -- -- Liabilities assumed........... -- -- (1,330) -- -- -- ----------- -------------- ------------- ------ ------------ ------------- Cash paid..................... -- -- (13,565) -- -- -- Less: cash acquired........... -- -- (75) -- -- -- Net cash paid for acquisitions................ -- -- $ 13,490 -- -- -- ----------- -------------- ------------- ------ ------------ ------------- ----------- -------------- ------------- ------ ------------ -------------
F-33 TEVECAP S.A. AND SUBSIDIARIES NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED) 26. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR SUBSIDIARIES (CONTINUED) CONDENSED CONSOLIDATING BALANCE SHEET AT DECEMBER 31, 1995 (IN THOUSANDS OF U.S. DOLLARS)
MAJORITY - NON- PARENT WHOLLY-OWNED OWNED GUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- --------------- ------------ ------------- ------------ ------------- ASSETS Current assets Cash and cash equivalents........... $ 23,446 $ 12 $ 743 -- -- $ 24,201 Accounts receivable, net................... -- -- 11,253 -- -- 11,253 Inventories............. -- -- 13,076 -- -- 13,076 Film exhibition rights................ -- -- 30 -- -- 30 Prepaid and other assets................ -- 55 2,913 -- -- 2,968 Other accounts receivable............ 2 -- 1,490 -- $ (507) 985 ----------- --------------- ------------ ------------- ------------ ------------- Total current assets.............. 23,448 67 29,505 $ -- (507) 52,513 ----------- --------------- ------------ ------------- ------------ ------------- Property, plant and equipment............... -- 11,492 120,350 -- (576) 131,266 Investments Equity affiliates....... 7,252 1,110 -- 1,110 (6,010) 3,462 Cost basis investees.... 15 11,225 -- -- -- 11,240 Concessions, net........ 7,978 -- -- -- -- 7,978 Loans to related companies............... 281,034 6,786 10,480 -- (291,568) 6,732 Other..................... -- -- 1,568 -- 2,089 3,657 ----------- --------------- ------------ ------------- ------------ ------------- Total assets.......... $ 319,727 $ 30,680 $ 161,903 $ 1,110 $ (296,572) $ 216,848 ----------- --------------- ------------ ------------- ------------ ------------- ----------- --------------- ------------ ------------- ------------ ------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Film suppliers.......... -- -- $ 9,512 -- $ (3,620) $ 5,892 Other suppliers......... -- $ 5,859 46,219 -- -- 52,078 Taxes payable other than income taxes.......... -- 1,095 5,076 -- -- 6,171 Accrued payroll and related liabilities... -- 68 4,503 -- -- 4,571 Advance payments received from subscribers........... -- -- 3,986 -- -- 3,986 Other accounts payable.. $ 169 273 2,830 -- -- 3,272 ----------- --------------- ------------ ------------- ------------ ------------- Total current liabilities......... 169 7,295 72,126 $ -- (3,620) 75,970 ----------- --------------- ------------ ------------- ------------ ------------- Long-term liabilities Loans from related companies............. 585 23,174 265,282 -- (288,455) 586 Loans from shareholders.......... -- -- 3,086 -- -- 3,086 Provision for claims.... -- -- 3,763 -- -- 3,763 Liability to Fund Equity investee.............. 160,508 -- -- -- (158,339) 2,169 ----------- --------------- ------------ ------------- ------------ ------------- Total long-term liabilities......... 161,093 23,174 272,131 -- (446,794) 9,604 ----------- --------------- ------------ ------------- ------------ ------------- Redeemable common stock, no par value............ 144,754 -- -- -- -- 144,754 Shareholders' equity Paid-in capital......... 142,495 6,214 17,017 3,117 (26,348) 142,495 Accumulated deficit..... (128,784) (6,003) (199,371) (2,007) 180,190 (155,975) ----------- --------------- ------------ ------------- ------------ ------------- Total shareholders' equity.............. 13,711 211 (182,354) 1,110 153,842 (13,480) ----------- --------------- ------------ ------------- ------------ ------------- Total liabilities and shareholders' equity.............. $ 319,727 $ 30,680 $ 161,903 $ 1,110 $ (296,572) $ 216,848 ----------- --------------- ------------ ------------- ------------ ------------- ----------- --------------- ------------ ------------- ------------ -------------
F-34 TEVECAP S.A. AND SUBSIDIARIES NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED) 26. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR SUBSIDIARIES (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 (IN THOUSANDS OF U.S. DOLLARS)
WHOLLY- MAJORITY- NON- PARENT OWNED OWNED GUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ---------- ------------ ------------ ------------ ------------ ------------- Gross revenues Monthly subscriptions......................... -- -- $ 62,496 -- -- $ 62,496 Installation.................................. -- -- 26,045 -- -- 26,045 Advertising................................... -- -- 8,377 -- -- 8,377 Indirect programming.......................... -- -- 2,866 -- -- 2,866 Other......................................... -- -- 2,226 -- -- 2,226 Revenue taxes................................. -- -- (7,506) -- -- (7,506) ---------- ------------ ------------ ------------ ------------ ------------- Net revenue................................. $ -- $ -- 94,504 $ -- $ -- 94,504 ---------- ------------ ------------ ------------ ------------ ------------- Direct operating expenses Payroll and benefits.......................... -- 315 12,205 -- -- 12,520 Programming................................... -- -- 21,609 -- -- 21,609 Transponder lease cost........................ -- -- 7,568 -- -- 7,568 Technical assistance.......................... -- -- 5,152 -- -- 5,152 Vehicle rentals............................... -- 7 1,725 -- -- 1,732 TVA magazine.................................. -- -- 3,318 -- -- 3,318 Other costs................................... -- 705 9,422 -- -- 10,127 ---------- ------------ ------------ ------------ ------------ ------------- -- 1,027 60,999 -- -- 62,026 ---------- ------------ ------------ ------------ ------------ ------------- Selling, general and administrative expenses Payroll and benefits.......................... -- -- 21,627 -- -- 21,627 Advertising and promotion..................... -- 62 11,060 -- -- 11,122 Rent.......................................... -- 18 1,055 -- -- 1,073 Other administrative expenses................. 198 202 6,273 -- -- 6,673 Other general expenses........................ -- 4 6,403 -- -- 6,407 ---------- ------------ ------------ ------------ ------------ ------------- 198 286 46,418 -- -- 46,902 ---------- ------------ ------------ ------------ ------------ ------------- Depreciation.................................... -- 127 12,721 -- -- 12,848 Amortization.................................... 420 -- -- -- -- 420 ---------- ------------ ------------ ------------ ------------ ------------- Operating loss.............................. (618) (1,440) (25,634) -- -- (27,692) ---------- ------------ ------------ ------------ ------------ ------------- Interest income................................. 6,772 350 7,965 -- (11,969) 3,118 Interest expense................................ (15,273) (1,226) (13,215) -- 11,969 (17,745) Translation loss................................ (28) (151) (160) -- -- (339) Equity in (losses) of affiliates................ (27,316) (1,427) -- (1,427) 26,498 (3,672) Other nonoperating (expenses) income, net....... (477) 811 4,055 -- -- 4,389 ---------- ------------ ------------ ------------ ------------ ------------- Loss before income taxes and minority interest.................................. (36,940) (3,083) (26,989) (1,427) 26,498 (41,941) Income taxes -- -- -- -- -- -- ---------- ------------ ------------ ------------ ------------ ------------- Net loss before minority interest............... (36,940) (3,083) (26,989) (1,427) 26,498 (41,941) Minority interest............................... -- -- -- -- 871 871 ---------- ------------ ------------ ------------ ------------ ------------- Net loss.................................... $ (36,940) $ (3,083) $ (26,989) $ (1,427) $ 27,369 $ (41,070) ---------- ------------ ------------ ------------ ------------ ------------- ---------- ------------ ------------ ------------ ------------ -------------
F-35 TEVECAP S.A. AND SUBSIDIARIES NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED) 26. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR SUBSIDIARIES (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1995 (IN THOUSANDS OF U.S. DOLLARS)
WHOLLY- MAJORITY- NON- PARENT OWNED OWNED GUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES SUBSIDIARIES ELIMINATIONS ----------- ------------- ------------- ------------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss......................................... $ (36,940) $ (3,083) $ (26,989) $ (1,427) $ 27,369 ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES: Depreciation................................. -- 127 12,721 -- -- Amortization................................. 420 -- -- -- -- Allowance for exhibition costs............... -- -- 827 -- -- Allowance for doubtful accounts.............. -- -- 2,196 -- -- Provision for claims......................... -- -- 2,688 -- -- Minority interest............................ -- -- -- -- (871) Disposal and write-off of fixed assets....... -- 4,352 474 -- (4,485) Equity in losses (earnings) of affiliates.... 27,316 (1,427) -- 1,427 (23,644) CHANGES IN OPERATING ASSETS AND LIABILITIES: Film exhibition rights....................... -- -- 560 -- -- Accounts receivable.......................... -- -- (5,908) -- -- Prepaid and other assets..................... -- (55) (1,214) -- -- Other accounts receivable.................... (2) -- (599) -- -- Accrued Interest............................. 8,473 244 5,395 -- (4,871) Inventories.................................. -- 333 (7,706) -- -- Legal deposits............................... -- -- (108) -- -- Suppliers.................................... -- 5,385 34,004 -- (3,114) Taxes payable other than income taxes........ -- 1,095 3,786 -- -- Accrued payroll and related liabilities...... -- 68 1,568 -- -- Deferred accounts payable.................... -- -- 2,956 -- -- Other accounts payable....................... 3 273 1,372 -- -- ----------- ------------- ------------- ------------- ------------ Net cash (used in) provided by operating activities............................... (730) 7,312 26,023 -- (9,616) ----------- ------------- ------------- ------------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of fixed assets....................... -- (11,619) (86,470) -- 5,060 Loans to related companies..................... (115,498) (6,709) (8,220) -- 122,460 Cash received on loans to related companies.... 34,220 -- 26 -- (31,655) Purchase of concessions........................ (6,393) -- -- -- -- Investments in equity and cost investments..... (4,382) (13,763) -- (3,117) 6,399 ----------- ------------- ------------- ------------- ------------ Net cash used in investing activities...... (92,053) (32,091) (94,664) (3,117) 102,264 ----------- ------------- ------------- ------------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Capital contributions.......................... 125,000 2,154 -- 3,117 (5,271) Repayments of loans from shareholders.......... -- 2,154 -- -- (2,154) Loans from related companies................... 131,858 22,848 97,218 -- (120,064) Repayments of loans from related companies..... (140,629) (2,365) (32,477) -- 34,840 ----------- ------------- ------------- ------------- ------------ Net cash provided by financing activities............................... 116,229 24,791 64,741 3,117 (92,649) ----------- ------------- ------------- ------------- ------------ Net increase (decrease) in cash and cash equivalents.................................... 23,446 12 (3,901) -- -- Cash and cash equivalents at beginning of the period......................................... -- -- 4,644 -- -- ----------- ------------- ------------- ------------- ------------ Cash and cash equivalents at end of the period................................... $ 23,446 $ 12 $ 743 $ -- $ -- ----------- ------------- ------------- ------------- ------------ ----------- ------------- ------------- ------------- ------------ SUPPLEMENTAL CASH DISCLOSURE: Cash paid for interest......................... $ 8,390 $ -- $ 2,708 $ -- $ (2,708) ----------- ------------- ------------- ------------- ------------ ----------- ------------- ------------- ------------- ------------ SUPPLEMENTAL NON-CASH FINANCINGactivities: Accrued interest on related company loans refinanced as principal balance.............. $ 9,355 $ 34 $ 4,754 $ -- $ (4,788) ----------- ------------- ------------- ------------- ------------ ----------- ------------- ------------- ------------- ------------ CONSOLIDATED ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss......................................... $ (41,070) ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES: Depreciation................................. 12,848 Amortization................................. 420 Allowance for exhibition costs............... 827 Allowance for doubtful accounts.............. 2,196 Provision for claims......................... 2,688 Minority interest............................ (871) Disposal and write-off of fixed assets....... 341 Equity in losses (earnings) of affiliates.... 3,672 CHANGES IN OPERATING ASSETS AND LIABILITIES: Film exhibition rights....................... 560 Accounts receivable.......................... (5,908) Prepaid and other assets..................... (1,269) Other accounts receivable.................... (601) Accrued Interest............................. 9,241 Inventories.................................. (7,373) Legal deposits............................... (108) Suppliers.................................... 36,275 Taxes payable other than income taxes........ 4,881 Accrued payroll and related liabilities...... 1,636 Deferred accounts payable.................... 2,956 Other accounts payable....................... 1,648 ------------- Net cash (used in) provided by operating activities............................... 22,989 ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of fixed assets....................... (93,029) Loans to related companies..................... (7,967) Cash received on loans to related companies.... 2,591 Purchase of concessions........................ (6,393) Investments in equity and cost investments..... (14,863) ------------- Net cash used in investing activities...... (119,661) ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Capital contributions.......................... 125,000 Repayments of loans from shareholders.......... -- Loans from related companies................... 131,860 Repayments of loans from related companies..... (140,631) ------------- Net cash provided by financing activities............................... 116,229 ------------- Net increase (decrease) in cash and cash equivalents.................................... 19,557 Cash and cash equivalents at beginning of the period......................................... 4,644 ------------- Cash and cash equivalents at end of the period................................... $ 24,201 ------------- ------------- SUPPLEMENTAL CASH DISCLOSURE: Cash paid for interest......................... $ 8,390 ------------- ------------- SUPPLEMENTAL NON-CASH FINANCINGactivities: Accrued interest on related company loans refinanced as principal balance.............. $ 9,355 ------------- -------------
F-36 TEVECAP S.A. AND SUBSIDIARIES NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED) 26. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR SUBSIDIARIES (CONTINUED) CONDENSED CONSOLIDATING BALANCE SHEET AT DECEMBER 31, 1994 (IN THOUSANDS OF U.S. DOLLARS)
WHOLLY- MAJORITY- PARENT OWNED OWNED COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ----------- ------------- ------------ ------------ ------------- ASSETS Current assets Cash and cash equivalents.............. -- -- $ 4,644 -- $ 4,644 Accounts receivable, net............... -- -- 7,541 -- 7,541 Inventories............................ -- $ 333 5,370 -- 5,703 Film exhibition rights................. -- -- 1,417 -- 1,417 Prepaid and other assets............... -- -- 1,699 -- 1,699 Other accounts receivable.............. -- -- 891 $ (507) 384 ----------- ------------- ------------ ------------ ------------- Total current assets................. $ -- 333 21,562 (507) 21,388 ----------- ------------- ------------ ------------ ------------- Property, plant and equipment............ -- 4,352 47,074 -- 51,426 Investments............................ -- -- -- -- -- Equity affiliates...................... 3,664 -- -- (1,808) 1,856 Cost basis investees................... 39 -- -- -- 39 Concessions, net....................... 2,035 -- -- -- 2,035 Loans to related companies............... 196,504 33 103 (195,621) 1,019 Other.................................... -- -- 1,357 1,321 2,678 ----------- ------------- ------------ ------------ ------------- Total assets......................... $ 202,242 $ 4,718 $ 70,096 $ (196,615) $ 80,441 ----------- ------------- ------------ ------------ ------------- ----------- ------------- ------------ ------------ ------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Film suppliers......................... -- -- $ 7,093 $ (507) $ 6,586 Other suppliers........................ -- $ 474 14,635 -- 15,109 Taxes payable other than income taxes................................ -- -- 1,290 -- 1,290 Accrued payroll and related liabilities.......................... -- -- 2,935 -- 2,935 Advance payments received from subscribers.......................... -- -- 1,030 -- 1,030 Other accounts payable................. $ 166 -- 1,458 -- 1,624 ----------- ------------- ------------ ------------ ------------- Total current liabilities............ 166 474 28,441 (507) 28,574 ----------- ------------- ------------ ------------ ------------- Long-term liabilities Loans from related companies........... -- 2,436 193,082 (195,518) -- Loans from shareholders................ -- -- 2,864 -- 2,864 Provision for claims................... -- -- 1,075 -- 1,075 Liability to Fund Equity investee...... 131,672 -- -- (131,088) 584 ----------- ------------- ------------ ------------ ------------- Total long-term liabilities.......... 131,672 2,436 197,021 (326,606) 4,523 ----------- ------------- ------------ ------------ ------------- Redeemable common stock, no par value.... 19,754 -- -- -- 19,754 Shareholders' equity Paid-in capital........................ 142,495 1,823 17,017 (18,840) 142,495 Accumulated deficit.................... (91,845) (15) (172,383) 149,338 (114,905) ----------- ------------- ------------ ------------ ------------- Total shareholders' equity........... 50,650 1,808 (155,366) 130,498 27,590 ----------- ------------- ------------ ------------ ------------- ----------- ------------- ------------ ------------ ------------- Total liabilities and shareholders' equity........................... $ 202,242 $ 4,718 $ 70,096 $ (196,615) $ 80,441 ----------- ------------- ------------ ------------ ------------- ----------- ------------- ------------ ------------ -------------
F-37 TEVECAP S.A. AND SUBSIDIARIES NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED) 26. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR SUBSIDIARIES (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1994 (IN THOUSANDS OF U.S. DOLLARS)
MAJORITY- PARENT OWNED COMPANY SUBSIDIARIES ELIMINATIONS CONSOLIDATED ---------- ------------ ------------ ------------- Gross revenues Monthly subscriptions.................................. -- $ 27,976 -- $ 27,976 Installation........................................... -- 6,997 -- 6,997 Advertising............................................ -- 5,727 -- 5,727 Indirect programming................................... -- 1,626 -- 1,626 Other.................................................. -- 1,446 -- 1,446 Revenue taxes.......................................... -- (872) -- (872) ---------- ------------ ------------ ------------- Net revenue........................................ $ -- 42,900 $ -- 42,900 ---------- ------------ ------------ ------------- Direct operating expenses Payroll and benefits................................... -- 8,022 -- 8,022 Programming............................................ -- 12,133 -- 12,133 Transponder lease cost................................. -- 1,555 -- 1,555 Technical assistance................................... -- 1,622 -- 1,622 Vehicle rentals........................................ -- 788 -- 788 TVA magazine........................................... -- 1,430 -- 1,430 Other costs............................................ -- 3,109 -- 3,109 ---------- ------------ ------------ ------------- -- 28,659 -- 28,659 ---------- ------------ ------------ ------------- Selling, general and administrative expenses Payroll and benefits................................... -- 14,241 -- 14,241 Advertising and promotion.............................. -- 3,540 -- 3,540 Rent................................................... -- 656 -- 656 Other administrative expenses.......................... -- 2,206 -- 2,206 Other general expenses................................. 143 3,584 -- 3,727 ---------- ------------ ------------ ------------- 143 24,227 -- 24,370 ---------- ------------ ------------ ------------- Depreciation............................................. -- 6,177 -- 6,177 Operating loss........................................... (143) (16,163) (16,306) ---------- ------------ ------------ ------------- Interest income.......................................... 64,360 8,479 (51,033) 21,806 Interest expense......................................... (5,279) (62,166) 51,032 (16,413) Translation loss......................................... (231) (683) -- (914) Equity in (losses) income of affiliates.................. (61,063) -- 61,446 383 Other nonoperating expenses, net......................... (1,228) (45) -- (1,273) ---------- ------------ ------------ ------------- Loss before income taxes and minority interest......... (3,584) (70,578) 61,445 (12,717) Income taxes (Note 11) ---------- ------------ ------------ ------------- Net loss before minority interest........................ (3,584) (70,578) 61,445 (12,717) Minority interest........................................ -- -- 720 720 ---------- ------------ ------------ ------------- Net loss............................................... $ (3,584) $ (70,578) $ 62,165 $ (11,997) ---------- ------------ ------------ ------------- ---------- ------------ ------------ -------------
F-38 TEVECAP S.A. AND SUBSIDIARIES NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED) 26. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR SUBSIDIARIES (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1994 (IN THOUSANDS OF U.S. DOLLARS)
WHOLLY- MAJORITY- PARENT OWNED OWNED COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS ----------- ------------- ------------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss...................................................... $ (3,584) -- $ (70,578) $ 62,165 ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES: Depreciation................................................ -- -- 6,141 -- Allowance for doubtful accounts............................. -- -- 848 -- Provision for claims........................................ -- -- 864 -- Minority interest........................................... -- -- -- (721) Disposal and write-off of fixed assets...................... -- -- 662 -- Equity in losses (earnings) of affiliates................... 61,063 -- -- (61,446) CHANGES IN OPERATING ASSETS AND LIABILITIES: Film exhibition rights...................................... -- -- (114) -- Accounts receivable......................................... -- -- (7,007) -- Prepaid and other assets.................................... -- -- (1,364) -- Other accounts receivable................................... -- -- (706) 507 Other....................................................... -- -- (2,683) (233) Accrued Interest............................................ (74,306) -- 57,221 17,808 Inventories................................................. -- $ (333) (2,050) -- Legal deposits.............................................. -- -- (154) -- Suppliers................................................... -- 474 5,342 (507) Taxes payable other than income taxes....................... -- -- 685 -- Accrued payroll and related liabilities..................... -- -- 1,454 -- Advances received from subscribers.......................... -- -- (496) -- Other accounts payable...................................... 166 -- 1,175 -- ----------- ------------- ------------- ------------ Net cash (used in) provided by operating activities..... (16,661) 141 (10,761) 17,574 ----------- ------------- ------------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of fixed assets.................................... -- (4,362) (18,007) -- Loans to related companies.................................. (148,622) (33) (2,098) 147,271 Cash received on loans to related companies................. 5,997 -- 4,019 (5,535) Purchase of concessions..................................... (2,035) -- -- -- Investments in equity and cost investments.................. (929) -- -- -- ----------- ------------- ------------- ------------ Net cash used in investing activities................... (145,589) (4,395) (16,086) 141,736 ----------- ------------- ------------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Capital contributions....................................... 162,250 1,808 7,588 (20,194) Repayments of loans from shareholders....................... -- -- (3,082) -- Loans from related companies................................ -- 2,446 225,581 (131,041) Repayments of loans from related companies.................. -- -- (178,680) (8,075) Repayments of loans from banks.............................. -- -- (19,935) -- ----------- ------------- ------------- ------------ Net cash provided by financing activities............... 162,250 4,254 31,472 (159,810) ----------- ------------- ------------- ------------ Net increase in cash and cash equivalents..................... -- -- 4,625 -- Cash and cash equivalents at beginning of the period.......... -- -- 19 -- ----------- ------------- ------------- ------------ Cash and cash equivalents at end of the period.......... $ -- $ -- $ 4,644 $ -- ----------- ------------- ------------- ------------ ----------- ------------- ------------- ------------ SUPPLEMENTAL CASH DISCLOSURE: Cash paid for interest...................................... $ 16,413 $ -- $ 8,583 $ (8,583) ----------- ------------- ------------- ------------ ----------- ------------- ------------- ------------ SUPPLEMENTAL NON-CASH FINANCING ACTIVITIES: Accrued interest on related company loans refinanced as principal balance......................................... $ -- $ -- $ 56,427 $ (56,427) ----------- ------------- ------------- ------------ ----------- ------------- ------------- ------------ CONSOLIDATED ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss...................................................... $ (11,997) ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES: Depreciation................................................ 6,141 Allowance for doubtful accounts............................. 848 Provision for claims........................................ 864 Minority interest........................................... (721) Disposal and write-off of fixed assets...................... 662 Equity in losses (earnings) of affiliates................... (383) CHANGES IN OPERATING ASSETS AND LIABILITIES: Film exhibition rights...................................... (114) Accounts receivable......................................... (7,007) Prepaid and other assets.................................... (1,364) Other accounts receivable................................... (199) Other....................................................... (2,450) Accrued Interest............................................ 723 Inventories................................................. (2,383) Legal deposits.............................................. (154) Suppliers................................................... 5,309 Taxes payable other than income taxes....................... 685 Accrued payroll and related liabilities..................... 1,454 Advances received from subscribers.......................... (496) Other accounts payable...................................... 1,341 ------------- Net cash (used in) provided by operating activities..... (9,707) ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of fixed assets.................................... (22,369) Loans to related companies.................................. (3,482) Cash received on loans to related companies................. 4,481 Purchase of concessions..................................... (2,035) Investments in equity and cost investments.................. (929) ------------- Net cash used in investing activities................... (24,334) ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Capital contributions....................................... 151,452 Repayments of loans from shareholders....................... (3,082) Loans from related companies................................ 96,986 Repayments of loans from related companies.................. (186,755) Repayments of loans from banks.............................. (19,935) ------------- Net cash provided by financing activities............... 38,666 ------------- Net increase in cash and cash equivalents..................... 4,625 Cash and cash equivalents at beginning of the period.......... 19 ------------- Cash and cash equivalents at end of the period.......... $ 4,644 ------------- ------------- SUPPLEMENTAL CASH DISCLOSURE: Cash paid for interest...................................... $ 16,413 ------------- ------------- SUPPLEMENTAL NON-CASH FINANCING ACTIVITIES: Accrued interest on related company loans refinanced as principal balance......................................... $ -- ------------- -------------
F-39 TEVECAP S.A. AND SUBSIDIARIES NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED) 26. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR SUBSIDIARIES (CONTINUED) CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1993 (IN THOUSANDS OF U.S. DOLLARS)
MAJORITY- OWNED SUBSIDIARIES ELIMINATIONS COMBINED ------------ ------------ ------------- Gross revenues Monthly subscriptions.............................................. $ 12,544 -- $ 12,544 Installation....................................................... 4,350 -- 4,350 Advertising........................................................ 2,099 -- 2,099 Indirect programming............................................... 530 -- 530 Other.............................................................. 369 -- 369 Revenue taxes...................................................... (371) -- (371) ------------ ------------ ------------- Net revenue...................................................... 19,521 $ -- 19,521 ------------ ------------ ------------- Direct operating expenses Payroll and benefits............................................... 6,079 -- 6,079 Programming........................................................ 18,156 -- 18,156 Transponder lease cost............................................. 1,262 -- 1,262 Technical assistance............................................... 1,773 -- 1,773 Vehicle rentals.................................................... 597 -- 597 TVA magazine....................................................... 725 -- 725 Other costs........................................................ 1,187 -- 1,187 ------------ ------------ ------------- 29,779 -- 29,779 ------------ ------------ ------------- Selling, general and administrative expenses Payroll and benefits............................................... 10,945 -- 10,945 Advertising and promotion.......................................... 2,205 -- 2,205 Rent............................................................... 847 -- 847 Other administrative expenses...................................... 2,265 -- 2,265 Other general expenses............................................. 3,695 -- 3,695 ------------ ------------ ------------- 19,957 -- 19,957 ------------ ------------ ------------- Depreciation......................................................... 4,813 -- 4,813 ------------ ------------ ------------- Operating loss................................................... (35,028) -- (35,028) Interest income...................................................... 5,369 -- 5,369 Interest expense..................................................... (8,492) -- (8,492) Translation gain..................................................... 788 -- 788 Other nonoperating expenses, net..................................... (557) -- (557) ------------ ------------ ------------- Loss before income taxes and minority interest................... (37,920) -- (37,920) Income taxes..................................................... -- -- -- ------------ ------------ ------------- Net loss before minority interest.................................... (37,920) -- (37,920) Minority interest.................................................... -- 292 292 ------------ ------------ ------------- Net loss......................................................... $ (37,920) 292 $ (37,628) ------------ ------------ ------------- ------------ ------------ -------------
F-40 TEVECAP S.A. AND SUBSIDIARIES NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED) 26. FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS AND NON-GUARANTOR SUBSIDIARIES (CONTINUED) CONDENSED COMBINED CASH FLOW STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1993 (IN THOUSANDS OF U.S. DOLLARS)
MAJORITY- OWNED SUBSIDIARIES ELIMINATIONS COMBINED ------------- --------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss........................................................... $ (37,920) $ 292 $ (37,628) ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES: Depreciation..................................................... 5,081 -- 5,081 Provision for claims............................................. (131) -- (131) Minority interest................................................ -- (292) (292) CHANGES IN OPERATING ASSETS AND LIABILITIES: Film exhibition rights........................................... 4,843 -- 4,843 Accounts receivable.............................................. (181) -- (181) Prepaid and other assets......................................... 113 -- 113 Other accounts receivable........................................ (90) -- (90) Other............................................................ (221) -- (221) Accrued Interest................................................. 8,368 -- 8,368 Inventories...................................................... (533) -- (533) Legal deposits................................................... (415) -- (415) Suppliers........................................................ 40 -- 40 Taxes payable other than income taxes............................ 167 -- 167 Accrued payroll and related liabilities.......................... 140 -- 140 Advances received from subscribers............................... 1,415 -- 1,415 Other accounts payable........................................... 144 -- 144 ------------- ------ ------------- Net cash used in operating activities.......................... (19,180) -- (19,180) ------------- ------ ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of fixed assets........................................... (11,379) -- (11,379) Loans to related companies......................................... (1,811) -- (1,811) ------------- ------ ------------- Net cash used in investing activities.......................... (13,190) -- (13,190) ------------- ------ ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Loans from shareholders............................................ 3,299 -- 3,299 Loans to shareholders.............................................. (3,298) -- (3,298) Loans from related companies....................................... 106,023 -- 106,023 Repayments of loans from related companies......................... (67,056) -- (67,056) Repayments of loans from banks..................................... (6,620) -- (6,620) ------------- ------ ------------- Net cash provided by financing activities...................... 32,348 -- 32,348 ------------- ------ ------------- Net (decrease) increase in cash and cash equivalents................. (22) -- (22) Cash and cash equivalents at beginning of the period................. 41 -- 41 ------------- ------ ------------- Cash and cash equivalents at end of the period................. $ 19 $ -- $ 19 ------------- ------ ------------- ------------- ------ ------------- SUPPLEMENTAL CASH DISCLOSURE: Cash paid for interest............................................. $ 1,183 $ -- $ 1,183 ------------- ------ ------------- ------------- ------ ------------- SUPPLEMENTAL NON-CASH FINANCING ACTIVITIES: Accrued interest on related company loans refinanced as principal balance.......................................................... $ 8,225 $ -- $ 8,225 ------------- ------ ------------- ------------- ------ -------------
F-41 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Directors of TVA SISTEMA DE TELEVISAO S.A. We have audited the accompanying balance sheets of TVA SISTEMA DE TELEVISAO S.A. (the "Company") as of December 31, 1995 and 1994, and the related statements of operations, changes in shareholders' equity and cash flows for the three years in the period ended December 31, 1995, all expressed in United States dollars. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of TVA SISTEMA DE TELEVISAO S.A. as of December 31, 1995 and 1994, and the related results of their operations and cash flows for the three years in the period ended December 31, 1995, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 3 to financial statements, the Company has retroactively changed its method of accounting for installation equipment costs and operating costs incurred during the period of constructing their television systems. Coopers & Lybrand Sao Paulo, Brazil August 23, 1996 F-42 TVA SISTEMA DE TELEVISAO S.A. BALANCE SHEETS SEPTEMBER 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995 AND 1994 (IN THOUSANDS OF U.S. DOLLARS)
DECEMBER 31, SEPTEMBER 30, ---------------------- 1996 1995 1994 -------------- ----------- --------- (UNAUDITED) ASSETS Current assets Cash and cash equivalents (Note 4).................................... $ 178 $ 698 $ 4,644 Accounts receivable, net (Note 5)..................................... 18,160 11,221 7,541 Accounts receivable from related companies (Note 9)................... 2,639 945 707 Inventories (Note 6).................................................. 14,464 13,076 5,370 Film exhibition rights (Note 7)....................................... 725 30 1,417 Prepaid and other assets (Note 8)..................................... 1,639 2,845 1,654 Other accounts receivable............................................. 834 543 177 -------------- ----------- --------- Total current assets................................................ 38,639 29,358 21,510 -------------- ----------- --------- Property, plant and equipment (Note 12)................................. 140,706 118,884 46,877 Loans to related companies (Note 9)..................................... 2,953 10,480 -- Other................................................................... 1,665 1,559 1,452 -------------- ----------- --------- Total assets........................................................ $ 183,963 $ 160,281 $ 69,839 -------------- ----------- --------- -------------- ----------- ---------
The accompanying notes are an integral part of the financial statements F-43 TVA SISTEMA DE TELEVISAO S.A. BALANCE SHEETS AT SEPTEMBER 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995 AND 1994 (IN THOUSANDS OF U.S. DOLLARS)
AT DECEMBER 31, AT SEPTEMBER -------------------------- 30, 1996 1995 1994 -------------- ------------ ------------ (UNAUDITED) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Short-term bank loans (Note 13)..................................... $ 5,441 -- -- Film suppliers...................................................... 18,544 $ 9,512 $ 7,093 Other suppliers..................................................... 35,546 46,123 14,532 Taxes payable other than income taxes............................... 6,659 5,020 1,261 Accrued payroll and related liabilities............................. 6,549 4,250 2,795 Advance payments received from subscribers.......................... 7,473 3,986 1,031 Other accounts payable (Note 14).................................... 1,913 1,828 1,402 -------------- ------------ ------------ Total current liabilities....................................... 82,125 70,719 28,114 -------------- ------------ ------------ Long-term liabilities Loans from shareholders (Note 10)................................... 2,767 2,906 2,729 Loans from related companies (Note 9)............................... 274,719 254,802 187,196 Provision for claims (Note 18)...................................... 5,704 3,763 1,075 -------------- ------------ ------------ Total long-term liabilities..................................... 283,190 261,471 191,000 -------------- ------------ ------------ Commitments and contingencies (Note 18) Shareholders' equity Common shares, no par value, 6,980,764 shares issued and outstanding (Note 17)......................................................... 16,303 16,303 16,303 Accumulated deficit................................................. (197,655) (188,212) (165,578) -------------- ------------ ------------ Total shareholders' equity...................................... (181,352) (171,909) (149,275) -------------- ------------ ------------ Total liabilities and shareholders' equity...................... $ 183,963 $ 160,281 $ 69,839 -------------- ------------ ------------ -------------- ------------ ------------
The accompanying notes are an integral part of the financial statements F-44 TVA SISTEMA DE TELEVISAO S.A. STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND SEPTEMBER 30, 1995 (UNAUDITED) AND THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (IN THOUSANDS OF U.S. DOLLARS)
SEPTEMBER 30, DECEMBER 31, ------------------------ ---------------------------------- 1996 1995 1995 1994 1993 ----------- ----------- ---------- ---------- ---------- (UNAUDITED) (UNAUDITED) Gross revenues Monthly subscriptions................................. $ 76,588 $ 39,106 $ 59,263 $ 26,584 $ 12,147 Installation.......................................... 35,377 17,995 26,045 6,997 4,350 Advertising........................................... 5,362 5,505 8,377 5,721 2,099 Indirect programming.................................. 5,278 2,114 2,866 1,626 628 Other................................................. 5,229 2,194 2,226 1,446 271 Revenue taxes......................................... (8,065) (5,018) (7,280) (801) (352) ----------- ----------- ---------- ---------- ---------- Net revenue......................................... 119,769 61,896 91,497 41,573 19,143 ----------- ----------- ---------- ---------- ---------- Direct operating expenses Payroll and benefits.................................. 14,600 7,742 10,749 7,017 5,152 Programming........................................... 24,336 14,105 21,609 12,133 18,156 Transponder lease cost................................ 6,571 5,357 7,568 1,555 1,262 Technical assistance.................................. 4,219 3,753 4,937 1,607 1,692 Vehicle rentals....................................... 1,014 941 1,478 767 525 TVA magazine.......................................... 4,522 2,164 3,318 1,430 725 Other costs........................................... 9,047 5,961 9,190 2,677 932 ----------- ----------- ---------- ---------- ---------- 64,309 40,023 58,849 27,186 28,444 ----------- ----------- ---------- ---------- ---------- Selling, general and administrative expenses Payroll and benefits.................................. 20,032 15,396 21,089 14,034 10,699 Advertising and promotion............................. 10,711 5,702 10,793 3,540 2,163 Rent.................................................. 2,165 688 941 656 837 Other administrative expenses......................... 6,535 4,134 5,981 2,205 2,265 Other general expenses................................ 6,752 3,522 5,917 2,782 3,697 ----------- ----------- ---------- ---------- ---------- 46,195 29,442 44,721 23,217 19,661 ----------- ----------- ---------- ---------- ---------- Allowance for obsolescence.............................. 2,493 -- -- -- -- Depreciation............................................ 15,980 8,544 12,535 6,141 4,793 ----------- ----------- ---------- ---------- ---------- Operating loss...................................... (9,208) (16,113) (24,608) (14,971) (33,755) ----------- ----------- ---------- ---------- ---------- Interest income......................................... 5,612 5,388 7,800 8,298 5,331 Interest expense........................................ (3,894) (6,724) (9,687) (59,598) (7,997) Translation gain (loss)................................. 236 14 (167) (662) 506 Other nonoperating (expenses) income, net............... (2,189) 3,032 4,028 (45) (557) ----------- ----------- ---------- ---------- ---------- Loss before income taxes and minority interest...... (9,443) (14,403) (22,634) (66,978) (36,472) Income taxes (Note 11) -- -- -- -- -- ----------- ----------- ---------- ---------- ---------- Net loss............................................ $ (9,443) $ (14,403) $ (22,634) $ (66,978) $ (36,472) ----------- ----------- ---------- ---------- ---------- ----------- ----------- ---------- ---------- ----------
F-45 TVA SISTEMA DE TELEVISAO S.A. STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND SEPTEMBER 30, 1995 (UNAUDITED) AND THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (IN THOUSANDS OF U.S. DOLLARS)
PAID-IN CAPITAL ACCUMULATED (NOTE 17) DEFICIT TOTAL ---------- ------------- ------------ Balance at December 31, 1992............................................ $ 10,797 $ (62,128) $ (51,331) Net loss for the year................................................... -- (36,472) (36,472) ---------- ------------- ------------ Balance at of December 31, 1993..................................... 10,797 (98,600) (87,803) Capital contributed on: February 28, 1994..................................................... 5,432 -- 5,432 April 4, 1994......................................................... 74 -- 74 Net loss for the year................................................... (66,978) (66,978) ---------- ------------- ------------ Balance at December 31, 1994...................................... 16,303 (165,578) (149,275) Net loss for the year................................................... -- (22,634) (22,634) ---------- ------------- ------------ Balance at December 31, 1995...................................... 16,303 (188,212) (171,909) Net loss for the period (unaudited)..................................... -- (9,443) (9,443) ---------- ------------- ------------ Balance at September 30, 1996 (unaudited)......................... $ 16,303 $ (197,655) $ (181,352) ---------- ------------- ------------ ---------- ------------- ------------ FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995: Balance at December 31, 1994...................................... $ 16,303 $ (165,578) $ (149,275) Net loss for the period (unaudited)..................................... -- (14,403) (14,403) ---------- ------------- ------------ Balance at September 30, 1995 (unaudited)......................... $ 16,303 $ (179,981) $ (163,678) ---------- ------------- ------------ ---------- ------------- ------------
The accompanying notes are an integral part of the financial statements. F-46 TVA SISTEMA DE TELEVISAO S.A. STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND SEPTEMBER 30, 1995 (UNAUDITED) AND THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (IN THOUSANDS OF U.S. DOLLARS)
SEPTEMBER 30, DECEMBER 31, ------------------------ ------------------------------- 1996 1995 1995 1994 1993 ----------- ----------- --------- --------- --------- (UNAUDITED) (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss.................................................... $ (9,443) $ (14,403) $ (22,634) $ (66,978) $ (36,472) ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES: Depreciation.............................................. 15,980 8,544 12,535 6,141 4,793 Allowance for exhibition costs............................ -- -- 827 -- -- Allowance for doubtful accounts........................... 3,040 -- 2,196 848 -- Allowance for obsolescence................................ 2,493 -- -- -- -- Provision for claims...................................... 1,941 2,411 2,688 865 (133) Minority interest......................................... -- -- -- -- (331) Loss on disposal of fixed assets.......................... 368 -- 474 629 -- CHANGES IN OPERATING ASSETS AND LIABILITIES: Film exhibition rights.................................... (695) 213 560 (114) 4,843 Accounts receivable....................................... (9,979) (4,899) (5,876) (7,007) (181) Prepaid and other assets.................................. 1,206 949 (1,191) (1,330) 117 Other accounts receivable................................. (1,985) (2,854) (604) (712) (77) Other..................................................... 200 (507) -- (600) 107 Accrued Interest.......................................... (2,974) (48) 356 54,019 7,994 Inventories............................................... (3,881) (7,049) (7,706) (2,050) (533) Legal deposits............................................ (306) (83) (107) (149) (413) Suppliers................................................. (1,545) 16,057 34,010 5,270 46 Taxes payable other than income taxes..................... 1,639 448 3,759 662 161 Accrued payroll and related liabilities................... 2,299 2,468 1,453 1,394 123 Advances received from subscribers........................ 3,487 1,005 2,955 (495) 1,415 Other accounts payable.................................... 85 999 426 1,128 148 ----------- ----------- --------- --------- --------- Net cash provided by (used in) operating activities..... 1,930 3,251 24,121 (8,479) (18,393) ----------- ----------- --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of fixed assets.................................... (38,170) (56,332) (85,016) (17,938) (11,061) Loans to affiliated companies............................... (508) (7,633) (8,220) (2,098) (1,811) Cash received on loans to related companies................. 9,315 26 26 3,942 ----------- ----------- --------- --------- --------- Net cash used in investing activities................... (29,363) (63,939) (93,210) (16,094) (12,872) ----------- ----------- --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Short-term bank loans....................................... 5,441 -- -- -- -- Capital contributions....................................... -- -- -- 5,506 -- Repayments of loans from shareholders....................... -- -- -- (3,082) -- Loans from shareholders..................................... -- -- -- -- 3,298 Loans to shareholders....................................... -- -- -- -- (3,298) Loans from related companies................................ 21,472 71,785 89,000 227,188 104,863 Repayments of loans from related companies.................. -- (15,734) (23,857) (180,477) (67,002) Repayments of loans from banks.............................. -- -- -- (19,935) (6,620) ----------- ----------- --------- --------- --------- Net cash provided by financing activities............... 26,913 56,051 65,143 29,200 31,241 ----------- ----------- --------- --------- --------- Net (decrease) increase in cash and cash equivalents.......... (520) (4,637) (3,946) 4,627 (24) Cash and cash equivalents at beginning of the period.......... 698 4,644 4,644 17 41 ----------- ----------- --------- --------- --------- Cash and cash equivalents at end of the period.......... $ 178 $ 7 $ 698 $ 4,644 $ 17 ----------- ----------- --------- --------- --------- ----------- ----------- --------- --------- --------- SUPPLEMENTAL CASH DISCLOSURE: Cash paid for interest...................................... $ -- $ -- $ -- $ 8,583 $ -- ----------- ----------- --------- --------- --------- ----------- ----------- --------- --------- --------- SUPPLEMENTAL NON-CASH FINANCING ACTIVITIES: Accrued interest on related company loans refinanced as principal balance........................................ $ -- $ 1,597 $ 2,468 $ 54,158 $ 7,862 ----------- ----------- --------- --------- --------- ----------- ----------- --------- --------- ---------
The accompanying notes are an integral part of the financial statements. F-47 TVA SISTEMA DE TELEVISAO S.A. NOTES TO THE FINANCIAL STATEMENTS 1. THE COMPANY AND ITS PRINCIPAL OPERATIONS The Company renders services related to wireless cable and cable and parabolic antenna television systems, including marketing and advertising, production, distribution and licensing of domestic and foreign television programs. The Company has wireless cable channel rights primarily in major urban markets in Brazil. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Significant policies followed in the preparation of the accompanying financial statements are described below: 2.1 BASIS OF PRESENTATION The financial statements are presented in US Dollars and have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP), which differ in certain respects from accounting principles applied by the Company in its local currency financial statements, which are prepared in accordance with accounting principles generally accepted in Brazil ("Brazilian GAAP"). The Company was formed on July 31, 1993 by transferring net assets, at book value, from TVA Brasil, an entity under common control. Results for the year ended December 31, 1993 include those of TVA Brasil for the period from January 1, 1993 to July 31, 1993 and those of TVA Sistema, therafter. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the financial statement dates and the reported amount of revenues and expenses during the reporting periods. Since management's judgment involves making estimates concerning the likelihood of future events, the actual results could differ from those estimates which will have a positive or negative effect on future period results. 2.2 ACCOUNTING RECORDS As required by Brazilian Law, and in accordance with local accounting practices, the accounting records of the Company are maintained in Brazilian currency (REAL). In order to present the financial statements in conformity with U.S. GAAP, the Company maintains additional accounting records which are used solely for this purpose. 2.3 CURRENCY REMEASUREMENT In accordance with Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Transactions", the United States dollar has been assumed to be the functional currency as Brazil is a "hyperinflationary" country. As such, the local accounts of the Company are translated into United States dollars as follows: - Nonmonetary assets and liabilities are translated at historical rates. All other assets and liabilities are translated at the official rate of exchange of R$1.022 to US$1 in effect on September 30, 1996; R$0.973 to US$1 in effect on December 31, 1995; and, R$0.846 to US$1 on December 31, 1994. - Income and expenses are translated at the average exchange rates in effect each month, except for those related to assets and liabilities which are translated at historical exchange rates, and F-48 TVA SISTEMA DE TELEVISAO S.A. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 2.3 CURRENCY REMEASUREMENT (CONTINUED) deferred income taxes, which are translated at the current rate. Translation gains/losses are recognized in the income statement. 2.4 CASH AND CASH EQUIVALENTS Cash and cash equivalents are defined as cash and cash in banks and investments in interest-bearing securities and are carried at cost plus accrued interest. Short-term investments with original maturities of three months or less at the time of purchase are considered cash equivalents. 2.5 FINANCIAL INSTRUMENTS In accordance with SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," information is provided about the fair value of certain financial instruments for which it is practicable to estimate that value. For the purposes of SFAS No. 107, the estimated fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The carrying values of the Company's financial instruments as of September 30, 1996, December 31, 1995 and December 31, 1994 approximate management's best estimate of their estimated fair values. The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value: - The fair value of certain financial assets carried at cost, including cash, accounts receivable, other accounts receivable, and certain other short-term assets is considered to approximate their respective carrying value due to their short-term nature. - The fair value of payables to film suppliers and other suppliers, other accounts payable, loans to related companies and certain other short-term liabilities is considered to approximate their respective carrying value due to their short-term nature. - The fair value of loans from related companies approximates their respective carrying values, as interest on these loans is at market rates. 2.6 ACCOUNTS RECEIVABLE Accounts receivable are stated at their estimated realizable values. An allowance for doubtful accounts is established on the basis of an analysis of the accounts receivable, in light of the risks involved, and is considered sufficient to cover any losses incurred in realization of credits. 2.7 INVENTORIES Inventories consist of materials and supplies and imports in transit. Materials and supplies are used to provide service to new customers, and to ensure continuity of service to existing customers. Imports in transit represent materials purchased from foreign countries that have not yet been received. Inventories are stated at the lower of cost or market. Cost is determined principally under the average cost method. An allowance for obsolescence has been established on the basis of an analysis of slow-moving materials and supplies. F-49 TVA SISTEMA DE TELEVISAO S.A. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 2.8 FILM EXHIBITION RIGHTS AND PROGRAM LICENSING Film exhibition rights and program licensing costs are deferred and recognized as the films and/or programs are exhibited. The allowance for exhibition expiration is determined based on management's estimate of the Company's capacity to telecast the films and projected revenue streams. 2.9 PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost and depreciated using the straight-line method, over the remaining useful lives, as described in Note 12. 2.10 ADVERTISING Advertising revenues are recognized, and the production cost of commercials and programming are charged to expense, when the commercial is telecast. 2.11 RECOVERABILITY OF LONG-LIVED ASSETS TO BE HELD AND USED IN THE BUSINESS Management reviews long-lived assets, primarily the Company's licenses and its property and equipment to be held and used in the business, for the purposes of determining and measuring impairment on a recurring basis or when events or changes in circumstances indicate that the carrying value of an asset or group of assets may not be recoverable. Assets are grouped and evaluated for possible impairment at the level of each cable television system; impairment is assessed on the basis of the forecasted undiscounted cash flows of the businesses over the estimated remaining lives of the assets related to those systems. A write-down of the carrying value of the assets or group of assets to estimated fair value will be made, when appropriate. The Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be disposed of", from January 1, 1996 and the effect on the financial statements as a result of the adoption was not significant. 2.12 SUBSCRIPTIONS Installation fees are recognized as revenue on the equipment installation date to the extent of direct selling costs incurred. Subscription revenues are recognized as earned on an accrual basis. 2.13 LICENSES Televisao Show Time Ltda. ("TV Show Time") and TVA Brasil Radioenlaces Ltda. ("TVA Brasil") hold certain licenses covering certain operations of the Company. The use of such licenses is provided to the Company, for a nominal fee, under a Service Agreement dated July 22, 1994, as amended, among TEVECAP, TV Show Time, TVA Brasil and Abril. Pursuant to the Service Agreement, TV Show Time and TVA Brasil have agreed to transfer the licenses, which are carried at nil value, to TEVECAP at nominal cost. F-50 TVA SISTEMA DE TELEVISAO S.A. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 2.14 FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED) The unaudited financial statements for the nine months ended September 30, 1996 and 1995 have been derived from the Company's records and reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial data. 3. ACCOUNTING CHANGES To more appropriately account for the cost of (i) installation equipment and (ii) operating costs incurred during the period of constructing their television systems, the Company has restated all prior-year amounts as compared to those previously reported by the separate combining entities: (i) Installation equipment The Company has changed the estimated useful life of installation equipment to five years. The costs of such equipment had previously been accounted for as period costs. (ii) Operating costs incurred during the period of construction of television systems The Company has changed its policy of deferring operating costs during the period of construction of its television systems, to treat such costs as period costs. 4. CASH AND CASH EQUIVALENTS At September 30, 1996 (unaudited), December 31, 1995 and 1994, cash was comprised of:
AT DECEMBER 31, AT SEPTEMBER 30, -------------------- 1996 1995 1994 ------------------- --------- --------- (UNAUDITED) Cash on hand and in banks................................................... $ 129 $ 582 $ 178 Short-term investments...................................................... 49 116 4,466 ----- --------- --------- $ 178 $ 698 $ 4,644 ----- --------- --------- ----- --------- ---------
5. ACCOUNTS RECEIVABLE At September 30, 1996 (unaudited), December 31, 1995 and 1994, accounts receivable were comprised of:
AT DECEMBER 31, AT SEPTEMBER 30, -------------------- 1996 1995 1994 ----------------- --------- --------- (UNAUDITED) Subscriptions........................................................... $ 5,978 $ 5,154 $ 1,879 Installation fees....................................................... 7,508 4,605 1,686 Advertising & programming............................................... 2,359 1,810 1,560 Barter.................................................................. 4,976 2,989 3,627 Others.................................................................. 176 70 -- Allowance for doubtful accounts......................................... (2,837) (3,407) (1,211) -------- --------- --------- $ 18,160 $ 11,221 $ 7,541 -------- --------- --------- -------- --------- ---------
F-51 TVA SISTEMA DE TELEVISAO S.A. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 6. INVENTORIES At September 30, 1996 (unaudited), December 31, 1995 and 1994, inventories were comprised of:
AT DECEMBER 31, AT SEPTEMBER 30, -------------------- 1996 1994 1995 ----------------- --------- --------- (UNAUDITED) Materials and supplies.................................................. $ 15,284 $ 10,913 $ 4,652 Imports in transit...................................................... 1,673 2,163 718 Allowance for obsolescence.............................................. (2,493) -- -- -------- --------- --------- $ 14,464 $ 13,076 $ 5,370 -------- --------- --------- -------- --------- ---------
7. FILM EXHIBITION RIGHTS At September 30, 1996 (unaudited), December 31, 1995 and 1994, film exhibition rights were comprised of:
AT DECEMBER 31, AT SEPTEMBER 30, -------------------- 1996 1995 1994 ----------------- --------- --------- (UNAUDITED) Exhibition rights........................................................ $ 1,887 $ 1,192 $ 1,752 Allowance for exhibition expiration...................................... (1,162) (1,162) (335) ------- --------- --------- $ 725 $ 30 $ 1,417 ------- --------- --------- ------- --------- ---------
8. PREPAID AND OTHER ASSETS At September 30, 1996, December 31, 1995 and 1994, prepaid expenses were comprised of:
AT DECEMBER 31, AT SEPTEMBER 30, -------------------- 1996 1995 1994 ----------------- --------- --------- (UNAUDITED) Advances to suppliers..................................................... $ 470 $ 2,022 $ 954 Prepaid TVA magazine publishing expenses.................................. 822 562 379 Prepaid meals and transportation.......................................... 189 147 186 Others.................................................................... 158 114 135 ------- --------- --------- $ 1,639 $ 2,845 $ 1,654 ------- --------- --------- ------- --------- ---------
9. RELATED-PARTY TRANSACTIONS The following tables summarize the transactions between the Company and related companies at September 30, 1996 (unaudited) and December 31, 1995, 1994 and for the nine month periods ended F-52 TVA SISTEMA DE TELEVISAO S.A. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 9. RELATED-PARTY TRANSACTIONS (CONTINUED) September 30, 1996 (unaudited) and 1995 (unaudited) and the three years in the period ended December 31, 1995:
AT DECEMBER 31, AT SEPTEMBER 30, ------------------------ 1996 1995 1994 ----------------- ----------- ----------- (UNAUDITED) TVA Parana Loans receivable.................................................. $ 2,878 $ 10,480 Accounts receivable............................................... 1,546 TV Cabo Santa Catarina Loans receivable.................................................. 75 Tevecap S.A Loans payable..................................................... 270,014 249,885 $ 187,196 Coml. Cabo Loans payable..................................................... 4,705 4,917 HBO Brasil Accounts receivable............................................... 786 507 507 Televisao Abril Ltda. Accounts receivable............................................... 178 ESPN Brasil Ltda. Accounts receivable............................................... 438 Accounts payable.................................................. 29 510 Editora Abril S.A. Accounts payable.................................................. 78 108 Others Accounts receivable............................................... 129 200 Accounts payable.................................................. 7 9
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31, -------------------- -------------------------------- 1996 1995 1995 1994 1993 --------- --------- --------- ---------- --------- (UNAUDITED) Tevecap Net interest expense.................................. $ 1,299 $ 1,595 $ 2,465 $ 54,143 $ 831 Abril Comunicacoes Net interest expense.................................. 8,505 Abrilpar Net interest expense.................................. 78 Coml. Cabo Net interest expense.................................. 256 TV Cabo Santa Catarina Net interest income................................... (8) ESPN do Brasil Ltda. Programming (income) costs, net....................... (2,576) (851) 646 TVA Parana Net interest income................................... (1,272) (1,661) (2,286)
F-53 TVA SISTEMA DE TELEVISAO S.A. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 9. RELATED-PARTY TRANSACTIONS (CONTINUED) The related company loans are denominated in REAIS and are subject to monetary restatement plus interest charges at the market rate which was 1.79% per month in September 1996 (3.44% per month in December 1995). The Company's parent, TEVECAP S.A. ("Tevecap"), and Falcon International Communications Services Inc., one of Tevecap's shareholders, signed a consulting service agreement on April 1, 1996 related to the Company's operations and technologies. Initially, the duration of this agreement is two years, renewable every subsequent two-year period thereafter. The payment for the consulting services amounts to $200 per annum. 10. LOANS FROM SHAREHOLDERS Loans from shareholders at September 30, 1996, December 31, 1995 and 1994, were comprised of:
AT DECEMBER 31, AT SEPTEMBER -------------------- 30, 1996 1995 1994 -------------- --------- --------- (UNAUDITED) Roberto Civita............................................................... $ 2,490 $ 2,616 $ 2,455 Maricla I. Rossi............................................................. 59 61 58 Edgard Silvio Faria.......................................................... 175 184 174 Angelo Silvio Rossi.......................................................... 43 45 42 ------- --------- --------- $ 2,767 $ 2,906 $ 2,729 ------- --------- --------- ------- --------- ---------
Interest on loans from shareholders is based on the Ufir (Fiscal Reference Unit), the variation of which was 0% during the nine-month period ended September 30, 1996 (unaudited) (22.46% in December 1995). F-54 TVA SISTEMA DE TELEVISAO S.A. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 11. DEFERRED INCOME TAX The tax effects of temporary differences that give rise to a significant portion of the deferred tax asset and deferred tax liability at September 30, 1996 (unaudited) and at December 31, 1995 and 1994 are as follows:
AT DECEMBER 31, AT SEPTEMBER ---------------------- 30, 1996 1995 1994 -------------- ---------- ---------- (UNAUDITED) Deferred tax assets: Net operating loss carryforwards....................................... $ 25,751 $ 24,267 $ 20,937 Deferred charges....................................................... 5,649 7,238 11,818 Others................................................................. 976 165 796 -------------- ---------- ---------- Total gross deferred tax asset..................................... 32,376 31,670 33,551 Less, valuation allowance................................................ (27,720) (24,693) (26,962) -------------- ---------- ---------- Net deferred tax asset................................................... 4,656 6,977 6,589 Deferred tax liability: Inflationary profit.................................................... -- -- (4,107) Installation costs..................................................... (4,656) (6,977) (2,482) -------------- ---------- ---------- Total gross deferred tax liability................................. (4,656) (6,977) (6,589) -------------- ---------- ---------- Net deferred tax asset................................................... $ -- $ -- $ -- -------------- ---------- ---------- -------------- ---------- ----------
The Company has a limited operating history and has generated losses since its inception. The valuation allowance has been established in accordance with the requirements of SFAS No. 109 and relates to the amount of net operating loss carryforwards in excess of net taxable temporary differences. As of September 30, 1996, the Company has unexpirable accumulated tax losses of $84,264. F-55 TVA SISTEMA DE TELEVISAO S.A. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 11. DEFERRED INCOME TAX (CONTINUED) Income tax was different from the amount computed using the Brazilian statutory income tax for the reasons set forth in the following table:
FOR THE NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, -------------------------------- 1996 1995 1994 1993 -------------- --------- ---------- --------- (UNAUDITED) Loss before income taxes and minority interest............... $ 9,447 $ 22,635 $ 66,979 $ 36,473 Statutory income tax rate.................................... 30.56% 30.56% 43.0% 35.2% ------- --------- ---------- --------- 2,887 6,917 28,801 12,838 Profit on intercompany transaction not eliminated on fiscal books...................................................... -- -- -- (7,834) (Decrease) increase in the income tax rate................... -- (7,800) 3,161 -- Monetary correction of deferred charges...................... -- 1,342 (19,031) 3,003 Translation rate difference on exhibition rights............. -- 381 -- -- Others....................................................... 140 1,429 198 (1,311) ------- --------- ---------- --------- Income tax benefit for the period............................ 3,027 2,269 13,129 6,696 Increase in valuation allowance.............................. (3,027) (2,269) (13,129) (6,696) ------- --------- ---------- --------- $ -- $ -- $ -- $ -- ------- --------- ---------- --------- ------- --------- ---------- ---------
F-56 TVA SISTEMA DE TELEVISAO S.A. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 12. PROPERTY, PLANT AND EQUIPMENT At September 30, 1996, December, 31, 1995 and 1994, property, plant and equipment were comprised of:
ANNUAL DEPRECIATION AT DECEMBER 31, RATE AT SEPTEMBER 30, ----------------------- % 1996 1995 1994 ----------------- ----------------- ----------- ---------- (UNAUDITED) Machinery and Equipment............................... 10 $ 31,608 $ 29,598 $ 21,095 Converters............................................ 10 63,588 36,485 10,809 Leasehold Improvements................................ 25 1,950 1,795 1,463 Furniture and Fixtures................................ 10 1,239 1,032 626 Premises.............................................. 10 1,232 1,066 551 Vehicles.............................................. 20 1,013 442 147 Software.............................................. 20 2,379 1,360 388 Tools................................................. 10 621 621 439 Reception Equipment................................... 20 62,159 44,508 19,265 Cable Plant........................................... 10 8,178 7,089 -- Building.............................................. 4 -- 342 155 ----------------- ----------- ---------- 173,967 124,338 54,938 Accumulated Depreciation.............................. (39,120) (23,114) (10,105) Telephone Line Use Rights............................. 1,718 1,370 773 Trademarks, Patents and Others........................ 165 164 186 Fixed Assets in Transit............................... 3,285 16,126 1,085 Others................................................ 691 -- -- ----------------- ----------- ---------- $ 140,706 $ 118,884 $ 46,877 ----------------- ----------- ---------- ----------------- ----------- ----------
13. SHORT-TERM BANK LOANS Short-term bank loans at September 30, 1996 represent the refinancing of certain supplier payables. The average short-term interest rate on such loans is Libor Plus 1.5%. 14. OTHER ACCOUNTS PAYABLE At September 30, 1996 (unaudited), December, 31, 1995 and 1994, other accounts payable were comprised of:
AT DECEMBER 31, AT SEPTEMBER -------------------- 30, 1996 1995 1994 -------------- --------- --------- (UNAUDITED) Accounts payable to related Companies (Note 9)............................... $ 114 $ 627 $ 13 Advertising.................................................................. 751 427 851 Importation expenses payable................................................. 580 328 86 Others....................................................................... 468 446 452 ------- --------- --------- $ 1,913 $ 1,828 $ 1,402 ------- --------- --------- ------- --------- ---------
F-57 TVA SISTEMA DE TELEVISAO S.A. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 15. INSURANCE The Company maintains insurance coverage for its fixed assets and inventories in an amount considered sufficient to cover the risks involved. 16. LEASED ASSETS AND COMMITMENTS The Company has entered into film distribution contracts and licensing agreements with film producers for programming for future periods. Such contracts and agreements, which range in life from 1 to 9 years with the exception of a specific contract with ESPN, which has a life of 50 years, require a per-subscriber fee to be paid by the Company on a monthly basis. The Company has rented its office space until the year 2001. At December 31, 1995, future minimum rental payments applicable to operating leases in respect of this space aggregate approximately $4,874 as follows: 1996............................................................... $ 1,588 1997............................................................... 769 1998............................................................... 663 1999............................................................... 643 2000............................................................... 608 2001............................................................... 603 --------- Total.............................................................. 4,874 --------- ---------
At December 31, 1995, the Company had contractual commitments with Embratel for transponder use until the year 2003. Based on estimated to aggregate approximately $52,361, as follows: 1996.............................................................. $ 8,302 1997.............................................................. 8,302 1998.............................................................. 8,302 1999.............................................................. 8,035 2000.............................................................. 7,768 2001.............................................................. 7,768 2002.............................................................. 3,884 --------- Total............................................................. $ 52,361 --------- ---------
17. PAID-IN CAPITAL Paid-in capital represents registered common shares without par value. The Company's shareholders are entitled to minimum dividends of 25% of net income for the year, adjusted according to Corporation Law. As the Company has not recorded net income since its inception, no such dividends are payable. 18. LITIGATION CONTINGENCIES Certain claims and lawsuits arising in the ordinary course of business have been filed or are pending against the Company which were not recognized in the financial statements. The Company has also recorded provisions related to certain claims in amounts that management considers to be adequate after considering a number of factors including (but not limited to) the views of legal counsel, the nature of the claims and the prior experience of the Company. F-58 TVA SISTEMA DE TELEVISAO S.A. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 18. LITIGATION CONTINGENCIES (CONTINUED) In management's opinion, all contingencies have been adequately provided for or are without merit, or are of such kind that if disposed of unfavorably, would not have a material adverse effect on the financial position or future results of operations of the Company. 19. PENSION PLAN In April 1996, the Company became a co-sponsor of the private pension entity named Abrilprev Sociedade de Previdencia Privada, the primary objective of which is to grant employees benefits other than those provided by Social Security. The plan is optional to all employees of the sponsoring entities. Abrilprev operates as a Defined Contribution Plan. Company contributions are made based on a fixed percentage applied to the payroll of the sponsoring entities based on actuarial calculations. Plan expenses amounted to $263 in 1996. 20. WORKING CAPITAL DEFICIENCY The Company's financial statements for the period ended September 30,1996 were prepared on a going concern basis which contemplates the realization of assets and settlement of liabilities and commitments in the normal course of business. The company incurred net losses of $9,433, $22,634 and $66,978 for the nine months ended September 30,1996 and the two years in the period ended December 31,1995 respectively. In addition, the Company had negative working capital of $44,319 at September 30,1996. The Company is endeavoring to reverse its pattern of losses and effectively meet its liquidity needs through increasing the revenue base and other means. In the event that these steps prove to be inadequate to maintain Sistema's operating cash flow, the Company's principal shareholder, Tevecap, intends to maintain the company as a going concern. Tevecap's support may be in the form of cash advances, loans, equity infusions or external guarantees. 21. SUPPLEMENTARY INFORMATION--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
DEFERRED ALLOWANCE ALLOWANCE FOR TAXATION PROVISION FOR DOUBTFUL ALLOWANCE FOR EXHIBITION VALUATION FOR ACCOUNTS OBSOLESCENCE EXPIRATION ALLOWANCE CLAIMS ------------ --------------- -------------- --------- ----------- December 31, 1993................................. $ 363 $ 91 $ 3,367 $ 13,833 $ 210 Additions Charged to Expense...................... 848 -- -- 13,129 920 Reduction......................................... -- (91) (3,032) -- (55) ------------ ------- ------- --------- ----------- Balance at December 31, 1994...................... 1,211 -- 335 26,962 1,075 Additions Charged to Expense...................... 2,196 -- 827 (2,269) 2,688 ------------ ------- ------- --------- ----------- Balance at December 31, 1995...................... 3,407 -- 1,162 24,693 3,763 Additions Charged to Expense...................... 3,040 2,493 -- 3,027 1,940 Reduction......................................... (3,610) -- -- -- -- ------------ ------- ------- --------- ----------- Balance at September 30, 1996..................... $ 2,837 $ 2,493 $ 1,162 $ 27,720 $ 5,703 ------------ ------- ------- --------- ----------- ------------ ------- ------- --------- -----------
F-59 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Directors of TVA SUL PARTICIPACOES S.A. We have audited the accompanying combined balance sheets of TVA SUL PARTICIPACOES S.A., and subsidiaries (the "Company") as of December 31, 1995 and 1994, and the related combined statements of operations, changes in shareholders' equity and cash flows for the three years in the period ended December 31, 1995, all expressed in United States dollars. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of TVA SUL PARTICIPACOES S.A., and subsidiaries as of December 31, 1995 and 1994, and the related combined results of their operations and cash flows for the three years in the period ended December 31, 1995, in conformity with accounting principles generally accepted in the United States of America. Coopers & Lybrand Sao Paulo, Brazil August 23, 1996 F-60 TVA SUL PARTICIPACOES S.A. AND SUBSIDIARIES BALANCE SHEETS AT SEPTEMBER 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995 AND 1994 (IN THOUSANDS OF US. DOLLARS)
AT DECEMBER 31, AT SEPTEMBER 30, --------------------------- 1996 1995 1994 (CONSOLIDATED) (COMBINED) (COMBINED) ----------------- ------------ ------------- (UNAUDITED) ASSETS Current assets Cash and cash equivalents (Note 3).............................. $ 414 $ 45 -- Accounts receivable, net (Note 4)............................... 749 32 -- Inventories..................................................... 1,376 -- -- Prepaid and other assets (Note 5)............................... 588 68 $ 45 Other accounts receivable (Note 6).............................. 1,116 2 7 -------- ------------ ----- Total current assets........................................ 4,243 147 52 Property, plant and equipment, net (Note 9)....................... 13,549 1,466 198 Concessions, less accumulated amortization ($481)................. 11,395 -- -- Other............................................................. 977 9 8 -------- ------------ ----- Total assets................................................ $ 30,164 $ 1,622 $ 258 -------- ------------ ----- -------- ------------ -----
The accompanying notes are an integral part of these financial statements F-61 TVA SUL PARTICIPACOES S.A. AND SUBSIDIARIES BALANCE SHEETS AT SEPTEMBER 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995 AND 1994 (IN THOUSANDS OF US. DOLLARS)
AT DECEMBER 31, AT SEPTEMBER 30, -------------------------- 1996 1995 1994 (CONSOLIDATED) (COMBINED) (COMBINED) ----------------- ------------ ------------ (UNAUDITED) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Suppliers....................................................... $ 751 $ 97 $ 103 Taxes payable other than income taxes........................... 208 56 29 Accrued payroll and related liabilities......................... 605 253 140 Other accounts payable.......................................... 990 18 56 Accounts payable to related companies (Note 7).................. 1,438 983 -- -------- ------------ ------------ Total current liabilities................................... 3,992 1,407 328 -------- ------------ ------------ Long-term liabilities Loans from related companies (Note 7)........................... 16,976 10,480 5,886 Loans from shareholders......................................... 1,840 180 135 Other........................................................... 151 -- -- -------- ------------ ------------ Total long-term liabilities................................. 18,967 10,660 6,021 -------- ------------ ------------ Minority interest................................................. 1,361 -- -- Shareholders' equity Paid in capital (Note 11)....................................... 18,964 1 1 Accumulated deficit............................................. (13,120) (10,446) (6,092) -------- ------------ ------------ Total shareholders' equity.................................. 5,844 (10,445) (6,091) -------- ------------ ------------ Total liabilities and shareholders' equity.................. $ 30,164 $ 1,622 $ 258 -------- ------------ ------------ -------- ------------ ------------
The accompanying notes are an integral part of these financial statements F-62 TVA SUL PARTICIPACOES S.A. AND SUBSIDIARIES STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND SEPTEMBER 30, 1995 (UNAUDITED) AND THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (IN THOUSANDS OF US. DOLLARS)
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31, ----------------------------- ---------------------------------------- 1996 1995 1995 1994 1993 (CONSOLIDATED) (COMBINED) (COMBINED) (COMBINED) (COMBINED) --------------- ------------ ------------ ------------ ------------ (UNAUDITED) (UNAUDITED) Gross revenues Monthly subscriptions......................... $ 8,212 $ 2,189 $ 3,233 $ 1,392 $ 397 Installation.................................. 819 -- -- -- -- Advertising................................... -- -- -- 6 -- Other......................................... 65 -- -- -- -- Revenue taxes................................. (308) (153) (227) (71) (19) ------- ------------ ------------ ------------ ------------ Net revenue................................. 8,788 2,036 3,006 1,327 378 ------- ------------ ------------ ------------ ------------ Direct operating expenses Payroll and benefits.......................... 2,767 1,073 1,456 1,005 927 Programming................................... 1,141 -- -- -- -- Technical assistance.......................... 704 160 215 15 81 Vehicle rentals............................... 239 173 247 21 72 TVA magazine.................................. 158 -- -- -- -- Other costs................................... 1,129 181 232 432 253 ------- ------------ ------------ ------------ ------------ 6,138 1,587 2,150 1,473 1,333 ------- ------------ ------------ ------------ ------------ Selling, general and administrative expenses Payroll and benefits.......................... 964 393 538 207 246 Advertising and promotion..................... 322 174 267 -- 42 Rent.......................................... 158 82 114 -- 10 Other administrative expenses................. 1,120 206 292 1 -- Other general expenses........................ 331 266 486 802 -- ------- ------------ ------------ ------------ ------------ 2,895 1,121 1,697 1,010 298 ------- ------------ ------------ ------------ ------------ Depreciation.................................... 397 112 186 36 20 Amortization.................................... 481 -- -- -- -- ------- ------------ ------------ ------------ ------------ Operating loss.............................. (1,123) (784) (1,027) (1,192) (1,273) ------- ------------ ------------ ------------ ------------ Interest income................................. 167 133 165 181 38 Interest expense................................ (1,741) (2,195) (3,527) (2,568) (495) Translation gain (loss)......................... (100) (11) 8 (22) 282 Other nonoperating (expenses) income, net....... 242 -- 27 -- -- ------- ------------ ------------ ------------ ------------ Loss before income taxes and minority interest.................................. (2,555) (2,857) (4,354) (3,601) (1,448) Income taxes (Note 8)........................... (105) -- -- -- -- ------- ------------ ------------ ------------ ------------ Net loss before minority interest........... (2,660) (2,857) (4,354) (3,601) (1,448) Minority interest............................... (14) -- -- -- -- ------- ------------ ------------ ------------ ------------ Net loss.................................... (2,674) (2,857) (4,354) (3,601) (1,448) ------- ------------ ------------ ------------ ------------ ------- ------------ ------------ ------------ ------------
The accompanying notes are an integral part of these financial statements F-63 TVA SUL PARTICIPACOES S.A. AND SUBSIDIARIES STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND SEPTEMBER 30, 1995 (UNAUDITED) AND THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (IN THOUSANDS OF US. DOLLARS)
PAID-IN CAPITAL ACCUMULATED (NOTE 11) DEFICIT TOTAL --------- ------------- ---------- Balance at December 31, 1992 (Combined)................................... $ 1 $ (1,043) $ (1,042) Net loss for the year..................................................... -- (1,448) (1,448) --------- ------------- ---------- Balance at December 31, 1993 (Combined)........................... 1 (2,491) (2,490) Net loss for the year..................................................... -- (3,601) (3,601) --------- ------------- ---------- Balance at December 31, 1994 (Combined)........................... 1 (6,092) (6,091) Net loss for the year..................................................... -- (4,354) (4,354) --------- ------------- ---------- Balance as of December 31, 1995 (Combined)........................ 1 (10,446) (10,445) Capital contributed on: April 30, 1996 (unaudited).............................................. 14,865 -- 14,865 August 30, 1996 (unaudited)............................................. 4,098 -- 4,098 Net loss for the period (unaudited)....................................... -- (2,674) (2,674) --------- ------------- ---------- Balance at September 30, 1996 (Consolidated) (unaudited).......... $ 18,964 $ (13,120) $ 5,844 --------- ------------- ---------- --------- ------------- ---------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995: Balance at December 31, 1994 (Combined)................................... $ 1 $ (6,092) $ (6,091) Net loss for the period (unaudited)....................................... -- (2,857) (2,857) --------- ------------- ---------- Balance at September 30, 1995 (Combined).................................. $ 1 $ (8,949) $ (8,948) --------- ------------- ---------- --------- ------------- ----------
- ------------------------ In September 1996, the paid in capital of the entities previously under common control was transferred by Tevecap S.A. to TVA Sul Participacoes S.A in exchange for shares in TVA Sul Participacoes S.A. Accordingly, the paid in capital of the combined entities became that of TVA Sul Participacoes S.A. The accompanying notes are an integral part of these financial statements F-64 TVA SUL PARTICIPACOES S.A. AND SUBSIDIARIES STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND SEPTEMBER 30, 1995 (UNAUDITED) AND THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (IN THOUSANDS OF US. DOLLARS)
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31, ----------------------------- ---------------------------------------- 1996 1995 1995 1994 1993 (CONSOLIDATED) (COMBINED) (COMBINED) (COMBINED) (COMBINED) --------------- ------------ ------------ ------------ ------------ (UNAUDITED) (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss...................................... $ (2,674) $ (2,857) $ (4,354) $ (3,601) $ (1,448) ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES: Depreciation................................ 397 112 186 36 20 Amortization................................ 481 -- -- -- -- Provision for claims........................ 151 -- -- -- -- Disposal of fixed assets.................... 795 (6) (15) 4 CHANGES IN OPERATING ASSETS AND LIABILITIES: Accounts receivable......................... (717) -- (32) -- -- Prepaid and other assets.................... (520) (12) (23) (34) (4) Other accounts receivable................... (1,028) (18) 5 6 (13) Accrued Interest............................ 1,299 1,695 2,331 2,328 454 Inventories................................. (1,376) -- -- -- -- Other assets................................ (10) (13) (1) (5) (3) Suppliers................................... 654 (20) (6) 72 (5) Taxes payable other than income taxes....... 152 17 27 22 7 Accrued payroll and related liabilities..... 352 192 113 59 18 Other accounts payable...................... 99 280 945 47 (6) --------------- ------------ ------------ ------------ ------------ Net cash used in operating activities... (1,945) (630) (809) (1,085) (976) --------------- ------------ ------------ ------------ ------------ CASH FLOWS USED IN INVESTING ACTIVITIES: Purchase of fixed assets...................... (12,665) (1,074) (1,454) (69) (54) Loans to related companies.................... (960) -- -- -- -- Acquisition of businesses, net of cash acquired.................................... (13,490) -- -- -- -- --------------- ------------ ------------ ------------ ------------ Net cash provided by (used in) investing activities............................ (27,115) (1,074) (1,454) (69) (54) CASH FLOWS FROM FINANCING ACTIVITIES: Capital contributions......................... 18,963 -- -- -- -- Repayments of loans from shareholders......... (162) -- -- -- -- Loans from shareholders....................... 1,822 -- -- -- -- Loans from related companies.................. 16,760 7,633 8,220 1,152 1,086 Repayments of loans from related companies.... (9,315) (5,912) (5,912) -- (54) Minority Interest............................. 1,361 --------------- ------------ ------------ ------------ ------------ Net cash provided by financing activities............................ 29,429 1,721 2,308 1,152 1,032 --------------- ------------ ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents................................... 369 17 45 (2) 2 Cash and cash equivalents at beginning of the period........................................ 45 -- -- 2 -- --------------- ------------ ------------ ------------ ------------ Cash and cash equivalents at end of the period................................ $ 414 $ 17 $ 45 $ -- $ 2 --------------- ------------ ------------ ------------ ------------ --------------- ------------ ------------ ------------ ------------
The acompanying notes are an integral part of these financial statements F-65 TVA SUL PARTICIPACOES S.A. AND SUBSIDIARIES STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND SEPTEMBER 30, 1995 (UNAUDITED) AND THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (IN THOUSANDS OF US DOLLARS)
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31, ---------------------------- ---------------------------------------- 1996 1995 1995 1994 1993 (CONSOLIDATED) (COMBINED) (COMBINED) (COMBINED) (COMBINED) --------------- ----------- ------------ ------------ ------------ (UNAUDITED) (UNAUDITED) SUPPLEMENTAL CASH DISCLOSURE: Cash paid for interest................. $ -- $ 2,708 $ 2,708 $ -- $ -- --------------- ----------- ------------ ------------ ------------ --------------- ----------- ------------ ------------ ------------ SUPPLEMENTAL NON-CASH FINANCING ACTIVITIES: Accrued interest on related company loans refinanced as principal balance.............................. $ 1,272 $ 1,659 $ 2,286 $ 2,269 $ 439 --------------- ----------- ------------ ------------ ------------ --------------- ----------- ------------ ------------ ------------ DETAILS OF ACQUISITIONS: Fair value of assets acquired.......... 14,895 -- -- -- -- Liabilities assumed.................... (1,330) -- -- -- -- --------------- ----------- ------------ ------------ ------------ Cash paid.............................. 13,565 -- -- -- -- Less: cash acquired.................... (75) -- -- -- -- --------------- ----------- ------------ ------------ ------------ Net cash paid for acquisitions......... 13,490 -- -- -- -- --------------- ----------- ------------ ------------ ------------ --------------- ----------- ------------ ------------ ------------
The accompanying notes are an integral part of these financial statements F-66 TVA SUL PARTICIPACOES S.A. AND SUBSIDIARIES NOTES TO THESE FINANCIAL STATEMENTS 1. THE COMPANY AND ITS PRINCIPAL OPERATIONS The accompanying financial statements reflect the consolidated results of operations of TVA Sul Participacoes S.A and its subsidiaries (the "Company") and the combined results of commonly controlled entities which became subsidiaries of TVA Sul Participacoes S.A. in September, 1996 (see Note 2.1). TVA Sul Participacoes S.A is a holding company, the subsidiaries of which render services related to wireless cable and cable television systems, including marketing and advertising, production, distribution and licensing of domestic and foreign television programs. The Company has wireless cable channel rights primarily in major urban markets in the South of Brazil. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Significant policies followed in the preparation of the accompanying consolidated and combined financial statements are described below: 2.1 BASIS OF PRESENTATION; COMBINED AND CONSOLIDATION A) BASIS OF PRESENTATION The combined and consolidated financial statements are presented in US Dollars and have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP), which differ in certain respects from accounting principles applied by the Company in its local currency financial statements, which are prepared in accordance with accounting principles generally accepted in Brazil ("Brazilian GAAP"). The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the financial statement dates and the reported amount of revenues and expenses during the reporting periods. Since management's judgment involves making estimates concerning the likelihood of future events, the actual results could differ from those estimates which will have a positive or negative effect on future period results. B) CONSOLIDATION AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) TVA Sul Participacoes S.A was incorporated on March 3, 1996 as a holding company for certain entities which were under common control. Accordingly, the financial statements as of and for the nine months ended September 30, 1996 (unaudited) are prepared on a consolidated basis. The consolidated financial statements include the accounts of all majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated on consolidation. C) COMBINED PRESENTATION FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1995 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1995 (UNAUDITED) The combined financial statements for the three years in the period ended December 31, 1995 and the nine months ended September 30, 1995 (unaudited), reflect the results of TVA Parana (formerly TVA Curitiba Servicos Telecomunicacoes Ltda.). F-67 TVA SUL PARTICIPACOES S.A. AND SUBSIDIARIES NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED) 2.2 ACCOUNTING RECORDS As required by Brazilian Law, and in accordance with local accounting practices, the accounting records of the Company are maintained in Brazilian currency (REAIS). In order to present the financial statements in conformity with accounting principles generally accepted in the United States of America, the Company maintains additional accounting records which are used solely for this purpose. 2.3 CURRENCY REMEASUREMENT In accordance with Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Transactions", the United States dollar has been assumed to be the functional currency as Brazil is a "hyperinflationary" country. As such, the local accounts of the Company are translated into United States dollars as follows: - Nonmonetary assets and liabilities are translated at historical rates. All other assets and liabilities are translated at the official rate of exchange of R$1.022 to US$1 in effect on September 30, 1996; R$0.973 to US$1 in effect on December 31, 1995; and, R$0.846 to US$1 on December 31, 1994. - Income and expenses are translated at the average exchange rates in effect each month, except for those related to assets and liabilities which are translated at historical exchange rates, and deferred income taxes, which are translated at the current rate. Translation gains/losses are recognized in the income statement. 2.4 CASH AND CASH EQUIVALENTS Cash and cash equivalents are defined as cash and cash in banks and investments in interest-bearing securities and are carried at cost plus accrued interest. Short-term investments with original maturities of three months or less at the time of purchase are considered cash equivalents. 2.5 COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS The Company's combined and consolidated operating subsidiaries included in the financial statements are:
OWNERSHIP INTEREST AT ---------------------------------------- DECEMBER 31,1995 SEPTEMBER 30,1996 AND 1994 (CONSOLIDATED) (COMBINED) ------------------- ------------------- (UNAUDITED) TVA Sul Parana Ltda. (a), (b)........................................... 100.00% 80.00% TVA Sul Santa Catarina Ltda (b)......................................... 99.50% -- TVA Sul Foz do Iguacu Ltda (b).......................................... 100.00% -- CCS Camboriu Cable System de Telecomunicacoes Ltda...................... 60.00% -- TCC TV a Cabo Ltda. (b)................................................. 100.00% -- TV Alfa Cabo Ltda. (b).................................................. 100.00% --
- ------------------------ (a) In August 1996, TVA Curitiba Sevicos Telecommunications Ltda. changed its name to TVA Parana Ltda ("Parana"). The Company's capital contribution of $18,963 relating to the acquisition of 27,712,345 shares during the nine months ended September 30, 1996 (unaudited) to the equity of F-68 TVA SUL PARTICIPACOES S.A. AND SUBSIDIARIES NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED) 2.5 COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Parana was in excess of the Company's share of the book value prior to the contribution, resulting in a loss of $2,727. (b) One common share in each of these entities is owned by a Brazilian National pursuant to local legislation. 2.6 ACQUISITIONS During the nine month period ending September 30, 1996 (unaudited), the Company acquired the entities described below which were accounted for under the purchase method of accounting: i) In February 1996, the Company acquired control of TVA Sul Santa Catarina ("TVA SSC"); ii) In March 1996, the Company acquired control of TCC TV a Cabo Ltda. ("TCC") and TV Alfa Cabo Ltda. ("TV Alfa") ; and iii) In May 1996, the Company acquired control of TVA Sul Foz do Iguacu Ltda ("TVA SF") and CCS Camboriu Cable Systems de Telecomunicacoes Ltda. ("CCS"). In each case, the excess of the purchase price over the fair value of the net assets acquired represents the value of concessions of certain television stations. These concessions are being amortized on a straight line basis over 10 years. The operating results of these acquired businesses, which hold licenses to operate cable TV, have been included in the consolidated statement of income from the dates of acquisition. The purchase prices have been allocated to the assets purchased and the liabilities assumed based upon the fair values on the dates of acquisition, as follows:
TVA SSC TVA SF CCS TCC TV ALFA ----------- --------- --------- --------- --------- Current assets, other than cash..................................... $ -- 23 $ 4 $ 51 $ 5 Property, plant and equipment....................................... 25 319 2,101 238 176 Other assets........................................................ -- 3 -- -- -- Concessions......................................................... 45 5,348 1,424 2,629 2,429 Other liabilties.................................................... (55) (377) (84) (127) (687) ----- --------- --------- --------- --------- Purchase price, net of cash received................................ $ 15 5,316 $ 3,445 $ 2,791 $ 1,923 ----- --------- --------- --------- --------- ----- --------- --------- --------- --------- Total purchase price................................................ $ 15 $ 5,326 $ 3,445 $ 2,841 $ 1,939 ----- --------- --------- --------- --------- ----- --------- --------- --------- ---------
The Company is unable to present pro forma results as if the acquisitions had taken place at the beginning of 1995 and 1996 because, although management attempted to obtain such information from the owners, it was not available. These entities were acquired for the purpose of expanding the cable TV system penetration of the Company and that of its parent, TEVECAP S.A. ("Tevecap"). The assets purchased will be operated under Tevecap's management, using Tevecap and the Company's programming and employees. 2.7 FINANCIAL INSTRUMENTS In accordance with SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," information is provided about the fair value of certain financial instruments for which it is practicable to estimate that value. F-69 TVA SUL PARTICIPACOES S.A. AND SUBSIDIARIES NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED) 2.7 FINANCIAL INSTRUMENTS (CONTINUED) For the purposes of SFAS No. 107, the estimated fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The carrying values of the Company's financial instruments as of September 30, 1996 (unaudited), December 31, 1995 and December 31, 1994 approximate management's best estimate of their estimated fair values. The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value: - The fair value of certain financial assets carried at cost, including cash, accounts receivable, other accounts receivable, and certain other short-term assets is considered to approximate their respective carrying value due to their short-term nature. - The fair value of payables to suppliers, other accounts payable, loans to related companies and certain other short-term liabilities is considered to approximate their respective carrying value due to their short-term nature. - The fair value of loans from related companies approximates their respective carrying values as interest on these loans is at market rates. 2.8 ACCOUNTS RECEIVABLE Accounts receivable are stated at their estimated realizable values. An allowance for doubtful accounts will be established on the basis of an analysis of the accounts receivable, in light of the risks involved, in an amount sufficient to cover any losses incurred in realization of credits when necessary. 2.9 INVENTORIES Inventories consist of materials and supplies used to provide service to new customers, and to ensure continuity of service to existing customers. Inventories are stated at the lower of cost or market. Cost is determined principally under the average cost method. 2.10 PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost and depreciated using the straight-line method, over the remaining useful lives, as described in Note 9. 2.11 RECOVERABILITY OF LONG-LIVED ASSETS TO BE HELD AND USED IN THE BUSINESS Management reviews long-lived assets, primarily the Company's concessions and its property and equipment to be held and used in the business, for the purposes of determining and measuring impairment on a recurring basis or when events or changes in circumstances indicate that the carrying value of an asset or group of assets may not be recoverable. Assets are grouped and evaluated for possible impairment at the level of each cable television system; impairment is assessed on the basis of the forecasted undiscounted cash flows of the businesses over the estimated remaining lives of the assets related to those systems. A write-down of the carrying value of the assets or group of assets to estimated fair value will be made, when appropriate. F-70 TVA SUL PARTICIPACOES S.A. AND SUBSIDIARIES NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED) 2.11 RECOVERABILITY OF LONG-LIVED ASSETS TO BE HELD AND USED IN THE BUSINESS (CONTINUED) The Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be disposed of", from January 1, 1996 and the effect on the financial statements as a result of the adoption was not significant. 2.12 SUBSCRIPTIONS Installation fees are recognized as revenue on the equipment installation date to the extent of direct selling costs incurred. Subscription revenues are recognized as earned on an accrual basis. 2.13 ACCOUNTING FOR SALES OF STOCK BY SUBSIDIARIES Gains or losses arising from the sale of previously unissued shares to an unrelated party by a subsidiary are recognized in the profit and loss account as non-operating income to the extent that the net book value of the shares owned by the parent after the sale exceeds or is lower than the net book value per share immediately prior to the sale of the shares by the subsidiary. 2.14 FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED) The unaudited financial statements for the nine months ended September 30, 1996 and 1995 have been derived from the Company's records and reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial data. 3. CASH AND CASH EQUIVALENTS At September 30, 1996 (unaudited), December 31, 1995 and 1994, cash and cash equivalents were comprised of:
AT DECEMBER 31, AT SEPTEMBER 30, ---------------------- 1996 1995 1994 ------------------- ----- --------- (UNAUDITED) Cash on hand and in banks............................... $ 380 $ 45 -- Short-term investments.................................. 34 -- -- ----- --- --------- $ 414 $ 45 -- ----- --- --------- ----- --- ---------
4. ACCOUNTS RECEIVABLE At September 30, 1996 (unaudited), December 31, 1995 and 1994, accounts receivable were comprised of:
AT DECEMBER 31, AT SEPTEMBER 30, ---------------------- 1996 1995 1994 ------------------- ----- --------- (UNAUDITED) Subscriptions........................................... $ 286 -- -- Installation fees....................................... 329 $ 32 -- Others.................................................. 134 -- -- ----- --- --------- $ 749 $ 32 -- ----- --- --------- ----- --- ---------
F-71 TVA SUL PARTICIPACOES S.A. AND SUBSIDIARIES NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED) 5. PREPAID AND OTHER ASSETS At September 30, 1996 (unaudited), December 31, 1995 and 1994, prepaid expenses were comprised of:
AT DECEMBER 31, AT SEPTEMBER 30, ------------------------ 1996 1995 1994 ------------------- ----- ----- (UNAUDITED) Advances to suppliers.................................. $ 544 $ 22 $ 23 Prepaid meals and transportation....................... 32 20 11 Others................................................. 12 26 11 ----- --- --- $ 588 $ 68 $ 45 ----- --- --- ----- --- ---
6. OTHER ACCOUNTS RECEIVABLE At September 30, 1996 (unaudited), December 31, 1995 and 1994, other accounts receivable were comprised of:
AT DECEMBER 31, AT SEPTEMBER 30, ------------------------ 1996 1995 1994 ----------------- ----- ----- (UNAUDITED) Advances to employees.................................. $ 119 -- $ 7 Accounts receivable from Related Companies (Note 7).... 765 -- -- Others................................................. 232 $ 2 -- -- ------- --- $ 1,116 $ 2 $ 7 -- -- ------- --- ------- ---
7. RELATED-PARTY TRANSACTIONS The following tables summarize the transactions between the Company and related companies at September 30, 1996 (unaudited) and December 31, 1995, 1994 and for the nine month periods ended September 30, 1996 (unaudited) and 1995 (unaudited) and the three years in the period ended December 31, 1995 :
AT SEPTEMBER 30, AT DECEMBER 31, ----------------- -------------------- 1996 1995 1994 ----------------- --------- --------- (UNAUDITED) TVA Sistema Loans payable................................. $ 2,877 $ 10,480 -- Accounts Payable.............................. 1,438 983 -- Tevecap S.A. Loans payable................................. 14,099 -- $ 5,886
F-72 TVA SUL PARTICIPACOES S.A. AND SUBSIDIARIES NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED) 7. RELATED-PARTY TRANSACTIONS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31, ---------------------- ------------------------------- 1996 1995 1995 1994 1993 --------- ----------- --------- --------- --------- (UNAUDITED) Tevecap Net interest expense............... $ -- $ -- $ -- $ (2,269) $ (439) TVA Sistema de Televisao S.A. Net interest expense............... (1,272) (1,659) (2,286) -- --
The related company loans are denominated in reais and are subject to monetary restatement plus interest charges at the market rate which was 1.79% per month in September 1996 (3.44% per month in December 1995). 8. DEFERRED INCOME TAX The tax effects of temporary differences that give rise to a significant portion of the deferred tax asset and deferred tax liability at September 30, 1996 (unaudited) and at December 31, 1995 and 1994 are as follows:
AT DECEMBER 31, AT SEPTEMBER 30, -------------------- 1996 1995 1994 ----------------- --------- --------- (UNAUDITED) Deferred tax assets: Net operating loss carryforwards...................................... $ 4,057 $ 3,425 $ 2,509 Others................................................................ 38 11 61 -------- --------- --------- Total gross deferred tax asset.................................... 4,095 3,436 2,570 Less, valuation allowance............................................. (3,850) (3,122) (2,570) -------- --------- --------- Net deferred tax asset.................................................. 245 314 -- Deferred tax liability: Installation costs.................................................... (245) (314) -- -------- --------- --------- Total gross deferred tax liability................................ (245) (314) -- -------- --------- --------- Net deferred tax asset.................................................. $ -- $ -- $ -- -------- --------- --------- -------- --------- ---------
The Company has a limited operating history and has generated losses since its inception. The valuation allowance has been established in accordance with the requirements of SFAS No. 109 and relates to the amount of net operating loss carryforwards in excess of net taxable temporary differences. As of September 30, 1996 (unaudited), the Company has unexpirable accumulated tax losses of $13,276. F-73 TVA SUL PARTICIPACOES S.A. AND SUBSIDIARIES NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED) 8. DEFERRED INCOME TAX (CONTINUED) The combined income tax credit was different from the amount computed using the Brazilian statutory income tax for the reasons set forth in the following table:
YEAR ENDED DECEMBER 31, ------------------------------- NINE MONTHS ENDED SEPTEMBER 30, 1996 1995 1994 1993 --------------- --------- --------- --------- (UNAUDITED) Loss before income taxes and minority interest................................... $ 2,555 $ 4,354 $ 3,601 $ 1,448 Statutory income tax rate.................... 30.56% 30.56% 43.0% 35.2% ------- --------- --------- --------- 781 1,331 1,548 509 Increase (decrease) in the income tax rate... -- (753) 212 -- Others....................................... (158) (26) (116) 157 ------- --------- --------- --------- Net income tax benefit for the period........ 623 552 1,644 666 Increase in valuation allowance.............. (728) (552) (1,644) (666) ------- --------- --------- --------- $ (105) $ -- $ -- $ -- ------- --------- --------- --------- ------- --------- --------- ---------
Income tax payable represents amounts owing by subsidiaries calculated on an unitary basis. 9. PROPERTY, PLANT AND EQUIPMENT At September 30, 1996 (unaudited), December, 31, 1995 and 1994, property, plant and equipment were comprised of:
ANNUAL DEPRECIATION AT DECEMBER 31, RATE AT SEPTEMBER 30, -------------------- % 1996 1995 1994 ----------------- --------- --------- (UNAUDITED) Machinery and Equipment...................................... 10 $ 1,436 172 $ 112 Converters................................................... 10 3,532 -- -- Leasehold Improvements....................................... 25 3,499 35 14 Furniture and Fixtures....................................... 10 567 164 78 Premises..................................................... 10 23 3 3 Vehicles..................................................... 20 129 15 14 Software..................................................... 20 80 45 31 Tools........................................................ 10 86 -- -- Reception Equipment.......................................... 20 4,170 1,203 -- Cable Plant.................................................. 10 1,440 -- -- Building..................................................... 4 355 -- -- -------- --------- --------- 15,317 1,637 252 Accumulated Depreciation..................................... (2,056) (254) (68) Telephone Line Use Rights.................................... 158 83 14 Fixed Assets in Transit...................................... 130 -- -- -------- --------- --------- $ 13,549 $ 1,466 $ 198 -------- --------- --------- -------- --------- ---------
F-74 TVA SUL PARTICIPACOES S.A. AND SUBSIDIARIES NOTES TO THESE FINANCIAL STATEMENTS (CONTINUED) 10. INSURANCE The Company maintains insurance coverage for its fixed assets and inventories in an amount considered sufficient to cover the risks involved. 11. PAID-IN CAPITAL Paid-in capital at September 30, 1996 (unaudited), December 31, 1995 and 1994, was comprised of:
1996 1995 1994 ------------------------ ------------------------ ----------- US$ SHARES US$ SHARES US$ --------- ------------- --- ----------- --- TVA Parana..................................................... -- -- $ 1 1,000 $ 1 -- -- -- -- --------- ------------- ----- --------- ------------- ----- TVA Sul Participacoes S.A. .................................... $ 18,964 18,470,825 -- -- -- -- -- -- -- --------- ------------- ----- --------- ------------- ----- SHARES ----------- TVA Parana..................................................... 1,000 ----- ----- TVA Sul Participacoes S.A. .................................... -- ----- -----
Paid-in capital represents registered common shares without par value. The Company's shareholders are entitled a minimum dividend of 25% of net income for the year, adjusted according to Corporation Law. As the Company has not recorded net income since its inception, no such dividends are payable. 12. SUPPLEMENTARY INFORMATION--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
DEFERRED TAXATION VALUATION ALLOWANCE ----------------- December 31, 1993.......................................................... $ 926 Additions Charged to Expense............................................... 1,644 Reduction.................................................................. -- ------- Balance at December 31, 1994............................................... 2,570 Additions Charged to Expense............................................... 552 ------- Balance at December 31, 1995............................................... 3,122 Additions Charged to Expense............................................... 490 Reduction.................................................................. -- ------- Balance at September 30, 1996.............................................. $ 3,612 ------- -------
F-75 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Directors of TV ALFA CABO LTDA. We have audited the accompanying statements of revenues and direct operating expenses of TV ALFA CABO LTDA. (the "Company") for each of the three years in the period ended December 31, 1995, all expressed in United States dollars. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the revenues and direct operating expenses of TV ALFA CABO LTDA., for each of the three years in the period ended December 31, 1995, in conformity with accounting principles generally accepted in the United States of America. Coopers & Lybrand Sao Paulo, Brazil March 31, 1997 F-76 TV ALFA CABO LTDA. STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (IN THOUSANDS OF U.S. DOLLARS)
DECEMBER 31, ------------------------------- 1995 1994 1993 --------- --------- --------- Sales................................................................ $ 803 $ 347 $ 80 Cost of Sales........................................................ (457) (232) (71) --------- --------- --- 346 115 9 --------- --------- --- Administrative and Selling Expenses.................................. (605) (131) (9) Depreciation......................................................... (19) (17) (14) --------- --------- --- Sales insufficient to cover direct operating expenses................ $ (278) $ (33) $ (14) --------- --------- --- --------- --------- ---
