-----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, TXOfU6sx/+r6GdUtuTB9u5hDztzbabh3ev0wk4qIKgixKEN1OM9p+eBlfP9stEFk /ztThZhZvjud3MxTERhY6A== 0001169232-04-004980.txt : 20040927 0001169232-04-004980.hdr.sgml : 20040927 20040927173132 ACCESSION NUMBER: 0001169232-04-004980 CONFORMED SUBMISSION TYPE: F-4 PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 20040927 DATE AS OF CHANGE: 20040927 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEVECAP S A CENTRAL INDEX KEY: 0001034029 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: F-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-119310 FILM NUMBER: 041047898 BUSINESS ADDRESS: STREET 1: RUA DO ROCIO 313 CITY: SAO PAOLO BRAZIL ZIP: 04552-904 BUSINESS PHONE: 2126641666 MAIL ADDRESS: STREET 1: RUA DO ROCIO 313 CITY: SAO PAOLO BRAZIL ZIP: 04552-904 F-4 1 d60792_f4.txt REGISTRATION STATEMENT As filed with the Securities and Exchange Commission on September 27, 2004 Registration No.333- ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------------- 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. The Federative Republic of Brazil (Translation of Registrant's Name into English) (Jurisdiction of Incorporation or Organization)
--------------------------- Av. Das Nacoes Unidas, 7221- 7(0) andar Sao Paulo, SP Brazil, 05425-902 (Telephone: 55-11-3037-5127) (Address and telephone number of Principal Executive Offices) --------------------------- 4841 (Primary Standard Industrial Classification Code Number) --------------------------- CT Corporation System 111 Eighth Avenue, 13th Floor New York, New York 10011 (212) 590-9100 (Name, address and telephone number of agent for service) --------------------------- Copies to: Sara Hanks Clifford Chance US LLP 31 W. 52nd Street New York, New York 10019 (212) 878-8000 --------------------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| _____ If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| _____
CALCULATION OF REGISTRATION FEE - --------------------------------------------------------------------------------------------------------------------------------- Proposed Maximum Amount of Title of each class of Securities to be Amount to be Offering Price Proposed Maximum Aggregate Registration Registered(1) Registered Per Note(1) Offering Price(1) Fee - --------------------------------------------------------------------------------------------------------------------------------- 12.625% Notes Due 2009 $48,022,000 100% $48,022,000 $6,084.39 - ---------------------------------------------------------------------------------------------------------------------------------
(1) The notes being registered are offered in exchange for 12.625% Notes due 2004 previously sold in transactions registered under the Securities Act of 1933, as amended (the "Securities Act"). The registration fee has been computed based on the face value of the securities pursuant to Rule 457 under the Securities Act. The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant 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, as amended 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. ================================================================================ PROSPECTUS [LOGO] Tevecap S.A. Exchange Offer of US$48,022,000 12.625% Notes Due 2009 for US$48,022,000 12.625% Notes Due 2004 ------------- We are offering to exchange up to US$48,022,000 of our 12.625% Notes due 2009, which we refer to as the new notes, for up to US$48,022,000 of your 12.625% Notes due 2004, which we refer to as the old notes. We refer to the old notes and the new notes collectively as the notes. This solicitation will expire at 5:00 p.m., New York City time, on , 2004 or any subsequent date and time resulting from an extension as described herein. To exchange your old notes for new notes: o you must complete and send the letter of transmittal that accompanies this prospectus to the appropriate exchange agent by 5:00 p.m., New York time, on , 2004; and o you should read the section called "The Exchange Offer" for further information on how to exchange your old notes for new notes. See "Risk Factors" beginning on page 15 for a discussion of risk factors that you should consider prior to tendering your old notes in the exchange offer. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved the securities to be issued in the exchange offer or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense. Dated September 27, 2004 TABLE OF CONTENTS Incorporation of Certain Information by Reference.............................3 Where You Can Find More Information...........................................3 Presentation of Certain Information...........................................3 Prospectus Summary............................................................5 Tevecap.......................................................................5 The Exchange Offer............................................................6 The New Notes.................................................................7 Timetable for the Offering....................................................9 Recent Developments..........................................................10 Risk Factors.................................................................15 Forward-Looking Statements...................................................20 Use of Proceeds..............................................................21 Selected Consolidated Financial Information..................................22 Operating and Financial Review and Prospects.................................24 Description of the Notes.....................................................29 The Exchange.................................................................42 Tax Considerations...........................................................47 Experts......................................................................50 Legal Matters................................................................51 Enforceability of Civil Liabilities..........................................51 Financial Statements........................................................F-1 You should rely only on the information contained or incorporated by reference in this prospectus. We have not authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information contained in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date. -2- INCORPORATION OF CERTAIN INFORMATION BY REFERENCE The Securities and Exchange Commission, or the SEC, allows us to incorporate by reference the information we file with them, which means that we can disclose important information to you by referring you to documents that we file with the SEC. The information incorporated by reference is considered to be part of this prospectus, and some later information that we file with or furnish to the SEC will automatically be deemed to update and supersede this information. We incorporate by reference the following documents that have been filed with the SEC: o Our Annual Report on Form 20-F/A for the fiscal year ended December 31, 2003. We also incorporate by reference into this prospectus any filings made with the SEC under Sections 13(a), 13(c) or 15(d) of the Exchange Act of 1934, as amended, which we refer to as the Exchange Act, and, to the extent designated therein, reports on Form 6-K furnished to the SEC, after the date of this prospectus and prior to the consummation of this offering. Any statement contained in a document, all or a portion of which is incorporated or deemed to be incorporated by reference herein, shall be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute part of this prospectus. We will provide without charge to each person to whom a copy of this prospectus is delivered, upon the written or oral request of any such person, a copy of any or all of the documents referred to above which have been or may be incorporated herein by reference, other than exhibits to such documents (unless such exhibits are specifically incorporated by reference in such documents). To obtain timely delivery, investors must request this information no later than five business days before the date they must make their investment decision. Requests should be directed to the information agent, GS Proxylatina S.A., Cerrito 1266, 10mo piso of. 42, C1010AAZ Buenos Aires, Argentina, telephone 5411-4811-8391, facsimile 5411-4811-8985, Attention: Ciro Ortiz, Director. WHERE YOU CAN FIND MORE INFORMATION We have filed with the SEC a registration statement on Form F-4 under the Securities Act of 1933, as amended (the Securities Act), with respect to the new notes. This prospectus, which is part of the registration statement, does not contain all of the information set forth in the registration statement and the exhibits and schedules to the registration statement. For further information pertaining to us we refer you to the registration statement and the exhibits and schedules filed as part of the registration statement. If a document has been filed as an exhibit to the registration statement, we refer you to the copy of the document that has been filed. Each statement in this prospectus relating to a document filed as an exhibit is qualified in all respects by the filed exhibit. The registration statement, including exhibits and schedules thereto, may be inspected without charge at the SEC's Public Reference Rooms at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms. In addition, the SEC maintains an Internet web site at www.sec.gov, from which you can electronically access the registration statement and its exhibits. PRESENTATION OF CERTAIN INFORMATION Our accounts, 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 2.1 of our Consolidated Financial Statements. Certain amounts stated herein in US dollars (other than as set forth in the Consolidated Financial Statements and financial information derived therefrom) have been translated, for the convenience of the reader, from reais at the rate in effect on June 30, 2004 of R$3.1075 = US$1.00. Such translations should not be construed as a representation that reais could have been converted at such rate on such -3- date or at any other date. See "Exchange Rate Data" in our Form 20-F/A. All references in this Prospectus to (i) "US dollars," "$" or "US$" are to United States dollars and (ii) "reais," "real" or "R$" are to Brazilian reais. -4- - -------------------------------------------------------------------------------- PROSPECTUS SUMMARY This summary highlights some of the information in this prospectus. Since this is a summary, it does not contain all of the information that may be important to you. For a more complete understanding of the exchange offer, you should carefully read the entire prospectus, including the Financial Statements and the notes thereto and the documents we have referred to you. You should pay special attention to the "Risk Factors" section beginning on page 15 of this prospectus. We hereby offer, upon the terms and subject to the conditions set forth in this prospectus and the accompanying letter of transmittal, to exchange an aggregate principal amount of up to US$48,022,000 