The accompanying notes are an integral part of these financial statements. F-77 TV ALFA CABO LTDA. NOTES TO THE STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES 1. THE COMPANY AND ITS PRINCIPAL OPERATIONS The Company renders services related to cable television system. The Company has cable channel rights in Curitiba in the South of Brazil. 2. BASIS OF PRESENTATION The accompanying statements of revenues and direct operating expenses (the "financial statements") were prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in a registration statement on Form F-4. Accordingly, certain expenses which may not be comparable to the expenses expected to be incurred in the future operations of the Company have been excluded. Such expenses consist of interest expenses (net), translation gains (losses), other nonoperating expenses and income taxes. The financial statements are presented in US Dollars and have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP), which differ in certain respects from accounting principles applied by the Company in its local currency financial statements, which are prepared in accordance with accounting principles generally accepted in Brazil ("Brazilian GAAP"). The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the financial statement dates and the reported amount of revenues and expenses during the reporting periods. Since management's judgment involves making estimates concerning the likelihood of future events, the actual results could differ from those estimates which will have a positive or negative effect on future period results. 2.1 ACCOUNTING RECORDS As required by Brazilian Law, and in accordance with local accounting practices, the accounting records of the Company are maintained in Brazilian currency (REAL). In order to present the financial statements in conformity with accounting principles generally accepted in the United States of America, the Company maintains additional accounting records which are used solely for this purpose. 2.2 CURRENCY REMEASUREMENT In accordance with Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Transactions", the United States dollar has been assumed to be the functional currency as Brazil is a "hyper inflationary" country. As such, the local accounts of the Company are translated into United States dollars as follows: - Income and expenses are translated at the average exchange rates in effect each month, except for those related to assets and liabilities which are translated at historical exchange rates. 2.3 SUBSCRIPTIONS Installation fees are recognized as revenue on the equipment installation date to the extent of direct selling costs incurred. Subscription revenues are recognized as earned on an accrual basis. 2.4 DEPRECIATION OF FIXED ASSETS Depreciation has been determined following the straight line method based on the estimated useful lives of assets. F-78 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Directors of TCC TV A CABO LTDA. We have audited the accompanying statements of revenues and direct operating expenses of TCC TV A CABO LTDA. (the "Company") for each of the three years in the period ended December 31, 1995, all expressed in United States dollars. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the revenues and direct operating expenses of TCC TV A CABO LTDA., for each of the three years in the period ended December 31, 1995, in conformity with accounting principles generally accepted in the United States of America. Coopers & Lybrand Sao Paulo, Brazil March 31, 1997 F-79 TCC TV A CABO LTDA. STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (IN THOUSANDS OF U.S. DOLLARS)
DECEMBER 31, ------------------------------- 1995 1994 1993 --------- --------- --------- Sales................................................................ $ 729 $ 392 $ 313 Cost of Sales........................................................ (187) (161) (180) --------- --------- --------- 542 231 133 --------- --------- --------- Administrative and Selling Expenses.................................. (397) (216) (120) Depreciation......................................................... (21) (19) (17) --------- --------- --------- Sales in excess of (insufficient to cover ) direct operating expenses........................................................... $ 124 $ (4) $ (4) --------- --------- --------- --------- --------- ---------
The accompanying notes are an integral part of these financial statements. F-80 TCC TV A CABO LTDA. NOTES TO THE STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES 1. THE COMPANY AND ITS PRINCIPAL OPERATIONS The Company renders services related to cable television system. The Company has cable channel rights in Curitiba in the South of Brazil. 2. BASIS OF PRESENTATION The accompanying statements of revenues and direct operating expenses (the "financial statements") were prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in a registration statement on Form F-4. Accordingly, certain expenses which may not be comparable to the expenses expected to be incurred in the future operations of the Company have been excluded. Such expenses consist of interest expenses (net), translation gains (losses), other nonoperating expenses and income taxes. The financial statements are presented in US Dollars and have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP), which differ in certain respects from accounting principles applied by the Company in its local currency financial statements, which are prepared in accordance with accounting principles generally accepted in Brazil ("Brazilian GAAP"). The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the financial statement dates and the reported amount of revenues and expenses during the reporting periods. Since management's judgment involves making estimates concerning the likelihood of future events, the actual results could differ from those estimates which will have a positive or negative effect on future period results. 2.1 ACCOUNTING RECORDS As required by Brazilian Law, and in accordance with local accounting practices, the accounting records of the Company are maintained in Brazilian currency (REAL). In order to present the financial statements in conformity with accounting principles generally accepted in the United States of America, the Company maintains additional accounting records which are used solely for this purpose. 2.2 CURRENCY REMEASUREMENT In accordance with Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Transactions", the United States dollar has been assumed to be the functional currency as Brazil is a "hyper inflationary" country. As such, the local accounts of the Company are translated into United States dollars as follows: - Income and expenses are translated at the average exchange rates in effect each month, except for those related to assets and liabilities which are translated at historical exchange rates. 2.3 SUBSCRIPTIONS Installation fees are recognized as revenue on the equipment installation date to the extent of direct selling costs incurred. Subscription revenues are recognized as earned on an accrual basis. 2.4 DEPRECIATION OF FIXED ASSETS Depreciation has been determined following the straight line method based on the estimated useful lives of assets. F-81 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Directors of CCS CAMBORIU CABLE SYSTEM DE TELECOMUNICACOES LTDA. We have audited the accompanying statements of revenues and direct operating expenses of CCS CAMBORIU CABLE SYSTEM DE TELECOMUNICACOES LTDA. (the "Company") for each of the three years in the period ended December 31, 1995, all expressed in United States dollars. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the revenues and direct operating expenses of CCS CAMBORIU CABLE SYSTEM DE TELECOMUNICACOES LTDA., for each of the three years in the period ended December 31, 1995, in conformity with accounting principles generally accepted in the United States of America. Coopers & Lybrand Sao Paulo, Brazil March 31, 1997 F-82 CCS CAMBORIU CABLE SYSTEM DE TELECOMUNICACOES LTDA. STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (IN THOUSANDS OF U.S. DOLLARS)
DECEMBER 31, ------------------------------------ 1995 1994 1993 -------------- --------- --------- Sales....................................................... $ 1245 $ 528 $ 212 Cost of Sales............................................... (460) (330) (258) -------------- --------- --------- 785 198 (46) -------------- --------- --------- Administrative and Selling Expenses......................... (399) (240) (75) Depreciation................................................ (8) (5) (3) -------------- --------- --------- Sales in excess of (insufficient to cover ) direct operating expenses.................................................. $ 378 $ (47) $ (124) -------------- --------- --------- -------------- --------- ---------
The accompanying notes are an integral part of these financial statements. F-83 CCS CAMBORIU CABLE SYSTEM DE TELECOMUNICACOES LTDA. NOTES TO THE STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES 1. THE COMPANY AND ITS PRINCIPAL OPERATIONS The Company renders services related to cable television system. The Company has cable channel rights in Camboriu in the South of Brazil. 2. BASIS OF PRESENTATION The accompanying statements of revenues and direct operating expenses (the "financial statements") were prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in a registration statement on Form F-4. Accordingly, certain expenses which may not be comparable to the expenses expected to be incurred in the future operations of the Company have been excluded. Such expenses consist of interest expenses (net), translation gains (losses), other nonoperating expenses and income taxes. The financial statements are presented in US Dollars and have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP), which differ in certain respects from accounting principles applied by the Company in its local currency financial statements, which are prepared in accordance with accounting principles generally accepted in Brazil ("Brazilian GAAP"). The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the financial statement dates and the reported amount of revenues and expenses during the reporting periods. Since management's judgment involves making estimates concerning the likelihood of future events, the actual results could differ from those estimates which will have a positive or negative effect on future period results. 2.1 ACCOUNTING RECORDS As required by Brazilian Law, and in accordance with local accounting practices, the accounting records of the Company are maintained in Brazilian currency (REAL). IN ORDER TO PRESENT THE FINANCIAL STATEMENTS IN CONFORMITY WITH ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA, THE COMPANY MAINTAINS ADDITIONAL ACCOUNTING RECORDS WHICH ARE USED SOLELY FOR THIS PURPOSE. 2.2 CURRENCY REMEASUREMENT In accordance with Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Transactions", the United States dollar has been assumed to be the functional currency as Brazil is a "hyper inflationary" country. As such, the local accounts of the Company are translated into United States dollars as follows: - Income and expenses are translated at the average exchange rates in effect each month, except for those related to assets and liabilities which are translated at historical exchange rates. 2.3 SUBSCRIPTIONS Installation fees are recognized as revenue on the equipment installation date to the extent of direct selling costs incurred. Subscription revenues are recognized as earned on an accrual basis. 2.4 DEPRECIATION OF FIXED ASSETS Depreciation has been determined following the straight line method based on the estimated useful lives of assets. F-84 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Directors of TVA SUL FOZ DO IGUACU LTDA. We have audited the accompanying statements of revenues and direct operating expenses of TVA SUL FOZ DO IGUACU LTDA. (the "Company") for each of the three years in the period ended December 31, 1995, all expressed in United States dollars. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the revenues and direct operating expenses of TVA SUL FOZ DO IGUACU LTDA., for each of the three years in the period ended December 31, 1995, in conformity with accounting principles generally accepted in the United States of America. Coopers & Lybrand Sao Paulo, Brazil March 31, 1997 F-85 TVA SUL FOZ DO IGUACU LTDA. (FORMERLY TCI TV A CABO IGUACU LTDA.) STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (IN THOUSANDS OF U.S. DOLLARS)
DECEMBER 31, ------------------------------- 1995 1994 1993 --------- --------- --------- Sales................................................................ $ 866 $ 504 $ 257 Cost of Sales........................................................ (669) (330) (154) --------- --------- --------- 197 174 103 --------- --------- --------- Administrative and Selling Expenses.................................. (14) (49) (1) Depreciation......................................................... (39) (23) (17) --------- --------- --------- Sales in excess of direct operating expenses......................... $ 144 $ 102 $ 85 --------- --------- --------- --------- --------- ---------
The accompanying notes are an integral part of these financial statements. F-86 TVA SUL FOZ DO IGUACU LTDA. (FORMERLY TCI TV A CABO IGUACU LTDA.) NOTES TO THE STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES 1. THE COMPANY AND ITS PRINCIPAL OPERATIONS The Company renders services related to cable television system. The Company has cable channel rights in Foz do Iguacu in the South of Brazil. 2. BASIS OF PRESENTATION The accompanying statements of revenues and direct operating expenses (the "financial statements") were prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in a registration statement on Form F-4. Accordingly, certain expenses which may not be comparable to the expenses expected to be incurred in the future operations of the Company have been excluded. Such expenses consist of interest expenses (net), translation gains (losses), other nonoperating expenses and income taxes. The financial statements are presented in US Dollars and have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP), which differ in certain respects from accounting principles applied by the Company in its local currency financial statements, which are prepared in accordance with accounting principles generally accepted in Brazil ("Brazilian GAAP"). The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the financial statement dates and the reported amount of revenues and expenses during the reporting periods. Since management's judgment involves making estimates concerning the likelihood of future events, the actual results could differ from those estimates which will have a positive or negative effect on future period results. 2.1 ACCOUNTING RECORDS As required by Brazilian Law, and in accordance with local accounting practices, the accounting records of the Company are maintained in Brazilian currency (REAL). In order to present the financial statements in conformity with accounting principles generally accepted in the United States of America, the Company maintains additional accounting records which are used solely for this purpose. 2.2 CURRENCY REMEASUREMENT In accordance with Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Transactions", the United States dollar has been assumed to be the functional currency as Brazil is a "hyper inflationary" country. As such, the local accounts of the Company are translated into United States dollars as follows: - Income and expenses are translated at the average exchange rates in effect each month, except for those related to assets and liabilities which are translated at historical exchange rates. 2.3 SUBSCRIPTIONS Installation fees are recognized as revenue on the equipment installation date to the extent of direct selling costs incurred. Subscription revenues are recognized as earned on an accrual basis. 2.4 DEPRECIATION OF FIXED ASSETS Depreciation has been determined following the straight line method based on the estimated useful lives of assets. F-87 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Directors of TVA SUL SANTA CATARINA LTDA. We have audited the accompanying statement of revenues and direct operating expenses of TVA SUL SANTA CATARINA LTDA. (the "Company") for the year ended December 31, 1995, expressed in United States dollars. This financial statement is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statement referred to above presents fairly, in all material respects, the revenues and direct operating expenses of TVA SUL SANTA CATARINA LTDA., for the year ended December 31, 1995, in conformity with accounting principles generally accepted in the United States of America. Coopers & Lybrand Sao Paulo, Brazil March 31, 1997 F-88 TVA SUL SANTA CATARINA LTDA. (FORMERLY TV CABO SERVICOS SANTA CATARINA LTDA.) STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1995 (IN THOUSANDS OF U.S. DOLLARS)
DECEMBER 31, 1995 --------------- Sales......................................................................... $ -- Cost of Sales................................................................. -- ----- -- ----- Administrative and Selling Expenses........................................... (5) Depreciation.................................................................. -- ----- Direct operating expenses in excess of sales.......................... $ (5) ----- -----
The accompanying notes are an integral part of this financial statement. F-89 TVA SUL SANTA CATARINA LTDA (FORMERLY TV CABO SERVICOS SANTA CATARINA LTDA.) NOTES TO THE STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES 1. THE COMPANY AND ITS PRINCIPAL OPERATIONS The Company started its operations in November 1995 rendering services related to cable television system. The Company has cable channel rights in Florianopolis in the South of Brazil. 2. BASIS OF PRESENTATION The accompanying statement of revenues and direct operating expenses (the "financial statement") was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in a registration statement on Form F-4. Accordingly, certain expenses which may not be comparable to the expenses expected to be incurred in the future operations of the Company have been excluded. Such expenses consist of interest expenses (net), translation gains (losses), and other nonoperating expenses. The financial statement is presented in US Dollars and has been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP), which differ in certain respects from accounting principles applied by the Company in its local currency financial statement, which is prepared in accordance with accounting principles generally accepted in Brazil ("Brazilian GAAP"). The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the financial statement dates and the reported amount of revenues and expenses during the reporting periods. Since management's judgment involves making estimates concerning the likelihood of future events, the actual results could differ from those estimates which will have a positive or negative effect on future period results. 2.1 ACCOUNTING RECORDS As required by Brazilian Law, and in accordance with local accounting practices, the accounting records of the Company are maintained in Brazilian currency (REAL). In order to present the financial statements in conformity with accounting principles generally accepted in the United States of America, the Company maintains additional accounting records which are used solely for this purpose. 2.2 CURRENCY REMEASUREMENT In accordance with Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Transactions", the United States dollar has been assumed to be the functional currency as Brazil is a "hyper inflationary" country. As such, the local accounts of the Company are translated into United States dollars as follows: - Income and expenses are translated at the average exchange rates in effect each month, except for those related to assets and liabilities which are translated at historical exchange rates. F-90 TV ALFA, TCC, CCS, TVA PARANA, FOZ DO IGUACU AND SSC BALANCE SHEET AT SEPTEMBER 30, 1996 (UNAUDITED) (IN THOUSANDS OF U.S. DOLLARS)
FOZ DO TV ALFA TCC CCS SSC IGUACU ----------- --------- --------- --------- ----------- ASSETS Current assets Cash and cash equivalents(Note 3)........................... $ 19 $ 162 $ 68 $ -- $ 50 Accounts receivable, net (Note 4)........................... 124 45 3 12 22 Inventories................................................. -- 44 78 54 81 Prepaid and other assets (Note 5)........................... -- 9 -- 128 55 Other accounts receivable (Note 6).......................... 294 45 53 12 169 ----------- --------- --------- --------- ----- Total current assets.................................... 437 305 202 206 377 Property, plant and equipment (Note 8)........................ 160 225 3,491 750 316 Loans to related companies (Note 7)........................... -- -- -- -- 42 Other......................................................... -- -- -- -- 3 ----------- --------- --------- --------- ----- Total assets.................................................. $ 597 $ 530 $ 3,693 $ 956 $ 738 ----------- --------- --------- --------- ----- ----------- --------- --------- --------- ----- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Suppliers................................................... $ 117 $ 102 $ 98 $ 64 $ 10 Taxes payable other than income taxes....................... 106 42 34 1 19 Accrued payroll and related liabilities..................... 14 -- 18 33 69 Other accounts payable (Note 9)............................. 82 2 141 -- 337 ----------- --------- --------- --------- ----- Total current liabilities............................... 319 146 291 98 435 ----------- --------- --------- --------- ----- Long-term liabilities Loans from related companies (Note 7)....................... 497 -- -- 1,669 83 Loans from shareholders..................................... -- -- -- -- -- Other....................................................... -- -- -- -- -- ----------- --------- --------- --------- ----- Total long-term liabilities............................. 497 -- -- 1,669 83 ----------- --------- --------- --------- ----- Shareholders' equity Paid in capital............................................. 344 47 4,012 1 5 Accumulated deficit......................................... (563) 337 (610) (812) 215 ----------- --------- --------- --------- ----- Total shareholders' equity.............................. (219) 384 3,402 (811) 220 ----------- --------- --------- --------- ----- Total liabilities and shareholders' equity.............. $ 597 $ 530 $ 3,693 $ 956 $ 738 ----------- --------- --------- --------- ----- ----------- --------- --------- --------- ----- TVA PARANA ---------- ASSET Current assets Cash and cash equivalents(Note 3)........................... $ 114 Accounts receivable, net (Note 4)........................... 543 Inventories................................................. 1,119 Prepaid and other assets (Note 5)........................... 396 Other accounts receivable (Note 6).......................... 543 ---------- Total current assets.................................... 2,715 Property, plant and equipment (Note 8)........................ 10,856 Loans to related companies (Note 7)........................... -- Other......................................................... 931 ---------- Total assets.................................................. $ 14,502 ---------- ---------- LIABILITIES AND SHAR Current liabilities Suppliers................................................... $ 360 Taxes payable other than income taxes....................... 471 Accrued payroll and related liabilities..................... 6 Other accounts payable (Note 9)............................. 1,866 ---------- Total current liabilities............................... 2,703 ---------- Long-term liabilities Loans from related companies (Note 7)....................... 5,223 Loans from shareholders..................................... 27 Other....................................................... 151 ---------- Total long-term liabilities............................. 5,401 ---------- Shareholders' equity Paid in capital............................................. 18,964 Accumulated deficit......................................... (12,566) ---------- Total shareholders' equity.............................. 6,398 ---------- Total liabilities and shareholders' equity.............. $ 14,502 ---------- ----------
The accompanying notes are an integral part of the Unaudited Financial Information F-91 TVA ALFA, TCC, CCS, TVA PARANA, FOZ DO IGUACU AND SSC STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) (IN THOUSANDS OF US DOLLARS)
TV FOZ DO ALFA TCC CCS SSC IGUACU --------- --------- --------- --------- ----------- Gross revenues Monthly subscriptions............................................ $ 768 $ 625 $ 642 $ 16 $ 784 Installation..................................................... 6 -- -- 7 50 Other............................................................ -- 2 29 -- -- Revenue taxes.................................................... (20) (17) (17) -- (15) --------- --------- --------- --------- ----- Net revenue.................................................... 754 610 654 23 819 --------- --------- --------- --------- ----- Direct operating expenses Payroll and benefits............................................. -- 3 91 82 94 Programming...................................................... 159 146 155 -- 271 Technical assistance............................................. -- -- -- 44 -- Vehicle rentals.................................................. -- -- -- -- -- TVA magazine..................................................... 2 -- -- -- 20 Other costs...................................................... -- 40 101 567 59 --------- --------- --------- --------- ----- 161 189 347 693 444 --------- --------- --------- --------- ----- Selling, general and administrative expenses Payroll and benefits............................................. 143 4 77 -- 116 Advertising and promotion........................................ -- 3 14 -- 16 Rent............................................................. 35 13 4 45 -- Other administrative expenses.................................... 33 42 77 -- 53 Other general expenses........................................... 52 -- -- -- 5 --------- --------- --------- --------- ----- 263 62 172 45 190 --------- --------- --------- --------- ----- Depreciation....................................................... 22 -- 75 17 20 --------- --------- --------- --------- ----- Operating income/(loss)........................................ 308 359 60 (732) 165 --------- --------- --------- --------- ----- Interest income.................................................... 14 2 12 -- 4 Interest expense................................................... (8) (12) (7) -- (1) Translation (loss) gain............................................ (43) (128) (13) (49) 113 Other nonoperating income, net..................................... -- -- -- -- -- --------- --------- --------- --------- ----- Loss before income taxes....................................... 271 221 52 (781) 281 Income taxes (Note 10)............................................. -- (48) (18) -- (39) --------- --------- --------- --------- ----- Net income (loss).............................................. 271 173 34 (781) 242 --------- --------- --------- --------- ----- --------- --------- --------- --------- ----- TVA PARANA --------- Gross revenues Monthly subscriptions............................................ $ 5,377 Installation..................................................... 756 Other............................................................ 34 Revenue taxes.................................................... (239) --------- Net revenue.................................................... 5,928 --------- Direct operating expenses Payroll and benefits............................................. 2,497 Programming...................................................... 410 Technical assistance............................................. 660 Vehicle rentals.................................................. 239 TVA magazine..................................................... 136 Other costs...................................................... 362 --------- 4,304 --------- Selling, general and administrative expenses Payroll and benefits............................................. 624 Advertising and promotion........................................ 244 Rent............................................................. 106 Other administrative expenses.................................... 915 Other general expenses........................................... 274 --------- 2,163 --------- Depreciation....................................................... 263 --------- Operating income/(loss)........................................ (802) --------- Interest income.................................................... 135 Interest expense................................................... (1,713) Translation (loss) gain............................................ 18 Other nonoperating income, net..................................... 242 --------- Loss before income taxes....................................... (2,120) Income taxes (Note 10)............................................. -- --------- Net income (loss).............................................. (2,120) --------- ---------
The accompanying notes are an integral part of the Unaudited Financial Information F-92 TV ALFA, TCC, CCS, TVA PARANA, FOZ DO IGUACU AND SSC STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) (IN THOUSANDS OF U.S. DOLLARS)
TVA PARANA ------------------------------------ PAID-IN ACCUMULATED CAPITAL DEFICIT TOTAL --------- ------------- ---------- Balance at January 1, 1996................................................ $ 1 $ (10,446) $ (10,445) Capital contributed on: April 30, 1996.......................................................... 14,865 -- 14,865 August 30, 1996......................................................... 4,098 -- 4,098 Net loss for the period................................................... -- (2,120) (2,120) --------- ------------- ---------- Balance at September 30, 1996......................................... $ 18,964 (12,566) (6,398) --------- ------------- ---------- --------- ------------- ---------- SSC ------------------------------------ PAID-IN ACCUMULATED CAPITAL DEFICIT TOTAL --------- ------------- ---------- Balance at February 28, 1996.............................................. $ 1 $ (31) $ (30) Net loss for the period................................................... -- (781) (781) --------- ------------- ---------- Balance at September 30, 1996......................................... $ 1 (812) (811) --------- ------------- ---------- --------- ------------- ----------
TV ALFA TCC ------------------------------------- ---------------------------- PAID-IN ACCUMULATED PAID-IN ACCUMULATED CAPITAL DEFICIT TOTAL CAPITAL DEFICIT --------- --------------- --------- ----------- --------------- Balance at March 30, 1996............................ $ 344 $ (834) $ (490) $ 47 $ 164 Net loss for the period.............................. -- 271 271 -- 173 --------- ------ --------- --- ----- Balance at September 30, 1996.................... $ 344 (563) (219) 47 337 --------- ------ --------- --- ----- --------- ------ --------- --- ----- CCS FOZ DO IGUACU ------------------------------------- ---------------------------- PAID-IN ACCUMULATED PAID-IN ACCUMULATED CAPITAL DEFICIT TOTAL CAPITAL DEFICIT --------- --------------- --------- ----------- --------------- Balance at May 30, 1996.............................. $ 4,012 $ (644) $ 3,368 $ 5 $ (27) Net loss for the period.............................. -- 34 34 -- 242 --------- ------ --------- --- ----- Balance at September 30, 1996.................... $ 4,012 (610) 3,402 5 215 --------- ------ --------- --- ----- --------- ------ --------- --- ----- TOTAL --------- Balance at March 30, 1996............................ $ 211 Net loss for the period.............................. 173 --------- Balance at September 30, 1996.................... 384 --------- --------- TOTAL --------- Balance at May 30, 1996.............................. $ (22) Net loss for the period.............................. 242 --------- Balance at September 30, 1996.................... 220 --------- ---------
The accompanying notes are an integral part of the Unaudited Financial Information F-93 TV ALFA, TCC, CCS, TVA PARANA, FOZ DO IGUACU AND SSC STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (IN THOUSANDS OF U.S. DOLLARS)
TV FOZ DO ALFA TCC CCS SSC IGUACU ----------- --------- ----- --------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss................................................... $ 271 $ 173 $ 34 $ (781) $ 242 ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES: Depreciation............................................. -- 13 75 14 20 Amortization............................................. 22 -- -- -- -- Provision for claims..................................... -- -- -- -- -- Disposal and write-off of fixed assets................... -- -- -- -- -- CHANGES IN OPERATING ASSETS AND LIABILITIES: Accounts receivable...................................... (123) (45) (3) (12) (22) Prepaid and other assets................................. 1 -- -- (125) (32) Other accounts receivable................................ (291) (44) (46) (12) (169) Accrued interest......................................... -- -- -- -- -- Inventories.............................................. -- (2) (78) (54) (81) Legal Deposits........................................... Suppliers................................................ (111) (5) 8 64 10 Taxes payable other than income taxes.................... 14 38 11 1 19 Accrued payroll and related liabilities.................. (124) (13) (7) 33 47 Advances received from subscribers....................... (45) -- -- -- -- Other accounts payable................................... (102) (2) 139 -- (18) ----------- --------- --- --------- ----------- Net cash (used in) operating activities................ (488) 113 133 (872) 16 CASH FLOWS USED IN INVESTING ACTIVITIES: Purchase of fixed assets................................... (6) -- (65) (742) (17) Loans to related companies................................. -- -- -- -- (42) Goodwill................................................... -- -- -- -- -- ----------- --------- --- --------- ----------- Net cash provided by (used in) investing activities.... (6) -- (65) (742) (59) CASH FLOWS FROM FINANCING ACTIVITIES: Capital contributions...................................... -- -- -- -- -- Repayments of loans from shareholders...................... -- -- -- -- -- Loans from shareholders.................................... -- -- -- -- -- Loans from related companies............................... 497 -- -- 1,614 83 Repayment of loans from related companies.................. -- -- -- -- -- ----------- --------- --- --------- ----------- Net cash provided by financing activiites.............. 497 -- -- 1,614 83 ----------- --------- --- --------- ----------- Net increase (decrease) in cash and cash equivalents......... 3 113 68 -- 40 Cash and cash equivalents at beginning of year............... 16 49 -- -- 10 ----------- --------- --- --------- ----------- Cash and cash equivalents at end of year............... $ 19 $ 162 $ 68 $ -- $ 50 ----------- --------- --- --------- ----------- ----------- --------- --- --------- ----------- SUPPLEMENTAL CASH DISCLOSURE: Cash paid for interest..................................... $ -- $ -- $ -- $ -- $ -- ----------- --------- --- --------- ----------- ----------- --------- --- --------- ----------- SUPPLEMENTAL NON-CASH FINANCING ACTIVITIES: Accrued interest on related company loans refinanced as principal balance........................................ $ -- $ -- $ -- $ -- $ -- ----------- --------- --- --------- ----------- ----------- --------- --- --------- ----------- TVA PARANA --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss................................................... $ (2,120) ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES: Depreciation............................................. 263 Amortization............................................. -- Provision for claims..................................... 151 Disposal and write-off of fixed assets................... 795 CHANGES IN OPERATING ASSETS AND LIABILITIES: Accounts receivable...................................... (511) Prepaid and other assets................................. (328) Other accounts receivable................................ (541) Accrued interest......................................... 1,281 Inventories.............................................. (1,119) Legal Deposits........................................... (4) Suppliers................................................ 263 Taxes payable other than income taxes.................... (50) Accrued payroll and related liabilities.................. 218 Advances received from subscribers....................... -- Other accounts payable................................... 864 --------- Net cash (used in) operating activities................ (838) CASH FLOWS USED IN INVESTING ACTIVITIES: Purchase of fixed assets................................... (10,448) Loans to related companies................................. (918) Goodwill................................................... -- --------- Net cash provided by (used in) investing activities.... (11,366) CASH FLOWS FROM FINANCING ACTIVITIES: Capital contributions...................................... 18,963 Repayments of loans from shareholders...................... (162) Loans from shareholders.................................... -- Loans from related companies............................... 2,786 Repayment of loans from related companies.................. (9,314) --------- Net cash provided by financing activiites.............. 12,273 --------- Net increase (decrease) in cash and cash equivalents......... 69 Cash and cash equivalents at beginning of year............... 45 --------- Cash and cash equivalents at end of year............... $ 114 --------- --------- SUPPLEMENTAL CASH DISCLOSURE: Cash paid for interest..................................... $ -- --------- --------- SUPPLEMENTAL NON-CASH FINANCING ACTIVITIES: Accrued interest on related company loans refinanced as principal balance........................................ $ 1,272 --------- ---------
The accompanying notes are an integral part of the Unaudited Financial Information F-94 TV ALFA, TCC, CCS, TVA PARANA, FOZ DO IGUACU AND SSC NOTES TO UNAUDITED FINANCIAL INFORMATION 1. PRINCIPAL OPERATIONS The accompanying Unaudited Financial Information reflects the results of operations of Alfa Cabo Ltda. ("TV Alfa"), CCS Camboriu Cable System De Telecomunicacoes Ltda. ("CCS"), TVA Sul Parana Ltda. ("TVA Parana"), TVA Sul Foz Do Iguacu Ltda.("Foz do Iguacu") and, TVA Sul Santa Catarina Ltda. ("SSC"), all subsidiaries of TVA Sul Participacoes S.A ("the Subsidiaries"). These subsidiaries render services related to wireless cable and cable television systems, including marketing and advertising, production, distribution and licensing of domestic and foreign television programs. The Company has wireless cable channel rights primarily in major urban markets in the South of Brazil. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Significant policies followed in the preparation of the accompanying Unaudited Financial Information are described below: 2.1 BASIS OF PRESENTATION The accompanying Unaudited Financial Information are presented in U.S. Dollars and have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP), which differ in certain respects from accounting principles applied by the Company in its local currency financial statements, which are prepared in accordance with accounting principles generally accepted in Brazil ("Brazilian GAAP"). The Unaudited financial information has been derived from the Company's records and reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial information. The preparation of Condensed Financial Information requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the Financial Information dates and the reported amount of revenues and expenses during the reporting periods. Since management's judgment involves making estimates concerning the likelihood of future events, the actual results could differ from those estimates which will have a positive or negative effect on future period results. 2.2 ACCOUNTING RECORDS As required by Brazilian Law, and in accordance with local accounting practices, the accounting records of the Subsidiaries are maintained in Brazilian currency (reais). In order to present the Financial Information in conformity with accounting principles generally accepted in the United States of America, the subsidiaries maintain additional accounting records which are used solely for this purpose. 2.3 CURRENCY REMEASUREMENT In accordance with Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Transactions", the United States dollar has been assumed to be the functional currency as Brazil is F-95 TV ALFA, TCC, CCS, TVA PARANA, FOZ DO IGUACU AND SSC NOTES TO UNAUDITED FINANCIAL INFORMATION 2.3 CURRENCY REMEASUREMENT (CONTINUED) a "hyperinflationary" country. As such, the local Financial Information of the Subsidiaries is translated into United States dollars as follows: - Nonmonetary assets and liabilities are translated at historical rates. All other assets and liabilities are translated at the official rate of exchange of R$1,022 to US$1 in effect on September 30, 1996. - Income and expenses are translated at the average exchange rates in effect each month, except for those related to assets and liabilities which are translated at historical exchange rates, and deferred income taxes, which are translated at the current rate. Translation gains/losses are recognized in the income statement. 2.4 CASH AND CASH EQUIVALENTS Cash and cash equivalents are defined as cash and cash in banks and investments in interest-bearing securities and are carried at cost plus accrued interest. Short-term investments with original maturities of three months or less at the time of purchase are considered cash equivalents. 2.5 FINANCIAL INSTRUMENTS In accordance with SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," information is provided about the fair value of certain financial instruments for which it is practicable to estimate that value. For the purposes of SFAS No. 107, the estimated fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The carrying values of the Subsidiarys' financial instruments as of September 30, 1996 (unaudited) approximate management's best estimate of their estimated fair values. The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value: - The fair value of certain financial assets carried at cost, including cash, accounts receivable, other accounts receivable, and certain other short-term assets is considered to approximate their respective carrying value due to their short-term nature. - The fair value of payables to suppliers, other accounts payable, loans to affiliated companies and certain other short-term liabilities is considered to approximate their respective carrying value due to their short-term nature. - The fair value of loans from affiliated companies approximates their respective carrying values as interest on these loans is at market rates. 2.8 ACCOUNTS RECEIVABLE Accounts receivable are stated at their estimated realizable values. An allowance for doubtful accounts will be established on the basis of an analysis of the accounts receivable, in light of the risks involved, in an amount sufficient to cover any losses incurred in realization of credits when necessary. F-96 TV ALFA, TCC, CCS, TVA PARANA, FOZ DO IGUACU AND SSC NOTES TO UNAUDITED FINANCIAL INFORMATION 2.9 INVENTORIES Inventories consist of materials and supplies used to provide service to new customers, and to ensure continuity of service to existing customers. Inventories are stated at the lower of cost or market. Cost is determined principally under the average cost method. 2.10 PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost and depreciated using the straight-line method, over the remaining useful lives, as described in Note 8. 2.11 RECOVERABILITY OF LONG-LIVED ASSETS TO BE HELD AND USED IN THE BUSINESS Management reviews long-lived assets, primarily the Subsidiaries property and equipment to be held and used in the business, for the purposes of determining and measuring impairment on a recurring basis or when events or changes in circumstances indicate that the carrying value of an asset or group of assets may not be recoverable. Assets are grouped and evaluated for possible impairment at the level of each cable television system; impairment is assessed on the basis of the forecasted undiscounted cash flows of the businesses over the estimated remaining lives of the assets related to those systems. A write-down of the carrying value of the assets or group of assets to estimated fair value will be made, when appropriate. The subsidiaries adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be disposed of", from January 1, 1996, and the effect on the Unaudited Financial Information as a result of the adoption was not significant. 2.12 SUBSCRIPTIONS Installation fees are recognized as revenue on the equipment installation date to the extent of direct selling costs incurred. Subscription revenues are recognized as earned on an accrual basis. 3. CASH AND CASH EQUIVALENTS At September 30, 1996 (unaudited) cash and cash equivalents were comprised of:
FOZ DO TV ALFA TCC CCS SSC IGUACU ----------- --------- ----- --------- ----------- Cash on hand and in banks............................................. $ 13 $ 160 $ 68 $ -- $ 50 Short-term investments................................................ 6 2 --- --------- --- --------- --- $ 19 $ 162 $ 68 $ -- $ 50 --- --------- --- --------- --- --- --------- --- --------- --- TVA PARANA ----------- Cash on hand and in banks............................................. $ 91 Short-term investments................................................ 23 ----- $ 114 ----- -----
F-97 TV ALFA, TCC, CCS, TVA PARANA, FOZ DO IGUACU AND SSC NOTES TO UNAUDITED FINANCIAL INFORMATION 4. ACCOUNTS RECEIVABLE At September 30, 1996 (unaudited) accounts receivable, net, were comprised of:
TV ALFA TCC CCS SSC ----------- ----- ----- ----- Subscriptions............................................................ $ -- $ 45 $ -- $ 10 Installation fees........................................................ 4 -- -- 2 Other.................................................................... 120 -- 3 -- ----- --- --- --- $ 124 $ 45 $ 3 $ 12 ----- --- --- --- ----- --- --- --- FOZ DO TVA IGUACU PARANA ----------- ----------- Subscriptions............................................................ $ 22 $ 209 Installation fees........................................................ -- 323 Other.................................................................... -- 11 --- ----- $ 22 $ 543 --- ----- --- -----
5. PREPAID AND OTHER ASSETS At September 30, 1996 (unaudited) prepaid expenses were comprised of:
TV ALFA TCC CCS SSC ----------- ----- ----- --------- Advances to suppliers................................................... $ -- $ 8 $ -- $ 126 Prepaid meals and transportation........................................ -- -- -- -- Other................................................................... -- 1 -- 2 -- --- --- --------- $ -- $ 9 $ -- $ 128 -- -- --- --- --------- --- --- --------- FOZ DO TVA IGUACU PARANA ----------- ----------- Advances to suppliers................................................... $ 46 $ 364 Prepaid meals and transportation........................................ -- 32 Other................................................................... 9 -- --- ----- $ 55 $ 396 --- ----- --- -----
6. OTHER ACCOUNTS RECEIVABLE At September 30, 1996 (unaudited) other accounts receivable were comprised of:
TV ALFA TCC CCS SSC ----------- ----- ----- ----- Advances to employees.................................................... $ -- $ -- $ 32 $ -- Accounts receivable from related Company................................. 294 -- 21 11 Other.................................................................... -- 45 -- 1 ----- --- --- --- $ 294 $ 45 $ 53 $ 12 ----- --- --- --- ----- --- --- --- FOZ DO TVA IGUACU PARANA ----------- ----------- Advances to employees.................................................... $ 5 $ 82 Accounts receivable from related Company................................. 164 461 Other.................................................................... -- -- ----- ----- $ 169 $ 543 ----- ----- ----- -----
F-98 TV ALFA, TCC, CCS, TVA PARANA, FOZ DO IGUACU AND SSC NOTES TO UNAUDITED FINANCIAL INFORMATION 7. RELATED-PARTY TRANSACTIONS The following tables summarize the transactions between the Subsidiaries and related companies at and for the nine months ended September 30, 1996 (unaudited):
FOZ DO TVA TVA ALFA IGUACU SSC PARANA --------- ----------- --------- --------- TVA BRASIL Loans payable.......................................... -- -- $ 1,584 -- TEVECAP Loans payable.......................................... -- -- 85 -- TVA SISTEMA Loans payable.......................................... -- -- -- $ 2,877 TVA PARANA Loans receivable....................................... -- $ 42 -- -- TVA SUL Loans payable.......................................... 497 63 -- 2,346 CCS CAMBORIU Loans payable.......................................... -- 20 -- --
The related company loans are denominated in reais and are subject to monetary restatement plus interest charges at the market rate which was 1.79% per month in September 1996. 8. PROPERTY, PLANT AND EQUIPMENT At September 30, 1996 (unaudited) property, plant and equipment were comprised of:
FOZ DO TV ALFA TCC CCS SSC IGUACU ----------- --------- --------- --------- ----------- Machinery and equipment......................................... $ -- $ 81 $ 26 $ 156 $ 73 Converters...................................................... -- 29 -- 66 -- Leasehold improvements.......................................... -- -- 3,447 2 -- Furniture and fixtures.......................................... 270 2 56 25 17 Premises........................................................ -- 3 6 -- Vehicles........................................................ -- -- 19 51 20 Software........................................................ -- -- 8 12 15 Tools........................................................... -- -- 2 -- -- Reception equipment............................................. -- -- -- -- -- Cable plant..................................................... -- 186 -- 396 280 Building........................................................ -- -- -- -- -- ----------- --------- --------- --------- ----------- 270 301 3,558 714 405 ----------- --------- --------- --------- ----------- Accumulated depreciation........................................ (110) (76) (77) (16) (110) Telephone line use rights....................................... -- -- 10 -- 9 Fixed asset in transit.......................................... -- -- -- -- -- Other........................................................... -- -- -- 52 12 ----------- --------- --------- --------- ----------- $ 160 $ 225 $ 3,491 $ 750 $ 316 ----------- --------- --------- --------- ----------- ----------- --------- --------- --------- ----------- TVA PARANA ---------- Machinery and equipment......................................... $ 1,100 Converters...................................................... 5,684 Leasehold improvements.......................................... 52 Furniture and fixtures.......................................... 197 Premises........................................................ 14 Vehicles........................................................ 39 Software........................................................ 45 Tools........................................................... 84 Reception equipment............................................. 4,170 Cable plant..................................................... 578 Building........................................................ 355 ---------- 12,318 ---------- Accumulated depreciation........................................ (1,667) Telephone line use rights....................................... 139 Fixed asset in transit.......................................... 66 Other........................................................... -- ---------- $ 10,856 ---------- ----------
F-99 TV ALFA, TCC, CCS, TVA PARANA, FOZ DO IGUACU AND SSC NOTES TO UNAUDITED FINANCIAL INFORMATION 9. OTHER ACCOUNTS PAYABLE At September 30, 1996 (unaudited) other accounts payable were comprised of:
FOZ DO TV ALFA TCC CCS SSC IGUACU ----------- --------- --------- --------- ----------- Accounts payable to related companies............................... $ -- $ -- $ 138 $ -- $ 3 Advertising......................................................... -- -- 1 -- -- Other............................................................... 82 2 2 334 ----- --------- --------- --------- ----- $ 82 $ 2 $ 141 $ -- $ 337 ----- --------- --------- --------- ----- ----- --------- --------- --------- ----- TVA PARANA --------- Accounts payable to related companies............................... $ 1,438 Advertising......................................................... -- Other............................................................... 428 --------- $ 1,866 --------- ---------
10. INCOME TAXES The subsidiaries income tax was different from the amount computed using the Brazilian statutory income tax for the reasons set forth in the following table:
FOZ DO TVA TV ALFA TCC CCS SSC IGUACU PARANA --------- --------- --------- --------- --------- --------- Income (loss) before income tax....................... 271 221 51 (781) 283 (2,120) Statutory income tax rate............................. 30.56% 30.56% 30.56% 30.56% 30.56% 30.56% --------- --------- --------- --------- --------- --------- 83 67 16 (239) 86 (648) Utilization of tax loss carryforwards................. (83) -- -- -- (54) -- Others................................................ -- (19) 2 35 7 158 --------- --------- --------- --------- --------- --------- -- 48 18 (204) 39 (490) Increase in valuation allowance....................... -- -- -- 204 -- 490 --------- --------- --------- --------- --------- --------- $ -- $ 48 $ 18 -- $ 39 -- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
11. INSURANCE The Subsidiaries maintain insurance coverage for their fixed assets and inventories in an amount considered sufficient to cover the risks involved. 12. PAID-IN CAPITAL Paid-in capital at September 30, 1996 (unaudited) was comprised of:
FOZ DO TVA TV ALFA TCC CCS SSC IGUACU PARANA --------- --------- ----------- ----- ----------- ------------- US$......................................... 344 47 4,012 1 4,771 18,964 --------- --------- ----------- --- ----- ------------- --------- --------- ----------- --- ----- ------------- Shares...................................... 278,000 250,000 4,850,000 200 5,000 27,712,345 --------- --------- ----------- --- ----- ------------- --------- --------- ----------- --- ----- -------------
F-100 ANNEX A THE FEDERATIVE REPUBLIC OF BRAZIL THE INFORMATION SET FORTH BELOW IS BASED ON MATERIAL OBTAINED FROM VARIOUS SOURCES BELIEVED TO BE ACCURATE BUT HAS NOT BEEN INDEPENDENTLY VERIFIED. GENERAL GEOGRAPHY AND DEMOGRAPHY. Brazil is the fifth largest country in the world and the largest country in Latin America, occupying approximately 3.3 million square miles and 60% of South America's land mass. Brazil's population in 1995 was approximately 157 million, the sixth largest in the world. The population is currently growing at a rate of approximately 1.9% per year and is expected to reach 172 million by the end of this century. Brazil is comprised of 26 states and the federal district in which Brasilia, the capital, is located. The largest cities in Brazil are Sao Paulo and Rio de Janeiro with metropolitan area populations of 10.2 million and 5.7 million, respectively. Brasilia, Belem, Belo Horizonte, Curitiba, Fortaleza, Porto Alegre, Recife and Salvador also have populations of more than one million each. GOVERNMENT. Brazil is a federative republic with a representative form of federal government. In October 1988, a new constitution was enacted, and the presidential form of government consisting of three independent branches executive, legislative and judicial was maintained. The constitutional review prescribed by the Constitution of 1988 was initiated by the Brazilian National Congress ("Congress") in October 1993 and resulted in the creation of the Social Emergency Fund outlined below and the reduction of the presidential term from five years to four years. See Appendix B, "The Brazilian Economy." In addition, on April 21, 1993, a national referendum was held to decide whether Brazil should continue as a presidential republic or should become a parliamentary republic or parliamentary monarchy. Brazilians voted to continue the current presidential republic form of government. Executive power is vested in the President, who is elected by popular vote for a term of four years and currently cannot be reelected for successive terms. The President has the power to appoint Ministers and to appoint other executives in selected administrative and political posts. The presidential powers are limited by the Constitution. Under certain circumstances, the President may issue provisional measures which, to be effective beyond 30 days, need the approval of the Brazilian Congress. The legislative branch is composed of a Senate consisting of 81 Senators elected for eight-year terms, and a Chamber of Deputies consisting of 513 Deputies elected for four-year terms. Senators and Deputies are elected directly by popular vote. The judicial branch is headed by the Federal Supreme Court, which is, in constitutional matters, the court of final appeal from both federal and state courts. The judicial branch also includes the Superior Court of Justice and various lower federal courts. On the state level, executive power is vested in Governors who are elected for four-year terms; legislative power is vested in State Deputies who are also elected for four years. Judicial power is vested in state courts; however, judicial proceedings in which the Federal Government is involved must be submitted to federal courts sitting in each state. RECENT POLITICAL HISTORY. The Brazilian military ruled the country from 1964 to 1985, when a series of political reforms were enacted culminating in the reintroduction of direct elections for President and the convening of a Constitutional Assembly to adopt a new Brazilian Constitution. During this period, Brazil solidified its position as one of the 10 largest economies in the world in terms of gross domestic product ("GDP") with an industrial base focused on exports. A-1 On December 17, 1989, Fernando Collor de Mello became the first President of Brazil elected by direct popular vote since 1960. Elections were held in late 1990 for state governorships, one-third of the federal Senate and all of the federal Chamber of Deputies. As a result of these elections, the Brazilian Democratic Movement Party, which had won a majority in the federal legislature and most of the state governorships in the 1986 elections, lost its majority in the legislature as many of its seats were lost to several other parties. On September 29, 1992, Brazil's lower house of Congress voted to authorize the Senate to begin an impeachment trial against President Collor based on corruption charges. At that time, the members of the President's cabinet submitted their resignations. According to Brazilian law, Mr. Collor was required to step down from office for a period of 180 days while the trial proceeded. During this 180-day period, Vice President Itamar Franco became acting President while the Senate decided whether to convict or to acquit the President. On December 29, 1992, Mr. Collor submitted his official resignation as President of Brazil. Consequently, Mr. Franco, as elected Vice President, assumed the position of President for the remainder of Mr. Collor's term in office, which concluded on January 1, 1995. General elections were held on October 3, 1994 to elect a new President, all state governors, and to renew the federal Chamber of Deputies and the federal Senate. Fernando Henrique Cardoso (who served as Finance Minister under Mr. Franco's administration and is generally viewed as the architect of the Real Plan), representing the Partido Social Democrata Brasileiro (the Brazilian Social Democratic Party or the "PSDB"), was elected in the first round with 54% of the valid vote. Luis Inacio da Silva, of the Worker's Party, was his closest contender. Mr. Cardoso's presidential campaign received a strong boost from the rapid fall in the rate of inflation which followed the introduction of the new currency in July 1994. See Appendix B, "The Brazilian Economy." Since his election Mr. Cardoso has appointed Mr. Pedro Malan, the former President of the Central Bank of Brazil, as the new Finance Minister. In May 1995, the President of the Central Bank, Mr. Persio Arida resigned and in June 1995 Mr. Gustavo Loyola was appointed as the new President of the Central Bank. President Cardoso has indicated that the overriding goals of his economic policies will be to continue the effort to combat inflation while negotiating with Congress for permanent fiscal reforms. THE CARDOSO ADMINISTRATION Mr. Cardoso took office on January 1, 1995, and has concentrated his efforts on two main issues: making structural reforms and completing the anti-inflation program. Those efforts have demanded extensive political negotiations with the various parties in and outside the Government. The objectives of the structural reforms are to provide the Government with a sound fiscal budget by revamping the tax and social security systems, and to enhance and create incentives to stimulate private sector participation in former Government monopolies such as telecommunications, oil and infrastructure in general. AMENDMENTS TO BRAZILIAN CONSTITUTION On August 15, 1995, four amendments to the Brazilian Constitution were approved by Congress which allow greater competition in the Brazilian economy: (i) Constitutional Amendment no. 5/95 altered Article 25, paragraph 2 of the Constitution by extinguishing the monopoly over pipeline distribution of gas; (ii) Constitutional Amendment no. 6/95 altered Article 175, paragraph 1 and Article 170, item IX of the Constitution by removing the distinction between Brazilian companies capitalized from domestic sources (capital nacional) and those capitalized from foreign sources (capital estrangeiro) and granting both types of company mineral exploration rights; (iii) Constitutional Amendment no. 7/95 altered Article 78 of the Constitution by permitting foreign vessels to engage in inland and coastal shipping; and A-2 (iv) Constitutional Amendment no. 8/95 altered Article 21 items XI and XII(a) of the Constitution by opening the telecommunications sector to private sector companies. On November 9, 1995, Congress enacted Constitutional Amendment no. 9 which altered Article 177 of the Brazilian Constitution allowing the Republic to contract state owned or private companies in order to carry out, in accordance with a law which has not yet been enacted, certain oil-related activities, such as (i) prospecting for and exploitation of deposits of oil and natural gas; (ii) refining of national or foreign oil; imports and exports of oil, natural gas and its basic by-products; (iii) oceanic transportation of crude oil of national origin or of basic oil by-products produced in Brazil; and (iv) pipeline transportation of crude oil, its by-products and natural gas of any origin. Presently, Congress is discussing a constitutional amendment proposing changes in the social security system, which is considered to be one of Brazil's greatest fiscal problems. The proposed changes are aimed at stabilizing the system's financial condition through modifications in the pension benefit structure, increases in mandatory contributions, changes in retirement criteria, and the elimination of certain privileges such as the federal civil servant retirement plan. The Cardoso administration has also sent to Congress a proposal, presently being discussed by a special commission in the Chamber of Deputies, for administrative reforms aimed at increasing management efficiency and extinguishing the job stability presently granted to public sector employees, thereby allowing a reduction of payroll expenses. In addition, the Government has stated that it intends to propose a new tax system which would attempt to simplify and enhance the efficiency of the current tax structure. The proposed system would shift allocations from the Government to the states and municipalities, in order to reduce the allocation of expenditures on the federal level. In addition, the proposed system would lower taxes on investments and exports from their current levels. A-3 ANNEX B THE BRAZILIAN ECONOMY THE INFORMATION SET FORTH BELOW IS BASED ON MATERIAL OBTAINED FROM VARIOUS SOURCES BELIEVED TO BE ACCURATE BUT HAS NOT BEEN INDEPENDENTLY VERIFIED. RECENT PERFORMANCE Throughout the 1980s and into the early 1990s, the Brazilian economy experienced periods of high inflation and recession. Recently, however, the Brazilian economy has shown improvement in a number of areas. Gross domestic product ("GDP") grew in constant real terms by 4.2% in 1995, 5.9% in 1994 and 4.2% in 1993, compared with a decrease of 0.8% in 1992. Industrial production increased by 2.0% in 1995, 7.0% in 1994 and 6.9% in 1993, compared with declines of 3.8%, 1.8% in 1992 and 1991, respectively. In 1995, the service sector experienced an overall growth rate of 5.7% in real terms as a result of increases in retail services of 7.4%, transportation of 3.9% and communications of 24.3%. Exports in 1995 increased by 6.8% over 1994 while imports grew by 50.4% in the same period. The trade balance presented a deficit of the equivalent of US$3.2 billion in 1995 compared to a surplus of the equivalent of US$10.6 billion in 1994. Through July 1996, the trade balance has shown a modest US$600 million (0.1% of GDP) deficit, compared to a US$4.3 billion deficit during the same period in 1995. For the first seven months of the year, export growth has exceeded that of 1995, while the growth of imports has lagged behind that of the previous year, thereby narrowing the trade deficit. Brazil registered significant growth in international currency reserves in 1995, despite the instability which followed the Mexican peso crisis. After a sharp decline in the first four months of the year, an increase in foreign capital inflows was registered which replenished reserves to the equivalent of US$51.8 billion at year-end 1995, up from US$38.8 billion at year-end 1994 and US$32.2 billion at year-end 1993. By July 31, 1996, reserves totaled more than the equivalent of US$58 billion. After a fine-tuning of the management of the foreign exchange rate regime during 1994, the Central Bank has pursued a policy of gradually depreciating the currency against the dollar. In 1995, the real fell in value against the US dollar from R$0.844 to R$0.972 per US dollar and has since depreciated to 1.015 on August 23, 1996, reflecting this policy of gradual depreciation. In 1995, Brazil experienced an average monthly rate of inflation of 1.75%, as measured by the FIPE (Foundation for Economic Research) consumer price index. In the period from January 1994 through June 1994, average monthly inflation, as measured by the FIPE, was 43.75%, but declined to 2.86% in the period from July 1994 through December 1994. This reduction resulted from the implementation of the third phase of the Real Plan and occurred without the price, wage or asset freezing mechanisms previously utilized in prior stabilization programs. See "Real Plan and Current Economic Policy." The sharp decline of inflation during the second half of 1994 contributed to a considerable recovery of domestic demand and coincided with a significant acceleration of the growth rate of the Brazilian economy. The twelve-month GDP growth rate increased to 7.7% in the second quarter of 1995 from 4.1% in the second quarter of 1994. As a result, the trade balance deteriorated and government was forced to implement deflationary measures which reduced GDP growth to 4.2% in the fourth quarter of 1995. B-1 The following table sets forth selected Brazilian economic indicators for the years indicated: SELECTED BRAZILIAN ECONOMIC INDICATORS
1991 1992 1993 1994 1995 ---------- --------- --------- --------- --------- THE ECONOMY Gross domestic product ("GDP"):.......................... $ 330.7 328.2 341.7 355.6 370.5 (in billions of constant 1994 REAIS(a) (in billions of dollars)(b)............................ 436.8 449.9 484.9 528.0 650.0 Real GDP growth (decline)(a)............................. 0.3% (0.8)% 4.2% 5.9% 4.2% Population (millions).................................... 147.1 149.4 151.6 153.7 156.6 GDP per capita (in US$)(c)............................... $ 2,970.0 3,012.0 3,199.0 3,435.0 4,151.0 Unemployment rate(d)..................................... 4.83% 5.76% 5.31% 5.06% 4.7% Consumer price increase (FIPE) (rate of change)(e)....... 458.6% 1,129.4% 2,491.0% 941.3% 23.1% Nominal devaluation rate(f).............................. 528.5% 1,059.0% 2,532.5% 613.4% 15.0% Domestic real interest rate(g)........................... 6.7% 30.2% 7.1% 24.8% 33.4% Balance of payments (in billions of dollars): Exports.................................................. $ 31.6 35.8 38.6 43.5 46.5 Imports.................................................. 21.0 20.6 25.3 33.1 49.6 Current account.......................................... (1.4) 6.1 (0.6) (1.5) N.A. Capital account.......................................... 0.8 10.3 10.7 9.2 N.A. Change in total reserves(h).............................. (0.6) 14.4 8.4 6.6 13 Total official reserves.................................. 9.4 23.8 32.2 38.8 51.8 PUBLIC FINANCE Primary surplus (deficit) as % of GDP(i)................. 2.9 1.6 2.3 5.1 0.4 Real interest expense as % of GDP........................ (1.6) (4.6) (2.4) (3.7) 5.4 Operational surplus (deficit) as % of GDP(j)............. (.2) (2.8) (1.2) 1.3 (5.0) PUBLIC DEBT (in billions of US dollars) Gross internal debt (nominal)(k)......................... 71.6 97.6 101.0 191.3 256.4 Gross external debt (nominal)(l)......................... 100.8 99.6 104.5 118.2 130.9 Net Public debt.......................................... 144.3 150.6 149.4 181.5 217.1 Internal............................................... 52.9 74.8 84.0 128.9 176.3 External............................................... 91.4 75.8 65.4 52.6 40.9
- ------------------------ Notes: (a) Calculated based upon constant average 1994 REAIS. (b) Converted to dollars based on the weighted average exchange rate for each year. (c) Not adjusted for purchasing parity. (d) Average annual unemployment rate of the metropolitan regions of Belo Horizonte, Porto Alegre, Recife, Rio de Janeiro, Salvador and Sao Paulo. (e) The FIPE index is one indicator of inflation. While many inflation indicators are used in Brazil, the FIPE is calculated by the Foundation for Economic Research at the University of Sao Paulo, an independent research organization, and is one of the most widely utilized indices. (f) Year on year percentage devaluation of the REAL against the US dollar (sell side). (g) Brazilian federal treasury securities deflated by the GPI-DS., General Price Index-Domestic Supply calculated by the Getulio Vargas Foundation. (h) Because of the impact of "Errors and omissions" and adjustments for valuation/devaluation of other currencies against the US dollar, monetization/demonetization of gold and reclassified assets, figures regarding changes in total reserves do not reflect the sum of the "Current account" and the "Capital account." See "Balance of Payments and Foreign Trade--Balance of Payments." (i) The primary surplus results represent Government revenues less expenditures, excluding interest expenditures on public debt. (j) The operational balance reflects the consolidated fiscal balance less interest expenditures, adjusted for the effects of inflation. (k) Consolidated debt, calculated as the gross internal debt less credits between governmental entities. (l) Gross external debt less total reserves. SOURCES: IBGE; GETULIO VARGAS FOUNDATION; CENTRAL BANK. B-2 REAL PLAN AND CURRENT ECONOMIC POLICY In December 1993, the Federal Government announced a stabilization program, known as the Real Plan, aimed at curtailing inflation and building a foundation for sustained economic growth. The Real Plan was designed to address persistent deficits in the Federal Government's accounts, expansive credit policies and widespread, backward-looking indexation. The Real Plan was formulated as a three-stage process: the first stage included a fiscal adjustment proposal for 1994, consisting of a combination of spending cuts and an increase in tax rates and collections intended to eliminate a budget deficit originally projected at US$22.0 billion (4.2% of GDP). Elements of the proposal included (i) cuts in current expenditures and investment through the transfer of some activities from the Federal Government to the states and municipalities, (ii) establishment of the Emergency Social Fund ("ESF"), financed by reductions in constitutionally mandated transfers of Federal Government revenues to the states and municipalities, to ensure financing of social welfare spending by the Federal Government, (iii) a prohibition on sales of public bonds by the Federal Government except to refinance existing debt and for certain expenditures and investment, (iv) new taxes, including a new levy on financial transactions and (v) recovery of mandatory Social Security Contributions ("COFINS"), due to judicial acknowledgment that such contributions were permissible under the Constitution. The centerpiece of the first stage of the Real Plan was the creation in 1994 of the ESF, the mandate for which has been renewed for the current year through 1997. The ESF enables the Federal Government to temporarily break certain constitutionally mandated links between revenue and expenditure. Pursuant to this amendment, 20.0% of Federal Government revenues otherwise earmarked for specific purposes were released and deposited into the ESF to ensure financing of social welfare spending by the Federal Government for 1994 and 1995. In adopting this constitutional amendment, however, Congress did not modify the existing provisions requiring the Federal Government to share a significant portion of its revenues with the States and municipalities. The second stage of the Real Plan, initiated on March 1, 1994, began the process of reform of the Brazilian monetary system. Brazil's long history of high inflation had led to the continuous and systematic deterioration of the domestic currency, which no longer served as a store of value and had lost its utility as a unit of account. Because inflation had reduced dramatically the information content of prices quoted in local currency, economic agents had included in their contracts a number of mechanisms for indexation and denomination of obligations in Indexed units of account. The process of rehabilitation of the national currency began with the creation and dissemination of the UNIDADE REAL DE VALOR (the Unit of Real Value, or "URV") as a unit of account. The second stage of the Real Plan was designed to eliminate the indexation of prices to prior inflation and link indexation to the URV, a unit of account. The introduction of the URV was premised on the theory that a reference unit with a nominal value corrected frequently and based on the best estimate of current inflation would express values more realistically than traditional indexing methods. The URV, therefore, was calculated daily based on estimates drawn from three price indices: the National Consumer Price Index (Extended) developed by the IBGE; the General Price Index (Market) calculated by the FGV and the Consumer Price Index developed by the Institute of Economic Research Foundation ("FlPE"). The URV index was designed to track the loss in the purchasing power of the CRUZEIRO REAL, the legal currency at the time. The third stage of the Real Plan began on July 1, 1994, with the introduction of the REAL as Brazil's currency. All contracts denominated in URVs were automatically converted into REAIS at a conversion rate of one to one, and the URV, together with the CRUZEIRO REAL, ceased to exist (although the CRUZEIRO REAL was generally accepted until August 31, 1994). Just after its introduction, the REAL appreciated significantly; the REAIS/US dollar exchange rate (sell side) in the commercial market, set at 1.00 REAL/1.00 US dollar when the REAL was introduced, stood at 0.846 REAIS/US dollar on December 31, 1994. In March 1995, the government adopted an exchange rate band and since then a policy to avoid further exchange rate B-3 overvaluation has been followed. The REAL/US dollar exchange rate was set at 0.973 on December 31, 1995 (sell side), which meant a devaluation of 15% of the REAL against the US dollar. On August 23, 1996 the REAL/US rate was set at 1.015 (sell side). In the beginning of 1995, in an effort to control the burgeoning rate of economic activity which followed the sharp decline in inflation, the Federal Government took several measures to control monetary growth, including strict credit control and a significant increase in real interest rates. In the third quarter of 1995 the economy returned to a level of sustainable economic growth and credit control was partially released while interest rates began to fall. Finally, in order to consolidate the Real Plan the Federal Government has introduced a series of proposals to reform the Constitution that will provide the structural changes necessary for long-term economic stability. The five "economic order" amendments proposed by the government have been approved by Congress and are now awaiting implementing regulatory legislation. These amendments eliminate the Federal Government's monopoly in the areas of telecommunications, distribution of natural gas, oil and coastal and fluvial shipping and change the definition of what constitutes a Brazilian company to any company registered in Brazil. The extension of the ESF until June 1997 was also approved early in 1996. The social security reform and the administrative reform are presently being considered for approval by Congress. The Federal Government has stated that it intends to propose several other amendments to Brazilian legislation to further consolidate the Real Plan. GROSS DOMESTIC PRODUCT Brazil's economic growth has fluctuated greatly in recent years. The average real growth rate of GDP during the six-year period from 1990 to 1995 was 1.5%, but real GDP growth was negative in both 1990, when it declined by 4.4%, and 1992, when it declined by 0.8%. During this period, the services and agriculture sectors grew at average rates of 2.3% and 2.8%, respectively, while the industrial sector increased by 0.2%. During 1993, the Brazilian economy recovered: real GDP grew by 4.2%, the industrial sector grew by 6.9% and the services sector grew by 3.5%. Agriculture was the only principal sector to decline during 1993, by 1%. In 1994, the agricultural sector recovered, registering a growth rate of 8.1%, due primarily to the record grain harvest, which reached 75.2 million tons. In 1994, the industrial and services sectors grew at rates of 7.0% and 4.1%, respectively, and GDP grew 5.9%. In 1995, overall GDP growth was 4.2%, with agriculture and services growing 5.9% and 5.7%, respectively, and industry growing 2%. B-4 The following table sets forth Brazil's real GDP for each of the years indicated: REAL GROWTH (DECLINE) OF GDP PER SECTORS (% OF CHANGE)
1991 1992 1993 1994 --------- ----- --------- --------- Total GDP................................................................... 0.3 (0.8) 4.2 5.9 Agriculture................................................................. 2.8 5.4 (1.0) 8.1 Industry.................................................................... (1.8) (3.8) 6.9 7.0 Mining.................................................................... 0.9 0.8 0.6 4.7 Manufacture Building.................................................................. (3.5) (6.6) 4.8 6.1 Public Utilities.......................................................... 4.3 1.6 3.7 2.4 Services.................................................................... 1.6 0.0 3.5 4.1 Retail Sales.............................................................. 0.0 (2.5) 6.7 5.9 Transportation............................................................ 2.5 2.4 4.2 4.3 Communication............................................................... 19.6 5.7 10.7 13.6 Financial Institutions...................................................... (8.0) (4.6) (2.2) (2.8) Public Administration....................................................... 1.6 1.5 1.5 1.4 1995 --------- Total GDP................................................................... 4.2 Agriculture................................................................. 5.9 Industry.................................................................... 2.0 Mining.................................................................... 3.1 Manufacture Building.................................................................. 0.1 Public Utilities.......................................................... 7.5 Services.................................................................... 5.7 Retail Sales.............................................................. 7.4 Transportation............................................................ 3.9 Communication............................................................... 24.3 Financial Institutions...................................................... (7.4) Public Administration....................................................... 1.4
- ------------------------ SOURCE: IBGE and Central Bank. PRIVATIZATION PROGRAM The Federal Government, directly or through various state-owned enterprises, owns many companies and controls a major portion of activities in the mining and oil and gas sectors. Energy production, rail transport, postal services and telecommunications are all directly or indirectly controlled by the Federal Government. The public sector grew very rapidly during the 1970s and continues to play a significant role in Brazil's economy. To reduce its participation in the economy, the Federal Government has engaged in the privatization of certain State enterprises. The objectives of the privatization program are (i) to reduce the role of the State in the economy and allocate more resources to social investment, (ii) to reduce the public sector debt, (iii) to encourage increased competition and thereby raise the standards and efficiency of Brazilian industry and (iv) to strengthen the capital markets and promote wider share ownership. As originally presented, the PLANO REAL contemplated constitutional amendments which would permit private participation in the State-controlled petroleum and telecommunication sectors and in other areas that had constitutionally mandated monopolies, such as pipeline distribution of gas and the shipping industry. These amendments were not adopted during the constitutional review that concluded on May 31, 1994, but the amendments were presented to Congress again in 1995 and all have been approved. A council directly subordinate to the President (the CONSELHO NACIONAL DE DESESTATIZACAO or "Privatization Council") along with BNDES are responsible for administering the privatization program. To date, privatizations have, for the most part, been effected through share auctions conducted on Brazil's stock exchanges. As of February 29, 1996, a total of 42 State enterprises had been privatized, and several minority interests held by Government companies had been sold for nominal consideration (consisting of Brazilian currency or devalued debt issued by the Federal Government, its agencies or State- controlled enterprises and redeemable at face value) totaling US$9.6 billion. For 1996, plans are to privatize electric utilities and rail transport services companies. In February 1995, the LEI DE CONCESSOES DE SERVICOS PUBLICOS ("Public Services Concessions Law") was enacted permitting investment in the electricity sector by private companies or individuals. In addition, B-5 on July 7, 1995, Congress approved Law No. 9074, which permits independent, third-party producers of electricity to compete with the State monopolies. The President has also sent to Congress a constitutional amendment that would allow the private sector to build and operate hydroelectric plants. Within the electricity sector, priority is being given to the privatization of Light S.A., the auction of which took place in May 1996. Escelsa, the other distribution company owned by the Federal Government, was privatized on July 11, 1995. During the first quarter of 1997, the government plans to privatize the Companhia Vale do Rio Doce ("CVRD") conglomerate, one of the largest corporations in Brazil and the largest explorer of iron ore in the world. Several Brazilian labor unions have opposed certain of the privatization measures proposed by the Federal Government, but the Federal Government has to date been able to move forward with its program despite such opposition. In addition to the privatization program, the Federal Government has sought to reduce the regulation of economic activity generally. Important developments in this regard include the trade liberalization and the termination of most price controls. The Federal Government has also acted to deregulate certain segments of the economy, including fuel and oil derivatives, airlines, shipping and steel, and is introducing measures designed to increase competition in areas such as highway maintenance and transportation, areas which were previously controlled, in most cases, by Government enterprises. PRICES Brazil has experienced high and chronic inflation for many years, which hindered investment and economic growth and contributed to income inequality. Inflation and certain Federal Government measures taken to combat inflation have had significant negative effects on the Brazilian economy generally, on the fiscal accounts of the Federal Government and on its ability to service its external debt. See "Public Finance" and "Public Debt." B-6 The following table sets forth consumer price increases in the city of Sao Paulo, as measured by the FIPE price index.
FIPE CONSUMER PRICES -------------------------- TRAILING PERIOD MONTHLY 12 MONTHS(A) - ----------- ----------- ------------- 1989 December....................................................................... 1,635.90% 1990 December....................................................................... 1,639.10 1991 December....................................................................... 458.60 1992 December....................................................................... 1,129.50 1993 December....................................................................... 2,490.10 1994 December....................................................................... 941.30 1995 January........................................................................ 0.80 648.10 February....................................................................... 1.32 448.50 March.......................................................................... 1.93 293.89 April.......................................................................... 2.64 176.49 May............................................................................ 1.97 94.31 June........................................................................... 2.66 32.32 July........................................................................... 3.72 28.33 August......................................................................... 1.43 27.67 September...................................................................... 0.74 27.57 October........................................................................ 1.48 25.48 November....................................................................... 1.14 23.19 December....................................................................... 1.21 23.14 1996 January........................................................................ 1.82 24.39 February....................................................................... 0.40 23.26 March.......................................................................... 0.23 21.20 April.......................................................................... 1.62 20.00 May............................................................................ 1.34 19.26 June........................................................................... 1.41 17.81 July........................................................................... 1.31 15.07
- ------------------------ Notes: (a) Annual figures for each month from January 1995 represent trailing 12-month inflation rates. SOURCE: Institute for Economic Research (FIPE). Throughout the 1980s Brazil experienced periods of severe inflation. In 1986, President Jose Sarney's government endeavored to confront the problem with the Cruzado Plan, which sought to end inflation via a general price and wage freeze and the introduction of a new currency. The plan succeeded in bringing down inflation for the year to 68.1% as measured by the FIPE index of consumer prices in Sao Paulo and was very popular for a time. The Cruzado Plan, however, eventually created serious distortions in the economy as well as shortages and finally failed, resulting in renewed high inflation. From 1987 through 1990, annual inflation rates rose from a year-end low of 367.2% in 1987 to close 1990 at 1,639.1% for the year. The new government of President Fernando Collor de Mello tried a number of plans to ameliorate the situation but, after some success at first with inflation falling to 458.6% in 1991, failed to stabilize prices. During the planning stages of the current Real Plan in 1993, inflation rose to levels around 30% per month and 2,490.1% for the year. In the implementation of the Real Plan in mid-1993, the Unit of Real Value ("URV") was implemented as a general price and wage index that would peg real prices to the value of the dollar and adjusted based on depreciation of the currency as well as inflation. This served to B-7 downplay the effects of inflation to the public since both prices and wages would be adjusted automatically to compensate. This allowed the nominal currency, the CRUZEIRO REAL to become de-linked from price expectations allowing inflation measured in the nominal currency to reach 50% per month while the real value of wages and prices were kept constant by the URV. Since the implementation of the third phase of the Real Plan, including the introduction of the real, in July 1994, the rate of inflation has decreased significantly. See "Real Plan and Current Economic Policy." The high monthly rates of inflation experienced in the first half of 1994 have fallen to single digits. Residual inflation from the end of the first six months of 1994 resulted in a monthly inflation rate of approximately 5.5% for July. The gradual decline of the impact of these factors resulted in decreasing inflation rates, reaching 1.55% for the month of September. In October and November, the inflation rate moved upward approximately one percentage point due to seasonal factors, accentuated by a long period of drought in the producer regions. In December, the inflation rate dropped to 0.57% as the supply of farm products normalized. In January 1995, the inflation rate reached 1.36% impacted by rises in natural resource products prices and costs of building. Less intense upwards movement in these factors caused the rate of inflation to decrease to 1.15% in February 1995. The inflation rate reached 1.8% and 2.3% in March and April 1995, respectively. The acceleration in the rate of inflation was caused primarily by the increase in industrial prices, housing and clothing costs. After another decline in May to 0.4%, inflation rose to 2.62% and 2.24% in June and July 1995, respectively. This acceleration resulted from a rise in public transport fares. In September and October a sharp decline in farm product prices reduced inflation significantly. In January 1996, the increase in inflation was caused by a rise in electricity and telephone prices. BALANCE OF PAYMENTS AND FOREIGN TRADE GENERAL Like other countries in Latin America, Brazil's balance of payments deteriorated in the early 1980s as the result of a series of adverse economic developments. These developments were further exacerbated by rising US dollar interest rates, which increased the cost of servicing Brazil's external debt and led to current account deficits, the debt crisis and curtailment of Brazil's access to international financial markets. Since 1992, however, Brazil has experienced an increase in capital inflows, as foreign investments, have surged. Net direct investments increased to over US$2.9 billion from in 1995, from US$1.7 billion in 1994 and US$901 million in 1990. For the period of January 1996 through June 1996, foreign direct investment totaled US $4.5 billion. Foreign reserves edged up during the 1990s. From December 31, 1990 to December 31, 1995, the foreign reserves maintained by the Central Bank increased by 451%, totaling US$51.8 billion at December 31, 1995, which covered approximately 13 months of imports of goods, or 8 months of imports of goods and services. Since 1990, the Federal Government's economic policies have increased the importance of the external sector of the economy. Recent reforms directly affecting the external sector include a reduction in import tariffs, the negotiation of the Mercosul free trade agreement among Brazil, Argentina, Uruguay and Paraguay, the liberalization of certain foreign exchange transactions and the liberalization of foreign investment regulations. B-8 BALANCE OF PAYMENTS The following table sets forth information regarding Brazil's balance of payments for each of the years indicated: BALANCE OF PAYMENTS IN US$ MILLION
1991 1992 1993 1994 1995 --------- ---------- ---------- --------- ---------- CURRENT ACCOUNT..................................... $ (1,407) $ 6,143 $ (592) $ (1,689) $ (17,784) Trade balance..................................... 10,579 15,239 13,307 10,466 (3,157) Exports......................................... 31,620 35,793 38,563 43,545 46,506 Imports......................................... 21,041 20,554 25,256 33,079 49,663 Services (net).................................... (13,542) (11,339) (15,585) (14,743) (18,600) Interest.......................................... (8,621) (7,253) (8,280) (5,668) (8,158) Other............................................. (4,921) (4,086) (7,305) (8,405) (10,442) Unilateral transfers.............................. 1,558 2,243 1,686 2,568 3,973 Revenues........................................ 1,599 2,315 1,792 2,751 4,224 Expenditures.................................... 43 72 106 183 251 CAPITAL ACCOUNT..................................... (4,148) 25,271 10,115 14,294 29,820 Investment (net).................................. 170 2,972 6,170 8,131 4,670 Reinvestment...................................... 365 175 100 83 200 Financing......................................... 2,026 13,258 2,380 1,939 2,641 Foreign......................................... 2,125 13,191 2,625 2,389 3,487 Brazilian....................................... (99) 67 (245) (450) (845) Amortizations..................................... (7,830) (8,572) (9,978) (50,411) (11,026) Paid............................................ (7,830) (7,147) (9,288) (11,001) (11,026) Refinanced (incl. Paris Club)................... 0 1,425 (710) (39,410) 0 Currency loans.................................... 964 17,577 11,659 53,802 34,403 Short-term...................................... (3,033) 2,602 869 909 19,667 Long-term....................................... 3,997 14,975 10,790 52,893 14,736 Other capital..................................... 157 (139) (215) 750 (1,068) ERRORS AND OMISSIONS................................ 876 (1,386) (1,119) 334 1,444 SURPLUS (DEFICIT)................................... (4,679) 30,028 8,404 12,939 13,480 FINANCING........................................... 4,679 (30,028) (8,404) (12,939) (13,480) Assets (increase)................................. 369 (14,670) (8,709) (7,215) (12,919) Use of IMF credit................................. (590) (406) (495) (129) (47) Short-term liabilities............................ 4,900 (14,952) 800 (5,593) (514) Arrears........................................... 5,621 (14,259) 1,133 (5,535) (510) Others............................................ (721) (699) (333) 58 (4)
In 1995, Brazil's balance of payments registered a surplus of US$13.5 billion. In 1994 and 1993 the surplus in Brazil's balance of payments reached US$12.9 billion and US$8.4 billion, respectively. After recording a US$6.1 billion current account surplus in 1992, Brazil registered a US$592 million Current account deficit in 1993. Among the factors that led to that decline were reductions of 12.7% and 24.8% in the trade surplus and the net inflow of Unilateral transfers, respectively, and an increase of 37.4% in the service deficit, reflecting an increase both in external debt service costs and expenses related to other services. In 1994, the Current account registered a deficit of US$1.7 billion due to a decrease of 21.3% in the trade surplus. The reduction in the trade surplus resulted from a 31.0% increase in imports, which totaled US$33.1 billion, caused by a significant increase in imports of consumer goods and capital goods as a result of the Real Plan. Exports increased by 12.9% in 1994, totaling US$43.6 billion. In 1995 the Current account turned sharply negative as imports grew 50.1% while exports grew B-9 by a mere 6.8%. This growth in imports was primarily the result of an appreciation of the real and the release of pent-up demand from the stability in the new currency. Overall trade balance figures for 1995 showed a deficit of US$3.2 billion, with exports of US$46.5 billion and imports of US$49.7 billion. Despite the development of a the first trade deficit in many years, Brazil's Capital account surplus grew to a record US$29.8 billion. Brazil's Capital account includes direct investments, portfolio investments and short, medium and long-term indebtedness. The Capital account has registered a surplus since 1992 and in 1995 the surplus climbed 108.6% to reach US$29.8 billion. In 1994, the Capital account rose to US$14.3 billion mainly as a result of the Brady program which resulted in a 361.4% increase in Currency loans to US$52.9 billion. During 1995, although Currency loans declined when compared to the previous year, the rise in short-term inflows by US$18.8 billion was still impressive when compared to 1993. Overall Currency loans totaled US$34.4 billion in 1995. FOREIGN TRADE The following table sets forth certain details regarding Brazil's foreign trade for the years indicated: PRINCIPAL FOREIGN TRADE INDICATORS
1991 1992 1993 1994 ------------- ------------- ----------- ----------- Exports as % of GDP........................................... 7.2% 8.0% 8.0% 8.2% Imports as % of GDP........................................... 4.8 4.6 5.3 6.2 Trade balance as % of GDP..................................... 2.4 3.4 2.7 2.0 Growth (decline) in foreign trade(a).......................... 1.1 7.0 13.7 19.7 Exports: % increase (decrease)(b)............................. 0.7 13.2 7.8 12.9 Imports: % increase (decrease)(b)............................. 1.8 (2.3) 24.0 30.2 Trade balance: % change from prior period..................... (1.6) 44.0 (13.9) (20.8) Exports/Imports(c)............................................ 1.5x 1.7x 1.5x 1.3x 1995 ------------- Exports as % of GDP........................................... 7.0% Imports as % of GDP........................................... 8.0 Trade balance as % of GDP..................................... (0.5) Growth (decline) in foreign trade(a).......................... 25.5 Exports: % increase (decrease)(b)............................. 7.0 Imports: % increase (decrease)(b)............................. 50.0 Trade balance: % change from prior period..................... (131) Exports/Imports(c)............................................ 0.94x
EXPORTS: US$ in millions................................. $ 31,620 $ 35,793 $ 38,563 $ 43,545 $ 46,506 1,000 tons...................................... 165,974 167,295 182,323 194,880 N.A. % change from period(d)......................... (1.3)% 0.8% 9.0% 6.9% N.A. IMPORTS: US$ in millions................................. $ 21,041 $ 20,554 $ 25,256 $ 33,079 $ 49,663 1,000 tons...................................... 63,278 68,057 77,813 84,819 N.A. % change from prior period(d)................... 10.7% 7.6% 14.7% 8.6% N.A. Trade balance..................................... $ 10,579 $ 15,239 $ 13,307 $ 10,466 $ (3,157)
- ------------------------ Notes: (a) Percentage change in exports and imports from previous year. (b) Percentage change from previous year. (c) Exports divided by imports. (d) Percentage change in volume, by weight. SOURCE: Central Bank Overall trade flows in 1995 totaled a record US$96.2 billion, representing an increase of 25.5% over those of the previous year. In addition to maintaining an export financing program, PROEX, which in 1991 replaced the previous FINEX program, the Federal Government has adopted a series of measures aimed at promoting foreign trade. The Federal Government has attempted to encourage domestic competition by liberalizing imports through the elimination of certain non-tariff restrictions, such as the list of goods with B-10 respect to which the issuance of import licenses had been suspended, the requirement that traders submit their import requirements to the Federal Government in advance and the linking of certain imports to exports. In 1991, the Federal Government announced a schedule for tariff reductions for a three-year period ending in January 1994, aimed at attaining rates varying from zero to 40%, with an average tariff of 14.2%. As of February 1992, further tariff reductions were made, with adjustments every nine months instead of at one-year intervals. Accordingly, the reduction in tariffs to an average rate of 16.8% from 20.8% originally scheduled for January 1, 1993 was implemented on October 1, 1992. The Federal Government implemented the last set of scheduled tariff reductions on July 1, 1993, when the average duty and the maximum tariff were reduced to 14.2% and 40%, respectively. The Federal Government also reduced tariffs to moderate domestic price increases to support the Real Plan. In September and October 1994 it implemented significant new tariff reductions, covering over 5,000 products and reducing the average tariff to 11.32%. In September 1996, the government removed the ICMS export tax. This tax was applied to a broad range of mostly primary goods and its removal is expected to boost export competitiveness. Average tariffs are also being reduced as a result of Brazil's implementation of a schedule of preferences from its current tariffs applicable to imports from Mercosul countries. The preference, which was a 75% reduction from otherwise applicable rates during the second half of 1993 and 82% during the first half of 1994, was raised to 89% beginning on July 1, 1994 and to 100% beginning on January 1, 1995, although certain products were excepted from this discount. In December 1994, the four member countries of Mercosul established January 1, 1995 as the date for the implementation of the Common External Tariff ("CET"), intended to transform the region into a customs union. The CET ranges from 0.0% to a maximum of 20.0%, but each member country was allowed a list of 300 exceptions (399 in the case of Paraguay) to the CET. The products on each country's list of exceptions have tariffs varying from the CET, but such tariffs are scheduled to be reduced automatically each year until 2001, at which time such tariffs will equal the CET rates. The introduction of the CET has raised Brazil's average tariffs slightly, to 11.99%. In February 1995, the Minister of Finance increased the import tariff on passenger cars to 32.0% from 20.0%, with a scheduled reduction of 2.0 percentage points each year until reaching 20.0% again in 2001. In addition, in order to reduce the current account deficit, in March 1995, the Minister of Finance increased to 70.0% the import tariff on roughly 100 durable consumer goods, including passenger cars (but not utility vehicles), home appliances and electric and electronic equipment, to be in effect for a period of one year. In May 1995, the tariff on utility vehicles was raised to 70.0%. In April 1995, approximately 20 of such durable goods had their tariffs reduced to a range between 40.0% and 63.0% to meet the tariff level established in GATT negotiations. Passenger cars and utility vehicles will also have their maximum tariffs reduced to 63.0% as of January 1, 1997, 49% as of January 1, 1998, 35% as of January 1, 1999 and 20% as of January 1, 2000, which is the CET level. A recent agreement with the European Union, Japan and the Republic of Korea will result in a reduction to 30% in the import tariff on up to 50,000 vehicles per year. Brazil's list of exceptions to the CET was published in April 1995 revised in May 1995, encompassing 460 products (including those that had their tariffs increased in March and May 1995), some of which are expected to remain on the list until 2001, while others of which may be withdrawn or have their tariffs altered in order to assure domestic supply or to prevent domestic speculative price movements. Brazil is a signatory to the Final Act of the GATT Uruguay Round, pursuant to which it is committed to staged reductions in tariffs beginning in 1995, over five years with respect to industrial products and over ten years with respect to agricultural products. B-11 FOREIGN INVESTMENT Foreign investment in Brazil has traditionally focused on direct investment in the manufacturing sector. Beginning in 1991, foreign investment increased substantially, surpassing the levels reached during the period from 1973 to 1982, before the debt crisis. In 1994, net foreign direct investment increased by more than US$1 billion, to reach US$1.7 billion, while the net portfolio investment decreased US$1.9 billion, reaching US$11.6 billion. Figures indicate that in 1995 net foreign direct investment reached US$3.0 billion while net portfolio investment was US$4.8 billion. The following table sets forth information regarding foreign investment in Brazil for each of the years indicated. FOREIGN INVESTMENT IN BRAZIL (IN US$)
INFLOWS OUTFLOWS NET INFLOWS ----------------------------------- ------------------------------------- ------------------------ PORTFOLIO(A) DIRECT(B) TOTAL PORTFOLIO(A) DIRECT(B) TOTAL PORTFOLIO(A) DIRECT(B) ----------- ----------- --------- ----------- ------------- --------- ----------- ----------- 1990................. 824 1,131 1,955 245 230 475 579 901 1991................. 4,187 1,095 5,282 378 123 601 3,809 972 1992................. 9,930 1,749 11,709 2,594 189 2,763 7,366 1,580 1993................. 23,554 1,302 24,854 10,019 580 10,599 13,451 722 1994................. 32,621 2,356 30,265 21,046 618 21,664 11,575 1,738 1995................. 25,559 3,285 25,844 17,806 315 18,121 4,753 2,970 TOTAL --------- 1990................. 1,480 1991................. 4,781 1992................. 8,946 1993................. 14,173 1994................. 9,837 1995................. 7,723
- ------------------------ Notes: (a) Includes bonds, commercial paper and notes, except those related to external debt restructuring bonds. (b) Includes reinvestment of earnings. SOURCE: Central Bank. In March 1995, the Federal Government eased certain restrictions on foreign lending and investment in response to the deterioration in the current account. Such measures included the reduction of the IOF on foreign capital inflows, if over a certain maturity, to 0.0% from 7.0% on loans, to 5.0% from 9.0% on investments in foreign capital fixed income funds and to 0.0% from 1.0% on portfolio investments. In August 1995, responding to the strong capital inflows of the end of the second quarter of 1995, the government increased restrictions on foreign lending and investments. The IOF charged on bonds and loans issued abroad was increased to 5% and the IOF charged on fixed income funds was increased to 7%. In February 1996, the Government increased to 3 years the minimum term for the issuance of bonds, and in October 1996 established the following IOF charges: (i) 3% for loans with a minimum maturity of less than 3 years; (ii) 2% for loans with a minimum maturity of or in excess of 3 years but less than 4 years; (iii) 1% for loans with a minimum maturity of or in excess of 4 years but less than 5 years; and (iv) 0% for loans with a minimum maturity of or in excess of 5 years. PUBLIC FINANCE CONSOLIDATED PUBLIC SECTOR FISCAL PERFORMANCE The consolidated public sector is comprised of the Federal Government, the several State enterprises, and State and local governments. In turn, the Federal Government consolidates the accounts of the National Treasury, the social security system, and the income and loss statement of the Central Bank, but not the proceeds from privatization. With the adoption of several important structural reforms in recent years, the Federal Government has established as its objective a substantial improvement in the fiscal performance of the consolidated public sector as measured by the operational results. Brazil reports its fiscal balance using two principal measures, all of which are calculated according to the official statistical guidelines of the IMF: B-12 - PRIMARY BALANCE, which is the financial balance less net borrowing costs of the Federal Government. - OPERATIONAL BALANCE, which is similar to primary balance but excludes the inflationary component of interest payments on domestic debt of the non-financial public sector. This balance is the primary balance plus accrued real interest on the external and domestic debt. This balance is used to correct the distortions which affect the measurement of public finances in an inflationary environment. Brazil generated a consolidated primary surplus in each year from 1990 to 1995. However, real interest expense (both domestic and external) on the public debt accounted for the operational deficits registered during most of the period. In 1994, a significant increase in tax revenues, due to the reduction in inflation and to the economic boom, increased the primary surplus to 5.1% of GDP while the real interest expense on the public debt reached 3.7% of GDP. Consequently, Brazil posted an operational surplus of 1.1% of GDP in 1994 compared with a deficit of 2.2% in 1992 and a surplus of 0.2% in 1993. In 1995, the operational deficit reached 4.95% of GDP due to real interest expenses which totaled 5.4% of GDP while in the primary concept a surplus of 0.45% of GDP was registered. Set forth below are the public sector borrowing requirements since 1990: PUBLIC SECTOR BORROWING REQUIREMENTS HISTORICAL SUMMARY(A)
1991 1992 1993 1994 1995 --------- --------- --------- --------- --------- SELECTED ECONOMIC INDICATORS(b) Real GDP growth (decline).......................................... 0.2% (0.8)% 4.2% 5.9% 4.2% Monetary base (end of period) change............................... 291.2 991.3 1,953.2 308 22.60 Real interest rate(c).............................................. 6.7 30.1 7.1 24.8 33.5 PUBLIC FINANCE(d) Financial result................................................... (24.4)% (44.3)% (58.4)% (44.4)% 7.4% Primary result..................................................... 3.0 2.4 2.6 5.1 0.4 Real interest...................................................... (1.6) (4.6) (2.4) (3.7) (5.4) Domestic........................................................... 0.4 (3.2) (0.9) (3.0) (4.7) External........................................................... (2.0) (1.4) (1.5) (0.7) (0.7) Operational result................................................. 1.4 (2.2) 0.2 1.1 (5.0) Domestic financing................................................. 3.7 (3.3) 0.2 2.4 7.8 External financing................................................. 0.0 2.8 2.4 2.7 (3.3) Issue of money..................................................... (2.3) (2.7) (2.4) (4.1) 0.5
- ------------------------ Notes: (a) Surplus (deficit). (b) Deflated by official government deflator. (c) Implicit real interest rate on public sector internal debt. (d) All figures expressed as a percentage of GDP. SOURCE: Central Bank. PUBLIC DEBT GENERAL Public sector debt ("public debt") in Brazil consists of the internal and external debt of the Federal Government, State and local governments and public sector enterprises. Pursuant to the Constitution, the Brazilian Senate is vested with powers to establish, upon a request by the President, (i) global limits for the consolidated debt of the Government, States, and municipalities, (ii) the terms and conditions of the internal and external financial transactions of the Federal Government, including public sector enterprises, at all levels of government, and (iii) the terms and conditions for guarantees of the Government of any internal and external financial transaction. Furthermore, any external financial transaction entered into at any level of government must be authorized by the Senate. B-13 The following table sets forth the consolidated gross and net debt of the public sector as at December 31 for each of the years 1991 through 1995: PUBLIC SECTOR DEBT IN US$ MILLION
1991 1992 1993 1994 1995 ----------- ----------- ----------- ----------- ----------- CONSOLIDATED GROSS PUBLIC SECTOR DEBT(a)........ $ 172,371 $ 196,733 $ 205,460 $ 309,530 $ 387,340 Internal...................................... 71,557 97,159 100,990 91,340 256,420 External(b)................................... 100,834 99,574 104,470 118,190 130,920 BY SECTOR, FEDERAL GOVERNMENT AND CENTRAL BANK Gross debt.................................... 99,904 120,105 124,820 203,840 247,920 Internal...................................... 33,965 52,039 57,160 126,600 170,650 Securities debt............................. 11,561 36,403 42,060 71,400 116,340 Other debt(c)............................. 22,404 15,636 15,100 55,200 54,310 External...................................... 65,939 69,663 67,660 74,240 77,270 Credits Internal.................................... (41,480) (49,128) (48,810) (87,060) (104,270) Public sector(d).......................... (26,179) (27,697) (34,440) (30,780) (32,830) Other(e).................................. (15,301) (21,431) (14,470) (56,280) (71,440) External(f)................................. (9,406) (23,754) (32,210) (38,810) (51,260) STATE AND LOCAL GOVERNMENT Gross debt.................................... 29,098 39,263 43,540 63,520 81,750 Internal.................................... 24,887 34,861 38,940 61,380 79,350 External.................................... 4,211 4,402 4,600 2,140 2,400 Credits Internal.................................... (1,103) (1,843) (1,370) (2,990) (4,580) Public sector(d).......................... 0 0 0 0 0 Other(e).................................. (1,103) (1,843) 1,370 (2,990) (4,580) External(f)................................. 0 0 0 0 0 STATE ENTERPRISES Gross debt.................................... 69,568 65,062 64,650 46,140 51,730 Internal.................................... 38,884 39,549 39,330 34,140 39,250 External.................................... 30,684 25,510 25,320 11,980 12,480 Credits Internal.................................... (935) (1,131) (1,240) (3,183) (4,150) Public sector(d).......................... (692) (870) (1,090) (2,735) (3,800) Other(e).................................. (243) (261) (15) (45) (35) External(f)................................. 0 0 0 0 0 NET PUBLIC SECTOR DEBT(g)....................... 144,286 150,594 149,390 181,500 217,140 Internal...................................... 52,858 74,776 84,000 128,900 176,250 External...................................... 91,428 75,818 65,390 52,600 40,890
- ------------------------ Notes: (a) Consolidated gross public sector debt consolidates debts between public sector entities. (b) Includes short-term debt obligations. (c) Includes monetary base, CRUZADOS NOVOS in accounts frozen under the Collor Plan, compulsory deposits required upon release of frozen accounts, other deposits of the financial system with the Central Bank and federal securities that can be used in the national privatization program. (d) Internal public sector credits owed by other public sector entities. These amounts are consolidated into the consolidated gross public sector debt amounts above. (e) Other internal credits consist primarily of deposits at private sector financial institutions. (f) External credits are equivalent to the Federal Government's international reserves. The external credits of the Federal Government and Central Bank include collateral acquired in connection with the April 1994 debt restructuring. (g) Net public sector debt is consolidated gross public sector debt less aggregate credits of the Federal Government and Central Bank, State and local governments and state enterprises (excluding internal public sector credits that have been excluded from the consolidated gross public sector debt). SOURCE: Central Bank. B-14 In 1994, net public sector debt was approximately US$182 billion, of which US$129 billion represented domestic indebtedness. Net public debt in 1995 reached US$217 billion, an increase of 20% from the December 1994 figure. This result was mainly due to a 36.7% rise in the net internal debt which is related to a significant increase registered by the federal security debt. The rise of net public debt is also attributable in large part to the substantial increase in the net debt of State and local governments, which stood at US$60.5 billion in 1994 and US$77.2 billion in 1995. On the other hand, in the same period, net external debt decreased by 22% to US$41 billion due a significant accumulation of international reserves. EXTERNAL DEBT As of December 31, 1995, Brazilian foreign debt was US$159 billion. Approximately US$125 billion of the total represented medium and long-term debt, of which US$25 billion was owned to foreign commercial banks, US$32 billion to international entities and government agencies, US$54 billion to bond holders and US$14 billion to suppliers and other creditors. Most of the commercial bank debt was denominated in US dollars and bore interest at floating rates. The "Brady Plan"-type debt restructuring of April 1994 substantially altered Brazil's external debt profile. While the interest arrears were capitalized, the restructuring reduced previously outstanding principal obligations by about US$4 billion. See "Public Debt--Debt Crisis and Restructuring." The following table sets forth details of Brazil's public sector external debt by type of borrower for each of the years indicated: PUBLIC SECTOR EXTERNAL DEBT BY TYPE OF BORROWER(A) (US DOLLARS IN MILLIONS)
1991 1992 1993 1994 1995 --------- --------- --------- --------- --------- Public sector.......................................... 94,627 93,437 90,613 87,330 87,455 Registered(a)........................................ 75,423 86,669 83,515 86,864 87,168 Non registered....................................... 19,204 6,768 7,098 466 287 Private sector......................................... 29,283 42,512 55,113 60,965 71,550 Registered(a)........................................ 17,573 24,166 30,755 32,804 42,145 Non registered....................................... 11,710 18,346 24,358 28,161 29,405 Total.................................................. 123,910 135,949 145,726 148,295 159,005 External debt/% of GDP................................. 28.35% 31.11% 33.35% 33.93% 42.97%
- ------------------------------ Notes: (a) Debt with an original maturity of one year or more. SOURCE: Central Bank. DEBT CRISIS AND RESTRUCTURING With the inception of the debt crisis in 1982, voluntary lending to Brazil by commercial banks ceased. With its foreign reserves in decline, Brazil struggled to make debt service payments by achieving substantial trade surpluses. Emergency lending by commercial banks and multilateral organizations in 1983 and 1984, together with rescheduling of outstanding commercial bank debt, helped to stem the loss of reserves. In 1983, the IMF undertook to provide Brazil with R$2 billion of Special Drawing Rights ("SDRs") (approximately US$4.6 billion, as at December 31, 1982) over a three-year period, and commercial bank creditors agreed to reschedule US$4.5 billion in principal payments and provide US$4.4 billion in new money. Agreement was also reached with the country's foreign governmental (Paris Club) creditors that year, resulting in the restructuring of 95% of Brazil's principal and interest obligations falling due during the period from August 31, 1983 through December 31, 1984, as well as arrearages relating to the period from January 1, 1983 through July 1, 1983 in the aggregate amount of approximately US$3 billion. In 1984, commercial bank creditors agreed to an additional rollover of B-15 US$5.2 billion in principal and a new money facility for US$6.5 billion in additional funds. Brazil's subsequent inability to meet all of the lending conditions established by the IMF led to a succession of new letters of intent and periodic suspensions of IMF disbursements. Brazil did not seek new money from commercial banks in a 1986 debt rescheduling covering approximately US$16 billion of 1985 and 1986 medium and long-term maturities and approximately US$15 billion of short-term trade and interbank lines. A sharp drop in reserves in 1986 as a result of a large capital account deficit and a sizable current account shortfall led the Federal Government to declare a moratorium on principal and interest payments to commercial banks in February 1987. 1988 FINANCING PLAN In September 1988, Brazil's bank creditors agreed, among other things, to reschedule approximately US$61 billion over a 20-year period pursuant to a Multi-Year Deposit Facility Agreement ("MYDFA") and to provide an additional US$5.2 billion in new money pursuant to a Parallel Financing Agreement (a syndicated term loan), a Commercial Bank Co-financing Agreement (a parallel co-financing with certain World Bank project and sector loans), a New Money Trade Deposit Facility Agreement (to be used for medium-term trade finance starting one year after original disbursement) and 1988 New Money Bonds. Approximately US$1 billion of Brazil Investment Bonds were also issued as part of this package, and approximately US$15 billion of short-term lines were extended. The deal was accompanied by an IMF standby arrangement of US$1.44 billion agreed in August 1988. The IMF suspended disbursements in 1989, however, because of the Federal Government's inability to meet public-sector deficit targets. As a result, the third tranche (US$600 million) of the US$5.2 billion new money package was not disbursed. With reserves once again under pressure, the Federal Government imposed new limitations on interest payments to holders of external commercial bank debt in July 1989. Brazil initiated formal negotiations with commercial bank creditors in August 1990. As of January 1991, the Federal Government permitted the full payment of external debts owed by private sector and financial institution borrowers and the servicing of 30.0% of interest payments due and payable by public sector obligors. Following the promulgation of CMN Resolution 1,812, as of April 1, 1991, the treatment previously accorded to private sector debt was extended to the external debt obligations of Petrobras and CVRD and their subsidiaries. In April 1991, Brazil and the Bank Advisory Committee ("BAC"), consisting of approximately 20 of Brazil's largest commercial bank creditors, reached agreement on the treatment of approximately US$9.1 billion in interest arrears accrued on Brazil's external commercial bank debt up to December 31, 1990. Under the agreement, the commercial banks received US$2 billion of such amount in 1991, and the remainder of such past due interest was exchanged for approximately US$7.1 billion aggregate principal amount of IDU Bonds on November 20, 1992 and March 18, 1993. 1992 ARRANGEMENTS WITH IMF AND PARIS CLUB In January 1992, Brazil reached agreement with the IMF on a standby facility of 1.5 billion SDR (approximately US$2 billion). Of this amount, 75.0% was to have entered the country in the form of new money, while the remaining 25.0% was to have been used to finance the acquisition of collateral for the proposed restructuring of Brazil's medium and long-term public sector indebtedness described below. The standby arrangement was subsequently suspended, however, because of Brazil's inability to meet agreed performance criteria targets, leaving 1.37 billion SDR undrawn as of the August 31, 1993 facility expiration date. On February 26, 1992, Brazil reached agreement with Paris Club creditors for the rescheduling of debt owed to other governments and governmental agencies totaling US$12.1 billion. The agreement required Brazil to make approximately US$4.1 billion in debt service payments in 1992 and 1993 and provided for the rescheduling of approximately US$11 billion over a 14-year period, with a grace period of three years. Although Brazil has completed bilateral agreements implementing the February 1992 accord with all countries except Italy, debt relief for some maturities was conditional on continued B-16 performance under the IMF standby facility, and Brazil continues to discuss the impact, if any, of this condition with some countries. 1992 FINANCING PLAN On July 9, 1992, Brazil and the BAC reached an agreement-in-principle on the restructuring of Brazil's medium and long- term public sector indebtedness owed to commercial banks, as well as on a parallel arrangement for interest arrears accrued in respect of such indebtedness since January 1, 1991. Pursuant to that agreement, on April 15, 1994, Brazil issued approximately US$43.1 billion principal amount of bonds to holders of certain medium and long-term public sector debt ("Eligible Debt") of Brazil or guaranteed by Brazil owed to commercial banks and certain other private sector creditors in consideration for the tender by such holders of their Eligible Debt and interest arrears accrued in respect thereof since January 1, 1991 ("Eligible Interest"). The bonds were issued pursuant to exchange agreements, implementing the Republica Federativa do Brazil 1992 Financing Plan (the "Financing Plan"), which provided for the restructuring of approximately US$41.6 billion of Eligible Debt and arrangements for approximately US$5.5 billion of Eligible Interest. The Financing Plan was a "Brady Plan"-type restructuring, the term coined for debt restructuring based on the policy articulated by US Treasury Secretary Nicholas Brady in a speech before the Third World Debt Conference in March 1989. The Brady Plan advocated restructuring which would, among other things, (i) exchange debt for freely transferable bonds, (ii) result in significant reductions in the level of debt and the rate of interest payable thereon, and (iii) collateralize some types of new bonds with the pledge of US Treasury zero-coupon obligations. Holders of Eligible Debt exchanged their Eligible Debt for the following types of bonds: (i) Par Bonds ("Par Bonds"), (ii) Discount Bonds ("Discount Bonds"), (iii) Front-Loaded Interest Reduction Bonds ("FLIRBs"), (iv) Front-Loaded Interest Reduction with Capitalization Bonds ("C-Bonds"), and (v) a combination of New Money Bonds ("New Money Bonds"), and Debt Conversion Bonds ("Debt Conversion Bonds"). Eligible Interest was exchanged (after giving effect to certain interest rate adjustments and cash interest payments made by Brazil pursuant to the Financing Plan) for EI Bonds (the "EI Bonds"). The Par Bonds, Discount Bonds, FLIRBs, C-Bonds, New Money Bonds, Debt Conversion Bonds and EI Bonds are referred to herein collectively as the "Brady Bonds." Subject to their respective terms, each of the Brady Bonds is eligible for use as currency in the Brazilian privatization program. The Financing Plan produced a reduction of US$4 billion in the stock of Eligible Debt: the US$11.20 billion allocated to Discount Bonds will result in the issuance of US$7.28 billion of such bonds (assuming the exchange of Phase-In Bonds for Discount Bonds). In addition, the Federal Government estimates that the Financing Plan will generate another US$4 billion in interest savings over the 30-year repayment period. Upon completion of the phased delivery of collateral (scheduled for April 15, 1996), Brazil will have defeased approximately US$17.8 billion of its external debt in the form of Par and Discount Bonds. The total cost of collateral to the Republic will be approximately US$3.9 billion, of which US$2.8 billion was delivered on April 15, 1994 from the Republic's own resources; the Republic subsequently delivered US$251.9 million of collateral as scheduled on 17th October, 1994 and US$237.1 million as scheduled on April 18, 1995. At the Republic's option, the Brady Bonds may be redeemed at par in whole or in part prior to their maturity. The EI Bonds and New Money Bonds also include a mandatory redemption provision under which the Republic is required to redeem the EI Bonds and New Money Bonds at par if the Republic prepays certain obligations. B-17 ANNEX C GLOSSARY ABC: ABC, Inc., formerly known as "Capital Cities/ABC, Inc." ABC CLASS HOUSEHOLDS: The highest three classes of Brazilian households based upon the achievement of a total of 10 points or higher on the classification scale used by the Associacao Brasileira de Anunciantes (Brazilian Advertisers Association) to determine a household's socio-economic class, which ranges from A to E depending on the education level of the head of the household, the possession by the household of certain items of material comfort, including automobiles, television sets and other household items, and the hiring of domestic servants by the household. ABRIL: Abril S.A., the leading magazine publishing, printing and distribution company in Latin America. ABRIL CREDIT FACILITY: A revolving credit facility, dated December 6, 1995, between Tevecap, as the borrower, and Abril, as the lender. BBC: British Broadcasting Corporation. BCE: BCE, Inc., an affiliate of Bell Canada Inc., Canada's largest telecommunications group. BCI: Bell Canada International, Inc., an affiliate of BCE. BNDES: Banco National de Desenolvimento Economico e Social, the national development bank owned by the Brazilian Government. BRASILSAT: A satellite operated by Embratel through which the Company provides C-Band service. C-BAND: A satellite transmission system which provides a signal on the "c" bandwidth. CABLE: A Cable network employs electromagnetic transmission over coaxial and/or fiber-optic cable to transmit multiple channels carrying images, sound and data between a central facility and individual customers' television sets. Networks may allow one-way (from a headend to a residence and/or business) or two-way transmission from a headend to a residence and/or business with a data return path for the headend. CABLE LICENSE: A license that is granted by the applicable governing body pursuant to its authority under the communications laws of a particular country for the purpose of providing Cable services for a specific franchise/license area. CANBRAS: Canbras Communications Corp., a Canadian corporation. CANBRAS ASSOCIATION AGREEMENT: Association Agreement dated June 14, 1995, among Tevecap, TVA Sistema, the Canbras TVA Companies, Canbras and Canbras-Par. CANBRAS TVA COMPANIES: Canbras TVA Cabo and TV Cabo Santa Branca. CANBRAS TVA CABO: Canbras TVA Cabo Ltda., a Brazilian limitada. CANBRAS TVA: The operations of Canbras TVA Cabo and TV Cabo Santa Branca, in each of which Tevecap holds a 36.0% equity interest and Canbras Par holds a 64.0% equity interest. CANBRAS-PAR: Canbras Participacoes, Ltda., a Brazilian limitada wholly-owned by Canbras. C-1 CBC: California Broadcasting Center, an uplink center for GLA located in Long Beach, California. CBS: CBS, Inc. CENTRAL BANK: Central Bank of Brazil (Banco Central do Brasil) CHASE PARTIES: Two wholly owned subsidiaries of CMIF through which CMIF holds its equity interest in Tevecap. CHURN: With respect to a pay television system for a given period, the quotient expressed as a percentage of (i) the number of subscribers disconnected from such system less the number of formerly disconnected subscribers reconnected to the system divided by (ii) the number of subscribers to the system as of the beginning of the period plus the number of subscribers added to the system. CISNEROS GROUP: Cisneros Group of Companies, which holds a 10% interest in GLA through Darlene Investments. CMIF: Chase Manhattan International Finance Ltd., an affiliate of The Chase Manhattan Bank which holds a 9.3% interest in Tevecap through two wholly owned subsidiaries. COAXIAL CABLE: Cable consisting of a central conductor surrounded by and insulated from another conductor. It is the standard material used in traditional Cable systems. Signals are transmitted through it at different frequencies, giving greater channel capacity than is possible with twisted pair cable, but less than is allowed by optical fiber. COMERCIAL CABO SAO PAULO: Comercial Cabo TV Sao Paulo Ltda., a Brazilian limitada in which Tevecap holds a 99% equity interest. COMPANY: Tevecap, together with its consolidated subsidiaries. CONSOLIDATED FINANCIAL STATEMENTS: The audited and unaudited consolidated financial statements of Tevecap and its subsidiaries and the notes thereto included herein. CPL: Cable Participacoes Ltda., a Brazilian limitada, jointly owned by Hearst and ABC, which limitada holds a 2.35% equity interest in Tevecap. CPCT: Centrais Privadas de Comutacao Telefonica, certain private telephone networks comparable to private branch exchanges (PBX) found in larger apartment complexes, hotels and businesses in the United States. CVM: Comissao de Valores Mobiliarios, the securities commission of Brazil. DARLENE INVESTMENTS: Darlene Investments, LLC, a Cayman Islands limited liability company which is part of the Cisneros Group of Companies. DBS: Direct broadcast satellite service, operating in C-Band or Ku-Band width, by which television programming is transmitted to individual dwellings, each served by a single satellite dish. DBS SYSTEMS: Ku-Band and C-Band operations of Galaxy Brasil and TVA Sistema, respectively. DE SANTI & VALLONE: De Santi & Vallone Antennas & Telecommunications Consultants. DIRECTV: Brazil's first digital Ku-Band service, which is operated by Galaxy Brasil and Galaxy Latin America. DISTV: The distribution of television signals by physical means (i.e., by Cable) to end users, generally limited to signals without interference by a DISTV operator with the signal content. C-2 EMBRATEL: Empresa Brasileira de Telecommunicacoes, the Brazilian government-owned company authorized to provide satellite telecommunications services utilizing the Sistema Brasiliero de Telecomunicacoes por Satelite (Brazilian Satellite Telecommunications System). EQUITY SUBSCRIBERS: Subscribers to the Operating Ventures adjusted for the Company's equity ownership in the Operating Ventures. ESPN: ESPN, Inc., in which ABC has an 80.0% equity interest and Hearst has a 20.0% equity interest. ESPN AGREEMENT: Quotaholders Agreement, dated June 26, 1995, among Tevecap, TVA Sistema, ESPN Brazil, Inc. and ESPN Brasil Ltda. ESPN BRASIL: Programming provided by ESPN Brasil Ltda. ESPN BRAZIL, INC.: A Delaware corporation wholly owned by ESPN. ESPN BRASIL LTDA.: ESPN do Brasil Ltda., a Brazilian limitada in which Tevecap holds a 50.0% equity interest and ESPN Brazil, Inc., holds a 50.0% equity interest. EVENT PUT: A triggering event under the Stockholders Agreement pursuant to which each of the Stockholders (other than Abril) may, in certain circumstances, demand that Tevecap purchase all or a portion of its shares. EXIMBANK: The Export-Import Bank of the United States. EXIMBANK FACILITY: A credit facility, dated December 9, 1996, among TVA Sistema, as Borrower, Tevecap, as Guarantor, and The Chase Manhattan Bank, N.A., as lender. The EximBank will guarantee 85% of amounts borrowed under the EximBank Facility. FALCON INTERNATIONAL: Falcon International Communications (Bermuda L.P.), a subsidiary of Falcon International Communications, L.L.C., a Delaware limited liability company. FALCON TIME PUT: A provision of the Stockholders Agreement pursuant to which Falcon International may, in certain circumstances, demand that Tevecap purchase all or a portion of the shares held by Falcon International. FIBER-OPTIC CABLE: Cable made of glass fibers through which signals are transmitted as pulses of light. Fiber-optic cable has the capacity for a large number of channels. FOX: Twentieth Century Fox Television International. GALAXY BRASIL: Galaxy Brasil S.A., a wholly-owned subsidiary of Tevecap which operates Brazil's first Ku-Band system. GALAXY BRASIL LEASING FACILITY: An anticipated five-year, $49.9 million lease and sale-leaseback facility to be entered into by Galaxy Brasil, as lessee, and Citibank, N.A., as lessor. GALAXY LATIN AMERICA: A Delaware limited liability company the members of which are Hughes Communications GLA, which holds a 60.0% equity interest, Darlene Investments, which holds a 20.0% equity interest, TVA Communications, which holds a 10% equity interest, and Grupo Frecuencia Modulada Television, which holds a 10.0% equity Interest. GALAXY III-R: A satellite owned and operate by Hughes Communications through which Galaxy Brasil provides DIRECTV service. GLA: Galaxy Latin America. C-3 GLA AGREEMENT: Partnership Agreement, dated February 13, 1995 among the GLA partners. GLOBO: Globo Par and TV Globo, the owners of a number of Brazil's over the air channels. GLOBO CABO: Globo Cabo S.A., a Cable service provider in Brazil. GLOBO PAR: Globo Comunicacoes e Participacoes Ltda. GRUPO MIDIA: Grupo de Midia Sao Paulo. GRUPO FRECUENCIA MODULADA TELEVISION: Grupo Frecuencia Modulada Television, S.A. de C.V., a Mexican corporation wholly owned by Grupo MVS. GRUPO MVS: Grupo MVS, S.A. de C.V., a Mexican corporation. GUARANTORS: Tevecap's Restricted Subsidiaries (as defined in the Indenture). HABC II: Hearst/ABC Video Services II, a Delaware general partnership jointly owned by Hearst and ABC, which partnership holds a 17.65% equity interest in Tevecap. HBO BRASIL: Programming provided by HBO Brasil Partners. HBO BRASIL PARTNERS: HBO Brasil Partners Ltd., a joint venture between TVA, which holds a 33% equity interest, and HBO Ole Partners, which holds a 66.7% equity interest. HBO OLE PARTNERS: A partnership among Time Warner Entertainment Company, L.P., SPE Latin American Acquisition Corporation and Ole Communications, Inc. HEADEND: A collection of hardware, typically including satellite receivers, modulators, amplifiers and videocassette playback machines. Signals, when processed, are then combined for distribution within the Cable network. HEARST: The Hearst Corporation. HEARST/ABC PARTIES: HABC II and CPL. HEARST/ABC PROGRAMMING AGREEMENT: Programming Agreement, dated December 6, 1995, among Tevecap, Hearst and ABC. HOMES PASSED: Homes that can be connected to a Cable distribution system without further extension of the distribution network. HUGHES COMMUNICATIONS: Hughes Communications, Inc. HUGHES COMMUNICATIONS GLA: Hughes Communications GLA, Inc., a California corporation, wholly-owned by Hughes Communications, that holds a 60.0% equity interest in GLA. HUGHES ELECTRONICS: Hughes Electronics Corporation. IBGE: Instituto Brasileiro de Geografia e Estatistica. IBOPE: Instituto Brasileiro de Opiniao Publica e Estatistica. INDEMNIFICATION AGREEMENT: Indemnification Agreement to be entered into among the Company, GLA, Hughes Communications and affiliates thereof, CBC, TVA Communications, Darlene Investments, Inversiones Divtel, D.T., C.A., Grupo Frecunencia Modulada Television and Grupo MVS. C-4 INDENTURE: The indenture to be executed by Tevecap, Tevecap's subsidiaries, Chase Manhattan Bank Trustee Ltd., as trustee, and Chase Manhattan Trust & Banking Co. (Japan) Ltd., as paying agent in connection with the Notes. INDEPENDENT OPERATORS: Independent pay television system operators to which TVA sells programming. INITIAL PURCHASERS: Chase Securities Inc., Donaldson, Lufkin & Jenrette Securities Corporation, Bear Stearns & Co. Inc. and Bozano, Simonsen Securities Inc. INTERACTIVE SERVICES: Services commonly referred to as pay-on-demand, shop-at-home, video games, ATM services, or such other interactive services as video phone and telephony which can be more easily provided with the development of high-capacity hybrid fiber optic/coaxial distribution networks. IRMAOS REIS: Distribuidora Irmaos Reis S.A., a Brazilian corporation in which Abril holds a 30.5% equity interest. KU-BAND: A satellite transmission system which provides a signal over the "ku" bandwidth. LICENSE SUBSIDIARIES: Companies that hold pay television licenses covering the operation of certain of the Owned Systems. LOCAL OPERATING AGREEMENT: Local Operating Agreement, dated March 3, 1995, between GLA and Tevecap. LOS: An unobstructed "Line of Sight" from any of the Company's MMDS headends to a subscriber's antenna. MGM: Metro Goldwyn Mayer, Inc. MINISTRY OF COMMUNICATIONS: The Brazilian Ministry of Communications, authorized to regulate the Brazilian subscription television industry pursuant to the Brazilian Telecommunications Code of 1962. MMDS (MULTI-CHANNEL MULTI-POINT DISTRIBUTION SYSTEM): A one-way radio transmission of television channels over microwave frequencies from a fixed station transmitting to multiple receiving facilities located at fixed points. MMDS LICENSE: A license that is granted by the applicable governing body pursuant to its authority under the communications laws of a particular country for the purpose of providing MMDS services for a specific franchise/license area. MTV BRASIL: MTV Brasil Ltda., a Brazilian LIMITADA in which Abril holds a 50.0% equity interest and Viasem Brasil Holdings Ltda. (an indirect subsidiary of Viacom International) holds the remaining 50% equity interest. MULTICANAL: Multicanal Participacoes S.A., a Cable service provider in Brazil. NBC: National Broadcasting Company, Inc. NDS: News Digital Systems Limited, a wholly-owned subsidiary of News Corporation. NET BRASIL: Net Brasil S.A., a Cable and MMDS service provider in Brazil. NET SAT: Net Sat Servicos Ltda., TVA's prospective competitor in DBS Service, in which Globo Par has a controlling interest and whose other equity holders include News Corporation, a subsidiary of The News Corporation Limited, and Grupo Televisa, S.A. of Mexico. C-5 NEWS CORPORATION: News Corporation plc. OPERATING VENTURES: Canbras TVA and TV Filme, two of TVA's minority-owned ventures. OWNED SYSTEMS: TVA Sistema, TVA Sul and Galaxy Brasil. PANAMSAT: PanAmSat Corporation, the current owner and operator of the PAS-III satellite. PAY-PER-VIEW: Payment made for individual programs rather than a monthly subscription for a whole channel or group of channels. Currently only offered in Brazil by TVA through DIRECTV, and envisioned as a means of providing certain popular sporting events or major motion pictures for which customers may be prepared to make a special payment. PENETRATION RATE: The measurement of the take-up of Cable services. The penetration rate as of a given date is calculated by dividing the number of subscribers connected to a system on such date by the total number of homes passed in such system. PROGRAMMING VENTURES: HBO Brasil Partners and ESPN Brasil Ltda. RBS: RBS Participacoes S.A., a Cable and MMDS service provider in Brazil. REAL PLAN: A Brazilian Government stabilization program, announced in December 1993, aimed at curtailing inflation and building a foundation for sustained economic growth. REGISTRATION RIGHTS AGREEMENT: The Registration Rights Agreement pursuant to which Tevecap and the Guarantors agree to file with the United States Securities and Exchange Commission the Exchange Offer Registration Statement on an appropriate form under the Securities Act with respect to an offer to exchange the Notes for Exchange Notes. REGULATORY PUT: A provision in the Stockholders Agreement pursuant to which an Event Put is triggered if the amount of capital stock held by a Stockholder (other than Abril) exceeds the amount allowed under an appropriate legal restriction. REVENUE PER SUBSCRIBER: Total revenue derived from a subscriber television system divided by the average number of subscribers for that period. SAP: Second Audio Programming, which provides the option of audio in a second language for the programming on channels for which it is offered. SBT: TVSBT--Canal 4 de Sao Paulo S.A., a Brazilian national off-air channel. SECURITIES ACT: United States Securities Act of 1933, as amended. SMART CARD: Encoded card placed in a decoder used for Ku-Band service. The Smart Card is used to regulate access to Ku-Band services. SMC: SMC Marketing Ltda., a Brazilian limitada, wholly owned by HBO Partners, that distributes HBO programming in Brazil. SONY: Sony Pictures Entertainment, Inc. STOCKHOLDERS: HABC II, CPL, Robert Civita, Abril, the Chase Parties and Falcon International. STOCKHOLDERS AGREEMENT: Stockholders Agreement, dated December 6, 1995, among the Stockholders. SUBSIDIARY GUARANTEES: Guarantees executed by each of Tevecap's Restricted Subsidiaries (as defined in the Indenture). C-6 SURFIN: SurFin Ltd., a corporation organized under the laws of the Bahamas, the (direct and indirect) shareholders of which are Tevecap, holding 20.5%, DIRECTV International Inc., a subsidiary of Hughes Communications, holding 39.3%, Darlene Investments, holding 20.4%, and Grupo Frecuencia Modulada Television, holding 19.8%. SURFIN CREDIT FACILITY: A three year $150.0 million credit facility between SurFin and Citicorp USA, Inc., as administrative agent, under a syndicated credit agreement, dated September 24, 1996. TAMBORE FACILITY: TVA's Ku-Band uplink center located in the city of Tambore in greater Sao Paulo. TELECOMMUNICATIONS CODE: The Brazilian Telecommunications Code of 1962, as amended. TELEPHONY: The provision of telephone service. TEVECAP: Tevecap S.A. TIME WARNER: Time Warner Entertainment Company, L.P. TRUNK: The "transportation" component within a Cable and/or broadband network architecture that carries the system product to the distribution portion of the architecture, which in turn goes to customers' homes. TV CABO SANTA BRANCA: TV Cabo Santa Branca Comercio Ltda., a Brazilian limitada, in which Tevecap holds a 36% equity interest and Canbras Par holds a 64.0% equity interest. TV FILME: TV Filme, Inc., a Delaware corporation in which Tevecap currently holds a 14.3% equity interest, Warburg, Pincus Investors, L.P. currently holds a 41.2% equity interest, members of the Lins family currently hold a 16.2% equity interest, and public stockholders currently hold a 28.3% equity interest. Upon exercise of a warrant with a nominal exercise price, Tevecap's ownership interest will increase to 16.7%. TV FILME SERVICE AREA: Brasilia, Belem and Goiania. TV GROUP: The operations of TVA excluding the operations and results of Galaxy Brasil. TV HOMES: The number of households in a given area possessing at least one television set. TV SHOW TIME: Televisao Show Time Ltda., a Brazilian limitada in which the estate of Matias Machline and an associate currently hold a 53.0% equity interest and in which the remaining 47.0% is currently held by various Abril shareholders. TVA: Tevecap S.A. and its consolidated subsidiaries and affiliates. TVA BRASIL: TVA Brasil Radioenlaces S.A., a Brazilian corporation in which the estate of Matias Machline currently holds a 50.0% equity interest and in which the remaining 50.0% is currently held by various Abril shareholders. TVA COMMUNICATIONS: TVA Communications Ltd., a British Virgin Islands company wholly-owned by Tevecap, through which Tevecap holds a 10.0% equity interest in Galaxy Latin America. TVA CURITIBA: TVA Curitiba Servicos em Telecommunicacoes Ltda., a Brazilian limitada in which Tevecap held an 80.0% equity interest and Leonardo Petrelli held a 20.0% equity interest prior to TVA Curitiba's merger into TVA Parana Ltda. and the reorganization of TVA Parana Ltda. as a subsidiary of TVA Sul Participacoes S.A. in October 1996. TV GLOBO: A provider of off-air programming in Brazil and an affiliate of Globo. C-7 TVA SISTEMA: TVA Sistema de Televisao S.A., a Brazilian corporation in which Tevecap holds a 98.0% equity interest and the estate of Matias Machline holds a 2.0% equity interest. TVA SUL: The operations of TVA Parana Ltda., TVA Alfa Cabo Ltda., TVA Cabo Camboriu Ltda., TCC TV a Cabo Ltda. and TVA Cabo Foz do Iguacu Ltda., which are wholly-owned subsidiaries of TVA Sul Participacoes S.A., a Brazilian corporation in which Tevecap holds an 87.0% equity interest and Leonardo Petrelli Neto holds the remaining 13.0% equity interest. UHF: Broadcast of a television signal at an ultra-high frequency over a given geographical area. VCR: Video cassette recorders. VIACOM INTERNATIONAL: Viacom International (Netherlands B.V.). C-8 PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Purchase Agreement, Registration Rights Agreement and Stockholders Agreement (included as Exhibits 10.1, 10.2 and 10.3 to this Registration Statement, respectively) provide for the indemnification under certain circumstances of directors, officers and controlling persons of the Company. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES: (a) Exhibits:
EXHIBIT NO. DESCRIPTION OF EXHIBIT - --------- ---------------------------------------------------------------------------------------------------- *3.1 -- Articles of Incorporation of Tevecap S.A. (English translation including amendments) *3.2 -- Memorandum of the Organizational Shareholders' Meeting and By-laws of TVA Sistema de Televisao S.A. (English translation including amendments) *3.3 -- Memorandum and Articles of Association of TVA Communications Ltd. *3.4 -- Memorandum of General Meeting of Association and By-laws of Galaxy Brasil S.A. (English translation including amendments) *3.5 -- Memorandum of General Meeting of Association and By-laws of TVA Sul Participacoes S.A. (English translation including amendments) *3.6 -- Articles of Incorporation of Comercial Cabo TV Sao Paulo Ltda. (English translation including amendments) *3.7 -- Articles of Incorporation of TVA Parana S.A. (English translation including amendments) *3.8 -- Articles of Incorporation of TVA Alfa Cabo Ltda. (English translation including amendments) *3.9 -- Articles of Incorporation of CCS Camboriu Cable System de Telecommunicacoes Ltda. (English translation including amendments) *3.10 -- Articles of Incorporation of TCC TV a Cabo Ltda. (including English translation) *3.11 -- Articles of Incorporation of TVA Sul Foz do Iguacu Ltda. (English translation including amendments) **3.12 -- Articles of Incorporation of TVA Sul Santa Catarina Ltda. (English translation) 4.1 -- Indenture dated as of November 26, 1996, as amended, among Tevecap S.A., the Subsidiary Guarantors and The Chase Manhattan Bank, as Trustee (including exhibits) *4.2 -- Forms of Notes (included in Exhibit 4.1) *4.3 -- Forms of Guarantees (included in Exhibit 4.1) 5.1 -- Form of opinion of Basch & Rameh, Brazilian counsel to certain of the Registrants, as to the legality of the Notes and Guarantees of Guarantors incorporated under the Federative Republic of Brazil
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EXHIBIT NO. DESCRIPTION OF EXHIBIT - --------- ---------------------------------------------------------------------------------------------------- 5.2 -- Form of opinion of Mayer, Brown & Platt, U.S. counsel to the Registrants, as to the legality of the Notes and the Guarantees 5.3 -- Form of opinion of Harney, Westwood & Riegels, British Virgin Islands counsel to TVA Communications Ltd. as to the legality of the Guarantee of TVA Communications Ltd. 8.1 -- Form of opinion of Mayer, Brown & Platt, U.S. counsel to the Registrants, as to certain U.S. tax matters *10.1 -- Purchase Agreement dated as of November 21, 1996 among Tevecap S.A., the Guarantors and the Initial Purchasers *10.2 -- Registration Rights Agreement dated as of November 26, 1996, among Tevecap S.A., the Guarantors and the Initial Purchasers 10.3 -- Stockholders Agreement, dated December 6, 1995, among Tevecap S.A., Robert Civita, Abril S.A., Falcon International Communications (Bermuda L.P.), Hearst/ABC Video Services II, Cable Participacoes Ltda., Harpia Holdings Limited and Curupira Holdings Limited (including amendments) *10.4 -- Side Letter, dated December 6, 1995, among Abril S.A., Falcon International Communications (Bermuda L.P.), Hearst/ABC Video Services II, Cable Participacoes Ltda., Harpia Holdings Limited and Curupira Holdings Limited *10.5 -- Revolving Credit Facility, dated December 6, 1995, between Tevecap S.A. and Abril S.A. *10.6 -- Credit Facility, dated December 9, 1996, among Tevecap S.A., TVA Sistema de Televisao S.A., The Chase Manhattan Bank and the Export-Import Bank of the United States *10.7 -- Association Agreement, dated February 15, 1996, among Tevecap S.A., TVA Sistema de Televisao S.A., TVA Brasil Radioenlaces Ltda., Leonardo Petrelli Neto, TV Delta de Curitiba Ltda., TV Cabo Servicos Santa Catarina Ltda., TV Cabo Servicos Parana Ltda. and TVA Curitiba Servicos em Telecomunicacoes Ltda. (including English Translation) *10.8 -- Services Agreement, dated July 22, 1994, among TVA Brasil Radioenlaces Ltda., Televisao Show Time Ltda., Abril S.A. and Tevecap S.A. (English translation including amendments) 21.1 -- Subsidiaries of Tevecap S.A. 23.1 -- Consent of Coopers & Lybrand Auditores Independentes 23.2 -- Consent of Basch & Rameh (included in Exhibit 5.1) 23.3 -- Consent of Mayer, Brown & Platt re: its opinion as to the legality of the Notes and the Guarantees (included in Exhibits 5.2 and 8.1) 23.5 -- Consent of Harney, Westwood & Riegels (included in Exhibit 5.3) *24.1 -- Powers of Attorney for Tevecap S.A. and each of the Guarantors (included in signature pages to the Registration Statement) 25.1 -- Statement of Eligibility and Qualification under the Trust Indenture Act of 1939 of The Chase Manhattan Bank, as Trustee on Form T-1
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EXHIBIT NO. DESCRIPTION OF EXHIBIT - --------- ---------------------------------------------------------------------------------------------------- *99.1 -- Authorization of the Central Bank authorizing the issuance of the Notes (English translation) 99.2 -- Form of Letter of Transmittal 99.3 -- Form of Notice of Guaranteed Delivery 99.4 -- Form of Letter to Clients 99.5 -- Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees
- ------------------------ * Previously filed. ** To be filed by amendment. ITEM 22. UNDERTAKINGS Each of the undersigned Registrants hereby undertakes that insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. Each of the undersigned Registrants hereby undertakes (i) to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means; and (ii) to arrange or provide for a facility in the U.S. for the purpose of responding to such requests. Each of the undersigned Registrants hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction that was not the subject of and included in the registration statement when it became effective. No Registrant has entered into any arrangement or understanding with any person to distribute the securities to be received in the Registered Exchange Offer and to the best of each Registrant's information and belief, each person participating in the Exchange Offer is acquiring the securities in its ordinary course of business and has no arrangement or understanding with any person to participate in the distribution of the securities to be received in the Registered Exchange Offer. In this regard, the registrant will make each person participating in the Registered Exchange Offer aware (through the Exchange Offer Prospectus or otherwise) that if the Registered Exchange Offer is being registered for the purpose of secondary resales, any securityholder using the exchange offer to participate in a distribution of the securities to be acquired in the Registered Exchange Offer (1) could not rely on the staff position enunciated in Exxon Capital Holdings Corporation (available May 13, 1988) or similar letters and (2) must comply with registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction. The registrant acknowledges that such a secondary resale II-3 transaction should be covered by an effective registration statement containing the selling securityholder information required by Item 507 of Regulation S-K. Each of the Registrants hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this Registration Statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the undersigned undertake that such reoffering prospectus will contain the information called for by the applicable registration form who respect to reofferings by persons who may be deemed to be underwriters, in addition to the information called for by the other Items of the applicable form. Each of the undersigned Registrants hereby undertakes that every prospectus: (i) that is filed pursuant to the immediately preceding paragraph or (ii) that purports to meet the requirements of Section 10(a)(3) of the Act and is used in connection with an offering of securities subject to Rule 415, will be filed as part of an amendment to the Registration Statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Each of the undersigned Registrants hereby undertakes: (a) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (1) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (2) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high and of the estimated maximum offering range may be reflected in the form of prospectus file with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and (3) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (b) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant, Tevecap S.A., has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Sao Paulo, the Federative Republic of Brazil, on this 11th day of April, 1997. Tevecap S.A. By * ----------------------------------------- Jose Augusto P. Moreira Officer By * ----------------------------------------- Claudio Cesar D'Emilio Officer Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated on April 11, 1997.
NAME TITLE - ------------------------------ --------------------------- /s/ GENE MUSSELMAN Chief Operating Officer - ------------------------------ (Principal Executive GENE MUSSELMAN Officer) * Chief Financial Officer - ------------------------------ (Principal Financial and DOUGLAS DURAN Accounting Officer) * Director - ------------------------------ ROBERT CIVITA * Director - ------------------------------ JOSE AUGUSTO P. MOREIRA * Director - ------------------------------ ROBERT HEFLEY BLOCKER * Director - ------------------------------ GIANCARLO FRANCESCO CIVITA * Director - ------------------------------ THOMAZ SOUTO CORREA NETTO * Director - ------------------------------ FRANCISCO SAVIO COUTO PINHEIRO * Director - ------------------------------ ARNALDO BONOTRI DUTRA
II-5
NAME TITLE - ------------------------------ --------------------------- * Director - ------------------------------ SERGIO VLADIMIRSCHI JUNIOR * Director - ------------------------------ JOSE LUIS DE SALLES FREIRE * Director - ------------------------------ JORGE FERNANDO KOURY LOPES * Director - ------------------------------ OSWALDO LEITE DE MORAES FILHO /s/ DOUGLAS DURAN ------------------------------ Name: Douglas Duran, as By: Attorney-in-Fact /s/ GENE MUSSELMAN ------------------------------ Name: Gene Musselman, as Attorney-in-Fact By:
II-6 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant, TVA Sistema de Televisao S.A., has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Sao Paulo, the Federative Republic of Brazil, on this 11th day of April, 1997. TVA Sistema de Televisao S.A. By * ----------------------------------------- Robert Civita President By * ----------------------------------------- Jose Augusto P. Moreira Financial Officer Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated on April 11, 1997. NAME TITLE - ------------------------------ --------------------------- * President - ------------------------------ (Principal Executive ROBERT CIVITA Officer) * Financial Director - ------------------------------ (Principal Financial and JOSE AUGUSTO P. MOREIRA Accounting Officer) * Director - ------------------------------ GIANCARLO FRANCESCO CIVITA * Director - ------------------------------ VICTOR CIVITA /s/ DOUGLAS DURAN ------------------------------ Name: Douglas Duran, as By: Attorney-in-Fact /s/ GENE MUSSELMAN ------------------------------ Name: Gene Musselman, as Attorney-in-Fact By: II-7 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant, TVA Communications, Ltd., has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Sao Paulo, the Federative Republic of Brazil, on this 11th day of April, 1997. TVA Communications, Ltd. By * ----------------------------------------- Robert Civita Officer By * ----------------------------------------- Jose Augusto P. Moreira Officer Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated on April 11, 1997. NAME TITLE - ------------------------------ --------------------------- * President - ------------------------------ (Principal Executive ROBERT CIVITA Officer) * Financial Officer - ------------------------------ (Principal Financial and JOSE AUGUSTO P. MOREIRA Accounting Officer) * Officer - ------------------------------ ANGELO SILVIO ROSSI * Officer - ------------------------------ PLACIDO LORIGGIO /s/ DOUGLAS DURAN ------------------------------ Name: Douglas Duran, as By: Attorney-in-Fact /s/ GENE MUSSELMAN ------------------------------ Name: Gene Musselman, as Attorney-in-Fact By: II-8 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant, Galaxy Brasil S.A., has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Sao Paulo, the Federative Republic of Brazil, on this 11th day of April, 1997. Galaxy Brasil S.A. By * ----------------------------------------- Jose Augusto P. Moreira President By * ----------------------------------------- Claudio Cesar D'Emilio Financial Director Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated on April 11, 1997. NAME TITLE - ------------------------------ --------------------------- * President - ------------------------------ (Principal Executive JOSE AUGUSTO P. MOREIRA Officer) * Financial Director - ------------------------------ (Principal Financial and CLAUDIO CESAR D'EMILIO Accounting Officer) * Administrative Director - ------------------------------ ANGELO SILVIO ROSSI /s/ DOUGLAS DURAN ------------------------------ Name: Douglas Duran, as By: Attorney-in-Fact /s/ GENE MUSSELMAN ------------------------------ Name: Gene Musselman, as Attorney-in-Fact By: II-9 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant, TVA Sul Participacoes S.A., has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Sao Paulo, the Federative Republic of Brazil, on this 11th day of April, 1997. TVA Sul Participacoes S.A. By * ----------------------------------------- Douglas Duran Director By * ----------------------------------------- Leonardo Petrelli Director Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated on April 11, 1997. NAME TITLE - ------------------------------ --------------------------- * Director - ------------------------------ (Principal Executive JOSE AUGUSTO P. MOREIRA Officer) * Director - ------------------------------ (Principal Financial and DOUGLAS DURAN Accounting Officer) * Director - ------------------------------ LEONARDO PETRELLI /s/ DOUGLAS DURAN ------------------------------ Name: Douglas Duran, as By: Attorney-in-Fact /s/ GENE MUSSELMAN ------------------------------ Name: Gene Musselman, as Attorney-in-Fact By: II-10 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant, Comercial Cabo TV Sao Paulo Ltda., has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Sao Paulo, the Federative Republic of Brazil, on this 11th day of April, 1997. Comercial Cabo TV Sao Paulo Ltda. By * ----------------------------------------- Jose Augusto P. Moreira Financial Director By * ----------------------------------------- Claudio Cesar D'Emilio Financial Director Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated on April 11, 1997. NAME TITLE - ------------------------------ --------------------------- * Financial Director - ------------------------------ (Principal Executive JOSE AUGUSTO P. MOREIRA Officer) * Financial Director - ------------------------------ (Principal Financial and CLAUDIO CESAR D'EMILIO Accounting Officer) /s/ DOUGLAS DURAN ------------------------------ Name: Douglas Duran, as By: Attorney-in-Fact /s/ GENE MUSSELMAN ------------------------------ Name: Gene Musselman, as Attorney-in-Fact By: II-11 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant, TVA Parana Ltda., has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Sao Paulo, the Federative Republic of Brazil, on this 11th day of April, 1997. TVA Parana Ltda. By * ----------------------------------------- Douglas Duran Director By * ----------------------------------------- Leonardo Petrelli Director Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated on April 11, 1997. NAME TITLE - ------------------------------ --------------------------- * Director - ------------------------------ (Principal Executive JOSE AUGUSTO P. MOREIRA Officer) * Director - ------------------------------ (Principal Financial and DOUGLAS DURAN Accounting Officer) * Director - ------------------------------ LEONARDO PETRELLI /s/ DOUGLAS DURAN ------------------------------ Name: Douglas Duran, as By Attorney-in-Fact /s/ GENE MUSSELMAN ------------------------------ Name: Gene Musselman, as Attorney-in-Fact By; II-12 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant, TVA Alfa Cabo Ltda., has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Sao Paulo, the Federative Republic of Brazil, on this 11th day of April, 1997. TVA Alfa Cabo Ltda. By * ----------------------------------------- Douglas Duran Director By * ----------------------------------------- Leonardo Petrelli Director Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated on April 11, 1997. NAME TITLE - ------------------------------ --------------------------- * Director - ------------------------------ (Principal Executive JOSE AUGUSTO P. MOREIRA Officer) * Director - ------------------------------ (Principal Financial and DOUGLAS DURAN Accounting Officer) * Director - ------------------------------ LEONARDO PETRELLI /s/ DOUGLAS DURAN ------------------------------ Name: Douglas Duran, as By: Attorney-in-Fact /s/ GENE MUSSELMAN ------------------------------ Name: Gene Musselman, as Attorney-in-Fact By: II-13 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant, CCS Camboriu Cable System de Telecomunicacoes Ltda., has duly caused this Registration Statement thereto to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Sao Paulo, the Federative Republic of Brazil, on this 11th day of April, 1997. CCS Camboriu Cable System de Telecomunicacoes Ltda. By * ----------------------------------------- Douglas Duran Director By * ----------------------------------------- Leonardo Petrelli Director Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated on April 11, 1997. NAME TITLE - ------------------------------ --------------------------- * Director - ------------------------------ (Principal Executive DOUGLAS DURAN Officer) * Director - ------------------------------ (Principal Financial and LEONARDO PETRELLI Accounting Officer) /s/ DOUGLAS DURAN ------------------------------ Name: Douglas Duran, as By: Attorney-in-Fact /s/ GENE MUSSELMAN ------------------------------ Name: Gene Musselman, as Attorney-in-Fact By: II-14 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant, TCC TV a Cabo Ltda., has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Sao Paulo, the Federative Republic of Brazil, on this 11th day of April, 1997. TCC TV a Cabo Ltda. By * ----------------------------------------- Douglas Duran Director By * ----------------------------------------- Leonardo Petrelli Director Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated on April 11, 1997. NAME TITLE - ------------------------------ --------------------------- * Director - ------------------------------ (Principal Executive JOSE AUGUSTO P. MOREIRA Officer) * Director - ------------------------------ (Principal Financial and DOUGLAS DURAN Accounting Officer) * Director - ------------------------------ LEONARDO PETRELLI /s/ DOUGLAS DURAN ------------------------------ Name: Douglas Duran, as By: Attorney-in-Fact /s/ GENE MUSSELMAN ------------------------------ Name: Gene Musselman, as Attorney-in-Fact By: II-15 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant, TVA Sul Foz do Iguacu Ltda., has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Sao Paulo, the Federative Republic of Brazil, on this 11th day of April, 1997. TVA Sul Foz do Iguacu Ltda. By * ----------------------------------------- Douglas Duran Director By * ----------------------------------------- Leonardo Petrelli Director Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated on April 11, 1997. NAME TITLE - ------------------------------ --------------------------- * Director - ------------------------------ (Principal Executive JOSE AUGUSTO P. MOREIRA Officer) * Director - ------------------------------ (Principal Financial and DOUGLAS DURAN Accounting Officer) * Director - ------------------------------ LEONARDO PETRELLI /s/ DOUGLAS DURAN ------------------------------ Name: Douglas Duran, as By: Attorney-in-Fact /s/ GENE MUSSELMAN ------------------------------ Name: Gene Musselman, as Attorney-in-Fact By: II-16 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant, TVA Sul Santa Catarina Ltda., has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Sao Paulo, the Federative Republic of Brazil, on this 11th day of April, 1997. TVA Sul Santa Catarina Ltda. By /s/ DOUGLAS DURAN ----------------------------------------- Douglas Duran Director By /s/ LEONARDO PETRELLI ----------------------------------------- Leonardo Petrelli Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints each of Gene Musselman, Douglas Duran and Jose Augusto P. Moreira (each an "Authorized Agent") to be its lawful attorney in name and in fact (with full power to any two of them to act jointly) to sign any or all amendments (including post-effective amendments) to this Registration Statement and to file the same with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, granting unto any two said Authorized Agents, acting jointly, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said Authorized Agents may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated on April 11, 1997. NAME TITLE - ------------------------------ --------------------------- /s/ JOSE AUGUSTO P. MOREIRA Director - ------------------------------ (Principal Executive JOSE AUGUSTO P. MOREIRA Officer) /s/ DOUGLAS DURAN Director - ------------------------------ (Principal Financial and DOUGLAS DURAN Accounting Officer) /s/ LEONARDO PETRELLI Director - ------------------------------ LEONARDO PETRELLI II-17 SIGNATURE OF AUTHORIZED UNITED STATES REPRESENTATIVE Pursuant to the Securities Act of 1933, the undersigned certifies that it is the duly authorized United States representative of each of Tevecap S.A., TVA Sistema de Televisao S.A., TVA Communications Ltd., Galaxy Brasil S.A., TVA Sul Participacoes S.A., Comercial Cabo TV Sao Paulo Ltda., TVA Parana Ltda., TVA Alfa Cabo Ltda., CCS Camboriu Cable System de Telecomunicacoes Ltda., TCC TV a Cabo Ltda., TVA Sul Foz do Iguacu Ltda. and TVA Sul Santa Catarina Ltda., and has signed this Registration Statement on this 11th day of April, 1997. T-Cap, Inc. (Authorized U.S. Representative) By /s/ DOUGLAS DURAN ----------------------------------------- Douglas Duran Secretary II-18 EX-4.1 2 INDENTURE Exhibit 4.1 Execution Copy ================================================================================ TEVECAP S.A. 12-5/8% Senior Notes due 2004 ========================================= INDENTURE Dated as of November 26, 1996 ========================================= THE CHASE MANHATTAN BANK, Trustee CHASE TRUST BANK, Principal Paying Agent ================================================================================ CROSS-REFERENCE TABLE TIA Indenture Section Section - ------- ------- 310(a)(1) .............................. 7.10 (a)(2) .............................. 7.10 (a)(3) .............................. N.A. (a)(4) .............................. N.A. (b) .............................. 7.8; 7.10 (c) .............................. N.A. 311(a) .............................. 7.11 (b) .............................. 7.11 (c) .............................. N.A. 312(a) .............................. 7.1 (b) .............................. 11.3 (c) .............................. 11.3 313(a) .............................. 7.6 (b)(1) .............................. N.A. (b)(2) .............................. 7.6 (c) .............................. 7.6 (d) .............................. 7.6 314(a) .............................. 4.2 4.17; 11.2 (b) .............................. N.A. (c)(1) .............................. 11.4 (c)(2) .............................. 11.4 (c)(3) .............................. N.A. (d) .............................. N.A. (e) .............................. 11.5 (f) .............................. 4.17 315(a) .............................. 7.1 (b) .............................. 7.5; 11.2 (c) .............................. 7.1 (d) .............................. 7.1 (e) .............................. 6.11 316(a)(last sentence)........................... 11.6 (a)(1)(A) .............................. 6.5 (a)(1)(B) .............................. 6.4 (a)(2) .............................. N.A. (b) .............................. 6.7 317(a)(1) .............................. 6.8 (a)(2) .............................. 6.9 (b) .............................. 2.8 318(a) .............................. 11.1 N.A. means Not Applicable. - ---------- Note: This Cross-Reference Table shall not, for any purpose, be deemed to be part of the Indenture. TABLE OF CONTENTS Page ---- ARTICLE I Definitions and Incorporation by Reference.................1 SECTION 1.1. Definitions.............................................1 SECTION 1.2. Other Definitions......................................25 SECTION 1.3. Incorporation by Reference of Trust Indenture Act......25 SECTION 1.4. Rules of Construction..................................26 ARTICLE II The Securities............................................26 SECTION 2.1. Title and Terms; Form..................................26 SECTION 2.2. Denominations..........................................28 SECTION 2.3. Execution, Authentication, Delivery and Dating.........28 SECTION 2.4. Temporary Securities...................................30 SECTION 2.5. Registration, Registration of Transfer and Exchange....31 SECTION 2.6. Mutilated, Destroyed, Lost and Stolen Securities.......34 SECTION 2.7. Payment of Interest; Interest Rights Preserved.........34 SECTION 2.8. Paying Agents; Discharge of Payment Obligations; Indemnity of Holders................................36 SECTION 2.9. Persons Deemed Owners..................................37 SECTION 2.10. Cancellation...........................................37 SECTION 2.11. Computation of Interest................................38 SECTION 2.12. Legal Holidays.........................................38 SECTION 2.13. CUSIP and CINS Numbers.................................38 SECTION 2.14. Book-Entry Provisions for Global Securities............39 SECTION 2.15. Special Transfer Provisions............................41 SECTION 2.16. Money for Security Payments To be Held in Trust........44 SECTION 2.17 Securityholder Lists...................................46 SECTION 2.18 Outstanding Securities.................................46 ARTICLE III Redemption................................................47 SECTION 3.1. Notices to Trustee.....................................47 SECTION 3.2. Selection of Securities To Be Redeemed.................47 SECTION 3.3. Notice of Redemption...................................47 SECTION 3.4. Effect of Notice of Redemption.........................48 SECTION 3.5. Deposit of Redemption Price............................49 SECTION 3.6. Securities Redeemed in Part............................49 - i - Page ---- ARTICLE IV Covenants.................................................49 SECTION 4.1. Payment of Securities..................................49 SECTION 4.2. SEC Reports............................................50 SECTION 4.3. Limitation on Indebtedness.............................51 SECTION 4.4. Limitation on Restricted Payments......................53 SECTION 4.5. Limitation on Restrictions on Distributions from Restricted Subsidiaries.............................55 SECTION 4.6. Limitation on Sales of Assets and Subsidiary Stock.....56 SECTION 4.7. Limitation on Affiliate Transactions...................59 SECTION 4.8. Change of Control......................................60 SECTION 4.9. Limitation on Liens.................................61 SECTION 4.10. Limitation on Sales of Capital Stock of Restricted Subsidiaries........................................62 SECTION 4.11. Limitation on Designations of Special Restricted Subsidiaries........................................62 SECTION 4.12. Limitation on Designations of Unrestricted Subsidiaries........................................63 SECTION 4.13. Limitations on Investments in Unrestricted Subsidiaries........................................63 SECTION 4.14. Business of the Company; Restrictions on Transfers of Existing Business...................................64 SECTION 4.15. Payment of Additional Amounts..........................64 SECTION 4.16. Shareholder Commitments................................67 SECTION 4.17. Compliance Certificate.................................68 SECTION 4.18. Further Instruments and Acts...........................68 SECTION 4.19. Maintenance of Office or Agency........................68 ARTICLE V Successor Company.........................................69 SECTION 5.1. When Company May Merge or Transfer Assets..............69 ARTICLE VI Defaults and Remedies.....................................71 SECTION 6.1. Events of Default......................................71 SECTION 6.2. Acceleration...........................................74 SECTION 6.3. Other Remedies.........................................74 SECTION 6.4. Waiver of Past Defaults................................74 SECTION 6.5. Control by Majority....................................75 SECTION 6.6. Limitation on Suits....................................75 SECTION 6.7. Rights of Holders to Receive Payment...................76 SECTION 6.8. Collection Suit by Trustee.............................76 SECTION 6.9. Trustee May File Proofs of Claim.......................76 - ii - Page ---- SECTION 6.10. Priorities.............................................76 SECTION 6.11. Undertaking for Costs..................................77 ARTICLE VII Trustee...................................................77 SECTION 7.1. Duties of Trustee......................................77 SECTION 7.2. Rights of Trustee......................................78 SECTION 7.3. Individual Rights of Trustee...........................79 SECTION 7.4. Trustee's Disclaimer...................................79 SECTION 7.5. Intentionally Omitted..................................79 SECTION 7.6. Reports by Trustee to Holders..........................79 SECTION 7.7. Compensation and Indemnity.............................80 SECTION 7.8. Replacement of Trustee.................................81 SECTION 7.9. Successor Trustee by Merger............................82 SECTION 7.10. Eligibility; Disqualification..........................82 SECTION 7.11. Preferential Collection of Claims Against Company......83 ARTICLE VIII Discharge of Indenture; Defeasance........................83 SECTION 8.1. Discharge of Liability on Securities; Defeasance.......83 SECTION 8.2. Conditions to Defeasance...............................84 SECTION 8.3. Application of Trust Money.............................86 SECTION 8.4. Repayment to Company...................................86 SECTION 8.5. Indemnity for U.S. Government Obligations..............86 SECTION 8.6. Reinstatement..........................................87 ARTICLE IX Amendments................................................87 SECTION 9.1. Without Consent of Holders.............................87 SECTION 9.2. With Consent of Holders................................88 SECTION 9.3. Compliance with Trust Indenture Act....................89 SECTION 9.4. Revocation and Effect of Consents and Waivers..........89 SECTION 9.5. Notation on or Exchange of Securities..................90 SECTION 9.6. Trustee To Sign Amendments.............................90 ARTICLE X Subsidiary Guarantee......................................90 SECTION 10.1. Subsidiary Guarantee...................................90 SECTION 10.2. Limitation on Liability................................92 SECTION 10.3. Successors and Assigns.................................93 SECTION 10.4. No Waiver..............................................93 SECTION 10.5. Right of Contribution..................................93 - iii - SECTION 10.6. No Subrogation.........................................94 SECTION 10.7. Additional Subsidiary Guarantors.......................94 SECTION 10.8. Modification...........................................94 ARTICLE XI Miscellaneous.............................................95 SECTION 11.1. Trust Indenture Act Controls...........................95 SECTION 11.2. Notices................................................95 SECTION 11.3. Communication by Holders with other Holders............96 SECTION 11.4. Certificate and Opinion as to Conditions Precedent.....97 SECTION 11.5. Statements Required in Certificate or Opinion..........97 SECTION 11.6. When Securities Disregarded............................97 SECTION 11.7. Rules by Trustee, Paying Agent and Registrar...........98 SECTION 11.8. Legal Holidays.........................................98 SECTION 11.9. Governing Law..........................................98 SECTION 11.10. No Recourse Against Others.............................98 SECTION 11.11. Successors.............................................98 SECTION 11.12. Multiple Originals.....................................98 SECTION 11.13. Variable Provisions....................................99 SECTION 11.14. Qualification of Indenture.............................99 SECTION 11.15. Table of Contents; Headings............................99 SECTION 11.16. Agent for Service; Submission to Jurisdiction; Waiver of Immunities.......................................99 SECTION 11.17. Currency of Account; Conversion of Currency; Foreign Exchange Restrictions......................100 EXHIBIT A Form of Initial Security EXHIBIT B Form of Exchange Security EXHIBIT C Form of Certificate to be Delivered in Connection with Transfers to Non-QIB Institutional Accredited Investors EXHIBIT D Form of Certificate to be Delivered in Connection with Transfers Pursuant to Regulation S EXHIBIT E Form of Certificate for Transfer from Offshore Global Security to U.S. Global Security - iv - INDENTURE, dated as of November 26, 1996, among TEVECAP S.A., a sociedad anonima organized under the laws of the Federative Republic of Brazil (the "Company"), the Subsidiary Guarantors (as defined herein), The Chase Manhattan Bank, a New York banking corporation (the "Trustee") and Chase Trust Bank, as Principal Paying Agent. Each of the Company and the Subsidiary Guarantors agrees as follows for the benefit of the other parties hereto and for the equal and ratable benefit of the Holders of the Company's 125/8% Senior Notes due 2004 (the "Initial Securities") and, if and when issued in exchange for Initial Securities as provided in the Registration Rights Agreement (as hereinafter defined), the Company's 125/8% Senior Notes due 2004 (the "Exchange Securities" and, together with the Initial Securities, the "Securities"): ARTICLE I Definitions and Incorporation by Reference SECTION 1.1. Definitions. "Abril Credit Facility" means the Revolving Credit Facility, dated December 6, 1995, between the Company and Abril S.A., as lender, as amended, refinanced or replaced from time to time. "Acquired Indebtedness" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such Person merges with or into or consolidates with or becomes a Restricted Subsidiary of such specified Person and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person, which Indebtedness was not incurred in anticipation of, and was outstanding prior to, such merger, consolidation or acquisition. "Additional Amounts" shall have the meaning specified in Section 4.15(a) hereof. "Additional Assets" means (i) any property or assets (other than Indebtedness and Capital Stock) to be used by the Company or a Restricted Subsidiary in a Permitted Business; (ii) the Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by the Company or another Restricted Subsidiary; or (iii) Capital Stock constituting a minority interest in any Person that at such time is a Restricted Subsidiary; provided, however, that, in the case of clauses (ii) and (iii), such Restricted Subsidiary is primarily engaged in a Permitted Business. 2 "Affiliate" of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. For purposes of Sections 4.6 and 4.7, "Affiliate" shall also include any beneficial owner of shares representing 10.0% or more of the total voting power of the Voting Stock (on a fully diluted basis) of the Company or of rights or warrants to purchase such Voting Stock (whether or not currently exercisable) and any Person who would be an Affiliate of any such beneficial owner pursuant to the first sentence hereof, and for the purposes of Section 4.7 only, shall include (i) Bell Canada, (ii) Canbras Communications Corp., (iii) Canbras Participacoes Ltda., (iv) Canbras TVA Cabo Ltda., (v) TV Cabo Santa Branca Comercio Ltda. and (vi) Galaxy Latin America. "Asset Disposition" means any sale, lease, transfer, issuance or other disposition (or series of related sales, leases, transfers, issuances or dispositions that are part of a common plan) of shares of Capital Stock of a Restricted Subsidiary (other than directors' qualifying shares), property, services or other assets (each referred to for the purposes of this definition as a "disposition") by the Company or any of its Restricted Subsidiaries (including any disposition by means of a merger, consolidation or similar transaction) other than (i) a disposition by a Restricted Subsidiary to the Company or by the Company or a Restricted Subsidiary to a Wholly-Owned Restricted Subsidiary, (ii) a disposition of inventory, services or accounts receivable in the ordinary course of business consistent with market practice, (iii) a disposition of obsolete or worn out equipment or equipment that is no longer useful in the conduct of the business of the Company and its Subsidiaries and that is disposed of in each case in the ordinary course of business, and (iv) a disposition by Galaxy Brasil of up to 25.0% of its Capital Stock to Hughes Communications GLA and Darlene Investments, a member of the Cisneros Group, or their respective affiliates, pursuant to the Galaxy Latin America Partnership Agreement as it exists on the Issue Date. "Attributable Indebtedness" in respect of a Sale/ Leaseback Transaction means, as at the time of determination, the present value (discounted at the interest rate borne by the Securities, compounded annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale/Leaseback Transaction (including any period for which such lease has been extended). "Average Life" means, as of the date of determination, with respect to any Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum of the products of the numbers of years from the date of determination to the dates of each successive 3 scheduled principal payment of such Indebtedness or redemption or similar payment with respect to such Preferred Stock multiplied by the amount of such payment by (ii) the sum of all such payments. "Board of Directors" means the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of such Board of Directors. "Business Day" means each day which is not a Legal Holiday. "California Broadcast Center" means the California Broadcast Center LLC, the owner of an uplink center located in Long Beach, California, which provides certain uplink services to Galaxy Latin America. "Capital Stock" of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such Person, including any Preferred Stock and Disqualified Stock, but excluding any debt securities convertible into such equity. "Capitalized Lease Obligations" means an obligation that is required to be classified and accounted for as a capitalized lease for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligation shall be the capitalized amount of such obligation determined in accordance with GAAP, and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date such lease may be terminated without penalty. "Cash Equivalents" means, at any time, (i) any direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America or the Federative Republic of Brazil (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America or the Federative Republic of Brazil is pledged and which are not callable or redeemable at the issuer's option, each with a maturity of 180 days or less from the date of acquisition; (ii) certificates of deposit, money market deposit accounts and acceptances with a maturity of 180 days or less from the date of acquisition of any financial institution that is a Brazilian regulated Bank or a member of the Federal Reserve System having combined capital and surplus and undivided profits of not less than $500.0 million (or the US dollar equivalent); and (iii) commercial paper with a maturity of 180 days or less from the date of acquisition issued by a corporation that is not an Affiliate of the Company or any of its Subsidiaries and is organized under the laws of any state of the United States or the District of Columbia whose debt rating, at the time as of which such investment is made, is at least "A-1" by Standard & Poor's Corporation or at least "P-1" by Moody's Investors Service, Inc. or rated 4 at least an equivalent rating category of another nationally recognized securities rating agency. "Change of Control" means the occurrence of any of the following events: (i) an event or series of events by which any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders, is or becomes after the date of issuance of the Securities the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act as in effect on the date of this Indenture), of more than 35.0% of the total voting power of all Voting Stock of the Company outstanding; (ii) (A) another corporation merges into the Company or the Company consolidates with or merges into any other corporation or (B) the Company conveys, transfers or leases all or substantially all its assets to any person or group (other than any conveyance, transfer or lease between the Company and a Wholly-Owned Subsidiary of the Company), in each case, in one transaction or a series of related transactions with the effect that a person or group other than one or more Permitted Holders becomes the "beneficial owner" of more than 35.0% of all Voting Stock of the Company then outstanding; (iii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (or equivalent governing body) of the Company (together with any new Directors (or equivalent persons) whose election by the Company's Board of Directors (or equivalent governing body), or whose nomination for election by such entity's shareholders, was approved by a vote of a majority of the Directors (or equivalent persons) then still in office who were either Directors (or equivalent persons) at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Directors (or equivalent persons) then in office; or (iv) the Permitted Holders collectively shall fail to beneficially own at least 35.0% of all Voting Stock of the Company then outstanding. "Code" means the Internal Revenue Code of 1986, as amended. "Commission" or "SEC" means the United States Securities and Exchange Commission, as from time to time constituted, or if at any time after the execution of this Indenture such Commission is not existing and performing the applicable duties now assigned to it, then the body or bodies performing such duties at such time. 5 "Company Request" or "Company Order" means a written request or order signed in the name of the Company by any two of its Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, President or a Vice President or its Secretary or an Assistant Secretary, and delivered to the Trustee. "Consolidated Income Tax Expense" means, with respect to any Person, for any period the aggregate of the federal, state, local and foreign income tax expense of such Person and its Subsidiaries for such period, on a consolidated basis as determined in accordance with GAAP. "Consolidated Interest Expense" means, for any period, the total interest expense of the Company and its consolidated Restricted Subsidiaries, plus, to the extent not included in such total interest expense, and to the extent incurred by the Company or its Restricted Subsidiaries, (i) interest expense attributable to Capitalized Lease Obligations, (ii) amortization of debt discount, (iii) capitalized interest, (iv) non-cash interest expenses, (v) commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, (vi) the net costs associated with Hedging Obligations (including amortization of fees), (vii) Preferred Stock dividends in respect of all Preferred Stock of the Company or a Wholly-Owned Restricted Subsidiary, (viii) interest accruing on any Indebtedness of any other Person to the extent such Indebtedness is Guaranteed by the Company or any Restricted Subsidiary and (ix) the cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than the Company) in connection with Indebtedness Incurred by such plan or trust. "Consolidated Net Income" means, for any period, the net income (loss) of the Company and its consolidated Subsidiaries; provided, however, that there shall not be included in such Consolidated Net Income: (i) any net income (loss) of any Person if such Person is not a Restricted Subsidiary, except that (A) subject to the limitations contained in clause (iv) below, the Company's equity in the net income of any such Person for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such period to the Company or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution paid to a Restricted Subsidiary, to the limitations contained in clause (iii) below) and (B) the Company's equity in a net loss of any such Person (other than an Unrestricted Subsidiary) for such period shall be included in determining such Consolidated Net Income; (ii) any net income (loss) of any person acquired by the Company or a Subsidiary in a pooling of interests transaction for any period prior to the date of such acquisition; (iii) any net income (loss) of any Restricted Subsidiary if such Restricted Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Restricted Subsidiary, directly or indirectly, to the Company, except that (A) subject 6 to the limitations contained in (iv) below, the Company's equity in the net income of any such Restricted Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash that could have been distributed by such Restricted Subsidiary during such period to the Company or another Restricted Subsidiary as a dividend (subject, in the case of a dividend that could have been made to another Restricted Subsidiary, to the limitation contained in this clause) and (B) the Company's equity in a net loss of any such Restricted Subsidiary for such period shall be included in determining such Consolidated Net Income; (iv) any gain (but not loss) realized upon the sale or other disposition of any assets of the Company or its consolidated Subsidiaries which are not sold or otherwise disposed of in the ordinary course of business and any gain (but not loss) realized upon the sale or other disposition of any Capital Stock of any Person; (v) any extraordinary gain or loss; and (vi) the cumulative effect of a change in accounting principles. "Consolidated Net Worth" means the total of the amounts shown on the balance sheet of the Company and the Restricted Subsidiaries, determined on a consolidated basis in accordance with GAAP, as of the end of the most recent fiscal quarter of the Company ending at least 45 days prior to the taking of any action for the purpose of which the determination is being made as (i) the par or stated value of all outstanding Capital Stock of the Company plus (ii) paid in capital or capital surplus relating to such Capital Stock plus (iii) any retained earnings or earned surplus less (A) any accumulated deficit and (B) any amounts attributable to Disqualified Stock. "Corporate Trust Office" means the office of the Trustee at which at any particular time its corporate trust business shall be principally administered, which office at the date of execution of this Indenture is located at 450 West 33rd Street, 15th floor, New York, NY 10001-2697, Attention: Global Trust Services - International Service Delivery. "Cumulative Consolidated Interest Expense" means, as of any date of determination, Consolidated Interest Expense from October 1, 1996 to the end of the Company's most recently ended full fiscal quarter for which financial statements are available prior to such date, taken as a single accounting period. "Cumulative Operating Cash Flow" means, as of any date of determination, Operating Cash Flow from October 1, 1996 to the end of the Company's most recently ended full fiscal quarter for which financial statements are available prior to such date, taken as a single accounting period. "Currency Agreement" means in respect of a Person any foreign exchange contract, currency swap agreement or other similar agreement as to which such Person is a party or a beneficiary. 7 "CVM" means the Comissao de Valores Mobiliarios, the equivalent of the Commission in Brazil. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. "Depositary" means The Depository Trust Company, its nominees and their respective successors. "Disqualified Stock" means, with respect to any Person, any Capital Stock of such Person which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable) or upon the happening of any event (i) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or Disqualified Stock or (iii) is redeemable at the option of the holder thereof, in whole or in part, in each case on or prior to the first anniversary of the Stated Maturity of the Securities. "Equipment Agreements" means the Equipment Lease Agreement, dated as of July 30, 1996, between Citibank N.A., as lessor, and Galaxy Brasil, as lessee, and related agreements, and the Equipment Sale and Leaseback Agreement, dated as of July 30, 1996, between Citibank N.A., as lessor, and Galaxy Brasil, as lessee, and related agreements, as each such agreement may be amended, supplemented or otherwise modified from time to time. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "EximBank Credit Agreement" mean the Credit Agreement to be entered into among the Company, The Chase Manhattan Bank, as lender, and the Export-Import Bank of the United States, as amended, supplemented or otherwise modified from time to time. "Fair Market Value" means, with respect to any asset, the price which could be negotiated in an arm's-length free market transaction, for cash, between a willing seller and a willing buyer, neither of which is under compulsion to complete the transaction. The Fair Market Value of any asset or assets shall be determined by the Board of Directors of the Company, acting in good faith, and shall be evidenced by a resolution of such Board of Directors provided to the Trustee; provided that, solely for purposes of Section 4.6(a)(i) the Company shall be deemed not to have received Fair Market Value for an Asset Disposition unless (a) in the event such Asset Disposition involves an aggregate amount in excess of $2.0 million, the terms of such transaction have been approved by a majority of the members of the Board of Directors of the Company and by a majority of the members of such Board having no personal stake in such Asset Disposition, if any, and (b) in the event such Asset 8 Disposition involves an aggregate amount in excess of $20.0 million, the Company has received a written opinion from an independent investment banking firm of nationally recognized standing in the United States that such Asset Disposition is fair to the Company or such Restricted Subsidiary, as the case may be, from a financial point of view (except that no such opinion shall be required in connection with a public offering of common stock of a Restricted Subsidiary either (A) registered under the Securities Act and/or (B) registered with the CVM and listed on the Sao Paulo Stock Exchange or Rio de Janeiro Stock Exchange). "Galaxy Brasil" means Galaxy Brasil S.A., a Restricted Subsidiary of the Company on the Issue Date. "Galaxy Brasil Subscribers" means, as of any date, the number of subscribers to the pay television services offered by Galaxy Brasil, excluding subscribers who have paid an installation fee to Galaxy Brasil at such date but who are awaiting installation of such services. "Galaxy Latin America" means Galaxy Latin America, a Delaware general partnership in which the Company holds a 10% equity interest on the Issue Date. "Galaxy Latin America Partnership Agreement" means the Partnership Agreement, dated February 13, 1995, as in effect on the Issue Date, among Galaxy Brasil and a unit of Hughes Electronics, a member of the Cisneros Group and a subsidiary of Grupo MVS. "GAAP" means generally accepted accounting principles in the United States of America as in effect from time to time, including those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession. All ratios and computations based on GAAP contained in this Indenture shall be computed in conformity with GAAP as in effect on the Issue Date. "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of any other Person and any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation of any other Person (whether arising by virtue of partnership arrangements, or by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for purposes of assuring in any other manner the obligee of such Indebtedness of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided, however, that the term 9 "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Hedging Obligations" of any Person means the obligations of such Person pursuant to any Interest Rate Agreement or Currency Agreement. "Holder" or "Securityholder" means the Person in whose name a Security is registered on the Security Registrar's books. "Incur" or "incur" means issue, assume, Guarantee, incur or otherwise become liable for; provided, however, that any Indebtedness or Capital Stock of a Person existing at the time such person becomes a Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be incurred by such Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used as a noun shall have a correlative meaning. "Indebtedness" means, with respect to any Person on any date of determination (without duplication), (i) the principal of and premium (if any) in respect of indebtedness of such Person for borrowed money, (ii) the principal of and premium (if any) in respect of obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person in respect of letters of credit or other similar instruments (including reimbursement obligations with respect thereto), (iv) all obligations of such Person to pay the deferred and unpaid purchase price of property or services, which purchase price is due more than six months after the date of placing such property in service or taking delivery and title thereto or the completion of such services, (v) all Capitalized Lease Obligations of such Person and all Attributable Indebtedness of such Person, (vi) all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person, provided, however, that the amount of Indebtedness of such Person shall be the lesser of (A) the fair market value of such asset at such date of determination and (B) the amount of such Indebtedness of such other Persons, (vii) all Indebtedness of other Persons to the extent Guaranteed by such Person, (viii) the amount of all obligations of such Person with respect to the redemption, repayment or other repurchase of any Disqualified Stock or, with respect to any Subsidiary of the Company, any Preferred Stock (but excluding, in each case, any accrued dividends) and (ix) to the extent not otherwise included in this definition, Hedging Obligations of such Person; provided, however, that in no event shall Indebtedness include Trade Payables not overdue or being contested in good faith. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date. 10 "Indebtedness to Annualized Operating Cash Flow Ratio" means, as of any date of determination, the ratio of (i) the aggregate principal amount of all outstanding Indebtedness of the Company and its Restricted Subsidiaries as of such date plus, without duplication, the aggregate liquidation preference or redemption amount of all Disqualified Stock of the Company (excluding any such Disqualified Stock (x) held by the Company or a Wholly-Owned Restricted Subsidiary of the Company or (y) outstanding on the Issue Date), to (ii) Operating Cash Flow of the Company and its Restricted Subsidiaries for the most recently ended fiscal quarter for which financial statements are available prior to such date multiplied by four, determined on a pro forma basis (and after giving pro forma effect to (A) the incurrence of such Indebtedness and (if applicable) the application of the net proceeds therefrom, including to refinance other Indebtedness, as if such Indebtedness was incurred, and the application of such proceeds occurred, at the beginning of such period; (B) the incurrence, repayment or retirement of any other Indebtedness by the Company and its Restricted Subsidiaries since the first day of such period as if such Indebtedness was incurred, repaid or retired at the beginning of such period (except that, in making such computation, the amount of Indebtedness under any revolving credit facility shall be computed based upon the average balance of such Indebtedness at the end of each month during such period); (C) in the case of Acquired Indebtedness, the related acquisition as if such acquisition had occurred at the beginning of such period; and (D) any acquisition or disposition by the Company and its Restricted Subsidiaries (or by any Person that subsequently became a Restricted Subsidiary or was merged with or into the Company or any Restricted Subsidiary since the beginning of such period) of any company or any business or any assets out of the ordinary course of business, or any related repayment of Indebtedness, in each case since the first day of such period, assuming such acquisition or disposition had been consummated on the first day of such period). For purposes of this definition, whenever pro forma effect is to be given to a transaction, the pro forma calculation shall be made in good faith by a responsible financial or accounting officer of the Company. "Indemnification Agreement" means the Indemnification Agreement to be entered into among the Company, Galaxy Latin America, Hughes Communications GLA and affiliates thereof, California Broadcast Center, TVA Communications Ltd., Darlene Investments, Inversiones Divtel, D.T., C.A., Grupo Frecuencia Modulada Television and Grupo MVS. "Indenture" means this Indenture as amended or supplemented from time to time. "Institutional Accredited Investor" means an institution that is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. 11 "Interest Rate Agreement" means with respect to any Person any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement as to which such Person is party or a beneficiary. "Investment" in any Person means any direct or indirect advance, loan (other than advances to customers in the ordinary course of business that are recorded as accounts receivable on the balance sheet of such Person) or other extension of credit (including by way of Guarantee or similar arrangement, but excluding any debt or extension of credit represented by a bank deposit other than a time deposit) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, Indebtedness or other similar instruments issued by such Person. "Issue Date" means the date on which the Initial Securities are originally issued. "Legal Holiday" has the meaning ascribed in Section 11.8. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof). "Minority Investment" means any Investment by the Company or any Restricted Subsidiary in an entity or Person in which the Company or such Restricted Subsidiary owns or controls 50.0% or less of the total voting power of the Capital Stock or other equity interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees of any such entity or Person. "Net Available Cash" from an Asset Disposition means cash payments received (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring Person of Indebtedness or other obligations relating to the properties or assets that are the subject of such Asset Disposition or received in any other noncash form) therefrom, in each case net of (i) all legal, title and recording tax expenses, commissions and other fees and expenses incurred, and all Federal, state, foreign and local taxes required to be paid or accrued as a liability under GAAP, as a consequence of such Asset Disposition, (ii) all payments made on any Indebtedness which is secured by any assets subject to such Asset Disposition, in 12 accordance with the terms of any Lien upon such assets, or which must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law, be repaid out of the proceeds from such Asset Disposition, (iii) all distributions and other payments required to be made to any Person owning a beneficial interest in assets subject to sale or minority interest holders in Subsidiaries or joint ventures as a result of such Asset Disposition and (iv) the deduction of appropriate amounts to be provided by the seller as a reserve, in accordance with GAAP, against any liabilities associated with the assets disposed of in such Asset Disposition and retained by the Company or any Restricted Subsidiary of the Company after such Asset Disposition. "Net Cash Proceeds", with respect to any issuance or sale of Capital Stock, means the cash proceeds of such issuance or sale net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultant and other fees actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result of such issuance or sale. "Newly-Licensed Service Area" means a service area in which (i) such Special Restricted Subsidiary is licensed to provide any of Cable or MMDS service and (ii) neither the Company nor any Restricted Subsidiary is then licensed to provide such Cable or MMDS service in such service area on the Issue Date. "Non-U.S. person" means a person who is not a U.S. person, as defined in Regulation S. "Offering Memorandum" means the Offering Memorandum dated November 21, 1996 relating to the Initial Securities. "Officer" means the President, Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, any Vice President, the Treasurer or the Secretary of the Company, as applicable. "Officers' Certificate" means a certificate signed by two Officers. "Offshore Global Security" shall have the meaning set forth in Section 2.1 hereof. "Offshore Physical Security" shall have the meaning set forth in Section 2.1 hereof. "Operating Cash Flow" means, for any period, the Consolidated Net Income (Loss) of the Company and its Restricted Subsidiaries for such period, plus, without 13 duplication, (i) extraordinary net losses and net losses on sales of assets outside the ordinary course of business during such period, to the extent such losses were deducted in computing Consolidated Net Income (Loss), plus (ii) Consolidated Income Tax Expense, and any provision for taxes utilized in computing the net losses under clause (i) hereof, plus (iii) Consolidated Interest Expense (income), net, plus (iv) Other nonoperating (expenses) income, net (v) depreciation, amortization and all other non-cash charges, to the extent such depreciation, amortization and other non-cash charges were deducted in computing such Consolidated Net Income (Loss) (including amortization of goodwill and other intangibles) (other than non-cash charges which require an accrual or reserve for cash charges in future periods), less (vi) non-cash items increasing Consolidated Net Income (Loss) of such Person for such period (excluding any items which represent the reversal of any accrual of, or cash reserve for, anticipated cash charges in any prior period and excluding the amortization of deferred sign-on and hook-up fee revenue). "Opinion of Counsel" means a written opinion from legal counsel who is acceptable to the Trustee. The counsel may be an employee of or counsel to the Company or the Trustee. "Paying Agent" means any person authorized by the Company to pay the principal, premium, if any, interest (or Additional Amounts) on any Securities on behalf of the Company. The Company may so authorize a principal Paying Agent and one or more co-Paying Agents. "Permitted Business" means (i) the delivery or distribution of television, radio, paging or other telecommunications services in Latin America and Portugal and (ii) any business or activity reasonably related thereto, including, without limitation, any business conducted by the Company or any Restricted Subsidiary on the Issue Date, the acquisition, holding or exploitation of any license relating to the delivery of the services described in clause (i) of this definition, the development or acquisition of rights to programming for delivery or distribution in accordance with clause (i) of this definition and any other business involving voice, data or video telecommunications services. "Permitted Holders" means each of Abril S.A., Falcon International Communications LLC, Falcon International Communications L.P., Falcon International Communications (Bermuda) L.P., The Hearst Corporation, ABC, Inc. and Chase Manhattan International Finance Ltd. and any entity of which any of the foregoing, individually or collectively, beneficially owns more than 50.0% of the Voting Stock. "Permitted Investment" means (i) an Investment by the Company or any of its Restricted Subsidiaries in the Company or a Restricted Subsidiary of the Company or a Person which will, upon making such Investment, become a Restricted Subsidiary; provided, 14 however, that the primary business of such Restricted Subsidiary is a Permitted Business; (ii) any Investment in the California Broadcast Center by the Company or a Restricted Subsidiary in an amount not to exceed $10.0 million and, upon the repayment in full of such Investment by the California Broadcast Center to the Company, the Investment of such amount in Galaxy Latin America; and (iii) Temporary Cash Investments. "Permitted Liens" means, (i) Liens for taxes, assessments or other governmental charges not yet delinquent or which are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of the Company or such Subsidiary, as the case may be, in accordance with GAAP; (ii) carriers', warehousemen's, mechanics', landlords', materialmen's, repairmen's or other like Liens arising in the ordinary course of business in respect of obligations which are not yet due or which are bonded or which are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of the Company or such Restricted Subsidiary, as the case may be, in accordance with GAAP; (iii) pledges or deposits in connection with workmen's compensation, unemployment insurance and other social security legislation; (iv) deposits to secure the performance of bids, tenders, trade or government contracts (other than for borrowed money), leases, licenses, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (v) judgment or attachment Liens against the Company or any of its Restricted Subsidiaries not giving rise to an Event of Default; (vi) Liens arising by operation of law; (vii) Liens in favor of the Company or any Wholly-Owned Restricted Subsidiary of the Company; (viii) Liens securing Indebtedness Incurred by the Company in compliance with Section 4.3(b)(i); (ix) Liens on property and assets (together with accounts receivable arising from such property and assets) of Galaxy Brasil acquired with the proceeds of Indebtedness Incurred by Galaxy Brasil in compliance with Section 4.3(b)(viii) or with the proceeds of other Indebtedness Incurred in compliance with this Indenture, provided that such Liens may not secure Indebtedness exceeding an amount equal to the greater of (A) the amount permitted to be Incurred pursuant to Section 4.3(b)(viii) and (B) an amount equal to the Operating Cash Flow of Galaxy Brasil for the four most recent fiscal quarters for which financial statements are available prior to the date of Incurrence; (x) Liens on real or personal property of the Company or a Restricted Subsidiary of the Company acquired, constructed or constituting improvements made after the Issue Date to secure Purchase Money Indebtedness Incurred after the Issue Date in compliance with the Indenture; provided, that (A) such Liens do not extend to any assets other than the assets so acquired, (B) such Liens shall be created no later than 10 days after the acquisition of such assets and (C) the principal amount of such Indebtedness secured by such a Lien does not exceed 80% of such purchase price or cost of construction or improvement of the property subject to such Lien; (xi) Liens existing on the Issue Date; (xii) the pledge by the Company (A) to the other members of Galaxy Latin America of warrants and promissory notes it holds in the California Broadcast Center to 15 secure its obligations under the Equipment Agreements and the contribution agreement to be entered into in connection with the SurFin Guarantee and the pledge of such warrants and promissory notes, together with the equity interest it holds of Galaxy Latin America, to secure its tax indemnity obligations under the Indemnification Agreement and (B) to Falcon International of the shares of Capital Stock of the Company purchased with Put Promissory Notes; and (xiii) Liens to secure Indebtedness Incurred to extend, renew, refinance or refund (or successive extensions, renewals, refinancings or refundings), in whole or in part, Indebtedness secured by any Lien referred to in the foregoing clauses (vii), (viii), (ix), (x) and (xi) so long as such Lien does not extend to any other property and the principal amount of Indebtedness so secured is not increased except as otherwise permitted under the definition of Refinancing Indebtedness. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision hereof or any other entity. "Physical Security" shall have the meaning set forth in Section 2.1 hereof. "Predecessor Security" means, with respect to any particular Security, every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 2.6 hereof in exchange for a mutilated Security or in lieu of a lost, destroyed or stolen Security shall be deemed to evidence the same debt as the mutilated, lost, destroyed or stolen Security. "Preferred Stock", as applied to the Capital Stock of any corporation, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such corporation, over shares of Capital Stock of any other class of such corporation. "principal" of a Security means the principal of the Security plus the premium, if any, payable on the Security which is due or overdue or is to become due at the relevant time. "Purchase Money Indebtedness" means Indebtedness (i) consisting of the deferred purchase price of property, conditional sale obligations, obligations under any title retention agreement and other purchase money obligations, in each case where the maturity of such Indebtedness does not exceed the anticipated useful life of the asset being financed, and (ii) incurred to finance the acquisition by the Company or a Restricted Subsidiary of such asset, including additions or improvements. 16 "Put Promissory Notes" means any promissory notes which may be issued by the Company to Falcon International pursuant to the Stockholders Agreement, as amended, in the event the Indenture prohibits the Company from purchasing shares of Capital Stock held by such stockholder; provided that (a) such notes have been expressly subordinated in right of payment in full to the Securities (including principal, interest and premium, if any, and as a consequence of any repurchase, redemption, or other repayment of the Securities, by way of optional redemption, Asset Sale Offer or Change of Control Offer to the extent any applicable rights to repayment are exercised by the Securityholders), (b) such notes are not Guaranteed by any of the Company's Subsidiaries and are not secured by any Lien on any property or asset of the Company or any Restricted Subsidiary (other than by the pledge of the shares of Capital Stock of the Company purchased with Put Promissory Notes), (c) such notes do not have a Stated Maturity of principal or any redemption or repurchase or other similar provision (upon a default or otherwise) earlier than a date at least one year after the final Stated Maturity of the Securities; and (d) such notes bear interest at a rate consistent with the terms of the Stockholders Agreement, as amended; provided, further, that payments of interest on such notes may be made solely to the extent Restricted Payments in like amount may then be made in accordance with Section 4.4, with any such interest payment being included in the calculation of whether the conditions of Section 4.4(a)(z) have been met with respect to any subsequent Restricted Payments. "QIB" means any "qualified institutional buyer" (as defined under the Securities Act). "Redemption Date" means the date specified by the Company in a notice delivered pursuant to Section 3.3 as the date on which the Company has elected to redeem Securities pursuant to paragraph 5 or 6 of the Securities. "Refinancing Indebtedness" means Indebtedness that is Incurred to refund, refinance, replace, renew, repay or extend (including pursuant to any defeasance or discharge mechanism) (collectively, "refinances," and "refinanced" shall have a correlative meaning) any Indebtedness existing on the date of the Indenture or Incurred in compliance with the Indenture (including Indebtedness of the Company that refinances Indebtedness of any Restricted Subsidiary and Indebtedness of any Restricted Subsidiary that refinances Indebtedness of another Restricted Subsidiary) including Indebtedness that refinances Refinancing Indebtedness, provided, however, that (i) in respect of Indebtedness having a Stated Maturity after the Stated Maturity of the Securities, the Refinancing Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the Indebtedness being refinanced, (ii) in respect of Indebtedness having a Stated Maturity prior to the Stated Maturity of the Securities, the Refinancing Indebtedness bears an interest rate materially lower than that of the Indebtedness being refinanced, (iii) the Refinancing Indebtedness has an Average Life at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the Average Life of the Indebtedness being refinanced, (iv) such Refinancing Indebtedness is 17 Incurred in an aggregate principal amount (or if issued with original issue discount, an aggregate issue price) that is equal to or less than the sum of the aggregate principal amount (or if issued with original issue discount, the aggregate accredited value) then outstanding of the Indebtedness being refinanced and (v) the Refinancing Indebtedness shall be subordinated or pari passu (whichever is applicable) in right of payment to the Securities to the same extent as the Indebtedness being refinanced is subordinated or pari passu in right of payment to the Securities; provided, further, that Refinancing Indebtedness shall not include Indebtedness of a Restricted Subsidiary which refinances Indebtedness of the Company or Indebtedness of the Company or a Restricted Subsidiary that refinances Indebtedness of an Unrestricted Subsidiary. Notwithstanding the foregoing, in the case of Indebtedness represented by obligations described in clause (iv) of the definition of "Indebtedness," the re-incurrence of such Indebtedness within 60 days after the repayment thereof shall be deemed to be Refinancing Indebtedness for purposes of this definition; provided, however, that it otherwise complies with the terms of this definition and that the amount of such Indebtedness deemed to be Refinancing Indebtedness hereunder shall not exceed $50.0 million at any one time. "Registered Exchange Offer" shall have the meaning set forth in the Registration Rights Agreement. "Registration Rights Agreement" means the Exchange and Registration Rights Agreement, dated November 26, 1996 among the Company, the Subsidiary Guarantors, Chase Securities Inc., Donaldson, Lufkin & Jenrette Securities Corporation, Bear, Stearns & Co. Inc. and Bozano, Simonsen Securities, Inc. (the "Initial Purchasers"). "Regulation S" means Regulation S under the Securities Act. "Restricted Subsidiary" means any Subsidiary of the Company that is not an Unrestricted Subsidiary. "Rule 144A" means Rule 144A under the Securities Act. "Sale/Leaseback Transaction" means an arrangement relating to property now owned or hereafter acquired whereby the Person owning such property transfers such property to another Person and leases it back from such Person. "Securities" means the Securities issued under this Indenture. "Securities Act" means the Securities Act of 1933, as amended. 18 "Securities Custodian" means the custodian with respect to the Global Securities (as appointed by the Depositary), or any successor Person thereto and shall initially be the Trustee. "Senior Credit Facility" means any senior credit facility (whether a term or a revolving facility) as such credit facility may be amended, modified, supplemented, restated or replaced from time to time. "Shareholder Commitments" shall have the meaning specified in Section 4.16 hereof. "Shelf Registration Statement" has the meaning ascribed thereto in the Registration Rights Agreement. "Significant Equity Offering" means either (i) a public offering of Common Stock of the Company either (A) registered under the Securities Act and/or (B) registered with the CVM and listed on the Sao Paulo Stock Exchange or Rio de Janeiro Stock Exchange or (ii) an offering on behalf of the Company pursuant to Rule 144A under the Securities Act of Common Stock of the Company to 100 or more beneficial holders if such Common Stock is thereafter included for trading privileges in the PORTAL trading system of Nasdaq. "Special Restricted Subsidiary" means any Restricted Subsidiary of the Company that has been designated by the Board of Directors, by a Board Resolution delivered to the Trustee, as a Special Restricted Subsidiary and as to which there has not been an effective revocation, in each case in accordance with Section 4.11. "Stated Maturity" means, with respect to any security, the date specified in such security as the fixed date on which the payment of principal of such security is due and payable. "Stockholders Agreement" means the Stockholders Agreement dated December 6, 1995, by and among the Company, Robert Civita, Abril S.A., Harpia Holdings Limited, Curupia Holdings Limited, Falcon International Communications Ltd., Hearst/ABC Video Services II and Cable Participacoes Ltda, as it has been amended to date. "Strategic Investor" means any Person engaged in a Permitted Business that as of the date of determination has a Total Equity Market Capitalization of at least $1.0 billion. 19 "Subordinated Obligation" means any Indebtedness of the Company (whether outstanding on the Issue Date or thereafter Incurred) which is subordinate or junior in right of payment to the Securities pursuant to a written agreement. "Subordinated Shareholder Loans" means Indebtedness of the Company for money borrowed from a shareholder beneficially owning at least 5.0% of the issued and outstanding shares of common stock of the Company (or any Affiliate of such shareholder), provided that (A) such Indebtedness (and any refinancing thereof) has been expressly subordinated in right of payment to the prior payment in full of all Indebtedness (including principal, interest and premium, if any, under the Securities and this Indenture) of the Company (including as a consequence of any repurchase, redemption or other repayment of the Securities, by way of optional redemption, Asset Sale Offer, or Change of Control Offer to the extent any applicable rights to repayment are exercised by the Securityholders), (B) such Indebtedness (and any refinancing thereof) is not Guaranteed by any of the Company's Subsidiaries and is not secured by any Lien on any property or asset of the Company or any Restricted Subsidiary, (C) such Indebtedness (and any refinancing thereof) does not have a Stated Maturity of principal or any redemption or repurchase or other similar provision (upon a default or otherwise) earlier than a date at least one year after the final Stated Maturity of the Securities and (D) such Indebtedness bears interest at a rate consistent with prevailing market practice for subordinated loans (as certified to the Trustee in an Officers' Certificate); provided further that payments of interest on such Indebtedness (and any refinancing thereof) may be made solely to the extent Restricted Payments in like amount may then be made in accordance with Section 4.4, with any such interest payment being included in the calculation of whether the conditions of Section 4.4(a)(z) have been met with respect to any subsequent Restricted Payments. "Subsidiary" of any Person means any corporation, association, partnership, joint venture or other business entity (i) of which more than 50.0% of the total voting power of shares of Capital Stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by (A) such Person, (B) such Person and one or more Subsidiaries of such Person or (C) one or more Subsidiaries of such Person and (ii) which is controlled by such Person. Unless otherwise specified herein, each reference to a Subsidiary shall refer to a Subsidiary of the Company. "Subsidiary Guarantors" means each Subsidiary of the Company in existence on the Issue Date and each Restricted Subsidiary created or acquired by the Company after the Issue Date and which becomes a party hereto pursuant to Section 10.7. 20 "Subsidiary Guarantee" means the Guarantee of the Securities by the Subsidiary Guarantors set forth in Article X, a notation of which shall be endorsed on the Securities in the form attached hereto as part of Exhibits A and B. "SurFin Guarantee" means the Guarantee, dated as of September 18, 1996, by the Company in favor of Citicorp USA, Inc. as such guarantee may be amended, modified, supplemented or restated from time to time. "Taxes" means any tax, duty, levy, impost, assessment or other governmental charge (including penalties, interest and any other liabilities related thereto) imposed or levied by or on behalf of a Taxing Authority. "Taxing Authority" means the government of the Federative Republic of Brazil or of Japan or any state of the Federative Republic of Brazil or of Japan or any political subdivision or territory or possession of the government of the Federative Republic of Brazil or of Japan or any jurisdiction in which the Company or a Subsidiary Guarantor is engaged in business for tax purposes or is resident for withholding tax purposes or, in all such instances, any authority or agency therein or thereof having power to tax. "Temporary Cash Investments" means any of the following: (i) any Investment in direct obligations of the United States of America or any agency thereof or obligations Guaranteed by the United States of America or any agency thereof, (ii) Investments in time deposit accounts, certificates of deposit and money market deposits maturing within 180 days of the date of acquisition thereof issued by a bank or trust company which is organized under the laws of the United States of America, any state thereof or any foreign country recognized by the United States of America having capital, surplus and undivided profits aggregating in excess of $250 million (or the foreign currency equivalent thereof) and whose long-term debt, or whose parent holding company's long-term debt, is rated "A" (or such similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act), (iii) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (i) above entered into with a bank meeting the qualifications described in clause (ii) above, (iv) Investments in commercial paper, maturing not more than 180 days after the date of acquisition, issued by a corporation (other than an Affiliate of the Company) organized and in existence under the laws of the United States of America or any foreign country recognized by the United States of America with a rating at the time as of which any investment therein is made of "P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1" (or higher) according to Standard and Poor's Ratings Group. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa-77bbbb) as in effect on the date of this Indenture. 21 "Total Equity Market Capitalization" of any Person means, as of any date of determination, the product of (i) the aggregate number of outstanding shares of Common Stock of such Person on such date (which shall not include any options or warrants on, or securities convertible or exchangeable into, shares of Common Stock of such Person) and (ii) the average closing price of such Common Stock over the 20 consecutive trading days immediately preceding such date. If no such closing price exists with respect to shares of any such class, the value of such shares shall be determined by the Board of Directors in good faith and evidenced by a resolution of the Board of Directors filed with the Trustee. "Trade Payables" means, with respect to any Person, any accounts payable or any indebtedness or monetary obligation to trade creditors created, assumed or Guaranteed by such Person (including letters of credit issued in respect thereof) arising in the ordinary course of business in connection with the acquisition of either (x) current assets as characterized in accordance with GAAP or (y) services which are currently expensed in accordance with GAAP. "Transfer Restricted Securities" means Securities that bear or are required to bear the Restricted Securities legend set forth in Exhibit A hereof. "Trustee" means the party named as such in this Indenture until a successor replaces it and, thereafter, means the successor. "Trust Officer" means the Chairman of the Board, the President or any other officer or assistant officer of the Trustee assigned by the Trustee to administer its corporate trust matters. "Uniform Commercial Code" means the New York Uniform Commercial Code as in effect from time to time. "Unrestricted Subsidiary" means (i) any Subsidiary of the Company (other than a Subsidiary Guarantor) designated as such pursuant to and in compliance with Section 4.12 and (ii) any Subsidiary of an Unrestricted Subsidiary. "US Dollar Equivalent" means, with respect to any monetary amount in a currency other than the US dollar at any one time for the determination thereof, the amount of US dollars obtained by converting such foreign currency involved in such computation into US dollars at the spot rate for the purchase of US dollars with the applicable foreign currency as quoted by Reuters at approximately 11:00 a.m. (New York time) on the date not more than two business days prior to such determination. For purposes of determining whether any Indebtedness can be incurred (including Permitted Indebtedness), any Investment can be made and any Affiliate Transaction can be undertaken (a "Tested Transaction"), the 22 "US Dollar Equivalent" of such Indebtedness, Investment or Affiliate Transaction shall be determined on the date incurred, made or undertaken and no subsequent change in the US Dollar Equivalent shall cause such Tested Transaction to have been incurred, made or undertaken in violation of the Indenture. "U.S. Global Security" shall have the meaning set forth in Section 2.1 hereof. "US Government Obligations" means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable or redeemable at the issuer's option. "U.S. Physical Security" shall have the meaning set forth in Section 2.1 hereof. "Voting Stock" of a corporation means all classes of Capital Stock of such corporation then outstanding and normally entitled to vote in the election of directors. "Wholly-Owned Subsidiary" means a Subsidiary of the Company, at least 95.0% of the Capital Stock of which (other than directors' qualifying shares) is owned by the Company or another Wholly-Owned Subsidiary of the Company. SECTION 1.2. Other Definitions. Defined in ---------- Term Section "Affiliate Transaction".................................. 4.7 "Agent Member"........................................... 2.14(a) "Bankruptcy Law"......................................... 6.1 "covenant defeasance option"............................. 8.1(b) "Custodian".............................................. 6.1 "Event of Default"....................................... 6.1 "Global Security"........................................ 2.1 "legal defeasance option"................................ 8.1(b) "Restricted Payment"..................................... 4.4 "Security Register"...................................... 2.5 "Security Registrar"..................................... 2.5 "Successor Company"...................................... 5.1 23 SECTION 1.3. Incorporation by Reference of Trust Indenture Act. This Indenture is subject to the mandatory provisions of the TIA which are incorporated by reference in and made a part of this Indenture. The following TIA terms have the following meanings: "Commission" means the SEC. "indenture securities" means the Securities. "indenture security holder" means a Securityholder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the indenture securities means the Company and any other obligor on the indenture securities. All other TIA terms used in this Indenture that are defined by the TIA, defined by the TIA reference to another statute or defined by SEC rule have the meanings assigned to them by such definitions. SECTION 1.4. Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) "including" means including without limitation; (5) words in the singular include the plural and words in the plural include the singular; (6) unsecured Indebtedness shall not be deemed to be subordinate or junior to Secured Indebtedness merely by virtue of its nature as unsecured Indebtedness; 24 (7) the principal amount of any noninterest bearing or other discount security at any date shall be the principal amount thereof that would be shown on a balance sheet of the issuer dated such date prepared in accordance with GAAP; and (8) the principal amount of any Preferred Stock shall be (i) the maximum liquidation value of such Preferred Stock or (ii) the maximum mandatory redemption or mandatory repurchase price with respect to such Preferred Stock, whichever is greater. ARTICLE II The Securities SECTION 2.1. Title and Terms; Form. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is limited to US$250,000,000 in aggregate principal amount of Initial Securities and Exchange Securities, except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities pursuant to Section 2.3, 2.4, 2.5, 2.6, 3.6, 4.6, 4.8 or 9.5. The Securities shall be known and designated as the "125/8 Senior Notes due 2004" of the Company. The final Stated Maturity of the Securities shall be November 26, 2004, and the Securities shall bear interest at the rate of 125/8% per annum (as adjusted pursuant to the Registration Rights Agreement) from the Issue Date or from the most recent interest payment date to which interest has been paid, as the case may be, payable semi-annually on May 26 and November 26, in each year, commencing on May 26, 1997, until the principal thereof is paid or duly provided for. Interest on any overdue principal, interest (to the extent lawful) or premium, if any, shall be payable on demand. The Exchange Securities may be issued only in exchange for a like principal amount of Initial Securities pursuant to the Registered Exchange Offer. Initial Securities offered and sold in reliance on Rule 144A shall be issued initially in the form of one or more global securities (the "U.S. Global Security") and Initial Securities offered and sold in reliance on Regulation S shall be issued initially in the form of one or more global securities (the "Offshore Global Security" and together with the U.S. Global Security, the "Global Securities"), each substantially in the form set forth in Exhibit A hereof, deposited with the Trustee, as custodian of the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The aggregate principal 25 amount of any Global Security may from time to time be increased or decreased by adjustments made on the Register maintained by the Security Registrar, as herein provided. Initial Securities which are offered and sold to Institutional Accredited Investors which are not QIBs (excluding Non-U.S. persons) shall be issued in the form of permanent certificated Securities in registered form (the "U.S. Physical Securities"). Securities issued pursuant to Section 2.14 in exchange for interests in the U.S. Global Security shall be in the form of U.S. Physical Securities. Securities issued in exchange for interests in the Offshore Global Security pursuant to Section 2.14 shall be in the form of permanent certificated Securities in registered form (the "Offshore Physical Securities" and together with the U.S. Physical Securities, the "Physical Securities"). Physical Securities shall be in substantially the form set forth in Exhibit A and Exhibit B hereof excluding the Global Securities Legend. The principal of, premium, if any, and interest (and any Additional Amounts) on Global Securities shall be payable to the Depositary or its nominee, as the case may be, as the sole registered owner and the sole holder of the Global Securities represented thereby. The principal of, premium, if any, and interest on Physical Securities shall be payable at the office or agency of the Company maintained for such purpose in The City of New York, or at such other office or agency of the Company as may be maintained for such purpose; provided, however, that at the option of the Company interest may be paid by check mailed to the addresses of the persons entitled thereto as such addresses shall appear on the Security Register. During the period beginning on the later of the Issue Date and the last date on which the Company or any Affiliate of the Company was the owner of an Initial Security (or any Predecessor Security) and ending on the date three years (or such shorter period of time as permitted by Rule 144(k) under the Securities Act or any successor provision thereunder) from any such date, any Initial Security issued or owned during the period set forth above, as the case may be, and any Security issued upon registration of transfer of, or in exchange for, or in lieu of, such Initial Security, shall be deemed a "Transfer Restricted Security" and shall be subject to the restrictions on transfer provided in the legend set forth on the face of the form of Initial Security in Exhibit A; provided, however, that the term "Transfer Restricted Security" shall not include (a) any Initial Security which is issued upon transfer of, or in exchange for, any Security which is not a Transfer Restricted Security or (b) any Initial Security as to which such restrictions on transfer have been terminated in accordance with Section 2.5, (c) any Exchange Security issued pursuant to the Registered Exchange Offer or (d) any Exchange Security covered by a Shelf Registration Statement. Any Transfer Restricted Security shall bear the legend set forth on the face of the Initial Security in Exhibit A (the "Private Placement Legend"). 26 SECTION 2.2. Denominations. The Securities shall be issuable only in registered form without coupons and only in denominations of US$1,000 and any integral multiple thereof. SECTION 2.3. Execution, Authentication, Delivery and Dating. The Securities shall be executed on behalf of the Company by the manual or facsimile signature of any two of its Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, its President, one of its Executive Vice Presidents, its Secretary, Assistant Secretary or General Counsel. Securities bearing the manual or facsimile signature of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices on the date of such Securities. At any time and from time to time upon or after the execution and delivery of this Indenture, the Company may deliver Securities executed by the Company to the Trustee for authentication, together with a Company Order for authentication and delivery of such Securities; and the Trustee in accordance with such Company Order shall authenticate and deliver such Securities as provided in this Indenture and not otherwise. On Company Order, the Trustee or an authenticating agent shall authenticate for original issue Exchange Securities in an aggregate principal amount not to exceed US$250,000,000; provided that such Exchange Securities shall be issuable only upon the valid surrender for cancellation of Initial Securities of a like aggregate principal amount in accordance with the Registered Exchange Offer pursuant to the Registration Rights Agreement. In each case, the Trustee shall be entitled to receive an Officers' Certificate and an Opinion of Counsel of the Company that it may reasonably request in connection with such authentication of Securities. Such order shall specify the amount of Securities to be authenticated and the date on which the original issue of Securities is to be authenticated. The aggregate principal amount of Securities outstanding at any time may not exceed US$250,000,000 except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities pursuant to Section 2.1. Each Security shall be dated the date of its authentication. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for in Exhibit A and Exhibit B hereto duly executed by the Trustee by manual signature of an authorized representative, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. 