of our 12.625% Senior Notes due 2009 which have been registered under the Securities Act of 1933 pursuant to a registration statement of which this prospectus constitutes a part, for the same principal amount of our outstanding 12.625% Senior Notes due 2004. We issued the old notes in an aggregate principal amount of US$250,000,000 on November 26, 1996 through a private placement, and these notes were subsequently exchanged for notes with identical terms registered under the Securities Act pursuant to exchange offers in May and December 1997. In June 1999, with the consent of a sufficient principal amount of the holders of the old notes, we amended the terms of the old notes to eliminate the restrictive covenants. At the date of this prospectus, TVA Communications Ltd., our wholly-owned subsidiary, holds old notes in the aggregate principal amount of US$201,978,000. As of the date hereof, outstanding old notes in the aggregate principal amount of US$48,022,000 are held by non-affiliates, and it is these notes we are seeking to exchange in this transaction. As a condition to the offering, which we may waive at any time, holders of old notes in the aggregate principal amount of at least 95% of the outstanding principal amount of US$48,022,000 held by non-affiliates must exchange their old notes for new notes pursuant to the offer. In the event this minimum threshold is met, we intend to exchange the old notes that TVA Communications Ltd. holds in the amount of US$201,978,000 on terms that are materially less favorable than those offered to the other holders of old notes hereby. In the event this minimum threshold is not met, we do not currently intend to exchange the old notes held by TVA Communication Ltd. on materially less favorable terms than this offer. In that case, we may elect to treat all holders of the old notes in the same manner, which we anticipate will be materially less favorable than the terms offered hereby. We will continue to make interest payments on the old notes, whether or not they are exchanged in the exchange offer, up to and including November 26, 2004, their maturity date. TEVECAP We are a Brazilian company and are a major pay television operator in Brazil and one of the country's primary pay television programming distributors. In 1991, we were the first to provide pay television services in Brazil. We presently offer pay television and broadband internet services utilizing cable and multipoint microwave distribution system, or wireless cable ("MMDS"), distribution technologies to nearly 287,595 pay television subscribers and 24,865 broadband internet subscribers (residential and corporate). We are a majority-owned subsidiary of Abril Comunicacoes S.A. ("Abril"), an affiliate of Editora Abril S.A., one of Latin America's largest communications groups. Our other beneficial shareholders are Falcon International Communications (Bermuda) L.P. ("Falcon International") and Harpia Holdings Ltd. and Curupira Holdings Ltda. (subsidiaries of JP Morgan Partners LLC ("JPM")). We conduct our pay television operations through wholly-owned operating companies: TVA Sistema de Televisao S.A. ("TVA Sistema"), TVA Sul Parana Ltda. ("TVA Sul"), Comercial Cabo TV Sao Paulo Ltda. ("Comercial Cabo") and CCS-Camboriu Cable System de TeleComunicacoes Ltda. ("CCS"). Through our MMDS and cable systems, we serve six cities with a combined population of approximately 31 million, including three of the seven largest cities in Brazil: Sao Paulo (population of 10.4 million), Rio de Janeiro (population of 5.9 million) and Curitiba (population of 1.6 million). - -------------------------------------------------------------------------------- -5- - -------------------------------------------------------------------------------- THE EXCHANGE OFFER Securities Offered.......................... We are offering up to US$48,022,000 aggregate principal amount of our 12.625% Notes due 2009, which we refer to as the new notes. The Exchange Offer.......................... We are offering to issue the new notes in exchange for the same principal amount of your 12.625% Senior Notes due 2004, which we refer to as the old notes. For procedures for tendering, see "The Exchange Offer." Tenders, Expiration Date, Withdrawal........ The exchange offer will expire at 5:00 p.m. New York City time on , 2004 unless it is extended. Tenders of old notes may be not withdrawn at any time; provided, however, that if the exchange of old notes for new notes as part of the exchange offer has not occurred on or before January 31, 2005, holders of old notes who have tendered their old notes in connection with the offer may withdraw their tender of their old notes at any time thereafter. If we decide for any reason not to accept any old notes for exchange, your old notes will be returned to you without expense to you promptly after the exchange offer expires. US Federal Income Tax Consequences.......... Your exchange of old notes for new notes in the exchange offer may result in income, gain or loss to you for U.S. federal income tax purposes. The new notes will be treated as issued with original issue discount ("OID") for U.S. federal income tax purposes. In general, U.S. Holders of new notes will be required to include OID thereon in gross income as ordinary interest income under a constant yield method over the term of the new notes in advance of cash payments attributable to such income. See "Tax Considerations--Certain U.S. Federal Income Tax Consequences." Use of Proceeds............................. We will not receive any proceeds from the issuance of the new notes in the exchange offer. Exchange Agent.............................. HSBC Bank USA, National Association Solicitation Agents.......................... Eurovest Global Securities Inc. is a solicitation agent for the portion of the exchange offer being made to non-U.S. Persons outside of the United States. Unibanco - Uniao de Bancos Brasileiros S.A. is the global solicitation agent for the entirety of the exchange offer and will coordinate the efforts of both solicitation agents. Failure to Tender Your Old Notes............ If you fail to tender your old notes in the exchange offer, you will continue to have the limited rights provided by the old notes. The old notes mature on November 26, 2004, and we cannot assure you that we will be able to pay the principal and interest due on that date.
- -------------------------------------------------------------------------------- -6- - -------------------------------------------------------------------------------- THE NEW NOTES The following summary contains basic information about the new notes. It is not intended to be complete. It does not contain all the information that is important to you. For a more complete understanding of the new notes, please refer to the section of this document entitled "Description of the Notes." Issuer.......................................... Tevecap S.A. New Notes....................................... Up to US$48,022,000 aggregate principal amount of 12.625% Senior Notes due November 26, 2009. Maturity Date................................... November 26, 2009. Indenture....................................... The new notes will be issued under the indenture between us, as issuer, and HSBC Bank USA, National Association, as indenture trustee, registrar, paying agent and transfer agent, and HSBC Bank USA, National Association, as principal paying agent to be dated November 26, 2004. Interest........................................ The new notes will bear interest at the annual rate of 12.625%, payable semiannually in arrears on each interest payment date, subject to the applicable grace period. Interest will accrue on the outstanding principal amount of the new notes from November 26, 2004. Interest Payment Dates.......................... May 26 and November 26 of each year. Principal Payments.............................. Principal on the new notes will be payable in three equal installments due on the following dates: November 26, 2007 November 26, 2008 November 26, 2009 Deferral of Principal........................... In the event of a significant devaluation of the Brazilian real against the US dollar, we will be permitted to defer the payment of principal, but in no event beyond the maturity date. For more information, see "Description of the Notes--Redemption." Optional Redemption............................. On any principal payment date, we may redeem all of the new notes, at a redemption price of 100% of the outstanding principal amount, 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). Ranking......................................... The new notes will constitute direct, unsecured and unconditional obligations of our company and will rank at least pari passu in priority of payment with all other present and future unsecured and unsubordinated obligations of our company. Withholding Taxes Additional Amounts............ All payments in respect of the new notes will be made free and clear of, and without withholding or deduction for or on account of, any present or future taxes, duties, assessments, fees or other governmetnal charges of whatever nature (and any fines, penalties or interest related thereto) imposed or levide by or on behlaf of
- -------------------------------------------------------------------------------- -7- - -------------------------------------------------------------------------------- Brazil or the successor jurisdiction (if any) of the principal paying agent, any political subdivision thereof or taxing authority therein (each, a "Taxing Jurisdiction"), unless such withholding or deduction is required by law or as provided in "Description of the Notes--Additional Amounts." In that event, subject to the exceptions set forth in "Description of the Notes--Additional Amounts," we will pay to each holder such amounts duly evidenced as may be necessary in order that every net payment made by us on each new note after such deduction or withholding will not be less than the amount then due and payable by us. See "Description of the Notes--Additional Amounts." Governing Law................................... The indenture, the new notes and related documents, and other transaction documents are governed by, and construed in accordance with, the laws of the State of New York. Form and Denomination........................... The new notes will be issued in the form of a global note registered in the name of DTC or its nominee in integral multiples of US$1.00. Clearance and Settlement........................ The new notes will be issued in book-entry form through the facilities of DTC for the accounts of its participants, including Euroclear Bank S.A./N.V. as the operator of the Euroclear System, and Clearstream Banking, societe anonyme, and will trade in DTC's Same-Day Funds Settlement System. Beneficial interests in new notes held in book-entry form will not be entitled to receive physical delivery of certificated notes except in certain limited circumstances. For a description of certain factors relating to clearance and settlement, see "Description of the Notes."