27 In case the Company, pursuant to Article V, shall be consolidated, amalgamated, merged with or into any other Person or shall convey, transfer or lease substantially all of its properties and assets to any Person, and the successor Person resulting from such consolidation, amalgamation or surviving such merger, or into which the Company shall have been merged, or the Person which shall have received a conveyance, transfer or lease as aforesaid, shall have executed an indenture supplemental hereto with the Trustee pursuant to Article V, any of the Securities authenticated or delivered prior to such consolidation, amalgamation, merger, conveyance, transfer or lease may, from time to time, at the request of the successor Person, be exchanged for other Securities executed in the name of the successor Person with such changes in terminology and form as may be appropriate, but otherwise in substance of like tenor as the Securities surrendered for such exchange and of like principal amount; and the Trustee, upon Company Order of the successor Person, shall authenticate and deliver replacement Securities as specified in such request for the purpose of such exchange. If such Securities shall at any time be authenticated and delivered in any new name of a successor Person pursuant to this Section 2.3 in exchange or substitution for or upon registration of transfer of any Securities, such successor Person, at the option of the Holders but without expense to them, shall provide for the exchange of all Securities at the time Outstanding for Securities authenticated and delivered in such new name. The Trustee may appoint an authenticating agent to authenticate Securities on behalf of the Trustee if directed to do so by a Company Order. Each reference in this Indenture to authentication by the Trustee includes authentication by each such agent. An authenticating agent has the same rights as any Security Registrar or Paying Agent to deal with the Company and its Affiliates. If any of the Securities are to be issued in the form of one or more Global Securities, then the Company shall execute and the Trustee shall authenticate and deliver one or more Global Securities that (i) shall be in minimum denominations of US$1,000 or integral multiples thereof, (ii) shall be registered in the name of the Depositary for such Global Security or Securities or the nominee of such Depositary, (iii) shall be delivered to the Trustee as Securities Custodian for such Depositary and (iv) shall bear the Global Securities legend in substantially the form set forth in Exhibit A and Exhibit B. SECTION 2.4. Temporary Securities. Pending the preparation of definitive Securities, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities. Temporary Securities may be printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as 28 the Officers executing such Securities may determine, as conclusively evidenced by their execution of such Securities. If temporary Securities are issued, the Company will cause definitive Securities to be prepared without unreasonable delay but in no event later than the date that the Registered Exchange Offer is consummated. After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the temporary Securities at the office or agency of the Company designated for such purpose pursuant to Section 4.19, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Securities of authorized denominations. Until so exchanged, the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Securities. SECTION 2.5. Registration, Registration of Transfer and Exchange. The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency designated pursuant to Section 4.19 being herein sometimes referred to as the "Security Register") in which, subject to such reasonable regulations as the Security Registrar may prescribe, the Company shall provide for the registration of Securities and of transfers of Securities. The Trustee is hereby initially appointed "Security Registrar" for the purpose of registering Securities and transfers of Securities as herein provided. Upon surrender for registration of transfer of any Security at the office or agency of the Company designated pursuant to Section 4.19, the Company shall, subject to the terms of this Indenture, execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of any authorized denomination or denominations, of a like aggregate principal amount. At the option of the Holder, subject to the terms of this Indenture, Securities in certificated form may be exchanged for other Securities of any authorized denomination or denominations, of a like aggregate principal amount, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. If an Initial Security is a U.S. Physical Security, then as provided in this Indenture and subject to the limitations herein set forth, the Holder, provided it is a QIB, may exchange such Security for a book-entry security by instructing the Trustee to arrange for such Initial Security to be represented by a beneficial interest in a Global Security. 29 All Securities issued upon any registration of transfer or exchange of Securities including, without limitation, any exchange pursuant to the Registered Exchange Offer, shall be the valid obligations of the Company, evidencing the same indebtedness, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange and no such transfer or exchange shall constitute a repayment of any obligation nor create any new obligations of the Company. Every Security presented or surrendered for registration of transfer, or for exchange or redemption shall (if so required by the Company or the Security Registrar) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. Every Transfer Restricted Security shall be subject to the restrictions on transfer set forth in Section 2.1 and Section 2.15 and shall bear the Private Placement Legend and the Holder of each Transfer Restricted Security, by such Holder's acceptance thereof, agrees to be bound by such restrictions on transfer. The restrictions imposed by Section 2.1 and Section 2.15 upon the transferability of any particular Transfer Restricted Security shall cease and terminate (a) in the case of an Offshore Global Security or an Offshore Physical Security, on the 41st day after the Issue Date or (b) in the case of a U.S. Global Security or a U.S. Physical Security, on (x) the later of November 26, 1999 or three years (or such shorter period of time as permitted by Rule 144(k) under the Securities Act or any successor provision thereunder) after the later of the Issue Date or the last date on which the Company or any Affiliate of the Company was the owner of such Transfer Restricted Security (or any predecessor of such Restricted Security) or (y) (if earlier) if and when such Restricted Security has been sold pursuant to an effective registration statement under the Securities Act or, unless the Holder thereof is an affiliate of the Company within the meaning of Rule 144 (or such successor provision), transferred pursuant to Rule 144 or Rule 904 under the Securities Act (or any successor provision). Any Transfer Restricted Security as to which such restrictions on transfer shall have expired in accordance with their terms or shall have terminated may, upon surrender of such Transfer Restricted Security for exchange to the Trustee or any transfer agent in accordance with the provisions of this Section 2.5, be exchanged for a new Security, of like series, tenor and aggregate principal amount, which shall not bear the restrictive legend required hereby and shall thereafter be deemed not to be a Restricted Security for any purpose under this Indenture. The Company shall inform the Trustee in writing of the effective date of any registration statement registering any Transfer Restricted Securities under the Securities Act. 30 No service charge shall be made to a Holder for any registration of transfer or exchange or redemption of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 2.3, 2.4, 3.6, 4.6, 4.8 or 9.5 not involving any transfer. The Company shall not be required (a) to issue, register the transfer of or exchange any Security during a period beginning at the opening of business 15 days before the mailing of a notice of redemption of the Securities selected for redemption under Section 3.2 and ending at the close of business on the day of such mailing, or (b) to register the transfer of or exchange any Security so selected for redemption in whole or in part, except the unredeemed portion of Securities being redeemed in part. Any Holder of a Global Security shall, by acceptance of such Global Security, agree that transfers of beneficial interests in such Global Security may be effected only through a book-entry system maintained by the Holder of such Global Security (or its agent), and that ownership of a beneficial interest in the Security shall be required to be reflected in a book-entry. When Securities are presented to the Security Registrar with a request to register the transfer or to exchange them for an equal principal amount of Securities of other authorized denominations, the Security Registrar shall register the transfer or make the exchange as requested if its requirements for such transactions are met. To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Securities at the Security Registrar's request. SECTION 2.6. Mutilated, Destroyed, Lost and Stolen Securities. If (a) any mutilated Security is surrendered to the Trustee, or (b) the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Security, and there is delivered to the Company, each Subsidiary Guarantor and the Trustee, such security or indemnity, in each case, as may be required by them to save each of them harmless from any loss which any of them may suffer if a Security is replaced, then, in the absence of notice to the Company, any Subsidiary Guarantor or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon a Company Order the Trustee shall authenticate and deliver, in exchange for any such mutilated Security or in lieu of any such destroyed, lost or stolen Security, a replacement Security of like tenor and principal amount, bearing a number not contemporaneously outstanding. Upon the issuance of any replacement Securities under this Section, the Company may require the payment of a sum sufficient to cover any tax or other 31 governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every replacement Security issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company and each Subsidiary Guarantor, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. SECTION 2.7. Payment of Interest; Interest Rights Preserved. Interest, including any liquidated damages payable pursuant to the Registration Rights Agreement relating to the Securities, on any Security (and any Additional Amounts payable in respect thereof) which is payable, and is punctually paid or duly provided for, on any interest payment date shall be paid to the person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the regular record date for such interest. Any interest on any Security (and any Additional Amounts payable in respect thereof) which is payable, but is not punctually paid or duly provided for, on any interest payment date and interest (and any Additional Amounts payable in respect thereof) on such defaulted interest at the then applicable interest rate borne by the Securities, to the extent lawful (such defaulted interest and interest thereon herein collectively called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the regular record date; and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in subsection (a) or (b) below: (a) The Company may elect to make payment of any Defaulted Interest to the persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on a special record date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of 32 the persons entitled to such Defaulted Interest as provided in this paragraph (a). Thereupon the Trustee shall fix a special record date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company in writing of such special record date. In the name and at the expense of the Company, the Trustee shall cause notice of the proposed payment of such Defaulted Interest and the special record date therefor to be mailed, first-class postage prepaid, to each Holder at its address as it appears in the Security Register, not less than 10 days prior to such special record date. Notice of the proposed payment of such Defaulted Interest and the special record date therefor having been so mailed, such Defaulted Interest shall be paid to the persons in whose names the Securities (or their respective Predecessor Securities) are registered on such special record date and shall no longer be payable pursuant to the following subsection (b). (b) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, if, after written notice given by the Company to the Trustee of the proposed payment pursuant to this subsection (b), such payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. SECTION 2.8. Paying Agents; Discharge of Payment Obligations; Indemnity of Holders. (a) The Company may from time to time appoint one or more Paying Agents and may designate a Paying Agent as Principal Paying Agent under this Indenture and the Securities. By its execution and delivery of this Indenture, the Company hereby initially designates and appoints Chase Trust Bank as Principal Paying Agent. Subject to Section 2.16, the Company may act as Paying Agent. (b) Unless the Company shall be acting as Paying Agent as provided in Section 2.16, the Company shall, by 10:00 A.M. New York time, no later than one Business Day prior to each interest payment date or principal payment date on any Securities (whether on maturity, redemption or otherwise) (each, a "Payment Date"), deposit with the Principal Paying Agent in immediately available funds a sum sufficient to pay such principal, any premium, and interest when so becoming due (including any Additional Amounts). The Company shall cause the bank through which such payment is to be made to supply to the 33 Principal Paying Agent by 10:00 A.M. (New York time) two Business Days prior to the due date for any such payment an irrevocable confirmation (by tested telex or authenticated SWIFT MT 100 Message) of its intention to make such payment. The Principal Paying Agent shall arrange with all Paying Agents for the payment, from funds furnished by the Company or any Subsidiary Guarantor to the Trustee pursuant to this Indenture, of the principal, and premium, if any, and interest (including Additional Amounts, if any) on the Securities and of the compensation of such Paying Agents for their services as such. All Paying Agents will hold in trust, for the benefit of Holders or the Trustee, all money held by such Paying Agent for the payment of principal, or premium if any, of or interest on the Securities and shall notify the Trustee of any default by the Company in making any such payment. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee and to account for any funds disbursed by it. Upon complying with this Section 2.8 and the applicable provisions of Section 2.16, the Paying Agents shall have no further liability for the money delivered to the Trustee. (c) Any payment to be made in respect of the Securities or Subsidiary Guarantees by the Company or any Subsidiary Guarantor to or to the order of a Paying Agent shall be in satisfaction pro tanto of the obligations of the Company under the Securities. The Company shall indemnify the Holders against any failure on the part of any Paying Agent to pay any sum due in respect of the Securities and shall pay such sum to the Trustee on demand. This indemnity constitutes a separate and independent obligation from the other obligations of the Company under the Securities, shall give rise to a separate and independent cause of action, will apply irrespective of any waiver granted by the Trustee and/or any holder of Securities and shall continue in full force and effect despite any judgment, order, claim, or proof for a liquidated amount in respect of any sum due under the Indenture, the Securities or any judgment or order. SECTION 2.9. Persons Deemed Owners. Prior to and at the time of due presentment for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the person in whose name any Security is registered in the Security Register as the owner of such Security for the purpose of receiving payment of principal of, premium, if any, and (subject to Section 2.7) interest on such Security and for all other purposes whatsoever, whether or not such Security shall be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. SECTION 2.10. Cancellation. All Securities surrendered for payment, redemption, registration of transfer or exchange shall be delivered to the Trustee and, if not already cancelled, shall be promptly cancelled by it. The Company and any Subsidiary Guarantor may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company or such Subsidiary Guarantor may 34 have acquired in any manner whatsoever, and all Securities so delivered shall be promptly cancelled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section 2.10, except as expressly permitted by this Indenture. All cancelled Securities held by the Trustee shall be destroyed and certification of their destruction delivered to the Company unless by a Company Order the Company shall direct that the cancelled Securities be returned to it. The Trustee shall provide the Company a list of all Securities that have been cancelled from time to time as requested by the Company. SECTION 2.11. Computation of Interest. Interest on the Securities shall be computed on the basis of a 360-day year of twelve 30-day months. SECTION 2.12. Legal Holidays. In any case where any interest payment date, Redemption Date, date established for the payment of Defaulted Interest or Stated Maturity of any Security shall not be a Business Day, then (notwithstanding any other provision of this Indenture or of the Securities) payment of principal, premium, if any, or interest need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the interest payment date, Redemption Date, date established for the payment of Defaulted Interest or at the Stated Maturity, as the case may be, and no interest shall accrue with respect to such payment for the period from and after such interest payment date, Redemption Date, date established for the payment of Defaulted Interest or Stated Maturity, as the case may be, to the next succeeding Business Day. SECTION 2.13. CUSIP and CINS Numbers. The Company in issuing the Securities may use a "CUSIP" and/or a "CINS" number (if then generally in use), and if so, the Trustee may use the CUSIP and CINS numbers in notices of redemption or exchange as a convenience to Holders; provided, however, that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP or CINS number printed in the notice or on the Securities, and that reliance may be placed only on the other identification numbers printed on the Securities. All Exchange Securities shall bear identical CUSIP numbers. The Company shall promptly notify the Trustee in writing of any change in the CUSIP or CINS number of either series of Securities. SECTION 2.14. Book-Entry Provisions for Global Securities. (a) Each Global Security shall (i) be registered in the name of the Depositary for such Global Security or the nominee of such Depositary, (ii) be delivered to the Trustee as Securities Custodian for such Depositary and (iii) bear the Global Securities legend as set forth in Exhibit A and Exhibit B. 35 Members of, or participants in, the Depositary ("Agent Members") shall have no rights under this Indenture with respect to any Global Security held on their behalf by the Depositary, or the Trustee as its custodian, or under such Global Security, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee, from giving effect to any written certification, proxy or other authorization furnished by the Depositary or shall impair, as between the Depositary and its Agent Members, the operation of customary practices governing the exercise of the rights of a holder of any Security. (b) Transfers of a Global Security shall be limited to transfers of such Global Security in whole, but not in part, to the Depositary, its successors or their respective nominees. Interests of beneficial owners in a Global Security may be transferred in accordance with the rules and procedures of the Depositary and the provisions of Section 2.15. Beneficial owners may obtain Physical Securities in exchange for their beneficial interests in a Global Security upon request in accordance with the Depositary's and the Security Registrar's procedures (x) in the case of the Offshore Global Security, at any time on or after the 41st day following the Issue Date, and (y) in the case of the U.S. Global Security, at any time. In addition, Physical Securities shall be issued in exchange for a Global Security if (i) the Depositary notifies the Company that it is unwilling or unable to continue as Depositary for a Global Security or the Depositary ceases to be a "clearing agency" registered under the Exchange Act and, in each case, a successor depository is not appointed by the Company within 90 days of such notice or such cessation, as the case may be or (ii) an Event of Default has occurred and is continuing with respect to any Securities represented by a Global Security and Holders who hold more than 25% in aggregate principal amount of the Securities at the time outstanding represented by such Global Security advise the Trustee through the Depositary in writing that the continuation of a book-entry system through the Depositary (or a successor thereto) with respect to such Global Security is no longer required and the Security Registrar has received a request from the Depositary to issue Physical Securities. (c) Any beneficial interest in one of the Global Securities that is transferred to a person who takes delivery in the form of an interest in the other Global Security will, upon transfer, cease to be an interest in such Global Security and become an interest in the other Global Security and, accordingly, will thereafter be subject to all transfer restrictions, if any, and other procedures applicable to beneficial interests in such other Global Security for as long as it remains such an interest. (d) In connection with any transfer of a portion of the beneficial interest in a Global Security to beneficial owners pursuant to subsection (b) of this Section, the Security 36 Registrar shall reflect on its books and records the date and a decrease in the principal amount of a Global Security in an amount equal to the principal amount of the beneficial interest in a Global Security to be transferred, and the Company shall execute, and the Trustee shall authenticate and deliver, one or more Physical Securities of like tenor and amount. (e) In connection with the transfer of an entire Global Security to beneficial owners thereof pursuant to subsection (b) of this Section, such Global Security shall be deemed to be surrendered to the Trustee for cancellation, and the Company shall execute, and the Trustee shall authenticate and deliver, to each beneficial owner identified by the Depositary in exchange for its beneficial interest in such Global Security, an equal aggregate principal amount of Physical Securities of authorized denominations. (f) Any U.S. Physical Security delivered in exchange for an interest in the U.S. Global Security pursuant to subsection (b) or subsection (d) of this Section shall, except as otherwise provided by paragraph (a)(i)(x) or paragraph (e) of Section 2.15, bear the Private Placement Legend. (g) The registered holder of a Global Security may grant proxies and otherwise authorize any person, including Agent Members and persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Securities. (h) QIBs that are beneficial owners of interests in a Global Security may receive U.S. Physical Securities (which shall bear the Private Placement Legend if required by Section 2.1) in accordance with the procedures of the Depositary. In connection with the execution, authentication and delivery of such Physical Securities, the Security Registrar shall reflect on its books and records a decrease in the principal amount of the relevant Global Security equal to the principal amount of the U.S. Physical Securities, and the Company shall execute and the Trustee shall authenticate and deliver one or more U.S. Physical Securities having an equal aggregate principal amount. SECTION 2.15. Special Transfer Provisions. (a) Transfers to Non- QIB Institutional Accredited Investors. The following provisions shall apply with respect to the registration of any proposed transfer of a Transfer Restricted Security to any Institutional Accredited Investor which is not a QIB (excluding Non-U.S. persons): (i) The Security Registrar shall register the transfer of any Initial Security, whether or not such Security bears the Private Placement Legend, if (x) the requested transfer is subsequent to a date which is three years after the later of the Issue Date and the last date on which the Company or any of its Affiliates was the 37 owner of such Security or (y) the proposed transferee has delivered to the Security Registrar a certificate substantially in the form of Exhibit C hereto. (ii) If the proposed transferor is an Agent Member holding a beneficial interest in the U.S. Global Security seeking to transfer a U.S. Physical Security to another person, upon receipt by the Security Registrar of (x) the documents, if any, required by paragraph (i) and (y) instructions given in accordance with the Depositary's and the Security Registrar's procedures therefor, the Security Registrar shall reflect on its books and records the date and a decrease in the principal amount of the U.S. Global Security in an amount equal to the principal amount of the beneficial interest in the U.S. Global Security to be transferred, and the Company shall execute, and the Trustee shall authenticate and deliver, one or more U.S. Physical Certificates of like tenor and amount. (b) Transfers to QIBs. The following provisions shall apply with respect to the registration of any proposed transfer of a Transfer Restricted Security to a QIB (other than a Non-U.S. person); (i) If the Security to be transferred consists of (x) U.S. Physical Securities, the Security Registrar shall register the transfer if such transfer is being made by a proposed transferor who has checked the box provided for on the form of Initial Security stating, or has otherwise advised the Company and the Security Registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee who has signed the certification provided for on the form of Initial Security stating, or has otherwise advised the Company and the Security Registrar in writing, that it is purchasing the Initial Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account are QIBs within the meaning of Rule 144A, and that it is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as it has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the foregoing representations in order to claim the exemption from registration provided by Rule 144A or (y) an interest in the U.S. Global Security, the transfer of such interest may be effected only through the book-entry system maintained by the Depositary. (ii) If the proposed transferee is an Agent Member, and the Initial Security to be transferred consists of Physical Securities, upon receipt by the Security Registrar of instructions given in accordance with the Depositary's and the Security Registrar's procedures therefor, the Security Registrar shall reflect on its books and records the date and an increase in the principal amount of the U.S. Global Security 38 in an amount equal to the principal amount of the Physical Securities to be transferred, and the Trustee shall cancel the Physical Securities so transferred. (c) Transfers of Interests in the Offshore Global Security or Offshore Physical Securities to U.S. Persons. The following provisions shall apply with respect to any transfer of interests in the Offshore Global Security or Offshore Physical Securities to U.S. Persons: (i) prior to the removal of the Private Placement Legend from the Offshore Global Security or Offshore Physical Securities pursuant to Section 2.1 and Section 2.5, transfers by an owner of a beneficial interest in the Offshore Global Security to a transferee who takes delivery of such interest through the U.S. Global Security will be made only upon receipt by the Trustee of a written certification from the transferor in the form of Exhibit E to the effect that such transfer is being made to a person who the transferor reasonable believes is a QIB within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A; and (ii) after such removal, the Security Registrar shall register the transfer of any such Security without requiring any additional certification. (d) Transfers to Non-U.S. Persons at Any Time. The following provisions shall apply with respect to any transfer of an Initial Security to a Non-U.S. Person: (i) The Security Registrar shall register any proposed transfer to any Non-U.S. Person if the Security to be transferred is a U.S. Physical Security or an interest in the U.S. Global Security only upon receipt of a certificate substantially in the form of Exhibit D from the proposed transferor. (ii) (x) If the proposed transferor is an Agent Member holding a beneficial interest in the U.S. Global Security, upon receipt by the Security Registrar of (1) the documents required by paragraph (i) of this paragraph (d) and (2) instructions in accordance with the Depositary's and the Security Registrar's procedures, the Security Registrar shall reflect on its books and records the date and a decrease in the principal amount of the U.S. Global Security in an amount equal to the principal amount of the beneficial interest in the U.S. Global Security to be transferred, and (y) if the proposed transferee is an Agent Member, upon receipt by the Security Registrar of instructions given in accordance with the Depositary's and the Security Registrar's procedures, the Security Registrar shall reflect on its books and records the date and an increase in the principal amount of the Offshore Global Security in an amount equal to the principal amount of the U.S. Physical Securities or the U.S. Global Security, as the case may be, to be transferred, and the Trustee shall 39 cancel the Physical Security so transferred or decrease the principal amount of the U.S. Global Security, as the case may be. (e) Private Placement Legend. Upon the transfer, exchange or replacement of Securities not bearing the Private Placement Legend, the Security Registrar shall deliver Securities that do not bear the Private Placement Legend. Upon the transfer, exchange or replacement of Securities bearing the Private Placement Legend, the Security Registrar shall deliver only Securities that bear the Private Placement Legend unless either (i) the Private Placement Legend is no longer required pursuant to Section 2.1 and Section 2.5, or (ii) there is delivered to the Security Registrar an Opinion of Counsel reasonably satisfactory to the Company and the Trustee to the effect that neither such legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act. (f) General. By its acceptance of any Security, or any beneficial interest in any Global Security, bearing the Private Placement Legend, each Holder of such Security or beneficial interest acknowledges the restrictions on transfer of such Security set forth in this Indenture and in the Private Placement Legend and agrees that it will transfer such Security only as provided in this Indenture. The Security Registrar shall not register a transfer of any Security unless such transfer complies with the restrictions on transfer of such Security set forth in this Indenture. In connection with any transfer of Securities to an Institutional Accredited Investor, each such Holder or beneficial owner agrees by its acceptance of the Securities to furnish the Security Registrar or the Company such certifications, legal opinions or other information as such Person may reasonably require to confirm that such transfer is being made pursuant to an exemption from, or a transaction not subject to, the registration requirements of the Securities Act; provided that the Security Registrar shall not be required to determine (but may rely on a determination made by the Company with respect to) the sufficiency of any such certifications, legal opinions or other information. The Security Registrar shall retain copies of all letters, notices and other written communications received pursuant to Section 2.14 or this Section 2.15. The Company shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable written notice to the Security Registrar. SECTION 2.16. Money for Security Payments To be Held in Trust. If the Company shall at any time act as its own Paying Agent, it shall, on or before each due date of the principal of, premium, if any, or interest on, any of the Securities, segregate and hold in trust for the benefit of the Holders entitled thereto a sum sufficient to pay the principal, premium, if any, or interest so becoming due until such sums shall be paid to such persons 40 or otherwise disposed of as herein provided, and shall promptly notify the Trustee of its action or failure so to act. If the Company is not acting as Paying Agent, the Company shall, on the Business Day prior to each due date of the principal of, premium, if any, or interest on, any Securities, deposit with a Paying Agent a sum in immediately available funds sufficient to pay the principal, premium, if any, or interest so becoming due in the manner set forth in Section 2.8, such sum to be held in trust for the benefit of the Holders entitled to such principal, premium or interest, and (unless such Paying Agent is the Trustee) the Company shall promptly notify the Trustee of such action or any failure so to act. If the Company is not acting as Paying Agent, the Company shall cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section 2.16, that such Paying Agent shall: (a) hold all sums held by it for the payment of the principal of, premium, if any, or interest on Securities in trust for the benefit of the Holders entitled thereto until such sums shall be paid to such Holders or otherwise disposed of as herein provided; (b) give the Trustee notice of any Default by the Company or any Subsidiary Guarantors (or any other obligor upon the Securities) in the making of any payment of principal of, premium, if any, or interest on the Securities; (c) at any time during the continuance of any such Default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent; and (d) acknowledge, accept and agree to comply in all aspects with the provisions of this Indenture relating to their duties, rights and liabilities of such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. 41 Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, or interest on any Security and remaining unclaimed for two years after such principal, premium, if any, or interest has become due and payable shall be paid to the Company upon receipt of a Company Request therefor, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in The New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining shall be repaid to the Company. SECTION 2.17 Securityholder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Securityholders. If the Trustee is not the Security Registrar, the Company shall furnish to the Trustee, in writing at least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Securityholders. SECTION 2.18 Outstanding Securities. Securities outstanding at any time are all Securities authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation and those described in this Section as not outstanding. A Security does not cease to be outstanding because the Company or an Affiliate of the Company holds the Security. If a Security is replaced pursuant to Section 2.6, it ceases to be outstanding unless the Trustee and the Company receive proof satisfactory to them that the replaced Security is held by a bona fide purchaser. If the Paying Agent segregates and holds in trust, in accordance with this Indenture, on a redemption date or maturity date money sufficient to pay all principal and interest payable on that date with respect to the Securities (or portions thereof) to be redeemed or maturing, as the case may be, and the Paying Agent is not prohibited from paying such money to the Securityholders on that date pursuant to the terms of this Indenture, then on and after that date such Securities (or portions thereof) cease to be outstanding and interest on them ceases to accrue. 42 ARTICLE III Redemption SECTION 3.1. Notices to Trustee. If the Company elects to redeem Securities pursuant to paragraph 5 or paragraph 6 of the Securities, it shall notify the Trustee in writing of the redemption date and the principal amount of Securities to be redeemed. The Company shall give each notice to the Trustee provided for in this Section at least 60 days before the redemption date unless the Trustee consents to a shorter period. Such notice shall be accompanied by an Officers' Certificate from the Company to the effect that such redemption will comply with the conditions herein. If fewer than all the Securities are to be redeemed, the record date relating to such redemption shall be selected by the Company and set forth in the related notice given to the Trustee, which record date shall be not less than 15 days after the date of such notice. SECTION 3.2. Selection of Securities To Be Redeemed. If fewer than all the Securities are to be redeemed, the Trustee shall select the Securities to be redeemed pro rata or by lot or by a method that complies with applicable legal and securities exchange requirements, if any, and that the Trustee considers fair and appropriate and in accordance with methods generally used at the time of selection by fiduciaries in similar circumstances. The Trustee shall make the selection from outstanding Securities not previously called for redemption. The Trustee may select for redemption portions of the principal of Securities that have denominations larger than $1,000. Securities and portions of them the Trustee selects shall be in amounts of $1,000 or a whole multiple of $1,000. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. The Trustee shall notify the Company promptly of the Securities or portions of Securities to be redeemed. SECTION 3.3. Notice of Redemption. At least 30 days but not more than 60 days before a date for redemption of Securities, the Company shall mail a notice of redemption by first-class mail to each Holder of Securities to be redeemed. A copy of such notice shall be delivered to the Trustee. The notice shall identify the Securities to be redeemed and shall state: (1) the redemption date; (2) the redemption price; (3) the name and address of the Paying Agent; 43 (4) that Securities called for redemption must be surrendered to the Paying Agent to collect the redemption price; (5) if fewer than all the outstanding Securities are to be redeemed, the identification and principal amounts of the particular Securities to be redeemed; (6) that, unless the Company defaults in making such redemption payment or the Paying Agent is prohibited from making such payment pursuant to the terms of this Indenture, interest on Securities (or portion thereof) called for redemption ceases to accrue on and after the redemption date; (7) the CUSIP number, if any, printed on the Securities being redeemed; (8) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Securities; and (9) the paragraph of the Securities pursuant to which the Securities are being redeemed. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at the Company's expense. In such event, the Company shall provide the Trustee with the information required by this Section. SECTION 3.4. Effect of Notice of Redemption. Once notice of redemption is mailed, Securities called for redemption become due and payable on the redemption date and at the redemption price stated in the notice. Upon surrender to the Paying Agent, such Securities shall be paid at the redemption price stated in the notice, plus accrued interest to the redemption date; provided that if the redemption date is after a regular record date and on or prior to the interest payment date, the accrued interest shall be payable to the Securityholder of the redeemed Securities registered on the relevant record date. Failure to give notice or any defect in the notice to any Holder shall not affect the validity of the notice to any other Holder. SECTION 3.5. Deposit of Redemption Price. By at least 10:00 a.m. (New York City time) on the Business Day prior to the date on which any principal of or interest on any Security is due and payable, the Company shall deposit with the Paying Agent (or, if the Company or a Subsidiary is the Paying Agent, shall segregate and hold in trust) money sufficient to pay the redemption price of and accrued interest on all Securities to be redeemed on that date other than Securities or portions of Securities called for redemption which are owned by the Company or a Subsidiary and have been delivered by the Company or such Subsidiary to the Trustee for cancellation. 44 If the Company complies with the preceding paragraph, then, unless the Company defaults in the payment of such redemption price, interest on the Securities to be redeemed will cease to accrue on and after the applicable redemption date, whether or not such Securities are presented for payment. SECTION 3.6. Securities Redeemed in Part. Upon surrender of a Security that is redeemed in part, the Company shall execute and the Trustee shall authenticate for the Holder (at the Company's expense) a new Security equal in a principal amount to the unredeemed portion of the Security surrendered. ARTICLE IV Covenants SECTION 4.1. Payment of Securities. The Company shall promptly pay the principal of and interest and any Additional Amounts payable in respect thereof on the Securities on the dates and in the manner provided in the Securities and in this Indenture. Principal and interest shall be considered paid on the date due if on such date the Trustee or the Paying Agent holds in accordance with this Indenture money sufficient to pay all principal, premium, if any, and interest then due (and any Additional Amounts) and the Trustee or the Paying Agent, as the case may be, is not prohibited from paying such money to the Securityholders on that date pursuant to the terms of this Indenture. The Company shall pay interest on overdue principal at the rate specified therefor in the Securities, and it shall pay interest on overdue installments of interest at the same rate to the extent lawful. Notwithstanding anything to the contrary contained in this Indenture, the Company may, to the extent it is required to do so by law, deduct or withhold income or other similar taxes imposed by the United States of America from principal or interest payments hereunder. SECTION 4.2. SEC Reports. (a) At its own expense, subject to Section 4.2(b), the Company shall supply without cost to each Holder of the Securities and file with the Trustee within fifteen days after the Company is required to file the same with the Commission, copies of the annual reports and quarterly reports and of the information, documents and other reports which the Company may be required to file with the Commission pursuant to Section 13(a), 13(c) or 15(d) of the Exchange Act. The Company shall also comply with the other provisions of Section 314(a) of the Trust Indenture Act. 45 (b) Whether or not the Company has a class of securities registered under the Exchange Act, following any Exchange Offer or the effectiveness of any Shelf Registration Statement, the Company shall furnish without cost to each Holder of Securities and file with the Commission (whether or not the Company is a public reporting company at the time), the Trustee and the Initial Purchasers: (i) within 140 days after the end of each fiscal year of the Company, annual reports on Form 20-F (or any successor form) containing the information required to be contained therein (or required in such successor form); (ii) within 60 days after the end of each of the first three fiscal quarters of each fiscal year, reports on Form 6-K (or any successor form) containing substantially the same information required to be contained therein; and (iii) promptly from time to time after the occurrence of an event required to be therein reported, such other reports on Form 6-K (or any successor form) containing substantially the same information required to be contained in Form 8-K (or required in any successor form). Each of the reports shall be prepared in accordance with U.S. GAAP consistently applied and shall be prepared in accordance with the applicable rules and regulations of the Commission. Prior to the effectiveness of the Exchange Offer Registration Statement (as defined in the Registration Rights Agreement) with the Commission, the Company shall file with the Trustee and provide the Initial Purchasers all of the information that would have been required to have been filed with the Commission pursuant to clauses (i), (ii) and (iii) of this Section 4.2(b). Each report pursuant to this Section 4.2(b) shall be prepared in accordance with U.S. GAAP consistently applied, shall include the amounts of EBITDA and adjusted EBITDA for all periods covered by such report and shall be prepared in accordance with the applicable rules and regulations of the Commission. The Company shall use its reasonable best efforts to schedule, disseminate in a customary manner for public companies information concerning, and conduct a conference call for Holders to discuss with appropriate senior officers of the Company the results of operating and financial conditions of the Company within 30 days of filing any reports described in clause (i) and (ii) with the Commission. (c) At any time when the Company is not subject to Section 13 or 15(d) of the Security Exchange Act of 1934, upon the request of a Holder of a Security, the Company shall promptly furnish or cause to be furnished such information as is specified pursuant to Rule 144A(d)(4) under the Securities Act (or any successor provision thereto) to such Holder or to a prospective purchaser of such Security designated by such Holder, as the case may be, in order to permit compliance by such Holder with Rule 144A under the Securities Act. SECTION 4.3. Limitation on Indebtedness. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, Incur any Indebtedness, and the Company shall not issue any Disqualified Stock; provided, however, that the Company and any Restricted Subsidiary may Incur Indebtedness, and the Company may issue shares of Disqualified Stock, if on the date thereof the Indebtedness to Annualized Operating Cash Flow Ratio of the Company would have been less than or equal to (i) 6.5 to 46 1.0 in the case of Indebtedness Incurred prior to November 26, 1999 and (ii) 6.0 to 1.0 in the case of Indebtedness Incurred on and after November 26, 1999, in each case determined on a pro forma basis. (b) Notwithstanding Section 4.3(a), the Company and its Restricted Subsidiaries may Incur the following Indebtedness: (i) Indebtedness of the Company or any Restricted Subsidiary under any Senior Credit Facility or the Abril Credit Facility in an aggregate principal amount at any one time outstanding not to exceed $50.0 million; (ii) Indebtedness of the Company to any Restricted Subsidiary and Indebtedness of a Restricted Subsidiary to the Company or another Restricted Subsidiary; provided, however, that any subsequent issuance or transfer of any Capital Stock which results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any subsequent transfer of such Indebtedness (other than to another Restricted Subsidiary) will be deemed, in each case, to constitute the Incurrence of such Indebtedness by the issuer thereof; (iii) Indebtedness represented by the Securities (including the Subsidiary Guarantees); (iv) Indebtedness outstanding on the Issue Date (other than Indebtedness described in clause (i), (ii) or (iii) of this Section 4.3(b); (v) Refinancing Indebtedness in respect of Indebtedness of the Company or any Restricted Subsidiary Incurred pursuant to clauses (i) through (iv) above, this clause (v), or clause (xiv) below in a principal amount (or, for original issue discount Indebtedness, the accreted principal thereof) so refinanced; (vi) Hedging Obligations consisting of Interest Rate Agreements and Currency Agreements related to Indebtedness otherwise permitted to be Incurred pursuant to this Indenture or otherwise entered into in the ordinary course of business, provided that in each case the notional amount shall not exceed the underlying obligations or assets; (vii) Guarantees by the Company of Indebtedness or other obligations of any of its Restricted Subsidiaries so long as the Incurrence of such Indebtedness or obligations by such Restricted Subsidiary is permitted under the terms of the Indenture; (viii) Indebtedness of Galaxy Brasil in an aggregate principal amount at any one time outstanding not to exceed the lesser of (A) an amount equal to the sum of (I) the product of (1) $480.0 multiplied by (2) the number of Galaxy Brasil Subscribers at the date of Incurrence plus (II) $20 million and (B) $130.0 million; (ix) Indebtedness of any Special Restricted Subsidiary if, after giving effect to such Incurrence, the ratio of (A) the aggregate principal amount of all Indebtedness of such Special Restricted Subsidiary outstanding as of the date of determination to (B) the total shareholders' equity (excluding any retained earnings or accumulated deficit) of such Special Restricted Subsidiary as of the date of determination is less than or equal to 2:1; (x) Indebtedness of the Company represented by Subordinated Shareholder Loans in an aggregate principal amount at any one time outstanding not to exceed $100.0 million; (xi) Indebtedness consisting of performance and other similar bonds and reimbursement obligations Incurred in the ordinary course of business securing the performance of contractual, franchise or license obligations of the Company or a Restricted Subsidiary, or in respect of a letter of credit obtained to secure such performance; (xii) Indebtedness arising from agreements providing for indemnification, 47 adjustment of purchase price or similar obligations, or from Guarantees or letters of credit, surety bonds or performance bonds securing any obligations of the Company or any Restricted Subsidiary pursuant to such agreements, Incurred in connection with any Asset Disposition; (xiii) Indebtedness of the Company represented by the SurFin Guarantee in an aggregate principal amount at any one time outstanding not to exceed $25.0 million; (xiv) Indebtedness of TVA Sistema under the EximBank Credit Agreement in an aggregate principal amount at any one time outstanding not to exceed $30.0 million; (xv) Indebtedness of the Company represented by the Put Promissory Notes; (xvi) Indebtedness of Galaxy Brasil in an aggregate principal amount at any one time outstanding not to exceed $25.0 million; and (xvii) other Indebtedness in an aggregate principal amount which, together with all other Indebtedness of the Company then outstanding (other than Indebtedness permitted by Section 4.3(a) or Section 4.3(b)(i) through (xvi)) does not exceed $50.0 million. SECTION 4.4. Limitation on Restricted Payments. (a) The Company shall not, and shall not permit any Restricted Subsidiary, directly or indirectly, to (i) declare or pay any dividend or make any distribution on or in respect of its Capital Stock (including any payment in connection with any merger or consolidation involving the Company) except (1) dividends or distributions payable in its Capital Stock (other than Disqualified Stock) and (2) dividends or distributions payable solely to the Company or another Restricted Subsidiary (and, if such Restricted Subsidiary is not a Wholly-Owned Subsidiary, to its other stockholders on a pro rata basis), (ii) purchase, redeem, retire or otherwise acquire for value any Capital Stock (including options or warrants to acquire such Capital Stock) of the Company or any Restricted Subsidiary, (iii) purchase, repurchase, redeem, prepay interest, defease or otherwise acquire or retire for value, prior to scheduled maturity, scheduled repayment, scheduled interest payment date or scheduled sinking fund payment, any Subordinated Obligations, or make any cash interest payment on Subordinated Shareholder Loans or (iv) make any Investment (other than a Permitted Investment) in any Person (any such dividend, distribution, purchase, redemption, repurchase, defeasance, other acquisition, retirement, interest payment or Investment being herein referred to as a "Restricted Payment"), if at the time the Company or such Restricted Subsidiary makes such Restricted Payment: (x) after giving effect to such Restricted Payment, a Default shall have occurred and be continuing (or would result therefrom); or (y) the Company could not incur at least an additional $1.00 of Indebtedness under Section 4.3(a); or (z) the aggregate amount of such Restricted Payment and all other Restricted Payments declared (the amount so expended, if other than in cash, to be determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a resolution of the Board of Directors) or made subsequent to the Issue Date would exceed the sum of: (A) an amount equal to the Company's Cumulative Operating Cash Flow less 1.6 times the Company's Cumulative Consolidated Interest Expense; plus (B) the aggregate Net Cash Proceeds received by the Company from the issue or sale of its Capital Stock (other than Disqualified Stock) or other cash contributions to its capital subsequent to the Issue Date (other than an issuance or sale to 48 a Subsidiary of the Company or an employee stock ownership plan or other trust established by the Company or any of its Subsidiaries); plus (C) the amount by which Indebtedness of the Company is reduced on the Company's balance sheet upon conversion or exchange (other than by a Restricted Subsidiary of the Company) subsequent to the Issue Date of any Indebtedness of the Company convertible or exchangeable for Capital Stock (other than Disqualified Stock) of the Company (less the amount of any cash or other property distributed by the Company upon such conversion or exchange); and plus (D) in the case of the disposition or repayment of any Investment constituting a Restricted Payment other than an Investment made pursuant to Section 4.4(b)(v) made after the Issue Date, an amount equal to the lesser of the return of capital with respect to such Investment and the cost of such Investment, in either case, less the cost of the disposition of such Investment. For purposes of determining the amount expended for Restricted Payments, cash distributed shall be valued at the face amount thereof and property or services distributed or transferred other than cash shall be valued at its Fair Market Value. (b) So long as there is no Default or Event of Default continuing, the provisions of Section 4.4(a) shall not prohibit: (i) any purchase or redemption of Capital Stock or Subordinated Obligations of the Company or Capital Stock of any Restricted Subsidiary made by exchange for, or out of the Net Cash Proceeds from a substantially concurrent sale (other than to a Restricted Subsidiary of the Company) of, Capital Stock of the Company (other than Disqualified Stock) or any purchase of Capital Stock made with Put Promissory Notes; provided, however, that (A) such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments and (B) the Net Cash Proceeds from such sale shall be excluded from the calculation of amounts under clause (B) of Section 4.4(a); (ii) any purchase or redemption of Subordinated Obligations of the Company made by exchange for, or out of the proceeds from a substantially concurrent sale of, Subordinated Obligations of the Company; provided, however, that (A) the final maturity date of such Subordinated Obligations, determined as of the date of Incurrence, occurs not earlier than the Stated Maturity of the Securities and (B) the Average Life of such Subordinated Obligations is equal to or greater than the Average Life of the Subordinated Obligations being purchased or redeemed; and provided, further, that such purchase or redemption shall be excluded in the calculation of the amount of Restricted Payments; (iii) dividends paid within 60 days after the date of declaration if at such date of declaration such dividend would have complied with this provision; provided, however, that such dividends shall be included in the calculation of the amount of Restricted Payments; (iv) Investments in Galaxy Latin America or its Affiliates made subsequent to the Issue Date in an aggregate amount at any time outstanding not to exceed $15.0 million; (v) Investments in a Permitted Business financed with the net proceeds of the offering of the Securities pursuant to the Offering Memorandum; and (vi) Minority Investments made subsequent to the Issue Date constituting a Restricted Payment by the Company or any Restricted Subsidiary in any 49 Person that operates principally, or has been formed to operate principally, a Permitted Business in an aggregate amount at any time outstanding not to exceed $45.0 million. SECTION 4.5. Limitation on Restrictions on Distributions from Restricted Subsidiaries. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, create or permit to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any such Restricted Subsidiary to (i) pay dividends or make any other distributions on its Capital Stock or pay any Indebtedness or other obligation owed to the Company or another Restricted Subsidiary of the Company, (ii) make any Investment in the Company or another Restricted Subsidiary of the Company or (iii) transfer any of its property or assets to the Company or another Restricted Subsidiary of the Company; except: (A) any encumbrance or restriction pursuant to an agreement in effect on the Issue Date; (B) any encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement relating to any Indebtedness Incurred by a Restricted Subsidiary prior to the date on which such Restricted Subsidiary was acquired by the Company (other than Indebtedness Incurred as consideration in, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of related transactions pursuant to which such Restricted Subsidiary was acquired by the Company) and outstanding on such date; (C) any encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement effecting a refinancing of Indebtedness Incurred pursuant to an agreement referred to in clauses (A) or (B) or this clause (C) or contained in any amendment to an agreement referred to in clauses (A) or (B) or this clause (C); provided, however, that the encumbrances and restrictions contained in any such refinancing agreement or amendment are no less favorable to the Holders of the Securities than encumbrances and restrictions contained in such agreements; (D) any such customary encumbrance or restriction contained in a security document creating a Lien permitted under this Indenture to the extent relating to the property or asset subject to such Lien following a default in respect of the applicable obligation; (E) in the case of clause (iii), any encumbrance or restriction (1) that restricts in a customary manner the subletting, assignment or transfer of any property or asset that is subject to a lease, license, or similar contract, or (2) contained in security agreements securing Indebtedness of a Restricted Subsidiary to the extent such encumbrance or restrictions restrict the transfer of the property subject to such security agreements; (F) any restriction with respect to a Restricted Subsidiary imposed pursuant to an agreement in effect for the sale or disposition thereof and the duration of which does not exceed 60 days; or (G) any encumbrance or restriction contained in an agreement pursuant to which Galaxy Brasil Incurs Indebtedness in compliance with the terms of this Indenture, provided, however, that the terms of such encumbrance or restriction are no more restrictive than those contained in the Equipment Agreements as they exist on the Issue Date. SECTION 4.6. Limitation on Sales of Assets and Subsidiary Stock. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, make any Asset 50 Disposition, unless (i) the Company or such Restricted Subsidiary receives consideration (including by way of relief from, or by any other Person assuming sole responsibility for, any liabilities, contingent or otherwise) at the time of such Asset Disposition at least equal to the Fair Market Value of the shares and assets subject to such Asset Disposition, (ii)(A) at least 75.0% of the consideration thereof received by the Company or such Restricted Subsidiary is in the form of cash or Cash Equivalents or (B) at least 75.0% of the consideration thereof received by the Company or such Restricted Subsidiary consists of assets used in connection with a Permitted Business; and (iii) an amount equal to 100.0% of the Net Available Cash from such Asset Disposition is applied by the Company (or such Restricted Subsidiary, as the case may be) (A) first, to the extent the Company elects (or is required by the terms of any senior Indebtedness of the Company or Indebtedness of a Restricted Subsidiary), to prepay, repay or purchase such senior Indebtedness, or such Indebtedness of a Restricted Subsidiary (in each case other than Indebtedness owed to the Company or an Affiliate of the Company) within 365 days from the later of the date of such Asset Disposition or the receipt of such Net Available Cash; (B) second, to the extent of the balance of Net Available Cash after application in accordance with clause (A), to the extent the Company or such Restricted Subsidiary elects, to reinvest in Additional Assets (including by means of an Investment in Additional Assets by a Restricted Subsidiary with Net Available Cash received by the Company or another Restricted Subsidiary) within 365 days from the later of the date of such Asset Disposition or the receipt of such Net Available Cash; (C) third, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A) and (B) ("Excess Proceeds"), to make an offer ("Asset Sale Offer") to purchase Securities pursuant and subject to the conditions of this Indenture to the Holders at a purchase price of 100.0% of the principal amount thereof plus accrued and unpaid interest to the purchase date, and (D) fourth, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A), (B) and (C), for general corporate purposes. Notwithstanding the foregoing provisions, the Company and its Restricted Subsidiaries shall not be required to apply any Net Available Cash in accordance herewith except to the extent that the aggregate Net Available Cash from all Asset Dispositions which are not applied in accordance with this covenant at any time exceed $10 million. Upon completion of any Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero. For the purposes of this covenant, the following will be deemed to be cash or Cash Equivalents: (i) the assumption of Indebtedness (other than Disqualified Stock) of the Company or any Restricted Subsidiary and the release of the Company or such Restricted Subsidiary from all liability on such Indebtedness in connection with such Asset Disposition and (ii) securities received by the Company or any Restricted Subsidiary of the Company from the transferee that are promptly converted by the Company or such Restricted Subsidiary into cash at its face value. 51 (b) In the event of an Asset Disposition that requires the purchase of Securities pursuant to Section 4.6(a)(iii)(C), the Company will be required to purchase Securities tendered pursuant to an offer by the Company for the Securities at a purchase price of 100.0% of their principal amount plus accrued interest to the purchase date in accordance with the procedures (including prorating in the event of oversubscription) set forth in Section 4.6(c). If the aggregate purchase price of the Securities tendered pursuant to the offer is less than the Net Available Cash allotted to the purchase of the Securities, the Company will apply the remaining Net Available Cash in accordance with Section 4.6(a)(iii)(D). (c) (1) Promptly, and in any event within 10 days after the Company is required to make an Asset Sale Offer, the Company shall deliver to the Trustee and send, by first-class mail to each Holder, a written notice stating that the Holder may elect to have his Securities purchased by the Company either in whole or in part (subject to prorating as hereinafter described in the event the Asset Sale Offer is oversubscribed) in integral multiples of $1,000 of principal amount, at the applicable purchase price. The notice shall specify a purchase date not less than 30 days nor more than 60 days after the date of such notice (the "Purchase Date"). (2) Not later than the date upon which such written notice of an Asset Sale Offer is delivered to the Trustee and the Holders, the Company shall deliver to the Trustee an Officers' Certificate setting forth (i) the amount of the Asset Sale Offer (the "Offer Amount"), (ii) the allocation of the Net Available Cash from the Asset Dispositions as a result of which such Asset Sale Offer is being made and (iii) the compliance of such allocation with the provisions of Section 4.6(a). Upon the expiration of the period (the "Offer Period") for which the Asset Sale Offer remains open, the Company shall deliver to the Trustee for cancellation the Securities or portions thereof which have been properly tendered to and are to be accepted by the Company. The Trustee shall, on the Purchase Date, mail or deliver payment to each tendering Holder in the amount of the purchase price of the Securities tendered by such Holder to the extent such funds are available to the Trustee. (3) Holders electing to have a Security purchased will be required to surrender the Security, with an appropriate form duly completed, to the Company at the address specified in the notice prior to the expiration of the Offer Period. Each Holder will be entitled to withdraw its election if the Trustee or the Company receives, not later than one Business Day prior to the expiration of the Offer Period, a telegram, telex, facsimile transmission or letter from such Holder setting forth the name of such Holder, the principal amount of the Security or Securities which were delivered for purchase by such Holder and a statement that such Holder is withdrawing his election to have such Security or Securities purchased. If at the expiration of the Offer Period the aggregate principal amount of 52 Securities surrendered by Holders exceeds the Offer Amount, the Company shall select the Securities to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Securities in denominations of $1,000, or integral multiples thereof, shall be purchased). Holders whose Securities are purchased only in part will be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered. (d) The Company will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Securities pursuant to this Section 4.6. To the extent that the provisions of any securities laws or regulations conflict with provisions of this Section 4.6, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under this Indenture by virtue thereof. SECTION 4.7. Limitation on Affiliate Transactions. (a) The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, enter into or conduct any transaction (including the purchase, sale, lease or exchange of any property, or the rendering of any service) with any Affiliate (an "Affiliate Transaction") unless: (i) the terms of such Affiliate Transaction are no less favorable to the Company or such Restricted Subsidiary, as the case may be, than those that could be obtained at the time of such transaction in arm's-length dealings with a Person who is not such an Affiliate; (ii) in the event such Affiliate Transaction involves an aggregate amount in excess of $2.0 million, the terms of such transaction have been approved by a majority of the members of the Board of Directors and by a majority of the members of such Board having no personal stake in such Affiliate Transaction, if any; and (iii) in the event such Affiliate Transaction involves an aggregate amount in excess of $10.0 million, the Company has received a written opinion from an independent investment banking firm of nationally recognized standing in the United States that such Affiliate Transaction is fair to the Company or such Restricted Subsidiary, as the case may be, from a financial point of view; provided that, in the case of an Affiliate Transaction described in clause (ii) or (iii) of this Section 4.7(a), the Company shall promptly after consummation thereof deliver an Officers' Certificate to the Trustee certifying as to the compliance by the Company with clauses (i) and (ii) or (i) and (iii) as the case may be, of this Section 4.7(a); and provided, further, that in the case of an Affiliate Transaction with Galaxy Latin America, the Company or such Restricted Subsidiary shall only be required to obtain the opinion described in clause (iii) of this Section 4.7(a) if such Affiliate Transaction involves an aggregate amount in excess of $20.0 million. (b) The provisions of Section 4.7(a) will not apply to: (i) transactions with or among the Company and/or any of the Restricted Subsidiaries; provided in any such case, no officer, director or beneficial holder of 5% or more of any class of Capital Stock of the 53 Company shall beneficially own any Capital Stock of any such Restricted Subsidiary, (ii) transactions between the Company and any Restricted Subsidiary that are solely for the benefit of the Company or a Subsidiary Guarantor, (iii) transactions between or among Unrestricted Subsidiaries, (iv) any dividend permitted by Section 4.4, (v) directors' fees, indemnification and similar arrangements, officers' indemnification, employee stock option or employee benefit plans, employee salaries and bonuses or legal fees paid or created in the ordinary course of business and (vi) transactions and arrangements pursuant to agreements in existence on the Issue Date, including, without limitation, the exercise of registration rights pursuant to the Stockholders' Agreement. In addition, Section 4.7(a) shall not apply to: (x) Indebtedness Incurred by the Company from Abril under the Abril Credit Facility or from shareholders pursuant to Subordinated Shareholder Loans and (y) any transaction entered into in connection with the reorganization of the Company's ownership structure pursuant to which certain of the Company's stockholders have agreed to exchange all of their respective shares in the Company for a corresponding number of shares of a newly-formed Brazilian corporation which would become an 80% stockholder of the Company and pursuant to which Hearst/ABC Video Services II would remain a 20% stockholder of the Company, which would be reorganized as a Brazilian limitada. SECTION 4.8. Change of Control. (a) Upon the occurrence of a Change of Control, each Holder shall have the right to require that the Company repurchase all or any part of such Holder's Securities at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of Holders of record on the relevant record date to receive interest on the relevant interest payment date), such repurchase to be made in accordance with Section 4.8(b). (b) Within 30 days following any Change of Control, unless the Company has mailed a redemption notice with respect to all the outstanding Securities in connection with such Change of Control, the Company shall mail a notice to each Holder with a copy to the Trustee stating: (1) that a Change of Control has occurred and that such Holder has the right to require the Company to purchase such Holder's Securities at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of Holders of record on a record date to receive interest on the relevant interest payment date); (2) the repurchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed); and (3) the procedures determined by the Company, consistent with this Section, that a Holder must follow in order to have its Securities purchased. 54 (c) Holders electing to have a Security purchased will be required to surrender the Security, with an appropriate form duly completed, to the Company at the address specified in the notice at least three Business Days prior to the purchase date. Each Holder will be entitled to withdraw its election if the Company receives, not later than one Business Day prior to the purchase date, a telegram, telex, facsimile transmission or letter from such Holder setting forth the name of such Holder, the principal amount of the Security or Securities which were delivered for purchase by such Holder and a statement that such Holder is withdrawing his election to have such Security or Securities purchased. (d) On the purchase date, all Securities purchased by the Company under this Section shall be delivered to the Trustee for cancellation, and the Company shall pay the purchase price plus accrued and unpaid interest, if any, to the Holders entitled thereto. (e) The Company shall comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Securities pursuant to this Section 4.8. To the extent that the provisions of any securities laws or regulations conflict with provisions of this Section 4.8, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Indenture by virtue thereof. SECTION 4.9. Limitation on Liens. The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, create or permit to exist any Lien, other than Permitted Liens, on any of its property or assets (including Capital Stock of any Restricted Subsidiary), whether owned on the Issue Date or thereafter acquired, securing any obligation, unless the obligations due under this Indenture and the Securities and the Subsidiary Guarantees are secured, on an equal and ratable basis (or on a senior basis, in the case of Indebtedness subordinated in right of payment to the Securities or the Subsidiary Guarantees), with the obligations so secured. SECTION 4.10. Limitation on Sales of Capital Stock of Restricted Subsidiaries. The Company will not (i) sell, and will not permit any Restricted Subsidiary of the Company to issue, sell or transfer, any Capital Stock of a Restricted Subsidiary or (ii) permit any Person (other than the Company or a Wholly-Owned Restricted Subsidiary) to acquire Capital Stock of any Restricted Subsidiary, if in either case as the result thereof such Restricted Subsidiary would no longer be a Restricted Subsidiary of the Company, except for (A) Capital Stock issued, sold or transferred to the Company or a Wholly-Owned Restricted Subsidiary and (B) Capital Stock issued by a Person prior to the time (1) such Person becomes a Restricted Subsidiary, (2) such Person merges with or into a Restricted Subsidiary or (3) a Restricted Subsidiary merges with or into such Person, provided, that such Capital Stock was not issued by such Person in anticipation of the type of transaction contemplated 55 by subclause (1), (2) or (3). This Section 4.10 shall not prohibit the Company or any of its Restricted Subsidiaries from selling or otherwise disposing of all of the Capital Stock of any Restricted Subsidiary; provided that any such sale constitutes an Asset Disposition for purposes of, and the Net Cash Proceeds from any such sale are applied in accordance with, Section 4.6. SECTION 4.11. Limitation on Designations of Special Restricted Subsidiaries. The Company may designate any Restricted Subsidiary as a "Special Restricted Subsidiary" under this Indenture (a "Special Designation") if such Special Restricted Subsidiary engages in, or will engage principally in, a Permitted Business in a Newly-Licensed Service Area. Such Special Designation may be revoked at any time if all Indebtedness of such Special Restricted Subsidiary that is outstanding immediately following such revocation would, if Incurred at such time, have been permitted to be Incurred for all purposes under this Indenture. All Special Designations and revocations thereof must be evidenced by Board Resolutions of the Company delivered to the Trustee certifying compliance with the foregoing provisions. In any event, a Special Restricted Subsidiary will remain a Restricted Subsidiary for all purposes of this Indenture, except that a Special Restricted Subsidiary shall be treated as an Unrestricted Subsidiary for purposes of calculating Operating Cash Flow, Consolidated Income Tax Expense, Consolidated Interest Expense and Consolidated Net Income. SECTION 4.12. Limitation on Designations of Unrestricted Subsidiaries. (a) The Board of Directors may designate any Subsidiary of the Company (other than a Subsidiary Guarantor, but including any newly acquired or newly formed Subsidiary) as an "Unrestricted Subsidiary" under this Indenture (a "Designation") only if: (i) no Default shall have occurred and be continuing at the time of or after giving effect to such Designation; (ii) the Company would be permitted under this Indenture to make an Investment under all applicable provisions of Section 4.4 at the time of Designation (assuming the effectiveness of such Designation) in an amount (the "Designation Amount") equal to the Fair Market Value of such Subsidiary on such date; and (iii) such Subsidiary and its Subsidiaries own no Capital Stock or Indebtedness of, and hold no Lien on any property of, the Company or any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary so designated. (b) In addition, the Company may revoke any Designation of a Subsidiary as an Unrestricted Subsidiary (a "Revocation") if: 56 (i) no Default shall have occurred and be continuing at the time of and after giving effect to such Revocation; and (ii) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding immediately following such Revocation would, if incurred at such time, have been permitted to be incurred for all purposes of this Indenture. All Designations and Revocations shall be evidenced by Board Resolutions of the Company delivered to the Trustee certifying compliance with the foregoing provisions. SECTION 4.13. Limitations on Investments in Unrestricted Subsidiaries. The Company will not make, and will not permit its Restricted Subsidiaries to make, any Investment in Unrestricted Subsidiaries if, at the time thereof, such Investment, together with the aggregate amount of all Investments previously made (other than Permitted Investments), would exceed the amount of Restricted Payments then permitted to be made pursuant to Section 4.4. Any Investments in Unrestricted Subsidiaries permitted to be made pursuant to this covenant (i) will be treated as a Restricted Payment in calculating the amount of Restricted Payments made by the Company and (ii) may be made in cash or property. SECTION 4.14. Business of the Company; Restrictions on Transfers of Existing Business. The Company will not, and will not permit any of the Restricted Subsidiaries to, be principally engaged in any business or activity other than a Permitted Business. In addition, the Company and the Restricted Subsidiaries will not be permitted to, directly or indirectly, transfer to any Unrestricted Subsidiary (i) any of the licenses, permits or authorizations used in the Permitted Business of the Company and the Restricted Subsidiaries on the Issue Date or (ii) any material portion of the "property and equipment" (as such term is used in the Company's consolidated financial statements) of the Company or any Restricted Subsidiary used in the licensed service areas of the Company and the Restricted Subsidiaries as they exist on the Issue Date; provided that the Company and the Restricted Subsidiaries may make Asset Dispositions in compliance with Section 4.6 and pledge property and assets to the extent permitted by Section 4.9. SECTION 4.15. Payment of Additional Amounts. (a) All payments made by the Company or any Subsidiary Guarantor under or with respect to the Securities or any Guarantee shall be made free and clear of and without withholding or deduction for or on account of any present or future Taxes imposed or levied by or on behalf of any Taxing Authority of the Federative Republic of Brazil or of Japan, unless the Company or such Subsidiary Guarantor, as the case may be, is required to withhold or deduct any amount for or on account of Taxes by law or by the interpretation or administration thereof. If the Company or any Subsidiary Guarantor is required to withhold or deduct any amount for or on account of Taxes imposed by a Taxing Authority of the Federative Republic of Brazil or 57 of Japan from any payment made under or with respect to the Securities or any Guarantee of such Subsidiary Guarantor, the Company or such Subsidiary Guarantor, as the case may be, shall pay such additional amounts ("Additional Amounts") as may be necessary so that the net amount received by each Holder of Securities (including Additional Amounts) after such withholding or deduction shall not be less than the amount the Holder would have received if such Taxes had not been withheld or deducted. No such Additional Amounts shall be payable with respect to a payment made to a Holder of Securities (an "Excluded Holder") with respect to any Tax which would not have been imposed, payable or due: (i) but for the fact that the Holder (or where the Holder is an estate, nominee, trust, partnership or corporation, any fiduciary, settlor, beneficiary, member or shareholder) is or was a domiciliary, national or resident of, engages in or engaged in business in, maintains or maintained a permanent establishment or physically present in, Brazil or Japan or otherwise has some present or former connection with Brazil or Japan; (ii) but for the failure to comply with a request by the Company or any Subsidiary Guarantor to satisfy any certification, identification or other reporting requirements, whether imposed by statute, treaty, regulation or administrative practices, concerning nationality, residence or connection with Brazil or Japan; or (iii) if, where presentation is required, the presentation for payment had occurred within 30 days after the date such payment was due and payable or was provided for, whichever is later. Notwithstanding the preceding sentence, the limitations on the Company's obligation to pay Additional Amounts set forth in clause (ii) of the preceding sentence shall not apply if a certification, identification, or other reporting requirement described in clause (ii) would be materially more onerous, in form, in procedure or in the substance of information disclosed, to such Holders or beneficial owners (taking into account any relevant differences between U.S. and Brazilian law, regulation or administrative practice) than comparable information or other reporting requirements imposed under U.S. tax law, regulation (including proposed regulations) and administrative practice or other reporting requirements imposed as of the date of the Offering Memorandum under U.S. tax law, regulation (including proposed regulations) and administration practice (such as IRS Forms 1001, W-8 and W-9). The obligation to pay Additional Amounts in respect of Taxes shall not apply to (a) any estate, inheritance, gift, sales, transfer, personal property or any similar Tax or (b) any Tax which is payable otherwise than by deduction or withholding from payments made under or with respect to the Securities. The Company or the Subsidiary Guarantor, as applicable, shall (i) make such withholding or deduction, (ii) remit the full amount deducted or withheld to the relevant authority (the "Taxing Authority") in accordance with applicable law, (iii) use their best efforts to obtain certified copies of tax receipts evidencing the payment of any Taxes so deducted or withheld from each Taxing Authority imposing such Taxes and (iv) in the event that such certified copies of tax receipts are obtained, promptly send such certified copies of tax receipts to the Paying Agent for prompt forwarding to any holder that has made a written demand therefor of the Paying Agent. The Company and the Subsidiary Guarantor, as applicable, shall use their best efforts to obtain certified copies of tax receipts evidencing the payment of any Taxes so 58 deducted or withheld from each Taxing Authority imposing such Taxes. In the event that such a receipt is obtained, a Holder may obtain such a certified copy by providing written demand therefor to the Paying Agent. The Paying Agent shall contact the Company or such Subsidiary Guarantor, which shall provide such certified copy to the Paying Agent for prompt forwarding to the Holder, the Company or the Subsidiary Guarantor and shall attach to each certified copy a certificate stating (x) that the amount of withholding tax evidenced by the certified copy was paid in connection with payments in respect of the principal amount of Securities then outstanding and (y) the amount of such withholding tax per U.S.$1,000 of principal amount of the Securities. If, notwithstanding the Company's or such Subsidiary Guarantor's efforts to obtain such receipts, the same are not obtainable, the Company or such Subsidiary Guarantor will provide to the Paying Agent other evidence of such payments by the Company or such Subsidiary Guarantor. (b) The Company or such Subsidiary Guarantor, as the case may be, shall indemnify and hold harmless each Holder of Securities (other than an Excluded Holder) and upon written request of each holder of Securities (other than an Excluded Holder), reimburse each such Holder, for the amount of (i) any such Taxes so levied or imposed and paid by such Holder as a result of payments made under or with respect to the Securities, (ii) any liability (including penalties, interest and expenses) arising under or with respect to the foregoing clause (i), and (iii) any Taxes so levied or imposed with respect to any reimbursement under the foregoing clauses (i) or (ii), so that the net amount received by such Holder after such reimbursement shall not be less than the net amount the Holder would have received if Taxes on such reimbursement had not been imposed, but excluding any Taxes on such Holder's net income. Neither Additional Amounts nor amounts required to be reimbursed under the preceding sentence shall be payable for or on account of (A) any estate, inheritance, gift, sale, transfer, personal property or similar Taxes; or (B) any Taxes that are imposed or withheld by reason of the failure by such holder to comply within 45 days of a written request of the Company or the Subsidiary Guarantor addressed to such holder or (if it is not possible for the Company or the Subsidiary Guarantor to furnish such request at a time that would allow at least 45 days for compliance) such shorter period reasonable in the circumstances as may be necessary to enable the Company or the Subsidiary Guarantor to comply with requests from any Taxing Authority: (x) to provide information concerning the nationality, residence or identity of such holder; or (y) to make any declaration or other similar claim or satisfy any information or reporting requirement, which, in the case of either clause (x) or (y) above, is required or imposed by statute, treaty, regulation or administrative practice of a Taxing Authority as a precondition to exemption from all or any part of such Taxes. (c) At least 30 days prior to each date on which any payment under or with respect to the Securities is due and payable (unless such obligation to pay Additional Amounts arises after the 30th day prior to such date, in which case it shall be promptly 59 thereafter), if the Company or any Subsidiary Guarantor shall be obligated to pay Additional Amounts with respect to such payment, the Company or such Subsidiary Guarantor shall deliver to the Trustee and each Paying Agent an Officers' Certificate stating the fact that such Additional Amounts shall be payable and shall specify by country the amounts to be payable and shall set forth such other information necessary to enable the Trustee and each Paying Agent to pay such Additional Amounts to Holders on the payment date. Each Officers' Certificate shall be relied upon until receipt of a further Officers' Certificate addressing such matters. The Company and any such Subsidiary Guarantor shall indemnify the Trustee and any Paying Agent for, and hold them harmless against, any loss, liability or expense reasonably incurred without negligence or bad faith on their part arising out of or in connection with actions taken or omitted by any of them in reliance on any Officers' Certificate furnished pursuant to this Section. Whenever in this Indenture there is mentioned, in any context, the payment of principal, premium, if any, interest or any other amount payable under or with respect to any Security, such mention shall be deemed to include mention of the payment of Additional Amounts provided for in this Section 4.15, to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof pursuant to the provisions of this Section 4.15 and express mention of the payment of Additional Amounts in any provisions hereof shall not be construed as excluding Additional Amounts in those provisions hereof where such express mention is not made. (d) The obligations of the Company and the Subsidiary Guarantors under this Section 4.15 shall survive the termination of this Indenture and the payment of all other amounts under or with respect to the Securities. SECTION 4.16. Shareholder Commitments. The Company shall maintain enforceable written commitments (the "Shareholder Commitments") from each shareholder of the Company agreeing that such shareholder will not exercise its voting rights to receive mandatory statutory dividends (without limiting such shareholder's right otherwise to receive dividends pursuant to and in compliance with Section 4.4), provided that the Shareholder Commitments will cease to be effective on the first to occur of (x) the date that shares of Capital Stock of the Company are issued and listed on a Brazilian or United States securities exchange in connection with a bona fide public offering of such shares or the date that any shares of the Capital Stock of the Company are otherwise effectively listed and traded on any Brazilian or United States securities exchange, (y) the date that none of the Securities remain outstanding or (z) the date that such commitment is no longer effective, enforceable or legal under applicable Brazilian laws and regulations (including without limitation any construction or interpretation thereof by CVM, any court or any other governmental authority). The Company will obtain Shareholder Commitments in connection with any future issuances of Capital Stock to the extent the Shareholder Commitments would then be effective, enforceable and legal under the terms of the foregoing proviso. Notwithstanding the foregoing, but provided it would not render any of the other Shareholder Commitments 60 unenforceable, the Company need not obtain and/or maintain Shareholder Commitments from persons that are not shareholders of the Company on the Issue Date or any Affiliate of any such shareholder to the extent it does not relate to more than 10.0% of the outstanding shares of Capital Stock of the Company. SECTION 4.17. Compliance Certificate. The Company shall deliver to the Trustee within 120 days after the end of each fiscal year of the Company an Officers' Certificate stating that in the course of the performance by the signers of their duties as Officers of the Company they would normally have knowledge of any Default or Event of Default and whether or not the signers know of any Default or Event of Default that occurred during such period. If they do, the certificate shall describe the Default or Event of Default, its status and what action the Company is taking or proposes to take with respect thereto. The Company also shall comply with TIA ss. 314(a)(4). SECTION 4.18. Further Instruments and Acts. Upon request of the Trustee, the Company will execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purpose of this Indenture. SECTION 4.19. Maintenance of Office or Agency. The Company shall maintain in The City of New York an office or agency where Securities may be presented or surrendered for payment, where Securities may be surrendered for registration or transfer or exchange and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The office of the Trustee at its Corporate Trust Office shall be such office or agency of the Company, unless the Company shall designate and maintain some other office or agency for one or more of such purposes. The Company shall give prompt written notice to the Trustee of any change in the location of any such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. The Company may also from time to time designate one or more other offices or agencies (in or outside of The City of New York) where the Securities may be presented or surrendered for any or all such purposes, and may from time to time rescind such designation; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in The City of New York for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and any change in the location of any such other office or agency. 61 ARTICLE V Successor Company SECTION 5.1. When Company May Merge or Transfer Assets. The Company shall not consolidate with or merge with or into, or convey, transfer or lease all or substantially all its assets to, any Person and the Company will not permit any of its Restricted Subsidiaries to enter into such a transaction if such transaction, in the aggregate, would result in the conveyance or transfer of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole, to any Person, unless: (i) the resulting, surviving or transferee Person (the "Successor Company") shall be a corporation organized and existing under the laws of the Federative Republic of Brazil or any State or political subdivision thereof and the Successor Company (if not the Company) shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the Securities and this Indenture; (ii) immediately after giving effect to such transaction (and treating any Indebtedness which becomes an obligation of the Successor Company or any Restricted Subsidiary as a result of such transaction as having been Incurred by the Successor Company or such Restricted Subsidiary at the time of such transaction), no Default or Event of Default shall have occurred and be continuing; (iii) immediately after giving effect to such transaction, the Successor Company would be able to incur an additional $1.00 of Indebtedness pursuant to Section 4.3(a); (iv) immediately after giving effect to such transaction, the Successor Company will have Consolidated Net Worth in an amount which is not less than the Consolidated Net Worth of the Company immediately prior to such transaction; (v) each Subsidiary Guarantor shall have delivered a written instrument in form satisfactory to the Trustee confirming its Subsidiary Guarantee; and (vi) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture (if any) comply with this Indenture; 62 provided, however, that clause (iii) shall not apply to the merger of Cable Participacoes Ltda., or Hearst/ABC Video Services II, each an entity owned by The Hearst Corporation and ABC, Inc., or Falcon International Communications (Bermuda) L.P. with and into the Company in connection with the reorganization of the Company's ownership structure pursuant to which certain of the Company's stockholders have agreed to exchange all of their respective shares in the Company for a corresponding number of shares of a newly-formed Brazilian corporation which would become an 80% stockholder of the Company and pursuant to which Hearst/ABC Video Services II would remain a 20% stockholder of the Company, which would be reorganized as a Brazilian limitada. The Successor Company shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture, but the predecessor, the Company, in the case of a lease of all or substantially all its assets shall not be released from the obligation to pay the principal of and interest on the Securities. Notwithstanding clauses (ii) and (iii) of the first sentence of this Section 5.1: (1) any Subsidiary of the Company may consolidate with, merge into or transfer all or part of its properties and assets to the Company; and (2) the Company may merge with an Affiliate incorporated solely for the purpose of reincorporating the Company in another jurisdiction to realize tax or other benefits. ARTICLE VI Defaults and Remedies SECTION 6.1. Events of Default. An "Event of Default" occurs if: (1) the Company defaults in any payment of interest on any Security when the same becomes due and payable and such default continues for a period of 30 days; (2) the Company defaults in the payment of the principal or premium, if any, of any Security when the same becomes due and payable at its Stated Maturity, upon optional redemption, upon required repurchase, upon declaration or otherwise; (3) the Company or any Restricted Subsidiary fails to comply with Section 5.1; (4) the Company or any Restricted Subsidiary fails to comply with Section 4.2, 4.3, 4.4, 4.5, 4.6, 4.7, 4.8, 4.9, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15 or 4.16 (in each case other than a failure to repurchase Securities when required pursuant to 63 Section 4.6 or 4.8 which failure shall constitute an Event of Default under Section 6.1(2)) and such failure continues for 45 days after the notice specified below; (5) the Company or any Restricted Subsidiary fails to comply with any of its agreements in the Securities or this Indenture (other than those referred to in (1), (2), (3) or (4) above) and such failure continues for 45 days after the notice specified below; (6) Indebtedness of the Company or any Restricted Subsidiary is not paid within any applicable grace period after failure to pay when due or is accelerated by the holders thereof because of a default and the total amount of such unpaid or accelerated Indebtedness exceeds $10.0 million or the US Dollar Equivalent; (7) the Company or a Restricted Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (A) commences a voluntary case; (B) consents to the entry of an order for relief against it in an involuntary case; (C) consents to the appointment of a Custodian of it or for any substantial part of its property; or (D) makes a general assignment for the benefit of its creditors; or takes any comparable action under any foreign laws relating to insolvency; (8) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against the Company or any Restricted Subsidiary in an involuntary case; (B) appoints a Custodian of the Company or any Restricted Subsidiary or for any substantial part of its property; or (C) orders the winding up or liquidation of the Company or any Restricted Subsidiary; 64 or any similar relief is granted under any foreign laws and the order, decree or relief remains unstayed and in effect for 60 days; (9) any judgment or decree for the payment of money in excess of $10.0 million or the US Dollar Equivalent (to the extent not covered by insurance as acknowledged in writing by the insurer) is rendered against the Company or any Restricted Subsidiary and such judgment or decree remains undischarged or unstayed for a period of 60 days after such judgment becomes final and non-appealable; (10) there shall have occurred any seizure, compulsory acquisition, expropriation or nationalization of material assets of the Company and its Subsidiaries; or (11) any Subsidiary Guarantee fails to be in full force and effect (except as contemplated by the terms thereof) or the denial or disaffirmation by any Subsidiary Guarantor of its obligations under the Indenture or any Subsidiary Guarantee if such default continues for 10 days, unless otherwise released from such Guarantee obligation pursuant to the Indenture. The foregoing will constitute Events of Default whatever the reason for any such Event of Default and whether it is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body. The term "Bankruptcy Law" means Decree Law No. 7661, of June 21, 1945, or any other Brazilian law relating to, or Title 11, United States Code, or any similar United States Federal or state law relating to, bankruptcy, insolvency, receivership, winding-up, liquidation, reorganization, "concordata" or relief of debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator, custodian "sindico," "comissario" or similar official under any Bankruptcy Law. Notwithstanding the foregoing, a Default under clause (4) or (5) of this Section 6.1 will not constitute an Event of Default until the Trustee or the Holders of at least 25% in principal amount of the outstanding Securities notify the Company of the Default and the Company does not cure such Default within the time specified in said clause (4) or (5) after receipt of such notice. Such notice must specify the Default, demand that it be remedied and state that such notice is a "Notice of Default". If a Default occurs and is continuing and is known to the Trustee, the Trustee must mail to each holder notice of the Default within 90 days after it occurs. Except in the case of a Default under clause (1) or (2) (including Additional Amounts) of this Section 6.1, 65 the Trustee may withhold notice if and so long as a committee of its Trust Officers in good faith determines that withholding notice is in the interests of the Securityholders. In addition, the Company is required to deliver to the Trustee, within 120 days after the end of each fiscal year, a certificate indicating whether the signers thereof know of any Default that occurred during the previous year. The Company shall deliver to the Trustee, within 30 days after the occurrence thereof, written notice in the form of an Officers' Certificate of any Event of Default under clauses (4), (5), (6), (9) or (11) of this Section 6.1. SECTION 6.2. Acceleration. If an Event of Default (other than an Event of Default specified in Section 6.1(7), (8) or (10) with respect to the Company) occurs and is continuing, the Trustee by notice to the Company, or the Holders of at least 25% in outstanding principal amount of the Securities by notice to the Company and the Trustee, may declare the principal of and accrued and unpaid interest on all the Securities (and all Additional Amounts payable thereon) to be due and payable. Upon such a declaration, such principal and interest shall be due and payable immediately. If an Event of Default specified in Section 6.1(7), (8) or (10) with respect to the Company occurs, the principal of and accrued and unpaid interest on all the Securities (and any Additional Amounts) shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Securityholders. The Holders of a majority in principal amount of the Securities by notice to the Trustee may rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of acceleration. No such rescission shall affect any subsequent Default or Event of Default or impair any right consequent thereto. SECTION 6.3. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal of or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Securityholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative. SECTION 6.4. Waiver of Past Defaults. The Holders of a majority in principal amount of the Securities by notice to the Trustee may waive an existing Default or 66 Event of Default and its consequences except (i) a Default or Event of Default in the payment of the principal of or interest on a Security or (ii) a Default or Event of Default in respect of a provision that under Section 9.2 cannot be amended without the consent of each Securityholder affected. When a Default or Event of Default is waived, it is deemed cured, but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any consequent right. SECTION 6.5. Control by Majority. The Holders of a majority in principal amount of the Securities may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture or, subject to Section 7.1, that the Trustee determines is unduly prejudicial to the rights of other Securityholders or would involve the Trustee in personal liability; provided, however, that the Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction. Prior to taking any action hereunder, the Trustee shall be entitled to indemnification satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action. SECTION 6.6. Limitation on Suits. A Securityholder may not pursue any remedy with respect to this Indenture or the Securities unless: (1) the Holder gives to the Trustee written notice stating that an Event of Default is continuing; (2) the Holders of at least 25% in outstanding principal amount of the Securities make a written request to the Trustee to pursue the remedy; (3) such Holder or Holders offer to the Trustee reasonable security or indemnity against any loss, liability or expense; (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of security or indemnity; and (5) the Holders of a majority in principal amount of the Securities do not give the Trustee a direction inconsistent with the request during such 60-day period. A Securityholder may not use this Indenture to prejudice the rights of another Securityholder or to obtain a preference or priority over another Securityholder. SECTION 6.7. Rights of Holders to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal of 67 and interest on the Securities held by such Holder, on or after the respective due dates expressed in the Securities, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. SECTION 6.8. Collection Suit by Trustee. If an Event of Default specified in Section 6.1(1) or (2) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company for the whole amount then due and owing (together with interest on any unpaid interest to the extent lawful) and the amounts provided for in Section 7.7. SECTION 6.9. Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and the Securityholders allowed in any judicial proceedings relative to the Company, its Subsidiaries or their respective creditors or properties and, unless prohibited by law or applicable regulations, may vote on behalf of the Holders in any election of a trustee in bankruptcy or other Person performing similar functions, and any Custodian in any such judicial proceeding is hereby authorized by each Holder to make payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and its counsel, and any other amounts due the Trustee under Section 7.7. SECTION 6.10. Priorities. If the Trustee collects any money or property pursuant to this Article VI, it shall pay out the money or property in the following order: FIRST: to the Trustee for amounts due under Section 7.7; SECOND: to Securityholders for amounts due and unpaid on the Securities for principal and interest (including Additional Amounts), ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal and interest, respectively; and THIRD: to the Company. The Trustee may fix a record date and payment date for any payment to Securityholders pursuant to this Section. At least 15 days before such record date, the Company shall mail to each Securityholder and the Trustee a notice that states the record date, the payment date and amount to be paid. 68 SECTION 6.11. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.7 or a suit by Holders of more than 10% in outstanding principal amount of the Securities. ARTICLE VII Trustee SECTION 7.1. Duties of Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent Person would exercise or use under the circumstances in the conduct of such Person's own affairs. (b) Except during the continuance of an Event of Default: (1) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own wilful misconduct, except that: (1) this paragraph does not limit the effect of paragraph (b) of this Section; 69 (2) the Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (3) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.5. (d) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. (e) Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. (f) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers, if it shall have reasonable grounds to believe that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (g) Every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section and to the provisions of the TIA. SECTION 7.2. Rights of Trustee. (a) The Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, note or other paper or document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on the Officers' Certificate or Opinion of Counsel. (c) The Trustee may act through agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers; provided, however, that the Trustee's conduct does not constitute wilful misconduct or negligence. 70 (e) The Trustee may consult with counsel, and the advice or opinion of counsel with respect to legal matters relating to this Indenture and the Securities shall be full and complete authorization and protection from liability in respect to any action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel. SECTION 7.3. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. Any Paying Agent, Security Registrar, co-registrar or co-paying agent may do the same with like rights. However, the Trustee must comply with Sections 7.10 and 7.11. SECTION 7.4. Trustee's Disclaimer. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Securities, it shall not be accountable for the Company's use of the proceeds from the Securities, and it shall not be responsible for any statement of the Company in this Indenture or in any document issued in connection with the sale of the Securities or in the Securities other than the Trustee's certificate of authentication. SECTION 7.5. Intentionally Omitted. SECTION 7.6. Reports by Trustee to Holders. As promptly as practicable after each May 15 beginning with the May 15 following the date of this Indenture, and in any event prior to July 15 in each year, the Trustee shall mail to each Securityholder a brief report dated as of such May 15 that complies with TIA ss. 313(a). The Trustee also shall comply with TIA ss. 313(b). The Trustee shall also transmit by mail all reports required by TIA ss. 313(c). A copy of each report at the time of its mailing to Securityholders shall be filed with the SEC and each stock exchange (if any) on which the Securities are listed. The Company agrees to notify promptly the Trustee whenever the Securities become listed on any stock exchange and of any delisting thereof. SECTION 7.7. Compensation and Indemnity. The Company shall pay to the Trustee from time to time reasonable compensation for its services. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable out-of--pocket expenses, disbursements and advances incurred or made by it, including costs of collection, costs of preparing and reviewing reports, certificates and other documents, costs of preparation and mailing of notices to Securityholders and reasonable costs of counsel retained by the Trustee in connection with the delivery of an Opinion of Counsel or 71 otherwise, in addition to the compensation for its services. Such expenses shall include the reasonable compensation and expenses, disbursements and advances of the Trustee's agents, counsel, accountants and experts. The Company shall indemnify the Trustee against any and all loss, liability or expense (including reasonable attorneys' fees) incurred by it in connection with the administration of this trust and the performance of its duties hereunder, including the costs and expenses of enforcing this Indenture (including this Section 7.7) and of defending itself against any claims (whether asserted by any Securityholder, the Company or otherwise). The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder. The Company shall defend the claim and the Trustee may have separate counsel and the Company shall pay the fees and expenses of such counsel. The Company need not reimburse any expense or indemnify against any loss, liability or expense incurred by the Trustee through the Trustee's own wilful misconduct, negligence or bad faith. Any Paying Agent, Security registrar, co-registrar and co-paying agent shall have the same rights as to compensation and indemnity as set forth for the Trustee in this Section. To secure the Company's payment obligations in this Section, the Trustee shall have a lien prior to the Securities on all money or property held or collected by the Trustee other than money or property held in trust to pay principal of and interest on particular Securities. The Trustee's right to receive payment of any amounts due under this Section 7.7 shall not be subordinate to any other liability or indebtedness of the Company. The Company's payment obligations pursuant to this Section shall survive the discharge of this Indenture. When the Trustee incurs expenses after the occurrence of a Default specified in Section 6.1(7) or (8) with respect to the Company, the expenses are intended to constitute expenses of administration under any Bankruptcy Law. SECTION 7.8. Replacement of Trustee. The Trustee may resign at any time by so notifying the Company. The Holders of a majority in principal amount of the Securities may remove the Trustee by so notifying the Trustee and may appoint a successor Trustee. The Company shall remove the Trustee if: (1) the Trustee fails to comply with Section 7.10; (2) the Trustee is adjudged bankrupt or insolvent; (3) a receiver or other public officer takes charge of the Trustee or its property; or (4) the Trustee otherwise becomes incapable of acting. 72 If the Trustee resigns or is removed by the Company or by the Holders of a majority in principal amount of the Securities and such Holders do not reasonably promptly appoint a successor Trustee, or if a vacancy exists in the office of Trustee for any reason (the Trustee in such event being referred to herein as the retiring Trustee), the Company shall promptly appoint a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Securityholders. The retiring Trustee shall, upon payment of its charges, promptly transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided for in Section 7.7. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee or the Holders of 10% in principal amount of the Securities may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10, any Securityholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Notwithstanding the replacement of the Trustee pursuant to this Section, the Company's obligations under Section 7.7 shall continue for the benefit of the retiring or removed Trustee. SECTION 7.9. Successor Trustee by Merger. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all its corporate trust business or assets to, another corporation or banking association, the resulting, surviving or transferee corporation without any further act shall be the successor Trustee. In case at the time such successor or successors by merger, conversion or consolidation to the Trustee shall succeed to the trusts created by this Indenture, any of the Securities shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor trustee, and deliver such Securities so authenticated; and in case at that time any of the Securities shall not have been authenticated, any successor to the Trustee may authenticate such Securities either in the name of any predecessor hereunder or in the name of the successor to the Trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Securities or in this Indenture provided that the certificate of the Trustee shall have. 73 SECTION 7.10. Eligibility; Disqualification. The Trustee shall at all times satisfy the requirements of TIA ss. 310(a). The Trustee shall have a combined capital and surplus of at least $100 million as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA ss. 310(b); provided, however, that there shall be excluded from the operation of TIA ss. 310(b)(1) any indenture or indentures under which other securities or certificates of interest or participation in other securities of the Company are outstanding if the requirements for such exclusion set forth in TIA ss. 310(b)(1) are met. SECTION 7.11. Preferential Collection of Claims Against Company. The Trustee shall comply with TIA ss. 311(a), excluding any creditor relationship listed in TIA ss. 311(b). A Trustee who has resigned or been removed shall be subject to TIA ss. 311(a) to the extent indicated. ARTICLE VIII Discharge of Indenture; Defeasance SECTION 8.1. Discharge of Liability on Securities; Defeasance. (a) When (i) the Company delivers to the Trustee all outstanding Securities (other than Securities replaced pursuant to Section 2.6) for cancellation or (ii) all outstanding Securities have become due and payable, whether at maturity or as a result of the mailing of a notice of redemption pursuant to Article III hereof and the Company irrevocably deposits with the Trustee funds sufficient to pay at maturity or upon redemption all outstanding Securities (other than Securities replaced pursuant to Section 2.6), including interest thereon to maturity or such redemption date, and if in either case the Company pays all other sums payable hereunder by the Company, then this Indenture shall, subject to Section 8.1(c), cease to be of further effect. The Trustee shall acknowledge satisfaction and discharge of this Indenture on demand of the Company (accompanied by an Officers' Certificate and an Opinion of Counsel stating that all conditions precedent specified herein relating to the satisfaction and discharge of this Indenture have been complied with) and at the cost and expense of the Company. (b) Subject to Sections 8.1(c) and 8.2, the Company at any time may terminate (i) all its obligations under the Securities and this Indenture and all obligations of the Subsidiary Guarantors under the Subsidiary Guarantee and this Indenture ("legal defeasance option") or (ii) its obligations under Sections 4.2, 4.3, 4.4, 4.5, 4.6, 4.7, 4.8, 4.9, 4.10, 4.11, 4.12, 4.13, 4.14, 4.16, 5.1(iii), 5.1(iv), 5.1(v) and 5.1(vi) and the operation of Sections 6.1(4), 6.1(5), 6.1(6), 6.1(7) (but only with respect to a Restricted Subsidiary), 6.1(8) (but only with respect to a Restricted Subsidiary), 6.1(9) and 6.1(11) ("covenant 74 defeasance option"). The Company may exercise its legal defeasance option notwithstanding its prior exercise of its covenant defeasance option. If the Company exercises its legal defeasance option, payment of the Securities may not be accelerated because of an Event of Default. If the Company exercises its covenant defeasance option, payment of the Securities may not be accelerated because of an Event of Default specified in Sections 6.1(4), 6.1(5), 6.1(6), 6.1(7) (but only with respect to a Restricted Subsidiary), 6.1(8) (but only with respect to a Restricted Subsidiary) and 6.1(9) or because of the failure of the Company to comply with Section 5.1(iii), 5.1(iv), 5.1(v) and 5.1(vi). Upon satisfaction of the conditions set forth herein and upon request of the Company, the Trustee shall acknowledge in writing the discharge of those obligations that the Company terminates. (c) Notwithstanding the provisions of Sections 8.1(a) and (b), the Company's obligations in Sections 2.5, 2.6, 2.7, 2.8, 2.16, 2.17, 4.1, 4.15, 4.19, 7.7, 7.8, 8.4, 8.5 and 8.6 shall survive until the Securities have been paid in full. For the purpose of applying Section 4.15, if the Trustee is required by law or by the administration or interpretation thereof to withhold or deduct any amount for or on account of Taxes from any payment made from a defeasance trust, such payment shall be deemed to have been made by the Company and the Company shall be deemed to have been so required to deduct or withhold such amount. Thereafter, the Company's obligations in Sections 7.7, 8.4 and 8.5 shall survive. SECTION 8.2. Conditions to Defeasance. The Company may exercise its legal defeasance option or its covenant defeasance option only if: (1) the Company irrevocably deposits in trust with the Trustee money or U.S. Government Obligations for the payment of principal of, premium, if any, and interest on the Securities (including any Additional Amounts thereon) to maturity or redemption, as the case may be; (2) the Company delivers to the Trustee a certificate from a nationally recognized firm of independent accountants expressing their opinion that the payments of principal and interest when due and without reinvestment on the deposited U.S. Government Obligations plus any deposited money without investment will provide cash at such times and in such amounts as will be sufficient to pay principal and interest when due on all the Securities to maturity or redemption, as the case may be; 75 (3) the Company shall have delivered to the Trustee an Opinion of Counsel, subject to certain customary qualifications, to the effect that (i) the funds so deposited will not be subject to any rights of any other holders of Indebtedness of the Company, and (ii) the funds so deposited will not be subject to avoidance under applicable Bankruptcy Law; (4) the deposit does not constitute a default under any other agreement binding on the Company; (5) the Company delivers to the Trustee an Opinion of Counsel to the effect that the trust resulting from the deposit does not constitute, or is qualified as, a regulated investment company under the Investment Company Act of 1940; (6) in the case of the legal defeasance option, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (i) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (ii) since the date of this Indenture there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Securityholders will not recognize income, gain or loss for Federal income tax purposes as a result of such defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such legal defeasance had not occurred; (7) in the case of the covenant defeasance option, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Securityholders will not recognize income, gain or loss for Federal income tax purposes as a result of such covenant defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred; (8) the Company delivers to the Trustee an Officers' Certificate and an Opinion of Counsel in the United States, the Federative Republic of Brazil and such other jurisdiction as the Trustee may request, each stating that all conditions precedent to the defeasance and discharge of the Securities and this Indenture as contemplated by this Article VIII have been complied with; and (9) The Company shall have delivered to the Trustee an Opinion of Counsel in Brazil reasonably acceptable to the Trustee to the effect that the Holders of the Outstanding Securities will not recognize income, gain or loss for Brazilian federal or state income tax or other tax purposes as a result of such defeasance or covenant defeasance, as applicable, and will be subject to Brazilian federal and state income tax 76 and other tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance or covenant defeasance, as applicable, had not occurred. Notwithstanding anything to the contrary in this Indenture, this condition may not be waived by any Holder or the Trustee; Before or after a deposit, the Company may make arrangements satisfactory to the Trustee for the redemption of Securities at a future date in accordance with Article III. SECTION 8.3. Application of Trust Money. The Trustee shall hold in trust money or U.S. Government Obligations deposited with it pursuant to this Article VIII. It shall apply the deposited money and the money from U.S. Government Obligations through the Paying Agent and in accordance with this Indenture to the payment of principal of and interest on the Securities. SECTION 8.4. Repayment to Company. The Trustee and the Paying Agent shall promptly turn over to the Company upon request any excess money or securities held by them upon payment of all the obligations under this Indenture. Subject to any applicable abandoned property law, the Trustee and the Paying Agent shall pay to the Company upon request any money held by them for the payment of principal of or interest on the Securities that remains unclaimed for two years, and, thereafter, Securityholders entitled to the money must look to the Company for payment as general creditors. SECTION 8.5. Indemnity for U.S. Government Obligations. The Company shall pay and shall indemnify the Trustee against any tax, fee or other charge imposed on or assessed against deposited U.S. Government Obligations or the principal and interest received on such U.S. Government Obligations. SECTION 8.6. Reinstatement. If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with this Article VIII by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the obligations of the Company and the Subsidiary Guarantors under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to this Article VIII until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with this Article VIII; provided, however, that, if the Company has made any payment of interest on or principal of any Securities because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent. 77 ARTICLE IX Amendments SECTION 9.1. Without Consent of Holders. The Company and the Trustee may amend this Indenture or the Securities without notice to or consent of any Securityholder: (1) to cure any ambiguity, omission, defect or inconsistency; (2) to comply with Article V; (3) to provide for uncertificated Securities in addition to or in place of certificated Securities; provided, however, that the uncertificated Securities are issued in registered form for purposes of Section 163(f) of the Code or in a manner such that the uncertificated Securities are described in Section 163(f)(2)(B) of the Code; (4) to add guarantees with respect to the Securities or to secure the Securities; (5) to add to the covenants of the Company for the benefit of the Holders or to surrender any right or power herein conferred upon the Company; (6) to comply with any requirements of the SEC in connection with qualifying this Indenture under the TIA; (7) to make any change that does not adversely affect the rights of any Securityholder; or (8) to provide for the issuance of the Exchange Securities, which will have terms substantially identical in all material respects to the Initial Securities (except that the transfer restrictions contained in the Initial Securities will be modified or eliminated, as appropriate), and which will be treated, together with any outstanding Initial Securities, as a single issue of securities. After an amendment under this Section becomes effective, the Company shall mail to Securityholders a notice briefly describing such amendment. The failure to give such notice to all Securityholders, or any defect therein, shall not impair or affect the validity of an amendment under this Section. 78 SECTION 9.2. With Consent of Holders. The Company and the Trustee may amend this Indenture or the Securities without notice to any Securityholder but with the written consent of the Holders of at least a majority in principal amount of the Securities. However, without the consent of each Securityholder affected, an amendment may not: (1) reduce the amount of Securities whose Holders must consent to an amendment; (2) reduce the rate of or extend the time for payment of interest on any Security or reduce any Additional Amounts in respect thereof; (3) reduce the principal of or extend the Stated Maturity of any Security; (4) reduce the premium payable upon the redemption or repurchase of any Security or change the time at which any Security may or shall be redeemed or repurchased in accordance with this Indenture; (5) make any Security payable in money other than that stated in the Security; (6) modify or amend in any manner adverse to the Holders the terms and conditions of the obligation of the Company for the due and punctual payment of the principal of or interest on Securities; (7) modify or amend in any manner adverse to the Holders the terms and conditions of the obligation of the Company for the due and punctual payment of the principal of or interest on Securities; (8) make any change in Section 6.4 or 6.7 or the second sentence of this Section 9.2; (9) release any Subsidiary Guarantor from any of its obligations under its Subsidiary Guarantee or this Indenture; or (10) amend or modify the provisions of Section 4.15. It shall not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed amendment, but it shall be sufficient if such consent approves the substance thereof. After an amendment under this Section becomes effective, the Company shall mail to Securityholders a notice briefly describing such amendment. The failure to give such 79 notice to all Securityholders, or any defect therein, shall not impair or affect the validity of an amendment under this Section. SECTION 9.3. Compliance with Trust Indenture Act. Every amendment to this Indenture or the Securities shall comply with the TIA as then in effect. SECTION 9.4. Revocation and Effect of Consents and Waivers. A consent to an amendment or a waiver by a Holder of a Security shall bind the Holder and every subsequent Holder of that Security or portion of the Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent or waiver is not made on the Security. However, any such Holder or subsequent Holder may revoke the consent or waiver as to such Holder's Security or portion of the Security if the Trustee receives the notice of revocation before the date the amendment or waiver becomes effective. After an amendment or waiver becomes effective, it shall bind every Securityholder. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Securityholders entitled to give their consent or take any other action described above or required or permitted to be taken pursuant to this Indenture. If a record date is fixed, then notwithstanding the immediately preceding paragraph, those Persons who were Securityholders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to give such consent or to revoke any consent previously given or to take any such action, whether or not such Persons continue to be Holders after such record date. No such consent shall become valid or effective more than 120 days after such record date. SECTION 9.5. Notation on or Exchange of Securities. If an amendment changes the terms of a Security, the Trustee may require the Holder of the Security to deliver it to the Trustee. The Trustee may place an appropriate notation on the Security regarding the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms. Failure to make the appropriate notation or to issue a new Security shall not affect the validity of such amendment. SECTION 9.6. Trustee To Sign Amendments. The Trustee may, but need not, sign any amendment authorized pursuant to this Article IX if the amendment adversely affects the rights, duties, liabilities or immunities of the Trustee. In signing any amendment the Trustee shall be entitled to receive indemnity reasonably satisfactory to it and to receive, and (subject to Section 7.1) shall be fully protected in relying upon, an Officers' Certificate 80 and an Opinion of Counsel stating that such amendment is authorized or permitted by this Indenture. ARTICLE X Subsidiary Guarantee SECTION 10.1. Subsidiary Guarantee. The Subsidiary Guarantors hereby, jointly and severally, unconditionally and irrevocably, Guarantee to each Holder and to the Trustee and its successors and assigns, as a principal obligor and not merely as a surety, (a) the full and punctual payment of principal of and interest on the Securities when due, whether at maturity, by acceleration, by redemption or otherwise, and all other monetary obligations of the Company under this Indenture (including obligations to the Trustee) and the Securities and (b) the full and punctual performance within applicable grace periods of all other obligations of the Company under this Indenture and the Securities (all the foregoing being hereinafter collectively called the "Obligations"). The Subsidiary Guarantors further agree that the Obligations may be extended or renewed, in whole or in part, without notice or further assent from the Subsidiary Guarantors, and that the Subsidiary Guarantors will remain bound under this Article X notwithstanding any extension or renewal of any Obligation. The Subsidiary Guarantors waive presentation to, demand of, payment from and protest to the Company of any of the Obligations and also waive notice of protest for nonpayment. The Subsidiary Guarantors waive notice of any default under the Securities or the Obligations. The obligations of the Subsidiary Guarantors hereunder shall not be affected by (a) the failure of any Holder or the Trustee to assert any claim or demand or to enforce any right or remedy against the Company or any other Person under this Indenture, the Securities or any other agreement or otherwise; (b) any extension or renewal of any Obligation; (c) any rescission, waiver, amendment, modification or supplement of any of the terms or provisions of this Indenture (other than this Article X), the Securities or any other agreement; (d) the release of any security held by any Holder or the Trustee for the Obligations or any of them; (e) the failure of any Holder or Trustee to exercise any right or remedy against any other guarantor of the Obligations; or (f) any change in the ownership of the Company. The Subsidiary Guarantors further agree that their Guarantees herein constitute a guarantee of payment, performance and compliance when due (and not a guarantee of collection) and waive any right to require that any resort be had by any Holder or the Trustee to any security held for payment of the Obligations. 81 The obligations of the Subsidiary Guarantors hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to any defense, setoff, counterclaim, recoupment or termination whatsoever or by reason of the invalidity, illegality or unenforceability of the Obligations or otherwise. Without limiting the generality of the foregoing, the obligations of the Subsidiary Guarantors herein shall not be discharged or impaired or otherwise affected by the failure of any Holder or the Trustee to assert any claim or demand or to enforce any remedy under this Indenture, the Securities or any other agreement, by any waiver or modification of any thereof, by any default, failure or delay, willful or otherwise, in the performance of the Obligations, or by any other act or thing or omission or delay to do any other act or thing which may or might in any manner or to any extent vary the risk of the Subsidiary Guarantors or would otherwise operate as a discharge of the Subsidiary Guarantors as a matter of law or equity. The Subsidiary Guarantors further agree that their Guarantees herein shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of any Obligation is rescinded or must otherwise be restored by any Holder or the Trustee upon the bankruptcy or reorganization of the Company or otherwise. In furtherance of the foregoing and not in limitation of any other right which any Holder or the Trustee has at law or in equity against the Subsidiary Guarantors by virtue hereof, upon the failure of the Company to pay any Obligation when and as the same shall become due, whether at maturity, by acceleration, by redemption or otherwise, or to perform or comply with any other Obligation, the Subsidiary Guarantors hereby promise to and will, upon receipt of written demand by the Trustee, forthwith pay, or cause to be paid, in cash, to the Holders or the Trustee an amount equal to the sum of (i) the unpaid principal amount of such Obligations, (ii) accrued and unpaid interest on such Obligations (but only to the extent not prohibited by law) and (iii) all other monetary Obligations of the Company to the Holders and the Trustee. The Subsidiary Guarantors agree that, as between the Subsidiary Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the Obligations guaranteed hereby may be accelerated as provided in Article VI for the purposes of the Guarantee herein, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such Obligations as provided in Article VI, such Obligations (whether or not due and payable) shall forthwith become due and payable by the Subsidiary Guarantors for the purposes of this Section. 82 The Subsidiary Guarantors also agree to pay any and all costs and expenses (including reasonable attorneys' fees) incurred by the Trustee or any Holder in enforcing any rights under this Section. SECTION 10.2. Limitation on Liability. Any term or provision of this Indenture to the contrary notwithstanding, the maximum, aggregate liability of each Subsidiary Guarantor hereunder shall not exceed the maximum amount that can be guaranteed by such Subsidiary Guarantor under applicable federal and state laws relating to insolvency of debtors. SECTION 10.3. Successors and Assigns. This Article X shall be binding upon the Subsidiary Guarantors and their successors and assigns and shall enure to the benefit of the successors and assigns of the Trustee and the Holders and, in the event of any transfer or assignment of rights by any Holder or the Trustee, the rights and privileges conferred upon that party in this Indenture and in the Securities shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions of this Indenture. (b) Notwithstanding the foregoing, all obligations of a Subsidiary Guarantor under this Article X shall be automatically and unconditionally released and discharged upon any sale, exchange or transfer to any Person which is not a Subsidiary of the Company, of all or substantially all of the assets of such Subsidiary Guarantor or all of the Capital Stock of such Subsidiary Guarantor owned by the Company or any Subsidiary; provided that (i) such sale, exchange or transfer is not prohibited by this Indenture and (ii) all obligations of such Subsidiary Guarantor in respect of the Bank Indebtedness and under all of its Guarantees of, and in respect of all liens on its assets securing, Indebtedness of the Company are also released and discharged upon such sale, exchange or transfer. SECTION 10.4. No Waiver. Neither a failure nor a delay on the part of either the Trustee or the Holders in exercising any right, power or privilege under this Article X shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise of any right, power or privilege. The rights, remedies and benefits of the Trustee and the Holders herein expressly specified are cumulative and not exclusive of any other rights, remedies or benefits which either may have under this Article X at law, in equity, by statute or otherwise. SECTION 10.5. Right of Contribution. Each Subsidiary Guarantor hereby agrees that to the extent that a Subsidiary Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Subsidiary Guarantor shall be entitled to seek and receive contribution from and against any other Subsidiary Guarantor hereunder who has not paid its proportionate share of such payment. Each Subsidiary 83 Guarantor's right of contribution shall be subject to the terms and conditions of Section 10.6. The provisions of this Section shall in no respect limit the obligations and liabilities of any Subsidiary Guarantor to the Trustee and the Securityholders and each Subsidiary Guarantor shall remain liable to the Trustee and the Securityholders for the full amount guaranteed by such Subsidiary Guarantor hereunder. SECTION 10.6. No Subrogation. Notwithstanding any payment or payments made by any of the Subsidiary Guarantors hereunder, no Subsidiary Guarantor shall be entitled to be subrogated to any of the rights of the Trustee or any Securityholder against the Company or any other Subsidiary Guarantor or any collateral security or guarantee or right of offset held by the Trustee or any Securityholder for the payment of the Obligations, nor shall any Subsidiary Guarantor seek or be entitled to seek any contribution or reimbursement from the Company or any other Subsidiary Guarantor in respect of payments made by such Subsidiary Guarantor hereunder, until all amounts owing to the Trustee and the Securityholders by the Company on account of the Obligations are paid in full. If any amount shall be paid to any Subsidiary Guarantor on account of such subrogation rights at any time when all of the Obligations shall not have been paid in full, such amount shall be held by such Subsidiary Guarantor in trust for the Trustee and the Securityholders, segregated from other funds of such Subsidiary Guarantor, and shall, forthwith upon receipt by such Subsidiary Guarantor, be turned over to the Trustee in the exact form received by such Subsidiary Guarantor (duly indorsed by such Subsidiary Guarantor to the Trustee, if required), to be applied against the Obligations. SECTION 10.7. Additional Subsidiary Guarantors. Concurrently with the creation or acquisition by the Company or any of its Restricted Subsidiaries of any Restricted Subsidiary, the Company, such newly created or acquired Restricted Subsidiary and the Trustee shall execute and deliver a supplement to this Indenture providing that such Subsidiary will be a Subsidiary Guarantor hereunder. Each such supplement shall be accompanied by an opinion of counsel and each in a form reasonably satisfactory to the Trustee. SECTION 10.8. Modification. No modification, amendment or waiver of any provision of this Article X, nor the consent to any departure by the Subsidiary Guarantors therefrom, shall in any event be effective unless the same shall be in writing and signed by the Trustee, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on the Subsidiary Guarantors in any case shall entitle the Subsidiary Guarantors to any other or further notice or demand in the same, similar or other circumstances. SECTION 10.9. Waiver of Brazilian Law Benefits. Each Subsidiary Guarantor hereby expressly waives all benefits set forth in the following provisions of 84 Brazilian law: articles 1491, 1494, 1498, 1499, 1500 and 1503 of the Brazilian Civil Code, articles 261 and 262 of the Brazilian Commercial Code and article 595 of the Brazilian Civil Procedure Code. ARTICLE XI Miscellaneous SECTION 11.1. Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies or conflicts with another provision which is required to be included in this Indenture by the TIA, the provision required by the TIA shall control. SECTION 11.2. Notices. Any notice or communication shall be in writing and delivered in person or mailed by first-class mail addressed as follows: if to the Company or to the Subsidiary Guarantors: Tevecap S.A. Rua da Rocio, 313-11th CEP 04552-904 Sao Paulo, SP Brazil Tel: 011-55-11-829-7049 Fax: 011-55-11-828-8770 Attention: Douglas Duran with a copy to: Tevecap S. A. Av. Otaviano Alves da Lima 4-400 02901-00 (Freguesia do O) Sao Paulo, SP Brazil Attention: Jose Augusto P. Moreira Tel: 011-55-11-256-3022 Fax: 011-55-11-231-1392 and 85 Mayer, Brown & Platt 1675 Broadway New York, New York 10019 Attention: Peter V. Darrow Tel: 212-506-2500 Fax: 212-262-1910 if to the Trustee or the Paying Agent: The Chase Manhattan Bank 450 West 33rd Street, 15th floor New York, New York 10001-2697 Attention: Global Trust Services -- International Service Delivery if to the Principal Paying Agent: Chase Trust Bank 13th floor, Akasaka Park Building 2-20 Akasaka 5-chome Minato-Ku Tokyo 107 Japan Attention: Head of Administration & Planning Group The Company, any of the Subsidiary Guarantors, or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed to a Securityholder shall be mailed to the Securityholder at the Securityholder's address as it appears on the registration books of the Security Registrar and shall be sufficiently given if so mailed within the time prescribed. Failure to mail a notice or communication to a Securityholder or any defect in it shall not affect its sufficiency with respect to other Securityholders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. 86 SECTION 11.3. Communication by Holders with other Holders. Securityholders may communicate pursuant to TIA ss. 312(b) with other Securityholders with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Security Registrar and anyone else shall have the protection of TIA ss. 312(c). SECTION 11.4. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take or refrain from taking any action under this Indenture, the Company shall furnish to the Trustee: (1) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee stating that, in the opinion of such counsel, all such conditions precedent have been complied with. SECTION 11.5. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a covenant or condition provided for in this Indenture shall include: (1) a statement that the individual making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such individual, such covenant or condition has been complied with. SECTION 11.6. When Securities Disregarded. In determining whether the Holders of the required principal amount of Securities have concurred in any direction, waiver or consent, Securities owned by the Company or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company 87 shall be disregarded and deemed not to be outstanding, except that, for the purpose of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities which the Trustee knows are so owned shall be so disregarded. Also, subject to the foregoing, only Securities outstanding at the time shall be considered in any such determination. SECTION 11.7. Rules by Trustee, Paying Agent and Registrar. The Trustee may make reasonable rules for action by or a meeting of Securityholders. The Security Registrar and the Paying Agent may make reasonable rules for their functions. SECTION 11.8. Legal Holidays. A "Legal Holiday" is a Saturday, a Sunday or a day on which banking institutions are not required to be open in the State of New York, Tokyo, Japan or Sao Paulo, Brazil. If a payment date is a Legal Holiday, payment shall be made on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. If a regular record date is a Legal Holiday, the record date shall not be affected. SECTION 11.9. Governing Law. This Indenture and the Securities shall be governed by, and construed in accordance with, the laws of the State of New York but without giving effect to applicable principles of conflicts of law to the extent that the application of the laws of another jurisdiction would be required thereby. SECTION 11.10. No Recourse Against Others. A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder shall waive and release all such liability. The waiver and release shall be part of the consideration for the issue of the Securities. SECTION 11.11. Successors. All agreements of the Company and the Subsidiary Guarantors in this Indenture and the Securities shall bind their respective successors. All agreements of the Trustee in this Indenture shall bind its successors. SECTION 11.12. Multiple Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. One signed copy is enough to prove this Indenture. SECTION 11.13. Variable Provisions. The Company initially appoints the Trustee as Paying Agent and Security Registrar and custodian with respect to any Global Securities. 88 SECTION 11.14. Qualification of Indenture. The Company shall qualify this Indenture under the TIA in accordance with the terms and conditions of the Registration Rights Agreement and shall pay all reasonable costs and expenses (including attorneys' fees for the Company, the Trustee and the Holders) incurred in connection therewith, including, but not limited to, costs and expenses of qualification of the Indenture and the Securities and printing this Indenture and the Securities. The Trustee shall be entitled to receive from the Company any such Officers' Certificates, Opinions of Counsel or other documentation as it may reasonably request in connection with any such qualification of this Indenture under the TIA. SECTION 11.15. Table of Contents; Headings. The table of contents, cross-reference sheet and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not intended to be considered a part hereof and shall not modify or restrict any of the terms or provisions hereof. SECTION 11.16. Agent for Service; Submission to Jurisdiction; Waiver of Immunities. By the execution and delivery of this Indenture or any amendment or supplement hereto, each of the Company and each Subsidiary Guarantor, (i) acknowledges that it has, by separate written instrument, designated and appointed CT Corporation System, currently located at 1633 Broadway, New York, New York 10019, as its authorized agent upon which process may be served in any suit, action or proceeding with respect to, arising out of, or relating to, the Securities, this Indenture or any Subsidiary Guarantee (other than an insolvency, liquidation or bankruptcy proceeding or any other proceeding in the nature of an in rem or quasi in rem proceeding), that may be instituted in any Federal or state court in the State of New York, The City of New York, the Borough of Manhattan, or brought under Federal or state securities laws or brought by the Trustee (whether in its individual capacity or in its capacity as Trustee hereunder), and acknowledges that CT Corporation System has accepted such designation, (ii) submits to the jurisdiction of any such court in any such suit, action or proceeding, and (iii) agrees that service of process upon CT Corporation System shall be deemed in every respect effective service of process upon the Company or any such Subsidiary Guarantor, as the case may be, in any such suit, action or proceeding. The Company and each Subsidiary Guarantor further agree to take any and all action, including the execution and filing of any and all such documents and instruments as may be necessary to continue such designation and appointment of CT Corporation System in full force and effect so long as this Indenture shall be in full force and effect; provided that the Company and each Subsidiary Guarantor may and shall (to the extent CT Corporation System ceases to be able to be served on the basis contemplated herein), by written notice to the Trustee, designate such additional or alternative agents for service of process under this Section 11.16 that (i) maintains an office located in the Borough of Manhattan, The City of New York in the State of New York, (ii) are either (x) counsel for the Company and the Subsidiary Guarantors or (y) a corporate service company which acts as agent for service of process for 89 other persons in the ordinary course of its business and for other persons in the ordinary course of its business and (iii) agrees to act as agent for service of process in accordance with this Section 11.16. Such notice shall identify the name of such agent for process and the address of such agent for process in the Borough of Manhattan, The City of New York, State of New York. Upon the request of any Holder, the Trustee shall deliver such information to such Holder. Notwithstanding the foregoing, there shall, at all times, be at least one agent for service of process for the Company and the Subsidiary Guarantors appointed and acting in accordance with this Section 11.16. To the extent that the Company or any Subsidiary Guarantor has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service of notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, the Company and each Subsidiary Guarantor hereby irrevocably waives such immunity in respect of its obligations under this Indenture, the Securities and the Subsidiary Guarantees, to the extent permitted by law. SECTION 11.17. Currency of Account; Conversion of Currency; Foreign Exchange Restrictions. (a) U.S. dollars are the sole currency of account and payment for all sums payable by the Company and the Subsidiary Guarantors under or in connection with the Securities, the Subsidiary Guarantees or this Indenture, including damages. Any amount received or recovered in a currency other than U.S. dollars (whether as a result of, or of the enforcement of, a judgment or order of a court of any jurisdiction, in the winding-up or dissolution of the Company and the Subsidiary Guarantors or otherwise) by any Holder of the Securities in respect of any sum expressed to be due to it from the Company and the Subsidiary Guarantors shall only constitute a discharge to the Company and the Subsidiary Guarantors to the extent of the dollar amount which the recipient is able to purchase with the amount so received or recovered in that other currency on the date of that receipt or recover (or, if it is not practicable to make that purchase on that date, on the first date on which it is practicable to do so). If that dollar amount is less than the dollar amount expressed to be due to the recipient under the Securities, the Company and the Subsidiary Guarantors shall, jointly and severally, indemnify it against any loss sustained by it as a result as set forth in Section 11.17(b). In any event, the Company and the Subsidiary Guarantors shall, jointly and severally, indemnify the recipient against the cost of making any such purchase. For the purposes of this Section 11.17, it will be sufficient for the holder of a Security to certify in a satisfactory manner (indicating sources of information used) that it would have suffered a loss had an actual purchase of dollars been made with the amount so received in that other currency on the date of receipt or recovery (or, if a purchase of dollars on such date had not been practicable, on the first date on which it would have been practicable, it being required that the need for a change of date be certified in the manner mentioned above). The indemnities set forth in this 11.17 constitute separate and independent cause of action, shall 90 apply irrespective of any indulgence granted by any Holder of the Securities and shall continue in full force and effect despite any other judgment, order, claim or proof for a liquidated amount in respect of any sum due under the Securities. (b) The Company and each Subsidiary Guarantor covenants and agrees that the following provisions shall apply to conversion of currency in the case of the Securities, the Guarantees and this Indenture: (i) (A) If for the purpose of obtaining judgment in, or enforcing the judgment of, any court in any country, it becomes necessary to convert into a currency (the "judgment currency") an amount due in any other currency (the "Base Currency"), then the conversion shall be made at the rate of exchange prevailing on the Business Day before the day on which the judgment is given or the order of enforcement is made, as the case may be (unless a court shall otherwise determine). (B) If there is a change in the rate of exchange prevailing between the Business Day before the day on which the judgment is given or an order of enforcement is made, as the case may be (or such other date as a court shall determine), and the date of receipt of the amount due, the Company or the relevant Subsidiary Guarantor, as the case may be, will pay such additional (or, as the case may be, such lesser) amount, if any, as may be necessary so that the amount paid in the judgment currency when converted at the rate of exchange prevailing on the date of receipt will produce the amount in the Base Currency originally due. (ii) In the event of the winding-up of the Company or any Subsidiary Guarantor at any time while any amount or damages owing under the Securities, the Subsidiary Guarantees and this Indenture, or any judgment or order rendered in respect thereof, shall remain outstanding, the Company or the relevant Subsidiary Guarantor, as the case may be, shall indemnify and hold the Holders and the Trustee harmless against any deficiency arising or resulting from any variation in rates of exchange between (1) the date as of which the U.S. Dollar Equivalent of the amount due or contingently due under the Securities, the Subsidiary Guarantees and this Indenture (other than under this Subsection (b)(ii)) is calculated for the purposes of such winding-up and (2) the final date for the filing of proofs of claim in such winding-up. For the purpose of this Subsection (b)(ii), the final date for the filing of proofs of claim in the winding-up of the Company or the relevant Subsidiary Guarantor, as the case may be, shall be the date fixed by the liquidator or otherwise in accordance with the relevant provisions of applicable law as being the latest practicable date as at which liabilities of the Company or the relevant Subsidiary Guarantor, as the case may be, may be ascertained for such winding-up prior to payment by the liquidator or otherwise in respect thereto. 91 (iii) The obligations contained in Subsections (a), (b)(i)(B), (b)(ii) and (b)(v) of this Section 11.17 shall constitute separate and independent obligations from the other Indenture obligations of the Company and the Subsidiary Guarantors, shall give rise to separate and independent causes of action against the Company and each Subsidiary Guarantor, shall apply irrespective of any waiver or extension granted by any Holder or the Trustee or either of them from time to time and shall continue in full force and effect notwithstanding any judgment or order or the filing of any proof of claim in the winding-up of the Company or any Subsidiary Guarantor for a liquidated sum in respect of amounts due hereunder (other than under Subsection (b)(ii) above) or under any such judgment or order. Any such deficiency as aforesaid shall be deemed to constitute a loss suffered by the Holders or the Trustee, as the case may be, and no proof or evidence of any actual loss shall be required by the Company or the relevant Subsidiary Guarantor or the liquidator or otherwise or any of them. In the case of Subsection (b)(ii) above, the amount of such deficiency shall not be deemed to be reduced by any variation in rates of exchange occurring between the said final date and the date of any liquidating distribution. (iv) The term "rate(s) of exchange" shall mean the rate of exchange quoted by Reuters at 10:00 a.m. (New York time) for spot purchases of the Base Currency with the judgment currency other than the Base Currency referred to in Subsections (b)(i) and (b)(ii) above and includes any premiums and costs of exchange payable. (c) In the event that on any payment date in respect of the Securities or any Subsidiary Guarantee, any restrictions or prohibition of access to the Brazilian foreign exchange market exists, the Company and each Subsidiary Guarantor agrees to pay all amounts payable under the Securities and the Guarantees in the currency of the Securities by means of any legal procedure existing in Brazil (except commencing legal proceedings against the Central Bank of Brazil), on any due date for payment under the Securities, for the purchase of the currency of such Securities. All costs and taxes payable in connection with the procedures referred to in this Section 11.17 shall be borne by the Company and the Subsidiary Guarantors. 92 IN WITNESS WHEREOF, the parties have caused this Indenture to be duly executed as of the date first written above. 93 TEVECAP S.A. By: ____________________________ Name: Title: By: ____________________________ Name: Title: TVA SISTEMA DE TELEVISAO S.A. By: ____________________________ Name: Title: By: ____________________________ Name: Title: TVA COMMUNICATIONS LTD. By: ______________________________ Name: Title: By: ______________________________ Name: Title: GALAXY BRASIL S.A. By: ______________________________ Name: Title: By: ______________________________ 94 Name: Title: 95 TVA SUL PARTICIPACOES S.A. By: ______________________________ Name: Title: By: ______________________________ Name: Title: COMERCIAL CABO TV SAO PAULO LTDA. By: ______________________________ Name: Title: By: ______________________________ Name: Title: TVA PARANA LTDA. By: ______________________________ Name: Title: By: ______________________________ Name: Title: TVA ALPHA CABO LTDA. By: ______________________________ Name: Title: 96 By: ______________________________ Name: Title: 97 CCS CAMBORIU CABLE SYSTEM DE TELECOMUNICACOES LTDA. By: ______________________________ Name: Title: By: ______________________________ Name: Title: TCC TV A CABO LTDA. By: ______________________________ Name: Title: By: ______________________________ Name: Title: TVA SUL FOZ DO IGUACU LTDA. By: ______________________________ Name: Title: By: ______________________________ Name: Title: 98 THE CHASE MANHATTAN BANK By: ______________________________ Name: Title: CHASE TRUST BANK By: ______________________________ Name: Title: 99 STATE OF NEW YORK ) : ss. COUNTY OF NEW YORK ) On this ____ day of November, 1996, before me, a notary public within and for said county, personally appeared _____________________, to me personally known who being duly sworn, did say that he was the___________________________ of The Chase Manhattan Bank, one of the persons described in and which executed the foregoing instrument, and acknowledges said instrument to be the free act and deed of said corporation. .............................................. [NOTARIAL SEAL] 100 STATE OF NEW YORK ) : ss. COUNTY OF NEW YORK ) On this ____ day of November, 1996, before me, a notary public within and for said county, personally appeared _____________________, to me personally known who being duly sworn, did say that he is the attorney-in-fact of Chase Trust Bank, one of the persons described in and which executed the foregoing instrument, and acknowledges said instrument to be the free act and deed of said corporation. .............................................. [NOTARIAL SEAL] EXHIBIT A [FORM OF FACE OF INITIAL SECURITY] [Global Securities Legend] UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF. [Restricted Securities Legend] THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS THREE YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND 2 THE LAST DATE ON WHICH THE ISSUER OR ANY AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE ISSUER, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QIB" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM PRINCIPAL AMOUNT OF THE SECURITIES OF $250,000, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE ISSUER'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D), (E) AND (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND IN EACH CASE, ONLY IF A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE ISSUER AND THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. No. [___] Principal Amount $[______________] CUSIP NO. 12-5/8% Senior Note due 2004 Tevecap S.A., a sociedad anonima organized under the laws of the Federative Republic of Brazil promises to pay to [___________], or registered assigns, the principal sum of [__________________] Dollars on November 26, 2004 or such other amount as is shown on the Register on such date in respect of the Notes. Interest Payment Dates: May 26 and November 26. Record Dates: May 1 and November 1. Additional provisions of this Security are set forth on the other side of this Security. Dated: November 26, 1996 TEVECAP S.A. By ______________________________________ Name: Title: By ______________________________________ Name: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION THE CHASE MANHATTAN BANK as Trustee, certifies that this is one of the Securities referred to in the Indenture. 2 by_____________________________ Authorized Signatory [FORM OF REVERSE SIDE OF INITIAL SECURITY] 12-5/8% Senior Note due 2004 1. Interest Tevecap S.A., a sociedad anonima organized under the laws of the Federative Republic of Brazil (such entity and its successors and assigns under the Indenture hereinafter referred to, being herein called the "Company") promises to pay interest on the principal amount of this Security at the rate per annum shown above. The Company will pay interest semiannually on May 26 and November 26 of each year, commencing on May 26, 1997. Interest on the Securities will accrue from the most recent date to which interest has been paid on the Securities or, if no interest has been paid, from November 26, 1996. The Company shall pay interest on overdue principal or premium, if any, at the rate borne by the Securities to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. Method of Payment By at least 10:00 a.m. (New York City time) on the Business Day prior to the date on which any principal of or interest on any Security is due and payable, the Company shall irrevocably deposit with the Trustee or the Paying Agent money sufficient to pay such principal, premium, if any, and/or interest. The Company will pay interest (except defaulted interest) to the Persons who are registered Holders of Securities at the close of business on the May 1 or November 1 next preceding the interest payment date even if Securities are cancelled, repurchased or redeemed after the record date and on or before the interest payment date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may pay principal and interest by check payable in such money. It may mail an interest check to a Holder's registered address. Any such interest not punctually paid, or duly provided for, and interest on such defaulted interest at the then applicable interest rate borne by the Securities, to the extent lawful, shall forthwith cease to be payable to the Holder on a regular record date, and may be paid to the person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a special record date for the payment of such defaulted interest to be fixed by the Trustee, notice of which shall be given to Holders of Securities not less than 10 days prior to such special record date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by the Depositary or any such clearing agency or exchange, all as 2 more fully provided in such Indenture. In addition, the Company (i) will pay to the Holder of this Security such Additional Amounts as may become payable under Section 4.15 of the Indenture and (ii) may be obligated to pay liquidated damages pursuant to certain provisions of the Registration Rights Agreement. 3. Paying Agent and Registrar Initially, The Chase Manhattan Bank, a New York corporation ("Trustee"), will act as Paying Agent and Security Registrar. Initially, Chase Trust Bank will act as Principal Paying Agent. The Company may appoint and change any Paying Agent, Registrar or co-registrar without notice to any Securityholder. The Company may act as Paying Agent, Security Registrar or co-registrar. 4. Indenture The Company issued the Securities under an Indenture dated as of November 26, 1996 (as it may be amended or supplemented from time to time in accordance with the terms thereof, the "Indenture"), among the Company, the Subsidiary Guarantors named therein (the "Subsidiary Guarantors") and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa-77bbbb) as in effect on the date of the Indenture (the "Act"). Capitalized terms used herein and not defined herein have the meanings ascribed thereto in the Indenture. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and the Act for a statement of those terms. The Securities are general unsecured senior obligations of the Company limited to $250.0 million aggregate principal amount (subject to Section 2.6 of the Indenture). This Security is one of the Initial Securities referred to in the Indenture. The Securities include the Initial Securities and any Exchange Securities issued in exchange for the Initial Securities pursuant to the Indenture and the Registration Rights Agreement. The Initial Securities and the Exchange Securities are treated as a single class of securities under the Indenture. The Indenture imposes certain limitations on the Incurrence of Indebtedness by the Company and its Subsidiaries, the payment of dividends and other distributions on the Capital Stock of the Company and its Subsidiaries, the purchase or redemption of Capital Stock of the Company and Capital Stock of such Subsidiaries, certain purchases or redemptions of Subordinated Obligations, the sale or transfer of assets and Capital Stock of Subsidiaries, the issuance or sale of Capital Stock of Subsidiaries, the business activities and investments of the Company and its Subsidiaries and transactions with Affiliates. In addition, the Indenture limits the 3 ability of the Company and its Subsidiaries to restrict distributions and dividends from Subsidiaries. To guarantee the due and punctual payment of the principal and interest, if any, on the Securities and all other amounts payable by the Company under the Indenture and the Securities when and as the same shall be due and payable, whether at maturity, by acceleration or otherwise, according to the terms of the Securities and the Indenture, the Subsidiary Guarantors have unconditionally guaranteed such obligations on a senior basis pursuant to the terms of the Indenture. 5. Optional Redemption At any time or from time to time prior to November 26, 2000, the Company may redeem in the aggregate up to $75.0 million principal amount of the Securities with the proceeds of one or more (i) Significant Equity Offerings or (ii) sales of the Company's Capital Stock to a Strategic Investor, at a redemption price (expressed as a percentage of principal amount) of 112.625% plus accrued and unpaid interest, if any, to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date); provided, however, that after giving effect to such redemption, at least $175.0 million principal amount of the Securities remain outstanding. 6. Tax Redemption The Securities may be redeemed at the option of the Company, in whole but not in part, at any time prior to maturity if (A) there is any change in or amendment to the Treaty to Avoid Double Taxation entered into between Brazil and Japan, approved by Legislative Decree No. 43 dated November 23, 1967, and enacted in Brazil by Decree No. 61,899 dated December 14, 1967, as amended by Decree No. 81,194 dated January 9, 1978, which has the effect of increasing the rate of tax applicable under such treaty to a rate exceeding 15.0% of interest payable; or (B) as the result of any change in or amendment to the laws, regulations or rulings of Brazil or Japan or any political subdivision or taxing authority thereof or therein, or any change in the application or official interpretation of such laws, regulations or rulings (including the holding of a court of competent jurisdiction), the Company or any Subsidiary Guarantor has or will become obligated to pay Additional Amounts (excluding interest and penalties) in excess of the Additional Amounts that the Company or any Subsidiary Guarantor would be obligated to pay if Taxes (excluding interest and penalties) were imposed with respect to such payments of interest at a rate of 15.0% and such obligation cannot be avoided by the Company or the Subsidiary Guarantors, as the case may be, taking reasonable measures available to them, then the Company may, at its option, 4 redeem or cause the redemption of the Securities, as a whole but not in part, upon not more than 60 nor less than 30 days' notice given in the manner set forth in Section 3.3 of the Indenture to the Holders (with copies to the Trustee and each Paying Agent) at 100% of their principal amount, together with accrued interest to (but excluding) the date fixed for redemption, plus any such Additional Amounts payable with respect to such principal amount and interest. Prior to the giving of notice of redemption of the Securities as described herein and as a condition to any such redemption, the Company will deliver to the Trustee an Officers' Certificate (together with a copy of a written Opinion of Counsel to the effect that the applicable rate has so increased, or the Company or any Subsidiary Guarantor has or will become so obligated to pay Additional Amounts as a result of such change or amendment), stating that the Company is entitled to effect such redemption and setting forth in reasonable detail a statement of facts relating thereto. No notice of redemption shall be given earlier than 90 days prior to the earliest date on which the Company or any Subsidiary Guarantor would be obligated to pay such Additional Amounts were a payment in respect of the Securities then due and, at the time such notice of redemption is given, such obligation to pay such Additional Amounts remains in effect. 7. Notice of Redemption Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder of Securities to be redeemed at his registered address. Securities in denominations of principal amount larger than $1,000 may be redeemed in part but only in whole multiples of $1,000. If money sufficient to pay the redemption price of and accrued and unpaid interest on all Securities (or portions thereof) to be redeemed on the redemption date is deposited with the Paying Agent on or before the redemption date and certain other conditions are satisfied, on and after such date interest ceases to accrue on such Securities (or such portions thereof) called for redemption. 8. Put Provisions Upon a Change of Control, any Holder of Securities will have the right to cause the Company to repurchase all or any part of the Securities of such Holder at a repurchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of repurchase as provided in, and subject to the terms of, the Indenture. 5 9. Denominations; Transfer; Exchange The Securities are in registered form without coupons in denominations of principal amount of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange Securities in accordance with the Indenture. The Security Registrar may require a Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Security Registrar need not register the transfer of or exchange of any Securities selected for redemption (except, in the case of a Security to be redeemed in part, the portion of the Security not to be redeemed) during a period beginning at the opening of business 15 days before the mailing of a notice of redemption of the Securities selected for redemption and ending at the close of business on the day of such mailing. 10. Persons Deemed Owners The registered holder of this Security may be treated as the owner of it for all purposes. 11. Unclaimed Money If money for the payment of principal or interest remains unclaimed for two years, the Trustee or Paying Agent shall pay the money back to the Company at its request. After any such payment, Holders entitled to the money must look only to the Company and not to the Trustee for payment. 12. Defeasance Subject to certain conditions set forth in the Indenture, the Company at any time may terminate some or all of its obligations under the Securities and the Indenture if the Company deposits with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Securities to redemption or maturity, as the case may be. 13. Amendment, Waiver Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities may be amended with the written consent of the Holders of at least a majority in principal amount of the outstanding Securities and (ii) any default or noncompliance with any 6 provision may be waived with the written consent of the Holders of a majority in principal amount of the outstanding Securities. Subject to certain exceptions set forth in the Indenture, without the consent of any Securityholder, the Company, the Subsidiary Guarantors and the Trustee may amend the Indenture or the Securities to cure any ambiguity, omission, defect or inconsistency, or to comply with Article 5 of the Indenture, or to provide for uncertificated Securities in addition to or in place of certificated Securities, or to add guarantees with respect to the Securities or to secure the Securities, or to add additional covenants or surrender rights and powers conferred on the Company for the benefit of the Securityholders, or to comply with any requirements of the SEC in connection with qualifying the Indenture under the Act, or to make any change that does not adversely affect the rights of any Securityholder, or to provide for the issuance of Exchange Securities. 14. Defaults and Remedies Under the Indenture, Events of Default include (i) default for 30 days in payment of interest on the Securities; (ii) default in payment of principal on the Securities at maturity, upon redemption pursuant to paragraph 5 of the Securities, upon required repurchase, upon declaration or otherwise; (iii) failure by the Company or any Restricted Subsidiary to comply with other agreements in the Indenture or the Securities, in certain cases subject to notice and lapse of time; (iv) certain accelerations (including failure to pay within any grace period after payment is due) of other indebtedness of the Company or its Restricted Subsidiaries if the amount accelerated (or so unpaid) exceeds $10.0 million or the US Dollar Equivalent; (v) certain events of bankruptcy or insolvency with respect to the Company or any Restricted Subsidiary; (vi) the seizure, compulsory acquisition, expropriation or nationalization of material assets of the Company or its Subsidiaries; (vii) the failure of any Subsidiary Guarantee to be in full force or the denial or disaffirmation by any Subsidiary Guarantor of its obligation under the Indenture or Guarantee; and (viii) certain final, non-appealable judgments or decrees for the payment of money in excess of $10.0 million or the US Dollar Equivalent. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Securities may declare all the Securities to be due and payable immediately (including all Additional Amounts thereon). Certain events of bankruptcy or insolvency are Events of Default which will result in the Securities being due and payable immediately upon the occurrence of such Events of Default. Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Securities unless it receives reasonable indemnity or security. Subject to certain limitations, Holders of a majority in principal amount of the Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing 7 Default or Event of Default (except a Default or Event of Default in payment of principal or interest) if it determines that withholding notice is in their interest. 15. Trustee Dealings with the Company Subject to certain limitations set forth in the Indenture, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with and collect obligations owed to it by the Company or its affiliates and may otherwise deal with the Company or its affiliates with the same rights it would have if it were not Trustee. 16. No Recourse Against Others A director, officer, employee or stockholder, as such, of the Company or any Subsidiary Guarantor shall not have any liability for any obligations of the Company or any Subsidiary Guarantor under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. 17. Authentication This Security shall not be valid until an authorized signatory of the Trustee (or an authenticating agent acting on its behalf) manually signs the certificate of authentication on the other side of this Security. 18. Abbreviations Customary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entirety), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian) and U/G/M/A (=Uniform Gift to Minors Act). 8 19. CUSIP and CINS Numbers Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures the Company has caused CUSIP and/or CINS numbers to be printed on the Securities and has directed the Trustee to use such numbers in notices of redemption as a convenience to Securityholders. No representation is made as to the accuracy of such numbers either as printed on the Securities or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. 20. Governing Law This Security shall be governed by, and construed in accordance with, the laws of the State of New York but without giving effect to applicable principles of conflicts of law to the extent that the application of the laws of another jurisdiction would be required thereby. 21. Additional Amounts The Company will pay to the Holders of Securities such Additional Amounts as may become payable under Section 4.15 of the Indenture. 22. Conversion of Currency U.S. dollars are the sole currency of account and payment for all sums payable by the Company and the Subsidiary Guarantors under or in connection with the Securities, the Subsidiary Guarantees or the Indenture, including damages. The Company and each Subsidiary Guarantor have agreed that the provisions of Section 11.17 of the Indenture shall apply to conversion of currency in the case of the Securities, the Subsidiary Guarantees and the Indenture. Among other things, Section 11.17 specifies that if there is a change in the rate of exchange prevailing between the Business Day before the day on which a judgment is given or an order or enforcement is made, as the case may be (or such other date as a court shall determine), and the date of receipt of the amount due, the Company or the relevant Subsidiary Guarantor, as the case may be, will pay such additional (or, as the case may be, such lesser) amount, if any, as may be necessary so that the amount paid in the judgment currency when converted at the rate of exchange prevailing on the date of receipt will produce the amount in the Base Currency originally due. In the event that on any payment date in respect of the Securities or any guarantee, any restrictions or prohibition of access to the Brazilian foreign exchange market exists, the Company and each Subsidiary Guarantor agrees to pay all amounts payable under the Securities and the Subsidiary Guarantees in the 9 currency of the Securities by means of any legal procedure existing in Brazil (except commencing legal proceedings against the Central Bank of Brazil), on any due date for payment under the Securities, for the purchase of the currency of such Securities. All costs and taxes payable in connection with the procedures referred to in this paragraph shall be borne by the Company and the Subsidiary Guarantors. 23. Agent for Service; Submission to Jurisdiction; Waiver of Immunities The Company and each Subsidiary Guarantor have appointed CT Corporation System, currently located at 1633 Broadway, New York, New York 10019, as its authorized agent upon which process may be served in any suit, action or proceeding with respect to, arising out of, or relating to, this Security, the Indenture or any Subsidiary Guarantee (other than an insolvency, liquidation or bankruptcy proceeding or any other proceeding in the nature of an in rem or quasi in rem proceeding), that may be instituted in any Federal or state court in the State of New York, The City of New York, the Borough of Manhattan, or brought under Federal or state securities laws or brought by the Trustee (whether in its individual capacity or in its capacity as Trustee hereunder) and have agreed that there shall, at all time, be at least one agent for service of process for the Company and the Subsidiary Guarantors appointed and acting in accordance with the provisions of Section 11.16 of the Indenture relating to agent for service of process. To the extent that the Company or any Subsidiary Guarantor has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service of notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, the Company and each Subsidiary Guarantor have irrevocably waived such immunity in respect of its obligations under the Indenture, this Security and the Subsidiary Guarantee, to the extent permitted by law. The Company will furnish to any Securityholder upon written request and without charge to the Securityholder a copy of the Indenture which has in it the text of this Security in larger type. Requests may be made to: Tevecap S.A. Attention of Chief Financial Officer 10 [FORM OF NOTATION ON NOTE RELATING TO GUARANTEE] For value received, the undersigned hereby unconditionally guarantees, as principal obligor and not merely as a surety, to the Holder of this Security, the cash payments in United States dollars of principal, premium, if any, and interest on this Security (and including Additional Amounts payable thereon) in the amounts and at the times when due, together with interest on the overdue principal, premium, if any, and interest, if any, on this Security, if lawful, and the payment or performance of all other obligations of the Company under the Indenture or the Securities, to the Holder of this Security and the Trustee, all in accordance with and subject to the terms and conditions of this Security and the Indenture, including Article X of the Indenture. Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Indenture, dated as of November 26, 1996, among the Company, the Subsidiary Guarantors, The Chase Manhattan Bank, as Trustee, and Chase Trust Bank, as Principal Paying Agent, as amended or supplemented. The obligations of the undersigned to the Holders of Securities and to the Trustee are expressly set forth in Article X of the Indenture and reference is hereby made to the Indenture for the precise terms of the Guarantee. IN WITNESS WHEREOF, each Subsidiary Guarantor has caused this endorsement to be duly executed. November 26, 1996 TVA SISTEMA DE TELEVISAO S.A. By: ____________________________ Name: Title: By: ____________________________ Name: Title: TVA COMMUNICATIONS LTD. By: ______________________________ Name: 11 Title: By: ______________________________ Name: Title: GALAXY BRASIL S.A. By: ______________________________ Name: Title: By: ______________________________ Name: Title: TVA SUL PARTICIPACOES S.A. By: ______________________________ Name: Title: By: ______________________________ Name: Title: COMERCIAL CABO TV SAO PAULO LTDA. By: ______________________________ Name: Title: By: ______________________________ Name: Title: 12 TVA PARANA LTDA. By: ______________________________ Name: Title: By: ______________________________ Name: Title: TVA ALPHA CABO LTDA. By: ______________________________ Name: Title: By: ______________________________ Name: Title: 13 CCS CAMBORIU CABLE SYSTEM DE TELECOMUNICACOES LTDA. By: ______________________________ Name: Title: By: ______________________________ Name: Title: TCC TV A CABO LTDA. By: ______________________________ Name: Title: By: ______________________________ Name: Title: TVA SUL FOZ DO IGUACU LTDA. By: ______________________________ Name: Title: By: ______________________________ Name: Title: ASSIGNMENT FORM To assign this Security, fill in the form below: I or we assign and transfer this Security to (Print or type assignee's name, address and zip code) (Insert assignee's soc. sec. or tax I.D. No.) and irrevocably appoint agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. Date: ____________________ Your Signature: ___________________ Signature Guarantee: ______________________________________ (Signature must be guaranteed) Sign exactly as your name appears on the other side of this Security. In connection with any transfer of this Security occurring prior to the date which is the earlier of (i) the date of the declaration by the Commission of the effectiveness of a registration statement under the Securities Act of 1933, as amended (the "Securities Act"), covering resales of this Security (which effectiveness shall not have been suspended or terminated at the date of the transfer) and (ii) the later of November 26, 1999, or the date three years (or such shorter period of time as permitted by Rule 144(k) under the Securities Act or any successor provision thereunder) after the later of the date of issuance appearing on the face of this Security and the last date on which the Company or an affiliate of the Company was the owner of this Security (or any Predecessor Security), the undersigned confirms that it has not utilized any general solicitation or general advertising in connection with the transfer and that: [Check One] [ ] (a) this Security is being transferred in compliance with the exemption from registration under the Securities Act provided by Rule 144A thereunder. or 2 [ ] (b) this Security is being transferred other than in accordance with (a) above and documents, including a transferee certificate substantially in the form attached hereto, are being furnished which comply with the conditions of transfer set forth in this Security and the Indenture. If neither of the foregoing boxes is checked and, in the case of (b) above, if the appropriate document is not attached or otherwise furnished to the Trustee, the Trustee or Security Registrar shall not be obligated to register this Security in the name of any person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in Section 2.14 of the Indenture shall have been satisfied. ______________________________________________________________________________ Date:____________ Your signature: ______________________________________ (Sign exactly as your name appears on the other side of this Security) By:___________________________________ NOTICE: To be executed by an executive officer Signature Guarantee:________________________ TO BE COMPLETED BY PURCHASER IF (a) IS CHECKED The undersigned represents and warrants that it is purchasing this Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A (including the information specified in Rule 144A(d)(4)) or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated:________________________ _________________________________________ NOTICE: To be executed by an executive officer 3 [The Transferee Certificates (Exhibits C and D to the Indenture) will be attached to the Initial Security] 4 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security purchased by the Company pursuant to Section 4.6 or 4.8 of the Indenture, check the box: |_| If you want to elect to have only part of this Security purchased by the Company pursuant to Section 4.6 or 4.8 of the Indenture, state the amount in principal amount (must be integral multiple of $1,000): $ Date: __________ Your Signature ____________________________ (Sign exactly as your name appears on the other side of the Security) Signature Guarantee: _______________________________________ (Signature must be guaranteed) EXHIBIT B [FORM OF FACE OF EXCHANGE SECURITY] [Global Securities Legend] UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF. 6 No. [___] Principal Amount $[______________] CUSIP NO. 12-5/8% Senior Note due 2004 Tevecap S.A., a sociedad anonima organized under the laws of the Federative Republic of Brazil promises to pay to [___________], or registered assigns, the principal sum of [__________________] Dollars on November 26, 2004 or such other amount as is shown on the Register on such date in respect of this Note. Interest Payment Dates: May 26 and November 26. Record Dates: May 1 and November 1. Additional provisions of this Security are set forth on the other side of this Security. Dated: November 26, 1996 TEVECAP S.A. By ___________________________________ Name: Title: By ___________________________________ Name: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION THE CHASE MANHATTAN BANK as Trustee, certifies 7 that this is one of the Securities referred to in the Indenture. by_________________________ Authorized Signatory [FORM OF REVERSE SIDE OF EXCHANGE SECURITY] 12-5/8% Senior Note due 2004 1. Interest Tevecap S.A., a sociedad anonima organized under the laws of the Federative Republic of Brazil (such entity and its successors and assigns under the Indenture hereinafter referred to, being herein called the "Company") promises to pay interest on the principal amount of this Security at the rate per annum shown above. The Company will pay interest semiannually on May 26 and November 26 of each year, commencing on May 26, 1997. Interest on the Securities will accrue from the most recent date to which interest has been paid on the Securities or, if no interest has been paid, from November 26, 1996. The Company shall pay interest on overdue principal or premium, if any, at the rate borne by the Securities to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. Method of Payment By at least 10:00 a.m. (New York City time) on the Business Day prior to the date on which any principal of or interest on any Security is due and payable, the Company shall irrevocably deposit with the Trustee or the Paying Agent money sufficient to pay such principal, premium, if any, and/or interest. The Company will pay interest (except defaulted interest) to the Persons who are registered Holders of Securities at the close of business on the May 1 or November 1 next preceding the interest payment date even if Securities are cancelled, repurchased or redeemed after the record date and on or before the interest payment date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may pay principal and interest by check payable in such money. It may mail an interest check to a Holder's registered address. Any such interest not punctually paid, or duly provided for, and interest on such defaulted interest at the then applicable interest rate borne by the Securities, to the extent lawful, shall forthwith cease to be payable to the Holder on a regular record date, and may be paid to the person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a special record date for the payment of such defaulted interest to be fixed by the Trustee, notice of which shall be given to Holders of Securities not less than 10 days prior to such special record date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by the Depositary or any such clearing agency or exchange, all as 2 more fully provided in such Indenture. In addition, the Company will pay to the Holder of this Security such Additional Amounts as may become payable under Section 4.15 of the Indenture. 3. Paying Agent and Registrar Initially, The Chase Manhattan Bank, a New York corporation ("Trustee"), will act as Paying Agent and Security Registrar. Initially, Chase Trust Bank will act as Principal Paying Agent. The Company may appoint and change any Paying Agent, Registrar or co-registrar without notice to any Securityholder. The Company may act as Paying Agent, Security Registrar or co-registrar. 4. Indenture The Company issued the Securities under an Indenture dated as of November 26, 1996 (as it may be amended or supplemented from time to time in accordance with the terms thereof, the "Indenture"), among the Company, the Subsidiary Guarantors named therein (the "Subsidiary Guarantors") and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa-77bbbb) as in effect on the date of the Indenture (the "Act"). Capitalized terms used herein and not defined herein have the meanings ascribed thereto in the Indenture. The Securities are subject to all such terms, and Securityholders are referred to the Indenture and the Act for a statement of those terms. The Securities are general unsecured senior obligations of the Company limited to $250.0 million aggregate principal amount (subject to Section 2.6 of the Indenture). This Security is one of the Initial Securities referred to in the Indenture. The Securities include the Initial Securities and any Exchange Securities issued in exchange for the Initial Securities pursuant to the Indenture and the Registration Rights Agreement. The Initial Securities and the Exchange Securities are treated as a single class of securities under the Indenture. The Indenture imposes certain limitations on the Incurrence of Indebtedness by the Company and its Subsidiaries, the payment of dividends and other distributions on the Capital Stock of the Company and its Subsidiaries, the purchase or redemption of Capital Stock of the Company and Capital Stock of such Subsidiaries, certain purchases or redemptions of Subordinated Obligations, the sale or transfer of assets and Capital Stock of Subsidiaries, the issuance or sale of Capital Stock of Subsidiaries, the business activities and investments of the Company and its Subsidiaries and transactions with Affiliates. In addition, the Indenture limits the ability of the Company and its Subsidiaries to restrict distributions and dividends from Subsidiaries. 3 To guarantee the due and punctual payment of the principal and interest, if any, on the Securities and all other amounts payable by the Company under the Indenture and the Securities when and as the same shall be due and payable, whether at maturity, by acceleration or otherwise, according to the terms of the Securities and the Indenture, the Subsidiary Guarantors have unconditionally guaranteed such obligations on a senior basis pursuant to the terms of the Indenture. 5. Optional Redemption At any time or from time to time prior to November 26, 2000, the Company may redeem in the aggregate up to $75.0 million principal amount of the Securities with the proceeds of one or more (i) Significant Equity Offerings or (ii) sales of the Company's Capital Stock to a Strategic Investor, at a redemption price (expressed as a percentage of principal amount) of 112.625% plus accrued and unpaid interest, if any, to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date); provided, however, that after giving effect to such redemption, at least $175.0 million principal amount of the Securities remain outstanding. 6. Tax Redemption The Securities may be redeemed at the option of the Company, in whole but not in part, at any time prior to maturity if (A) there is any change in or amendment to the Treaty to Avoid Double Taxation entered into between Brazil and Japan, approved by Legislative Decree No. 43 dated November 23, 1967, and enacted in Brazil by Decree No. 61,899 dated December 14, 1967, as amended by Decree No. 81,194 dated January 9, 1978, which has the effect of increasing the rate of tax applicable under such treaty to a rate exceeding 15.0% of interest payable; or (B) as the result of any change in or amendment to the laws, regulations or rulings of Brazil or Japan or any political subdivision or taxing authority thereof or therein, or any change in the application or official interpretation of such laws, regulations or rulings (including the holding of a court of competent jurisdiction), the Company or any Subsidiary Guarantor has or will become obligated to pay Additional Amounts (excluding interest and penalties) in excess of the Additional Amounts that the Company or any Subsidiary Guarantor would be obligated to pay if Taxes (excluding interest and penalties) were imposed with respect to such payments of interest at a rate of 15.0% and such obligation cannot be avoided by the Company or the Subsidiary Guarantors, as the case may be, taking reasonable measures available to them, then the Company may, at its option, redeem or cause the redemption of the Securities, as a whole but not in part, upon not more than 60 nor less than 30 days' notice given in the manner set forth in Section 3.3 of the Indenture to the Holders (with copies to the Trustee and each Paying Agent) at 100% of their 4 principal amount, together with accrued interest to (but excluding) the date fixed for redemption, plus any such Additional Amounts payable with respect to such principal amount and interest. Prior to the giving of notice of redemption of the Securities as described herein and as a condition to any such redemption, the Company will deliver to the Trustee an Officers' Certificate (together with a copy of a written Opinion of Counsel to the effect that the applicable rate has so increased, or the Company or any Subsidiary Guarantor has or will become so obligated to pay Additional Amounts as a result of such change or amendment, stating that the Company is entitled to effect such redemption and setting forth in reasonable detail a statement of facts relating thereto. No notice of redemption shall be given earlier than 90 days prior to the earliest date on which the Company or any Subsidiary Guarantor would be obligated to pay such Additional Amounts were a payment in respect of the Securities then due and, at the time such notice of redemption is given, such obligation to pay such Additional Amounts remains in effect. 7. Notice of Redemption Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder of Securities to be redeemed at his registered address. Securities in denominations of principal amount larger than $1,000 may be redeemed in part but only in whole multiples of $1,000. If money sufficient to pay the redemption price of and accrued and unpaid interest on all Securities (or portions thereof) to be redeemed on the redemption date is deposited with the Paying Agent on or before the redemption date and certain other conditions are satisfied, on and after such date interest ceases to accrue on such Securities (or such portions thereof) called for redemption. 8. Put Provisions Upon a Change of Control, any Holder of Securities will have the right to cause the Company to repurchase all or any part of the Securities of such Holder at a repurchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of repurchase as provided in, and subject to the terms of, the Indenture. 9. Denominations; Transfer; Exchange The Securities are in registered form without coupons in denominations of principal amount of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange Securities in accordance with the Indenture. The Security Registrar may require a 5 Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Security Registrar need not register the transfer of or exchange of any Securities selected for redemption (except, in the case of a Security to be redeemed in part, the portion of the Security not to be redeemed) during a period beginning at the opening of business 15 days before the mailing of a notice of redemption of the Securities selected for redemption and ending at the close of business on the day of such mailing. 10. Persons Deemed Owners The registered holder of this Security may be treated as the owner of it for all purposes. 11. Unclaimed Money If money for the payment of principal or interest remains unclaimed for two years, the Trustee or Paying Agent shall pay the money back to the Company at its request. After any such payment, Holders entitled to the money must look only to the Company and not to the Trustee for payment. 12. Defeasance Subject to certain conditions set forth in the Indenture, the Company at any time may terminate some or all of its obligations under the Securities and the Indenture if the Company deposits with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Securities to redemption or maturity, as the case may be. 13. Amendment, Waiver Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Securities may be amended with the written consent of the Holders of at least a majority in principal amount of the outstanding Securities and (ii) any default or noncompliance with any provision may be waived with the written consent of the Holders of a majority in principal amount of the outstanding Securities. Subject to certain exceptions set forth in the Indenture, without the consent of any Securityholder, the Company, the Subsidiary Guarantors and the Trustee may amend the Indenture or the Securities to cure any ambiguity, omission, defect or inconsistency, or to comply with Article 5 of the Indenture, or to provide for uncertificated 6 Securities in addition to or in place of certificated Securities, or to add guarantees with respect to the Securities or to secure the Securities, or to add additional covenants or surrender rights and powers conferred on the Company for the benefit of the Securityholders, or to comply with any requirements of the SEC in connection with qualifying the Indenture under the Act, or to make any change that does not adversely affect the rights of any Securityholder, or to provide for the issuance of Exchange Securities. 14. Defaults and Remedies Under the Indenture, Events of Default include (i) default for 30 days in payment of interest on the Securities; (ii) default in payment of principal on the Securities at maturity, upon redemption pursuant to paragraph 5 of the Securities, upon required repurchase, upon declaration or otherwise; (iii) failure by the Company or any Restricted Subsidiary to comply with other agreements in the Indenture or the Securities, in certain cases subject to notice and lapse of time; (iv) certain accelerations (including failure to pay within any grace period after payment is due) of other indebtedness of the Company or its Restricted Subsidiaries if the amount accelerated (or so unpaid) exceeds $10.0 million or the US Dollar Equivalent; (v) certain events of bankruptcy or insolvency with respect to the Company or any Restricted Subsidiary; (vi) the seizure, compulsory acquisition, expropriation or nationalization of material assets of the Company or its Subsidiaries; (vii) the failure of any Subsidiary Guarantee to be in full force or the denial or disaffirmation by any Subsidiary Guarantor of its obligation under the Indenture or Guarantee; and (viii) certain final, non-appealable judgments or decrees for the payment of money in excess of $10.0 million or the US Dollar Equivalent. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Securities may declare all the Securities to be due and payable immediately (including all Additional Amounts thereon). Certain events of bankruptcy or insolvency are Events of Default which will result in the Securities being due and payable immediately upon the occurrence of such Events of Default. Securityholders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Securities unless it receives reasonable indemnity or security. Subject to certain limitations, Holders of a majority in principal amount of the Securities may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Securityholders notice of any continuing Default or Event of Default (except a Default or Event of Default in payment of principal or interest) if it determines that withholding notice is in their interest. 15. Trustee Dealings with the Company 7 Subject to certain limitations set forth in the Indenture, the Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with and collect obligations owed to it by the Company or its affiliates and may otherwise deal with the Company or its affiliates with the same rights it would have if it were not Trustee. 16. No Recourse Against Others A director, officer, employee or stockholder, as such, of the Company or any Subsidiary Guarantor shall not have any liability for any obligations of the Company or any Subsidiary Guarantor under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Security, each Securityholder waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. 17. Authentication This Security shall not be valid until an authorized signatory of the Trustee (or an authenticating agent acting on its behalf) manually signs the certificate of authentication on the other side of this Security. 18. Abbreviations Customary abbreviations may be used in the name of a Securityholder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entirety), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian) and U/G/M/A (=Uniform Gift to Minors Act). 19. CUSIP and CINS Numbers Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures the Company has caused CUSIP and/or CINS numbers to be printed on the Securities and has directed the Trustee to use such numbers in notices of redemption as a convenience to Securityholders. No representation is made as to the accuracy of such numbers either as printed on the Securities or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. 8 20. Governing Law This Security shall be governed by, and construed in accordance with, the laws of the State of New York but without giving effect to applicable principles of conflicts of law to the extent that the application of the laws of another jurisdiction would be required thereby. 21. Additional Amounts The Company will pay to the Holders of Securities such Additional Amounts as may become payable under Section 4.15 of the Indenture. 22. Conversion of Currency U.S. dollars are the sole currency of account and payment for all sums payable by the Company and the Subsidiary Guarantors under or in connection with the Securities, the Subsidiary Guarantees or the Indenture, including damages. The Company and each Subsidiary Guarantor have agreed that the provisions of Section 11.17 of the Indenture shall apply to conversion of currency in the case of the Securities, the Subsidiary Guarantees and the Indenture. Among other things, Section 11.17 specifies that if there is a change in the rate of exchange prevailing between the Business Day before the day on which a judgment is given or an order or enforcement is made, as the case may be (or such other date as a court shall determine), and the date of receipt of the amount due, the Company or the relevant Subsidiary Guarantor, as the case may be, will pay such additional (or, as the case may be, such lesser) amount, if any, as may be necessary so that the amount paid in the judgment currency when converted at the rate of exchange prevailing on the date of receipt will produce the amount in the Base Currency originally due. In the event that on any payment date in respect of the Securities or any guarantee, any restrictions or prohibition of access to the Brazilian foreign exchange market exists, the Company and each Subsidiary Guarantor agrees to pay all amounts payable under the Securities and the Subsidiary Guarantees in the currency of the Securities by means of any legal procedure existing in Brazil (except commencing legal proceedings against the Central Bank of Brazil), on any due date for payment under the Securities, for the purchase of the currency of such Securities. All costs and taxes payable in connection with the procedures referred to in this paragraph shall be borne by the Company and the Subsidiary Guarantors. 23. Agent for Service; Submission to Jurisdiction; Waiver of Immunities 9 The Company and each Subsidiary Guarantor have appointed CT Corporation System, currently located at 1633 Broadway, New York, New York 10019, as its authorized agent upon which process may be served in any suit, action or proceeding with respect to, arising out of, or relating to, this Security, the Indenture or any Subsidiary Guarantee (other than an insolvency, liquidation or bankruptcy proceeding or any other proceeding in the nature of an in rem or quasi in rem proceeding), that may be instituted in any Federal or state court in the State of New York, The City of New York, the Borough of Manhattan, or brought under Federal or state securities laws or brought by the Trustee (whether in its individual capacity or in its capacity as Trustee hereunder) and have agreed that there shall, at all time, be at least one agent for service of process for the Company and the Subsidiary Guarantors appointed and acting in accordance with the provisions of Section 11.16 of the Indenture relating to agent for service of process. To the extent that the Company or any Subsidiary Guarantor has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service of notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, the Company and each Subsidiary Guarantor have irrevocably waived such immunity in respect of its obligations under the Indenture, this Security and the Guarantee, to the extent permitted by law. The Company will furnish to any Securityholder upon written request and without charge to the Securityholder a copy of the Indenture which has in it the text of this Security in larger type. Requests may be made to: Tevecap S.A. Attention of Chief Financial Officer 10 [FORM OF NOTATION ON NOTE RELATING TO GUARANTEE] For value received, the undersigned hereby unconditionally guarantees, as principal obligor and not merely as a surety, to the Holder of this Security, the cash payments in United States dollars of principal, premium, if any, and interest on this Security (and including Additional Amounts payable thereon) in the amounts and at the times when due, together with interest on the overdue principal, premium, if any, and interest, if any, on this Security, if lawful, and the payment or performance of all other obligations of the Company under the Indenture or the Securities, to the Holder of this Security and the Trustee, all in accordance with and subject to the terms and conditions of this Security and the Indenture, including Article X of the Indenture. Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Indenture, dated as of November 26, 1996, among the Company, the Subsidiary Guarantors, The Chase Manhattan Bank, as Trustee, and Chase Trust Bank, as Principal Paying Agent, as amended or supplemented. The obligations of the undersigned to the Holders of Securities and to the Trustee are expressly set forth in Article X of the Indenture and reference is hereby made to the Indenture for the precise terms of the Guarantee. IN WITNESS WHEREOF, each Subsidiary Guarantor has caused this endorsement to be duly executed. November 26, 1996 TVA SISTEMA DE TELEVISAO S.A. By: ____________________________ Name: Title: By: ____________________________ Name: Title: TVA COMMUNICATIONS LTD. By: ______________________________ Name: 11 Title: By: ______________________________ Name: Title: GALAXY BRASIL S.A. By: ______________________________ Name: Title: By: ______________________________ Name: Title: TVA SUL PARTICIPACOES S.A. By: ______________________________ Name: Title: By: ______________________________ Name: Title: COMERCIAL CABO TV SAO PAULO LTDA. By: ______________________________ Name: Title: By: ______________________________ Name: Title: 12 TVA PARANA LTDA. By: ______________________________ Name: Title: By: ______________________________ Name: Title: TVA ALPHA CABO LTDA. By: ______________________________ Name: Title: By: ______________________________ Name: Title: 13 CCS CAMBORIU CABLE SYSTEM DE TELECOMUNICACOES LTDA. By: ______________________________ Name: Title: By: ______________________________ Name: Title: TCC TV A CABO LTDA. By: ______________________________ Name: Title: By: ______________________________ Name: Title: TVA SUL FOZ DO IGUACU LTDA. By: ______________________________ Name: Title: By: ______________________________ Name: Title: ________________________________________________________________________________ ASSIGNMENT FORM To assign this Security, fill in the form below: I or we assign and transfer this Security to (Print or type assignee's name, address and zip code) (Insert assignee's soc. sec. or tax I.D. No.) and irrevocably appoint agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. ________________________________________________________________________________ Date: _______________ Your Signature ____________________ Signature Guarantee: ____________________________________ (Signature must be guaranteed) ________________________________________________________________________________ Sign exactly as your name appears on the other side of this Security. OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security purchased by the Company pursuant to Section 4.6 or 4.8 of the Indenture, check the box: |_| If you want to elect to have only part of this Security purchased by the Company pursuant to Section 4.6 or 4.8 of the Indenture, state the amount in principal amount (must be integral multiple of $1,000): $ Date: _______________ Your Signature: _________________________ (Sign exactly as your name appears on the other side of the Security) Signature Guarantee: _______________________________________ (Signature must be guaranteed) EXHIBIT C FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION WITH TRANSFERS TO NON-QIB INSTITUTIONAL ACCREDITED INVESTORS TEVECAP S.A. THE CHASE MANHATTAN BANK c/o The Chase Manhattan Bank 450 West 33rd Street, 15th Floor New York, NY 10001-2697 Attention: Global Trust Services -- International Service Delivery Re: Tevecap S.A. (the "Company") 125/8% Senior Notes due 2004 (the "Securities") Ladies and Gentlemen: This certificate is delivered to request a transfer of $ principal amount of the 12-5/8% Senior Notes due 2004 (the "Notes") of Tevecap, S.A. (the "Company"). Upon transfer, the Notes would be registered in the name of the new beneficial owner as follows: Name: ___________________________________ Address: ________________________________ Taxpayer ID Number: _____________________ The undersigned represents and warrants to you that: 1. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933 (the "Securities Act")) purchasing for our own account or for the account of such an institutional "accredited investor," at least C-1 2 $250,000 principal amount of the Notes, and we are acquiring the Notes not with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act. We have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risk of our investment in the Notes and invest in or purchase securities similar to the Notes in the normal course of our business. We and any accounts for which we are acting are each able to bear the economic risk of our or its investment. 2. We understand that the Notes have not been registered under the Securities Act and, unless so registered, may not be sold except as permitted in the following sentence. We agree on our own behalf and on behalf of any investor account for which we are purchasing Notes to offer, sell or otherwise transfer such Notes prior to the date which is three years after the later of the date of original issue and the last date on which the Company or any affiliate of the Company was the owner of such Notes (or any predecessor thereto) (the "Resale Restriction Termination Date") only (a) to the Company, (b) pursuant to a registration statement which has been declared effective under the Securities Act, (c) in a transaction complying with the requirements of Rule 144A under the Securities Act, to a person we reasonably believe is a qualified institutional buyer under Rule 144A (a "QIB") that purchases for its own account or for the account of a QIB and to whom notice is given that the transfer is being made in reliance on Rule 144A, (d) pursuant to offers and sales that occur outside the United States within the meaning of Regulation S under the Securities Act, (e) to an institutional "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act that is purchasing for its own account or for the account of such an institutional "accredited investor", in each case in a minimum principal amount of Notes of $250,000 or (f) pursuant to any other available exemption from the registration requirements of the Securities Act, subject in each of the foregoing cases to any requirement of law that the disposition of our property or the property of such investor account or accounts be at all times within our or their control and in compliance with any applicable state securities laws. The foregoing restrictions on resale will not apply subsequent to the Resale Restriction Termination Date. If any resale or other transfer of the Notes is proposed to be made pursuant to clause (e) above prior to the Resale Restriction Termination Date, the transferor shall deliver a letter from the transferee substantially in the form of this letter to the Company and the Trustee, which shall provide, among other things, that the transferee is an institutional "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act and that it is acquiring such Notes for investment purposes and not for distribution in violation of the Securities Act. Each purchaser acknowledges that the Company and the Trustee reserve the right prior to any offer, sale or other transfer prior to the Resale Termination Date of the Notes pursuant to clauses (d), (e) or (f) above to require the delivery of an opinion of counsel, certifications and/or other information satisfactory to the Company and the Trustee. TRANSFEREE:_____________________ C-2 3 BY______________________________ EXHIBIT D FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION WITH TRANSFERS PURSUANT TO REGULATION S TEVECAP S.A. THE CHASE MANHATTAN BANK N.A. c/o The Chase Manhattan Bank 450 West 33rd Street, 15th floor New York, NY 10001-2692 Attention: Corporate Trust Administration Re: Tevecap S.A. (the "Company") 125/8% Senior Notes due 2004 (the "Securities") Ladies and Gentlemen: In connection with our proposed sale of US$__________ aggregate principal amount of the Securities, we confirm that such sale has been effected pursuant to and in accordance with Regulation S under the Securities Act of 1933, as amended, and, accordingly, we represent that: (1) the offer of the Securities was not made to a U.S. Person; (2) either (a) at the time the buy order was originated, the transferee was outside the United States or we and any person acting on our behalf reasonably believed that the transferee was outside in the United States or (b) the transaction was executed in, on or through the facilities of a designated off-shore securities market and neither we nor any person acting on our behalf knows that the transaction has been pre-arranged with a buyer in the United States; (3) no directed selling efforts have been made in the United States in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S, as applicable; and D-1 (4) the transaction is not part of a plan or scheme to evade the registration requirements of the U.S. Securities Act of 1933, as amended. In addition, if the sale is made during a restricted period and the provisions of Rule 903(c)(3) or Rule 904(c)(1) of Regulation S are applicable thereto, we confirm that such sale has been made in accordance with the applicable provisions of Rule 903(c)(3) or Rule 904(c)(1), as the case may be. You are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Terms used in this certificate have the meanings set forth in Regulation S. ________________________________________ [Name of Transferor] By:_____________________________________ Name: Title: Address: Date:___________________________________ Upon transfer, the Notes should be registered in the name of the new beneficial owner as follows: Name:___________________________________________________________________________ Address_________________________________________________________________________ Taxpayer ID Number:_____________________________________________________________ EXHIBIT E FORM OF TRANSFER CERTIFICATE FOR TRANSFER FROM OFFSHORE GLOBAL SECURITY NOT BEARING A SECURITIES ACT LEGEND TO U.S. GLOBAL BEARING A SECURITIES ACT LEGEND (PRIOR TO 40TH DAY AFTER LATER OF COMMENCEMENT OF OFFERING OF THE NOTES AND THE CLOSING DATE) Tevecap S.A. The Chase Manhattan Bank c/o The Chase Manhattan Bank 450 West 33rd Street, 16th Floor New York, New York 10001 Attention: Global Trust Services- International Service Delivery Re: Tevecap S.A. 125/8 Senior Notes Due 2004 (the "Senior Notes") Ladies & Gentlemen: Reference is hereby made to the Indenture, dated November 26, 1996 (the "Indenture") among Tevecap S.A. (the "Company"), The Chase Manhattan Bank, as Trustee and Chase Trust Bank, as Principal Paying Agent. Capitalized terms used but not defined herein will have the meanings given to them in the Indenture. This letter relates to US$______ principal amount of Notes which are held in the form of a beneficial interest in the Offshore Global Security (CINS No. _______________) with the Depositary in the name of the undersigned. The undersigned has requested transfer of such beneficial interest in the Notes to a Person who will take delivery thereof in the form of a beneficial interest in the U.S. Global Security (Cusip No. _________________________). In connection with such transfer, the undersigned does hereby confirm that such transfer has been effected in accordance with the transfer restrictions set forth in the Indenture and the Notes and pursuant to and in accordance with Rule 144A under the U.S. Securities Act of 1933, as amended, and accordingly, the undersigned represents that: 1. the Notes are being transferred to a transferee that the undersigned reasonably believes is purchasing the Notes for its own account or one or more accounts with respect to which the transferee exercises sole investment discretion; and 2. the transferee and any such account is a "qualified institutional buyer" within the meaning of Rule 144A, in a transaction meeting the requirements of Rule 144A and in accordance with any applicable securities laws of any state of the United States or any other jurisdiction. [NAME OF UNDERSIGNED] By: Name: Title: Dated: ______________________ ---------------------------------------------------------------------------- TEVECAP S.A. 12 5/8 Senior Notes due 2004 ---------------------------- AMENDMENT NO. 1 TO INDENTURE Dated as of March 19, 1997 ---------------------------- THE CHASE MANHATTAN BANK, Trustee ---------------------------------------------------------------------------- THIS AMENDMENT NO. 1, DATED MARCH 19, 1997, TO INDENTURE, dated as of November 26, 1996 (this "Amendment No. 1"), is among TEVECAP S.A., the Subsidiary Guarantors, The Chase Manhattan Bank, as Trustee and Chase Trust Bank, as Principal Paying Agent. WITNESSETH: WHEREAS, the Company and the Subsidiary Guarantors have heretofore executed and delivered to the Trustee an Indenture, dated as of November 26, 1996, among the Company, the Subsidiary Guarantors, the Trustee and Chase Trust Bank, as Principal Paying Agent (the "Indenture"), under which the Securities in the aggregate principal amount of $250,000,000 were issued and are outstanding. WHEREAS, in accordance with Section 9.1(1) and (7) of the Indenture the Company has requested that the Indenture be amended. The Company and each of the Subsidiary Guarantors are authorized to enter into this Amendment No. 1 by resolution of the board of directors of the Company or such Subsidiary Guarantor, and simultaneously herewith the Trustee has received Opinions of Counsel and Officers' Certificates stating that the execution of this Amendment No. 1 is authorized or permitted by the Indenture. NOW, THEREFORE: For and in consideration of the premises it is mutually covenanted and agreed as follows: ARTICLE I SECTION 10.1. The definition of "Permitted Liens" is amended by amending and restating clause (xii) of such definition to read in its entirety as follows: "(xii) the pledge by the Company (A) to the other members of Galaxy Latin America of warrants and promissory notes the Company holds in the California Broadcast Center and the Company's equity interest in Galaxy Latin America and SurFin to secure the Company's obligations under the Equipment Agreements and the contribution agreements to be entered into in connection with the Equipment Agreements and the SurFin Guarantee, and the pledge of such warrants and promissory notes in the California Broadcast Center and equity interest in Galaxy Latin America to secure the Company's tax indemnity obligations under the Indemnification Agreement and (B) to Falcon International of the shares of Capital Stock of the Company purchased with the Put Promissory Notes; and" ARTICLE II SECTION 20.2 EFFECTIVE DATE OF AMENDMENT NO. 1. This Amendment No. 1 will be effective upon the date first written above. SECTION 20.3 INDENTURE RATIFIED. Except as set forth herein, the Indenture is in all respects ratified and confirmed, and all the terms, provisions and conditions thereof shall be and remain in full force and effect. SECTION 20.4 COUNTERPARTS. This Amendment No. 1 may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. SECTION 20.5 TRUSTEE NOT RESPONSIBLE. The recitals contained herein shall be taken as the statements of the Company and the Trustee assumes no responsibility for their correctness. The Trustee enters into this Amendment No.1 in reliance on the Officers' Certificates and Opinions of Counsel, as provided for in Sections 11.4 and 11.5 of the Indenture. SECTION 20.6 DEFINITIONS AND TERMS. Unless otherwise defined herein, all initially capitalized terms used herein shall have the meanings assigned to such terms in the Indenture. SECTION 20.7 GOVERNING LAW. This Amendment No. 1 shall be governed by and construed in accordance with the law of the State of New York. -2- IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to be duly executed as of the date first above written. TEVECAP S.A. By:____________________________________ Name: Title: By:____________________________________ Name: Title: TVA SISTEMA DE TELEVISAO S.A. By:____________________________________ Name: Title: By:____________________________________ Name: Title: TVA COMMUNICATIONS LTD. By:____________________________________ Name: Title: By:____________________________________ Name: Title: -3- GALAXY BRASIL S.A. By:____________________________________ Name: Title: By:____________________________________ Name: Title: TVA SUL PARTICIPACOES S.A. By:____________________________________ Name: Title: By:____________________________________ Name: Title: COMERCIAL CABO TV SAO PAULO LTDA. By:____________________________________ Name: Title: By:____________________________________ Name: Title: -4- TVA SUL PARANA LTDA. (f/k/a "TVA PARANA LTDA.") By:____________________________________ Name: Title: By:____________________________________ Name: Title: TVA ALFA CABO LTDA. By:____________________________________ Name: Title: By:____________________________________ Name: Title: CCS CAMBORIU CABLE SYSTEM DE TELECOMUNICACOES LTDA. By:____________________________________ Name: Title: By:____________________________________ Name: Title: -5- TCC TV A CABO LTDA. By:____________________________________ Name: Title: By:____________________________________ Name: Title: TVA SUL FOZ DO IGUACU LTDA. By:____________________________________ Name: Title: By:____________________________________ Name: Title: THE CHASE MANHATTAN BANK By:____________________________________ Name: Title: CHASE TRUST BANK By:____________________________________ Name: Title: -6- EX-5.1 3 EXHIBIT 5.1 (OPINION OF BAUSCH & RAMEH) Exhibit 5.1 [LETTERHEAD OF BASCH & RAMEH] Re: Tevecap S.A. US$250,000,000 12 5/8% Senior Notes due 2004 Exchange Offer Dear Sirs: We have acted as Brazilian counsel for (i) Tevecap S.A. (the "Company"), a sociedade anonima (corporation) organized and existing under the laws of the Federative Republic of Brazil ("Brazil"), and (ii) TVA Sistema de Televisao S.A. ("TVA Sistema"), Galaxy Brasil S.A. ("Galaxy Brasil"), TVA Sul Participacoes S.A. ("TVA Sul"), Commercial Cabo TV Sao Paulo Ltda. ("CCTV"), TVA Parana Ltda. ("TVA Parana), TVA Alpha Cabo Ltda. ("TVA Alpha"), CCS Camboriu Cable Systems de Telecommunicacoes Ltda. ("CCS Camboriu"), TCC TVA Cabo Ltda. ("TCC"), TVA Sul Santa Catarina Ltda. ("TVA Sul Santa Catarina"), TVA Foz do Iguacu Ltda. ("TVA Foz do Iguacu" and together with TVA Sistema, Galaxy Brasil, TVA Sul, CCTV, TVA Parana, TVA Alpha, CCS Camboriu, TCC and TVA Sul Santa Catarina, the "Brazilian Guarantors") in connection with the filing by the Company and the Subsidiary Guarantors with the Securities and Exchange Commission (the "Commission") of a registration statement (the "Registration Statement") on Form F-4 under the Securities Act of 1933, as amended, relating to the proposed issuance, in exchange for US$250,000,000 aggregate principal amount of the Company's 12 5/8% Senior Notes due 2004 (the "Old Notes"), together with the Subsidiary Guarantees of the Old Notes (such Subsidiary Guarantees, together with the Old Notes, the "Old Securities") of US$250,000,000 aggregate principal amount of the Company's 12 5/8% Senior Notes due 2004 (the "Exchange Notes") together with the Subsidiary Guarantees of the Exchange Notes (such Subsidiary Guarantees, together with the Exchange Notes, the "Exchange Securities"). The Exchange Securities are to be issued pursuant to an indenture dated as of November 26, 1996, as amended and supplemented to date (the "Indenture"), among the Company, the Subsidiary Guarantors, The Chase Manhattan Bank, N.A., as trustee (the "Trustee") and Chase Trust Bank, as principal paying agent (the "Principal Paying Agent"). Capitalized terms used herein and not otherwise defined therein have the meanings ascribed thereto in the Indenture. In that connection, we have examined originals, or copies certified or otherwise identified to our satisfaction, of such documents, corporate records and other instruments as we have deemed necessary or appropriate for purposes of this opinion, including the Indenture, the forms of the Exchange Securities, the Registration Statement, the Articles of Incorporation and the Estatuto Social (By-laws) or the Contrato Social (Charter), as the case may be, of the Company and of each of the Brazilian Guarantors. -1- In making our examination and in giving the opinions set forth below, we have assumed, without independent verification of any kind, the following: (i) the genuineness of all signatures on all documents we have reviewed; (ii) the authenticity of all such documents submitted to us as originals; (iii) the conformity of the originals of all documents submitted to us as certified or photostatic copies; and (iv) the due authority of the parties (other than the Company and the Brazilian Guarantors) executing and authenticating such documents. The opinions expressed below relate solely to the laws of Brazil as currently in effect and we have made no investigation of and express no opinion in relation to the laws of any jurisdiction other than those of Brazil. In expressing the opinion as to the enforceability of the Subsidiary Guarantees below, we have assumed the due authorization, execution and delivery thereof by the Trustee, the Principal Paying Agent and the Subsidiary Guarantors that are not incorporated under the laws of Brazil. Based upon the foregoing, we are of the opinion that: (1) Each of the Company and the Brazilian Guarantors is a sociedade anonima or a sociedade por quotas de responsabilidade limitada, as the case may be, duly organized and validly existing under the laws of Brazil; (2) All necessary corporate action has been taken by the Company and the Brazilian Guarantors to authorize the execution and delivery of the Indenture; (3) The Indenture has been duly executed and delivered by the Company and the Brazilian Guarantors; (4) All necessary corporate action has been taken by the Company to authorize the issuance, execution and delivery of the Exchange Securities; and (5) Each of the Subsidiary Guarantees provided by the Brazilian Guarantors, upon the execution of the Subsidiary Guarantees endorsed thereon in accordance with the provisions of the Indenture and when the Exchange Notes with such Subsidiary Guarantees endorsed thereon are delivered in exchange for the Old Notes pursuant to the Exchange and Registration Rights Agreement, will constitute a valid and binding obligation of the respective Brazilian Guarantor enforceable against such Brazilian Guarantor in accordance with its terms (subject in each case to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and other similar laws affecting creditors' rights generally from time to time in effect); and the Exchange Notes, when duly issued and authenticated in accordance with the provisions of the Indenture -2- and delivered in exchange for the Old Notes pursuant to the Exchange and Registration Rights Agreement, will constitute valid and binding obligations of the Company and the Brazilian Guarantors enforceable against the Company and the Brazilian Guarantors in accordance with their terms (subject in each case to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and other similar laws affecting creditors' rights generally from time to time in effect). We hereby consent to the filing of this opinion as part of the Registration Statement and to the use of our name therein and in the related Prospectus under the captions "Enforceability of Civil Liabilities," "Risk Factors" and "Legal Matters". Very truly yours, BASCH & RAMEH By:______________________________ Tevecap, S.A. TVA Sistema de Televisao S.A. Galaxy Brasil S.A. TVA Sul Participacoes S.A. Commercial Cabo TV Sao Paulo Ltda. TVA Parana Ltda. TVA Alpha Cabo Ltda. CCS Camboriu Cable Systems de Telecommunicacoes Ltda. TCC TVA Cabo Ltda. TVA Sul Santa Catarina Ltda. TVA Foz do Iguacu Ltda. -3- EX-5.2 4 EXHIBIT 5.2 (OPINION OF MAYER BROWN) Exhibit 5.2 [LETTERHEAD OF MAYER, BROWN & PLATT] April __, 1997 Tevecap S.A. US$250,000,000 12 5/8% Senior Notes due 2004 Exchange Offer Ladies and Gentlemen: We have acted as United States counsel for (i) Tevecap S.A., a Brazilian corporation (the "Company"), and (ii) TVA Sistema de Televisao S.A., TVA Communications, Ltd., Galaxy Brasil S.A., TVA Sul Participacoes S.A., Commercial Cabo TV Sao Paulo Ltda., TVA Parana Ltda., TVA Alpha Cabo Ltda., CCS Camboriu Cable Systems de Telecommunicacoes Ltda., TCC TVA Cabo Ltda., TVA Sul Santa Catarina Ltda. and TVA Foz do Iguacu Ltda. (collectively, the "Subsidiary Guarantors"), in connection with the filing by the Company and the Subsidiary Guarantors with the Securities and Exchange Commission (the "Commission") of a registration statement (the "Registration Statement") on Form F-4 under the Securities Act of 1933, as amended, relating to the proposed issuance, in exchange for US$250,000,000 aggregate principal amount of the Company's 12 5/8% Senior Notes due 2004 (the "Old Notes"), together with the Subsidiary Guarantees of the Old Notes (such Subsidiary Guarantees, together with the Old Notes, the "Old Securities") of US$250,000,000 aggregate principal amount of the Company's 12 5/8% Senior Notes due 2004 (the "Exchange Notes"), together with the Subsidiary Guarantees of the Exchange Notes (such Subsidiary Guarantees, together with the Exchange Notes, the "Exchange Securities"). The Exchange Notes are to be issued pursuant to an indenture dated as of November 26, 1996 (the "Indenture"), among the Company, the Subsidiary Guarantors, The Chase Manhattan Bank, N.A., as trustee (the "Trustee") and Chase Trust Bank, as principal paying agent (the "Principal Paying Agent"). Capitalized terms used herein and not otherwise defined herein have the meanings ascribed thereto in the Indenture. In that connection, we have examined originals, or copies certified or otherwise identified to our satisfaction, of such documents, corporate records and other instruments as we have deemed necessary or appropriate for purposes of this opinion, including the Indenture, the Exchange and Registration Rights Agreement dated as of November 26, 1996 (the "Registration Rights Agreement"), among the Company, the Subsidiary Guarantors and the Initial Purchasers, the forms of the Exchange Securities and the Registration Statement. In rendering the opinions contained herein, we have assumed (a) the due authorization, execution and delivery of each of the Indenture, the Registration Rights Agreement, the Exchange Securities by each of the parties thereto, (b) that each of such parties has the legal power to act in the respective capacity or capacities in which it is to act thereunder, (c) the authenticity of all documents submitted to us as originals, (d) the conformity to the original documents of all documents submitted to us as copies and (e) the genuineness of all signatures on all documents submitted to us. Based on the foregoing, we are of the opinion that (i) the Subsidiary Guarantees, upon the execution of the Exchange Notes with the Subsidiary Guarantees, endorsed thereon in accordance with the provisions of the Indenture and when the Exchange Notes with the Subsidiary Guarantees endorsed thereon are delivered in exchange for the Old Notes pursuant to the Registration Rights Agreement, will constitute valid and binding obligations of the Subsidiary Guarantors enforceable against the Subsidiary Guarantors in accordance with their terms (subject in each case to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and other similar laws affecting creditors' rights generally from time to time in effect and to general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing, regardless of whether considered in a proceeding in equity or at law); and (ii) the Exchange Notes, when duly issued and authenticated in accordance with the provisions of the Indenture and delivered in exchange for the Old Notes pursuant to the Registration Rights Agreement, will constitute valid and binding obligations of the Company enforceable against the Company in accordance with their terms (subject in each case to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and other similar laws affecting creditors' rights generally from time to time in effect and to general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing, regardless of whether considered in a proceeding in equity or at law). We are admitted to practice in the State of New York and we do not express any opinion with respect to matters governed by any laws other than the laws of the State of New York and the federal laws of the United States of America. To the extent that the laws of the Federative Republic of Brazil or the British Virgin Islands are relevant to the opinions expressed herein, we have relied exclusively on the opinions of Basch & Rameh, Brazilian counsel for the Company and the Subsidiary Guarantors incorporated under the laws of the Federal Republic of Brazil, and Harney, Westwood & Riegels, British Virgin Islands counsel for TVA Communications, Ltd., which are being delivered to you and filed with the Commission as exhibits to the Registration Statement. We know that we may be referred to as counsel who has passed upon the legality of the issuance of the Exchange Notes on behalf of the Company in the Registration Statement filed 2 with the Commission, and we hereby consent to such use of our name in said Registration Statement and to the filing of this opinion with said Registration Statement, as Exhibit 5.2 thereto. Very truly yours, Tevecap, S.A. TVA Sistema de Televisao S.A. TVA Communications, Ltd. Galaxy Brasil S.A. TVA Sul Participacoes S.A. Commercial Cabo TV Sao Paulo Ltda. TVA Parana Ltda. TVA Alpha Cabo Ltda. CCS Camboriu Cable Systems de Telecommunicacoes Ltda. TCC TVA Cabo Ltda. TVA Sul Santa Catarina Ltda. TVA Foz do Iguacu Ltda. 3 EX-5.3 5 EXHIBIT 5.3 (OPINION OF HARNEY) Exhibit 5.3 [LETTERHEAD OF HARNEY, WESTWOOD & RIEGELS] ___ April, 1997 TVA Communications, Ltd. c/o Tevecap S.A. Rua do Rocio, 313 Sao Paulo, SP 04552-904 Brazil Dear Sirs, RE: TEVECAP S.A. US$250,000,000 12 5/8% SENIOR NOTES DUE 2004 - EXCHANGE OFFER We have acted as special British Virgin Islands counsel for TVA Communications, Ltd. (the "Company"), a British Virgin Islands corporation, in connection with the filing by Tevecap S.A. ("Tevecap") and certain Subsidiary Guarantors (including the Company) with the Securities and Exchange Commission (the "Commission") of a registration statement (the "Registration Statement") on Form F-4 under the Securities Act of 1933, as amended, relating to the proposed issuance, in exchange for US$250,000,000 aggregate principal amount of Tevecap's 12 5/8% Senior Notes due 2004 (the "Old Notes"), together with the Subsidiary Guarantees of the Old Notes (such Subsidiary Guarantees, together with the Old Notes, the "Old Securities"), of US$250,000,000 aggregate principal amount of Tevecap's 12 5/8% Senior Notes due 2004 (the "Exchange Notes"), together with the Subsidiary Guarantees of the Exchange Notes (such Subsidiary Guarantees, together with the Exchange Notes, the "Exchange Securities"). The Exchange Securities are to be issued pursuant to an indenture dated as of November 26, 1996 (the "Indenture"), among Tevecap, the Subsidiary Guarantors, The Chase Manhattan Bank, N.A., as trustee (the "Trustee") and Chase Trust Bank, as principal paying agent (the "Principal Paying Agent"). Capitalized terms used herein and not otherwise defined herein have the meanings ascribed thereto in the Indenture. In that connection, we have examined originals, or copies certified or otherwise identified to our satisfaction, of such documents, corporate records and other instruments as we have deemed necessary or appropriate for purposes of this opinion, including the Indenture, the form of the Subsidiary Guarantee to be executed by the Company, the Registration Statement and the respective Memorandum and Articles of Association and Certificate of Incorporation of the Company. TVA Communications, Ltd. Page 2 ___ April, 1997 In making our examination and in giving the opinions set forth below, we have assumed, without independent verification of any kind, the following: (i) the genuineness of all signatures on all documents we have reviewed; (ii) the authenticity of all such documents submitted to us as originals; (iii) the conformity to the original instruments of all documents submitted to us as certified or photostatic copies; (iv) the due authority of the parties (other than the Company) executing and authenticating such documents; (v) the legal validity, enforceability and binding nature of the Indenture, the Subsidiary Guarantees and the Exchange Notes against all parties thereto under the laws of New York by which those documents are expressed to be governed; and (vi) the truth, accuracy, completeness and currency of all statements of fact made and contained in the Indenture, Subsidiary Guarantees and Exchange Notes, save as hereinafter opined upon, and in all corporate documents and resolutions submitted to and examined and relied upon by us in connection with this opinion. The opinions expressed below relate solely to the laws of the British Virgin Islands as currently in effect and we have made no investigation of and express no opinion in relation to the laws of any jurisdiction other than those of the British Virgin Islands. In expressing the opinion as to the enforceability of the Subsidiary Guarantees below, we have assumed the due authorization, execution and delivery thereof by the Trustee as well as by the Subsidiary Guarantors that are not incorporated under the laws of the British Virgin Islands, and due delivery of the Subsidiary Guarantee by the Company. Based upon the foregoing, we are of the opinion that: 1. The company is a corporation duly organized and validly existing under the laws of the British Virgin Islands; 2. All necessary corporate action has been taken by the Company to authorize the execution and delivery of the Indenture and the Indenture has been duly executed and delivered by the Company. TVA Communications, Ltd. Page 3 ___ April, 1997 3. All necessary corporate action has been taken by the Company to authorize the issuance, execution and delivery of the Subsidiary Guarantee; and 4. The Subsidiary Guarantee provided by the Company, upon the execution of the Exchange Notes with such Subsidiary Guarantee endorsed thereon in accordance with the provisions of the Indenture and when the Exchange Notes with such Subsidiary Guarantee endorsed thereon are delivered in exchange for the Old Notes pursuant to the Exchange and Registration Rights Agreement, will constitute valid and binding obligations of the Company in accordance with its terms (subject in each case to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and other similar laws affecting creditors' rights generally from time to time in effect); and the Exchange Notes, when duly issued and authenticated in accordance with the provisions of the Indenture and delivered in exchange for the Old Notes pursuant to the Exchange and Registration Rights Agreement, will constitute valid and binding obligations of the Company enforceable against the Company in accordance with their terms (subject in each case to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and other similar laws affecting