- -------------------------------------------------------------------------------- -8- - -------------------------------------------------------------------------------- TIMETABLE FOR THE OFFERING Commencement of the exchange offer.............. , 2004 Expiration of the exchange offer................ , 2004 - -------------------------------------------------------------------------------- -9- RECENT DEVELOPMENTS Pay Television Services and Programming Distribution We are in the midst of an upgrade of services for our pay television subscribers. In September 2004, we launched a significant upgrade of the services for our cable customers in Sao Paulo by offering digital services, which allow cable customers to view additional channels, including pay-per-view channels and audio channels, utilize an electronic programming guide, and select a number of languages and subtitles in which to view programs. Assuming availability of adequate funds, we expect to launch the upgrade of services for our MMDS customers in Sao Paulo to digital services in the first quarter of 2005, and to expand digital services for both our cable and MMDS customers to Rio de Janeiro in 2005. We are the first Brazilian cable pay television operator to provide digital services to our customers. In the second half of 2004 and in 2005, we will use multiple advertising strategies, both through Abril and other media sources, in order to publicize the features of the digital cable and MMDS services and attract new subscribers. In addition to these upgrades, we expect to offer digital video recorder (DVR) capability, video-on-demand (VOD) services and interactivity in connection with our cable and MMDS services in the near future. New devices (DVR and decoder) will offer improved video and audio quality as compared to current cable and MMDS services and will allow customers to pause, rewind and record live television. VOD services will provide customers with access to such services as home shopping, games, and movies on demand. VOD services will have a competitive price compared to video rental, and customers will not need to leave their homes to access a significant selection of products, games and movies. Interactivity will allow customers to send and receive information regarding programming and other areas of interest. In the first half of 2004, we began offering flexible tiered subscription options and developing customized programming packages, to allow subscribers to choose from a greater number of options in terms of pricing and types of programming. We intend that these tiered programming packages should attract new subscribers, as well as retain current subscribers, thereby reducing subscriber turn-over. The following table sets forth information regarding the markets in which we operate pay television systems and distribute programming, as of June 30, 2004:
Pay Television Average Revenue Programming Service Launch Class ABC per Month per Channels Date TV Homes(a) TV Homes(a) Subscribers Subscriber Offered -------------- ----------- ----------- ----------- --------------- ----------- Owned Systems: MMDS TVA Sistema Sao Paulo September 1991 2,258,831 785,288 34,824 23.51 28 Rio de Janeiro March 1992 1,907,346 1,007,975 61,301 22.88 27 TVA Sul Curitiba March 1992 426,836 241,405 6,355 14.95 15 Cable(b) TVA Sistema Sao Paulo October 1994 667,426 444,297 142,432 26.0 58 TVA Sul Curitiba January 1995 317,468 158,896 20,156 23.46 51 Camboriu June 1996 22,925 14,854 9,247 21.24 48 Foz do Iguacu June 1996 105,894 42,944 6,644 17.44 53 Florianopolis September 1996 202,549 124,924 6,181 23.34 50 Total MMDS and Cable Subscribers 287,140 Subscribers Awaiting Installation 455 Total Subscribers 287,595
-10- (a) This data is based on information provided by Pay TV Survey and IBGE (b) Our cable systems in Sao Paulo, Curitiba, Camboriu, Foz do Iguacu and Florianopolis have approximately 668,191, 201,615, 19,890, 18,060 and 29,822 Homes Passed, respectively, as of June 30, 2004. Voice Over Internet Protocol In the fourth quarter of 2004, we and our partners, Net2Phone Comunicacoes Ltda. and Primeira Escolha Emprudinatos Ltda., expect to launch voice over internet protocol (VoIP) services, a technology that allows customers to make telephone calls using a broadband internet connection instead of a regular (or analog) phone line. With this service, our customers would be able to call anyone who has a telephone number, including local, long distance, mobile and international numbers through an adaptor, using a traditional phone. Currently, no other pay television provider in Brazil presents competition for us in the VoIP market. Management believes that the VoIP services will attract new customers and establish us as a cutting edge service provider in the telephony market. Sale of Interest in Canbras Entities In October 2003, we entered into an agreement to sell our entire equity interest in each of Canbras TVA Cabo Ltda., TV a Cabo Santa Branca Ltda., TV Mogno Ltda. and TV Eucalipto Ltda. to Horizon Cablevision do Brasil S.A. The federal Agencia Nacional de TeleComunicacoes (Brazilian Telecommunications Agency, or ANATEL) approved this sale on June 16, 2004, and all other conditions precedent to the closing of the sale were waived by the parties during the first half of 2004. As of the date hereof, the equity interest in each of the listed Canbras entities has been transferred to Horizon Cablevision do Brasil S.A. and Abril Comunicacoes S.A., our principal shareholder, received the entire proceeds of the sale in the amount of US$5.5 million for which we recognized a shareholders receivable. In addition, upon the consummation of this sale, the Association Agreement dated June 14, 1995 among us, TVA Sistema de Televisao S.A., Canbras TV a Cabo Ltda., TV a Cabo Santa Branca Ltda., and Canbras Participacoes Ltda. was terminated. Legal Proceedings We are involved in litigation against Centrais Eletricas de Santa Catarina-CELESC, Companhia Paranaense de Energia Eletrica-COPEL and Eletropaulo Metropolitana de Sao Paulo in order to resolve certain questions relating to our contracts with these entities, particularly with respect to increases in pole rental fees requested by these entities. During the first half of 2004, we entered into settlement negotiations with Eletropaulo Metropolitana de Sao Paulo, whose claims against us constitute R$128,135.94 of the total of R$412,101.86 claimed by the three entities. A decision against us in connection with this litigation may have a material adverse effect on our consolidated financial position. We are challenging before Conselho Administrativo de Defesa Economica-CADE, the Brazilian antitrust authority, certain exclusivity rights with respect to Brazilian soccer programming enjoyed by one of our main competitors. During the first half of 2004, we received two favorable decisions from Secretaria de Direito Economico, the Secretariat of Economic law, and the matter is in its final stage of review. We do not believe that a decision against us in this matter would have a material adverse effect on us. However, in the event that CADE rules in our favor in the final stage, we will have the right to purchase rights to broadcast Brazilian soccer programming, which we believe would significantly help us to attract new subscribers and maintain our current subscribers. We are judicially disputing the payment of ICMS (sales tax on operations relating to the provision of goods and services) before the Sao Paulo Court of Justice. The State of Sao Paulo asserts that ICMS is due at the rate of 25% with respect to the provision of advertising on pay television. On the other hand, the Municipality of Sao Paulo asserts that the provision of advertising on pay television constitutes the rendering of services and therefore that only ISS (tax over services), and not ICMS, is due at the rate of 5.0%. We have made no provision with respect to this claim. Management believes, based on the opinion of our external counsel, that we will prevail in this dispute. Currently, we do not pay ICMS or ISS over advertising on pay television. Certain municipalities in the States of Sao Paulo, Parana and Santa Catarina have announced their intention to charge for the use of public highways where telecommunication equipment necessary for the rendering of our -11- services is installed. We are currently involved in seven claims relating to this issue. Five of these claims are in the appeals phase in the Courts of Justice of Sao Paulo, Parana and Santa Catarina, and two of these claims are in the Appeal Court of the State of Sao Paulo. We have made no provision in this respect. Based on the opinion of our external counsel, that the likelihood of an unfavorable outcome relating to these claims is remote. Certain of our operating subsidiaries are currently defending a lawsuit brought by the Escritorio Central de Arrecadacao e Distribuicao (Central Collection and Distribution Office, or "ECAD"). ECAD is an 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 pay television operators in Brazil. ECAD is seeking a judgment award of 2.55% of all past and present revenues generated by pay television operators in Brazil. The suits are currently being submitted to the Superior Court of Justice ("STJ") in order to determine whether ECAD is entitled to benefit from the copyrights relating to musical works broadcast on pay television. Suits were filed against TVA Sul in the Civil Court of Curitiba and against TVA Brasil Radioenlaces Ltda. in the Civil Court of Sao Paulo. In the suit against TVA Sul, TVA Sul has obtained an initial ruling in its favor. The suit against TVA Brasil Radioenlaces Ltda. is currently awaiting judgment. Management believes, based on the opinion of our external counsel, that the likelihood of an unfavorable outcome relating to these claims is remote. In addition, the Second Section of the STJ recently denied ECAD's claim against Uniao de Cinemas Ltda. Management believes this decision indicates a consolidation of the STJ's jurisprudence contrary to ECAD's claims. Abril Pledge In order to fulfil certain obligations of Editora Abril S.A. in connection with the non-convertible debentures issued by Editora Abril S.A. on October 19, 2001, Abril Comunicacoes S.A. granted to the debenture holders of Editora Abril S.A., a pledge ("caucao") of its shares in us, which represents 62.2% of our outstanding common shares. This pledge is still in full force. The debentures of Editora Abril S.A. will mature on August 1, 2005. Abril Capital Increase In the first half of 2004, Abril's board of directors has approved a capital increase in us. This amount corresponds to existing indebtedness between us and Abril which will be cancelled once the capital increase is effected. Accordingly, it will not be available for use in future investments by us. The issue will be submitted to our board of directors for decision in the second half of 2004. Outstanding Debt As of June 30, 2004, our indebtedness was approximately US$97,315 of which US$55,602 consists of obligations to third parties (principally the old notes) and US$41,140 consists of indebtedness under the Abril