creditors' rights generally from time to time in effect). We hereby consent to the filing of this opinion as part of the Registration Statement and to the use of our name therein. Very truly yours, HARNEY, WESTWOOD & RIEGELS EX-8.1 6 EXHIBIT 8.1 (OPINION OF MAYER BROWN-TAX MATTERS) Exhibit 8.1 [LETTERHEAD OF MAYER, BROWN & PLATT] April __, 1997 Tevecap S.A. US$250,000,000 12 5/8% Senior Notes due 2004 Exchange Offer Ladies and Gentlemen: We have acted as United States counsel for (i) Tevecap S.A., a Brazilian corporation (the "Company"), and (ii) TVA Sistema de Televisao S.A., TVA Communications, Ltd., Galaxy Brasil S.A., TVA Sul Participacoes S.A., Commercial Cabo TV Sao Paulo Ltda., TVA Parana Ltda., TVA Alpha Cabo Ltda., CCS Camboriu Cable Systems de Telecommunicacoes Ltda., TCC TVA Cabo Ltda., TVA Sul Santa Catarina Ltda. and TVA Foz do Iguacu Ltda. (collectively, the "Subsidiary Guarantors"), in connection with the filing by the Company and the Subsidiary Guarantors with the Securities and Exchange Commission (the "Commission") of a registration statement (the "Registration Statement") on Form F-4 under the Securities Act of 1933, as amended, relating to the proposed issuance, in exchange for US$250,000,000 aggregate principal amount of the Company's 12 5/8% Senior Notes due 2004 (the "Old Notes"), together with the Subsidiary Guarantees of the Old Notes (such Subsidiary Guarantees, together with the Old Notes, the "Old Securities") of US$250,000,000 aggregate principal amount of the Company's 12 5/8% Senior Notes due 2004 (the "Exchange Notes"), together with the Subsidiary Guarantees of the Exchange Notes (such Subsidiary Guarantees, together with the Exchange Notes, the "Exchange Securities"). The Exchange Notes are to be issued pursuant to an indenture dated as of November 26, 1996 (the "Indenture"), among the Company, the Subsidiary Guarantors, The Chase Manhattan Bank, N.A., as trustee (the "Trustee") and Chase Trust Bank, as principal paying agent (the "Principal Paying Agent"). Capitalized terms used herein and not otherwise defined herein have the meanings ascribed thereto in the Indenture. We hereby confirm that the statements set forth in the prospectus (the "Prospectus") forming a part of the Registration Statement under the subheading "United States" to the heading "Income Tax Considerations" accurately describe the material Federal income tax consequences to holders of the Exchange Notes issued pursuant to the Prospectus. We know that we are referred to under the heading "Legal Matters" in the Prospectus, and we hereby consent to such use of our name therein and to the use of this opinion for filing with the Registration Statement as Exhibit 8.1 thereto. Very truly yours, Tevecap, S.A. TVA Sistema de Televisao S.A. TVA Communications, Ltd. Galaxy Brasil S.A. TVA Sul Participacoes S.A. Commercial Cabo TV Sao Paulo Ltda. TVA Parana Ltda. TVA Alpha Cabo Ltda. CCS Camboriu Cable Systems de Telecommunicacoes Ltda. TCC TVA Cabo Ltda. TVA Sul Santa Catarina Ltda. TVA Foz do Iguacu Ltda. EX-10.3 7 EXHIBIT 10.3 Exhibit 10.3 - -------------------------------------------------------------------------------- STOCKHOLDERS AGREEMENT among TEVECAP S.A., MR. ROBERT CIVITA, ABRILCAP COMERCIO E PARTICIPACOES LTDA., HARPIA HOLDINGS LIMITED, CURUPIRA HOLDINGS LIMITED, FALCON INTERNATIONAL COMMUNICATIONS LTD., HEARST/ABC VIDEO SERVICES II and TVA PARTICIPACOES LTDA. DATED DECEMBER 6, 1995 - -------------------------------------------------------------------------------- TABLE OF CONTENTS Page ---- Clause 1. DEFINITIONS...................................................2 Clause 2. SHARES SUBJECT TO THIS AGREEMENT.............................10 Clause 3. SUBSCRIPTION AND PAYMENT FOR THE COMPANY'S CAPITAL STOCK................................................10 Clause 4. TRANSFER OF SHARES...........................................11 Clause 5. NEW ISSUANCES OF SHARES......................................18 Clause 6. HARPIA AND CURUPIRA PUT OPTION...............................20 Clause 7. FALCON'S PUT OPTIONS.........................................26 Clause 7A. THE INVESTOR ENTITIES' PUT OPTION............................31 Clause 8. PUT COORDINATION.............................................35 Clause 9. PUT POSTPONEMENT.............................................36 Clause 10. CALL OPTIONS.................................................43 Clause 11. THE COMPANY'S BOARD OF DIRECTORS.............................51 Clause 12. RESOLUTIONS OF THE BOARD OF DIRECTORS AND STOCKHOLDERS.................................................53 Clause 13. GENERAL MEETING RESOLUTIONS..................................59 Clause 14. RIGHT TO ATTENDANCE, TO INFORMATION AND TO INSPECTION...................................................61 Clause 15. ADVISORY BOARD...............................................63 Clause 16. STOCKHOLDERS' AND THE COMPANY'S OTHER COVENANTS....................................................64 Clause 17. TAG ALONG RIGHTS.............................................66 Clause 18. REGISTRATION RIGHTS..........................................68 Page ---- Clause 19. NON-COMPETE PROVISIONS.......................................77 Clause 20. CONFIDENTIALITY..............................................82 Clause 21. DURATION OF THE AGREEMENT....................................83 Clause 22. MISCELLANEOUS PROVISIONS.....................................83 STOCKHOLDERS AGREEMENT This STOCKHOLDERS AGREEMENT (this "Agreement") is made and entered into as of the 6th day of December, 1995, by and among: (1) TEVECAP S.A., a corporation organized under the laws of the Federative Republic of Brazil, with its principal place of business in Sao Paulo, SP, Brazil, at Rua do Rocio 313, Cj. 101 (parte) CGCMF Nr. 57.574.170/0001-05 (the "Company"); (2) Mr. ROBERT CIVITA, a Brazilian citizen, married, editor, bearer of the ID Card Nr. 1.666.785 and CPF Nr. 006.890.178-04, domiciled in Sao Paulo, SP, Brazil, at Rua Escocia, 253, apt. 11, Brazil ("Mr. Civita"); (3) ABRILCAP COMERCIO PARTICIPACOES LTDA., a limited liability company organized under the laws of the Federative Republic of Brazil, with its principal place of business in Sao Paulo, SP, Brazil, at Rua do Rocio, 313, Cj. 101 (parte), CGCMF Nr. 00.156.494/0001-06 (part) ("Abrilcap"); (4) HARPIA HOLDINGS LIMITED, a company duly organized and validity existing in accordance with the laws of the Cayman Islands, having its registered office at c/o Maples & Calder, Attorneys-at-Law, P.O. Box 309, George Town, Grand Cayman, Cayman Islands, British West Indies ("Harpia"); (5) CURUPIRA HOLDINGS LIMITED, a company duly organized and validly existing in accordance with the laws of the Cayman Islands, having its registered office at c/o Maples & Calder, Attorneys-at-Law, P.O. Box 309, George Town, Grand Cayman, Cayman Islands, British West Indies ("Curupira"); (6) FALCON INTERNATIONAL COMMUNICATIONS LTD., a company limited by shares duly organized and validly existing in accordance with the laws of Bermuda, having its registered office in Bermuda ("Falcon"); (7) HEARST/ABC VIDEO SERVICES II, a general partnership organized under the laws of Delaware, with its principal place of business at 959 Eighth Avenue, New York, NY 10019 ("Hearst/ABC Video"); and (8) TVA PARTICIPACOES LTDA., a limited liability company organized under the laws of the Federative Republic of Brazil, with its principal place of business in Sao Paulo, SP, Brazil, at Rua do Rocio 313, CGCMF Nr. 00921404/0001-18 ("Hearst/ABC Limitada" and, collectively with Hearst/ABC Video, the "Investor Entities" and individually an "Investor Entity"). WHEREAS, prior to July 22, 1994, Mr. Civita and Abrilcap were the only holders of the Company's equity; 2 WHEREAS, pursuant to a Stock Subscription Agreement dated July 22, 1994 (the "Subscription Agreement"), Harpia and Curupira subscribed for certain Shares (as defined herein); WHEREAS, on August 24, 1995, pursuant to a Stock Purchase Agreement among the Company, Mr. Civita, Abrilcap, Harpia, Curupira and Falcon Parent (as defined below) (the "Old Stock Purchase Agreement"), Falcon Parent agreed to subscribe for certain Shares directly or through an affiliate; WHEREAS, simultaneously with the execution hereof, the Company is issuing and Hearst/ABC Video is subscribing for and purchasing certain Shares pursuant to the terms of the Stock Purchase Agreement (as defined below); WHEREAS, simultaneously with the execution hereof, Harpia is agreeing to sell and Hearst/ABC Limitada is agreeing to purchase certain Shares pursuant to the terms of the HC Stock Purchase Agreement (as defined below); and WHEREAS, upon such subscription, Mr. Civita, Abrilcap, Harpia, Curupira, Falcon and the Investor Entities (collectively, together with holders of Shares that from to time become parties hereto, referred to as "Stockholders" and individually as a "Stockholder") are the holders of all of the outstanding shares of capital stock of the Company (except as set forth in Clause 11.5 below), NOW, THEREFORE, the Stockholders having resolved to execute this Stockholders Agreement in accordance with the requirements of Article 118 of Law No. 6.404, of December 15, 1976, other applicable legislation and the following terms and conditions, do agree as follows: Clause 1. DEFINITIONS In this Agreement, any reference to: "Abril Agreement" means the letter agreement dated of even date herewith between Abril S.A. and the parties hereto regarding the assumption by Abril S.A. of certain put obligations of the Company; "Abril Credit Agreement" means the credit agreement dated of even date herewith between Abril S.A. and the Company; "Advisory Services Agreement" means the Advisory Services Agreement dated the date hereof among the Company, Hearst and CCABC; "Affiliates" bears the meaning ascribed to it in Clause 4.8; 3 the "Board" means the Company's Board of Directors as duly elected from time to time; "Brazilian GAAP" bears the meaning ascribed to it in Clause 14.2; the "Business" means (i) pay television distribution activities (including, but not limited to, MMDS, LMDS, DTH, direct wire transmission (including but not limited to coaxial or fiber optic cable), VHF, UHF or other over-the-air transmission or broadcasting), (ii) all activities (whether creation, development, production, purchase, sale, licensing, distribution or otherwise) relating to programming susceptible to any means of television distribution, (iii) all activities authorized by the Permits (including activities relating to pay television or not) belonging to or required hereby to be transferred to the Company, its Subsidiaries, and the License Holders, including any extensions or modifications of such Permits, and (iv) telephony, in each case as transacted by the Company or its Subsidiaries now or at any time in the future, provided that the Business shall expressly exclude MTV Brasil unless and until MTV Brasil is incorporated into the Company in accordance with the terms of the MTV Option set forth in the Stock Purchase Agreement or otherwise; "Business Day" means any day on which banks in New York City and Sao Paulo are not authorized or required to be closed; "Business Plan" means a business plan approved by the Board, for the Company and its Subsidiaries collectively, and shall include the annual operating and capital budget for the Company for the fiscal year in question; "Call Notice" bears the meaning ascribed to it in Clause 10.2; "Call Option" bears the meaning ascribed to it in Clause 10.1; "Call Price" bears the meaning ascribed to it in Clause 10.4; "Call Purchaser" bears the meaning ascribed to it in Clause 10.1; "Call Seller" bears the meaning ascribed to it in Clause 10.1; "CCABC" means Capital Cities/ABC, Inc., a Delaware corporation having an office at 77 West 66th Street, New York, New York 10023; "CCABC Partner" means Brazil Cable Investments, Inc., a Delaware corporation having an office at 77 West 66th Street, New York, New York 10023 and an indirect wholly-owned subsidiary of CCABC; "Chase" bears the meaning ascribed to it in Clause 19.1; 4 "Commission" bears the meaning ascribed to it in Clause 18.1(ii); "Controlling Stockholder" means, with respect to any entity at any particular time, any other person that directly, or indirectly through one or more subsidiaries, controls or has the power to control the affairs and policies of such entity, whether by ownership of share capital, contract, ability to appoint a controlling number of board members or otherwise (which shall not include, in itself, an individual acting as an officer or director or, in the case of a limited liability company, a manager of such entity, unless such individual otherwise exercises control, whether through ownership of share capital, contract, ability to appoint a controlling number of board members or otherwise, and does not simply manage, such entity). "Cumulative Dividends" bears the meaning ascribed to it in Clause 9.3; "Date of the Event Put Payment" bears the meaning ascribed to it in Clause 9.1; "Date of the Falcon Put Payment" bears the meaning ascribed to it in Clause 7.3(i); "Date of the HC Put Payment" bears the meaning ascribed to it in Clause 6.9; "Date of the Investor Put Payment" bears the meaning ascribed to it in Clause 7A.3; "Date of Transfer" bears the meaning ascribed to it in Clause 10.3; "Demand Registration Statement" bears the meaning ascribed to it in Clause 18.1(ii); "Disney" bears the meaning ascribed to it in Clause 19.7; "Earnings" bears the meaning ascribed to it in Clause 6.3; "ESPN Brazil Agreements" bears the meaning ascribed to it in Clause 19.7; "Event Put" bears the meaning ascribed to it in Clause 9.1; "Event Put Party" bears the meaning ascribed to it in Clause 9.1; "Event Put Price" bears the meaning ascribed to in Clause 6.3; "Excluded Agreements" bears the meaning ascribed to it in Clause 19.7; "Falcon Call Option" bears the meaning ascribed to it in Clause 10.1; 5 "Falcon Event Put Option" bears the meaning ascribed to it in Clause 7.1(i)(B); "Falcon Parent" bears the meaning ascribed to in Clause 7.1; "Falcon Parent Investors" bears the meaning ascribed to it in Clause 7.1(i). "Falcon Put Notice" bears the meaning ascribed to it in Clause 7.3; "Falcon Put Party" bears the meaning ascribed to it in Clause 7.1; "Falcon Put Shares" bears the meaning ascribed to it in Clause 7.1(i)(A); "Falcon Time Put Option" bears the meaning ascribed to it in Clause 7.1(i)(A); "Falcon Triggering Event" bears the meaning ascribed to it in Clause 7.2; "Fixed Assets" means, as to any person, any assets owned by such person other than (a) cash, (b) cash equivalents, and (c) readily marketable securities (other than securities of issuers for which a public offering has occurred after the time that such person acquired such securities); "Foreign Stockholder" means Falcon, the Investor Entities or an Affiliate or a transferee of any of them; "Funding Date" bears the meaning ascribed to it in Clause 10.10(ii); "HC Call Option" bears the meaning ascribed to it in Clause 10.1; "HC Entities" shall mean Harpia and Curupira or an Affiliate of either; "HC Put Notice" bears the meaning ascribed to it in Clause 6.4; "HC Put Option" bears the meaning ascribed to it in Clause 6.1; "HC Put Party" bears the meaning ascribed to it in Clause 6.1; "HC Put Shares" bears the meaning ascribed to it in Clause 6.1; "HC Stock Purchase Agreement" bears the meaning ascribed to it in Clause 7A.1; "HC Triggering Event" bears the meaning ascribed to it in Clause 6.2; "Hearst" means The Hearst Corporation, a Delaware corporation having an office at 959 Eighth Avenue, third floor, New York, New York 10019; 6 "Hearst Partner" means Hearst Brazil, Inc., a Delaware corporation having an office at 959 Eighth Avenue, third floor, New York, New York 10019 and a wholly-owned subsidiary of Hearst; "Institutional Investor" means an institutional or financial investor (such as a venture capital firm or fund, pension plan, financial or governmental institution or the like) which purchases or holds equity interests in Falcon or Falcon Parent (or any Affiliate of Falcon that is then a Stockholder) principally for investment purposes; "Investor Programming Agreement" means the Programming Agreement dated as of the date hereof among Hearst, CCABC and the Company; "Investor Put Notice" bears the meaning ascribed to it in Clause 7A.3; "Investor Put Option" bears the meaning ascribed to it in Clause 7A.1; "Investor Put Party" bears the meaning ascribed to it in Clause 7A.1; "Investor Put Shares" bears the meaning ascribed to it in Clause 7A.3; "Investor Triggering Event" bears the meaning ascribed to it in Clause 7A.2; "License Holders" means Televisao Showtime Ltda., TVA Brasil Radioenlaces Ltda. and Abril S.A. (for so long as Abril S.A. shall hold any of the Permits or assets listed in Schedules 3.12(i) and 4.11 of the Stock Purchase Agreement, respectively, or any Permit acquired by Abril S.A. pursuant to the terms of Clause 6.1(b) of the Stock Purchase Agreement); "Mandatory Dividend" bears the meaning ascribed to it in Clause 9.5; "MMDS", "DTH" "VHF", "LMDS" AND "UHF" mean the following technologies respectively: (i) Multi-Channel Multi-Point Distribution System; (ii) Direct-to-Home satellite program delivery (whether by C-band, Ku-band or other frequency); (iii) Very High Frequency transmission, (iv) Local Multipoint Distribution System; and (v) Ultra High Frequency transmission; "MTV Brasil" means from time to time all of the combined interest of Mr. Civita and Abrilcap and their Affiliates in Music Television Network business operated under a license or licenses granted by MTV Networks, a division of Viacom International, Inc., whether distributed by UHF or otherwise, and all assets (including transmission and broadcasting equipment) and rights used or held in connection therewith that are not otherwise used or held in part in connection with the Business and all duties and liabilities pertaining to such business (including those that also pertain to the Business), but excludes any permit or license issued by the 7 Government of Brazil (or any subdivision or ministry thereof) for public broadcasting (radio difusao); "Old Stock Purchase Agreement" bears the meaning ascribed to it in the preamble first above; "Option Agreement" bears the meaning ascribed to it in Clause 4.11; "Participant Purchase Price" means the product of (A) the Event Put Price times (B) a fraction the numerator of which is that number of Put Shares that the Participating Stockholder purchases and the denominator of which is the total number of Put Shares; "Participating Stockholder" means a Stockholder which acquires HC Put Shares pursuant to Clause 6.11, Falcon Put Shares pursuant to Clause 7.5 or Investor Put Shares pursuant to Clause 7A.4; "Permits" means licenses, permits, consents, authorizations, franchises, ordinances, registrations, certificates, agreements or other rights or applications filed with, granted by or entered into by any governmental or regulatory authority; "Permitted Disclosee" bears the meaning ascribed to it in Clause 20; "person" means any natural person, partnership, association, trust, corporation or other entity whatsoever; "Potential Purchasers" bears the meaning ascribed to it in Clause 4.2; "Potential Subscription Purchasers" bears the meaning ascribed to it in Clause 5.2; "Preferred Voting Shares" bears the meaning ascribed to it in Clause 9.3; "Proposed Price" bears the meaning ascribed to it in Clause 4.2; "Proposed Subscription Price" bears the meaning ascribed to in Clause 5.2; "Pro Rata Share" bears the meaning ascribed to it in Clause 4.4(ii); "Public Offering" means a bona fide offering of securities to the public in connection with which such securities are registered under the U.S. Securities Act of 1933, as amended. "Put Postponement" bears the meaning ascribed to it in Clause 9.1; 8 "Put Shares" means HC Put Shares, Falcon Put Shares or Investor Put Shares, as the context requires; "Real" or "Reais" means, from time to time, the official currency of Brazil; "Reais Equivalent" means the amount in Brazilian currency equivalent to U.S. Dollars as determined by the application of the selling rate divulged by the Central Bank of Brazil under the SISBACEN Data System, Transaction PTAX-800, Option 5, Currency 220, or any successor to such rate divulged by the Central Bank of Brazil; "Securities Act" bears the meaning ascribed to it in Clause 18.1(v)(b); "Service Agreement" means the agreement entered into on July 22, 1994, as amended on August 24, 1995 and the date hereof, between the License Holders and the Company providing for the irrevocable transfer to the Company and its Subsidiaries of all rights, powers and monopolies granted by or inherent to the Permits, including those described in Schedule 3.12(i) to the Stock Purchase Agreement and the unrestricted right to use the assets listed in Schedule 4.11 to the Stock Purchase Agreement, in each case free of charge, such Service Agreement having been filed with the 3rd Public Registry of Titles and Documents in the City of Sao Paulo; "Share Equivalents" means securities of any kind issued by an entity which are convertible into or exchangeable for any shares of any class of such entity's securities or options, warrants or other rights granted by such entity to purchase or subscribe for any shares of any class of such entity's securities or securities convertible into or exchangeable for shares of any class of such entity's securities and shall also include any contractual or other interest providing for an equity-like payment, irrespective of whether such contractual or other interest constitutes an ownership interest; "Shareholder Group" bears the meaning ascribed to it in Clause 12.3(ii); "Shares" bears the meaning ascribed to it in Clause 2; "Special Preferred Shares" bears the meaning ascribed to it in Clause 9.3; "Stock Purchase Agreement" means the Stock Purchase Agreement dated concurrently herewith among the Company, Mr. Civita, Abrilcap, Hearst/ABC Video, Harpia, Curupira, Falcon and Falcon Parent; "Stockholder" or "Stockholders" bears the meaning ascribed to it in the preamble first above; 9 "Stockholder Parent Company" means, with respect to a Stockholder, any person (a) which directly, or indirectly through one or more subsidiaries, owns or controls the majority of the voting capital stock or equivalent ownership of such Stockholder or otherwise has the right to control the management of such Stockholder and (b) 50% or more of the fair market value of the Fixed Assets of such person consist of, either directly or through one or more subsidiaries, Shares owned by such Stockholder or any other Stockholder of which such person is a Stockholder Parent Company; provided that (i) Falcon Parent shall not be deemed to be a Stockholder Parent Company of Falcon after the Funding Date if, on the Funding Date, U.S.$50,000,000 is less than one-half of the total capital commitments (including previously made contributions) made by Falcon Parent Investors in Falcon Parent and (ii) in no event shall any Falcon Parent Investor or other holder of equity in Falcon Parent (or, with respect to such Falcon Parent Investor or other holder of equity, any person described in clause (a) of this definition) be or be deemed to be a Stockholder Parent Company. "Subject Shares" bears the meaning ascribed to it in Clause 18.1(i)(a); "Subscription Rights" bears the meaning ascribed to it in Clause 5.1; "Subscription Transfer Notice" bears the meaning ascribed to it in Clause 5.2; "Subsidiary" means, with respect to any person at any particular time, any other person whose affairs and policies such person, directly or indirectly, controls or has the power to control, whether by ownership of share capital, contract, ability to appoint board members or otherwise; "Target Effective Date" bears the meaning ascribed to it in Clause 18.1(ii)(a); "Target Effective Period" bears the meaning ascribed to it in Clause 18.1(ii)(a); "Target Filing Date" bears the meaning ascribed to it in Clause 18.1(ii)(a); "Terms of Offer" bears the meaning ascribed to it in Clause 4.2; "Third Appraiser" bears the meaning ascribed to it in Clause 6.5; "Time Put Decision Period" shall have the meaning ascribed to it in Clause 9.7(i); "Time Put Price" bears the meaning ascribed to it in Clause 7.3(i); "Total Time Put Shares" bears the meaning ascribed to it in Clause 9.8(i); "Transfer Notice" bears the meaning ascribed to it in Clause 4.2; 10 "U.S. Dollars" or "Dollars" or "US$" means from time to time the official currency of the United States of America; and "U.S. GAAP" bears the meaning ascribed to it in Clause 6.3(b). Clause 2. SHARES SUBJECT TO THIS AGREEMENT All shares of the Company's capital stock (the "Shares") owned by the Stockholders on the date hereof or which may be owned by the Stockholders in the future, including, without limitation, by means of subscription, acquisition, bonus, distribution, split or reverse split shall be subject to this Agreement, unless otherwise expressly excluded in the context. Shares held by directors of the Company and their alternates in accordance with Clause 11.5 shall be considered Shares held by the respective Stockholder that appointed each director or alternate. In addition, as provided in Clause 18.1(i)(b) below, Subject Shares that are registered and publicly sold shall not be entitled to the benefits of, or subject to the obligations in, this Agreement. Clause 3. SUBSCRIPTION AND PAYMENT FOR THE COMPANY'S CAPITAL STOCK 3.1 The capital stock of the Company, in the amount of R$______________, is divided into and represented by 196,712,853 Shares, all of them comprising registered common stock, without par value and with equal voting rights; each Share is entitled to one vote. 3.2 As of the date hereof: Mr. Robert Civita holds 1 Share; Abrilcap holds 111,075,321 Shares representing 56.47% (rounded to the second decimal) of the voting capital stock of the Company; Harpia holds 11,496,328 Shares representing 5.84% (rounded to the second decimal) of the voting capital stock of the Company and, upon consummation of the closing under the HC Stock Purchase Agreement, Harpia will hold 6,867,792 Shares representing 3.49% (rounded to the second decimal) of the voting capital stock of the Company; Curupira holds 11,496,328 Shares representing 5.84% (rounded to the second decimal) of the voting capital stock of the Company; 11 Falcon holds 27,930,827 Shares representing 14.20% (rounded to the second decimal) of the voting capital stock of the Company; Hearst/ABC Video holds 34,714,029 Shares representing 17.65% (rounded to the second decimal) of the voting capital stock of the Company; Hearst/ABC Limitada holds no Shares and, upon consummation of the closing under the HC Stock Purchase Agreement, Hearst/ABC Limitada will hold 4,628,538 Shares representing 2.35% (rounded to the second decimal) of the voting capital stock of the Company; and each of the following persons holds one Share in accordance with Clause 11.5: Victor Civita; Jose Augusto Pinto Moreira; Valter Pasquini; Robert Hefley Blocker; Peter John Trevor Grant Anderson; John Peter Harper; Francisco S.C. Pinheiro; Giancarlo Francesco Civita; Sergio Vladimirschi, Jr.; Viviane Vladimirschi; Jose L.S. Freire; Nina Farina; Fatima Ahmad Ali; Jorge Fernando Koury Lopes; Naum Rotenberg; Altamira Boscali; and Rogerio Cruz Themudo Lessa. 3.3 For purposes of this Agreement, Hearst/ABC Limitada shall not be a Stockholder, and shall not have the benefit of any of the rights granted by, or be subject to any of the obligations imposed by, this Agreement until it purchases Shares pursuant to the HC Stock Purchase Agreement or otherwise. Until such time as Hearst/ABC Limitada becomes a Stockholder, all references to the Investor Entities throughout this Agreement shall refer solely to Hearst/ABC Video. Clause 4. TRANSFER OF SHARES 4.1 (i) No Stockholder may sell or in any way transfer to third parties or to other Stockholders, whether signatories or not to this Agreement, any Shares held by such Stockholder, in whole or in part, (a) unless permitted by applicable 12 law and (b) except as specifically provided in Clauses 4.8 and 4.11 hereof, without first offering them to the Company and to all other Stockholders (other than Stockholders that are Affiliates of the offering Stockholder), who shall have the right to accept such offer for the acquisition thereof. Such offer shall be effected in compliance with the procedure set forth in this Clause 4. (ii) No Stockholder, other than Falcon or any Affiliate of Falcon that is then a Stockholder (to which this restriction shall not apply), shall permit any holder of an equity interest in such Stockholder or any holder of an equity interest in any Stockholder Parent Company of such Stockholder to sell directly or indirectly or in any way transfer to third parties or to other Stockholders, whether signatories or not to this Agreement, any equity interest in such Stockholder or Stockholder Parent Company, (a) unless permitted by applicable law and (b) except as specifically provided in Clauses 4.8 and 4.11 hereof, without first offering such equity interest to the Company and to all other Stockholders (other than Stockholders that are Affiliates of the offering Stockholder), who shall have the right to accept such offer for the acquisition thereof. Such offer shall be effected in compliance with the procedure set forth in this Clause 4. For purposes of this Clause 4 only, any such equity interest shall be referred to as Shares. (iii) Neither HC Entity nor any Affiliate of them that is a Stockholder shall permit any person who is a Controlling Stockholder of either HC Entity or such Affiliate to sell or in any way transfer any equity interest (the "Controlling Transfer") in any other Controlling Stockholder of either HC Entity or such Affiliate if such transfer would result in The Chase Manhattan Corporation or any successor thereto no longer being a Controlling Stockholder of such other person unless (a) such other person is a Stockholder Parent Company with respect to either HC Entity or such Affiliate, or (b) the selling person first offers to the Company and all other Stockholders (other than the HC Entities and such Affiliates), all of either, at the discretion of the selling person, (1) the Shares held by the HC Entities or such Affiliates or (2) the equity interests (the "Offered Interests") in (x) any entity (or entities) that is (or are) controlled by such other person and is (or are) then a Stockholder or (y) any entity that is a Stockholder Parent Company with respect to such Stockholder(s). For purposes of this Clause 4.1(iii) only, the Proposed Price shall equal 100% of the Event Put Price of such Shares or, if Offered Interests are offered, of all Shares held by any Stockholder of which such person referred to in sub-clause (x) or (y) is a Controlling Stockholder, such Event Put Price being determined according to the procedures set forth in Clause 6, mutatis mutandis, except as modified in this Clause 4.1(iii). Such offer shall be effected in compliance with the procedures set forth in this Clause 4, except that for purposes of this Clause 4 only, (a) if Offered Interests are offered, 13 the Offered Interests shall be treated as if they were Shares for all purposes other than the calculation of the Proposed Price therefor, (b) the Transfer Notice shall, in lieu of the Terms of Offer, describe the Shares or the Offered Interests, as the case may be, and include the name of the appraiser for purposes of item (a) in Clause 6.3 and provide the Event Put Price calculated according to the method contemplated in item (b) of Clause 6.3, (c) the time period in Clauses 4.3 to 4.5 shall run from the date the Event Put Price calculated according to the method contemplated in item (a) of Clause 6.3 is finally determined, and (d) replacing Clause 4.5 with the following: If after the 21 (twenty-one) Business Day period referred to in Clause 4.3 above has elapsed, none of the Company or the other Stockholders has exercised its right to accept the Terms of Offer to purchase all of the Shares or the Offered Interests, as the case may be, then the selling person may effect the Controlling Transfer to any person during the six subsequent months, at the price and other terms of such selling person's choice. (iv) If a sale or transfer of an equity interest in an HC Entity or any of their Affiliates that are then Stockholders (or in any Stockholder Parent Company of an HC Entity or any such Affiliates) results in The Chase Manhattan Corporation, or any successor thereto, no longer being a Controlling Stockholder of the HC Entities or such Affiliates thereof (or such Stockholder Parent Company thereof), then the HC Entities and such Affiliates (1) shall forfeit immediately all rights granted under this Agreement to the HC Entities and such Affiliates that would not be transferable with the Shares owned by the HC Entities or such Affiliates, and shall immediately cease to be bound by all of their obligations under this Agreement that would not be transferred with the Shares owned by them (including the obligations in connection with the HC Call Option), in each case as if a transfer of such Shares had occurred by the HC Entities or such Affiliates, and (2) shall forfeit immediately all rights to indemnification under Clauses 7.3(a) and (b) of the Old Stock Purchase Agreement and Clause 6.3 of the Stock Purchase Agreement other than in respect of claims for indemnification that are then pending. 4.2 The offer referred to in this Clause shall be effected by means of written notices (each, a "Transfer Notice") to be delivered to the Chairman of the Board and to each other Stockholder (not including Stockholders that are Affiliates of the offering Stockholder) containing the following information: (i) the number of Shares offered for sale, (ii) their type and class, (iii) a proposed price (the "Proposed Price") in cash expressed in U.S. Dollars, and, if applicable and known to the offering Stockholder, any non-cash consideration and the value thereof in cash expressed in U.S. Dollars, (iv) the other material conditions (other than the form of consideration to be paid for such Shares) of the proposed sale or transfer, and (v) if the offering Stockholder is Falcon, the Investor Entities, Abrilcap or an Affiliate of any of them, 14 a list of potential purchasers of such Shares (the "Potential Purchasers") (collectively, the "Terms of Offer"). 4.3 During the 21 (twenty-one) Business Days following the receipt of a Transfer Notice, the Company or such other Stockholders, as the case may be, shall inform the offering Stockholder in writing of its or their decision(s) as to whether to exercise the right to accept the Terms of Offer. (i) At any time during such 21 (twenty-one) Business Day period, such other Stockholders (acting unanimously) shall be entitled to make a counter-offer for all such offered Shares which the offering Stockholder may, but shall not be required to, accept. (ii) Any exercise of the right to accept the Terms of Offer by the Company and/or any of the Stockholders, as applicable, shall be for the acquisition of the entire amount of the offered Shares. (iii) Once the Terms of Offer are accepted by the Company and/or the Stockholders, as applicable, or such counter-offer is accepted by the offering Stockholder, the offered Shares shall be acquired in accordance with Clause 4.7 hereof and/or such counter-offer, as applicable, and transferred to the Company and/or to the other Stockholders no more than 40 Business Days from the date of the receipt by the offering Stockholder of notice from the Company and/or the other Stockholders informing of its or their decision to exercise their right to accept the Terms of Offer or the date of receipt of the offering Stockholder's notice of acceptance of such counter-offer, as the case may be. 4.4 The Chairman of the Board shall promptly call a meeting of the Board for a date not more than 14 Business Days after receipt of a Transfer Notice for the purpose of considering whether the Company should, (i) in the event that the offering Stockholder is Falcon, the Investor Entities, Abrilcap or an Affiliate of any of them, approve any or all of the Potential Purchasers listed in such Terms of Offer, and (ii) in any case, exercise its right to accept the Terms of Offer. In the event that the offering Stockholder is Falcon, the Investor Entities, Abrilcap or an Affiliate of any of them, the decision identified in sub-clause (i) above shall be taken first and shall, subject to applicable quorum requirements, be by majority vote of the Board excluding the directors appointed by the offering Stockholder and its Affiliates. Each Stockholder entitled, alone or with its Affiliates, to appoint a member of the Board hereby agrees to cause such member (a) not to vote against a Potential Purchaser unless the Potential Purchaser (1) is of undesirable character, (2) lacks financial capacity, (3) competes with the Company or its Subsidiaries in Brazil or (4) the nature of the Potential Purchaser would provoke a change of the business practices of the Company and (b) in any case to provide an explanation at such meeting of any vote against a Potential Purchaser. Any disapproval by the Board of 15 a Potential Purchaser shall be considered a binding veto and the proposed sale of Shares may not be made to such vetoed party. If the Board disapproves of all of the Potential Purchasers, the offering Stockholder may withdraw the Transfer Notice at any time prior to the transfer of the offered Shares. The decision identified in sub-clause (ii) above shall be taken by unanimous vote of all directors other than the directors appointed by the offering Stockholder and its Affiliates and the independent director. (i) The Company shall have priority over the other Stockholders in the acquisition of the offered Shares. (ii) If the Company does not exercise its right to accept the Terms of Offer, the offered Shares shall be apportioned to the other Stockholders who wish to participate in the exercise of the right to accept the Terms of Offer according to the ratios of their respective equity interests in the Company on the date of such acquisition (each participating Stockholder's share of such right, as so determined, its "Pro Rata Share"). For purposes of establishing such ratio, the equity held by the offering Stockholder, its Affiliates and Stockholders who do not wish to participate shall be excluded. (iii) In the event that a Foreign Stockholder is not permitted to purchase all or any portion of such Foreign Stockholder's Pro Rata Share of such Shares being offered for purchase due to Brazilian legal restrictions upon foreign ownership or other Brazilian legal limitations, such Foreign Stockholder may designate a third party to make such purchase, provided that such third party agrees to execute this Agreement and to become bound by the terms hereof and that: (a) such third party is identified in a notice given to each other Stockholder (not including the offering Stockholder, its Affiliates, the affected Foreign Stockholder and its Affiliates) within 5 (five) Business Days after receipt of the related Transfer Notice, and (b) each such Stockholder shall have approved such third party in writing, such approval not to be unreasonably withheld. 4.5 If, after the 21 (twenty-one) Business Day period referred to in Clause 4.3 above has elapsed, none of the Company or the other Stockholders has exercised its or their right to accept the Terms of Offer to purchase all of the offered Shares, then the offering Stockholder may sell the offered Shares to any person; provided, however, that each of the following conditions is complied with: (i) all such offered Shares must be sold simultaneously during the six subsequent months; (ii) if the offering Stockholder is Falcon, the Investor Entities, Abrilcap or an Affiliate of any of them, then such Shares must be sold to a Potential Purchaser that has not been vetoed in accordance with Clause 4.4; (iii) the provisions of Clause 4.9 below must becomplied with; (iv) the consideration for the sale of such Shares must have an aggregate fair value equal to at least ninety percent (90%) of the Proposed Price, 16 and the sale must be upon other conditions not substantially more favorable to the purchaser than the conditions set forth in the Terms of Offer; and (v) promptly after the consummation of such sale, the offering Stockholder must provide all of the other Stockholders with a notice containing a description of the sales price for such Shares, the form of consideration paid and all other material terms of such sale. 4.6 After the six month term referred to in the previous Clause has elapsed without a sale having taken place, if the offering Stockholder wishes again to dispose of or transfer its Shares, it shall be subject to the procedure set forth herein. 4.7 To exercise their right to accept the Terms of Offer provided for in this Clause 4, the Company and/or the Stockholders, as the case may be, wishing to exercise such right collectively must offer to purchase all the offered Shares in accordance with the Terms of Offer and must consummate such purchase within the time period set forth in Clause 4.3(iii), unless the offering Stockholder has agreed to a counter-offer which contains other terms and conditions. In the event that the acquiring Stockholder is Harpia or Curupira or an Affiliate thereof, they may exercise such right only for the maximum amount of Shares permitted by applicable laws, rules and regulations then in force. If the right to accept the Terms of Offer is sought to be exercised by other Stockholders, the number of Shares to be purchased by Harpia, Curupira and their Affiliates shall be limited to the lesser of such permitted amount and their Pro Rata Share. 4.8 (i) Neither the Company nor the other Stockholders shall be entitled to the right provided in this Clause 4 in relation to (A) sales, transfers and assignments of Shares effected by any Stockholder to: (a) any entity, other than a partnership, in which the transferring or assigning Stockholder directly or indirectly owns or controls a majority of the voting capital or equivalent ownership interest, or any partnership in which the transferring or assigning Stockholder both (1) is, directly or through another Affiliate, a general partner, and (2) owns, directly or indirectly, a majority of the economic interest (any such entity or partnership, for purposes of this Clause 4.8, a "subsidiary"); or (b) any entity that directly, or indirectly through one or more subsidiaries, owns or controls the majority of the voting capital stock or equivalent ownership interest of the assigning Stockholder (any such entity, for purposes of this Clause 4.8, a "holding company"); or (c) any entity that is a subsidiary of any of such Stockholder's holding companies; or (d) in the case of Mr. Civita, any of the following individuals: Edgard de Silvio Faria, Angelo Silvio Rossi, Maria Ines Romana Rossi, Giancarlo Francesco Civita, Victor Civita and Roberta Anamaria Civita; or (e) in the case of the Investor Entities, Hearst Parent or CCABC Parent, any of Hearst, CCABC or any subsidiary or holding company of Hearst or CCABC (collectively, "Affiliates"), or (B) sales, transfers and assignments of any equity interest in a Stockholder, a Stockholder Parent Company or a Controlling Stockholder of such Stockholder to any person that, immediately prior to such sale, transfer or assignment, was an Affiliate of such 17 Stockholder or a Person that had as a Controlling Stockholder any of such Stockholder's Controlling Stockholders. (ii) In addition, any Stockholder may permit any of its Affiliates to purchase any of the Shares such Stockholder would itself be permitted to purchase upon its exercise of the right to accept the Terms of Offer. Each Stockholder that transfers Shares to an Affiliate and each Stockholder that causes an Affiliate to purchase Shares in exercise of the right to accept the Terms of Offer under this Clause 4.8 hereby agrees with each other Stockholder that such transferred Shares shall at all times be held by an Affiliate of such transferring Stockholder, unless transferred to another person (other than an Affiliate of such transferring party) pursuant to the provisions of this Clause 4. Each Stockholder hereby undertakes to cause its Affiliates that are, from time to time, Stockholders, to act in compliance with the terms of this Clause 4.8. 4.9 Notwithstanding any provision to the contrary herein, any transfer or assignment of Shares (or any right to acquire Shares under Clause 4.8) by any form to a person that is not a signatory of this Agreement (including to an Affiliate), shall be valid and effective only if the transferee or assignee or acquiror fully and without restrictions becomes a party to this Agreement, all as if it had been an original party hereto, and each Stockholder agrees not to transfer Shares by any means whatsoever unless such transfer is permitted by applicable law; provided, however that this Clause 4.9 shall not apply to a transfer described in Clauses 4.1(ii) or (iii) above. 4.10 Except with the consent of all other Stockholders of the Company, no Stockholder shall create any liens or encumbrances on the Shares or otherwise enter into any agreement or arrangement which in any way limits or imposes restrictions on the free ownership of the Shares. Transfers of Shares or of securities convertible into Shares or, further, the creation of any lien or encumbrance upon them in contravention of the provisions of this Agreement shall not be valid, and the Company shall refrain from registering them on its stock transfer books. 4.11 The provisions of this Clause 4 shall not apply to transfers of Shares that are the subject of the HC Put Option (as defined in Clause 6.1 below), the Falcon Event Put Option (as defined Clause 7.1 below), the Falcon Time Put Option (as defined in Clause 7.1 below), the Investor Put Option (as defined in Clause 7A.1 below), the Call Options, any of the put rights granted in the Abril Agreement or the Option Agreement or to the Shares referred to in Clause 11.5. Further, the provisions of this Clause 4 shall not apply to any transfer that any Stockholder may be entitled to make pursuant to Clause 4.8 or 17 hereof, to Shares which are sold in a public registration pursuant to Clause 18 hereof, or to the Shares subject to the Put Option granted under the Amended and Restated Option Agreement dated as of the date 18 hereof among Abril S.A., Harpia and Curupira (the "Option Agreement") or to transfers of Shares pursuant to the Abril Agreement. The Company and the Stockholders acknowledge that, pursuant to the terms of the Option Agreement, Harpia, Curupira and their Affiliates that are from time to time Stockholders may assign some or all of their option rights, subject to some or all of their obligations, under the Option Agreement to any other Stockholder or group of Stockholders that are Affiliates (other than Mr. Civita, Abrilcap and any Affiliates thereof) which have received, by transfer from Harpia, Curupira or any Affiliate thereof, at least five percent (5%) of the Company's voting Shares. Clause 5. NEW ISSUANCES OF SHARES 5.1 The Stockholders shall have preference over all other persons or entities to subscribe for new issuances of capital stock by the Company in the proportion which the Shares they hold bear to all Shares subject to this Agreement (such preference rights in new capital increases being hereinafter referred to as "Subscription Rights"). New issuances of capital stock by the Company shall be effected in proportion to the existing classes and series of the Company's outstanding capital stock, and each Stockholder may exercise its Subscription Rights only with respect to Shares identical to those already owned by it. 5.2 (i) The transfer by any Stockholder of its Subscription Rights shall be subject (except for any transfer to an Affiliate of such Stockholder), to the requirement that such Subscription Rights first be offered to the other Stockholders (other than Stockholders that are Affiliates of the offering Stockholder). Such a transfer must be effected in accordance with the following terms: (a) within ten (10) Business Days from the date on which the Stockholders authorize, by resolution, the issuance of additional capital stock by the Company, the offering Stockholder shall give notice (a "Subscription Transfer Notice") to all such other Stockholders, containing the number of Shares that are the subject of the Subscription Rights being offered, a proposed price (the "Proposed Subscription Price") in cash expressed in U.S. Dollars, the other material conditions of the proposed sale and, if the offering Stockholder is Falcon, the Investor Entities, Abrilcap or an Affiliate of any of them, a list of potential purchasers of such Subscription Rights (the "Potential Subscription Purchasers"); (b) if the offering Stockholder is Falcon, the Investor Entities, Abrilcap or an Affiliate of any of them, no more than five Business Days after receipt of the Subscription Transfer Notice, the offeree Stockholders representing a majority of the Company's voting capital stock not held by the offering Stockholder and its Affiliates, by notice to the offering Stockholder, may disapprove any of the Potential Subscription Purchasers, which disapproval shall not be unreasonable and shall be explained in such notice; (c) no more than seven Business Days after receipt of the Subscription Transfer Notice, 19 the other Stockholders may exercise the right to acquire such Subscription Rights, on the basis of the ratio of their respective interest in the equity capital of the Company on the date of such offer (excluding, for the purposes of verification of such ratio, the equity held by the offering Stockholder and its Affiliates), for the price and on the other material conditions described in the Subscription Transfer Notice; and (d) no more than three Business Days after the election is made by the offeree Stockholders to acquire such Subscription Rights, the acquisition of all offered Subscription Rights shall occur. Once the 7-day period set forth in (c) has elapsed without the Stockholders who received the offer having given notice that they will exercise their rights to acquire such Subscription Rights, such rights may be assigned to any person or entity up to and including the date on which the exercise period for the Subscription Rights terminates; provided, however, that each of the following conditions shall have been complied with: (1) all of such Subscription Rights must be assigned to the same person or entity; (2) if the offering Stockholder is Falcon, the Investor Entities, Abrilcap or an Affiliate of any of them, then such Subscription Rights must be sold to a Potential Subscription Purchaser that has not been vetoed in accordance with this paragraph; (3) the provisions of Clause 5.3 below shall have been complied with; (4) the consideration for the sale of such Subscription Rights must have an aggregate fair value equal to at least the Proposed Subscription Price, and the assignment must be consummated upon other conditions not substantially more favorable to the assignee than the conditions set forth in the Subscription Transfer Notice; and (5) promptly after the consummation of such assignment, the offering Stockholder shall have provided all of the other Stockholders with a notice containing a description of the sale price for such Subscription Rights, the form of consideration paid and all other material terms of such assignment. (ii) Notwithstanding the foregoing, in the event that any Foreign Stockholder is not permitted to purchase all or any portion of such Foreign Stockholder's Pro Rata Share of such Subscription Rights being offered for purchase due to Brazilian legal restrictions upon foreign ownership or other Brazilian legal limitations, such Foreign Stockholder may designate a third party to take such purchase, provided that (a) such third party is identified in a notice given to each other Stockholder within two Business Days after receipt of the related Subscription Transfer Notice, and (b) each such Stockholder shall have approved such third party in writing, such approval not to be unreasonably withheld. 5.3 Notwithstanding any Provision to the contrary herein, any transfer or assignment of Subscription Rights by any form to a person that is not a signatory of this Agreement, including to an Affiliate, shall be valid and effective only if the 20 transferee or assignee fully and without restrictions becomes a party to this Agreement, all as if it had been an original party hereto. 5.4 After the date on which the exercise period of Subscription Rights expires, the remaining Shares which have not been subscribed for in the exercise of such Subscription Rights or by the third party assignees of such Subscription Rights as provided for in Clauses 5.2 and 5.3 above, shall be offered to the other Stockholders pro rata according to the amounts subscribed for by them as of such date. In the event that the other Stockholders do not wish to subscribe for the remaining Shares, they may, irrespective of the vote or consent of the Stockholder who did not exercise its Subscription Rights, elect to cancel the Shares which have not been subscribed for. 5.5 Each Stockholder agrees not to transfer any Subscription Rights unless such transfer is permitted by applicable law. Clause 6. HARPIA AND CURUPIRA PUT OPTION 6.1 So long as the Shares owned by the HC Entities are not publicly registered, listed or traded (other than pursuant to (x) a registration initiated by the Company pursuant to Clause 13.1(ii) hereof to satisfy its indemnification obligations as described therein, (y) a registration initiated pursuant to Clause 18.1 hereof or (z) the exercise of its piggyback registration rights pursuant to Clause 18.2 hereof) and Harpia or Curupira and their Affiliates, considered together, at such time hold at least five percent (5%) of the Company's voting Shares, or any other Stockholder or group of Stockholders that are Affiliates, other than Mr. Civita, Abrilcap and any Affiliates thereof) which have received, by transfer from Harpia, Curupira or any Affiliate thereof, and at such time hold, at least five percent (5%) of the Company's voting Shares, then upon the occurrence of an HC Triggering Event (as defined in Clause 6.2 below), and during the continuance thereof as described in the last paragraph of Clause 6.2 below, Harpia, Curupira, and their Affiliates, or such other Stockholder or Stockholders, as the case may be (the "HC Put Party"), shall be entitled to demand that the Company buy, in whole or in part, the Shares subscribed for by Harpia or Curupira pursuant to the Subscription Agreement then held by the HC Put Party (the Shares designated as being subject to such exercise of the HC Put Option are referred to as the "HC Put Shares") at the Event Put Price (as defined below), on the terms and conditions set forth in this Clause 6 (the "HC Put Option"). The rights of any HC Put Party under this Clause 6 are in addition to any other rights, remedies or actions which may be available to it hereunder, under any other agreement or by operation of law, except that the HC Put Option shall not be exercisable with respect to any HC Triggering Event (as defined below) for which Harpia, Curupira and their Affiliates shall have received indemnification in full for all amounts claimed and owing under Clause 7.3(a) or (b) of the Old Stock Purchase 6.2 "HC Triggering Event" means any of the following events: 21 Agreement and, to the extent applicable, Sections 6.3(h) and (i) of the Stock Purchase Agreement. (i) Any date upon which either (a) Harpia's, Curupira's or their Affiliates' investment in the Shares exceeds the amounts allowed under legal restrictions to which it or any of its Affiliates is subject, or otherwise Harpia, Curupira or their Affiliates are no longer allowed to hold such Shares, under any law, rule or regulation applicable to it or any of its Affiliates or (b) legal restrictions are imposed on Harpia, Curupira or other Affiliates, that may turn the title of such Shares or a portion thereof illegal or unduly burdensome in the context of applicable banking law or regulation; (ii) Any breach or violation by Mr. Civita or Abrilcap, any of their respective Affiliates or the Company of any representation, warranty, covenant or duty made or owed (a) by the Company, Mr. Civita or Abrilcap or any of their respective Affiliates to Harpia or Curupira or any of their respective Affiliates pursuant to this Agreement, the Old Stock Purchase Agreement or the Stock Purchase Agreement, (b) by any party thereto, pursuant to the Service Agreement (including the powers of attorney in connection therewith) or (c) by Abril S.A., pursuant to the Abril Credit Agreement; provided, that in the case of (1) breaches or defaults of Clause 14.2 hereof, no HC Triggering Event shall occur unless such breach or default is not cured on or before the 30th (thirtieth) Business Day following such breach or default; and (2) any breach or violation of a representation or warranty contained in Clause 3 or 4 of the Old Stock Purchase Agreement that is curable, no HC Triggering Event shall occur if such breach or violation is cured in full within 60 days after it occurred; (iii) Mr. Civita ceases, in a transaction not approved in writing by all Stockholders who then are entitled to the veto rights set forth in Clause 13.1 hereof, to: (a) directly or indirectly hold voting Shares of the Company representing more than 31.258% of the voting Shares of the Company, (b) directly or indirectly control the voting of voting Shares of the Company held by his Affiliates representing more than 50% (fifty percent) of the Voting Shares of the Company, or (c) directly or indirectly hold 31.258% of the Company's total capital stock, whether voting or nonvoting; provided that in the event of Mr. Civita's death, there shall be no HC Triggering Event unless and until the individuals listed in the definition of Affiliates herein (together with Mr. Civita's estate) cease, directly or indirectly, to hold more than: (1) 50% of the voting Shares of the Company and (2) 31.258% of the Company's total capital stock, whether voting or nonvoting; 22 (iv) The Service Agreement ceases for any reason to be valid and effective or its challenged as to its validity and effectiveness by any of the parties thereto, Mr. Civita or Abrilcap or any Affiliate of any of them; (v) If (a) in the case of any of the License Holders other than Abril S.A., at any time when it holds any license or permit which is the subject of the Service Agreement or any license, permit or asset that is part of the Business, or (b) in the case of Abril S.A., at any time, such License Holder or Abril S.A. is liquidated or dissolved or makes or files voluntarily, or has filed against it involuntarily any petition in bankruptcy; or (vi) The giving of a Falcon Put Notice or an Investor Put Notice hereunder except with respect to the Falcon Triggering Event listed in Clause 7.2(i) or (ii) or the Investor Triggering Event listed in Clause 7A.2(i). Any HC Triggering Event listed in sub-clauses (ii) through (vi) shall continue until the earlier of (x) the first anniversary of receipt by each HC Put Party of notice from the Company, Mr. Civita or Abrilcap, as the case may be, stating that an HC Triggering Event has occurred and providing a detailed description thereof or (y) to the extent curable, the cure of the event which gave rise to the HC Triggering Event or, with respect to clause (vi), the withdrawal of a Falcon Put Notice or an Investor Put Notice (which withdrawal shall not prejudice any right of the HC Put Parties to exercise an HC Put Option pursuant to clauses (ii) through (v) above), provided that an HC Triggering Event may not be terminated pursuant to clause (y) above more than twice, and once an HC Put Party has given an HC Put Notice, the HC Triggering Event may not be terminated pursuant to clause (y) above. The HC Triggering Event listed in sub-clause (i) shall continue only for as long as the events described therein continue. 6.3 The price of Shares (the "Event Put Price") subject to the HC Put Option shall be equal to (i) the fraction represented by the number of HC Put Shares divided by the total number of issued and outstanding Shares of the Company, multiplied by (ii) the higher value of the business of the Company and its Subsidiaries obtained with the application of the following methods: (a) Fair Market Method: The fair market value of the business of the Company and its Subsidiaries shall be determined by an independent recognized valuation expert paid for by the Company and/or the HC Put Party in accordance with the procedure set out below in this Clause 6. The valuation will be determined assuming that such business is sold to an independent third party as a going concern with no discount for minority ownership or non-liquidity of any assets or interests held by the Company or its Subsidiaries and on the assumption that the Company and its Subsidiaries have and will continue to have unrestricted use of licenses, permits and other rights which they hold directly or which are the subject of 23 the Services Agreement; provided that, to the extent that capital stock of the Company is publicly traded on a national securities market and if there is an active and viable trading market in such capital stock, as reasonably determined by the appraiser, the appraiser may consider the trading price of such capital stock as a reference point in the methodology of its consideration of the fair market value of the business of the Company and its Subsidiaries, but such public market price shall not be determinative of said fair market value, it being the intent of the parties that such valuation of the Company and its Subsidiaries shall be made using the private market value of the sale of the business of the Company and its Subsidiaries determined as set forth above. (b) Earnings Multiple Method: The earnings multiple method of valuing the business of the Company and its Subsidiaries uses the sum of Clause (1) and Clause (2), defined as follows: Clause 1 shall be defined as the difference between (A) the product of twelve (12) times Earnings (as defined below) for the most recently completed quarter multiplied by four and (B) the sum of interest-bearing senior debt and subordinated debt, including any accrued interest thereon, and preferred stock, as reflected on the balance sheet of the Company as of the end of the most recently completed quarter. Clause 2 shall be defined as non-operating assets and excess cash as reflected on the balance sheet of the Company as of the end of the most recently completed quarter. The earnings multiple method shall be calculated on the most recent quarterly report of the Company as reviewed by its auditors and reconciled with U.S. generally accepted accounting principles ("U.S. GAAP"). "Earnings", for this purpose, shall be defined as earnings before interest, taxes, depreciation and amortization of the Company and its Subsidiaries, determined in accordance with U.S. GAAP, adjusted for non-cash gains and losses, and extraordinary items. Each of the valuations referred to in this Clause 6.3 shall be expressed in U.S. Dollars according to the foreign exchange conversion rate from Brazilian currency used in the Company's financial statements for the most recently completed fiscal quarter. 6.4 At any time when an HC Triggering Event shall have occurred and be continuing, any HC Put Party shall be entitled to deliver written notice (each, an "HC Put Notice") to each of the Stockholders (except the HC Put Party and its Affiliates) and the Chairman of the Board. Such notice shall include the name of the appraiser the HC Put Party intends to propose for the purposes of item (a) in Clause 6.3 above, the number of HC Put Shares which are the subject of the HC Put Notice, as well as the HC Put Price calculated according to the method contemplated in item (b) of the same Clause 6.3 above. In the event the HC Put Notice is given at a time when 24 there is more than one potential HC Put Party, such other HC Put Party shall have five (5) Business Days to join the potential exercise of the HC Put Option by giving written notice to each person that was required to receive the related HC Put Notice, in which case the term HC Put Party shall be deemed to include such other HC Put Party, which shall be deemed to accept selection of an appraiser by the HC Put Party that gave the HC Put Notice. Thereafter, such parties shall be required to act unanimously except in exercising the HC Put Option pursuant to Clause 6.9 below. Neither the election of a potential HC Put Party under this Clause 6.4 not to join an HC Put Party that gave an HC Put Notice nor the election by any HC Put Party not to exercise the HC Put Option after an HC Put Notice has been given shall waive any rights to give an HC Put Notice or exercise the HC Put option at any later time in accordance with this Clause 6. 6.5 No longer than five (5) Business Days from the receipt by the Chairman of the HC Put Notice, the Board shall inform, in writing, the HC Put Party and the other Stockholders whether it accepts the appraiser proposed by the HC Put Party in such notice. If the Board rejects the appraiser proposed by the HC Put Party it shall, in the same notice, propose an appraiser acceptable to it. The HC Put Party shall have five (5) Business Days to inform, in writing, the Board and the other Stockholders whether it accepts the appraiser proposed by the Board. If the HC Put Party accepts the appraiser proposed by the Board, such appraiser shall be promptly retained by the Company to proceed with the appraisal provided for in item (a) of Clause 6.3. In the event the HC Put Party does not accept the appraiser proposed by the Board, the appraiser originally proposed by the HC Put Party and the appraiser proposed by the Board shall have ten (10) Business Days from the rejection informed by the HC Put Party to jointly and irrespective of acceptance by the HC Put Party or the Board, suggest a third appraiser (the "Third Appraiser") who will be promptly retained by the Company to proceed with the appraisal under reference. Subject to Clause 6.6 below, all costs and expenses incurred in the performance of the appraisal shall be borne (i) by the HC Put Party if such appraisal is performed by the appraiser proposed by it; (ii) by the Company if performed by the appraiser proposed by its Board; and equally borne by the HC Put Party and the Company if performed by the Third Appraiser. All decisions of the Board regarding selection of an appraiser for purposes of computing the HC Put Price shall be taken by a majority of the directors not appointed by any HC Put Party or its Affiliates. 6.6 If the Board or the appraiser proposed by it do not comply with the procedure set forth in the previous Clause, the HC Put Party shall retain the appraiser proposed in its HC Put Notice, and the Company shall reimburse the HC Put Party for the costs and expenses incurred in the performance of the appraisal promptly after required upon presentation of the respective evidencing documents. In the event there shall be costs or expenses of an appraiser retained under this Clause 6.6 and it is finally determined or the HC Put Party concedes that no Triggering Event occurred, then all costs and expenses shall be for the account of the HC Put Party. 25 6.7 The appraiser shall have no longer than 45 (forty-five) calendar days from its appointment to notify the Board and the HC Put Party in writing of the result of the appraisal accomplished based on the criteria set forth in item (a) of Clause 6.3 above, as of the date on which the appraisal is delivered and expressed in U.S. Dollars according to the conversion criteria referred to in Clause 6.4 above, which result shall be considered final and shall not be challenged by any party hereto. 6.8 The Company undertakes to, and the Stockholders agree to cause the Company to, cooperate fully so that the appraisal provided for in Clause 6.3 above or in the Option Agreement be effected within the term established therein and the Company shall deliver all the information and documents requested by the appraiser for the purposes of this Clause. 6.9 Any participating HC Put Party shall be entitled to exercise the HC Put Option by giving written notice to the Board and each Stockholder within 10 days following receipt of the appraiser's notice referred to in Clause 6.7 above. If the HC Put Option is so exercised, by 11:30 a.m. on the 45th day (the "Date of the HC Put Payment") from the date the result of the appraisal mentioned in Clause 6.3 above is delivered, or if such day is not a Business Day, on the next following Business Day, the Company shall pay the Event Put Price for the HC Put Shares to the HC Put Party in Reais Equivalent on the Date of the HC Put Payment, and the HC Put Party shall transfer to the Company the HC Put Shares subject to the HC Put Option, free and clear of all liens, claims, charges, restrictions and encumbrances caused by or suffered to exist by any HC Put Party or its Affiliates, other than as provided in this Agreement. Any election by an HC Put Party not to exercise the HC Put Option shall not waive its right to give any HC Put Notice or exercise the HC Put Option on the basis thereof at any time (subject to the time limit in Clause 6.2 above) thereafter. 6.10 Upon the occurrence of an HC Triggering Event under Clause 6.2(i) above, related to any U.S. legal restrictions and if there shall occur a Put Postponement (as defined in Clause 9 below), the HC Put Parties shall consult with Mr. Civita and Abrilcap concerning the exercise of their rights available under Clause 9.3 below to convert their HC Put Shares to Special Preferred Shares (as defined in Clause 9.3 below); provided, however, that any failure so to consult shall not affect the HC Put Parties' rights hereunder or subject the HC Put Parties to any claims for breach of contract or any other damages. 6.11 In the event that any HC Put Party exercises any HC Put Option contemplated by this Clause 6, prior to the purchase by the Company of the HC Put Shares as described below, the Stockholders, other than the HC Put Parties and their Affiliates, shall be entitled, but not obligated, to purchase such number of HC Put Shares at the Participant Purchase Price as is designated by the Participating Stockholder(s) by delivering a written notice to such effect to the Company and each of the Stockholders (except the Participating Stockholder and its Affiliates) within 10 26 days following receipt of such HC Put Notice; provided that if a Stockholder exercises such option, then (i) subject to clause (iv) below, the Company shall only be obligated to purchase those HC Put Shares not so purchased by the Participating Stockholder(s) at a price equal to the Event Put Price minus the aggregate of the Participant Purchase Price(s), (ii) if the Participating Stockholder(s) in the aggregate elect to purchase more than the total number of HC Put Shares being offered, then each Participating Stockholder shall be entitled to purchase that number of HC Put Shares equal to the product of (A) the total number of HC Put Shares times (B) a fraction, the numerator of which is that number of HC Put Shares which such Participating Stockholder elected to purchase and the denominator of which is the total number of HC Put Shares which all Participating Stockholders elected to purchase, (iii) the closing of the purchase of such HC Put Shares by the Participating Stockholder(s) shall occur on the Date of the HC Put Payment, at which time each Participating Stockholder shall pay its Participant Purchase Price in Reais Equivalent, and the HC Put Party shall transfer to each Participating Stockholder the HC Put Shares that such Participating Stockholder is purchasing, free and clear of all liens, claims, charges, restrictions and encumbrances caused by or suffered to exist by the HC Put Party or its Affiliates, other than as provided in this Agreement and (iv) if any Participating Stockholder does not satisfy its obligation to acquire its portion of the HC Put Shares, the Company shall be required to do so at such closing. 6.12 Other than as set forth in Clause 6.11 above, nothing in this Clause 6 shall confer any rights upon any person other than the HC Put Parties and nothing in this Clause 6 shall impose any obligations on any person other than the HC Put Parties and the Company. Clause 7. FALCON'S PUT OPTIONS 7.1 (i) Unless (a) the Shares owned by Falcon or its Affiliates shall have been publicly registered, listed or traded (other than pursuant to (x) a registration initiated by the Company pursuant to Clause 13.1(ii) hereof to satisfy its indemnification obligations as described therein, (y) (1) with respect to a Falcon Time Put Option, a registration initiated by a Stockholder other than Falcon or its Affiliates pursuant to Clause 18.1 hereof and (2) with respect to a Falcon Event Put Option, a registration initiated pursuant to Clause 18.1 hereof or (z) the existence of its piggyback registration rights pursuant to Clause 18.2 hereof), (b) at the time of the exercise of the Falcon Put Option both (1) at least 50% of the initial aggregate ownership interests of the initial equity holders (the "Falcon Parent Investors") of Falcon International Communications LLC ("Falcon Parent") (such initial ownership interests and initial equity holders calculated after Falcon parent shall have been fully organized and the initial issuance of ownership interests to investors other than Hellman & Friedman Capital Partners III, 27 L.P. ("Hellman & Friedman") and/or entities related thereto shall have been completed) shall then have become publicly registered, listed or traded and shall be freely tradeable without any restrictions imposed by applicable securities laws, and (2) at least 50% of all of the ownership interests of Falcon Parent shall then have become publicly traded or (c) Falcon together with its Affiliates at such time collectively hold less than 5% (five percent) of the Company's voting Shares, then upon the occurrence of a Falcon Triggering Event (as defined below in Clause 7.2) and during the continuance thereof as described in the last paragraph of Clause 7.2 below, Falcon and its Affiliates shall be entitled to demand that the Company buy: (A) in the case of a Falcon Triggering Event referred to in Clause 7.2(i) below, all but not less than all of the Shares acquired by Falcon pursuant to the Old Stock Purchase Agreement then held by Falcon and its Affiliates (as used with respect to the Falcon Time Put Option, the "Falcon Put Shares") at the Time Put Price, on the terms and conditions set forth in this Clause 7 (such option being hereinafter referred to as the "Falcon Time Put Option"), or (B) in the case of all other Falcon Triggering Events, all or a portion of the Shares acquired by Falcon pursuant to the Old Stock Purchase Agreement then held by Falcon and its Affiliates or transferees described in Clause 7.1(ii) below (as used with respect to the Falcon Event Put Option, the number of Shares designated as being subject to such exercise of the Falcon Event Put Option are referred to as the "Falcon Put Shares") at the Event Put Price, on the terms and conditions set forth in this Clause 7 (such option hereinafter referred to as the "Falcon Event Put Option"), except that the Falcon Event Put Option shall not be exercisable with respect to any Falcon Triggering Event for which Falcon and its Affiliates shall have received indemnification in full for all amounts claimed and owing under Section 7.3(a) or (b) of the Old Stock Purchase Agreement and, to the extent applicable, Sections 6.3(h) and (i) of the Stock Purchase Agreement. Falcon hereby agrees, promptly after completion of the initial issuance of ownership interests in Falcon Parent to investors other than Hellman & Friedman and/or entities related thereto, to provide the Board with a list of the Falcon Parent Investors. (ii) No Stockholder other than Falcon or a Stockholder that is an Affiliate of Falcon shall be entitled to exercise the Falcon Time Put Option. Notwithstanding Clause 7.1(i)(b) or (c) above, any Stockholder or group of 28 Stockholders that are Affiliates (other than Mr. Civita, Abrilcap and any Affiliates thereof) which have received, by transfer from Falcon or any Affiliate thereof, and at such time hold, at least 5% (five percent) of the Company's voting Shares, shall be entitled to exercise the Falcon Event Put Option in respect of their Falcon Put Shares. Any person entitled to exercise a Falcon Time Put Option or a Falcon Event Put Option at a particular time shall be a "Falcon Put Party" at such time with respect to such option. (iii) Except as stated in Clause 7.1(i)(B) above (where Falcon and its Affiliates have received indemnification in full), the rights of any Falcon Put Party under this Clause 7 are in addition to any other rights, remedies or actions which may be available to them hereunder, under any other agreement or by operation of law. 7.2 "Falcon Triggering Event" means any of the following events: (i) Any date between September 22, 2002 and September 22, 2005; (ii) Any date upon which either: (a) Falcon's or its Affiliates, investment in the Shares exceeds the amounts allowed under legal restrictions to which it or any of its Affiliates is subject, or otherwise Falcon or any of its Affiliates is no longer allowed to hold such Shares, under any law, rule or regulation applicable to it or any of its Affiliates, or (b) legal restrictions are imposed on Falcon or its Affiliates that may turn the title of such Shares or a portion thereof illegal; (iii) Any breach or violation by Mr. Civita or Abrilcap, any of their respective Affiliates or the Company, of any representation, warranty, covenant or duty made or owed (a) by the Company, Mr. Civita or Abrilcap or any of their respective Affiliates to Falcon or any of its Affiliates pursuant to this Agreement, the Old Stock Purchase Agreement or the Stock Purchase Agreement, (b) by any party thereto, pursuant to the Service Agreement (including the powers of attorney in connection therewith) or (c) by Abril S.A., pursuant to the Abril Credit Agreement; provided, that in the case of (1) breaches or defaults of Clause 14.2 hereof, no Falcon Triggering Event shall occur unless such breach or default is not cured on or before the 30th (thirtieth) Business Day following such breach or default, and (2) any breach or violation of a representation or warranty contained in Article 3 or 4 of the Old Stock Purchase Agreement that is curable, no Falcon Triggering Event shall occur if such breach or violation is cured in full within 60 days after it occurred; (iv) Mr. Civita ceases, in a transaction not approved in writing by all Stockholders who then are entitled to the veto rights set forth in 29 Clause 13.1 hereof, to: (a) directly or indirectly hold voting Shares of the Company representing more than 31.258% of the voting Shares of the Company, (b) directly or indirectly control the voting of voting Shares of the Company held by his Affiliates representing more than 50% (fifty percent) of the voting Shares of the Company, or (c) directly or indirectly hold 31.258% of the Company's total capital stock, whether voting or nonvoting; provided that in the event of Mr. Civita's death, there shall be no Falcon Triggering Event unless and until the individuals listed in the definition of Affiliates herein (together with Mr. Civita's estate) cease, directly or indirectly, to hold more than: (i) 50% of the voting Shares of the Company and (2) 31.258% of the Company's total capital stock, whether voting or nonvoting, (v) The Service Agreement ceases for any reason to be valid and effective or is challenged as to its validity and effectiveness by any of the parties thereto, Mr. Civita or Abrilcap or any Affiliate of any of them; (vi) If (a) in the case of any of the License Holders other than Abril S.A., at any time when it holds any license or permit which is the subject of the Service Agreement or any license, permit or asset that is part of the Business, or (b) in the case of Abril S.A., at any time, such License Holder or Abril S.A. is liquidated or dissolved or makes or files voluntarily, or has filed against it involuntarily any petition in bankruptcy; or (vii) The giving of an HC Put Notice or an Investor Put Notice hereunder except with respect to the HC Triggering Event listed in Clause 6.2(i) or the Investor Triggering Event listed in Clause 7A.2(i). Any Falcon Triggering Event listed in sub-clauses (iii) through (vii) above shall continue until the earlier of (x) the first anniversary of receipt by each Falcon Put Party of notice from the Company, Mr. Civita or Abrilcap, as the case may be, stating that a Falcon Triggering Event has occurred and providing a detailed description thereof or (y) to the extent curable, the cure of the event which gave rise to the Falcon Triggering Event or, with respect to clause (vii), the withdrawal of an HC Put Notice or an Investor Put Notice (which withdrawal shall not prejudice any right of the Falcon Put Parties to exercise a Falcon Put Option pursuant to clauses (iii) through (vi) above), provided that a Falcon Triggering Event may not be terminated pursuant to clause (y) above more than twice, and once a Falcon Put Party has given a Falcon Put Notice, the Falcon Triggering Event may not be terminated pursuant to clause (y) above. The Falcon Triggering Event listed in (a) sub-clause (i) above shall continue for the duration described therein and (b) sub-clause (ii) above shall continue only for as long as the event described therein continues. 30 7.3 (i) The price of the Falcon Put Shares subject to the Falcon Time Put Option (the "Time Put Price") shall correspond to the calculation of the price of the Shares using the fair market value of the Company and its Subsidiaries as determined according to Clause 6.3(a) above only and including the last paragraph of Clause 6.3 (except that for this purpose the term HC Put Party in such Clause shall mean Falcon Put Party) and the Falcon Time Put option shall be triggered and exercised according to Clauses 6.4 through 6.11 above (except that for these purposes (a) the terms HC Put Option, HC Put Party, HC Put Notice, Event Put Price, HC Put Shares, HC Triggering Event and Date of the HC Put Payment shall mean, respectively, Falcon Time Put option, Falcon Put Party, Falcon Put Notice, Time Put Price, Falcon Put Shares, Falcon Triggering Event and Date of the Falcon Put Payment, as appropriate; (b) the Falcon Put Notice shall not contain any entry relating to Clause 6.3(b); and (c) payment as set forth in Clause 6.9 above shall be subject to the provisions of Clause 9.7 below). For provisions regarding payment settlement (in lieu of the payment and settlement provisions set forth in Clause 6.9 above but not other provisions thereof) of the Falcon Time Put Option, see Clauses 9.7 to 9.10 below. In addition, the related Falcon Put Notice shall contain a certification that the Falcon Put Party is eligible to trigger the Falcon Time Put Option because the circumstances referred to in Clause 7.1(i)(b) above have not occurred. (ii) Notwithstanding the provisions of Clause 6.9 above to the effect that election not to exercise put rights at a particular time does not waive future rights of a put party to commence the put process or ultimately exercise such rights, in the case of the Falcon Time Put Option, (a) the Falcon Put Parties shall be limited to 4 (four) Falcon Put Notices; (b) if the Falcon Time Put Option is not exercised on the basis of the fourth such Falcon Put Notice in respect of the Falcon Time Put Option, the Falcon Time Put Option shall expire and (c) in the event two or more Falcon Put Notices in respect of the Falcon Time Put Option are given within a one-year period, the Falcon Put Parties shall be responsible to pay all of the costs of the appraiser retained in connection with the determination of the Time Put Price in respect of the second or more of such Falcon Put Notices. 7.4 The price of the Falcon Put Shares subject to the Falcon Event Put Option shall be the Event Put Price as determined according to Clause 6.3(a) or (b) above and including the last paragraph of Clause 6.3 above (except that for this purpose the term HC Put Party in such Clause shall mean Falcon Put Party), and the Falcon Event Put Option shall be triggered and exercised according to Clauses 6.4 through 6.11 above (except that for these purposes the terms HC Put Option, HC Put Party, HC Put Notice, HC Put Shares, HC Triggering Event and Date of the HC Put Payment shall mean, respectively, Falcon Event Put Option, Falcon Put Party, Falcon Put Notice, Falcon Put Shares, Falcon Triggering Event and Date of the Falcon Put Payment, as appropriate). In addition, the related Falcon Put Notice 31 shall contain a certification that the Falcon Put Party (other than a transferee pursuant to Clause 7.1(ii) above that is not an Affiliate of Falcon, which shall not be required to provide such certification) is eligible to trigger the Falcon Event Put Option because the circumstances referred to in Clause 7.1(i)(b) above have not occurred. 7.5 In the event that any Falcon Put Party exercises any Falcon Event Put Option contemplated by this Clause 7, prior to the purchase by the Company of the Falcon Put Shares as described below, the Stockholders, other than the Falcon Put Parties and their Affiliates, shall be entitled, but not obligated, to purchase such number of Falcon Put Shares at the Participant Purchase Price as is designated by the Participating Stockholder(s) by delivering a written notice to such effect to the Company and each of the Stockholders (except the Participating Stockholder and its Affiliates) within 10 days following receipt of such Falcon Put Notice; provided that if a Stockholder exercises such option, then (i) subject to clause (iv) below, the Company shall only be obligated to purchase those Falcon Put Shares not so purchased by the Participating Stockholder(s) at a price equal to the Event Put Price minus the aggregate of the Participant Purchase Price(s), (ii) if the Participating Stockholder(s) in the aggregate elect to purchase more than the total number of Falcon Put Shares being offered, then each Participating Stockholder shall be entitled to purchase that number of Falcon Put Shares equal to the product of (A) the total number of Falcon Put Shares times (B) a fraction, the numerator of which is that number of Falcon Put Shares which such Participating Stockholder elected to purchase and the denominator of which is the total number of Falcon Put Shares which all Participating Stockholders elected to purchase, (iii) the closing of the purchase of such Falcon Put Shares by the Participating Stockholder(s) shall occur on the Date of the Falcon Put Payment, at which time each Participating Stockholder shall pay its Participant Purchase Price in Reais Equivalent, and the Falcon Put Party shall transfer to each Participating Stockholder the Falcon Put Shares that such Participating Stockholder is purchasing, free and clear of all liens, claims, charges, restrictions and encumbrances caused by or suffered to exist by the Falcon Put Party or its Affiliates, other than as provided in this Agreement and (iv) if any Participating Stockholder does not satisfy its obligation to acquire its portion of the Falcon Put Shares, the Company shall be required to do so at such closing. Clause 7A. THE INVESTOR ENTITIES' PUT OPTION 7A.1 So long as the Shares owned by the Investor Entities are not publicly registered, listed or traded (other than pursuant to (x) a registration initiated by the Company pursuant to Clause 13.1(ii) hereof to satisfy its indemnification obligations as described therein, (y) a registration initiated pursuant to Clause 18.1 hereof or (z) the exercise of its piggyback registration rights pursuant to Clause 18.2 hereof) and the Investor Entities and their Affiliates, considered together, at such time hold at least 5% (five percent) of the Company's voting shares, or any other Stockholder or 32 group of Stockholders that are Affiliates (other than Mr. Civita, Abrilcap and any Affiliates thereof) which have received, by transfer from the Investor Entities or any Affiliate thereof, and at such time hold at least 5% (five percent) of the Company's voting Shares, then upon the occurrence of an Investor Triggering Event (as defined in Clause 7A.2 below), and during the continuance thereof as described in the last paragraph of Clause 7A.2 below, the Investor Entities and their Affiliates, or such other Stockholder or Stockholders, as the case may be (the "Investor Put Party"), shall be entitled to demand that the Company buy, in whole or in part, the Shares purchased by the Investor Entities pursuant to the Stock Purchase Agreement or the stock purchase agreement among Hearst/ABC Limitada, Harpia and Curupira (the "HC Stock Purchase Agreement") then held by the Investor Put Party (the number of Shares designated as being subject to such exercise of the Investor Put Option are referred to as the "Investor Put Shares"), at the Event Put Price, on the terms and conditions set forth in this Clause 7A (the "Investor Put Option"). The rights of any Investor Put Party under this Clause 7A are in addition to any other rights, remedies or actions which may be available to it hereunder, under any other agreement or by operation of law, except that the Investor Put Option shall not be exercisable with respect to any Investor Triggering Event for which the Investor Entities and their Affiliates shall have received indemnification in full for all amounts claimed and owing under Clause 6.3(a) or (b) of the Stock Purchase Agreement. 7A.2 "Investor Triggering Event" means any of the following events: (i) Any date upon which either: (a) the Investor Entities' or their Affiliates' investment in the Shares exceeds the amounts allowed under legal restrictions to which it or any of its Affiliates is subject, or otherwise the Investor Entities or any of their Affiliates is no longer allowed to hold such Shares, under any law, rule or regulation applicable to it or any of its Affiliates, or (b) legal restrictions are imposed on the Investor Entities or their Affiliates that may turn the title of such Shares or a portion thereof illegal; (ii) Any breach or violation by Mr. Civita or Abrilcap, any of their respective Affiliates or the Company, of any representation, warranty, covenant or duty made or owed (a) by the Company, Mr. Civita or Abrilcap or any of their respective Affiliates to the Investor Entities or any of their Affiliates pursuant to this Agreement or the Stock Purchase Agreement, (b) by any party thereto, pursuant to the Service Agreement (including the powers of attorney in connection therewith) or (c) by Abril S.A., pursuant to the Abril Credit Agreement; provided, that in the case of (1) breaches or defaults under Clause 14.2 hereof, no Investor Triggering Event shall occur unless such breach or default is not cured on or before the 30th (thirtieth) Business Day following such breach or default, and (2) any breach or violation of a representation or warranty contained in Clause 3 or 4 of the Stock Purchase 33 Agreement that is curable, no Investor Triggering Event shall occur if such breach or violation is cured in full within 60 days after it occurred; (iii) Mr. Civita ceases, in a transaction not approved in writing by all Stockholders who then are entitled to the veto rights set forth in Clause 13.1 hereof, to: (a) directly or indirectly hold voting Shares of the Company representing more than 31.258% of the voting Shares of the Company, (b) directly or indirectly control the voting of voting Shares of the Company held by his Affiliates representing more than 50% (fifty percent) of the voting Shares of the Company, or (c) directly or indirectly hold 31.258% of the Company's total capital stock, whether voting or nonvoting; provided that in the event of Mr. Civita's death, there shall be no Investor Triggering Event unless and until the individuals listed in the definition of Affiliates herein (together with Mr. Civita's estate) cease, directly or indirectly, to hold more than: (1) 50% of the voting Shares of the Company and (2) 31.258% of the Company's total capital stock, whether voting or nonvoting; (iv) The Service Agreement ceases for any reason to be valid and effective or is challenged as to its validity and effectiveness by any of the parties thereto, Mr. Civita or Abrilcap or any Affiliate of any of them; (v) If (a) in the case of any of the License Holders other than Abril S.A., at any time when it holds any license or permit which is the subject of the Service Agreement or any license, permit or asset that is part of the Business, or (b) in the case of Abril S.A., at any time, such License Holder or Abril S.A. is liquidated or dissolved or makes or files voluntarily, or has filed against it involuntarily any petition in bankruptcy; or (vi) The giving of an HC Put Notice or a Falcon Put Notice hereunder except with respect to the HC Triggering Event listed in Clause 6.2(i) or the Falcon Triggering Event listed in Clause 7.2(i) or (ii). Any Investor Triggering Event listed in sub-clauses (ii) through (vi) above shall continue until the earlier of (x) the first anniversary of receipt by each Investor Put Party of notice from the Company, Mr. Civita or Abrilcap, as the case may be, stating that an Investor Triggering Event has occurred and providing a detailed description thereof or (y) to the extent curable, the cure of the event which gave rise to the Investor Triggering Event or, with respect to clause (vi), the withdrawal of an HC Put Notice or a Falcon Put Notice (which withdrawal shall not prejudice any right of the Investor Put Parties to exercise an Investor Put Option pursuant to clauses (ii) through (v) above), provided that an Investor Triggering Event may not be terminated pursuant to clause (y) above more than twice, and once an Investor Put Party has given an Investor Put Notice, the Investor Triggering Event may not be terminated pursuant to clause (y) above. The Investor Triggering Event 34 described in sub-clause (i) above shall continue only for as long the event described therein continues. 7A.3 The price of the Investor Put Shares subject to the Investor Put Option shall be the Event Put Price as determined according to Clause 6.3 (a) or (b) above and including the last paragraph of Clause 6.3 (except that for this purpose the term HC Put Party in such Clause means Investor Put Party), and the Investor Put Option shall be triggered and exercised, according to Clauses 6.4 through 6.11 above (except that for these purposes the terms HC Put Option, HC Put Party, HC Put Notice, HC Put Shares, HC Triggering Event and Date of the HC Put Payment shall mean, respectively, Investor Put Option, Investor Put Party, Investor Put Notice, Investor Put Shares, Investor Triggering Event and Date of the Investor Put Payment, as appropriate). 7A.4 In the event that any Investor Put Party exercises any Investor Put Option contemplated by this Clause 7A, prior to the purchase by the Company of the Investor Put Shares as described below, the Stockholders, other than the Investor Put Parties and their Affiliates, shall be entitled, but not obligated, to purchase such number of Investor Put Shares at the Participant Purchase Price as is designated by the Participating Stockholder(s) by delivering a written notice to such effect to the Company and each of the Stockholders (except the Participating Stockholder and its Affiliates) within 10 days following receipt of such Investor Put Notice; provided that if a Stockholder exercises such option, then (i) subject to clause (iv) below, the Company shall only be obligated to purchase those Investor Put Shares not so purchased by the Participating Stockholder(s) at a price equal to the Event Put Price minus the aggregate of the Participant Purchase Price(s), (ii) if the Participating Stockholder(s) in the aggregate elect to purchase more than the total number of Investor Put Shares being offered, then each Participating Stockholder shall be entitled to purchase that number of Investor Put Shares equal to the product of (A) the total number of Investor Put Shares times (B) a fraction, the numerator of which is that number of Investor Put Shares which such Participating Stockholder elected to purchase and the denominator of which is the total number of Investor Put Shares which all Participating Stockholders elected to purchase, (iii) the closing of the purchase of such Investor Put Shares by the Participating Stockholder(s) shall occur on the Date of the Investor Put Payment, at which time each Participating Stockholder shall pay its Participant Purchase Price in Reais Equivalent, and the Investor Put Party shall transfer to each Participating Stockholder the Investor Put Shares that such Participating Stockholder is purchasing, free and clear of all liens, claims, charges, restrictions and encumbrances caused by or suffered to exist by the Investor Put Party or its Affiliates, other than as provided in this Agreement and (iv) if any Participating Stockholder does not satisfy its obligation to acquire its portion of the Investor Put Shares, the Company shall be required to do so at such closing. 35 Clause 8. PUT COORDINATION 8.1 [HC TRIGGERS; EFFECT ON INVESTOR ENTITIES & FALCON] In the event that any HC Put Notice is given, and either an Investor Triggering Event or a Falcon Triggering Event, as appropriate, has also occurred and is continuing, any Investor Put Party may (but shall not be required to) trigger the Investor Put Option (but not the exercise thereof, which exercise shall be subject to the applicable provisions hereof) and any Falcon Put Party may (but shall not be required to) trigger the Falcon Event Put Option (but not the exercise thereof, which exercise shall be subject to the applicable provisions hereof) simultaneously with such trigger of the HC Put Option by giving an Investor Put Notice or a Falcon Put Notice, as the case may be, no later than 10 (ten) Business Days after its receipt of such HC Put Notice, to all persons required to receive such Investor Put Notice or Falcon Put Notice. 8.2 [FALCON TRIGGERS; EFFECT ON HC AND INVESTOR ENTITIES] In the event that any Falcon Put Notice is given with respect to a Falcon Event Put Option and either an HC Triggering Event or an Investor Triggering Event, as appropriate, has occurred and is continuing, any HC Put Party may (but shall not be required to) trigger the HC Put Option (but not the exercise thereof, which exercise shall be subject to the applicable provisions hereof) and any Investor Put Party may (but shall not be required to) trigger the Investor Put Option (but not the exercise thereof, which exercise shall be subject to the applicable provisions hereof) simultaneously with such trigger of the Falcon Event Put Option by giving an HC Put Notice or an Investor Put Notice, as the case may be, no later than 10 (ten) Business Days after its receipt of such Falcon Put Notice, to all persons required to receive such HC Put Notice or Investor Put Notice. 8.3 [INVESTOR ENTITIES TRIGGERS; EFFECT ON HC AND FALCON] In the event that any Investor Put Notice is given with respect to the Investor Put Options and an HC Triggering Event or a Falcon Triggering Event, as appropriate, has occurred and is continuing, any HC Put Party may (but shall not be required to) trigger the HC Put Option (but not the exercise thereof, which exercise shall be subject to the applicable provisions hereof) and any Falcon Put Party may (but shall not be required to) trigger the Falcon Event Put Option (but not the exercise thereof, which exercise shall be subject to the applicable provisions hereof) simultaneously with such trigger of the Investor Put Option by giving an HC Put Notice or a Falcon Put Notice, as the case may be, no later than 10 (ten) Business Days after its receipt of such Investor Put Notice, to all persons required to receive such HC Put Notice or Falcon Put Notice. 8.4 (A) [NON-EXERCISE NOT A WAIVER] Any election by an HC Put Party not to trigger the HC Put Option simultaneously with the Falcon Event Put Option or Investor Put Option, or not to exercise the HC Put Option for any reason, shall not waive any right of any HC Put Party to trigger or exercise the HC Put Option at a 36 later date, in accordance with Clause 6 above. Any election by an Investor Put Party not to trigger the Investor Put Option simultaneously with the HC Put Option or Falcon Event Put Option, or not to exercise the Investor Put Option for any reason, shall not waive any right of any Investor Put Party to trigger or exercise the Investor Put Option at a later date, in accordance with Clause 7A above. Any election by a Falcon Put Party not to trigger the Falcon Event Put Option simultaneously with the HC Put Option or Investor Put Option, or not to exercise the Falcon Event Put Option for any reason, shall not waive any right of any Falcon Put Party to trigger or exercise the Falcon Event Put Option at a later date, in accordance with Clause 7 above. (B) [PRIORITY, POSS. PRORATION OF PUT RIGHTS] Unless the HC Put Option, the Investor Put Option and/or the Falcon Event Put Option are triggered simultaneously as contemplated by Clauses 8.1, 8.2 and/or 8.3 above, the respective HC Put Parties, the Investor Put Parties and the Falcon Put Parties shall have priority as against the Company in the order that the HC Put Options, the Investor Put Options and/or the Falcon Event Put Options are exercised. If such options are triggered simultaneously and subsequently exercised, the HC Put Parties, the Investor Put Parties and the Falcon Put Parties shall be entitled to payment pro rata, in the proportion that the aggregate amount of each party's put price bears to the aggregate put price for all such parties. To the extent that any HC Put Party, Investor Put Party or Falcon Put Party receives a payment in respect of its Put Shares which is disproportionately greater than the payments received by other parties who have simultaneously triggered their options, such party shall pay to such other parties an amount necessary to cause all such parties to receive their proportionate share of the aggregate payments made to all such parties. 8.5 [APPRAISAL FEE SHARING] In the event the HC Put Option, the Investor Put Option and/or the Falcon Event Put Option are exercised simultaneously as contemplated by Clauses 8.1, 8.2 and/or 8.3 above, the put party that first gives its put notice shall control all decisions of the HC Put Parties, the Investor Put Parties and the Falcon Put Parties as to the appraisers required to determine fair market value of the Shares, but the HC Put Parties, the Investor Put Parties and the Falcon Put Parties shall equally prorate any appraisal costs not borne by the Company. Clause 9. PUT POSTPONEMENT 9.1 In the event that on the Date of the HC Put Payment, the Date of the Investor Put Payment, or the Date of the Falcon Put Payment with respect to any Falcon Event Put Option, as the case may be (the "Date of the Event Put Payment"), by reason of inadequate retained earnings or reserves pursuant to Article 30 of Law No. 6.404/76, the Company is unable to purchase the Shares subject to the HC Put Option, the Investor Put Option or the Falcon Event Put Option, as the case may be (the "Event Put"), in whole or in part, and in the event that the HC Put Party, the 37 Investor Put Party or the Falcon Put Party, as the case may be (the "Event Put Party"), does not expressly waive its Event Put (provided that any such waiver shall be without prejudice to the right of the Event Put Party to reinstate such Event Put Option in accordance with Clause 6, 7 or 7A above, as applicable), the Company shall establish, in writing, the amount in U.S. Dollars corresponding to the Event Put Price of Shares not acquired on the Date of the Event Put Payment as verified pursuant to Clause 6, 7 or 7A above, which shall not be subject to any variation (except foreign exchange variation), irrespective of the Company's operating results or the value of the Shares after the Date of the Event Put Payment, and the closing date of the Event Put with respect to such remaining Shares shall be extended pursuant to this Clause ("Put Postponement"). This Clause 9.1 shall not limit or be interpreted as limiting the Company's obligation under the Event Put to buy the maximum possible amount of Shares, including on the Date of the Event Put Payment. 9.2 In the event of a Put Postponement, the Company shall continue to use its best efforts to increase its ability to legally purchase the remaining Shares subject to the Event Put, pursuant to its terms, including by obtaining credit and/or the necessary consent of its creditors, if applicable. The Event Put Price of each Share to be purchased shall be paid to the Event Put Party in Reais Equivalent on the date of such payment. 9.3 Any Shares not purchased by the Company on the Date of the Event Put Payment may be converted by the Event Put Party, at its exclusive discretion, into classes of the Company's Preferred Shares ("Special Preferred Shares") entitled to a minimum fixed and cumulative dividend to be determined on the basis of the aggregate Event Put Price for such unpurchased Shares, multiplied by the one-year LIBOR rate as quoted by the London branch of The Chase Manhattan Bank, N.A. prevailing on the Date of the Event Put Payment, plus 4% per annum ("Cumulative Dividends"), payable semiannually from the Date of the Event Put Payment through the date such Special Preferred Shares are purchased by the Company pursuant to the Event Put. The Event Put Party shall be entitled to elect, in its sole discretion, to receive shares of voting (the "Preferred Voting Shares") or non-voting Special Preferred Shares, or any combination thereof. For purposes of this Agreement and the Company's By- Laws, the Preferred Voting Shares shall be deemed to be included in the definition of "Shares" and all of the rights of the Stockholders hereunder with respect to the Shares held by them shall continue so long as they hold the Preferred Voting Shares. 9.4 The Stockholders undertake to exercise the voting rights of their Shares in order to amend the Company's By-Laws so as to create the Special Preferred Shares whenever so required according to provisions set forth herein. 9.5 In addition to the Cumulative Dividends, the Special Preferred Shares shall be entitled to any minimum dividend 38 required by law to be paid by the Company ("Mandatory Dividend"). 9.6 After the payment of the Cumulative Dividend and of the Mandatory Dividend, any remaining profit or reserve (other than mandatory legal reserves) verified by the Company shall be used to buy the highest possible amount of Shares (including the Special Preferred Shares) subject to the Event Put Option. All dividend payments and all other distributions to Stockholders and all redemptions or repurchases of any capital stock from any holder of capital stock in the Company, with the exception of the Cumulative Dividend on Special Preferred Shares then outstanding and of the Mandatory Dividend, are and shall be expressly subject and subordinate to the acquisition of all of the Shares subject to the Event Put in the event they have not been purchased from the Event Put Party. All Cumulative Dividends, and all repurchases of Shares (including the Special Preferred Stock) subject to the Event Put Option, shall be made on a pro-rata basis in favor of all Stockholders that exercised an Event Put simultaneously under Clause 8.1 or 8.2 or 8.3 above; otherwise, the rights of any Event Put Parties under this Clause 9 and under any Special Preferred Shares issued hereunder shall be ranked according to the respective Dates of the Event Put Payment on which such rights arose. 9.7 (i) In the event a Falcon Put Notice in respect of the Falcon Time Put Option has been delivered, and, pursuant to Clauses 7.3 and 6.9 above, Falcon has decided to exercise the Falcon Time Put Option, then, during the 30-day period immediately following receipt of the appraiser's notice referred to in Clause 6.7 above (the "Time Put Decision Period"), the Company shall, by action of a majority of the members of its Board not appointed by any Falcon Put Party or its Affiliates, make the following determinations in sequence, promptly (but in any event within the Time Put Decision Period) notify the Falcon Put Parties of such determinations and take the following actions as determined thereby: (a) If the Company, acting in good faith and in a commercially reasonable manner, determines that it has cash available which, together with borrowings available to the Company on commercially reasonable terms, is sufficient to pay the entire Time Put Price, then the Company shall pay the Time Put Price to the Falcon Put Parties by 11:30 a.m. on the 90th day after the end of the Time Put Decision Period, in cash in Reais Equivalent on such day of payment, and the Falcon Put Parties shall transfer to the Company all of the Falcon Put Shares free and clear of all liens, claims, charges, restrictions and encumbrances caused by or suffered to exist by any Falcon Put Party or its Affiliates, other than as provided in this Agreement; provided it is understood that the Company shall be subject to an obligation to use its best efforts to obtain any necessary borrowings on a commercially reasonable basis to satisfy 39 the Falcon Time Put Option in cash on the Date of the Falcon Put Payment; provided, however, that if on such 90th day, the Company is unable to satisfy the cash payment required hereunder, the provisions of Clause 9.7(ii) shall be applicable; (b) if after use of the efforts described in (a) above the Company determines that such cash and borrowings described in (a) above are not available but instead determines, acting in good faith and in a commercially reasonable manner, that it will have cash available which, together with borrowings available to the Company on commercially reasonable terms, will be sufficient to pay the Time Put Price in three installments as described in Clause 9.8 below, then the Company and the Falcon Put Parties shall take the actions described in Clause 9.8 below, it being understood and agreed that the Company shall be subject to an obligation to use its best efforts to obtain any necessary borrowings on a commercially reasonable basis to satisfy all such installments; and (c) if the Company, acting in good faith and in a commercially reasonable manner, determines that such cash and borrowings described in (a) and (b) above are not available, then the Company and the Falcon Put Parties shall take the actions described in Clause 9.9 below. (ii) If, at the end of the 90-day period referred to in Clause 9.7(i)(a), the Company, after having used its best efforts to obtain any necessary borrowings on a commercially reasonable basis to satisfy the entire Time Put Price, is unable to pay the entire Time Put Price, the Company shall, on such 90th day, be entitled to and shall elect one of the alternatives set forth in Clause 9.7(i)(b) or (c) above, and in such event the parties shall be governed by the procedures set forth in Clause 9.8 or 9.9 below, as the case may be, depending upon the alternative elected, and the other applicable provisions of this Agreement. 9.8 (i) In case of a determination described in Clause 9.7(i)(b) above or where such alternative is chosen pursuant to Clause 9.7(ii) above, the Falcon Put Parties shall transfer to the Company their Falcon Put Shares (the "Total Time Put Shares"), free and clear of all liens, claims, charges, restrictions and encumbrances caused by or suffered to exist by any Falcon Put Party or its Affiliates, other than as provided in this Agreement, at the times and under the circumstances as described in this Clause 9.8 and shall retain all rights they may have, and continue to be subject to all obligations, under this Agreement based on their stockholdings until such transfers are completed in accordance with the terms hereof, subject to the provisions of Clause 9.12 below. On the first anniversary of the Company's receipt of 40 the related Falcon Put Notice, the Company shall pay 1/3 (one-third) of the Time Put Price, in Reais Equivalent on such day and the Falcon Put Parties shall transfer to the Company 1/3 (one-third) of the Total Time Put Shares, free and clear of all liens, claims, charges, restrictions, and encumbrances caused by or suffered to exist by any Falcon Put Party or its Affiliates, other than as provided in this Agreement. The Falcon Put Parties and the Company shall cause the same appraiser that determined the Time Put Price to make a second determination of the Time Put Price, but recalculated and valued as of such first anniversary of the Company's receipt of the related Falcon Put Notice and delivered to the Board within 45 (forty-five) days thereof. On the second anniversary of the Company's receipt of the related Falcon Put Notice, the Company shall pay 1/3 (one-third) of such Time Put Price, as recalculated as of the first anniversary thereof, in Reais Equivalent on such second anniversary, and the Falcon Put Parties shall transfer to the Company 1/3 (one-third) of the Total Time Put Shares, free and clear of all liens, claims, charges, restrictions, and encumbrances caused by or suffered to exist by any Falcon Put Party or its Affiliates, other than as provided in this Agreement. The Falcon Put Parties and the Company shall cause the same appraiser that determined the first two Time Put Prices to make a third determination of the Time Put Price, but recalculated and valued as of such second anniversary of the Company's receipt of the related Falcon Put Notice and delivered to the Board within 45 (forty-five) days thereof. On the third anniversary of the Company's receipt of the related Falcon Put Notice, the Company shall pay 1/3 (one-third) of such Time Put Price, as recalculated as of the second anniversary thereof, in Reais Equivalent on such third anniversary, and the Falcon Put Parties shall transfer to the Company 1/3 (one-third) of the Total Time Put Shares, free and clear of all liens, claims, charges, restrictions, and encumbrances caused by or suffered to exist by any Falcon Put Party or its Affiliates, other than as provided in this Agreement. (ii) In the event that after using its best efforts to obtain sufficient cash and/or borrowings on commercially reasonable terms to satisfy its payment obligations under paragraph (i) above on such first or second anniversary, the Company shall not have available cash or borrowings on commercially reasonable terms available to meet its payment obligations under paragraph (i) above on such first or second anniversary, then the Company shall, against transfer to it of 1/3 (one-third) of the Total Time Put Shares, free and clear of all liens, claims, charges, restrictions, and encumbrances caused by or suffered to exist by any Falcon Put Party or its Affiliates, other than as provided in this Agreement, issue on such date a promissory note or promissory notes, denominated in U.S. Dollars, to the Falcon Put Parties, in the aggregate principal amount equal to its payment obligation on such anniversary prior to conversion to Reais Equivalent and on the other terms described in Clause 9.10 below. 41 9.9 In case of a determination described in Clause 9.7 (i)(c) above, not later than 11:30 a.m. on the 15th day after the end of the Time Put Decision Period, each of the Falcon Put Parties shall transfer to the Company all of their Falcon Put Shares, free and clear of all liens, claims, charges, restrictions, and encumbrances caused by or suffered to exist by any Falcon Put Party or its Affiliates, other than as provided in this Agreement, against issuance by the Company on such date of a promissory note or promissory notes, denominated in U.S. Dollars, to the Falcon Put Parties, in the aggregate principal amount equal to the Time Put Price and on the other terms described in Clause 9.10 below. In the case of a determination described in Clause 9.7(ii) above to elect the alternative described in Clause 9.7(i)(c) above, no later than 11:30 a.m. on the 90th day after the end of the Time Put Decision Period, each of the Falcon Put Parties shall transfer to the Company all of its Falcon Put Shares, free and clear of all liens, claims, charges, restrictions, and encumbrances caused by or suffered to exist by any Falcon Put Party or its Affiliates, other than as provided in this Agreement, against issuance by the Company on such date of a promissory note or promissory notes, denominated in U.S. Dollars, to the Falcon Put Parties, in the aggregate principal amount equal to the Time Put Price and on the other terms described in Clause 9.10 below. 9.10 All promissory notes referred to in Clauses 9.8 and 9.9 above shall have the following terms and shall also be subject to the provisions of Clause 9.11 below: (i) all such promissory notes shall be notas promissorias and shall be accompanied by an agreement setting forth all terms relating thereto; (ii) all such promissory notes shall mature on the third anniversary of the Company's receipt of the related Falcon Put Notice; (iii) principal shall be payable at maturity subject to optional prepayment and the mandatory prepayments described below; (iv) interest from the date of issuance on the unpaid principal amount shall be payable quarterly in arrears at a fixed rate of interest equal at the time of issuance of such notes to the interest rate on U.S. Treasury obligations of similar maturity, plus a spread taking into account the type of obligor, the Company's creditworthiness and Brazilian risk; provided that if the parties cannot agree on the above rate it will be decided by such third party investment banker as may be mutually agreed by both parties; (v) such notes shall be full recourse to the Company and shall be secured by the pledge, in the case of notes described in Clause 9.8 below, of the related 1/3 (one-third) of the Total Time Put Shares, and in the case of those described in Clause 9.9 above, of all the related Falcon Put Shares; (vi) while any notes described in Clause 9.8 or 9.9 above remain outstanding, the Company shall not pay any dividends or other distributions, or make any redemptions or repurchases whatsoever on or relating to any of its capital stock, except for those required by law, but shall continue to pay all Cumulative Dividends on then outstanding Special Preferred Shares; (vii) while any notes described in Clause 9.8 above only remain outstanding, the Company shall, subject to the repurchases of Special Preferred Shares then outstanding provided for in Clause 9.6 above, use all excess cash to prepay such notes in whole or in part on a quarterly basis; (viii) in the case of notes described in Clause 9.8 above issued on such first anniversary, to the extent the Company has cash and borrowings available 42 to meet its payment obligations on such second anniversary, such cash and borrowings shall be applied first to prepay such note to the fullest extent possible before meeting such other payment obligations; (ix) the Company will be required to use its best efforts on a continuing basis to obtain borrowings on a commercially reasonable basis to satisfy to the fullest extent possible and as soon as possible any promissory notes issued pursuant to Clauses 9.8 or 9.9 above; and (x) such other terms and conditions as are normal and customary in international capital markets and transactions of this nature, including, without limitation, defaults and acceleration for failure to pay interest and restrictions on related party transactions shall be included in such notes and/or the related agreements. 9.11 (i) Notwithstanding anything to the contrary contained herein, to the extent the Company fails to perform any of its obligations under the promissory notes referred to in Clause 9.8 or 9.9 above or the related agreements, including payment of interest currently, the Falcon Put Parties shall have ail rights and remedies available hereunder, under the promissory notes or as provided by law or equity. (ii) If, at the end of the 90-day period referred to in Clause 9.7(i)(a) above, the Company has not paid the entire Time Put Price in cash, then, notwithstanding the Company's election of one of the alternatives specified in Clause 9.7(ii) above, and notwithstanding the provisions of Clause 4 hereof, the Falcon Put Parties shall be free for a period of six months after such date (but in any event not exceeding one year from the date of the Falcon Put Notice), to sell all of the Falcon Put Shares hereunder free of any of the right of first offer restrictions set forth in Clause 4 hereof or any other provision hereof, and the purchaser of such Shares shall be entitled to all of the rights and obligations of the Falcon Put Parties hereunder; provided, that the Falcon Put Parties may not sell the Falcon Put Shares to any person included in the list of categories of disqualified purchasers, which list shall be provided by the Company within the 90-day period referred to in Clause 9.7(i)(a) above and shall be reasonable and only include persons such as direct competitors or undesirable persons. In the event of such sale, (a) if any promissory notes have been issued, upon consummation of such sale, the promissory notes shall be cancelled and neither the Company nor the Falcon Put Parties shall have any claim against the other for any deficiency between the amount of the sale price and the amount of the Note; and (b) immediately prior to the consummation of such sale, any Shares that the Falcon Put Parties have transferred to the Company in connection with its exercise of one of the alternatives shall be returned and/or re-issued, as appropriate, to the Falcon Put Parties, and shall be duly and validly issued and authorized, fully paid and non-assessable, and shall be free of any pre- emptive rights or any liens, claims, charges, restrictions or encumbrances caused by or suffered to exist by the Company or its Affiliates, other than as provided in this Agreement. 43 (iii) Without limiting the foregoing, and notwithstanding the provisions of Clause 4 hereof or any other provision hereof, if the Company defaults on any payment (whether of principal, interest or otherwise) under any promissory note issued under Clause 9.8 or 9.9 above or any related agreement, and within six months of such default such default has not been cured in full, then in either case the Falcon Put Parties shall be free to sell all or any portion of the Falcon Put Shares hereunder (or subject to the pledge), free of any of the right of first offer restrictions set forth in Clause 4 hereof or any other provision hereof, and the purchaser of such Shares shall be entitled to all of the rights and obligations of the Falcon Put Parties hereunder; provided, that the Falcon Put Parties may not sell the Falcon Put Shares to any person included in the list of categories of disqualified purchasers, which list shall be provided by the Company at the time of the issuance of the notes and shall be reasonable and only include persons such as direct competitors or undesirable persons. 9.12 In the event that any action by the Company for the purpose of permitting the Company to meet any of its payment obligations to the Falcon Put Parties under any of Clauses 9.7 through 9.9 above would otherwise require a vote at a general meeting of the Company or of the Board, notwithstanding anything herein to the contrary, none of the Falcon Put Parties shall be entitled to a veto through holdings of Shares or through any director they may have appointed, and any such vote, for purposes of quorum and voting, shall be taken exclusive of the Falcon Put Parties' holdings of Shares and the participation of any director appointed by them, and the Falcon Put Parties hereby agree to waive any preemptive rights they may have with respect to any such action by the Company. Clause 10. CALL OPTIONS 10.1 So long as the Shares owned by Harpia or Curupira or their Affiliates are not publicly registered, listed or traded (other than pursuant to a registration initiated by the HC Entities or their Affiliates) and in any case not earlier than July 22, 2000, Harpia and Curupira grant and give Mr. Civita, Abrilcap, and the Affiliates of each (other than the Company and any Subsidiary thereof) that are then Stockholders (the "Call Purchaser") an option to acquire (the "HC Call Option"), and so long as the Shares owned by Falcon or its Affiliates are not publicly registered, listed or traded (other than pursuant to a registration initiated by Falcon or its Affiliates) and in any case not earlier than September 22, 2003, Falcon grants and gives the Call Purchaser an option to acquire (the "Falcon Call Option" and, together with the HC Call Option, as the case may be, the "Call Option"), in each case under the conditions set forth in this Clause, all of the Shares (and not a portion thereof) held by Harpia and Curupira and their Affiliates or Falcon and its Affiliates, as the case may be (the "Call Seller"), on the date of the exercise of the Call Option. Subject to Section 10.3(ii) below, the Call Options are personal to Mr. Civita and Abrilcap 44 and their Affiliates that are from time to time Stockholders, and shall not be transferred in any case to third parties. The only Shares subject to the Call Options are (i) Shares held by Harpia, Curupira and their Affiliates at the time a Call Notice (as defined below) is given to them with respect to the HC Call Option, and (ii) Shares held by Falcon and its Affiliates at the time a Call Notice is given to them with respect to the Falcon Call Option; no other Shares shall be subject to any Call Option. 10.2 At any time permitted by Clause 10.1 above, the Call Purchaser shall be entitled to deliver written notice (a "Call Notice") to each Call Seller and, in the case of the HC Call Option, to Falcon and the Investor Entities and each of their respective Affiliates that are then Stockholders and in the case of a Falcon Call Notice, to the HC Entities and the Investor Entities and their Affiliates that are then Stockholders. Upon the delivery of the Call Notice, the Call Purchaser shall be entitled to demand that the Call Seller transfer all its Shares, free and clear of any liens, claims, charges, restrictions or encumbrances caused by or suffered to exist by the Call Seller or its Affiliates, other than as provided in this Agreement, to the Call Purchaser or as the Call Purchaser may direct, as provided for herein, against payment of the Call Price, as defined below. 10.3 (i) The Call Purchaser shall be entitled to exercise the Call Option by giving a Call Notice to each Call Seller (and to the other Stockholders), within 10 (ten) days following the date on which the Call Price has been ascertained. if the Call Option is so exercised, on the third Business Day following such exercise (the "Date of Transfer"), the Call Seller shall transfer, against the payment of the Call Price, all Shares, free and clear of all liens, claims, charges, restrictions and encumbrances caused by or suffered to exist by the Call Seller or its Affiliates, other than as provided in this Agreement, owned by it to Abrilcap, or such other person(s) as Abrilcap shall have directed not less than 2 (two) Business Days prior to the Date of Transfer, by means of the execution of the proper entry of the Transfers of Nominative Shares Book of the Company. Any election by the Call Purchaser not to exercise a Call Option shall not waive its right to give any Call Notice or exercise a Call Option at any time thereafter, except that in respect of the Falcon Call Option, the Call Purchaser may not issue more than one Call Notice in any given calendar year. (ii) To determine the Call Price, the terms and conditions established in Clause 6 above shall be applicable in the case of the HC Call Option and the terms and conditions established in Clause 7.3 above shall be applicable in the case of the Falcon Call Option, in each case mutatis mutandis. For so long as (x) the Investor Entities, Falcon or the Affiliates of any of them holding any voting Shares of the Company, each such holder shall have the right, by notice to Abrilcap within ten (10) Business Days after receipt of a Call Notice with respect to an HC Call Option, to participate with the Call 45 Purchaser in the exercise of such HC Call Option in the proportion that its Shares bear to the Shares then held by Mr. Civita, Abrilcap and their Affiliates and (y) the Investor Entities or their Affiliates holding any voting shares of the Company, each such holder shall have the right, by notice to Abrilcap within ten (10) Business Days after receipt of a Call Notice with respect to a Falcon Call Option, to participate with the Call Purchaser in the exercise of such Falcon Call Option in the proportion that its Shares bear to the Shares then held by Mr. Civita, Abrilcap and their Affiliates; provided, however, that (a) the Investor Entities, Falcon and the Affiliates of any of them shall be bound by all decisions of Mr. Civita, Abrilcap and their Affiliates with respect to any appraiser involved in ascertaining the Call Price for such HC Call Option or Falcon Call Option, as the case may be, (b) with respect to any such appraiser's costs that would otherwise be borne by Mr. Civita, Abrilcap or their Affiliates, the Investor Entities, Falcon and the Affiliates of any of them shall bear their aforementioned proportion, as applicable, (c) no election by the Investor Entities, Falcon or the Affiliates of any of them to participate in the exercise of such HC Call Option shall in any way affect the rights of Harpia, Curupira or their Affiliates against Mr. Civita, Abrilcap or their Affiliates with respect thereto and (iv) no election by the Investor Entities or their Affiliates to participate in the exercise of such Falcon Call Option shall in any way affect the rights of Falcon or its Affiliates against Mr. Civita, Abrilcap or their Affiliates with respect thereto. 10.4 The purchase price of Shares acquired by the Call Purchasers as a result of the exercise of the Call Option is herein referred to as the "Call Price". The Call Price for the HC Call Option shall correspond to: ================================================================================ DATE OF EXERCISE OF THE CALL CALL PRICE OPTION - -------------------------------------------------------------------------------- From July 22, 2000 to July 21, 2001 110% of the HC Put Price - -------------------------------------------------------------------------------- From July 22, 2001 to July 21, 2002 105% of the HC Put Price - -------------------------------------------------------------------------------- On or after July 22, 2002 100% of the HC Put Price ================================================================================ 46 The Call Price for the Falcon Call Option shall correspond to: ================================================================================ DATE OF EXERCISE OF THE CALL CALL PRICE OPTION - -------------------------------------------------------------------------------- From September 22, 2003 to September 21, 2004 110% of the Falcon Time Put Price - -------------------------------------------------------------------------------- From September 22, 2004 to September 21, 2005 105% of the Falcon Time Put Price - -------------------------------------------------------------------------------- On or after September 22, 2005 100% of the Falcon Time Put Price ================================================================================ 10.5 The Call Price, calculated in U.S. Dollars pursuant to the preceding Clause, shall be paid on the Date of Transfer concurrently with the transfer of the applicable Call Seller's Shares, free and clear of all liens, claims, charges, restrictions and encumbrances caused by or suffered to exist by the Call Seller or its Affiliates, other than as provided in this Agreement, to the Call Purchaser or as it may direct, in Reais Equivalent on the Date of Transfer. The transfer of Shares and the payment of the Call Price shall take place at the head office of the Company, at 11:30 a.m., on the Date of Transfer. 10.6 In the event that within the 12-month period after payment of the Call Price to a Call Seller, 5% (five percent) or more of the voting Shares of the Company are sold, or any of the Company's Shares are placed in the market by a public offering, such Call Seller shall receive an amount equal to the excess, on a per-share basis, of the price that such Call Seller would have received if its Shares had been included in such sale or public offering at the price obtained in such sale or public offering over the Call Price. If the Investor Entities, Falcon or the Affiliates of any of them have elected to participate in the HC Call Option pursuant to Clause 10.3 above, any such party shall reimburse the Call Purchaser for its proportionate share of any such excess paid to the Call Seller. 10.7 For so long as CCABC Partner or any of its Affiliates is a Stockholder or a holder of equity interests in any Investor Entity, in the event that (x) unless and until Disney becomes a Controlling Stockholder of CCABC, CCABC, or (y) from and after Disney becoming a Controlling Stockholder of CCABC, at least one of CCABC or Disney, is not the Controlling Stockholder of (A) CCABC Partner or (B) any Affiliate of CCABC Partner that is then a Stockholder or a holder of an equity interest in any Investor Entity that is then a Stockholder, then (i) unless all of the equity interests which have been transferred and give rise to the Call Option set forth in this Clause 10.7 have been offered according to the procedures set forth in Clause 4 above, each of the Call Purchaser, the H/C Entities and Falcon will have a Call Option with respect to all of the Shares held by the Investor Entities, CCABC Partner, any of CCABC Partner's Affiliates or any Stockholder in which CCABC Partner or any of its Affiliates holds any equity, exercisable for six months 47 following the discovery by the Call Purchaser, the H/C Entities or Falcon of such event and otherwise in accordance with the procedures set forth in this Clause 10 (except that (a) the Call Price for purposes of this Clause 10.7 shall correspond to the calculation of the price of the Shares using the fair market value of the Company and its Subsidiaries as determined according to Clause 6.3(a) only and including the last paragraph of Clause 6.3 and (b) any of the Call Purchaser, the H/C Entities or Falcon may initiate such Call Option by the delivery of a Call Notice), and (ii) whether or not such equity interests have been offered in accordance with the procedures in Clause 4 hereof or such Call Option is exercised, the Investor Entities, CCABC Partner, any of CCABC Partner's Affiliates and any Stockholder in which CCABC Partner or any of its Affiliates holds any equity, upon such cessation (1) shall immediately forfeit all rights granted under this Agreement to the Investor Entities and such Affiliates that would not be transferable with the Shares owned by the Investor Entities or such Affiliates, and shall immediately cease to be bound by all of their obligations under this Agreement that would not be transferred with the Shares owned by them, in each case as if a transfer of such Shares had occurred by the Investor Entities or such Affiliates and (2) shall immediately forfeit all rights to indemnification under Clause 6.3 of the Stock Purchase Agreement other than in respect of claims for indemnification that are then pending. Notwithstanding the foregoing, the provisions of this Clause 10.7 shall not apply to any transfer of any equity interest in any Investor Entity, CCABC Partner, any of CCABC Partner's Affiliates or any Stockholder in which CCABC Partner or any of its Affiliates holds any equity, to any Affiliate. 10.8 For so long as Hearst Partner or any of its Affiliates is a Stockholder or a holder of equity interests in any Investor Entity, in the event that Hearst is not the Controlling Stockholder of (A) Hearst Partner or (B) any Affiliate of Hearst Partner that is then a Stockholder or a holder of an equity interest in any Investor Entity that is then a Stockholder, then (i) unless all of the equity interests which have been transferred and give rise to the Call Option set forth in this Clause 10.8 have been offered according to the procedures set forth in Clause 4 above, each of the Call Purchaser, the H/C Entities and Falcon will have a Call Option with respect to all of the Shares held by the Investor Entities, Hearst Partner, any of Hearst Partner's Affiliates or any Stockholder in which Hearst Partner or any of its Affiliates holds any equity, exercisable for six months following the discovery by the Call Purchaser, the H/C Entities or Falcon of such event and otherwise in accordance with the procedures set forth in this Clause 10 (except that (a) the Call Price for purposes of this Clause 10.8 shall correspond to the calculation of the price of the Shares using the fair market value of the Company and its Subsidiaries as determined according to Clause 6.3(a) only and including the last paragraph of Clause 6.3 and (b) any of the Call Purchaser, the H/C Entities or Falcon may initiate such Call Option by the delivery of a Call Notice), and (ii) whether or not such equity interests have been offered in accordance with the procedures in Clause 4 hereof or such Call Option is exercised, the Investor Entities, Hearst Partner, any of Hearst Partner's Affiliates and any Stockholder in which Hearst Partner or any of its Affiliates holds any equity, upon 48 such cessation (1) shall immediately forfeit all rights granted under this Agreement to the Investor Entities and such Affiliates that would not be transferable with the Shares owned by the Investor Entities or such Affiliates, and shall immediately cease to be bound by all of their obligations under this Agreement that would not be transferred with the Shares owned by them, in each case as if a transfer of such Shares had occurred by the Investor Entities or such Affiliates and (2) shall immediately forfeit all rights to indemnification under Clause 6.3 of the Stock Purchase Agreement other than in respect of claims for indemnification that are then pending. Notwithstanding the foregoing, the provisions of this Clause 10.8 shall not apply to any transfer of any equity interest in any Investor Entity, Hearst Partner, any of Hearst Partner's Affiliates or any Stockholder in which Hearst Partner or any of its Affiliates holds any equity, to any Affiliate. 10.9 For so long as Hearst Partner or any of its Affiliates or CCABC Partner or any of its Affiliates hold equity interests in an Investor Entity or other jointly held entity (whether between Hearst Partner or any of its Affiliates and CCABC Partner or any of its Affiliates or with another third party) that is then a Stockholder, in the event that (x) unless and until Disney becomes a Controlling Stockholder of CCABC, CCABC, or (y) from and after Disney becoming a Controlling Stockholder of CCABC, at least one of CCABC or Disney, on the one hand, and Hearst on the other hand, either individually or jointly is or are not the Controlling Stockholder of such jointly held Investor Entity or other jointly held entity, then (i) unless all of the equity interests which have been transferred and give rise to the Call Option set forth in this Clause 10.9 have been offered according to the procedures set forth in Clause 4 above, each of the Call Purchaser, the H/C Entities and Falcon will have a Call Option with respect to all of the Shares held by such Investor Entity or other jointly held entity, exercisable for six months following the discovery by the Call Purchaser, the H/C Entities or Falcon of such event and otherwise in accordance with the procedures set forth in this Clause 10 (except that (a) the Call Price for purposes of this Clause 10.9 shall correspond to the calculation of the price of the Shares using the fair market value of the Company and its Subsidiaries as determined according to Clause 6.3(a) only and including the last paragraph of Clause 6.3 and (b) any of the Call Purchaser, the H/C Entities or Falcon may initiate such Call Option by the delivery of a Call Notice), and (ii) whether or not such equity interests have been offered in accordance with the procedures in Clause 4 hereof or such Call Option is exercised, upon such cessation such Investor Entity or other jointly held entity (1) shall immediately forfeit all rights granted under this Agreement to such Investor Entity or other jointly held entity that would not be transferable with the Shares owned by such Investor Entity or other jointly held entity, and shall immediately cease to be bound by all of its obligations under this Agreement that would not be transferred with the Shares owned by it, in each case as if a transfer of such Shares had occurred by such Investor Entity or other jointly held entity and (2) shall immediately forfeit all rights to indemnification under Clause 6.3 of the Stock Purchase Agreement other than in respect of claims for indemnification that are then pending. Notwithstanding the foregoing, the provisions 49 of this Clause 10.9 shall not apply to any transfer of any equity interest in such Investor Entity or other jointly held entity to any Affiliate. 10.10 (i) Subject to Clause 10.10(ii) below, for so long as Falcon or any of its Affiliates is a Stockholder, in the event that (a) after the Funding Date, at least one of Falcon Parent or an Affiliate thereof is not the Controlling Stockholder of any of Falcon or any Affiliate of Falcon or Falcon Parent that is then a Stockholder, or (b) equity interests in Falcon or any Affiliate of Falcon or Falcon Parent that is then a Stockholder (or in any Stockholder Parent Company of Falcon or any such Affiliate) are sold or transferred to persons other than Institutional Investors (or to individuals providing services as employees and consultants to Falcon or Falcon Parent or their Affiliates or to an employee plan for their benefit), then (i) unless all of the equity interests which have been transferred and give rise to the Call Option set forth in this Clause 10.10 have been offered according to the procedures set forth in Clause 4 above (although neither Falcon nor Falcon Parent is required to offer such equity interests pursuant to such clause, they may elect to do so), each of the Call Purchaser, the H/C Entities and the Investor Entities will have a Call Option with respect to all of the Shares held by Falcon or any Affiliates of Falcon exercisable for six months following the discovery by the Call Purchaser, the H/C Entities or the investor Entities of such event and otherwise according to the procedures set forth in this Clause 10 (except that (a) the Call Price for purposes of this Clause 10.10 shall correspond to the calculation of the price of the Shares using the fair market value of the Company and its Subsidiaries determined according to Clause 6.3(a) only and including the last paragraph of Clause 6.3 and (b) any of the Call Purchaser, the H/C Entities or the Investor Entities may initiate such Call Option by the delivery of a Call Notice), and (ii) whether or not such equity interests have been offered in accordance with the procedures in Clause 4 hereof or such Call Option is exercised, Falcon and any of its Affiliates (1) shall immediately forfeit all rights granted under this Agreement to Falcon and such Affiliates that would not be transferable with the Shares owned by Falcon or such Affiliates, and shall immediately cease to be bound by all of their obligations under this Agreement that would not be transferred with the Shares owned by them (including the obligations in connection with the Falcon Call Option), in each case as if a transfer of such Shares had occurred by Falcon or such Affiliates and (2) shall immediately forfeit all rights to indemnification under Clauses 7.3(a) and (b) of the Old Stock Purchase Agreement and Clause 6.3 of the Stock Purchase Agreement other than in respect of claims for indemnification that are then pending, and upon such a forfeiture, the Shares held by Falcon and such Affiliates shall no longer be subject to the Falcon Call Option. 50 (ii) Notwithstanding Clause 10.10(i) above, the other Stockholders referred to in Clause 10.10(i) above shall not be entitled to the right provided therein (and neither Falcon nor any of its Affiliates that are then Stockholders shall forfeit any of the rights referred to therein) in relation to any of the following sales, transfers or assignments of equity interests (a) in Falcon or Falcon Parent made on or before June 5, 1996 (or such earlier date as Falcon provides the Board with a list of Falcon Parent Investors as provided in Clause 7.1(i) above) (such date, the "Funding Date"), provided that any such sale, transfer or assignment is made either to (x) an Institutional Investor or individuals (or an employee plan for such individuals) providing services, as employees or consultants, to Falcon, Falcon Parent or their Affiliates, (y) Falcon Parent, or (z) any other person, provided that on the Funding Date not more than 25% of the total equity interests in Falcon and in Falcon Parent are held by persons other than Falcon Parent or Institutional Investors or the individuals or plans referred to above, (b) in connection with a Public Offering of interests in Falcon or Falcon Parent, provided that any Falcon Parent Investor or combination thereof remains in control of Falcon and/or Falcon Parent, as applicable, following such Public Offering, (c) in Falcon Parent made after the Funding Date, provided that on the Funding Date, no more than 25% of the total equity interests in Falcon Parent are owned by persons other than Institutional Investors or the individuals or plans referred to above and on such date Falcon Parent is not a Stockholder Parent Company of Falcon, (d) in Falcon or a Stockholder Parent Company of Falcon provided that following such transfer or assignment not more than 25% of the total equity interests in Falcon or such Stockholder Parent Company are held by persons other than Falcon Parent (or an Affiliate thereof), Institutional Investors or the individuals or plans referred to above, or (e) in any of Falcon, any of Falcon's Affiliates or any Stockholder in which Falcon or any of its Affiliates holds any equity, to any Affiliate. 10.11 In the event that any sale or transfer described in Clauses 4.1(ii) or (iii) occurs in violation thereof, each of the Stockholders, other than the Stockholder which violated such Clauses and its Affiliates which are then Stockholders, will have a Call Option with respect to all of the Shares held by the violating Stockholder and its Affiliates which are then Stockholders, exercisable for six months following the discovery by the other Stockholders of such event and otherwise in accordance with the procedures set forth in this Clause 10 (except that (a) the Call Price for purposes of this Clause 10.11 shall correspond to the calculation of the price of the Shares using the fair market value of the Company and its Subsidiaries as determined according to Clause 6.3(a) only and including the last paragraph of Clause 6.3 and (b) any of the Stockholders who are granted such Call Option may initiate such Call Option by the delivery of a Call Notice), and (ii) whether or not such Call Option is exercised, upon such violation the violating Stockholder and its Affiliates which are then Stockholders (1) shall immediately forfeit all rights granted under 51 this Agreement to the violating Stockholder and such Affiliates that would not be transferable with the Shares owned by the violating Stockholder or such Affiliates, and shall immediately cease to be bound by all of their obligations under this Agreement that would not be transferred with the Shares owned by them, in each case as if a transfer of such Shares had occurred by the violating Stockholder or such Affiliates and (2) shall immediately forfeit all rights to indemnification under Clauses 7.3(a) and (b) of the Old Stock Purchase Agreement and Clause 6.3 of the Stock Purchase Agreement other than in respect of claims for indemnification that are then pending. 10.12 In the event that Mr. Civita ceases to be the Controlling Stockholder of any of his Affiliates which are then Abrilcap and such Affiliates shall Stockholders, then immediately forfeit all rights granted under this Agreement to Abrilcap and its Affiliates that would not be transferable with the Shares owned by Abrilcap or such Affiliates if a transfer of such Shares had occurred by Abrilcap or such Affiliates; provided that in the event of Mr. Civita's death, there shall be no such forfeiture of rights unless and until the individuals listed in the definition of Affiliates herein (together with Mr. Civita's estate) cease, directly or indirectly, to hold more than: (1) 50% of the voting Shares of the Company and (2) 31.258% of the Company's total capital stock, whether voting or nonvoting. 10.13 Notwithstanding the other provisions of this Clause 10, neither of the Call Options may be exercised at any time after an HC Put Notice or a Falcon Put Notice has been given until either (i) the corresponding HC Put Option, Falcon Time Put Option or Falcon Event Put Option has been exercised (and in the event of exercise, the Call Option shall be terminated) or (ii) the exercise period for such option terminates without such option being exercised. Clause 11. THE COMPANY'S BOARD OF DIRECTORS 11.1 The Board shall be composed of 11 (eleven) effective members and 11 (eleven) alternate members. (i) Harpia and Curupira acting together shall be entitled to appoint one effective member and his respective alternate member of the Board so long as Harpia, Curupira or any of their Affiliates, jointly hold at least 5% (five percent) of the issued and outstanding voting Shares of the Company. (ii) Falcon shall be entitled to appoint two of the effective members and two of the alternate members of the Board so long as it (considered together with its Affiliates) holds at least 13% (thirteen percent) of the issued and outstanding voting Shares of the Company, and (1) one effective member and (1) one alternate member of the Board if the percentage of such shares held by Falcon (considered together with its Affiliates), is less than 13% 52 (thirteen percent) but at least 6% (six percent) of the issued and outstanding voting Shares. (iii) Mr. Civita and Abrilcap acting together shall be entitled to appoint five of the effective members and five of the alternate members of the Board so long as they and their Affiliates jointly hold a majority of the issued and outstanding voting Shares of the Company. (iv) The Investor Entities acting together shall be entitled to appoint two of the effective members and two of the alternate members of the Board so long as they (considered together with their Affiliates) jointly hold at least 13% (thirteen percent) of the issued and outstanding voting Shares of the Company, and one effective member and one alternate member of the Board if the percentage of such shares jointly held by the Investor Entities (considered together with their Affiliates) is less than 13% (thirteen percent) but at least 6% (six percent) of the issued and outstanding voting Shares of the Company. (v) One of the effective members and one of the alternate members of the Board shall at all times be independent of each of the Stockholders. For so long as they and their Affiliates jointly hold a majority of the voting Shares of the Company, Mr. Civita and Abrilcap acting together shall be entitled to nominate such member(s), who shall be subject to the approval of each of the other Stockholders that then are entitled to appoint a director in its own right. (vi) In the event that Harpia and Curupira (considered together with their Affiliates) lose their right to appoint an effective and an alternate member of the Board due to a decrease in the percentage of Shares they hold, or either Falcon (considered together with its Affiliates) or the Investor Entities (considered together with their Affiliates) loses the right to elect one or two effective and alternate members of the Board due to a decrease in the percentage of Shares held by either of them, or Mr. Civita and Abrilcap (considered together with their Affiliates) lose their right to appoint five effective and alternate members of the Board due to a decrease in the percentage of Shares they (considered together with their Affiliates) hold, then such members shall be required promptly to resign and thereafter such member or members of the Board shall be elected by the Stockholders at a general meeting. (vii) The foregoing rights with respect to appointment, nomination and approval of members of the Board are personal to Harpia and Curupira, Falcon, the Investor Entities, Mr. Civita and Abrilcap and their respective Affiliates that are from time to time Stockholders, and may not be transferred under any circumstances to third parties. 53 11.2 The Stockholders undertake to exercise their voting rights so that such effective members and alternates are elected in accordance with Clause 11.1 above. 11.3 The Stockholders hereby undertake to use their best efforts so that the effective members appointed by them or their respective alternate members are present at all meetings of the Board and the boards of directors of any of its Subsidiaries. In the event of absence or impediment of any of the effective members, such member shall be mandatorily substituted by his alternate member who shall vote on behalf of the effective member as if he was present at the meeting. 11.4 In the event of resignation or permanent impediment of any member during the term of office to which he was elected, his substitute shall, subject to Clause 11.1(vi) above, be appointed by the Stockholders that had appointed the replaced member. 11.5 In accordance with the requirements of Brazilian law, each Stockholder shall assign and transfer one Share of which it is the owner to each effective and each alternate member appointed by it pursuant to this Clause 11.5. The Shares assigned to the members of the Board shall be considered, for the purposes hereof, as the property of the Stockholder which had assigned them. Each Stockholder agrees to obtain or has obtained from each Board member appointed by it the full power to exercise the voting right attached to such assigned Shares, as well as the power to transfer such Shares to itself in the event that the assigned member ceases, for any reason, to be a Board member. 11.6 The term of office of the members of the Board shall be 2 (two) years, and the term of each director shall be automatically extended until his duly elected successor takes office. Indefinite re-election of directors shall be permitted subject to the provisions of the Company's By-Laws. Clause 12. RESOLUTIONS OF THE BOARD OF DIRECTORS AND STOCKHOLDERS 12.1 All resolutions of the Board shall be taken by the quorums and majorities required by Brazilian law, except for the additional requirements specified herein. For so long as Harpia, Curupira and their Affiliates (considered together) are entitled to appoint at least one member of the Board in accordance with the provisions of Clause 11.1 above, the following matters shall require, for their approval, the affirmative vote of such member; for so long as Falcon and its Affiliates (considered together) are entitled to appoint at least one member of the Board in accordance with the provisions of Clause 11.1 above, the following matters shall require, for their approval, the affirmative vote of such member; and for so long as the Investor Entities and their Affiliates (considered together) are entitled to appoint at least one member of the Board in accordance with the provisions of Clause 11.1 above, the following matters shall require, for their approval, the affirmative vote of such member; in each case, such 54 member by himself or represented pursuant to Article 14 of the Company's By-Laws, except that, in each case, the matters set forth in clause (vii) below shall require for their approval the vote set forth in that clause: (i) the acquisition or subscription by the Company or any Subsidiary thereof of an ownership interest in other companies (except for those acquired or subscribed in non-permanent character according to ordinary cash management practices); (ii) any acquisitions or dispositions of or liens, charges or encumbrances on equity in other companies, and any acquisitions or dispositions of, or liens, charges or encumbrances on, real properties, equipment, trademarks, patents, licenses and franchises or other similar assets and rights, except for: (a) acquisitions, dispositions, liens, charges or encumbrances in the ordinary course of business of the Company and its Subsidiaries, (b) acquisitions outside the ordinary course of the business of the Company and its Subsidiaries aggregating less than US$500,000 (or the Reais Equivalent thereof) in any calendar year, (c) dispositions outside the ordinary course of the business of the Company and its Subsidiaries aggregating less than US$500,000 (or the Reais Equivalent thereof) in any calendar year and (d) liens, charges and encumbrances outside the ordinary course of the business of the Company and its Subsidiaries aggregating less than US$500,000 (or the Reais Equivalent thereof) in any calendar year; (iii) the incurrence of any indebtedness of the Company or any Subsidiary thereof, or the guarantee of any indebtedness of any other person or entity, with a maturity of less than 365 days but in excess of the Reais Equivalent to US$1,000,000 outstanding aggregate amount for all such indebtedness; (iv) the incurrence of any indebtedness of the Company or any Subsidiary thereof or the guarantee of any indebtedness of any other person or entity, with a maturity equal to or longer than 365 (three hundred sixty-five) days, except trade indebtedness incurred in the ordinary course of the business of the Company and its Subsidiaries in a single transaction or series of related transactions with an aggregate value of less than US$500,000; (v) the making of loans or advance payments by the Company or any Subsidiary thereof (but not including loans or advances made by the Company to its Subsidiaries, by its Subsidiaries to the Company or between Subsidiaries of the Company) except for loans or advances to members of the Board, officers or employees in the ordinary course of the business of the Company and its Subsidiaries; 55 (vi) the issuance by the Company or any Subsidiary thereof of non-financial guarantees of any nature, except non-financial guarantees totaling, singly or in the aggregate, the Reais Equivalent to US$100,000 or less; (vii) any transactions or agreements, or modifications or termination of, or waivers of rights or defaults under existing agreements, between the Company or any Subsidiary of the Company on the one hand, and any Stockholder or Affiliate of such Stockholder on the other hand, unless a majority of the members of the Company's Board of Directors, exclusive of the independent director referred to in Clause 11.1(v) (but only in the case of a transaction involving Mr. Civita, Abrilcap or their Affiliates other than the Company and its Subsidiaries) and any directors appointed by the Stockholder who has a direct or indirect interest in such action, determines that such action is on an arms-length basis and on terms that would be obtained with an independent third party; and (viii) any modification or termination of the Services Agreement and any waiver of rights or waiver of any default thereunder. 12.2 The Stockholders, by a majority vote, subject to the voting rights of Falcon and the Investor Entities or their Affiliates set forth below, shall approve the annual Business Plans for the Company and its Subsidiaries collectively no later than 30 (thirty) days prior to the end of each prior fiscal year; provided that with respect to the Business Plan for the Company and its Subsidiaries for 1996, such Business Plan shall be presented to the Stockholders no later than December 15, 1995 and approved no later than January 31, 1996. Business Plans shall include the annual budget for the Company for the fiscal year in question. The Company hereby agrees to conduct its business at all times in accordance with its Business Plan then in effect. For so long as the Investor Entities (together with their Affiliates) maintain no less than 8% (eight percent) of the issued and outstanding voting Shares, resolutions of the Stockholders approving Business Plans may be approved by the Stockholders only with the affirmative vote of the Investor Entities or their Affiliates who hold Shares from time to time. For so long as Falcon (together with its Affiliates) maintains no less than 8% (eight percent) of the issued and outstanding voting Shares, resolutions of the Stockholders approving Business Plans may be approved by the Stockholders only with the affirmative vote of Falcon or its Affiliates who hold Shares from time to time. (i) In the event that the Stockholders are unable to approve an annual Business Plan for any fiscal year, for any reason whatsoever, the Business Plan for such year shall be the same as the Business Plan for the prior year, except that the budget for each operating expense item in the Business Plan of such prior year shall be increased by 10% (ten percent); provided, that (x) until such time as the Stockholders approve the Business Plan for 1996, or (y) in the event the Stockholders are unable to approve the Business Plan for 56 1996, the Business Plan for 1996 shall be the same as the draft Business Plan for 1996 as circulated to the Stockholders. (ii) Amendments or modifications to Business Plans may be approved by the Stockholders. For so long as the Investor Entities (together with their Affiliates) maintain no less than 8% (eight percent) of the issued and outstanding voting Shares, resolutions of the Stockholders approving amendments or modifications to Business Plans, including approval of unbudgeted capital expenditures, may be approved by the Stockholders only with the affirmative vote of the Investor Entities or their Affiliates who hold Shares from time to time. For so long as Falcon (together with its Affiliates) maintains no less than 8% (eight percent) of the issued and outstanding voting Shares, resolutions of the Stockholders approving amendments or modifications to Business Plans, including approval of unbudgeted capital expenditures, may be approved by the Stockholders only with the affirmative vote of Falcon or its Affiliates who hold Shares from time to time. (iii) The Business Plan of the Company for the calendar year 1995 in effect at the Closing shall be considered approved by the Investor Entities and Falcon and may be amended only in accordance with the terms of sub-part (ii) above. (iv) Transferees of Shares of the Investor Entities and/or their Affiliates shall, provided the transfers of Shares are accomplished in compliance with the terms of this Agreement, acquire the rights of the Investor Entities and their Affiliates as set out in this Clause 12.2 provided such transferees (together with their Affiliates) acquire, from time to time, no less than 8% (eight percent) of the issued and outstanding voting Shares of the Company; and such transferees shall maintain such rights under this Clause 12.2 for so long as such transferees maintain no less than 8% (eight percent) of the issued and outstanding voting Shares of the Company. Transferees of Shares of Falcon and/or its Affiliates shall not acquire the rights of Falcon and its Affiliates as set out in this Clause 12.2. 12.3 (i) [INVESTOR ENTITIES ALONE] For so long as the Investor Entities' holdings (together with their Affiliates) aggregate at least 8% (eight percent) of the issued and outstanding voting Shares: (a) the Company and its Subsidiaries may enter into, modify or amend contracts involving rights and/or obligations in excess of the Reais Equivalent of US$1,000,000 only after such contract, amendment or modification has been approved by the Investor Entities or their Affiliates; 57 (b) Any purchaser of Shares or Subscription Rights proposed by Falcon, the Investor Entities, Abrilcap or an Affiliate of any of them pursuant to Clause 4.2(v) or 5.2(i) above shall only be approved if such proposed purchaser has been approved by the Board with the affirmative vote of at least one member appointed by the Investor Entities or their Affiliates, by himself or represented pursuant to Article 14 of the Company's By-Laws; provided that such approval by a member appointed by the Investor Entities shall only be withheld if the proposed purchaser (1) is of undesirable character, (2) lacks financial capacity, (3) competes with the Company or its Subsidiaries in Brazil or (4) the nature of the purchaser would provoke a change of the business practices of the Company; and (c) Neither the Company nor any of its Subsidiaries may introduce any new programming service, or make any material decision concerning relevant characteristics of an existing programming service, particularly in its overall format or content without approval of such introduction or decision by the Board with the affirmative vote of at least one member appointed by the Investor Entities or their Affiliates, by himself or represented Pursuant to Article 14 of the Company's By-Laws; provided that the refusal of such a member to vote affirmatively may not be and shall not be exercised to block programming competitive to that of the Investor Entities, Hearst, CCABC or their respective Subsidiaries or to require selection of programming of the Investor Entities or any of their Affiliates, and provided further that when such a member refuses to vote affirmatively, a reason shall be given for such refusal. Transferees of Shares of the Investor Entities and/or their Affiliates, shall, provided the transfers of Shares are accomplished in compliance with the terms of this Agreement, acquire the rights of the Investor Entities and their Affiliates as set out in Clause 12.3(i)(a), provided such transferees (together with their Affiliates) acquire, from time to time, no less than 8% (eight percent) of the voting Shares of the Company, and such transferees shall maintain such rights under Clause 12.3(i)(a) for so long as such transferees maintain no less than 8% (eight percent) of the voting Shares of the Company. Transferees of Shares of the Investor Entities and/or their Affiliates shall not acquire the rights of the Investor Entities and their Affiliates as set out in Clauses 12.3(i)(b) and (c). (ii) [FALCON ALONE] For so long as Falcon's holdings (together with its Affiliates) aggregate at least 8% (eight percent) of the issued and outstanding voting stock of the Company: (a) the Company and its Subsidiaries may enter into, modify or amend contracts involving rights and/or obligations in excess of the Reais Equivalent of US$1,000,000 only after such contract, amendment or modification has been approved by Falcon or its Affiliates who hold Shares from time to time; and 58 (b) Any purchaser of Shares or Subscription Rights proposed by Falcon, the Investor Entities, Abrilcap or an Affiliate of any of them pursuant to Clause 4.2(v) or 5.2(i) above shall only be approved if such proposed purchaser has been approved by the Board with the affirmative vote of at least one member appointed by Falcon or its Affiliates who hold Shares from time to time, by himself or represented pursuant to Article 14 of the Company's By- Laws; provided that such approval shall only be withheld if the proposed purchaser (1) is of undesirable character, (2) lacks financial capacity, (3) competes with the Company or its Subsidiaries in Brazil or (4) the nature of the purchaser would provoke a change of the business practices of the Company. Transferees of Shares of Falcon and/or its Affiliates shall not acquire the rights of Falcon and its Affiliates as set out in this Clause 12.3(ii). (iii) [INVESTOR ENTITIES/FALCON/HC ENTITIES] For so long as each of the Investor Entities, considered together, Falcon, and the HC Entities, considered together (and their respective Affiliates) (each referred to as a "Shareholder Group") owns at least 8% of the issued and outstanding voting Shares of the Company, the following matters shall require the affirmative vote of at least two of the Shareholder Groups, and if there are two or fewer Shareholder Groups each owning at least 8% of the issued and outstanding voting Shares of the Company, then such matters shall require the affirmative vote of each such Shareholder Group other than the HC Entities Shareholder Group: (a) the settlement or initiation of any litigation or administrative proceeding involving an amount in excess of the Reais Equivalent of $500,000 (five hundred thousand dollars) or where the result could have a material adverse affect on the business and operation of the Company; (b) the hiring, renewal, or termination of the Chief Executive Officer, Chief Operating Officer and Chief Financial Officer of the Company (including setting compensation for such officers); and (c) any amendment to or waiver of the dividend policy set forth in Clause 16.4 hereof. Transferees of Shares of a Shareholder Group shall, provided the transfers of Shares are accomplished in compliance with the terms of this Agreement, acquire the rights of such Shareholder Group as set out in Clause 12.3(iii)(c), provided such transferees (together with their Affiliates) acquire, from time to time, no less than 8% (eight percent) of the voting Shares of the Company, and such transferees shall 59 maintain such rights under Clause 12.3(iii)(c) for so long as such transferees maintain no less than 8% (eight percent) of the voting Shares of the Company. Transferees of Shares of a Shareholder Group shall not acquire the rights of such Shareholder Group as set out in Clauses 12.3(iii)(a) and (b). 12.4 The Shareholder Group(s) which own at least 8% of the issued and outstanding voting Shares of the Company, acting unanimously, may require the Company to draw funds under the Abril Credit Agreement in the amount so requested by such Shareholder Group(s), for purposes of funding customary business operations of the Company and/or capital expenditures of the Company as contemplated by the Business Plan, subject to the terms of the Abril Credit Agreement. Clause 13. GENERAL MEETING RESOLUTIONS 13.1 Resolutions of the Stockholders taken at General Meetings shall be taken by the quorum and majorities required by Brazilian law, with the exception of the following actions, which actions may not be taken by the Company without the approval of (i) Harpia, Curupira and their Affiliates for so long as their holdings aggregate at least 8% (eight percent) of the issued and outstanding voting Shares; (ii) the Investor Entities and their Affiliates, for so long as its or their holdings aggregate at least 8% (eight percent) of the issued and outstanding voting Shares; and (iii) Falcon and its Affiliates, for so long as its or their holdings aggregate at least 8% (eight percent) of the issued and outstanding voting Shares: (i) any restructuring, corporate reorganization, merger, consolidation, amalgamation, spin-off, liquidation, dissolution, stock split, division, combination or consolidation of assets of the Company or its Subsidiaries; (ii) the commencement of any public offering of Shares of the Company, other than a public offering of Shares of the Company by one or more Stockholders pursuant to Clause 18.1 below, or any issuance or resale by the Company or its Subsidiaries of any Share Equivalents or securities, including but without limitation, debentures, warrants, founders' shares, options to buy or subscribe for shares and other similar rights other than the Special Preferred Shares in connection with a Put Postponement, provided that if the Company proposes to effect any of the foregoing on commercially reasonable terms for purposes of satisfying its indemnification obligations to the Stockholders under the Old Stock Purchase Agreement or the Stock Purchase Agreement after the Company has determined acting in a commercially reasonable manner that it is not able to satisfy such obligations through borrowings available to the Company on commercially reasonable terms, and such registration would not prejudice the Stockholders' rights under this Agreement or the rights to indemnification under the Stock Purchase Agreement or the Old Stock Purchase Agreement 60 or the rights of Harpia, Curupira or any of their Affiliates or transferees under the Option Agreement, the Stockholders will not unreasonably withhold their consent thereto; (iii) any purchase or redemption by the Company or its Subsidiaries of Shares except as provided by the HC Put Option, the Investor Put Option, the Falcon Event Put Option or the Falcon Time Put Option; (iv) any change in the business conducted by the Company or its Subsidiaries from the Business; (v) amendment of the By-Laws of the Company or its Subsidiaries as in force on the date of this Agreement; and (vi) establishment of any business or Subsidiary in the United States of America. 13.2 Transferees of Shares of Harpia, Curupira and/or their Affiliates shall, provided the transfers of Shares are accomplished in compliance with the terms of this Agreement, acquire the rights of Harpia, Curupira and their Affiliates as set out in Clause 13.1 above provided such transferees (together with their Affiliates) acquire, from time to time, no less than 8% (eight percent) of the voting Shares of the Company; and such transferees shall maintain such rights under Clause 13.1 above for so long as such transferees maintain no less than 8% (eight percent) of the voting Shares of the Company. 13.3 Transferees of Shares of the Investor Entities and/or their Affiliates shall, provided the transfers of Shares are accomplished in compliance with the terms of this Agreement, acquire the rights of the Investor Entities and their Affiliates as set out in Clause 13.1 above provided such transferees (together with their Affiliates) acquire, from time to time, no less than 8% (eight percent) of the voting Shares of the Company; and such transferees shall maintain such rights under Clause 13.1 above for so long as such transferees maintain no less than 8% (eight percent) of the voting Shares of the Company. 13.4 Transferees of Shares of Falcon and/or its Affiliates shall, provided the transfers of Shares are accomplished in compliance with the terms of this Agreement, acquire the rights of Falcon and its Affiliates as set out in Clause 13.1 above provided such transferees (together with their Affiliates) acquire, from time to time, no less than 8% (eight percent) of the voting Shares of the Company; and such transferees shall maintain such rights under Clause 13.1 above for so long as such transferees maintain no less than 8% (eight percent) of the voting Shares of the Company. 61 Clause 14. RIGHT TO ATTENDANCE, TO INFORMATION AND TO INSPECTION 14.1 The Stockholders shall have attendance rights at meetings of the Board and General Meetings of the Company and of its Subsidiaries. The Company agrees promptly to review the constitutive documents of each of the Subsidiaries and to cause them to be changed, as necessary, to conform to the provisions of Clauses 12 and 13 above. Without prejudice to formalities set forth by law and in the Company's By-Laws, the Company's General Meetings and meetings of the Board shall be called upon written notice (unless waived in writing) sent to each Stockholder at least 10 (ten) Business Days in advance, which shall (unless waived in writing) include the matters to be discussed. Resolutions taken in connection with matters not expressly referred to in the notice calling such meeting shall not be valid. Regardless of the formalities provided for in this Clause 14.1, the General Meeting and the meeting at which all the Stockholders and Board members, respectively, are present shall be considered regular. 14.2 The Company shall give and send the following information and documents relating to the Company and its Subsidiaries to (i) Harpia, Curupira and their Affiliates, so long as Harpia, Curupira and their Affiliates have, collectively, 5% (five percent) of the issued and outstanding voting Shares, (ii) the Investor Entities and their Affiliates, so long as the Investor Entities and their Affiliates hold 6% (six percent) of the voting Shares, and (iii) Falcon and its Affiliates, so long as Falcon and its Affiliates hold 6% (six percent) of the issued and outstanding voting Shares (provided that if either Harpia, Curupira or any Affiliate thereof, the Investor Entities or any Affiliate thereof or Falcon or any Affiliates thereof holds any Shares, the Company shall give and send items (i), (ii) and (iii) below to such Stockholder): (i) English and Portuguese versions of quarterly unaudited financial statements prepared in accordance with (a) U.S. GAAP applied consistently with the past practice of the Company and (b) generally accepted accounting principles in Brazil ("Brazilian GAAP") consistently applied with the past practice of the Company and annual audited U.S. GAAP financial statements and audited Brazilian GAAP financial statements, in each case consistently applied with the past practice of the Company; (ii) copies of all representations, applications and reports, if any, filed with any stock exchange or securities and exchange commission; (iii) copies of all financial statements, reports, vote representations and other communications delivered to any Stockholder of the Company and/or its Subsidiaries, other than those identified in clause (iv) below; (iv) monthly management reports comparing actual results to budget, which shall include English and Portuguese versions of monthly unaudited 62 financial statements prepared in accordance with (a) U.S. GAAP applied consistently with the past practice of the Company and (b) Brazilian GAAP consistently applied with the past practice of the Company; (v) English and Portuguese versions of budgets, forecasts, segment or product reports or other information reports prepared by or for managers of the Company or of its Subsidiaries, including ten-year projections to be delivered not later than January 31 of each year, in each case expressed in U.S. Dollars; (vi) copies of the minutes of all general meetings of Stockholders, meetings of the Board and of the Board of Officers of the Company and its Subsidiaries; (vii) copies of all information relating to legal matters from which potential liabilities outside the ordinary course of the business of the Company and its Subsidiaries may result to the Company or to its Subsidiaries; (viii) copies of all information relating to regulatory matters which may affect the licenses, permits, operations or Business of the Company and its Subsidiaries; (ix) copies of all information relating to technical and operational matters that may have a material adverse effect on the business condition (financial or otherwise), operations, prospects, properties, assets or liabilities of the Company and its Subsidiaries; (x) copies of all information relating to the insurance coverage of the Company and its Subsidiaries; (xi) copies of all information relating to the Company's Subsidiaries and which are sent to members of the Board of Directors of such Subsidiaries; and (xii) such other information as Harpia, Curupira, the Investor Entities or Falcon may reasonably request. Such information rights are personal to Harpia and Curupira, the Investor Entities and Falcon, and their respective Affiliates that are from time to time Stockholders, and shall not be transferred in any case to third parties, except in the case of the right to receive items (i), (ii) and (iii), which shall be transferable provided the transferees (together with their Affiliates) (a) of Harpia and Curupira and their Affiliates acquire, from time to time, and continue to hold, no less than 5% (five percent) of the Company's voting Shares, or (b) of the Investor Entities or Falcon or their Affiliates acquire, from time to time, and continue to hold, no less than 6% (six percent) of the Company's voting Shares. 63 In the event Harpia or Curupira or any of Harpia's or Curupira's Affiliates is or becomes a creditor to the Company or to the Company's Affiliates, Harpia and Curupira and their respective Affiliates shall be entitled to exchange information available to them as the Company's Stockholder with the corresponding credit areas, notwithstanding any contrary provision determining confidentiality obligations herein or in other documents. 14.3 The Company shall, upon reasonable notice during normal business hours, permit each Stockholder and its agents, including counsel, to inspect its properties, examine its books and records and to discuss with management the business and affairs of the Company and its Subsidiaries. Clause 15. ADVISORY BOARD 15.1 In addition to the Board, the Company shall have an Advisory Board (Conselho Consultivo). The Advisory Board shall advise the Stockholders and the Board with respect to the business of the Company, in accordance with applicable laws, the Company's By-laws and this Agreement. 15.2 The Advisory Board shall consist of 11 (eleven) members, who may, but need not be, residents of Brazil, and who may, but need not be, Stockholders. 15.3 The Stockholders shall elect the members of the Advisory Board at a general meeting of stockholders. The Stockholders undertake to exercise their voting rights in favor of the effective members and alternates nominated in accordance with the terms of Clause 11.1 above. 15.4 The term of office of the members of the Advisory Board shall be 2 (two) years, and in respect of each member shall be automatically extended until his duly elected successor takes office. Indefinite re-election of members of the Advisory Board shall be permitted. 15.5 The Advisory Board shall maintain a Book of Minutes to record its deliberations. 15.6 Each member of the Advisory Board may have an alternate, who shall be elected in the same manner as the principal member. The alternates shall substitute their respective principal members in the absence or incapacity of the principal member. If there is a vacancy in the Advisory Board for which no alternate has been elected, the Stockholders shall elect a new member within 30 (thirty) days after the vacancy; and the Stockholder who appointed and elected the member to be replaced shall appoint the new member. 64 15.7 The Stockholders shall cause the Company to pay for or reimburse, as the case may be, the members of the Advisory Board (or their respective alternates) for all reasonable travel and accommodation expenses they incur in order to convene. 15.8 The Advisory Board shall hold an ordinary meeting at the end of each period of three months and a special meeting whenever called by any two members of the Advisory Board by means of a fifteen day prior notice to all Advisory Board members, which notice period may be waived by consent of all Advisory Board members, or which consent shall be deemed automatically waived if all Advisory Board members attend the meeting. 15.9 Any member of the Advisory Board may authorize another member, by letter, facsimile, telegram or telex, to represent him or her at any meeting of the Advisory Board, either to constitute a quorum or for the taking of a vote. Similarly, members may vote by letter, facsimile, telegram or telex received at the Company's head office by the scheduled time for the meeting. 15.10 The presence of at least six members, either in person, by proxy, or by submitting a vote in writing before the meeting shall constitute a quorum for the holding of a valid meeting of the Advisory Board. 15.11 The Advisory Board shall be consulted on any such matters as the Board or the Stockholders may refer to the Advisory Board. The Board may not delegate to the Advisory Board any of the Board's authority to make any decision on behalf of the Company. 15.12 Resolutions of the Advisory Board shall require the affirmative vote of at least six of its Members. Clause 16. STOCKHOLDERS' AND THE COMPANY'S OTHER COVENANTS 16.1 The Stockholders undertake to cause the Company and its Subsidiaries, and the Company undertakes for itself and its Subsidiaries to: (i) retain as their regular auditors an independent auditing company which is internationally renowned for expertise in international transactions and commercial/corporate relationships, is able to render services both in Portuguese and English language, and is able to reconcile Brazilian GAAP with U.S. GAAP; (ii) retain as their regular legal counsel an independent law firm which is internationally renowned for expertise in international transactions and commercial/corporate relationships, and is able to render services both in the Portuguese and English languages; and 65 (iii) hold stockholders meetings at least annually. 16.2 (i) In the event that the independent auditors of the Company are to be changed and the new firm of auditors is not any of the firms listed in the following sentence (or any successor to any of such firms), then appointment of the new firm of auditors shall be subject to the approval of the Investor Entities for so long as the Investor Entities and their Affiliates collectively hold at least 8% (eight percent) of the issued and outstanding voting Shares of the Company. The pre-approved firms of independent auditors are: Coopers & Lybrand, Price Waterhouse, KPMG-Peat Marwick, Deloitte Touche & Ross, Arthur Andersen, Ernst & Young, or the respective Brazilian associated branches thereof. Transferees of Shares of the Investor Entities and/or their Affiliates who hold at least 8% (eight percent) of the issued and outstanding voting Shares, shall, provided the transfers of Shares are accomplished in compliance with the terms of this Agreement, acquire the rights of the Investor Entities and their Affiliates as set out in this Clause 16.2(i). (ii) In the event that the independent auditors of the Company are to be changed and the new firm of auditors is not any of the firms listed in the following sentence (or any successor to any of such firms), then appointment of the new firm of auditors shall be subject to the approval of Falcon for so long as Falcon and its Affiliates collectively hold at least 8% (eight percent) of the issued and outstanding voting Shares of the Company. The pre- approved firms of independent auditors are: Coopers & Lybrand, Price Waterhouse, KPMG-Peat Marwick, Deloitte Touche & Ross, Arthur Andersen, Ernst & Young, or the respective Brazilian associated branches thereof. 16.3 The Stockholders shall use their best efforts, upon the request of Harpia, Curupira, Falcon or the Investor Entities or any of their Affiliates, to make such amendments to this Agreement and the By-Laws of the Company as may be necessary to enable Harpia, Curupira, Falcon, the Investor Entities or any of their Affiliates to comply with any legal restrictions on its ownership of stock or rights under this Agreement, or to make such restrictions less burdensome, provided that the rights of the other Stockholders are not materially adversely affected by such amendments. 16.4 Unless amended or waived in accordance with Clause 12.3(iii)(c) hereof, during each calendar year or within 3 (three) months thereafter, the Company shall, with respect to its operations for such year, and to the extent it has funds legally available therefor, pay dividends to holders of its Shares, which dividends shall in the aggregate not be less than the "net cash flow" of the Company and its Subsidiaries during such year, provided that there shall first be made a provision for projected cash requirements of the Company and its Subsidiaries as reflected in the Business Plan for such fiscal year for the subsequent (12) twelve month period. 66 Notwithstanding the foregoing, the Stockholders agree that, except as expressly provided in Clauses 9.3 or 9.5 above, the Company shall distribute not less than 25% (twenty-five percent) of its net consolidated profits as defined in the Brazilian corporation law. Clause 17. TAG ALONG RIGHTS 17.1 If Abrilcap or Mr. Civita or any Affiliate of either shall sell, exchange or otherwise transfer any Shares to a person that is not one of their Affiliates, by private sale (subject in each case to the provisions of Clause 4 above), such selling, exchanging or transferring Stockholder shall give at least 21 (twenty-one) Business Days' prior notice, setting forth in such notice the same information as would be required in a Transfer Notice as described in Clause 4.2 above, to Harpia, Curupira, Falcon, the Investor Entities and the respective Affiliates of each that are Stockholders, who shall be entitled simultaneously with any sale, exchange or transfer by such selling, exchanging or transferring Stockholder to sell, exchange or transfer a ratable portion of their Shares and require that such third party purchaser acquire or require the selling, exchanging or transferring Stockholder to acquire such Shares, all at the same price and on the same other terms; provided, however, that notwithstanding the foregoing, Stockholders other than the selling, exchanging or transferring Stockholder and its Affiliates shall not be required to accept joint and several liability with respect to representations, warranties or covenants (including indemnification obligations) of other Stockholders, it being agreed that any agreement relating to such sale, exchange or transfer shall provide that the liability of such other Stockholder in connection with such sale, exchange or transfer shall be several only and shall not in any event exceed either such Stockholder's pro rata share of any liability or such Stockholder's proceeds from such sale. Any sale, exchange or transfer shall be made in a manner that does not discriminate in any adverse manner against other Stockholders as compared to the selling, exchanging or transferring Stockholder. Compliance with the provisions of this Clause 17.1 shall be a condition precedent to a sale of Shares by any Stockholder whose Shares are subject to this Clause 17.1. 17.2 At any time until July 22, 1998, if the investor Entities or any Affiliate thereof shall sell, exchange or otherwise transfer any Shares to a person that is not one of their Affiliates by private sale (subject in each case to the provisions of Clause 4 above), the Investor Entities and any such Affiliate shall give at least 21 (twenty-one) Business Days' prior notice, setting forth in such notice the same information as would be required in a Transfer Notice as described in Clause 4.2 above, to Harpia and Curupira and their Affiliates that are Stockholders who shall be entitled simultaneously with any sale, exchange or transfer by the Investor Entities or any such Affiliate to sell, exchange or transfer a ratable portion of their collective Shares and require that such third party purchaser acquire or require the Investor Entities and/or their Affiliate to acquire such Shares, all at the same price and on the same 67 other terms; provided, however, that notwithstanding the foregoing, Harpia and Curupira and their Affiliates shall not be required to accept joint and several liability with the Investor Entities and their Affiliates with respect to representations, warranties or covenants (including indemnification obligations) of the Investor Entities and their Affiliates, it being agreed that any agreement relating to such sale, exchange or transfer shall provide that the liability of Harpia and Curupira and their Affiliates in connection with such sale, exchange or transfer shall be several only in relation to the Investor Entities and their Affiliates and shall not in any event exceed either Harpia's, Curupira's or their Affiliate's pro rata share of any liability or their proceeds from such sale. Any sale, exchange or transfer shall be made in a manner that does not discriminate in any adverse manner against Harpia, Curupira and/or their Affiliates as compared to the Investor Entities and their Affiliates. Compliance with the provisions of this Clause 17.2 shall be a condition precedent to a sale of Shares by any Stockholder whose Shares are subject to this Clause 17.2. 17.3 At any time until July 22, 1998, if Falcon or any Affiliate thereof shall sell, exchange or otherwise transfer any Shares to a person that is not one of their Affiliates by private sale (subject in each case to the provisions of Clause 4 above), Falcon and any such Affiliate shall give at least 21 (twenty-one) Business Days' prior notice, setting forth in such notice the same information as would be required in a Transfer Notice as described in Clause 4.2 above, to Harpia and Curupira and their affiliates that are Stockholders who shall be entitled simultaneously with any sale, exchange or transfer by Falcon or any such Affiliate to sell, exchange or transfer a ratable portion of their collective Shares and require that such third party purchaser acquire or require Falcon and/or its Affiliates to acquire such Shares, all at the same price and on the same other terms; provided, however, that notwithstanding the foregoing, Harpia and Curupira and their Affiliates shall not be required to accept joint and several liability with Falcon and its Affiliates with respect to representations, warranties or covenants (including indemnification obligations) of Falcon and its Affiliates, it being agreed that any agreement relating to such sale, exchange or transfer shall provide that the liability of Harpia and Curupira and their Affiliates in connection with such sale, exchange or transfer shall be several only in relation to Falcon and its Affiliates and shall not in any event exceed either Harpia's, Curupira's or their Affiliate's pro rata share of any liability or their proceeds from such sale. Any sale, exchange or transfer shall be made in a manner that does not discriminate in any adverse manner against Harpia, Curupira and/or their Affiliates as compared to Falcon and its Affiliates. Compliance with the provisions of this Clause 17.3 shall be a condition precedent to a sale of Shares by any Stockholder whose Shares are subject to Clause 17.3. 17.4 The rights set out in Clause 17.1 hereof shall be acquired by transferees of any Shares of Harpia, Curupira and their Affiliates provided such transfers of Shares to such transferee are made in accordance with the provisions of this Agreement. The rights of Harpia, Curupira and their Affiliates set out in Clauses 17.2 and 17.3 above are personal and shall not be transferable with such person's Shares. The 68 rights set out in Clause 17.1 above shall be acquired by transferees of Shares of the Investor Entities, Falcon and the Affiliates of any of them provided such transfers of Shares to such transferee are made in accordance with the provisions of this Agreement and provided further that the transferee acquires (together with its Affiliates) at least 4% (four percent) of the Company's issued and outstanding voting Shares from time to time. No such third party transferee of Shares from the Investor Entities, Falcon or the Affiliates of any of them will be subject to tag along obligations under this Clause 17. Clause 18. REGISTRATION RIGHTS 18.1 (i) [DEMAND] (a) Subject to the conditions set forth in this Agreement, at any time after the second anniversary of this Agreement, the Investor Entities, considered together, the HC Entities, considered together, or Falcon may request that the Company effect the registration of any or all of the Shares held by the requesting Stockholder or any of its Affiliates (the "Subject Shares") in accordance with the terms hereof. Notwithstanding the foregoing, the Company shall not effect (1) more than one registration requested by a Stockholder or any of its Affiliates pursuant to this Clause 18.1 in any 12 month period, (2) more than three registrations requested by a Stockholder or any of its Affiliates pursuant to this Clause 18.1 in total, or (3) a registration requested by a Stockholder pursuant to this Clause 18.1 for less than 50% of the aggregate Shares held by such Stockholder and its Affiliates with respect to the initial effective demand registration for such Stockholder and its Affiliates, or less than the lesser of 4,500,000 Shares or 100% of the aggregate Shares held by such Stockholder and its Affiliates with respect to a subsequent request for registration. Such request will specify (x) the number of Subject Shares proposed to be sold, (y) the jurisdiction in which the Subject Shares are to be distributed and (z) the intended method of distribution. (b) Notwithstanding clause (a) above but subject to clause (c) below, it is the agreement of the parties that the exercise by a Stockholder of its rights set forth in clause (a) above and the registration and/or offering of its Subject Shares will not adversely impair or invalidate this Stockholders Agreement or the Option Agreement or any of the rights of the other Stockholders hereunder or thereunder (other than with respect to the Subject Shares that are registered and publicly sold, which Subject Shares shall not be entitled to any of the benefits provided by, or be subject to the obligations imposed by, this Stockholders Agreement) and, in any case, would not legally prohibit the exercise of the put rights set forth in this Stockholders Agreement or the Option Agreement. If any Stockholder asserts in writing to the Company and the other Stockholders within forty-five (45) days of receipt of a request pursuant to clause (a) above that the registration and/or offering of the requesting Stockholder's Subject Shares would have such an effect, then each of the Stockholders and the Company shall negotiate in good faith and on an expedited basis to implement a structure and/or amendment to this Agreement and the 69 Company which would permit the requesting Stockholder to effect such a registration and offering without adversely impairing or invalidating this Stockholders Agreement or the Option Agreement or the rights of the other Stockholders hereunder or thereunder and, in any case, without legally prohibiting the exercise of the put rights set forth in this Stockholders Agreement or the Option Agreement. During such good faith negotiations, the Company and the Stockholders shall use commercially reasonable efforts to amend the provisions of this Agreement in order to (i) preserve the put rights of the Stockholders hereunder and under the Option Agreement without adverse change and the other rights of the Stockholders hereunder in substantially the form they exist on the date hereof and (ii) permit the Company to effect the registration of the requesting Stockholder's Subject Shares. Without limiting the foregoing, the parties hereto hereby agree that any amendment to this Agreement to effect the following shall not adversely impair or invalidate their rights hereunder, which amendments may include (i) the expansion of the Board to accommodate any director that the holder of any Subject Share may be entitled to elect under Brazilian law, provided that (x) such expansion does not impair the veto and supermajority voting rights granted to the Stockholders hereunder and (y) after such expansion, if they have maintained their right to appoint Board members as provided under Clause 11.1(iii) hereof, Mr. Civita and Abrilcap shall be entitled to appoint such number of members of the expanded Board such that such members, together with the independent director nominated by Mr. Civita and Abrilcap, shall constitute a majority of the members of the Board, and (ii) the elimination of any right of the Company to purchase Shares pursuant to Clause 4 hereof to the extent such purchase would not be permitted under Brazilian law for a company with publicly registered and/or traded shares. If the parties are unable to agree upon the implementation of such a structure and/or the adoption of such an amendment pursuant to the standards set forth above, the requesting Stockholder may conclusively resolve any such dispute in its favor by (i) obtaining approval from the appropriate regulatory authority that the existence of this Stockholders Agreement and the Option Agreement and the rights of the other Stockholders hereunder and thereunder would be valid and enforceable in all respects after the consummation of the registration and offering pursuant to the restructuring and/or amendment hereof agreed to above or (ii) the delivery to the Company and such other Stockholders of an executed opinion from any of the law firms listed in Exhibit A hereto, provided that such firm does not, and has not, represented the requesting Stockholder in connection with its investment in the Company, other than for purposes of obtaining the opinion contemplated by this Clause 18.1(i)(b) (or such other law firm as shall be reasonably acceptable to the parties), in substantially the form attached hereto as Exhibit B, which opinion shall (x) pursuant to the Terms of Demand attached thereto, at the time of the delivery of the opinion accurately describe the proposed terms of the public offering, including any proposed conversion of capital stock, and (y) be required to be restated as of and at the time of the public offering of the requesting Stockholder's Subject Shares on the basis of the offering documents, if any, in lieu of the Terms of Demand, as a condition to the consummation of the public offering; provided, however, that if a 70 Stockholder is not able to deliver such an opinion with respect to the registration and offering of Shares, but would be able to deliver such opinion with respect to the registration and offering of a different class of capital stock of the Company, upon the request of the Stockholder exercising its rights pursuant to clause (a) above, the Company (subject to applicable law) shall be required to convert, effective upon consummation of the public offering, such number of Shares of such Stockholder as such Stockholder shall request into an equivalent amount of such other class of capital stock of the Company, provided that such conversion may only take place if (A) it would not adversely impair or invalidate this Stockholders Agreement or the Option Agreement or the rights of the other Stockholders hereunder or thereunder and, in any case, would not legally prohibit the exercise of the put rights set forth in this Stockholders Agreement or the Option Agreement and (B) the rights of such class would be substantially equivalent to and/or less favorable than the rights associated with the Shares (such as voting or governance rights, rights to distributions upon liquidation, preference as to dividends or otherwise), such that they would simply represent a class convertible for registration, the other Stockholders shall reasonably cooperate with respect to such conversion, and for purposes of this Clause 18.1, the shares of such other class of capital stock of the Company held by the Stockholder shall be deemed to be Subject Shares. (c) If, pursuant to clause (b) above, a good faith dispute exists and the requesting Stockholder is not able to obtain the regulatory approval or opinion described above, the Company shall not effect the requested registration. Notwithstanding the foregoing, if any of the Investor Entities or their Affiliates is the requesting Stockholder and in accordance with the terms of clause (b) above such requesting Stockholder is able to conclusively resolve after the restructuring and/or amendment agreed to above are effected (i.e., conclusively resolve by opinion or ruling as provided in (b) above), that this Stockholders Agreement, the Option Agreement and the rights of the other Stockholders would only be impaired or invalidated with respect to the exercise of the HC Put Option, the Falcon Time Put Option, the Falcon Event Put Option and/or the Investor Put Option, then such requesting Stockholder shall provide the Company, the other Stockholders and Abril S.A. with notice to such effect, the Company shall effect the requested registration and the Company shall be relieved from its obligations set forth in this Stockholders Agreement with respect to the HC Put Option, the Falcon Time Put Option, the Falcon Event Put Option and/or the Investor Put Option, as applicable, so long as the Abril Agreement is at that time valid and enforceable. (ii) [FILING; EFFECTIVENESS] (a) Upon receipt of a request as contemplated in the preceding paragraph, the Company and the requesting Stockholder shall consult with the other Stockholders for a period of 45 days regarding the proposed registration of the Subject Shares. Unless the requesting Stockholder specifies in writing otherwise, upon the conclusion of such consultation period, but subject to Clause 18.1(b) above, the Company shall use its best efforts to effect such a registration as soon as practicable and in any event shall file within 90 71 days of the conclusion of such consultation period (the "Target Filing Date") a registration statement (the "Demand Registration Statement") under the securities laws of the jurisdiction(s) designated by the requesting Stockholder and on the form designated by the requesting Stockholder covering the Subject Shares and use its best efforts to (1) cause such Demand Registration Statement to be declared effective by the U.S. Securities and Exchange Commission (the "Commission") and under such other securities or blue sky laws of such jurisdictions in the United States as the requesting Stockholder may reasonably request (provided that the Company shall not be required to qualify generally to do business in any such jurisdiction where it would not otherwise be required to qualify, subject itself to taxation in any such jurisdiction or consent to general service of process in any such jurisdiction), if registration is sought in the United States, or the analogous governmental agencies and/or securities market authorities of the relevant jurisdiction, if registration is sought outside the United States, for such Subject Shares as soon as practicable thereafter and in any event within 60 days of filing such Demand Registration Statement (the "Target Effective Date") and (2) keep the Demand Registration Statement continuously effective until the date on which the requesting Stockholder no longer holds any Shares registered under the Demand Registration Statement (such period, the "Target Effective Period"). If a Stockholder requests a registration to be made at the same time for the same number of Subject Shares in more than one jurisdiction, such request shall be treated as one registration for purposes of Clauses 18.1(i)(a)(1) and (2). Notwithstanding the foregoing, (x) if the Company shall furnish to the Stockholder a certificate signed by its Chairman or President stating that in his good faith judgment it would be detrimental or otherwise disadvantageous to the Company or its Stockholders for such a Demand Registration Statement to be filed as expeditiously as practicable, the Company shall have a period of not more than 90 days after delivery of such a certificate within which to file such Demand Registration Statement, and (y) the Company shall not be obligated to file a registration statement pursuant to this Clause 18.1 during the 90 day period following the effectiveness of any registration statement filed by the Company in connection with an underwritten primary offering of its securities. If the managing underwriter selected by the requesting Stockholder (or by the Company in accordance with the terms of Clause 18.1(iv) below) determines (upon request of the Company or any Stockholder) that any of the provisions of this Clause 18.1(ii) are not customary in transactions of this nature (including the time periods set forth in this Clause 18.1(ii)(a) being unreasonably long or short), then such provisions shall be modified in accordance with the determination of such managing underwriter. (b) The Company agrees, if necessary, to supplement or amend the Demand Registration Statement, as required by the registration form used by the Company for such Demand Registration Statement or by applicable securities laws and regulations or as requested (which request shall result in the filing of a supplement or amendment) by the requesting Stockholder (but only to the extent that such request relates to information with respect to the requesting Stockholder), and 72 the Company agrees to furnish to the requesting Stockholder, its counsel and any managing underwriter, such number of copies of the Demand Registration Statement and any such supplement(s) or amendment(s) thereto (in each case including all exhibits thereto and documents incorporated by reference therein) and the prospectus included therein as the requesting Stockholder or its underwriter(s) may reasonably request prior to the use or filing of the same with the Commission or analogous governmental agency and/or securities market authorities and during the period in which the Company is required to cause the Demand Registration Statement to remain effective. The requesting Stockholder shall be permitted to withdraw all or any part of the Subject Shares from a Demand Registration Statement at any time prior to the effective date of such Demand Registration Statement (regardless of whether one or more Stockholders have elected to exercise their "piggyback" registration rights pursuant to Clause 18.2 below, and if all of the Subject Shares are so withdrawn, such registration shall be terminated with respect to the Stockholders exercising their "piggyback" registration rights unless one or more of such Stockholders elects to exercise its "demand" registration rights with respect to such registration). Notwithstanding such a withdrawal by a requesting Stockholder, such request shall be treated as a registration for purposes of Clauses 18.1(i)(a)(1) and (2) if the requesting Stockholder (x) withdraws less than all of the Subject Shares, or (y) withdraws all of the Subject Shares after the conclusion of the consultation period described in Clause 18.1(ii)(a) above for any reason other than a material adverse change in the Company or its Subsidiaries or in market conditions from the time of the request made for registration. (c) The Company will enter into customary agreements and take such other actions as are reasonably required in order to expedite or facilitate the sale of the Subject Shares. In connection therewith, the Company will furnish to the requesting Stockholder and each of its managing underwriter(s) a signed counterpart, addressed to the requesting Stockholder and such underwriter(s), of (i) an opinion or opinions of counsel to the Company and (ii) a comfort letter or comfort letters from the Company's independent public accountants, each in customary form and covering such matters of the type customarily covered by opinions or comfort letters, as the case may be, as the requesting Stockholder or such underwriter(s) reasonably requests. (iii) [EFFECTIVE REGISTRATION] A registration will not be deemed to have been effected as a Demand Registration unless the Demand Registration Statement with respect thereto has been declared effective by the Commission or analogous governmental agency and/or securities market authorities and the Company has complied in all material respects with its obligations under this Agreement with respect thereto; provided, however, that if after it has been declared effective, the offering of the Subject Shares pursuant to a Demand Registration Statement is interfered with by any stop order, injunction or other order or requirement of the Commission or any other governmental agency or court and/or securities market authorities, such Demand Registration Statement will be deemed 73 not to have become effective during the period of such interference until the offering of the Subject Shares pursuant to such Demand Registration Statement may legally resume. If a registration requested pursuant to this Clause 18.1 is deemed not to have been effected, then the Company shall continue to be obligated to effect a registration pursuant to this Clause 18.1. (iv) [SELECTION OF UNDERWRITER] If the requesting Stockholder so elects, the offering of the Subject Shares pursuant to a Demand Registration Statement shall be in the form of an underwritten offering. If it so elects, the requesting Stockholder shall select one or more nationally recognized firms of investment bankers to act as the managing underwriter or underwriters in connection with such offering; provided that such selection shall be subject to the consent of the Company, which consent shall not be unreasonably withheld. If the requesting Stockholder does not select a managing underwriter in connection with such offering, the Company may select one or more nationally recognized firms of investment bankers to act as the managing underwriter or underwriters in connection with such offering; provided that such selection shall be subject to the consent of the requesting Stockholder, which consent shall not be unreasonably withheld. (v) [INDEMNIFICATION] (a) (BY THE COMPANY] The Company will indemnify and hold harmless each participating Stockholder and each underwriter of the Subject Shares being sold by such Stockholder, and each controlling person of such Stockholder and underwriter, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained or incorporated by reference in any registration statement relating to such Subject Shares or any preliminary or final prospectus included therein (or in any related registration statement, notification or the like) or any omission (or alleged omission) to state or incorporate by reference therein a material fact required to be stated or incorporated by reference therein or necessary to make the statements made or incorporated by reference therein, in light of the circumstances under which they were made, not misleading, or any violation by the Company of any rule or regulation promulgated under the Securities Act applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, qualification or compliance, and the Company will reimburse each such Stockholder and each such underwriter and controlling person for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action and will enter into an indemnification agreement with each such Stockholder and underwriter containing customary provisions, including provisions for contribution, as any Stockholder 74 or underwriter shall reasonably request; provided, however, that the Company will not be liable to such Stockholder or underwriter in any such case to the extent that any such claim, loss, damage or liability arises out of or is based on any untrue statement or omission based upon written information furnished to the Company by such Stockholder or underwriter, respectively, and stated to be specifically for use therein. (b) (BY THE STOCKHOLDERS] Each participating Stockholder shall indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement and each person, if any, who controls the Company within the meaning of Section 5 of the U.S. Securities Act of 1933, as amended (the "Securities Act") or any other applicable securities laws, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained or incorporated by reference in any registration statement relating to such Stockholder's Shares or any preliminary or final prospectus included therein (or in any related registration statement, notification or the like) or any omission (or alleged omission) to state or incorporate by reference therein a material fact required to be stated or incorporated by reference therein or necessary to make the statements made or incorporated by reference therein, in light of the circumstances under which they were made, not misleading, and such participating Stockholder will reimburse the Company and each such director, officer or controlling person for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action and will enter into an indemnification agreement with the Company and each participating Stockholder containing customary provisions, including provisions for contribution, as the Company or each such Stockholder shall reasonably request; provided, however, that no Stockholder will be liable in any such case except to the extent that any claim, loss, damage or liability arises out of or is based on any untrue statement or omission based upon written information furnished to the Company by such Stockholder and stated to be specifically for use therein; and provided, further, that no Stockholder will be liable under this subsection for any losses, costs, damages or expenses exceeding in the aggregate the proceeds to such Stockholder in such offering. (c) [OTHER INDEMNIFICATION] Indemnification similar to that specified in the preceding paragraphs of this Clause 18.1 (with appropriate modifications) shall be given by the Company and each participating Stockholder with respect to any required registration or other qualification of securities under any federal or state law or regulation of governmental authority other than the Securities Act. 75 (d) If any claim or proceeding (herein, the "Claim") is hereafter made or instituted which might result in a right to indemnification hereunder, the party seeking indemnification (the "Indemnified Party") may make a demand for indemnification hereunder by giving written notice to the party from whom indemnification is sought (the "Indemnifying Party"), stating in reasonable detail the nature of the Claim so far as known to it. Such notice shall be given within a reasonable time after the Indemnified Party shall become aware of the Claim. The Indemnified Party shall permit the Indemnifying Party to assume the defense of any such Claim or any litigation resulting therefrom (and to prosecute by way of counterclaim or complaint any claim arising out of or relating to such Claim), provided that counsel selected to conduct the defense of such Claim or litigation shall be reasonably satisfactory to the Indemnified Party. After such assumption of the defense by the Indemnifying Party, the Indemnifying Party shall not be liable under this Clause 18.1 for any legal or other expenses subsequently incurred by the Indemnified Party in connection with such defense, other than reasonable costs of investigation, but the Indemnified Party may participate in such defense at its expense. The refusal so to permit the Indemnifying Party to assume such defense by such counsel shall relieve the Indemnifying Party of its indemnification obligations hereunder in respect of such Claim. No settlement of any Claim or litigation defended by the Indemnified Party shall be made without the express written consent of the Indemnifying Party, which consent shall not be unreasonably withheld. The Indemnifying Party shall not, except with the written consent of the Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to the Indemnified Party of an unconditional release from all liability in respect of such Claim or litigation. (e) If the indemnity and reimbursement obligation provided for in this Clause 18.1 is unavailable or insufficient to hold harmless an Indemnified Party in respect of any Claim referred to therein, then (unless, and except to the extent that, such unavailability or insufficiency results from defenses or limitations provided by this Clause 18.1) the Indemnifying Party shall contribute to the amount paid or payable by the Indemnified Party as a result of such Claim in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and the Indemnified Party on the other hand in connection with statements or omissions which resulted in such Claim, as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Indemnifying Party or the Indemnified Party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The 76 parties hereto agree that it would not be just and equitable if contributions pursuant to this paragraph were to be determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the first sentence of this paragraph. The amount paid by an Indemnified Party as a result of the Claims referred to in this Clause 18.1 shall be deemed to include any legal and other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any Claim which is the subject of this Clause 18.1. (vi) [SPECIFIC PERFORMANCE] The Company and each of the Stockholders acknowledges that a breach of the Company's obligations relating to registration rights requested pursuant to Clause 18.1(i) will cause irreparable harm to the requesting Stockholder, and any Stockholder which exercises its rights under Clause 18.2 above, that will be difficult to quantify and for which money damages would be inadequate. As a result, the Company agrees that, in the event of such a breach or threat of such a breach, the requesting or piggybacking Stockholder may, in addition to any other legal or equitable remedies it may have, enforce its rights by an action for specific performance (to the extent permitted by applicable law), without the necessity of posting a bond. 18.2 [PIGGYBACK] If the Company at any time proposes for any reason to publicly register or list any Shares under the securities laws of any jurisdiction, it shall promptly give written notice to each Stockholder of its intention so to register such shares, and by such notice shall offer to each such Stockholder (other than Abrilcap and its Affiliates which are then Stockholders) the opportunity to register or list such number of Shares as each such Stockholder may request in writing within 20 (twenty) Business Days after receipt of such notice from the Company, specifying the number of Shares proposed to be included in such registration or listing. Upon receipt of such written request, the Company shall cause all such Shares to be included in such registration or listing on the same terms and conditions as the Shares otherwise being sold pursuant to such registration or listing, and such Stockholder shall be entitled to such documents and information as is described in Clause 18.1(b) above. Notwithstanding the foregoing, if the managing underwriter(s) of an offering delivers a written opinion to the Company that the size of the offering is such that the success of the offering would be materially and adversely affected, then the amount of Subject Shares to be offered for the account of any Stockholder pursuant to this Clause 18.2 shall be reduced to the extent necessary to reduce the total amount of securities to be included in such offering to the amount recommended by such managing underwriter(s); provided that if securities are being offered for the account of more than one Stockholder pursuant to this Clause 18.2, then the proportion by which the amount of the securities intended to be offered for the account of any Stockholder pursuant to this Clause 18.2 is reduced shall not exceed the proportion by which the amount of securities intended 77 to be offered for the account of any other Stockholder pursuant to this Clause 18.2 is reduced. For purposes of this Clause 18.2, if the Company proposes to convert Shares to a different class of capital stock of the Company and to publicly register or list such different class of capital stock, then subject to Clause 18.1(b) above, each Stockholder shall have the right to convert its Shares into an equivalent amount of such different class of capital stock, and for purposes of this Clause 18.2, the shares of such other class of capital stock of the Company held by the Stockholder shall be deemed to be Shares. 18.3 [REGISTRATION EXPENSES] Any and all expenses whatsoever incident to the Company's performance of or compliance with this Clause 18 shall be borne by the Company whether or not the offering of Shares to which such expenses relate is consummated; provided, however, that the Company shall not be required to bear underwriting discounts and commissions or transfer taxes, if any, relating to the sale or disposition of Shares, and the Company shall only be obligated to pay for the fees and expenses of counsel and independent certified public accountants for the Company. 18.4 Transferees of Shares from a Stockholder shall not acquire the rights of the transferring Stockholder as set out in this Clause 18; provided that all transferees of Shares from a Stockholder who are Affiliates of such Stockholder shall acquire, if such transfers are accomplished in compliance with the terms of this Agreement, the rights and obligations of such Stockholder as set forth in this Clause 18. Clause 19. NON-COMPETE PROVISIONS 19.1 (i) For the benefit of Abrilcap and Mr. Civita and their Affiliates (other than the Company and its Subsidiaries) only, Harpia and Curupira hereby agree on behalf of themselves, The Chase Manhattan Corporation and its direct and other indirect majority-owned subsidiaries (collectively, "Chase") that, for so long as Harpia and Curupira, together with their Affiliates, hold at least 5% (five percent) of the issued and outstanding voting Shares, none of Harpia, Curupira, any Affiliate of either, or (to the extent Harpia, Curupira or any Affiliate thereof that is a Stockholder remains an Affiliate of Chase or any successor thereto) Chase shall, except through the Company, hold more than 10% (ten percent) of the total equity of any business organization that engages directly, nor more than 50% (fifty percent) of the voting equity of any business organization that engages indirectly through one or more subsidiaries or other business organizations, in the Business in Brazil; provided, however, that the covenants set forth in this Clause 19.1 shall not apply (i) to any equity acquired by Chase or any successor thereto, as a result of (a) the merger of Chase or any such successor with Chemical Banking Corporation or any other Person (a "Merger Party") who directly or indirectly holds such equity at the time such merger is consummated (the 78 "Merger Date"), or (b) the statutory, contractual, preemptive or other rights that such Merger Party or any Affiliate thereof may have, as of the Merger Date, to acquire such equity or to exchange securities for such equity, regardless of whether such rights are contingent or vested or inchoate or fixed as of the Merger Date, or (ii) from and after the Merger Date, to any Person that engages primarily in venture capital or merchant banking activities (including, to the extent such covenants might otherwise apply, Chemical Venture Partners) or to any equity for which any such Person (or its personnel) has functional management responsibility, regardless of where such equity is booked. (ii) The parties hereto recognize that Chase may provide various financial services to individuals, corporations and other entities that may be engaged or that may intend to engage, directly or indirectly, in the Business, including but not limited to: (a) conducting or participating in the sale, placement or underwriting of securities for such individuals or entities, (b) providing loans or other credit arrangements to such individuals or entities, which loans or arrangements may be secured by, among other things, the pledge to Chase of voting or other securities, and Chase may receive fees in connection with such loans or arrangements which may include stock, warrants or other equity securities, (c) engaging in fiduciary or other relationships whereby Chase may control or exercise voting power over securities of various entities and (d) providing financial advice and other commercial and investment banking services, and further recognize that none of these activities shall constitute a violation of this Clause 19 nor shall any equity securities acquired by Chase in connection with any of these activities count towards the percentages set forth in the first sentence of this Clause 19. In particular, nothing in this Clause 19 shall prohibit Chase from exercising its rights with respect to any securities pledged for its benefit or foreclosing on, receiving in compromise of obligations, holding or otherwise dealing with any such securities, or exercising its rights as a creditor of any person, including without limitation by receiving equity securities in compromise of obligations or in a bankruptcy, insolvency, receivership or similar proceeding or as part of a workout or other restructuring of debt, and in such case, such equity securities shall not count towards the percentages set forth in the first sentence of this Clause 19. 19.2 For the benefit of Harpia, Curupira and their Affiliates so long as they collectively own 5% (five percent) or more of the issued and outstanding voting Shares, Mr. Civita and Abrilcap agree on behalf of themselves and their Affiliates that, except through the Company (and, to the extent necessary to comply with the provisions hereof and of the Old Stock Purchase Agreement and the Service Agreement, the License Holders), neither of them nor any person directly or indirectly controlled by either of them shall, in any geographic area, directly or 79 indirectly engage in any business, or be interested (whether as a principal, stockholder, lender, employee, officer, director, partner, venturer, advisor, consultant or otherwise) in any business organization that engages in any business, substantially of the same type as the Business or as any business the Company or any Subsidiary may conduct. Without limiting the foregoing provisions hereof, except to the extent expressly set forth herein, Mr. Civita and Abrilcap agree that they shall not directly or indirectly through any Affiliate (except for the Company and its Subsidiaries), engage in or be interested in (whether as a principal, stockholder, lender, employee, officer, director, partner, venturer, advisor, consultant or otherwise) in the telephony business. Notwithstanding the foregoing sentence, however, so long as it does not create or pose a conflict of interest with the business of the Company and/or its Subsidiaries, Mr. Civita and Abrilcap may, directly or through Affiliates, hold passive, minority, or noncontrolling interests in persons engaged in telephony; provided that in the event such interest does create or pose a conflict of interest with the business of the Company and/or its Subsidiaries, Mr. Civita and Abrilcap shall, as soon as practicable, effect one of the following alternatives, at their option: (i) merge such interest into the Business of the Company and its Subsidiaries (subject to compliance with the provisions of Clauses 12 and 13 above); (ii) sell, transfer, or otherwise dispose of such interest; or (iii) transfer such interest to a "blind trust" or equivalent device under Brazilian law, pursuant to which Mr. Civita shall have solely an economic interest, but pursuant to which he will receive no information regarding such interest and shall have no decision making role with respect thereto. 19.3 For so long as Falcon, together with its Affiliates, owns 2% (two percent) or more of the issued and outstanding voting Shares, Falcon hereby agrees for the benefit of Abrilcap and Mr. Civita and their Affiliates (other than the Company and its Subsidiaries) only that, except through the Company, neither it nor any of its Affiliates shall within the territory of the Federative Republic of Brazil (i) directly or indirectly engage in the Business, or (ii) be interested (whether as a principal, stockholder, lender, employee, officer, director, partner, venturer, advisor, consultant or otherwise) in any business organization that engages primarily in the Business within the territory of the Federative Republic of Brazil or any business conducted primarily within the Federative Republic of Brazil that is either substantially of the same type as the Business or any other business the Company or any Subsidiary may conduct or that is otherwise competitive with any business that the Company or any Subsidiary may conduct; provided, however, that nothing in this Clause 19.3 shall prohibit Falcon or any Affiliate thereof from owning less than 5% (five percent) of the voting capital or total capital stock or other ownership interest of any public company which it does not control. 19.4 For so long as Falcon, together with its Affiliates, owns 2% (two percent) or more of the issued and outstanding voting Shares, Falcon hereby agrees for the benefit of Abrilcap and Mr. Civita and their Affiliates (other than the Company and its Subsidiaries) that neither it nor any of its Affiliates shall directly or indirectly own 80 or control a majority of the voting equity of any business organization other than a partnership, or directly or indirectly act as a general partner of any partnership, that engages primarily in any business relating to pay television delivered by KU-band satellite distribution in any of the countries of South America, Central America, in the Caribbean Sea, or the United States of Mexico (including countries that become sovereign in the current territory of the aforesaid countries). 19.5 For so long as Falcon, together with its Affiliates, owns 2% (two percent) or more of the issued and outstanding voting Shares or the Investor Entities, together with their Affiliates, owns 2% (two percent) or more of the issued and outstanding voting Shares, Abrilcap and Mr. Civita hereby agree for the benefit of Falcon or the Investor Entities, as the case may be, in each case on behalf of themselves and their Affiliates, that, except through the Company (and, to the extent necessary to comply with the provisions hereof and of the Stock Purchase Agreement and the Services Agreement, neither of them nor any person directly or indirectly controlled by either of them or under common control with either of them shall, within the territory of the Federative Republic of Brazil directly or indirectly engage in the Business, or be interested (whether as a principal, stockholder, lender, employee, officer, director, partner, venturer, advisor, consultant or otherwise) in any business organization that engages in any business that is either substantially of the same type as the Business or any other business the Company or any Subsidiary conducts or that is otherwise competitive with any business that the Company or any Subsidiary may conduct. Without limiting the foregoing provisions hereof, except to the extent expressly set forth herein, Mr. Civita and Abrilcap agree that they shall not directly or indirectly through any Affiliate (except for the Company and its Subsidiaries), engage in or be interested in (whether as a principal, stockholder, lender, employee, officer, director, partner, venturer, advisor, consultant or otherwise) in the telephony business. Notwithstanding the foregoing sentence, however, so long as it does not create or pose a conflict of interest with the business of the Company and/or its Subsidiaries, Mr. Civita and Abrilcap may, directly or through Affiliates, hold passive, minority, or non-controlling interests in persons engaged in telephony; provided that in the event such interest does create or pose a conflict of interest with the business of the Company and/or its Subsidiaries, Mr. Civita and Abrilcap shall, as soon as practicable, effect one of the following alternatives, at their option: (i) merge such interest into the Business of the Company and its Subsidiaries (subject to compliance with the provisions of Clauses 12 and 13); (ii) sell, transfer, or otherwise dispose of such interest; or (iii) transfer such interest to a "blind trust" or equivalent device under Brazilian law, pursuant to which Mr. Civita shall have solely an economic interest, but pursuant to which he will receive no information regarding such interest and shall have no decision making role with respect thereto. 19.6 Except through their respective investments in Tevecap, for so long as Falcon, together with its Affiliates, owns 2% (two percent) or more of the issued and outstanding voting Shares or the Investor Entities, together with their Affiliates, owns 2% (two percent) or more of the issued and outstanding voting Shares, 81 Abrilcap and Mr. Civita hereby agree for the benefit of Falcon or the Investor Entities, as the case may be, in each case on behalf of themselves and their Affiliates that neither of them nor any person directly or indirectly controlled by either of them shall, in any of the countries of South America, Central America, in the Caribbean Sea, or the United States of Mexico (including countries that become sovereign in the current territory of the aforesaid countries), directly or indirectly engage in any business, or be interested (whether as a principal, stockholder, lender, employee, officer, director, partner, venturer, advisor, consultant or otherwise) in any business organization that engages in any business relating to pay television delivered by KU-band satellite distribution. 19.7 The Investor Entities hereby agree on behalf of (a) themselves, (b) Hearst and Hearst's Subsidiaries, but only for so long as Hearst, directly or through the Investor Entities or Affiliates of the Investor Entities, owns 2% (two percent) or more of the issued and outstanding voting Shares and (c) CCABC and CCABC's Subsidiaries, but only for so long as CCABC, directly or through the Investor Entities or Affiliates of the Investor Entities, owns 2% (two percent) or more of the issued and outstanding voting Shares, for the benefit of Abrilcap and Mr. Civita and their Affiliates, that none of the parties listed in clauses (a), (b), or (c) above, to the extent applicable, shall own an interest in any entity principally engaged in the business of non- standard television general entertainment service and the ownership and operation of facilities related thereto which competes with the Company in Brazil, except for interests representing not more than 10% of the total equity of such an entity, it being understood that nothing contained herein shall prohibit the Investor Entities, Hearst, CCABC or any of their Subsidiaries from engaging in any activity in which they are currently engaged or from acquiring an interest in Galaxy Latin America. The parties hereto expressly acknowledge and agree that nothing in this Agreement or any other agreement entered into in connection with the Investor Entities' purchase of Shares (this Agreement and such other agreements collectively, "Excluded Agreements") shall be deemed to apply to any entity controlling CCABC. In particular, but without limiting the foregoing, the parties expressly acknowledge and agree that a transaction is pending between CCABC and The Walt Disney Company ("Disney") and, should such transaction be consummated, no provision of any Excluded Agreement shall apply to Disney or any of its Subsidiaries, other than CCABC and its Subsidiaries. However, if Disney or any of its Subsidiaries transfers any of its business operations to a CCABC Subsidiary after the consummation of the pending transaction, the provisions of the Excluded Agreements shall not apply to any such CCABC Subsidiary. Similarly, the provisions of the Excluded Agreements shall not apply to Disney and its Subsidiaries notwithstanding any transfers of businesses from CCABC and its Subsidiaries to Disney and its Subsidiaries. Further, the parties expressly acknowledge and agree that ESPN, Inc. (and/or affiliates thereof) are currently parties to various agreements with the Company (and/or Affiliates thereof) relating to the establishment and management of the ESPN Brazil programming service (the "ESPN Brazil Agreements") and that the ESPN Brazil Agreements shall not be subject to, or 82 affected in any way by, any term of any Excluded Agreement and that, if any conflict exists between any ESPN Brazil Agreement and any Excluded Agreement, the terms of such ESPN Brazil Agreement shall govern. In addition, the parties expressly acknowledge and agree that no provisions of any Excluded Agreement shall apply to the activities of the following persons, except for activities not within the ordinary course of business of such persons as determined in good faith by the governing bodies of such persons: The A&E Television Networks, Lifetime and ESPN, Inc. 19.8 Transferees of Shares of Falcon and its Affiliates shall acquire the rights of Falcon and its Affiliates set out in Clauses 19.5 and 19.6 above, and shall become bound by the same obligations as Falcon and its Affiliates set out in Clauses 19.3 and 19.4 above, provided such transferees (together with their Affiliates) acquire, from time to time, and continue to hold, no less than 5% (five percent) of the voting Shares of the Company. Transferees of Shares of the Investor Entities and their Affiliates shall acquire the rights of the Investor Entities and their Affiliates set out in Clauses 19.5 and 19.6 above, and shall become bound by the same obligations as the Investor Entities and their Affiliates set out in Clause 19.7 above, provided such transferees (together with their Affiliates) acquire, from time to time, and continue to hold, no less than 5% (five percent) of the issued and outstanding voting Shares of the Company. No other rights or obligations of any other party under this Clause 19 shall be transferable. Clause 20. CONFIDENTIALITY Each of the Stockholders and the Company agrees that it will not, without the mutual agreement of all parties to this Agreement, disclose to any third party any information reasonably designated by the Company as confidential and obtained in connection with this Agreement, except to the extent that: (i) such disclosure is required by applicable law, regulation or legal process; (ii) such information becomes publicly known other than as a result of any breach by any of the parties hereto of its obligations set forth in this Clause 20; (iii) such disclosure is requested or required by any bank or other regulatory authority having jurisdiction over such party hereto; (iv) such disclosure is to such Stockholder's Affiliates or to the officers, directors, employees, auditors and professional advisors of such Stockholder and its Affiliates who, in each case, have a need to know such information; or (v) such disclosure is to such Stockholder's partners (or stockholders that are not Affiliates of such Stockholder) or, if required to obtain credit or pursuant to an executed credit agreement or similar document, to any financial institution lender to such Stockholder or its Affiliates or, in the case of Falcon, to the owners from time to time of any equity interest in Falcon Parent (each such person to whom a Stockholder is permitted to disclose such confidential 83 information under this subclause (vi) above being referred to as a "Permitted Disclosee"); provided, however, that to the extent a Stockholder discloses such confidential information to a Permitted Disclosee and such Permitted Disclosee discloses such confidential information otherwise than as permitted by this Clause 20, such Stockholder shall be responsible for such disclosure as if it had itself breached this Clause 20 and shall be liable to the Company for any damage arising from such wrongful disclosure. Clause 21. DURATION OF THE AGREEMENT 21.1 This Agreement shall take effect as of the date hereof and shall remain in effect for a period of 25 (twenty-five) years from such date. 21.2 In the event that no Stockholder informs to the others upon written notice of its lack of interest in extending this Agreement beyond such initial term of 25 (twenty-five) years or any subsequent term, at least 4 (four) months in advance, this Agreement shall continually extend for successive two year periods. Clause 22. MISCELLANEOUS PROVISIONS 22.1 This Agreement is irrevocable and shall be binding on the Stockholders and the Company and their heirs and successors and assigns for all purposes. The Company, the Stockholders and their heirs or successors or assigns shall fully comply with the obligations undertaken herein, including, without limitation, voting their respective Shares in strict compliance with provisions herein. The parties hereto are aware that their respective obligations as set out herein are subject to specific enforcement, pursuant to applicable law. 22.2 All notifications, communications and notices required or permitted pursuant to this Agreement shall be effected in writing and delivered to each party through facsimile, telex or registered letter, return receipt requested, as follows: If to Mr. Civita: Av. Otaviano Alves de Lima, 4400 02901-000 (Freguesia do O) Sao Paulo, SP Fax: (011) 875-9456 84 If to Abrilcap: Av. Otaviano Alves de Lima, 4400 02901-000 (Freguesia do O) Sao Paulo, SP Fax: (011) 875-9456 Attn: Mr. Jose Augusto Pinto Moreira If to Harpia or Curupira: c/o Chase Manhattan Overseas Banking Corporation 802 Delaware Avenue - 13th Floor Wilmington, Delaware 19801 - U.S.A. Fax: (302) 429-0456 Attn: Mr. Warren Leonard with a copy to: The Chase Manhattan Bank, N.A. Media and Telecommunications One Chase Manhattan Plaza, 4th Floor New York, New York 10081 - U.S.A. Fax: (212) 552-0259 Attn: Mr. Fernando J. Viana If to Falcon: c/o Hellman & Friedman Capital Partners III, L.P. One Maritime Plaza, 12th Floor San Francisco, California 94111 - U.S.A. Fax: (415) 788-0176 Attn: Mr. Joseph Niehaus 85 with a copy to Falcon International Communications LLC 10900 Wilshire Boulevard Los Angeles, California 90024 - U.S.A. Fax: (310) 824-4824 Attn: Mr. Stanley Iskowitch If to the Company: Av. Otaviano Alves de Lima, 4400 02901-000 (Freguesia do O) Sao Paulo, SP Telex: (011) 22115 Fax: (011) 875-9456 Attn: Mr. Jose Augusto Pinto Moreira If to the Investor Entities: The Hearst Corporation 959 8th Avenue New York, New York 10019 Attention: Victor F. Ganzi, Esq. Fax: (212) 246-3630 Attn: Mr. Ray Joslin Fax: (212) 245-2306 Capital Cities/ABC, Inc. 77 West 66th Street New York, New York 10023 Attn: Larry M. Loeb, Esq. Fax: (212) 456-6565 with copies to: Capital Cities/ABC, Inc. 77 West 66th Street New York, New York 10023 Attn: Jerry Sullivan Fax: (212) 456-7570 86 22.3 Clause Headings and other headings herein contained are simply for reference purposes, and shall not affect the meaning or construction thereof. 22.4 Except for the Option Agreement, the Abril Agreement and the two letter agreements dated of even date herewith among the parties hereto, this Stockholders Agreement constitutes the entire agreement among the parties hereto respecting the matters described herein and supersedes all prior agreements and undertakings, oral or written, among the parties hereto with respect to the subject matter hereof. 