Credit Facility, a revolving credit facility effective December 6, 1995 (the "Abril Credit Facility") with Editora Abril S.A. as the lender, which allows us to draw down amounts not to exceed a maximum aggregate principal amount of R$60,000,000. Tax recovery program On April 5, 2000, we and our subsidiaries opted to participate inr the Government's Tax Recovery Program (REFIS), implemented by Decree No. 3,342 dated January 25, 2000, later converted into Law No. 9,964 dated April 10, 2000. In addition, our indirect subsidiary TVA Sistema de Televisao S.A. used its credits for tax loss carryforwards amounting to $5.3 million for amortization of interest and fines. As guarantee of the payment of the debts included in the program, TVA Sistema de Televisao S.A. pledged property with an aggregate value of $5.3 million as collateral. On July 31, 2003, certain of our subsidiaries, including TVA Sistema de Televisao S.A., through a protocol filed with the Federal Revenue Service, opted for the Federal Tax Financing Program (PAES), established by Law -12- No. 10,684 dated May 30, 2003. The main reasons for this action were the extension of maturity dates, refinancing through PAES (special installment program), inclusion of new taxes, and the use of TJLP (long-term interest rate) for monetary restatement. Management believes that this payment will be made in approximately 135 monthly installments, adjusted by TJLP. Related Party Transactions We have engaged in a significant number and variety of related party transactions, including, without limitation, the transactions described below. Although we believe such transactions are conducted on an arm's-length basis, we have 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. Editora Abril Service Agreement In January 2002, pursuant to a service agreement with our affiliate Editora Abril S.A., we outsourced a number of administrative services, including payroll, human resources, accounting, tax, finance and legal services, to Editora Abril, for which we pay to Editora Abril S.A. an average annual fee of approximately US$2.6 million. Publishing and Advertising We publish a monthly programming guide detailing our 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 200,000 copies of our monthly programming guide in return for an average annual payment of approximately US$110,000. TVA Sistema and Abril also have a reciprocal advertising agreement in which we publish advertisements for Abril in our monthly magazine in exchange for advertisements in the magazines published by Abril. Abril Credit Facility We are the borrower under the Abril Credit Facility, a revolving credit facility effective December 6, 1995 with Editora Abril S.A. as the lender, which allows us to draw down amounts not to exceed a maximum aggregate principal amount of R$60,000,000. Since June 1996, we have 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 us under the Abril Credit Facility. In the second half of 2004 or in 2005, we intend to capitalize our indebtedness under the Abril Credit Facility, which will significantly reduce our total outstanding indebtedness. The aggregate principal amount outstanding under the Abril Credit Facility was US$41.1 as of June 30, 2004 as of the date of this prospectus. Service Agreement with Licenseholders Pursuant to a service agreement dated July 22, 1994, Abril Comunicacoes S.A., TVA Brasil and TV Show Time (the "Licenseholders") agreed to transfer to us all the rights and benefits associated with their current and future pay-television licenses, with the exception of licenses operated by companies in which we have minority interests. While the Licenseholders retained the title to the licenses, the Licenseholders promised to take all steps necessary to transfer the title of the licenses to us. These steps included the appropriate procedures required by the Ministry of Communications and other governmental authorities 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. Exchange Rate As of September 24, 2004, the Commercial Market selling rate published by the Brazilian Central Bank was R$2.8735 per US$1.00. -13- The following table sets forth the reported high and low Commercial Market Selling rates for US dollars for the months indicated: Average Period End ----------- ------------ January 2004..................................... 2.851800 2.940900 February 2004.................................... 2.930300 2.913800 March 2004....................................... 2.905500 2.908600 April 2004....................................... 2.906000 2.944700 May 2004......................................... 3.100400 3.129100 June 2004........................................ 3.130200 3.118300 July 2004........................................ 3.036800 3.026800 August 2004...................................... 3.002900 2.933800 September 2004 (through September 24)............ 2.898700 2.873500 - -------------------------- Source: Brazilian Central Bank. -14- RISK FACTORS You should carefully consider the following risks and uncertainties, the risk factors described in our 2003 Form 20-F/A under the heading "Risk Factors," and the other information appearing elsewhere in this prospectus before making a decision regarding the transactions relating to the exchange offer. Additional risks and uncertainties that we currently consider immaterial and risks and uncertainties generally applicable to companies that have undertaken similar exchange offerings may also impair our business, results of operations, the value of our securities, including the old notes and the new notes and our ability to meet our financial obligations and our ability to consummate the exchange offer. For purposes of this section, when we state that a risk, uncertainty or problem may, could or would have an "adverse effect" on us, we mean that the risk, uncertainty or problem may, could or would have an adverse effect on our business, financial condition, liquidity, results of our operations or prospects, except as otherwise indicated or as the context may otherwise require. You should view similar expressions in this section as having a similar meaning. Risks Relating to Us We have incurred substantial operating losses and there is doubt about our ability to continue as a going concern. Since our inception in 1989, we have been developing our businesses and continue to sustain substantial operating losses due primarily to insufficient revenue with which to fund build-out, interest expense and charges for depreciation and amortization. Net losses incurred have been funded principally by capital contributions from shareholders, borrowings under shareholder loans, dispositions of non-strategic assets, bank loans and other borrowings made from time to time. Our management has undertaken efforts to generate the cash flow necessary to meet our cost structure, including the sale of non-strategic assets, the reduction of indebtedness and internal cost-cutting measures. Our consolidated financial statements for the year ended December 31, 2003 and the six months ended June 30, 2004 have been prepared assuming that we will continue as a going concern. As discussed in Note 1.2 to our financial statements for the year ended December 31, 2003, our recurring losses from operations, working capital deficiency and shareholder deficit raise substantial doubt about our ability to continue as a going concern. In this regard, managements' plans include: (i) increasing our subscriber base and implementing technological upgrades to our pay television networks; (ii) streamlining our principal operating procedures to increase productivity and profitability; (iii) the continuation of a cost reduction program which was initiated in 2002; (iii) adjusting our capitalization (including indebtedness) to provide for long term growth and stability and (iv) sales of non-strategic assets and the discontinuation of noncompetitive businesses. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. If the offering fails and we are unable to exchange the old notes for the new notes, involuntary bankruptcy proceedings may be imposed upon us. We do not have cash on hand to make principal payments on the old notes at their current maturity. As of June 30, 2004, our total consolidated bank and financial debt amounted to R$174,563 and US$56,175. If this exchange offer fails, we are unlikely to be able to pay the principal on the old notes. Our assets are currently insufficient to repay our creditors. While any liquidation proceeding is pending, our ability to operate or manage our business, to retain employees and to continue to pay for the programming and equipment required to conduct our operations will be materially adversely affected. We believe that the ability of our creditors to recover their claims will diminish significantly if the offering fails and they are forced to participate in a bankruptcy proceeding. -15- If a sufficient number of holders of old notes do not participate in the exchange offer, our wholly-owned subsidiary, TVA Communications Ltd. will renegotiate the terms of the old notes it holds and compete with non-affiliated holders for available funds. As a condition to the offering, which we may waive at any time, holders of old notes in the aggregate principal amount of at least 95% of the principal amount of US$48,022,000 held by non-affiliates of ours must exchange their old notes for new notes pursuant to the offer. In the event this minimum threshold is met, we intend to exchange the old notes that TVA Communications Ltd. holds in the amount of US$201,978,000 on terms that are materially less favorable to TVA Communications Ltd. than those offered to the other holders of old notes hereby. In the event this minimum threshold is not met, we do not currently intend to exchange the old notes held by TVA Communications Ltd. on terms that are materially less favorable to TVA Communications Ltd. than this offer. In that event, we may elect to treat TVA Communications Ltd. and the other holders of the old notes in the same manner, which we anticipate will be materially less favorable than the terms offered in this exchange offer. We may be subject to Brazilian withholding tax in connection with the exchange offer. Pursuant to an exemption provided under Brazilian tax law for notes issued on or prior to December 31, 1999, payments in respect of the old notes will not be subject to withholding taxes imposed by Brazil provided that the old notes are not redeemed prior to November 26, 2004. Notes of the nature of the new notes which are issued by Brazilian companies such as ourselves after December 31, 1999 would ordinarily be subject to Brazilian withholding income tax on payments in respect of interest (including original issue discount), fees, commissions, expenses, and any other income at a rate of 15% or such other lower rate as provided for in any applicable tax treaty between Brazil and another country. In the event the recipient of the payment is domiciled in a tax haven jurisdiction, as defined by Brazilian tax regulations, the rate would be 25%, except for payments related to debt securities registered with the