22.5 No amendment to this Agreement shall be valid unless it is made in writing and signed by all parties hereto. 22.6 No term or toleration granted by any of the parties to the others, in relation to the terms of this Agreement, shall affect in any way this Agreement or any of the rights and obligations of the parties, except in strict compliance with the terms of the granted toleration. 22.7 This Agreement shall be filed at the Company's head office pursuant to and for the purposes of Article 118 of Law No. 6.404, of 12.15.76. the Company's Registered Share Registrar, on the margin of the Share registration, and the certificates representing the Shares, if issued, shall bear the following text: "The voting and transfer rights inherent to the shares of stock represented by this Certificate (or registry), including the creation of any lien for any purpose, is bound and subject to the Stockholders Agreement dated December 6, 1995." 22.8 This Agreement shall be governed and construed in accordance with the laws of the Federative Republic of Brazil. 22.9 Each of the parties hereto irrevocably agrees that any action or proceeding against it arising out of this Agreement may be brought (i) in a New York State Court sitting in the City of New York, or the United States District Court for the Southern District of New York (or, if such courts do not have subject matter jurisdiction over such dispute, in any other state or federal court located in the State of New York), preserving, however, all rights of removal to a federal court under 28 U.S.C. Section 1441 or (ii) the Courts of the City of Sao Paulo, State of Sao Paulo. The foregoing submission to jurisdiction shall be deemed non-exclusive and shall not prevent any party from instituting any action or proceeding in any other court of competent Jurisdiction. Until this Agreement shall have terminated: (i) each of the Company, Mr. Civita and Abrilcap does hereby irrevocably designate, appoint and empower CT Corporation System, with offices currently at 1633 Broadway, New York, NY 10019, as its lawful agent to 87 receive for and on its behalf service of process in the State of New York in any such proceedings; (ii) each of Harpia and Curupira does hereby irrevocably designate, appoint and empower The Chase Manhattan Bank, N.A., or any successor thereto, with offices currently at 1 Chase Manhattan Plaza, New York, NY 10081, Attention: Fernando Viana, 4th Floor, as its lawful agent to receive for and on its behalf service of process in the State of New York in any such proceedings; (iii) Falcon does hereby irrevocably designate, appoint and empower CT Corporation System, with offices currently at 1633 Broadway, New York, NY 10019, as its lawful agent to receive for and on its behalf service of process in the State of New York in any such proceedings; (iii) Hearst/ABC Limitada does hereby irrevocably designate, appoint and empower The Hearst Corporation, with offices currently at 959 Eighth Avenue, New York, New York 10019, Attention: General Counsel, as its lawful agent to receive for and on its behalf service of process in the State of New York in any such proceedings, (iii) any service made on such agent or its successor shall be effective when delivered regardless of whether notice thereof is given to the affected party hereto; (iv) if any person designated as an agent under this Clause 22.9 shall cease to be located in the State of New York or shall no longer serve as agent of a party hereto to receive service of process in the State of New York, the party so affected shall be obligated to ensure that an agent or successor agent is appointed and each of the other parties is notified of the same in writing, service upon the last designated agent shall be good and effective; (v) the foregoing provisions hereof shall not affect or limit the right of any party to, or prevent any party from, serving process in any other manner permitted by applicable law; and (vi) the Company and those Stockholders who have designated, appointed and empowered CT Corporation System to act as its agent as described above shall promptly (but in no event later than sixty (60) days from the date hereof) deliver to the other Stockholders written confirmation from CT Corporation System accepting such designation, appointment and empowerment. 88 IN WITNESS WHEREOF, the parties herein have executed this instrument in five identical counterpart originals of equal content in the presence of the two undersigned witnesses. ___________________________________ HARPIA HOLDINGS LIMITED ___________________________________ CURUPIRA HOLDINGS LIMITED ___________________________________ ROBERT CIVITA ___________________________________ ABRILCAP COMERCIO E PARTICIPACOES LTDA. ___________________________________ TEVECAP S.A. ___________________________________ FALCON INTERNATIONAL COMMUNICATIONS LTD. HEARST/ABC VIDEO SERVICES II By: Hearst Brazil, Inc., its partner ___________________________________ By: Brazil Cable Investments, Inc., its partner ___________________________________ TVA PARTICIPACOES LTDA. By: Hearst Brazil, Inc., its partner ___________________________________ By: Brazil Cable Investments, Inc., its partner ___________________________________ 89 WITNESSES: 1.____________________ 2.____________________ FIRST AMENDMENT This private instrument is executed on February 12, 1996, as a first amendment to Tevecap S.A/'s Shareholders Agreement dated December 6, 1995 and ratified on December 7, 1995, between Tevecap S.A., Robert Civita, Abrilcap Comercio e Participacoes Ltda., Harpia Holdings Limited, Curupira Holdings Limited, Falcon International Communications Ltd., Hearst/ABC Video Services II, and TVA Participacoes Ltda., all of whose particulars are duly set forth in said shareholders agreement (hereinafter simply called "Shareholders Agreement") The parties hereto are parties to a private instrument of waiver and agreement, dated February 12, 1996. The parties have mutually agreed to amend, as indeed they have amended, the Shareholders Agreement, under the following terms, to wit: 1. Capitalized terms used in this instrument, the definitions of which have not been specifically given, shall have the same meaning given to them in the Shareholders Agreement. 2. The parties hereby agree to amend the Shareholders Agreement as follows: 2.1. As of the execution of this instrument and thereafter, the term "Falcon" will mean Falcon International Communications (Bermuda), L.P., in view of the fact that this company shall replace Falcon International Communications Ltd. in the Shareholders Agreement and will undertake and succeed all the obligations, duties and rights of Falcon International Communications Ltd. arising from the Shareholders Agreement. 2.2. (a) Clause 1 of the Shareholders agreement is hereby rectified in order to include the following definition: "Falcon LLC" refers to Falcon International Communications LLC. (b) Clause 1 of the Shareholders Agreement is hereby rectified in order to exclude in their entirety the definitions of "Institutional Investor" and "Controlling Shareholding Corporation" and replace them by": "Institutional Investor" means an institutional or financial investor (such as a risk capital corporation or a risk capital investment fund, pension plan institution, financial or governmental or similar institutions) which acquires or holds shares in Falcon, Falcon LLC or the Falcon Controller (or any Affiliate of Falcon which is then a Shareholder) mainly for investment purposes: "Controlling Shareholding Corporation" means, as regards the Shareholder, any person with (a) directly or indirectly, through one or more subsidiaries, holds or controls the majority of the voting capital stock or equivalent control of said Shareholder or is entitled to control said Shareholder's management and (b) 50% or more of the market value of such person's Fixed Assets consist, directly or through one or more subsidiaries, of Shares held by said Shareholder or any other Shareholder of which said person is a Controlling Shareholding Corporation; provided that (i) neither Falcon LLC nor the Falcon Controller are deemed as a Controlling Shareholding Corporation of Falcon after the Financing Date if, on such date, US$50,000,000 means less than half of the total capital commitments (including contributions made previously) undertaken by the Investors of the Falcon Controller in the Falcon Controller; provided that, if after the Financing Date, Falcon LLC holds, directly or indirectly, more than twenty percent (20%) of shares owned by Falcon (or any other Falcon Affiliate is then a Shareholder), then, in such an event, Falcon LLC will be deemed a Controlling Shareholding Corporation of said Shareholder, should 50% or more of the market value of Falcon LLC's Fixed Assets consist of, whether directly or indirectly through one or more subsidiaries, Shares held by said Shareholder; and (ii) in no event, an investor in the Falcon Controller or other holder of shares in Falcon LLC or in the Falcon Controller (or, as regards such Investor of the Falcon Controller or other holder of shares, any person described in clause (a) of this definition) is or is deemed to be a Controlling Shareholding Corporation. 2.3. In Clause 4.8(i) of the Shareholders Agreement, a letter (f) shall be included with the following wording, to wit: "(f) in the event Falcon, Falcon LLC and the Falcon Controller (or their Affiliates), to the extent that Falcon LLC and the Falcon Controller (or their Affiliates) otherwise organize an Affiliate, under this Instrument; provided that for the purposes of this Clause 4.8(i)(f), in the determination by said parties of the organization of an Affiliate, such parties, together with their Affiliates, may be considered severally or jointly, as regards the decision for such determination; to exemplify the above, if one party is the main partner of one corporation and the other party is the limited liability partner and holds the majority of the economic interest in said corporation, said entities may be considered jointly as -2- regards the determination as said parties being Affiliates, pursuant to this Instrument," 2.4. Clause 7.1 of the Shareholders Agreement is hereby rectified to amend the definition of "Falcon Controller" from "Falcon International Communications LLC" to "Falcon International Communications L.P." 2.5. Clause 10.10 of the Shareholders Agreement shall henceforth be worded as follows, to wit: 10.10(i) Provided that pursuant to Clause 10.10(ii) below, as long as Falcon or any of its Affiliates is a Shareholder, in the event that (a) after the Initial Organization Date, as defined in the Private Instrument of Waiver and Agreement (the "Financing Date"), at least one among the entities, Falcon LLC, Falcon Controller or an Affiliate thereof is not a Controlling Shareholder of any Falcon Entities or Falcon Affiliates, Falcon LLC or the Falcon Controller which is then a Shareholder, or (b) interest in equity in Falcon or in any Falcon Affiliate, Falcon LLC or the Falcon Controller which is then a Shareholder (or in any Controlling Shareholding Corporation of Falcon or its Affiliates) is sold or transferred to persons others than Institutional Investors (or individuals performing services as employees and consultants for Falcon, Falcon LLC or the Falcon Controller or their Affiliates or to a fund in their own benefit), then (i) unless all the interests in equity which are transferred and which result in the Purchase Option provided in this Clause 10.10 have been offered in accordance with the procedure provided in Clause 4 above (although neither Falcon nor Falcon LLC, nor the Falcon Controller are bound to offer such interest in equity, pursuant to said clause, but might decide to do so), each one among the Buyer in the Purchase Option, the H/C Entities and the Investor Entities will have a Purchase Option as regards all of the Shares held by Falcon or its Affiliates. Such Purchase Option may be exercised for six months as of the determination by the Buyer in the Purchase Option, the H/C Entities or the Investor Entities of such an event and otherwise in accordance with provisions in this Clause 10 (except that (a) the Purchase Option Price for the purpose of this Clause 10.10 will be the one corresponding to the calculation of the price of the Shares, using the market value of the Corporation and its subsidiaries, in accordance with the provisions of Clause 6.3(a) only and including the last paragraph of Clause 6.3 and (b) both the Buyer in the Purchase Option, the H/C Entities or the Investor Entities may start said Purchase Option by delivering a Purchase Option Notice) and (ii) regardless of such interest in equity being or not offered pursuant to the procedures set forth in Clause 4 or the Purchase Option being or not exercised, Falcon and any of its Affiliates (1) will immediately lose all the rights awarded by this Agreement to Falcon and its Affiliates, -3- which would not have been transferable with the Shares held by Falcon or its Affiliates, and they shall immediately cease to be liable for the commitments undertaken in this Agreement which would not have been transferable with the Shares held by them (including the liabilities in connection with the Falcon Purchase Option), in each case as if the transfer of such Shares had been made by Falcon or its Affiliates and (2) will immediately lose all the rights to indemnity under Clause 7.3(a) and (b) of the Old Share Purchase Agreement and Clause 6.3 of the Share Purchase Agreement which are not related to indemnity claims which are then pending, and at the time of such loss, the Shares held by Falcon mad its Affiliates will no longer be subject to the Falcon Purchase Option. (ii) Notwithstanding the provisions of Clause 10.10(i) above, the other shareholders mentioned in Clause 10.10 (i) above will not have the right established in said Clause (and neither Falcon nor any of its Affiliates which are then Shareholders will lose any of the rights set forth in said Clause) as regards any of the following sales, transfers or assignments of interest in equity (a) in connection with a Public Offer of interests in Falcon, Falcon LLC or the Falcon Controller, provided Falcon LLC, any Investor of the Falcon Controller, any initial share investor in Falcon LLC, or a combination of such entities, remains under the control of Falcon, Falcon LLC and/or the Falcon Controller, according to the case, after said Public Offer; (b) in Falcon LLC or the Falcon Controller, made after the Financing Date; provided that should Falcon LLC be a Controlling Shareholding Corporation at the time of such sale, transfer or assignment, Clause 10.10(i) will be applicable to such sale, transfer or assignment, unless another exception, pursuant to this clause 10.10 (ii) is applicable; (c) in Falcon or in a Falcon Controlling Shareholding Corporation, provided that after such transfer or assignment, not more than 25% of the entire interest in equity in Falcon or in said Controlling Shareholding Corporation is held by persons which are not Falcon LLC (or its Affiliate), the Falcon Controller (or its Affiliate), Institutional Investors, or individuals or plans mentioned above, or (d) in Falcon, any Falcon Affiliate or any Shareholder in which Falcon or its Affiliates hold any equity, for an Affiliate. 3. This instrument of amendment will be immediately enforced after the occurrence of the following events: (i) execution of this instrument by all the above named parties; and (ii) a notice sent by Falcon as regards the perfection of the transfer of Falcon International Communications Ltd.'s shares to Falcon International Communications (Bermuda), L.P. 4. All other clauses of the Shareholders Agreement which have not been expressly amended by this instrument shall remain in full force. -4- IN WITNESS WHEREOF, the parties have executed this instrument in five (5) counterparts, before the undersigned witnesses. HARPIA HOLDINGS LIMITED CURUPIRA HOLDINGS LIMITED ROBERT CIVITA ABRILCAP COMERCIO E PARTICIPACOES LTDA. TEVECAP S.A. FALCON INTERNATIONAL COMMUNICATIONS LTD. FALCON INTERNATIONAL COMMUNICATIONS (BERMUDA), L.P. HEARST/ABC VIDEO SERVICES II By Hearst Brazil, Inc., its partner By Brazil Cable Investments, Inc. its partner TVA PARTICIPACOES LTDA. By Hearst Brazil, Inc., its partner By Brazil Cable Investments, Inc., its partner Witnesses: 1. 2. AMENDMENT NO. 2 TO THE STOCKHOLDERS AGREEMENT This Amendment No. 2, dated as of October 15, 1996 ("Amendment No. 2"), to the Stockholders Agreement dated as of December 6, 1995, as amended by Amendment No. 1 dated as of February 12, 1996 (as so amended, the "Stockholders Agreement"), is made by and among: 1. TEVECAP S.A., a corporation organized under the laws of the Federative Republic of Brazil, with its principal place of business in Sao Paulo, SP, Brazil, at Rua do Rocio 313, Cj. 101 (parte) CGC MF Nr. 57.574.170/0001-05 (the "Company"); 2. Mr. Robert Civita, a Brazilian citizen, married, editor, bearer of the ID Card Nr. 1.666.785 and CPF Nr. 006.890.178-04, domiciled in Sao Paulo, SP, Brazil, at Rua Escocia, 253, apt. 11, Brazil ("Mr. Civita"); 3. ABRIL S.A., a corporation organized under the laws of the Federative Republic of Brazil, with its principal place of business in Sao Paulo, SP, Brazil, at Av. Otaviano Alves de Lima 4400, Sao Paulo, Brazil, CGC/MF Nr. 44.597.052/0001-62 ("Abril") (as successor in interest to Abrilcap Comercio e Participacoes Ltda.); 4. HARPIA HOLDINGS LIMITED, a company duly organized and validly existing in accordance with laws of the Cayman Islands, having its registered office at c/o Maples & Calder, Attorneys-at-Law, P.O. Box 309, George Town, Grand Cayman, Cayman Islands, British West Indies ("Harpia"); 5. CURUPIRA HOLDINGS LIMITED, a company duly organized and validly existing in accordance with the laws of the Cayman Islands, having its registered office at c/o Maples & Calder, Attorneys-at-Law, P.O. Box 309, George Town, Grand Cayman, Cayman Islands, British West Indies ("Curupira"); 6. FALCON INTERNATIONAL COMMUNICATIONS (BERMUDA) L.P., a limited partnership organized and validly existing in accordance with the laws of Bermuda, having its registered office in Bermuda ("Falcon"); 7. HEARST/ABC VIDEO SERVICES II, a general partnership organized under the laws of Delaware, with its principal place of business at 959 Eighth Avenue, New York, NY 10019 ("Hearst/ABC Video"); and 8. CABLE PARTICIPACOES LTDA. (formerly TVA PARTICIPACOES LTDA.), a limited liability company organized under the laws of the Federative Republic of Brazil, with its principal place of business in Sao Paulo, SP, Brazil Rua do Rocio 313, CGC MF Nr. 00921404/0001-18 ("Hearst/ABC Limitada"). WHEREAS, the parties (including their respective nominees) are the holders of 100% of the issued and outstanding capital stock of the Company; WHEREAS, the parties entered into the Stockholders Agreement governing certain of their respective rights and obligations in the Company; WHEREAS, the Company plans to issue high yield senior notes in the United States in the principal amount of $225,000,000 (the "Notes"); WHEREAS, the Notes will be issued under an indenture (the "Indenture") among the Company, the Company's subsidiaries named therein, The Chase Manhattan Bank, as trustee, and Chase Manhattan Trust & Banking Co. (Japan) Ltd., as paying agent; WHEREAS, the Indenture will contain certain covenants relating to the actions and conduct of the Company and the Company's subsidiaries; WHEREAS, to provide for the issuance of the Notes, the undersigned parties have agreed to amend the Stockholders Agreement in accordance with the terms hereof. NOW THEREFORE, the Stockholders, having resolved to amend the Stockholders Agreement in accordance with the requirements of Article 118 of Law No. 6.404, of December 15, 1976, other applicable legislation and the following terms and conditions, hereby agree to amend the Stockholders Agreement as follows: 1. The following definitions shall be added to Section 1 of the Stockholders Agreement: "Indenture" shall mean the Indenture among the Company, the Company's subsidiaries named therein, The Chase Manhattan Bank, as trustee, and Chase Manhattan Trust & Banking Co. (Japan) Ltd., as paying agent, to be entered into in connection with the issuance of the Notes. "Notes" shall mean $225,000,000 aggregate principal amount of senior notes due 2004 to be issued by the Company pursuant to the Indenture. 2. Each of Sections 6.1, 7.1(i) and 7A.1 shall be deleted and replaced by the following: 6.1 So long as the Shares owned by the HC Entities are not publicly registered, listed or traded (other than pursuant to (x) a registration initiated by the Company pursuant to Clause 13.1(ii) hereof to satisfy its indemnification obligations as described therein, (y) a registration initiated pursuant to Clause 18.1 hereof or (z) the exercise of its piggyback registration rights pursuant to Clause 18.2 hereof) and Harpia or Curupira and their Affiliates, considered together, at such time hold at least five percent (5%) of the Company's voting Shares, or any other Stockholder or group of Stockholders that are Affiliates (other than Mr. Civita, Abril and any Affiliates thereof) which have received, by transfer from Harpia, Curupira or any Affiliate thereof, and at such time hold, at least five percent (5%) of the Company's voting Shares, then upon the occurrence of an HC Triggering Event (as defined in Clause 6.2 below) , and during the continuance thereof as described in the last paragraph of Clause 6.2 below, Harpia, Curupira, and their Affiliates, or such other Stockholder or -2- Stockholders, as the case may be (the "HC Put Party"), shall be entitled to demand that the Company buy, in whole or in part, the Shares subscribed for by Harpia or Curupira pursuant to the Subscription Agreement then held by the HC Put Party (the Shares designated as being subject to such exercise of the HC Put Option are referred to as the "HC Put Shares") at the Event Put Price (as defined below), on the terms and conditions set forth in this Clause 6 (the "HC Put Option"); provided, however, that if the terms of the Indenture set forth in the Section entitled "Limitation on Restricted Payments," prohibit the Company from purchasing the HC Put Shares, in whole or in part, the Company shall not be obligated to purchase the HC Put Shares to the extent it is so restricted, but the Company shall have the obligation, if so elected by the HC Put Party as the Event Put Party as provided for in Clause 9.3 hereof, to issue the Special Preferred Shares pursuant to Clause 9.3 hereof; provided further, however, that the Company shall purchase the HC Put Shares for cash: (i) if such purchase is not restricted by the terms of the Indenture, (ii) to the fullest extent permitted under the terms of the Indenture and (iii) as soon as such purchase is not restricted by the terms of the Indenture. The rights of any HC Put Party under this Clause 6 are in addition to any other rights, remedies or actions which may be available to it hereunder, under any other agreement or by operation of law, except that the HC Put Option shall not be exercisable with respect to any HC Triggering Event (as defined below) for which Harpia, Curupira and their Affiliates shall have received indemnification in full for all amounts claimed and owing under Clause 7.3(a) or (b) of the Old Stock Agreement and, to the extent applicable, Sections 6.3(h) and (i) of the Stock Purchase Agreement. 7.1(i) Unless (a) the Shares owned by Falcon or its Affiliates shall have been publicly registered, listed or traded (other than pursuant to: (x) a registration initiated by the Company pursuant to Clause 13.1(ii) hereof to satisfy its indemnification obligations as described therein, (y) (1) with respect to a Falcon Time Put Option, a registration initiated by a Stockholder other than Falcon or its Affiliates pursuant to Clause 18.1 hereof and (2) with respect to a Falcon Event Put Option, a registration initiated pursuant to Clause 18.1 hereof or (z) the exercise of its piggyback registration rights pursuant to Clause 18.2 hereof), (b) at the time of the exercise of the Falcon Put Option both (1) at least 50% of the initial aggregate ownership interests of the initial equity holders (the "Falcon Parent Investors") of Falcon International Communications L.P. ("Falcon Parent") (such initial ownership interests and initial equity holders calculated after Falcon Parent shall have been fully organized and the initial issuance of ownership interests to investors other than Hellman & Friedman Capital Partners III, L.P. ("Hellman & Friedman") and/or entities related thereto shall have been completed) shall then have become publicly registered, listed or traded -3- and shall be freely tradable without any restrictions imposed by applicable securities laws, and (2) at least 50% of all of the ownership interests of Falcon Parent shall then have become publicly traded or (c) Falcon together with its Affiliates at such time collectively hold less than 5% (five percent) of the Company's voting Shares, then upon the occurrence of a Falcon Triggering Event (as defined below in Clause 7.2) and during the continuance thereof as described in the last paragraph of Clause 7.2 below, Falcon and its Affiliates shall be entitled to demand that the Company buy: (A) in the case of a Falcon Triggering Event referred to in Clause 7.2(i) below, all but not less than all of the Shares acquired by Falcon pursuant to the Old Stock Purchase Agreement then held by Falcon and its Affiliates (as used with respect to the Falcon Time Put Option, the "Falcon Put Shares") at the Time Put Price, on the terms and conditions set forth in this Clause 7 and Clause 9 (such option being hereinafter referred to as the "Falcon Time Put Option"), or (B) in the case of all other Falcon Triggering Events, all or a portion of the Shares acquired by Falcon pursuant to the Old Stock Purchase Agreement then held by Falcon and its Affiliates or transferees described in Clause 7.1(ii) below (as used with respect to the Falcon Event Put Option, the number of Shares designated as being subject to such exercise of the Falcon Event Put Option are referred to as the "Falcon Put Shares") at the Event Put Price, on the terms and conditions (including the proviso set forth below) set forth in this Clause 7 and Clause 9 (such option hereinafter referred to as the "Falcon Event Put Option"), except that the Falcon Event Put Option shall not be exercisable with respect to any Falcon Triggering Event for which Falcon and its Affiliates shall have received indemnification in full for all amounts claimed and owing under Section 7.3(a) or (b) of the Old Stock Purchase Agreement and, to the extent applicable, Sections 6.3 (h) and (i) of the Stock Purchase Agreement; provided, however, that if the terms of the Indenture set forth in the Section entitled "Limitation of Restricted Payments," thereof prohibit the Company from purchasing the Falcon Put Shares that are subject to a Falcon Event Put Option, in whole or in part, the Company shall not be obligated to purchase the Falcon Put Shares to the extent it is so restricted, but the Company shall have the obligation, if so elected by Falcon as the Event Put Party as provided for in Clause 9.3 hereof, to issue the Special Preferred Shares pursuant to Clause 9.3 hereof; provided further, however, that the Company shall purchase the Falcon Put Shares for cash: (i) if such purchase is not restricted by the terms of the Indenture, (ii) to the fullest extent permitted under the -4- terms of the Indenture and (iii) as soon as such purchase is not restricted by the terms of the Indenture. Falcon hereby agrees, promptly after completion of the initial issuance of ownership interests in Falcon Parent to investors other than Hellman & Friedman and/or entities related thereto, to provide the Board with a list of the Falcon Parent Investors. 7A.1 So long as the Shares owned by the Investor Entities are not publicly registered, listed or traded (other than pursuant to: (x) a registration initiated by the Company pursuant to Clause 13.1(ii) hereof to satisfy its indemnification obligations as described therein, (y) a registration initiated pursuant to Clause 18.1 hereof or (z) the exercise of its piggyback registration rights pursuant to Clause 18.2 hereof) and the Investor Entities and their Affiliates, considered together, at such time hold at least 5% (five percent) of the Company's voting shares, or any other Stockholder or group of Stockholders that are Affiliates (other than Mr. Civita, Abril and any Affiliates thereof) which have received, by transfer from the Investor Entities or any Affiliate thereof, and at such time hold at least 5% (five percent) of the Company's voting Shares, then upon the occurrence of an Investor Triggering Event (as defined in Clause 7A.2 below), and during the continuance thereof as described in the last paragraph of Clause 7A.2 below, the Investor Entities and their Affiliates, or such other Stockholder or Stockholders, as the case may be (the "Investor Put Party"), shall be entitled to demand that the Company buy, in whole or in part, the Shares purchased by the Investor Entities pursuant to the Stock Purchase Agreement or the stock purchase agreement among Hearst Limitada, Harpia and Curupira (the "HC Stock Purchase Agreement") then held by the Investor Put Party (the number of Shares designated as being subject to such exercise of Put Option are referred to as the "Investor Put Shares"), at the Event Put Price, on the terms and conditions set forth in this Clause 7A (the "Investor Put Option"); provided, however that if the terms of the Indenture set forth in the Section entitled "Limitation of Restricted Payments," thereof prohibit the Company from purchasing the Investor Put Shares, in whole or in part, the Company shall not be obligated to purchase the Investor Put Shares to the extent it is so restricted, but the Company shall have the obligation, if so elected by the Investor Entities as the Event Put Party as provided for in Clause 9.3 hereof, to issue the Special Preferred Shares pursuant to Clause 9.3 hereof; provided further, however, that the Company shall purchase the Investor Put Shares for cash: (i) if such purchase is not restricted by the terms of the Indenture, (ii) to the fullest extent permitted under the terms of the Indenture and (iii) as soon as such payment is not restricted by the terms of the Indenture. The rights of any Investor Put Party under this Clause 7A are in addition to any other rights, remedies or actions which may be available to it hereunder, under any other agreement or by operation of law, except that the Investor Put Option shall not be exercisable with respect to any Investor Triggering Event for which the Investor Entities and their Affiliates shall have received -5- indemnification in full for all amounts claimed and owing under Clause 6.3(a) or (b) of the Stock Purchase Agreement. 3. Each of Sections 9.1, 9.2, 9.3, 9.5, 9.6 and 9.7 shall be deleted and replaced by the following: 9.1 In the event that on the Date of the HC Put Payment, the Date of the Investor Put Payment, or the Date of the Falcon Put Payment with respect to any Falcon Event Put Option, as the case may be (the "Date of the Event Put Payment"), by reason of inadequate retained earnings or reserves pursuant to Article 30 of Law No. 6.404/76 or by reason of a restriction set forth in the Indenture in the Section entitled "Limitation on Restricted Payments", the Company is unable to purchase the Shares subject to the HC Put Option, the Investor Put Option or the Falcon Event Put Option, as the case may be (the "Event Put"), in whole or in part, and in the event that the HC Put Party, the Investor Put Party or the Falcon Put Party, as the case may (the "Event Put Party"), does not expressly further waive its Event Put (provided that any such waiver shall be without prejudice to the right of the Event Put Party to reinstate such Event Put Option in accordance with Clause 6, 7 or 7A above, as applicable), the Company shall establish, in writing, the amount in U.S. Dollars corresponding to the Event Put Price of Shares not acquired on the Date of the Event Put Payment as verified pursuant to Clause 6, 7 or 7A above, which shall not be subject to any variation (except foreign exchange variation), irrespective of the Company's operating results or the value of the Shares after the Date of the Event Put Payment, and the closing date of the Event Put with respect to such remaining Shares shall be extended pursuant to this Clause ("Put Postponement"). This Clause 9.1 shall not limit or be interpreted as further limiting the Company's obligation (subject to the terms hereof), under the Event Put to buy the maximum possible amount of Shares, including on the Date of the Event Put Payment. 9.2 In the event of a Put Postponement, the Company shall continue to use its best efforts to increase its ability, to legally purchase the remaining Shares subject to the Event Put, pursuant to its terms, and in each case subject to the restrictions set forth in the Indenture in the Section entitled "Limitation on Restricted Payments" and the Section entitled "Limitation on Indebtedness" for so long as the Notes are outstanding, by obtaining credit and/or the necessary consent of its creditors other than the holders of the Notes or the trustee under the Indenture, if applicable. The Event Put Price of each Share to be purchased shall be paid to the Event Put Party in Reais Equivalent on the date of such payment. 9.3 Any Shares not purchased by the Company on the Date of the Event Put Payment may be converted by the Event Put Party, at its exclusive discretion, into classes of the Company's Preferred Shares ("Special Preferred Shares") entitled to a minimum fixed and cumulative dividend to be determined on the basis of the aggregate Event Put Price for such unpurchased Shares, multiplied -6- by the one-year LIBOR rate as quoted by the London branch of The Chase Manhattan Bank prevailing on the Date of the Event Put Payment, plus 4% per annum ("Cumulative Dividends"), payable semiannually from the Date of the Event Put Payment through the date such Special Preferred Shares are purchased by the Company pursuant to the Event Put; provided, however, if due to restrictions set forth in the Indenture in the Section entitled "Limitation on Restricted Payments," the Company may not make payment of the Cumulative Dividends at any time, the Company shall not be obligated to make payment of such Cumulative Dividends to the extent restricted by the terms of the Indenture; provided further however that in such event, (i) such dividends shall continue to accumulate; and (ii) the Company shall make payment of such dividends (including any accumulated and unpaid dividends) as soon as permitted by applicable law and as soon as such payment is not restricted by the terms of the Indenture. The Event Put Party shall be entitled to elect, in its sole discretion, to receive shares of voting (the "Preferred Voting Shares") or non-voting Special Preferred Shares, or any combination thereof. For purposes of this Agreement and the Company's By-Laws, the Preferred Voting Shares shall be deemed to be included in the definition of "Shares" and all of the rights of the Stockholders hereunder with respect to the Shares held by them shall continue so long as they hold the Preferred Voting Shares. 9.4 The Stockholders undertake to exercise the voting rights of their Shares in order to amend the Company's By-Laws so as to create the Special Preferred Shares whenever so required according to provisions set forth herein. 9.5 In addition to the Cumulative Dividends, the Special Preferred Shares shall be entitled to any minimum dividend required by law to be paid by the Company ("Mandatory Dividend"), provided, however, if due to restrictions set forth in the Indenture in the Section entitled "Limitation on Restricted Payments," and in accordance with the waiver set forth in Clause 16.4 hereof, the Company may not make payment of the Mandatory Dividend in cash at any time, the Company shall not be obligated to make payment of such Mandatory Dividend in cash to the extent restricted by the terms of the Indenture; provided further, however, that in such event, (i) such dividends shall continue to accumulate; and (ii) the Company shall make payment of such dividends (including any accumulated and unpaid dividends) as soon as permitted by applicable law and as soon as such payment is not restricted by the terms of the Indenture. 9.6 After the payment of the Cumulative Dividend and of the Mandatory Dividend, any remaining profit or reserve (other than mandatory legal reserves) verified by the Company shall be used to buy the highest possible amount of Shares (including the Special Preferred Shares) subject to the Event Put Option, provided, however, if due to restrictions set forth in the Indenture in the Section entitled "Limitation on Restricted Payments," the Company may not purchase any shares pursuant to this Clause 9.6 at any time, the Company -7- shall not be obligated to make such purchase, provided further, however, that in such event the Company shall make such purchase as soon as permitted by applicable law and as soon as not restricted by the terms of the Indenture. All dividend payments and all other distributions to Stockholders and all redemptions or repurchases of any capital stock from any holder of capital stock in the Company, with the exception of the Cumulative Dividend on Special Preferred Shares then outstanding and of the Mandatory Dividend, are and shall be expressly subject and subordinate to the acquisition of all of the Shares subject to the Event Put in the event they have not been purchased from the Event Put Party. All Cumulative Dividends, and all repurchases of Shares (including the Special Preferred Shares) subject to the Event Put Option, shall be made on a pro-rata basis in favor of all Stockholders that exercised an Event Put simultaneously under Clause 8.1 or 8.2 or 8.3 above; otherwise, the rights of any Event Put Parties under this Clause 9 and under any Special Preferred Shares issued hereunder shall be ranked according to the respective Dates of the Event Put Payment on which such rights arose. 9.7 (i) In the event a Falcon Put Notice in respect of the Falcon Time Put Option has been delivered, and, pursuant to Clause 7.3 and 6.9 above, Falcon has decided to exercise the Falcon Time Put Option, then, during the 30-day period immediately following receipt of the appraiser's notice referred to in Clause 6.7 above (the "Time Put Decision Period"), the Company shall, by action of a majority of the members of its Board not appointed by any Falcon Put Party or its Affiliates, make the following determinations in sequence, promptly (but in any event within the Time Put Decision Period) notify the Falcon Put Parties of such determinations and take the following actions as determined thereby: (a) If the Company, acting in good faith and in a commercially reasonable manner, determines that it has, subject to the restrictions set forth in the Indenture in Section entitled "Limitation on Indebtedness", and subject to the restrictions set forth in the Indenture in the Section entitled, "Limitation on Restricted Payments," cash available which, together with borrowings available to the Company on commercially reasonable terms, is sufficient to pay the entire Time Put Price, then the Company shall pay the Time Put Price to the Falcon Put Parties by 11:30 a.m. on the 90th day after the end of the Time Put Decision Period, in cash in Reais Equivalent on such day of payment, and the Falcon Put Parties shall transfer to the Company all of the Falcon Put Shares free and clear of all liens, claims, charges, restrictions and encumbrances caused by or suffered to exist by any Falcon Put Party or its Affiliates, other than as provided in this Agreement; provided it is understood that the Company shall be subject to an obligation to use its best efforts, subject so long as the Notes are outstanding to the restrictions set forth in the Indenture in the Section entitled "Limitation on Indebtedness," to obtain any necessary borrowings on a commercially reasonable basis to satisfy the Falcon Time Put Option in -8- cash on the Date of the Falcon Put Payment; provided, however, that if on such 90th day, the Company is unable to satisfy the cash payment required hereunder, the provisions of Clause 9.7(ii) shall be applicable; (b) If after use of the efforts described in (a) above the Company determines that such cash and borrowings described in (a) above are not available but instead determines, acting in good faith, in a commercially reasonable manner and, for so long as the Notes are outstanding, subject to the restrictions set forth in the Indenture in the Section entitled "Limitation on Restricted Payments," that it will have cash available which, together with borrowings available to the Company on commercially reasonable terms and, for so long as the Notes are outstanding, in accordance with the restrictions set forth in the Indenture in the Section entitled "Limitation on Indebtedness" will be sufficient to pay the Time Put Price in three installments as described in Clause 9.8 below, then the Company and the Falcon Put Parties shall take the actions described in Clause 9.8 below, it being understood and agreed that the Company shall be subject to an obligation to use its best efforts, subject for so long as the Notes are outstanding to the restrictions set forth in the Indenture in the Section entitled "Limitation on Indebtedness," to obtain any necessary borrowings on a commercially reasonable basis to satisfy all such installments; and (c) if the Company, acting in good faith and in a commercially reasonable manner, determines that such cash and borrowings described in (a) and (b) above are not available, then the Company and the Falcon Put Parties shall take the actions described in Clause 9.9 below. (ii) If, at the end of the 90-day period referred to in Clause 9.7(i)(a), the Company, after having used its best efforts to obtain any necessary borrowings on a commercially reasonable basis and for so long as the Notes are outstanding in accordance with the restrictions set forth in the Indenture in the Section entitled "Limitation on Indebtedness," to satisfy the entire Time Put Price, is unable to pay the entire Time Put Price, the Company shall, on such 90th day, be entitled to and shall elect one of the alternatives set forth in Clause 9.7(i)(b) or (c) above, and in such event the parties shall be governed by the procedures set forth in Clause 9.8 or 9.9 below, as the case may be, depending upon the alternative elected, and the other applicable provisions of this Agreement. 4. The following Clause 9.13 shall be added to the end of Clause 9: 9.13 Notwithstanding the provisions of Clauses 9.8 and 9.10 hereof, each of the parties to the Stockholders Agreement agrees as follows: -9- (i) If as a result of the restrictions set forth in the Indenture in the Section entitled "Limitation on Restricted Payments," the Company is not able to make a cash payment required under Clause 9.8(i) on the first or second anniversary of the Company's receipt of the related Falcon Put Notice, the Company shall not be required to make such payment in cash on such dates, but shall be required to deliver the promissory note or promissory notes referred to in Clause 9.8(ii). The payment required on the third anniversary shall not be subject to any restrictions. (ii) If as a result of the restrictions set forth in the Indenture in the Section entitled "Limitation on Restricted Payments," the Company is not able to make a cash interest payment required under any promissory note or notes issued hereunder, the Company shall not be required to make such cash payment at such time; provided, however, that: (i) any accrued and unpaid interest shall accumulate (and if necessary under applicable law, be added to principal) and interest on such unpaid amount shall be compounded quarterly and shall be paid in accordance with the other provisions of the promissory notes applicable to payment of interest; (ii) the Company shall make such payments of interest as soon as permitted under the terms of the Indenture or as soon as such payment is no longer restricted under the terms of the Indenture; and (iii) all accrued and unpaid interest shall be due and payable on the maturity of the promissory notes and interest shall continue to accrue until payment in full. (iii) Payment of the principal and interest (without restricting interest payments permitted under the terms of the Indenture), on the promissory notes shall be subordinated to the prior payment in full of the Notes, pursuant to language customary in transactions of this nature and consistent with the terms hereof, provided that nothing herein nor in such subordination language shall affect the relative rights against the Company of Falcon and creditors of the Company other than holders of the Notes, or prevent Falcon from exercising all remedies under the notes issued to Falcon pursuant to Clauses 9.8 or 9.9, and otherwise permitted by applicable law, on default under any such notes, subject to the rights, if any, of the holders of the Notes to receive payment in full on the Notes prior to the payment of such principal and interest on such promissory notes issued to Falcon. (iv) In determining the interest rate on the promissory notes under Clause 9.10 (iv)), including without limitation, the spread referred to in Clause 9.10(iv), the subordination of payment to the Notes and the other restrictions imposed pursuant to the Indenture shall be taken into account. (v) Except as expressly limited by the terms of this Stockholders Agreement, as amended, all rights and remedies of Falcon in respect of -10- the Falcon Time Put as set forth in the Stockholders Agreement shall remain unimpaired and unaffected by the Indenture. With respect to any amendment, change or modification to the Indenture or the Notes which requires the consent of the Company the Company shall not provide such consent, unless (i) Falcon, if Falcon, or any Affiliate thereof (other than Mr. Civita, Abril and any Affiliates thereof) continues to own at least 5% (five percent) of the Company's voting Shares, has given prior written consent to such amendment, change or modification and (ii) the Investor Entities, or any Affiliates thereof (other than Mr. Civita, Abril and any Affiliate thereof), continues to own at least 5% (five percent) of the Company's voting Shares have given prior written consent to such amendment, change or modification. The limitations agreed to herein by Falcon and the Investor Entities shall apply only to the Indenture and Notes and no other indebtedness of the Company, including any refinancing, replacement or substitution of the Notes. 5. Section 16.4 of the Stockholders Agreement shall be replaced by the following: 16.4 (A) Unless amended or waived in accordance with Clause 12.3(iii)(c) hereof, during each calendar year or within 3 (three) months thereafter, the Company shall (subject to the other provisions of Section 16.4 below), with respect to its operations for such year, and to the extent it has funds legally available therefor, pay dividends to the holders of its Shares, which dividends shall in the aggregate not be less than the "net cash flow" of the Company and its Subsidiaries during such year, provided that there shall first be made a provision for projected cash requirements of the Company and its Subsidiaries as reflected in the Business Plan for such fiscal year for the subsequent (12) twelve month period. Notwithstanding the foregoing, the Stockholders agree that, except as expressly provided in Clauses 9.3 or 9.5 above or the terms of Clause 16.4(B), the Company shall distribute not less than 25% (twenty-five percent) of its net consolidated profits as defined in the Brazilian corporation law. (B) Notwithstanding the foregoing paragraph, the Company and the Stockholders agree that the Company will distribute dividends in accordance with the foregoing paragraph only if permitted in accordance with the restrictions set forth in the Indenture in the Section entitled "Limitation on Restricted Payments". (C) If distribution of such dividends as contemplated by the first paragraph hereof is restricted by the section of the Indenture entitled "Limitation on Restricted Payments", the Company shall make payment of such dividends (including any accumulated and unpaid dividends) as soon as permitted by applicable law and as soon as such payment is not restricted by the terms of the Indenture. -11- (D) In addition, each Stockholder hereby agrees that it will not exercise its voting rights or rights hereunder to receive dividends required by Brazilian corporate law, provided, however that such agreement shall cease to be effective on the earliest to occur of (x) the date that shares of Stock of the Company are issued on a Brazilian or United States securities exchange in connection with a bona fide public offering of such shares or the date that any shares of the capital stock of the Company are otherwise effectively listed and traded on any Brazilian or United States securities exchange, (y) the date that none of the Notes remain outstanding or (z) the date that such agreement is no longer effective, enforceable or legal under applicable Brazilian laws and regulations (including without limitation any construction or interpretation thereof by Comissao de Valores Mobiliarios, any court or any other governmental authority); provided, further, that such agreement shall not affect the Company's ability to pay, or the Stockholders, right to receive, any other dividends to the extent such dividends are permitted by the Indenture in the Section entitled "Limitation on Restricted Payments." (E) Further, the amount of any dividends required by applicable Brazilian corporate law, which would otherwise have been paid but for the agreement set forth herein shall accumulate and shall be paid by the Company on the earliest to occur of the events described in clauses (x), (y), and (z) above. For the avoidance of doubt, the Stockholders hereby confirm that: E POR ESTAREM ASSIM JUSTAS E CONTRATADAS, as partes, por seus respectivos representantes devidamente autorizados, resolvem assinar este Aditamento na primeira data acima escrita. ___________________________________ HARPIA HOLDINGS LIMITED ___________________________________ CURUPIRA HOLDINGS LIMITED ___________________________________ ROBERT CIVITA ___________________________________ ABRIL S.A. -12- ___________________________________ TEVECAP S.A. ___________________________________ FALCON COMMUNICATIONS (BERMUDA) L.P. ___________________________________ HEARST/ABC VIDEO SERVICES II By: Hearst Brazil, Inc., its partner ___________________________________ By: Brazil Cable Investments, Inc., its partner ___________________________________ CABLE PARTICIPACOES LTDA. By: Hearst Brazil, Inc., its partner ___________________________________ By: Brazil Cable Investments, Inc., its partner -13- EX-21.1 8 EXHIBIT 21.1 (SUBSIDIARIES OF TEVECAP) Exhibit 21.1 LIST OF SUBSIDIARIES OF TEVECAP S.A.(1) Company State of Incorporation - ------- ---------------------- TVA Sistema de Televisao S.A. Brazil TVA Communications, Ltd. British Virgin Islands Galaxy Brasil S.A. Brazil TVA Sul Participacoes S.A. Brazil Commercial Cabo TV Sao Paulo Ltda. Brazil TVA Parana Ltda.(2) Brazil TVA Alpha Cabo Ltda.(2) Brazil CCS Camboriu Cable Systems de Telecommunicacoes Ltda.(2) Brazil TCC TVA Cabo Ltda.(2) Brazil TVA Sul Santa Catarina Ltda.(2) Brazil TVA Foz do Iguacu Ltda.(2) Brazil TVA TCG Sistema TV Brazil TVA Communications Aruba N.V.(3) Aruba T-Cap, Inc. Delaware - ---------- (1) Omits certain entities that are not "significant subsidiaries" as such term is defined in Rule 1-02(w) of Regulation S-X. (2) Interest held through TVA Sul Participacoes S.A. (3) Interest held through TVA Communications Ltd. EX-23.1 9 EXHIBIT 23.1 (CONSENT OF COOPERS & LYBRAND) [COOPERS & LYBRAND LETTERHEAD] Exhibit 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the inclusion in this Registration Statement on Form F-4 (File No. 333-22267) of; (i) our report dated August 23, 1996 (except as to the information presented in Notes 4, 20, 25 and 26, for which the date is February 5, 1997) on our audit of the consolidated financial statements of TEVECAP S.A. and subsidiaries; (ii) our report dated August 23, 1996 on our audit of the financial statements of TVA Sistema de Televisao S.A.; (iii) our report dated August 23, 1996 on our audit of the consolidated financial statements of TVA Sul Participacoes S.A. and subsidiaries; and, (iv) our reports dated March 31, 1997 on our audits of the Statements of Revenues and Direct Operating Expenses of TVA Alfa Cabo Ltda., TCC TV a Cabo Ltda., CCS Camboriu Cable System de Telecommunicacoes Ltda., TVA Sul Foz do Iguacu Ltda., and TVA Sul Santa Catarina Ltda. We also consent to the reference to our Firm under the caption "Experts." /s/ Coopers & Lybrand - ------------------------------ Coopers & Lybrand April 11, 1997 EX-25.1 10 EXHIBIT 25.1 (FORM T-1 TRUST INDENTURE) Exhibit 25.1 Securities Act of 1933 File Number 333-5828 _________________________________________________________________________ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 __________________ FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) / / __________________ THE CHASE MANHATTAN BANK (Exact name of trustee as specified in its charter) 13-4994650 (I.R.S. Employer Identification Number) 270 PARK AVENUE, NEW YORK, NEW YORK (Address of principal executive offices) 10017 (Zip Code) _______________ TEVECAP S.A. (Exact name of obligor as specified in its charter) THE FEDERATIVE REPUBLIC OF BRAZIL NOT APPLICABLE (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) RUA DO ROCIO, 313 SAO PAULO, SP BRAZIL 04552-904 (TELEPHONE 55-11-821-8550) (Address, including zip code, and telephone number, including area code of obligor's principal executive offices) _________________________________________ 12 5/8% SENIOR NOTES DUE 2004 (Title of the securities) _________________________________________________________________________ GENERAL Item 1. General Information. Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. New York State Banking Department, State House, Albany, New York 12110. Board of Governors of the Federal Reserve System, Washington, D.C., 20551 Federal Reserve Bank of New York, District No. 2, 33 Liberty Street, New York, N.Y. Federal Deposit Insurance Corporation, Washington, D.C., 20429. (b) Whether it is authorized to exercise corporate trust powers. Yes. Item 2. Affiliations with the Obligor. If the obligor is an affiliate of the trustee, describe each such affiliation. None. -2- Item 16. List of Exhibits List below all exhibits filed as a part of this Statement of Eligibility. 1. A copy of the Articles of Association of the Trustee as now in effect, including the Organization Certificate and the Certificates of Amendment dated February 17, 1969, August 31, 1977, December 31, 1980, September 9, 1982, February 28, 1985, December 2, 1991 and July 10, 1996 (see Exhibit 1 to Form T-1 filed in connection with Registration Statement No. 333-06249, which is incorporated herein by reference). 2. A copy of the Certificate of Authority of the Trustee to commence business (see Exhibit 2 to Form T-1 filed in connection with Registration Statement No. 33-50010, which is incorporated herein by reference. On July 14, 1996, in connection with the merger of Chemical Bank and The Chase Manhattan Bank (National Association), Chemical Bank, the surviving corporation, was renamed The Chase Manhattan Bank. 3. None, authorization to exercise corporate trust powers being contained in the documents identified above as Exhibits 1 and 2. 4. A copy of the existing by-laws of the Trustee (see Exhibit 4 to Form T-1 filed in connection with Registration Statement No. 333-06249, which is incorporated herein by reference). 5. Not applicable. 6. The consent of the Trustee required by Section 321(b) of the Act (see Exhibit 6 to Form T-1 filed in connection with Registration Statement No. 33-50010, which is incorporated by reference. On July 14, 1996, in connection with the merger of Chemical Bank and The Chase Manhattan Bank (National Association), Chemical Bank, the surviving corporation, was renamed The Chase Manhattan Bank. 7. A copy of the latest report of condition of the Trustee, published pursuant to law or the requirements of its supervising or examining authority. On July 14, 1996, in connection with the merger of Chemical Bank and The Chase Manhattan Bank (National Association), Chemical Bank, the surviving corporation, was renamed The Chase Manhattan Bank. 8. Not applicable. 9. Not applicable. -3- SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939 the Trustee, The Chase Manhattan Bank, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of New York and State of New York, on the ___ day of _________, 1997. THE CHASE MANHATTAN BANK By: Douglas Lavelle Second Vice President -4- Exhibit 7 to Form T-1 Bank Call Notice RESERVE DISTRICT NO. 2 CONSOLIDATED REPORT OF CONDITION OF The Chase Manhattan Bank of 270 Park Avenue, New York, New York 10017 and Foreign and Domestic Subsidiaries, a member of the Federal Reserve System, at the close of business June 30, 1996, in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act. DOLLAR AMOUNTS ASSETS IN MILLIONS Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coin . . . . . . . . . . . . . . . . . . . $ 4,167 Interest-bearing balances . . . . . . . . . . . . . . . 5,094 Securities: . . . . . . . . . . . . . . . . . . . . . . . Held to maturity securities. . . . . . . . . . . . . . . . 3,367 Available for sale securities. . . . . . . . . . . . . . . 27,786 Federal Funds sold and securities purchased under agreements to resell in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBF's: Federal funds sold . . . . . . . . . . . . . . . . . . 7,204 Securities purchased under agreements to resell . . . . 136 Loans and lease financing receivables: Loans and leases, net of unearned income. . . . $67,215 Less: Allowance for loan and lease losses . . . 1,768 Less: Allocated transfer risk reserve . . . . . 75 _________ Loans and leases, net of unearned income, allowance, and reserve . . . . . . . . . . . . . . . . 65,372 Trading Assets . . . . . . . . . . . . . . . . . . . . . . 28,610 Premises and fixed assets (including capitalized leases) . . . . . . . . . . . . . . . . . . . . . . . . 1,326 Other real estate owned . . . . . . . . . . . . . . . . . 26 Investments in unconsolidated subsidiaries and associated companies. . . . . . . . . . . . . . . . . . 68 Customer's liability to this bank on acceptances outstanding . . . . . . . . . . . . . . . . . . . . . . 995 Intangible assets . . . . . . . . . . . . . . . . . . . . 309 Other assets . . . . . . . . . . . . . . . . . . . . . . . 6,993 _________ TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . $151,453 . . . . . . . . . . . . . . . . . . . . . . . . . . . . ========= LIABILITIES Deposits In domestic offices . . . . . . . . . . . . . . . . . . $46,917 Noninterest-bearing . . . . . . . . . . . . . . $16,711 Interest-bearing . . . . . . . . . . . . . . . 30,206 _________ In foreign offices, Edge and Agreement subsidiaries, and IBF's . . . . . . . . . . . . . . . . . . . . . . . 31,577 Noninterest-bearing . . . . . . . . . . . . . . .$ 2,197 Interest-bearing . . . . . . . . . . . . . . . . 29,380 _________ Federal funds purchased and securities sold under agree- ments to repurchase in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBF's Federal funds purchased . . . . . . . . . . . . . . . . 12,155 Securities sold under agreements to repurchase . . . . 8,536 Demand notes issued to the U.S. Treasury . . . . . . . . . 1,000 Trading liabilities . . . . . . . . . . . . . . . . . . . 20,914 Other Borrowed money: With a remaining maturity of one year or less . . . . . 10,018 With a remaining maturity of more than one year . . . . 192 Mortgage indebtedness and obligations under capitalized leases . . . . . . . . . . . . . . . . . . . . . . . . 12 Bank's liability on acceptances executed and outstanding . 1,001 Subordinated notes and debentures . . . . . . . . . . . . 3,411 Other liabilities . . . . . . . . . . . . . . . . . . . . 8,091 TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . 143,824 _________ EQUITY CAPITAL Common stock . . . . . . . . . . . . . . . . . . . . . . . 620 Surplus . . . . . . . . . . . . . . . . . . . . . . . . . 4,664 Undivided profits and capital reserves . . . . . . . . . . 2,970 Net unrealized holding gains (Losses) on available-for-sale securities . . . . . . . . . . . . . (633) Cumulative foreign currency translation adjustments . . . 8 TOTAL EQUITY CAPITAL . . . . . . . . . . . . . . . . . . . 7,629 _________ TOTAL LIABILITIES, LIMITED-LIFE PREFERRED STOCK AND EQUITY CAPITAL . . . . . . . . . . . . . . . $151,453 . . . . . . . . . . . . . . . . . . . . . . . . . . . . ========= I, Joseph L. Sclafani, S.V.P. & Controller of the above-named bank, do hereby declare that this Report of Condition has been prepared in conformance with the instructions issued by the appropriate Federal regulatory authority and is true to the best of my knowledge and belief. JOSEPH L. SCLAFANI We, the undersigned directors, attest to the correctness of this Report of Condition and declare that it has been examined by us, and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the appropriate Federal regulatory authority and is true and correct. WALTER V. SHIPLEY ) EDWARD D. MILLER ) DIRECTORS THOMAS G. LABRECQUE ) EX-99.2 11 EXHIBIT 99.2 (LETTER OF TRANSMITTAL) Exhibit 99.2 LETTER OF TRANSMITTAL FOR TENDERS OF $250,000,000 Aggregate Principal Amount of 125/8% Senior Notes due 2004 TEVECAP S.A. Pursuant to the Prospectus dated ________ __, 1997 of Tevecap S.A. - -------------------------------------------------------------------------------- THE REGISTERED EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON THE EARLIER OF ________ __, 1997 (UNLESS EXTENDED) OR THE DATE ON WHICH 100% OF THE OLD NOTES AND THE SUBSIDIARY GUARANTEES (TOGETHER, THE "OLD SECURITIES") ARE VALIDLY TENDERED AND NOT WITHDRAWN (THE "EXPIRATION DATE"). TENDERED OLD SECURITIES MAY BE WITHDRAWN AT ANY TIME ON OR PRIOR TO THE EXPIRATION DATE OF THE REGISTERED EXCHANGE OFFER. - -------------------------------------------------------------------------------- Deliver to: The Chase Manhattan Bank, Exchange Agent: By Mail, by Overnight Courier or by Hand: The Chase Manhattan Bank 450 West 33rd Street New York, New York 10001 By Facsimile: (212) 946-8177 Delivery of this instrument to an address other than as set forth above, or transmission of instructions via facsimile other than as set forth above, will not constitute a valid delivery. The undersigned (the "Holder") acknowledges that he or she has received the Prospectus, dated ________ __, 1997 (the "Prospectus"), of Tevecap S.A., a Brazilian corporation ("Tevecap"), and this Letter of Transmittal, which may be amended from time to time (this "Letter"), which together constitute Tevecap's offer (the "Registered Exchange Offer") to exchange an aggregate principal amount of up to $250,000,000 of its 125/8% Senior Notes due 2004 (the "Exchange Notes") together with the Subsidiary Guarantees (as defined in the Prospectus and together with the Exchange Notes, the "Exchange Securities") which have been registered under the Securities Act of 1933 (the "Securities Act"), pursuant to a Registration Statement of which the Prospectus constitutes a part, for a like principal amount of the issued and outstanding 125/8% Senior Notes due 2004 (the "Old Notes") of which $250,000,000 aggregate principal amount is outstanding, together with the Subsidiary Guarantees of the Old Notes (such Subsidiary Guarantees with the Old Notes, the "Old Securities"). For each Old Note accepted for exchange, the Holder of such Old Note will receive an Exchange Note having a principal amount equal to that of the surrendered Old Note. The New Notes will bear interest from the most recent date to which interest has been paid on the Old Notes or, if no interest has been paid on the Old Notes, from November 26, 1996. Registered holders of Exchange Notes on the relevant record date for the first interest payment date following the consummation of the Registered Exchange Offer will receive interest accruing from the most recent date to which interest has been paid or, if no interest has been paid, from November 26, 1996. Old Notes accepted for exchange will cease to accrue interest from and after the date of consummation of the Registered Exchange Offer. Holders of Old Notes whose Old Notes are accepted for exchange will not receive any payment in respect of interest on such Old Notes otherwise payable on any interest payment date the record date for which occurs on or after consummation of the Registered Exchange Offer. This Letter is to be used: (i) by all Holders who are not members of the Automated Tender Offering Program ("ATOP") at the Depository Trust Company ("DTC"), (ii) by Holders who are ATOP members but choose not to use ATOP or (iii) if the Old Securities are to be tendered in accordance with the guaranteed delivery procedures set forth in "The Exchange Offer -- Guaranteed Delivery Procedures" section of the Prospectus. See Instruction 2 hereto. Delivery of this Letter to DTC does not constitute delivery to the Exchange Agent. Notwithstanding anything to the contrary in the Exchange and Registration Rights Agreement, dated November 26, 1996, among Tevecap and the initial purchasers of Old Securities (the "Exchange and Registration Rights Agreement"), Tevecap will accept for exchange any and all Old Securities validly tendered on or prior to 5:00 p.m., New York City time, on the earlier of _________ __, 1997 (unless the Registered Exchange Offer is extended by Tevecap) or the date on which 100% of the Old Securities are validly tendered and not withdrawn (the "Expiration Date"). Tenders of Old Securities may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. IMPORTANT: HOLDERS WHO WISH TO TENDER OLD SECURITIES IN THE REGISTERED EXCHANGE OFFER MUST COMPLETE THIS LETTER OF TRANSMITTAL AND TENDER THE OLD SECURITIES TO THE EXCHANGE AGENT AND NOT TO TEVECAP. The Exchange Offer is not conditioned upon any minimum principal amount of Old Securities being tendered for exchange. The Registered Exchange Offer is not being made to, nor will tenders be accepted from or on behalf of, Holders of Old Securities in any jurisdiction in which the making or acceptance of the Registered Exchange Offer would not be in compliance with the laws of such jurisdiction. -2- The instructions included with this Letter of Transmittal must be followed in their entirety. Questions and request for assistance or for additional copies of the Prospectus or this Letter of Transmittal may be directed to the Exchange Agent at the address listed above. -3- APPROPRIATE SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY LADIES AND GENTLEMEN: The undersigned hereby tenders to Tevecap the principal amount of Old Securities indicated below under "Description of Old Securities," in accordance with and upon the terms and subject to the conditions set forth in the Prospectus, receipt of which is hereby acknowledged, and in this Letter of Transmittal, for the purpose of exchanging each $1,000 principal amount of Old Notes and Subsidiary Guarantees designated herein held by the undersigned and tendered hereby for $1,000 principal amount of the Exchange Notes and Subsidiary Guarantees. Exchange Notes will be issued only in integral multiples of $1,000 to each tendering Holder of Old Securities whose Old Securities are accepted in the Registered Exchange Offer. Holders may tender all or a portion of their Old Securities pursuant to the Registered Exchange Offer. Subject to, and effective upon, the acceptance for exchange of the Old Securities tendered herewith in accordance with the terms of the Registered Exchange Offer, the undersigned hereby sells, assigns and transfers to, or upon the order of, Tevecap all right, title and interest in and to all such Old Securities that are being tendered hereby and that are being accepted for exchange pursuant to the Registered Exchange Offer. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent as the true and lawful agent and attorney-in-fact of the undersigned (with full knowledge that the Exchange Agent also acts as the agent of Tevecap), with respect to the Old Securities tendered hereby and accepted for exchange pursuant to the Registered Exchange Offer with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest) to deliver the Old Securities tendered hereby to Tevecap (together with all accompanying evidences of transfer and authenticity) for transfer or cancellation by Tevecap. All authority conferred or agreed to be conferred in this Letter of Transmittal shall not be affected by, and shall survive, the death or incapacity of the undersigned and any obligation of the undersigned hereunder shall be binding upon the heirs, executors, administrators, legal representatives, successors and assigns of the undersigned. Any tender of Old Securities hereunder may be withdrawn only in accordance with the procedures set forth in "The Registered Exchange Offer-Withdrawal Rights" section of the Prospectus and the instructions contained in this Letter of Transmittal. See Instruction 4 hereto. The undersigned hereby represents and warrants that he or she has full power and authority to tender, exchange, assign and transfer the Old Securities tendered hereby and that Tevecap will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim. The undersigned will, upon request, execute and deliver any additional documents deemed by Tevecap to be necessary or desirable to complete the assignment and transfer of the Old Securities tendered. The undersigned has read and agrees to all of the terms of the Registered Exchange Offer. The undersigned will, upon request, execute and deliver any additional documents deemed by Tevecap to be necessary or desirable to complete the sale, assignment and transfer of the Old Securities tendered hereby. All authority conferred or agreed to be conferred in this Letter and every obligation of the undersigned hereunder shall be binding upon the successors, assigns, heirs, executors, administrators, trustees in bankruptcy and legal representatives of the undersigned and shall not be affected by, and shall survive, the death or incapacity of the undersigned. This tender may be withdrawn only in accordance with the procedures set forth in "The Registered Exchange Offer--Withdrawal Rights" section of the Prospectus and the instructions contained in this Letter of Transmittal. See Instruction 4 hereto. The name(s) and address(es) of the registered Holder(s) should be printed herein under "Description of Old Securities" (unless a label setting forth such information appears thereunder), exactly as they appear on the Old Securities tendered hereby. The certificate number(s) and the principal amount of Old Securities to which this Letter relates, together with the principal amount of such Old Securities that the -4- undersigned wishes to tender, should be indicated in the appropriate boxes herein under "Description of Old Securities." The undersigned agrees that acceptance of any tendered Old Securities by Tevecap and the issuance of Exchange Securities in exchange therefor shall constitute performance in full by Tevecap of its obligations under the Exchange and Registration Rights Agreement and that, upon the issuance of the Exchange Notes, Tevecap will have no further obligations or liabilities thereunder. The undersigned understands that the tender of Old Securities pursuant to one of the procedures described in the Prospectus under "The Registered Exchange Offer -- Exchange Offer Procedures" and the Instructions hereto will constitute the tendering Holder's acceptance of the terms and the conditions of the Registered Exchange Offer. The undersigned hereby represents and warrants to Tevecap that the Exchange Securities to be acquired by such Holder pursuant to the Registered Exchange Offer are being acquired in the ordinary course of such Holder's business, that such Holder has no arrangement or understanding with any person to participate in the distribution of the Exchange Securities. Tevecap's acceptance of Old Securities for exchange tendered pursuant to the Registered Exchange Offer will constitute a binding agreement between the tendering Holder and Tevecap upon the terms and subject to the conditions of the Registered Exchange Offer. THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT IT IS NOT ENGAGED IN, AND DOES NOT INTEND TO ENGAGE IN, A DISTRIBUTION OF THE EXCHANGE SECURITIES. The undersigned also acknowledges that this Registered Exchange Offer is being made based on interpretations by the staff of the Securities and Exchange Commission (the "Commission") which lead Tevecap and the Subsidiary Guarantors to believe that the Exchange Securities issued in exchange for the Old Securities pursuant to the Registered Exchange Offer may be offered for resale, resold and otherwise transferred by holders thereof (other than (i) a broker-dealer who acquired the Old Securities as a result of market-making activities or other trading activities, (ii) an Initial Purchaser who acquired the Old Securities directly from Tevecap solely in order to resell pursuant to Rule 144A of the Securities Act or any other available exemption under the Securities Act, or (iii) a person that is an "affiliate" (as defined in Rule 405 of the Securities Act) of Tevecap), without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Securities are acquired in the ordinary course of such holders' business and such holders are not participating and have no arrangement or understanding with any person to participate in the distribution of such Exchange Securities. If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Securities and has no arrangement or understanding to participate in a distribution of Exchange Securities. If any holder is an affiliate of Tevecap or is engaged in or has any arrangement or understanding with respect to the distribution of the Exchange Securities to be acquired pursuant to the Registered Exchange Offer, such holder (i) could not rely on the applicable interpretations of the staff of the Commission and (ii) must comply with the registration and prospectus delivery requirements of the Securities Act. If the undersigned is a broker-dealer that will receive Exchange Securities for its own account in exchange of Old Securities, it represents that the Old Securities to be exchanged for the Exchange Securities were acquired by it as a result of market-making activities or other trading activities and acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Securities. By so acknowledging and by delivering a Prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The undersigned understands that the Exchange Securities issued in consideration of Old Securities accepted for exchange, and/or any principal amount of Old Securities not tendered or not accepted for exchange, will only be issued in the name of the Holder(s) appearing herein under "Description of Old Securities." Unless otherwise indicated under "Special Delivery Instructions," please mail the Exchange Securities issued in consideration of Old Securities accepted for exchange, and/or any principal amount of Old Securities not tendered or not accepted for exchange (and accompanying documents, as appropriate), to the -5- Holder(s) at the address(es) appearing herein under "Description of Old Securities." In the event that the Special Delivery Instructions are completed, please mail the Exchange Securities issued in consideration of Old Securities accepted for exchange, and/or any Old Securities for any principal amount not tendered or not accepted for exchange, in the name of the Holder(s) appearing herein under "Description of Old Securities," and send such Exchange Securities and/or Old Securities to, the address(es) so indicated. Any transfer of Old Securities to a different holder must be completed, according to the provisions on transfer of Old Securities contained in the Indenture. THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD SECURITIES" BELOW AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD SECURITIES AS SET FORTH IN SUCH BOX BELOW. -6- INSTRUCTIONS Forming Part of the Terms and Conditions of the Registered Exchange Offer 1. Guarantee of Signatures. Signatures on this Letter of Transmittal or notice of withdrawal, as the case may be, must be guaranteed by an institution which falls within the definition of "eligible guarantor institution" contained in Rule 17Ad-15 as promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended (hereinafter, an "Eligible Institution") unless (i) the Old Securities tendered hereby are tendered by the Holder(s) of the Old Securities who has (have) not completed the box entitled "Special Delivery Instructions" on this Letter of Transmittal or (ii) the Old Securities are tendered for the account of an Eligible Institution. 2. Delivery of this Letter of Transmittal and Old Securities; Guaranteed Delivery Procedures. This Letter of Transmittal is to be used: (i) by all Holders who are not ATOP members, (ii) by Holders who are ATOP members but choose not to use ATOP or (iii) if the Old Securities are to be tendered in accordance with the guaranteed delivery procedures set forth in the Prospectus under "The Registered Exchange Offer--Guaranteed Delivery Procedures." To validly tender Old Securities, a Holder must physically deliver a properly completed and duly executed Letter of Transmittal (or facsimile thereof) with any required signature guarantees and all other required documents to the Exchange Agent at its address set forth on the cover of this Letter of Transmittal prior to the Expiration Date (as defined below) or the Holder must properly complete and duly execute an ATOP ticket in accordance with DTC procedures. Otherwise, the Holder must comply with the guaranteed delivery procedures set forth in the next paragraph. Notwithstanding anything to the contrary in the Exchange and Registration Rights Agreement, the term "Expiration Date" means 5:00 p.m., New York City time, on the earlier of _________ __, 1997 (or such later date to which Tevecap may, in its sole discretion, extend the Registered Exchange Offer) or the date on which 100% of the Old Securities are validly tendered and not withdrawn. If this Registered Exchange Offer is extended, the term "Expiration Date" shall mean the latest time and date to which the Registered Exchange Offer is extended. Tevecap expressly reserves the right, at any time or from time to time, to extend the period of time during which the Exchange Offer is open by giving oral (confirmed in writing) or written notice of such extension to the Exchange Agent and by making a public announcement of such extension prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. LETTERS OF TRANSMITTAL SHOULD NOT BE SENT TO TEVECAP OR TO DTC. If a Holder of the Old Securities desires to tender such Old Securities and time will not permit such Holder's required documents to reach the Exchange Agent before the Expiration Date, a tender may be effected if (a) the tender is made through an Eligible Institution, (b) on or prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed Delivery (by telegram, facsimile transmission, mail or hand delivery) setting forth the name and address of the Holder of the Old Securities and the principal amount of Old Securities tendered, stating that the tender is being made thereby and guaranteeing that within three New York Stock Exchange trading days after the Expiration Date, any documents required by the Letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent; and (c) all other documents required by the Letter of Transmittal are received by the Exchange Agent within three New York Stock Exchange trading days after the Expiration Date. See "The Registered Exchange Offer--Guaranteed Delivery Procedures" as set forth in the Prospectus. Only a Holder of Old Securities may tender Old Securities in the Registered Exchange Offer. The term "Holder" as used herein with respect to the Old Securities means any person in whose name Old Securities are registered on the books of the Trustee. If the Letter of Transmittal or any Old Securities are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others -7- acting in a fiduciary or representative capacity, such persons should so indicate when signing, and, unless waived by Tevecap, proper evidence satisfactory to Tevecap of their authority to so act must be so submitted. Any beneficial Holder whose Old Securities are registered in the name of his broker, dealer, commercial bank, trust company or other nominee and who wishes to validly surrender those Old Securities in the Registered Exchange Offer should contact such registered Holder promptly and instruct such registered Holder to tender on his behalf. If such beneficial Holder wishes to tender on his own behalf, such beneficial Holder must, prior to completing and executing the Letter of Transmittal, make appropriate arrangements to register ownership of the Old Notes in such beneficial holder's name. It is the responsibility of the beneficial holder to register ownership in his own name if he chooses to do so. The transfer of record ownership may take considerable time. The method of delivery of this Letter of Transmittal (or facsimile hereof) and all other required documents is at the election and risk of the exchanging Holder, but, except as otherwise provided below, the delivery will be deemed made only when actually received or confirmed by the Exchange Agent. If sent by mail, registered mail with return receipt requested, properly insured, is recommended. In all cases, sufficient time should be allowed to assure timely delivery to the Exchange Agent before the Expiration Date. No Letters of Transmittal or Old Securities should be sent to Tevecap. No alternative, conditional or contingent tenders will be accepted. All tendering Holders, by execution of this Letter of Transmittal (or facsimile hereof), waive any right to receive notice of acceptance of their Old Securities for exchange. 3. Inadequate Space. If the space provided herein is inadequate, the certificate numbers and principal amount of the Old Securities to which this Letter of Transmittal relates should be listed on a separate signed schedule attached hereto. 4. Withdrawal of Tender. Tenders of Old Securities may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. To be effective, a written or facsimile transmission notice of withdrawal must (i) be received by the Exchange Agent at the address set forth herein prior to 5:00 p.m., New York City time, on the Expiration Date, (ii) specify the name of the person having tendered the Old Securities to be withdrawn, (iii) identify the Old Securities to be withdrawn and (iv) be (a) signed by the Holder in the same manner as the original signature on the Letter of Transmittal by which such Old Securities were tendered (including any required signature guarantees) or (b) accompanied by evidence satisfactory to Tevecap that the Holder withdrawing such tender has succeeded to beneficial ownership of such Old Securities. If Old Securities have been tendered pursuant to the ATOP procedure with DTC, any notice of withdrawal must otherwise comply with the procedures of DTC. Old Securities properly withdrawn will thereafter be deemed not validly tendered for purposes of the Registered Exchange Offer; provided, however, that withdrawn Old Securities may be retendered by again following one of the procedures described herein at any time prior to 5:00 p.m., New York City time, on the Expiration Date. All questions as to the validity, form and eligibility (including time of receipt) of notice of withdrawal will be determined by Tevecap, whose determinations will be final and binding on all parties. Neither Tevecap, the Exchange Agent, nor any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. The Exchange Agent intends to use reasonable efforts to give notification of such defects and irregularities. 5. Partial Tenders; Pro Rata Effect. Tenders of the Old Securities will be accepted only in integral multiples of $1,000. If less than the entire principal amount evidenced by any Old Securities is to be tendered, fill in the principal amount that is to be tendered in the box entitled "Principal Amount -8- Tendered" below. The entire principal amount of all Old Securities delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. 6. Signatures on this Letter of Transmittal; Bond Powers and Endorsements. If this Letter of Transmittal is signed by the registered Holder(s) of the Old Securities tendered hereby, the signature must correspond with the name as written on the face of the certificate representing such Old Securities without alteration, enlargement or any change whatsoever. If any of the Old Securities tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any of the Old Securities tendered hereby are registered in different names, it will be necessary to complete, sign and submit as many separate copies of this Letter of Transmittal and any necessary accompanying documents as there are different registrations. When this Letter of Transmittal is signed by the Holder(s) of Old Securities listed and tendered hereby, no endorsements or separate bond powers are required. If this Letter of Transmittal is signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and, unless waived by Tevecap, proper evidence satisfactory to Tevecap of their authority to so act must be submitted. 7. Special Delivery Instructions. Tendering Holders should indicate in the applicable box the name and address to which Exchange Securities issued in consideration of Old Securities accepted for exchange, or Old Securities for principal amounts not exchanged or not tendered, are to be sent, if different from the name and address of the person signing this Letter of Transmittal. 8. Transfer Taxes. Tevecap will pay all transfer taxes, if any, applicable to the exchange of Old Securities pursuant to the Registered Exchange Offer. If, however, Exchange Securities and/or substitute Old Securities for principal amounts not exchanged are to be delivered to any person other than the Holder of the Old Securities or if a transfer tax is imposed for any reason other than the exchange of Old Securities pursuant to the Registered Exchange Offer, the amount of any such transfer taxes (whether imposed on the registered Holder or any other persons) will be payable by the tendering Holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted, the amount of such transfer taxes will be billed directly to such tendering Holder. 9. Irregularities. All questions as to validity, form, eligibility (including time of receipt), acceptance and withdrawal of tendered Old Securities will be resolved by Tevecap, in its sole discretion, whose determination shall be final and binding. Tevecap reserves the absolute right to reject any or all tenders of any particular Old Securities that are not in proper form, or the acceptance of which would, in the opinion of Tevecap or its counsel, be unlawful. Tevecap also reserves the absolute right to waive any defect, irregularity or condition of tender with regard to any particular Old Securities. Tevecap's interpretation of the terms of, and conditions to, the Registered Exchange Offer (including the instructions herein) will be final and binding. Unless waived, any defects or irregularities in connection with tenders must be cured within such time as Tevecap shall determine. Neither Tevecap nor the Exchange Agent shall be under any duty to give notification of defects in such tenders or shall incur any liability for failure to give such notification. The Exchange Agent intends to use reasonable efforts to give notification of such defects and irregularities. Tenders of Old Securities will not be deemed to have been made until all defects and irregularities have been cured or waived. Any Old Securities received by the Exchange Agent that are not properly tendered and as to which the irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering Holder, unless otherwise provided by this Letter of Transmittal, as soon as practicable following the Expiration Date. -9- 10. Interest on Exchanged Old Notes. Holders whose Old Securities are accepted for exchange will not receive accrued interest thereon on the date of exchange. Instead, interest accruing from November 26, 1996 through the Expiration Date will be payable on the Exchange Securities on May 26, 1997, in accordance with the terms of the Exchange Securities. See "The Exchange Offer--Interest on the Exchange Notes and "Description of Notes" sections of the Prospectus. 11. Mutilated, Lost, Stolen or Destroyed Certificates. Holders whose certificates for Old Securities have been mutilated, lost, stolen or destroyed should contact the Exchange Agent at the address indicated above for further instructions. IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE HEREOF), TOGETHER WITH ALL REQUIRED DOCUMENTS, OR A NOTICE OF GUARANTEED DELIVERY, MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE. IMPORTANT TAX INFORMATION Under Federal income tax laws, a registered Holder of Old Securities or Exchange Securities is required to provide the Trustee (as payer) with such Holder's correct TIN on Substitute Form W-9 below or otherwise establish a basis for exemption from backup withholding. If such Holder is an individual, the TIN is his social security number. If the Trustee is not provided with the correct TIN, a $50 penalty may be imposed by the Internal Revenue Service, and payments made to such Holder with respect to Old Securities or Exchange Securities may be subject to backup withholding. Certain Holders (including, among others, all corporations and certain foreign persons) are not subject to these backup withholding and reporting requirements. Exempt Holders should indicate their exempt status on Substitute Form W-9. A foreign person may qualify as an exempt recipient by submitting to the Trustee a properly completed Internal Revenue Service Form W-8, signed under penalties of perjury, attesting to that Holder's exempt status. A Form W-8 can be obtained from the Trustee. If backup withholding applies, the Trustee is required to withhold 31% of any payments made to the Holder or other payee. Backup withholding is not an additional Federal income tax. Rather, the Federal income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service. Purpose of Substitute Form W-9 To prevent backup withholding on payments made with respect to Old Securities or Exchange Securities the Holder is required to provide the Trustee with: (i) the Holder's correct TIN by completing the form below, certifying that the TIN provided on Substitute Form W-9 is correct (or that such Holder is awaiting a TIN) and that (A) such Holder is exempt from backup withholding, (B) the Holder has not been notified by the Internal Revenue Service that the Holder is subject to backup withholding as a result of failure to report all interest or dividends or (C) the Internal Revenue Service has notified the Holder that the Holder is no longer subject to backup withholding; and (ii) if applicable, an adequate basis for exemption. -10- PAYER'S NAME: THE CHASE MANHATTAN BANK - -------------------------------------------------------------------------------- SUBSTITUTE Part 1 - PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND CERTIFY BY SIGNING AND DATING BELOW Social Security Number Form W-9 Department of the Treasury-Internal OR______________________ Revenue Service Employer Identification Number - -------------------------------------------------------------------------------- Part 2 - Certification - Under penalties of perjury, I certify that: Payee's Request (1) The number shown on this form is my correct Taxpayer for Taxpayer Identification Number (or I am waiting for a Taxpayer number Identification to be issued to me); and Number ("TIN") (2) I am not subject to backup withholding because (i) I am exempt from backup withholding, (ii) I have Number ("TIN") not been notified by the Internal Revenue Service ("IRS") that I am subject to backup withholding as a result of failure to report all interest or dividends, or (iii) the IRS has notified me that I am no longer subject to backup withholding. Certificate instruction -- You must cross out item (2) in Part 2 above if you have been notified by the IRS that you are subject to backup withholding because of under reporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS stating that you are no longer subject to backup withholding, do not cross out item (2). ------------------------------------------------------------------- Part 3 SIGNATURE..........DATE................., 1997 NAME (Please Print)..................... Awaiting TIN|_| - -------------------------------------------------------------------------------- NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9. - -------------------------------------------------------------------------------- CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (i) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (ii) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number within 60 days, 31% of all reportable payments made to me thereafter will be withheld until I provide a number. Signature...................................................Date............... Name (Please Print)............................................................ - -------------------------------------------------------------------------------- -11- PLEASE READ ACCOMPANYING INSTRUCTIONS CAREFULLY ================================================================================ SPECIAL DELIVERY INSTRUCTIONS (See Instructions 1 and 7) To be completed ONLY if the Exchange Securities issued in consideration of Old Securities exchanged, or certificates for Old Securities in a principal amount not surrendered for exchange are to be mailed to someone other than the undersigned or to the undersigned at an address other than that below. Mail to: Name:________________________________________________________________________ (Please Print) Address:_____________________________________________________________________ (Zip Code) ================================================================================ DESCRIPTION OF OLD SECURITIES (See Instructions 2 and 7) ================================================================================ Name(s) and Address(es) Certificate(s) of Registered Holder(s) (Attach additional signed list, if necessary) (Please fill in, in blank) - -------------------------------------------------------------------------------- ------------------------------------------------------------------------- Aggregate Principal Amount of Old Principal Amount of Old Certificate Securities Evidenced Securities Tendered** (must be Number(s)* by Certificate(s) integral multiples of $1,000) ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- Total ================================================================================ - ---------- * Need not be completed if Old Securities are being tendered by book-entry transfer. ** Unless otherwise indicated, the entire principal amount of Old Securities evidenced by any certificate will be deemed to have been tendered. -12- (Boxes below to be checked by Eligible Institutions only) |_| CHECK HERE IF TENDERED OLD SECURITIES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering Institution DTC Account Number Transaction Code Number |_| CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF TENDERED OLD SECURITIES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING: Name(s) of Registered Holder(s) Window Ticket Number (if any) Date of Execution of Notice of Guaranteed Delivery Name of Institution which Guaranteed Delivery If Guaranteed Delivery is to be made by Book-Entry Transfer: Name of Tendering Institution DTC Account Number Transaction Code Number |_| CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD SECURITIES ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH ABOVE. |_| CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD SECURITIES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A "PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name _______________________________________________________________________ Address _______________________________________________________________________ _______________________________________________________________________ -13- PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY - -------------------------------------------------------------------------------- PLEASE SIGN HERE WHETHER OR NOT OLD SECURITIES ARE BEING PHYSICALLY TENDERED HEREBY X __________________________________ _______________ X __________________________________ _______________ Signature(s) of Owner(s) Dated of Authorized Signatory Area Code and Telephone Number: ______________________________________ This box must be signed by registered holder(s) of Old Securities as their name(s) appear(s) on certificate(s) for Old Securities hereby tendered or on a security position listing, or by any person(s) authorized to become registered holder(s) by endorsement and documents transmitted with this Letter (including such opinions of counsel, certifications and other information as may be required by Tevecap or the Trustee for the Old Securities to comply with the restrictions on transfer applicable to the Old Securities). If signature is by an attorney-in-fact, trustee, executor, administrator, guardian, officer or other person acting in a fiduciary or representative capacity, such person must set forth his or her full title below. Name(s) ______________________________________________________________________ _______________________________________________________________________________ (Please Print) Capacity (full title) _________________________________________________________ Address _______________________________________________________________________ _______________________________________________________________________________ (Include Zip Code) Tax Identification or Social Security Number(s) _______________________________ _______________________________________________________________________________ Guarantee of Signature(s) (See Instructions 1 and 6 to determine if required) Authorized Signature __________________________________________________________ Name __________________________________________________________________________ Name of Firm __________________________________________________________________ Title _________________________________________________________________________ Address _______________________________________________________________________ Area Code and Telephone Number ________________________________________________ Dated _________________________________________________________________________ - ------------------------------------------------------------------------------- -14- GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 Guidelines for Determining the Proper Identification Number to Give the Payer. Social Security numbers have nine digits separated by two hyphens: i.e., 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e., 00-0000000. The table below will help determine the number to give the payer. For this type Give the SOCIAL of account: SECURITY number of-- -------------------- --------------------- 1. Individual The individual 2. Two or more individuals The actual owner of the (joint accounts) account or, if combined funds, the first individual on the accounts. (2) 3. Custodian account of a minor The minor(4) (Uniform Gift to Minors Act) 4.a. The usual revocable savings The grantor-trustee trust (grantor is also trustee) b. So-called trust account that is The actual owner not a legal or valid trust under State law 5. Sole proprietorship The owner(1) For this type Give the EMPLOYER of account: IDENTIFICATION number of-- -------------------- ------------------ 6. Sole proprietorship The owner(1) 7. A valid trust, estate, or pension Legal entity(3) [illegible] 8. Corporate The corporation 9. Association, club, religious, The organization charitable, educational or other tax-exempt organization 10. Partnership The partnership 11. A broker or registerd nominee The broker or nominee 12. Account with the Department of The public entity Agriculture in the name of a public entity (such as a State or local government, school district, or prison) that receives agricultural program payments - ---------- (1) You must show your individual name, but you may also enter your business or "doing business as" name. You may use either your SSN or EIN. (2) List first and circle the name of the person whose number you furnish. (3) List first and circle the name of the legal trust, estate, or pension trust. (Do not furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.) (4) Circle the minor's name and furnish the minor's social security number. -15- GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 PAGE 2 Obtaining a Number If you don't have a taxpayer identification number or you don't know your number, obtain Form SS-5, Application for a Social Security Number Card, or Form SS-4, Application for Employer Identification Number, at the local office of the Social Security Administration or the Internal Revenue Service and apply for a number. Payees Exempt from Backup Withholding The following is a list of payees exempt from backup withholding and for which no information reporting is required. For interest and dividends, all listed payees are exempt except item (9). For broker transactions, payees listed in items (1) through (13) and a person registered under the Investment Advisers Act of 1940 U.C. who regularly acts as a broker are exempt. Payments subject to reporting under sections 6041 and 6041A are generally exempt from backup withholding only if made to payees described in items (1) through (7), except a corporation that provides medical and health care services or bills and collects payments for such services is not exempt from backup withholding or information reporting. Only payees described in items (2) through (6) are exempt from backup withholding for barter exchange transactions, patronage dividends, and payments by certain fishing boat operators. (1) A corporation. (2) An organization exempt from tax under section 501(a), or an individual retirement plan or custodial account under section 403(b)(7). (3) The United States or any agency or instrumentality thereof. (4) A State, the District of Columbia, a possession of the United States, or any subdivision or instrumentality thereof. (5) A foreign government, a political subdivision of a foreign government, or an agency or instrumentality thereof. (6) An international organization or any agency or instrumentality thereof. (7) A foreign central bank of issue. (8) A dealer in securities or commodities required to register in the U.S. or a possession of the U.S. (9) A futures commission merchant registered with the Commodity Futures Trading Commission. (10) A real estate investment trust. (11) An entity registered at all times under the Investment Company Act of 1940. (12) A common trust fund operated by a bank under section 584(a). (13) A financial institution. (14) A middleman known in the investment community as a nominee or listed in the most recent publication of the American Society of Corporate Secretaries, Inc. Nominee List. (15) An exempt charitable remainder trust, or a non-exempt trust described in section 4947. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: o Payments to nonresident aliens subject to withholding under section 1441. o Payments to partnerships not engaged in a trade or business in the U.S. and which have at least one nonresident partner. o Payments of patronage dividends not paid in money. o Payments made by certain foreign organizations. Note: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer. o Payments of tax-exempt interest (including exempt-interest dividends under section 852). o Payments described in section 6049(b)(5) to nonresident aliens. o Payments on tax-free covenant bonds under section 1451. o Payments made by certain foreign organizations. Note: You may be subject to backup withholding if this interest is $60 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer. o Payments of tax-exempt interest (including exempt-interest dividends under section 852). o Payments described in section 6049(b)(5) to nonresident aliens. o Payments on tax-free covenant bonds under section 1451. o Payments made by certain foreign organizations. Exempt payees described above should file Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER. FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER. WRITE "EXEMPT" ON THE FACE OF THE FORM AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM. Certain payments other than interest, royalties, and patronage dividends that are not subject to information reporting are also not subject to backup withholding. For details, see the regulations under sections 6041, 6041A(a), 6045, and 6050A. Privacy Act Notice. Section 6109 requires most recipients of dividend, interest, or other payments to give taxpayer identification numbers to payers who must report the payments to IRS. IRS uses the numbers for identification purposes. Payers must be given the numbers whether or not recipients are required to file tax returns. Payers must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. Penalties (1) Penalty for Failure to Furnish Taxpayer Identification Number. If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) Failure to Report Certain Dividend and Interest Payments. If you fail to include any portion of an includible payment for interest, dividends, or patronage dividends in gross income, such failure will be treated as being due to negligence and will be subject to a penalty of 5% on any portion of an under-payment attributable to that failure unless there is clear and convincing evidence to the contrary. (3) Civil Penalty for False Information with Respect to Withholding. If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. (4) Criminal Penalty for Falsifying Information. Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE. -16- EX-99.3 12 EXHIBIT 99.3 (NOTICE OF GUAR DELIVERY) Exhibit 99.3 NOTICE OF GUARANTEED DELIVERY for TEVECAP S.A. This Notice of Guaranteed Delivery, or one substantially equivalent to this form, must be used to accept the Registered Exchange Offer (as defined below) of Tevecap S.A. ("Tevecap") made pursuant to the Prospectus, dated _______ __, 1997 (as the same may be amended or supplemented from time to time, the "Prospectus"), and the related Letter of Transmittal (the "Letter of Transmittal") if the Letter of Transmittal and all other required documents cannot be delivered or transmitted by facsimile transmission, mail or hand delivery to The Chase Manhattan Bank (the "Exchange Agent") on or prior to 5:00 p.m., New York City time, on the Expiration Date (as defined in the Prospectus) or the procedures for delivery by book-entry transfer cannot be completed on a timely basis. See "The Registered Exchange Offer -- Guaranteed Delivery Procedures" section in the Prospectus. The term "Old Notes" means Tevecap's outstanding 12 5/8% Senior Notes due 2004, and the term "Old Securities" means the Old Notes together with the Subsidiary Guarantees (as defined in the Prospectus) of the Old Notes. - -------------------------------------------------------------------------------- THE REGISTERED EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON THE EARLIER OF ________ __, 1997 (UNLESS EXTENDED) OR THE DATE ON WHICH 100% OF THE OLD NOTES AND SUBSIDIARIES GUARANTEES (TOGETHER, THE "OLD SECURITIES") ARE VALIDLY TENDERED AND NOT WITHDRAWN (THE "EXPIRATION DATE"). TENDERED OLD SECURITIES MAY BE WITHDRAWN AT ANY TIME ON OR PRIOR TO THE EXPIRATION DATE OF THE REGISTERED EXCHANGE OFFER. - -------------------------------------------------------------------------------- Deliver to: The Chase Manhattan Bank, Exchange Agent: By Hand, Mail or Overnight Courier: The Chase Manhattan Bank 450 West 33rd Street 15th Floor New York, New York 10001 By Facsimile: (212) 946-8177 DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. This Notice of Guaranteed Delivery is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an "Eligible Institution" under the instructions thereto, such signature guarantee must appear in the applicable space provided in the signature box on the Letter of Transmittal. Ladies and Gentlemen: The undersigned hereby tenders to Tevecap, upon the terms and conditions set forth in the Prospectus and the Letter of Transmittal (which together constitute the "Registered Exchange Offer"), receipt of which are hereby acknowledged, the aggregate principal amount of Old Securities set forth below pursuant to the guaranteed delivery procedure described in "The Registered Exchange Offer -- Guaranteed Delivery Procedures" section in the Prospectus and the Letter of Transmittal. Principal Amount of Old Notes and Subsidiary Guarantees Signature(s)__________________________ Tendered $ _______________ ______________________________________ Certificate Nos. (if available) _______________ Please Print the Following Information Names(s) of Registered Holders _______ ______________________________________ Total Principal Amount Represented by Old Notes and Subsidiary Guarantees Address ______________________________ Certificate(s)_______________ ______________________________________ If Old Securities will be tendered by book-entry transfer, provide the following information: Area Code and Telephone Number(s) DTC Account Number __________ ______________________________________ Dated: __________, 1997 GUARANTEE (Not to be Used for Signature Guarantee) The undersigned, a firm or entity identified in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, as an "eligible guarantor institution," hereby guarantees to deliver to the Exchange Agent, at its address set forth above, either the Old Securities tendered hereby in proper form for transfer, or confirmation of the book-entry transfer of such Old Securities pursuant to the procedures for book-entry transfer set forth in the Prospectus, in either case together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof), with any required signature guarantees, and any other documents required by the Letter of Transmittal within three New York Stock Exchange trading days after the date of execution of this Notice of Guaranteed Delivery. Name of Firm ________________ _________________________________________ (Authorized Signature) Address______________________ Name ____________________________________ _____________________________ Date ____________________________________ Zip Code Area Code and Telephone Number ___________ EX-99.4 13 EXHIBIT 99.4 (CLIENT LETTER) Exhibit 99.4 TEVECAP S.A. Offer for all Outstanding 12 5/8% Senior Notes Due 2004 and Subsidiary Guarantees in Exchange for Registered 12 5/8% Senior Notes due 2004 and Subsidiary Guarantees - -------------------------------------------------------------------------------- THE REGISTERED EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON THE EARLIER OF _________ __, 1997 (UNLESS EXTENDED) OR THE DATE ON WHICH 100% OF THE OLD SECURITIES AND SUBSIDIARY GUARANTEES (TOGETHER, THE "OLD NOTES") ARE VALIDLY TENDERED AND NOT WITHDRAWN (THE "EXPIRATION DATE"). TENDERED OLD SECURITIES MAY BE WITHDRAWN AT ANY TIME ON OR PRIOR TO THE EXPIRATION DATE OF THE REGISTERED EXCHANGE OFFER. - -------------------------------------------------------------------------------- To Our Clients: Enclosed for your consideration is a Prospectus, dated ________ __, 1997 (as the same may be amended or supplemented from time to time, the "Prospectus"), and the related Letter of Transmittal (the "Letter of Transmittal"), relating to the offer (the "Registered Exchange Offer") of Tevecap S.A. (Tevecap) to exchange an aggregate principal amount of up to $250,000,000 of its 12 5/8% Senior Notes Due 2004 and Subsidiary Guarantees (the "Exchange Notes") together with the Subsidiary Guarantees (as defined in the Prospectus and together with the Exchange Notes, the "Exchange Securities") which have been registered under the Securities Act of 1933 pursuant to a Registration Statement of which the Prospectus constitutes a part for a like principal amount of its outstanding 12 5/8% Senior Notes due 2004 (the "Old Notes") of which $250,000,000 aggregate principal amount is outstanding, together with the Subsidiary Guarantees of the Old Notes (such Subsidiary Guarantees together with the Old Notes, the "Old Securities") upon the terms and subject to the conditions described in the Prospectus and the Letter of Transmittal. The Exchange Securities are being offered to satisfy certain obligations of Tevecap under the Purchase Agreement, dated as of November 21, 1996, between Tevecap, the Guarantors (as defined in the Prospectus) and the initial purchasers of the Old Securities (the "Initial Purchasers") and the Exchange and Registration Rights Agreement, dated November 26, 1996, among Tevecap, the Guarantors and the Initial Purchasers. Holders of Old Securities who cannot deliver all required documents to the Exchange Agent on or prior to the Expiration Date (as defined below), or who cannot complete the procedures for book-entry transfer on a timely basis, must follow guaranteed delivery described in the Prospectus under "The Registered Exchange Offer -- Guaranteed Delivery Procedures." This material is being forwarded to you as the beneficial owner of the Old Securities carried by us in your account but not registered in your name. A tender of such Old Securities may only be made by us as the holder of record and pursuant to your instructions. Accordingly, we request instructions as to whether you wish us to tender on your behalf the Old Securities held by us for your account, pursuant to the terms and conditions set forth in the enclosed Prospectus and Letter of Transmittal. Your instructions should be forwarded to us as promptly as possible in order to permit us to tender the Old Securities on your behalf in accordance with the provisions of the Registered Exchange Offer. The Registered Exchange Offer will expire at 5:00 p.m., New York City time, on _________ __, 1997, unless extended by Tevecap. Any Old Notes tendered pursuant to the Registered Exchange Offer may be withdrawn at any time before the Expiration Date. Your attention is directed to the following: 1. The Registered Exchange Offer is for any and all Old Securities. 2. Any transfer taxes incident to the transfer of Old Securities from the holder to Tevecap will be paid by Tevecap, except as otherwise provided in Instruction 9 of the Letter of Transmittal. 3. The Registered Exchange Offer expires at 5:00 p.m., New York City time, on ________ __, 1997 (unless extended by Tevecap) or the date on which 100% of the Old Securities are validly tendered and not withdrawn. If you wish to have us tender your Old Securities, please so instruct us by completing, executing and returning to us the instruction form on the back of this letter. The Letter of Transmittal is furnished to you for informational purposes only and may not be used directly by you to tender Old Securities held by us and registered in our name for your account or benefit. INSTRUCTIONS WITH RESPECT TO THE REGISTERED EXCHANGE OFFER The undersigned acknowledge(s) receipt of your letter and the enclosed material referred to therein relating to the Registered Exchange Offer made by Tevecap S.A. with respect to its Old Securities. This will instruct you to tender the Old Securities held by you for the account of the undersigned, upon and subject to the terms and conditions set forth in the Prospectus and the related Letter of Transmittal. Please tender the Old Securities held by you for my account as indicated below: Aggregate Principal Amount of Old Notes with Subsidiary Guarantees -------------------------------------------- 12 5/8% Senior Notes Due 2004........................... ___________________________________________ o Please do not tender any Old Securities held by you for my account. Dated: ____________________, 1997 ___________________________________________ ___________________________________________ Signature(s) ___________________________________________ ___________________________________________ ___________________________________________ Please print name(s) here ___________________________________________ ___________________________________________ Address(es) ___________________________________________ Area Code and Telephone Number ___________________________________________ Tax Identification or Social Security No(s). None of the Old Securities held by us for your account will be tendered unless we receive written instructions from you to do so. Unless a specific contrary instruction is given in the space provided, your signature(s) hereon shall constitute an instruction to us to tender all the Old Securities held by us for your account. EX-99.5 14 EXHIBIT 99.5 (BROKER, DEALER LETTER) Exhibit 99.5 TEVECAP S.A. Offer for all Outstanding 12 5/8% Senior Notes due 2004 and Subsidiary Guarantees in Exchange for Registered 12 5/8% Senior Notes due 2004 and Subsidiary Guarantees - -------------------------------------------------------------------------------- THE REGISTERED EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON THE EARLIER OF ________ __, 1997 (UNLESS EXTENDED) OR THE DATE ON WHICH 100% OF THE OLD NOTES AND SUBSIDIARY GUARANTEES (TOGETHER, THE "OLD SECURITIES") ARE VALIDLY TENDERED AND NOT WITHDRAWN (THE "EXPIRATION DATE"). TENDERED OLD SECURITIES MAY BE WITHDRAWN AT ANY TIME ON OR PRIOR TO THE EXPIRATION DATE OF THE REGISTERED EXCHANGE OFFER. - -------------------------------------------------------------------------------- To: Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: Tevecap S.A. ("Tevecap") is offering, upon and subject to the terms and conditions set forth in the Prospectus, dated _________ __, 1997 (as the same may be amended or supplemented from time to time, the "Prospectus"), and the enclosed Letter of Transmittal (the "Letter of Transmittal"), to exchange (the "Registered Exchange Offer") an aggregate principal amount of up to $250,000,000 of its 12 5/8% Senior Notes Due 2004 (the "Exchange Notes") together with the Subsidiary Guarantees of the Exchange Notes (as defined in the Prospectus and together with the Exchange Notes, the "Exchange Securities") for a like principal amount of its outstanding 12 5/8% Senior Notes Due 2004 (the "Old Notes") together with the Subsidiary Guarantees of the Old Notes (such Subsidiary Guarantees together with the Old Notes, the "Old Securities"). The Exchange Securities are being offered to satisfy certain obligations of Tevecap under the Purchase Agreement, dated as of November 21, 1996, between Tevecap, the Guarantors (as defined in the Prospectus) and the initial purchasers of the Old Notes (the "Initial Purchasers") and the Exchange and Registration Rights Agreement, dated November 26, 1996, among Tevecap, the Guarantors and the initial purchasers of the Old Securities. We are requesting that you contact your clients for whom you hold Old Securities registered in your name or in the name of your nominee regarding the Registered Exchange Offer. For your information and for forwarding to your clients for whom you hold Old Securities registered in your name or in the name of your nominee, or who hold Old Securities registered in their own names, we are enclosing the following documents: 1. Prospectus dated ________ __, 1997; 2. The Letter of Transmittal for your use and for the information of your clients, including Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9; 3. A Notice of Guaranteed Delivery to be used to accept the Registered Exchange Offer if time will not permit all required documents to reach the Exchange Agent (as defined below) prior to the Expiration Date (as defined below) or if the procedures for book-entry transfer cannot be completed on a timely basis; 4. A form of letter which may be sent to your clients for whose account you hold Old Securities registered in your name or the name of your nominee, with space provided for obtaining such clients' instructions with regard to the Registered Exchange Offer; 5. Return envelopes addressed to The Chase Manhattan Bank, the Exchange Agent (the "Exchange Agent") for the Old Securities. Your prompt action is requested. The Registered Exchange Offer will expire at 5:00 p.m., New York City time, on _________ __, 1997 (unless extended by the Company) or the date on which 100% of the Old Securities are validly tendered and not withdrawn (the "Expiration Date"). Old Securities tendered pursuant to the Exchange Offer may be withdrawn, subject to the procedures described in the Prospectus, at any time prior to 5:00 p.m., New York City time, on the Expiration Date. To participate in the Registered Exchange Offer, a duly executed and properly completed Letter of Transmittal (or facsimile thereof), with any required signature guarantees and any other required documents, should be sent to the Exchange Agent, all in accordance with the instructions set forth in the Letter of Transmittal and the Prospectus. If holders of Old Securities wish to tender but time will not permit all required documents to reach the Exchange Agent prior to the Expiration Date or to comply with the book-entry transfer procedures on a timely basis, a tender may be effected by following the guaranteed delivery procedures described in the Prospectus under "The Registered Exchange Offer-- Guaranteed Delivery Procedures." Tevecap will, upon request, reimburse brokers, dealers, commercial banks and trust companies for reasonable and necessary costs and expenses incurred by them in forwarding the Prospectus and the related documents to the beneficial owners of Old Securities held by them as nominee or in a fiduciary capacity. Tevecap will pay or cause to be paid all stock transfer taxes applicable to the exchange of Old Securities pursuant to the Registered Exchange Offer, except as set forth in Instruction 9 of the Letter of Transmittal. Any inquiries you may have with respect to the Registered Exchange Offer, or requests for additional copies of the enclosed materials, should be directed to The Chase Manhattan Bank, as the Exchange Agent for the Old Securities, at its address set forth on the front of the Letter of Transmittal. Very truly yours, TEVECAP S.A. -2- NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY PERSON AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS ON BEHALF OF EITHER OF THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN THE PROSPECTUS OR THE LETTER OF TRANSMITTAL. Enclosures -3- -----END PRIVACY-ENHANCED MESSAGE-----