Brazilian Central Bank, such as the new notes, which rate is also subject to a 15% rate in accordance with Normative Act SRF 252 of 2002. Based on the interpretation of recent provisions of Law 10925, of 2004 take the position for tax reporting purposes, that the consummation of the exchange offer and the issue of the new notes constitute a constructive extension of the maturity date of the old notes. On this basis, we believe that payments in respect of the new notes will not be subject to withholding taxes imposed by Brazil. In any event, under the terms of the new notes we have agreed to pay any additional amounts in respect of Brazilian withholding taxes as will result in receipt by the holders of the new notes of such amounts as would have been received by them had no such withholding or deduction been required. However we anticipate that the need to pay such additional amounts to the holders of the new notes in these circumstances would materially adversely affect our financial position and our ability to service payments on the new notes. For more information, see "Income Tax Considerations--Brazil." We must have capital available in order to successfully complete the launch of digital services for our cable and MMDS customers, a step which is important to ensure the success of our future operations. Our business strategy as a company is dependent on the successful launch of digital services for our cable and MMDS customers. Management estimates that US$2.5 million in capital expenditures will be required in order to complete this technological upgrade to digital services for our MMDS customers in Sao Paulo, and an additional US$7.0 million will be necessary to expand the digital services to our MMDS customers in Rio de Janeiro. We have made significant investments in both cable and MMDS digital technologies, and our financial condition would be materially adversely affected if we cannot make the required additional capital expenditures and realize a return on these investments. A completed exchange offer may increase and prolong your exposure to certain risks and uncertainties. Our debt obligations would continue to be exposed to many of the risks described in these "Risk Factors" even after a completed offering. The new notes have extended maturities in comparison to the old notes, thereby exposing our creditors to these risks for a longer period of time than would otherwise occur under the terms of the old notes. -16- Voice over Internet Protocol is an uncertain regulatory area, and changes in regulation may affect our ability to succeed in this market. Voice over Internet Protocol (VoIP) is a new industry in Brazil, and the regulatory environment with respect to this technology is still uncertain. Changes in the regulation of our business activities with respect to VoIP, including decisions by regulators affecting our operations (such as the granting or renewal of licenses or decisions as to the telephone rates we may charge our customers) or changes in interpretations of existing regulations by courts or regulators, could adversely affect our ability to succeed in the VoIP market and hurt our financial position. Any new regulations could have a material adverse effect on the VoIP industry as a whole and on us in particular. We may not be able to broadcast Brazilian soccer due to certain exclusivity rights with respect to this programming enjoyed by one of our chief competitors. Soccer is the most popular sport in Brazil, and many cable subscribers consider soccer programming to be an important part of their pay television services. As of the date of this prospectus, we are unable to broadcast Brazilian soccer programming because a competitor has obtained exclusive rights to Brazilian soccer programming. One of our chief competitors operates cable systems in the metropolitan areas of Sao Paulo, Rio de Janeiro, Curitiba and Florianopolis and an MMDS system in Curitiba. In each of these areas, their cable systems have more subscribers than our cable systems due to their larger networks (but equivalent penetration rates). We are challenging before Conselho Administrativo de Defesa Economico, the Brazilian antitrust authority, certain exclusivity rights with respect to Brazilian soccer programming enjoyed by this competition. If we cannot obtain the right to soccer programming, we believe that our ability to grow is likely to be adversely affected. We must experience growth in our subscriber base in order to sustain our business operations and prospects. Over the past three years, we have pursued a strategy of reduction of the number of unprofitable customers, allowing us to improve the programming and customer service that we are able to provide to profitable customers. In order for us to sustain our business operations and prospects, we must experience growth in our subscriber base during the remainder of 2004 and the ensuing years. We cannot assure you that we will experience growth in our subscriber base, or that the rate of growth will be sufficient to allow us to continue our operations. Because we have engaged in a significant number of related party transactions, our financial statements may not be truly representative of our financial position. We have engaged in a significant number and variety of related party transactions, including, without limitation, transactions with respect to administrative services, including payroll, human resources, accounting, tax, finance and legal services; publishing and advertising; financing transactions; and licenses. Although we believe such transactions are conducted on an arm's-length basis, we have 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. Our financial statements therefore may not accurately reflect such costs and if we were to be unable to obtain these services from our affiliates, our financial position may be adversely affected. Risks Relating to the Notes -17- The absence of an established market for the new notes may affect the ability of holders to sell their new notes in the future and may affect the price they would receive if such sale were to occur. The new notes are new securities for which there is currently no established market, and we cannot assure you that one will develop. We also cannot assure you as to the liquidity of any market for the new notes. As stated above, it is a condition to the offering, which we may waive at any time, that holders of old notes in the aggregate principal amount of at least 95% of the outstanding principal amount of US$48,022,000 held by non-affiliates must exchange their old notes for new notes pursuant to the offer. However, because we have the right to waive this condition and issue a reduced aggregate principal amount of new notes, there can be no assurance as to the aggregate principal amount of new notes that will be outstanding after the exchange offer. If only a limited aggregate amount of new notes is outstanding at any time, the liquidity and trading value of the new notes may be adversely affected. Holders of old notes who do not tender their old notes in the exchange offer will have less ability to trade their old notes. Because the market in the old notes will be significantly reduced after consummation of the exchange offer, holders of these old notes may experience difficulty trading their old notes. If only a limited aggregate principal amount of the old notes is outstanding at any time, the liquidity and trading value of the old notes may be adversely affected. There can be no assurance regarding whether a market will remain for the old notes, the ability of the holders of the old notes to sell them or the prices for which holders may be able to sell their old notes. Developments in other countries may affect the market price of Brazilian securities. The securities of Brazilian issuers have been influenced by economic and market conditions in other countries, especially other emerging market countries. Since the end of 1997, and in particular during 2001 and 2002, the international financial markets have experienced significant volatility as a result of economic problems in various emerging market countries, including the recent economic crisis in Argentina. Investors subsequently have had a heightened risk perception for investments in such market. As a result, in some periods Brazil has experienced a significant outflow of US dollars and Brazilian companies have faced higher costs for raising funds, both domestically and abroad, and have been impeded from accessing international capital markets. We cannot assure investors that international capital markets will remain open to Brazilian companies, including us, or that prevailing interest rates in these market will be advantageous to us and our ability to obtain additional financing on acceptable terms or at all. As a consequence, the market value of our securities may be adversely affected by these or other events outside of Brazil. Changes in Brazilian tax laws may have an impact on the taxes applicable to the disposition of the notes. According to Law 10,833, enacted on December 29, 2003, the disposition of assets located in Brazil by non-residents of Brazil, whether to other non-residents of Brazil or Brazilian residents and whether made within or outside Brazil is subject to taxation in Brazil. Although we believe that the notes do not fall within the definition of assets located in Brazil for the purposes of Law 10,833, considering the general and unclear scope of Law 10,833 and the absence of judicial guidance in respect thereof, we are unable to predict how the scope of Law 10,833 would be interpreted in the courts of Brazil. -18- We may not be able to make payments in US dollars. In the past, the Brazilian economy has experienced balance of payment deficits and shortages in foreign exchange reserves. The Brazilian government has responded by restricting the ability of Brazilian or foreign persons or entities to convert reais into foreign currencies generally and US dollars in particular. The Brazilian government may institute a restrictive exchange control policy in the future. A restrictive exchange control policy could prevent or restrict our access to US dollars to meet our US dollar obligations and also could have a material adverse effect on our business, financial condition and results of operations. We cannot predict the impact of any such measures on the Brazilian economy. Judgments of Brazilian courts enforcing our obligations under the notes or the indenture relating to the old notes or the indenture relating to the new notes would be payable only in reais. If proceedings were brought in Brazil seeking to enforce our obligations under the notes or the indenture relating to the old notes or the indenture relating to the new notes, we would not be required to discharge our obligations in a currency other than reais. Under the Brazilian exchange control limitations, an obligation to pay amounts denominated in a currency other than reais, which is payable in Brazil, may only be satisfied in reais at the rate of exchange, as determined by the Central Bank, in effect on the date of payment. Accordingly, in case a declaration of bankruptcy is made against us, all credits denominated in foreign currencies shall be converted into reais at the prevailing rate on the date of such declaration. Special authorization by the Central Bank shall be required for the conversion of such reais-denominated amounts into US dollars and for its remittance abroad. Book-entry registration. Because transfers and pledges of global notes can be effected only through book entries at DTC, the liquidity of any secondary market for global notes may be reduced to the extent that some investors are unwilling to hold notes in book-entry form in the name of a DTC participant. The ability to pledge global notes may be limited due to the lack of a physical certificate. Beneficial owners of global notes may, in certain cases, experience delay in the receipt of payments of principal and interest since such payments will be forwarded by the paying agent to DTC who will then forward payment to the respective DTC participants, who will thereafter forward payment directly, or indirectly through Euroclear or Clearstream, to beneficial owners of the global notes. In the event of the insolvency of DTC or of a DTC participant in whose name global notes are recorded, the ability of beneficial owners to obtain timely payment and (if the limits of applicable insurance coverage by the Securities Investor Protection Corporation are exceeded, or if such coverage is otherwise unavailable) ultimate payment of principal and interest on global notes may be impaired. The notes will be subordinated to certain statutory liabilities. Under Brazilian law, our obligations under the notes and the indenture relating to the old notes and the indenture relating to the new notes are subordinated to certain statutory preferences. In the event of our bankruptcy, such statutory preferences, such as claims for salaries, wages, social security and other taxes, court fees and expenses, will have preference over any other claims, including claims by any investor under the notes. -19- FORWARD-LOOKING STATEMENTS We make forward-looking statements in this prospectus that are subject to risks and uncertainties. These statements are based on the beliefs and assumptions of our management, and on information currently available to us. Forward-looking statements include statements regarding the intent, belief or current expectations of our or our directors or executive officers with respect to, but not limited to: Forward-looking statements also include information concerning possible or assumed future results of operations of ours set forth under "Summary" and "Risk Factors," as well as statements preceded by, followed by, or that include the words "believes," "may," "continues," "expects," "anticipates," "intends," "plans," "estimates" or similar expressions. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Our future results and shareholder values may differ materially from those expressed in or suggested by these forward-looking statements. Many of the factors that will determine these results and values are beyond our ability to control or predict. Investors are cautioned not to put undue reliance on any forward-looking statements. We do not undertake any obligation to release publicly any revisions to forward-looking statements contained in this prospectus to reflect later events or circumstances or to reflect the occurrence of unanticipated events. Investors should understand that the following important factors, in addition to those discussed in this prospectus, could affect our future results and could cause results to differ materially from those expressed in such forward-looking statements: o the performance of the Brazilian economy generally; o the levels of exchange rates between Brazilian and foreign currencies; o the telecommunications policy of Brazil's federal government; o the receipt of additional, and/or the revocation of our existing, governmental approvals, licenses and concessions; o the cost and availability of financing; o the availability of qualified personnel; o the business abilities and judgment of our personnel; o the emergence of new technologies and the response of our customer base to those technologies; o acquisitions by us of other companies; o ability to keep investing in new technologies, in particular having capital to launch new digitial services for our cable and MMDS customers; and o other factors discussed under "Risk Factors." -20- USE OF PROCEEDS We will not receive any cash proceeds from the issuance of the new notes. The new notes will be exchanged for old notes as described in this prospectus upon our receipt of old notes. We will cancel all of the old notes surrendered in exchange for the new notes. -21- SELECTED CONSOLIDATED FINANCIAL INFORMATION The selected financial data as of June 30, 2004 and 2003 have been derived from, and should be read in conjunction with, our Interim Unaudited Financial Statements for the six-month periods ended June 30, 2004 and June 30, 2003 included in this prospectus. As required by Brazilian law, and in accordance with local accounting practices, our financial records and our subsidiaries financial records are maintained in the applicable Brazilian currency (the real). However, the financial statements are presented in US dollars in accordance with US GAAP. In order to prepare the Unaudited Interim Financial Statements, our accounts have been translated from reais, on the basis described in Note 2.1 to the Unaudited Interim Financial Statements included herein. 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.
Six Months Ended June 30, 2004 2003 -------- --------- (Dollars in thousands) Consolidated Statement of Operation: Gross revenues Monthly subscriptions 44,507 38,857 Installation 581 675 Advertising 1,622 923 Additional services and others (a) 2,425 1,897 Taxes on revenues (b) (6,868) (6,233) Total net revenue 42,267 36,119 -------- --------- Direct operating expenses (c) 19,777 19,574 Selling, general and administrative expenses 10,234 10,937 Depreciation and amortization 12,072 11,531 Other operating expense (income), net (6,291) 1,342 -------- --------- Total operating expenses 35,792 43,384 -------- --------- Operating loss from continuing operations 6,475 (7,265) Nonoperating (income) expenses Interest expense 10,652 8,653 Foreign Currency transaction loss, net 4,327 (12,833) Other nonoperating expenses (income), net (d) (241) (8) Income tax expense (income) (6,625) 19,911 Equity in (income) losses of affiliates, net (e) 468 (439) -------- --------- Net income (loss) (2,106) (22,549) ======== =========
-22- Six Months Ended June 30, 2004 2003 -------- -------- Other data: Purchase of property, plant and equipment 4,281 3,772 Ratio of earnings to fixed charges (h) -- -- Cash Flow Data: Net cash provided by (used in) operating activities 10,037 (1,740) Net cash provided by (used in) investing activities (4,281) (3,877) Net cash (used in) provided by financing activities (3,242) 3,925 Selected Operating Data: Pay TV Number of Subscribers (f) 287,140 287,108 Average monthly revenue per Subscriber (g) 25.14 22.16 Internet Broadband - Residential Number of Subscribers (g) 22,972 15,796 Average monthly revenue per Subscriber (f) 26.07 25.01 Internet Broadband - SOHO Number of Subscribers (g) 1,688 1,136 Average monthly revenue per Subscriber (g) 155.81 145.38 June 30 December 31 --------- ------------- 2004 2003 Consolidated Balance Sheet Data (at period end): Cash and cash equivalents 797 292 Property, plant and equipment, net 62,602 76,317 Total assets 93,637 107,931 Loans payable to related companies 41,140 39,712 Redeemable Common Stock 24,019 24,201 Long-term liabilities 66,398 69,380 Total shareholders' deficit (87,327) (89,431) - -------------------- Notes to Selected Financial and Other Data (a) Includes Advertising and Other revenues (such as cable modem fee, frequencies lease, wholesale, technical assistance). (b) Represents various non-income based taxes paid on certain of the Company's gross revenue items with rates ranging from 3.65% to 15.15%. (c) Represents costs directly related to the subscriber base and new installations evolution. (d) Includes interest income and minority interest. (e) Represents the Company's pro rata share of the net loss or income of its equity investments. (f) Represents the number of subscribers as of the last day of each period. (g) Average monthly revenue per subscriber refers to the average monthly subscription fee as of the last day of each period. (h) For the six-month periods ended June 30, 2004 and 2003, earnings were insufficient to cover fixed charges by $8,136 and $2,966, respectively. In calculating the ratio of earnings to fixed charges, earnings represents pre-tax net loss before minority interest, equity in (losses) income of affiliates, plus fixed charges. Fixed charges consists of interest expense. -23- OPERATING AND FINANCIAL REVIEW AND PROSPECTS The following discussion should be read in conjunction with, and is qualified in its entirety by reference to (i) Tevecap's Audited Financial Statements (including the notes thereto) included in the Annual Statement as filed with the Securities and Exchange Commission on Form 20-F/A on September 27, 2004, and (ii) Tevecap's Unaudited Financial Statements for the six-month periods ended June 30, 2004 and June 30, 2003 included herein. Tevecap's financial statements have been prepared in accordance with generally accepted accounting principles in the United States. For the purposes of the following discussion, all dollar amounts, with the exception of average installation and subscriber fees, are set forth in US dollars. Overview We are one of Brazil's primary pay television programming distributors, as well as a provider of internet broadband services. Because our pay television business is more mature than our internet business, our internet business may grow faster and generate a greater percentage of our revenues in coming years. In addition, we plan to launch voice over internet protocol (VoIP) services in the fourth quarter of 2004. As we introduce and develop this new VoIP business, it may grow faster than our existing businesses and the relationship of revenue to expenses described herein may not be indicative of future results. Consolidated Statements of Operations Data for the Six Months Ended June 30, 2004 Compared to the Six Months Ended June 30, 2003
Six Months Ended June 30, ---------------------------------------------------------------- 2004 2003 ---------------------------- ------------------------------ % of Net % of Net Amount Revenue Amount Revenue ------------ ----------- ------------ ------------ (Dollars in (Dollars in thousands) thousands) Gross revenues Monthly subscriptions 44,507 105.3% 38,857 107.6% Installation 581 1.3% 675 1.9% Additional services and others 4,047 9.6% 2,820 7.8% Taxes on Revenue (6,868) (16.2)% (6,233) (17.3)% ------- ----- ------- ----- Net revenue 42,267 100.0% 36,119 100.0% ------- ----- ------- ----- Direct operating expenses 19,777 46.8% 19,574 54.2% Selling, general and administrative expense 10,234 24.2% 10,937 30.3% Depreciation and amortization 12,072 28.6% 11,531 31.9% Other operating (income) expense, net (6,291) (14.9)% 1,342 3.7% ------- ----- ------- ----- Total operating expenses 35,792 84.7% 43,384 120.1% ------- ----- ------- ----- Operating income (loss) 6,475 15.3% (7,265) (20.1)% ------- ----- ------- ----- Interest income (368) (0.9)% (119) (0.3)% Interest expense 10,652 25,2% 8,653 24.0% Foreign currency transaction (gain) loss, net 4,327 10.2% (12,833) (35.5)% Minority interest 127 0.3% 111 0.3% Income taxes (a) (6,625) (15.6)% 19,911 55.1% Equity in losses (income) of affiliates, net 468 1.1% (439) (1.3)% ------- ----- ------- ----- Net income (loss) (2,106) (4.9)% (22,549) (62.4)% ======= ===== ======= =====
- -------------------- (a) Includes provision for income taxes in 2004 due to foreign currency gain in respect of the old notes. The table below sets forth the number of our cable and MMDS subscribers at June 30, 2004 and June 30, 2003. Cable/MMDS Subscribers June 30, 2004 June 30, 2003 ------------- ------------- MMDS(a) .................................. 102,480 109,207 Cable .................................... 184,660 177,901 Paid subscribers awaiting installation ... 455 838 ------- ------- Total .................................... 287,595 287,946 ======= ======= -24- - -------------------- (a) Includes UHF subscribers The table below sets forth the number of our internet subscribers at June 30, 2004 and June 30, 2003. Internet Subscribers June 30, 2004 June 30, 2003 ------------- ------------- Ajato (a) ................................ 24,660 16,932 Paid subscribers awaiting installation ... 205 211 ------ ------ Total .................................... 24,865 17,143 ====== ====== - --------------------- (a) Excludes subscribers that formerly subscribed separately to Acesso for internet access and who now receive both internet access and internet service through Ajato. Gross revenues. Gross revenues consist primarily of monthly subscription revenue (which principally consists of monthly fees paid by subscribers to us for programming services, including equipment use), installation revenue and additional services and others (which consists of advertising revenues and other revenues). Pay Television. Gross revenues from pay television services increased from 32.1 million in the six months ended June 30, 2003 to 37.7 million in the six months ended June 30, 2004, an increase of 17.6%. Internet. Our residential and corporate internet subscriber base increased by approximately 54.0% in the six month period ended June 30, 2003 and 45.0% in the six month period ended June 30, 2004 due to our strategy of providing various upgrade offers (bundling) that favorably impacts our churn rates. Gross revenues from internet services increased from 4.0 million in the six months ended June 30, 2003 to 4.6 million in the six months ended June 30, 2004, an increase of 12.7%. Monthly subscriptions. Monthly subscription revenue for the six months ended June 30, 2004 was US$44.5 million, an increase of 14.7%, as compared to US$38.8 million for the same period in 2003. The increase in revenue, in spite of the stability in the number of our pay television subscribers, was due to the large growth in our internet subscriber base and increases for our television programming in real terms various market segments through tiered programming options. The average monthly subscription price during the six months ended June 30, 2004 was US$23.48 for MMDS service, US$26.06 for cable service, US$26.07 for residential internet service and US$155.81 for corporate internet service, as compared to US$21.12, US$22.80, US$25.01 and US$145.38, respectively, for the six months ended June 30, 2003. The average increase in monthly subscription price between June 30, 2003 and June 30, 2004 was 13.4% in US dollar terms and 4.8% in reias terms for pay television service (including both MMDS and cable), 4.2% in US dollar terms and (3.75%) in reais terms for residential internet service, and 7.2% in US dollar terms and (1.0%) in reais terms for corporate internet service. Installation. Installation revenue for the six months ended June 30, 2004 was US$581,000, as compared to US$675,000 for the same period in 2003, a decrease of US$94,000 or 13.9%. This decrease was primarily due to our strategy of slightly reducing installation fees in order to attract more subscribers. The average installation fee during the six months ended June 30, 2004 was US$20.61 for MMDS service and US$14.51 for cable service, as compared to US$26.32 and US$15.50, respectively, during the six months ended June 30, 2003. The average installation fee for internet sales was US$7.75 in the six months ended June 30, 2004, as compared to US$15.57 in the six months ended June 30, 2003. Additional services and other revenues. Additional services and other revenues for the six months ended June 30, 2004 was US$4.0 million, as compared to US$2.8 million for the same period in 2003, an increase of 43.5%. The increase was primarily as a result of an increase in advertising revenue from US$923,000 in the first half of 2003 to US$1.6 million in the first half of 2004 representing an increase of 75.7%, primarily due to the outsourcing of our advertising requirements to Editora Abril and increased activity in the advertising market. Other revenue increased from US$1.9 million in the first half of 2003 to US$2.4 million in the first half of 2004, principally due to the increase in the Internet subscriber base and subscription revenues. -25- Taxes on revenues. Taxes on revenue consist of a 3.65% tax on advertising revenue and a 15.15% tax on revenues other than advertising revenue. Taxes on revenue for the six months ended June 30, 2004 were US$6.9 million, as compared to US$6.2 million for the same period in the prior year, an increase of 10.2%. The increase in taxes on revenue is attributable to our increase in revenues. Taxes on revenue as a percentage of gross revenues were 14.0% in the six month period ended June 30, 2004, as compared to 14.7% in the six month period ended June 30, 2003. Net revenue Net revenue for the six months ended June 30, 2004 was US$42.3 million, as compared to US$36.1 million for the same period in 2003, an increase of US$6.2 million or 17.0%. Direct operating expenses Direct operating expenses include expenses in connection with payroll and benefits for non-administrative employees, programming, technical assistance, TVA magazine, pole rental and other operations. These expenses are variable and related to the subscriber base evolution and are also dependent on the type of service subscribers select. Direct operating expenses for the six months ended June 30, 2004 were US$19.8 million, as compared to US$19.6 million for the same period in 2003, an increase of US$203,000, or 1.0%. As a percentage of net revenues, direct operating expenses represented 46.8% in the first half of 2004, as compared to 54.2% in the first half of 2003. This relative decrease in direct operating expenses demonstrates the positive results of our restructuring efforts with gains in productivity being incorporated into our cost structure. Selling, general and administrative expenses Selling, general and administrative expenses include payroll and benefits for administrative & selling employees, advertising and promotion expense, rent, and other general and administrative expenses. Selling, general and administrative expenses for the six months ended June 30, 2004 were US$10.2 million, as compared to US$11.0 million for the same period in 2003, a decrease of US$703,000 or 6.4%, due to reduction in our allowance for doubtful accounts provision (as credit conditions in the market improved) and the impact of the continuous cost cutting program that we implemented since 2002. Payroll and benefits expense for selling and administrative employees increased from US$2.1 million in the first half of 2003 to US$2.7 million in the first half of 2004, an increase of US$638,000, or 30.5%, largely due to the new structure in our commercial area established to support new sales level and segmented channels. Advertising and promotion expense increased from US$1.3 million in the first half of 2003 to US$1.9 million in the first half of 2004, an increase of US$564,000 or 43.5%, due to sales increases and a new communication and institutional strategy. Rent and other general and administrative expenses were significantly reduced in the first half of 2004 due to the favorable impact of our cost cutting program. Depreciation and amortization Depreciation and amortization includes depreciation of systems, equipment and installation materials and amortization of concessions. Depreciation and amortization for the six months ended June 30, 2004 was US$12.1 million, as compared to US$11.5 million for the same period in 2003, an increase of US$541,000 due primarily to the increase in our capital expenditure. Other operating (income) expense, net We recorded other operating income for the six months ended June 30, 2004 of US$6.3 million as compared to other operating expenses of US$1.3 million for the same period in 2003 due to the sale of Canbras authorized by Anatel in June, for which we recorded a gain of US$8.7 million. -26- Operating (income) loss Operating loss for the six months ended June 30, 2004 was US$6.5 million (positive) compared to US$7.3 million (negative) for the same period in 2003, an increase of US$13.7 million. Interest income Interest income for the six months ended June 30, 2004 was US$368,000, as compared to US$119,000 for the same period in 2003, an increase of US$249,000 or 209.2%. Interest expense Interest expense for the six months ended June 30, 2004 was US$10.7 million, as compared to US$8.7 million for the same period in 2003, an increase of US$2.0 million, principally attributable to an increase in the prime interest rates in Brazilian. Foreign currency transaction (income) loss, net Foreign currency transaction income increased from a loss of US$12.8 million in the six months ended June 30, 2003 to income of US$4.3 million in the six months ended June 30, 2004 as a result of the depreciation of the real against the dollar of 7.6% during the six months ended June 30, 2004 compared to an appreciation of 18.7% during the six months ended June 30, 2003. Minority interest Minority interest was US$127,000 for the six months ended June 30, 2004, as compared to US$111,000 for the same period in 2003, due to improvement in the operational figures in our Camboriu operation. Income taxes Income taxes expense in the first half of 2003 were US$19.9 million compared to a benefit of US$6.6 million in the first half of 2004, primarily as a result of the depreciation of the real against the dollar in the first half of 2004. In 2003 the real appreciated against the dollar, and we recorded foreign currency gains which generated income tax expense. As the real depreciated in the first six months of 2004 against the dollar, we recorded income tax benefit. Equity in (income) losses of affiliates, net For the six months ended June 30, 2004, equity in losses of affiliates was US$468,000, as compared to a gain of US$439,000 in the same period in 2003, a decrease of US$907,000 due to the impact of exchange rate variations on the results of impact over Canbras. Net income (loss) Net loss for the six months ended June 30, 2004 was US$2.1 million, as compared to a net loss of US$22.6 million for the same period in 2003, an improvement of US$20.4 million or 90.6%. Liquidity and Capital Resources Since inception, we have 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 our pay television systems. As of June 30, 2004, we had cumulative net losses of US$540.1 million. During the periods under review, we required external funds to finance our capital expenditures and operating activities and make payments of principal and interest on our indebtedness. The sources of such funds have been as follows: (i) borrowings from -27- Abril under the Abril Credit Facility, of which US$41.1 million was outstanding as of June 30, 2004, (ii) borrowings under short-term revolving credit facilities, of which US$7.6 million was outstanding as of June 30, 2004, (iii) net capital contributions of approximately US$516,487 from shareholders, and (iv) the old notes, of which an aggregate principal amount of US$48,022 was outstanding to unaffiliated parties as of June 30, 2004. As of June 30, 2004, we had US$97.3 million of indebtedness outstanding, primarily consisting of the old notes in the aggregate principal amount of US$48.0 million, US$41.1 million outstanding under the Abril Credit Facility, and short-term revolving credit facilities in an aggregate principal amount of US$7.6 million. We will likely require capital for (i) the continued funding of losses and working capital requirements, (ii) the installation of equipment at subscribers' locations, (iii) the construction/maintenance of additional/existing transmission and headend facilities and related equipment purchases, (iv) the launching of digital services for MMDS customers and related expenses, (v) the development of our internet businesses and (vi) the payment of the principal amount of our indebtedness. We made purchases of fixed assets in the aggregate amount of US$4.3 million and US$3.8 million in the first half of 2004 and the first half of 2003, respectively. Management estimates that US$6.9 million of capital expenditures will be required in the second half of 2004, principally related to the launching of digital cable services, the maintenance of cable and MMDS networks and our subscriber base, the purchase of reception equipment (spare parts), which includes hardware, materials and labor used for new subscriber installations and decoders, and the development of our internet operations. Our principal sources of liquidity are borrowings under the Abril Credit Facility and our short-term revolving credit facility, together with net cash provided by operating activities. Our liquidity needs arise primarily from capital expenditures, debt service requirements and, during certain periods, the funding of our working capital requirements. Until sufficient cash flow is generated from operations to satisfy our liquidity needs, we will be required to utilize our current sources of debt funding to supplement our cash flow. We had approximately US$797.0 million of cash and cash equivalents as of June 30, 2004. For the six months ended June 30, 2004, net cash provided by operating activities was US$10.0 million. For the six months ended June 30, 2004, net cash used in investing activities was US$4.3 million, largely as the result of capital expenditures for the purchase of fixed assets of US$3.8 million. The purchases of fixed assets were principally related to the maintenance of cable and MMDS networks and the subscriber base, the purchase of reception equipment (spare parts), which includes hardware, materials and labor used for new subscriber installations , and the development of our internet operations. For the six months ended June 30, 2004, net cash used in financing activities was US$3.2 million, reducing our indebtedness levels. Our liquidity may also be adversely affected by statutory minimum dividend requirements, which are 25% of profits under applicable Brazilian law. Trend Information Our results of operations for the six-months ended June 30, 2004 have been affected by Brazilian economic conditions. In the first half of 2004, the real depreciated by 7.6% to R$3.1075 per US$1.00 compared to December 31, 2003. During the first six months of 2004, the Brazilian economy performed favorably, with industrial production and GDP increasing in the first half of 2004 in comparison with the second half of 2003, impacting favorably the employment level and income levels in the economy. Our results of operations for the year ending December 31, 2004 will be influenced by Brazilian economic conditions and the roll-out of our new digital services. Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements. -28- DESCRIPTION OF THE NOTES The following summary describes certain provisions of the new notes and the indenture relating thereto. This summary does not purport to be complete and is subject to, and qualified in its entirety by reference to, the provisions of the indenture and the new notes. Capitalized terms used in the following summary and not otherwise defined herein shall have the meanings ascribed to them in the indenture. You may obtain copies of the indenture and specimen notes upon request to the indenture trustee or the paying agent in Luxembourg at the addresses set forth under "Where you can find more information." References to "the Company" in this section refer to Tevecap S.A. and its Subsidiaries. General The new notes are to be issued under an Indenture, to be dated as of November 26, 2004 (the "Indenture"), between the Company, HSBC Bank USA, National Association, as Trustee (the "Trustee") and HSBC Bank USA, National Association, as Paying Agent, a copy of which is available upon request to the Company. The statements under this caption relating to the new 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 new notes is set forth under "Certain Definitions." Principal of, premium, if any, and interest on, the new notes will be payable, and the new 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 new notes will be issued only in fully registered form, without coupons, in denominations of US$1.00 and any integral multiple of US$1.00. No service charge will be made for any registration of transfer or exchange of new notes, but the Company or the Trustee may require payment of a sum sufficient to cover any transfer tax or other similar governmental charge payable in connection therewith. Terms Of The New Notes The new notes will be unsecured, senior obligations of the Company, limited to US$48,022,000 million aggregate principal amount, and will mature on November 26, 2009. Each new note will bear interest at the rate per annum shown on the front cover of this Prospectus from November 26, 2004 (the "Issue Date"), or from the most recent date to which interest has been paid or provided for, payable semiannually in arrears in cash on May 26 and November 26 of each year commencing May 26, 2005 to holders of record at the close of business on the May 1 or November 1 immediately preceding the interest payment date. We will continue to make interest payments on the old notes, whether or not they are exchanged in the exchange offer, up to and including (but not beyond) November 26, 2004. Redemption (a) Scheduled redemption: Unless previously redeemed, or purchased or cancelled, each Note will be redeemed (subject as provided in subsection (b) below in three equal installments on the dates and in the amounts set out below (each an "Installment Amount"): Scheduled Redemption Date Installment Amount ----------------------------------------------- ---------------------- November 26, 2007 (the "First Redemption Date") US$16,007,333.33 November 26, 2008 (the "Second Redemption Date") US$16,007,333.33 November 26, 2009 (the "Third Redemption Date") US$16,007,333.34 -29- (b) Adustment of Installment Amounts: (i) If the Exchange Rate Increase with respect to the First Redemption Date is in excess of 0.3, then: (I) the Installment Amount due on the First Redemption Date shall be reduced by the US dollar equivalent of the Exchange Adjustment applicable to the First Redemption Date; (II) the Installment Amount due on the Second Redemption Date shall be increased by the amount which is equal to 50% of the US dollar equivalent of the Exchange Adjustment applicable to the First Redemption Date; and (III) the Installment Amount due on the Third Redemption Date shall be increased by the amount which is equal to 50% of the US dollar equivalent of the Exchange Adjustment applicable to the First Redemption Date. (ii) If the Exchange Rate Increase with respect to the Second Redemption Date is in excess of 0.4, then: (I) the Installment Amount due on the Second Redemption Date (as adjusted, if applicable, in accordance with subsection (b)(i)(II) above) shall be reduced by the US dollar equivalent of the Exchange Adjustment applicable to the First Redemption Date; and (II) the Installment Amount due on the Third Redemption Date (as adjusted, if applicable, in accordance with subsection (b)(i)(II) above) shall be increased by the US dollar equivalent of the Exchange Adjustment applicable to the Second Redemption Date. (c) Optional Redemption. On any of the First Redemption Date, the Second Redemption Date, or the Third Redemption Date, the Company may redeem all of the new notes, at a redemption price of 100% of the outstanding principal amount, 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). Additional Amounts All payments by the Company in respect of the new notes will be made free and clear of, and without withholding or deduction for or on account of, any present or future taxes, duties, assessments, fees or other governmental charges of whatever nature (and any fines, penalties or interest related thereto) (collectively, "Taxes") imposed or levied by or on behalf of the Federative Republic of Brazil or the successor jurisdiction (if any) of any paying agent or, in each case, any political subdivision thereof or taxing authority therein (each, a "Taxing Jurisdiction"), unless such withholding or deduction is required by law. In that event, the Company shall pay to each holder or new notes such additional amounts ("Additional Amounts") duly evidenced as may be necessary in order that every net payment made by the Company on each new note after deduction or withholding for or on account of any Tax imposed upon or as a result of such payment by the Taxing Jurisdiction will not be less than the amount then due and payable on such new note. The foregoing obligation to pay Additional Amounts, however, will not apply to: (i) any Tax which would not have been imposed, withheld or otherwise deducted but for the existence of any present or former connection between such holder of new notes (or between a fiduciary, settlor, beneficiary, member or shareholder of such holder, if such holder is an estate, a trust, a partnership or a corporation), on the one hand, and the Taxing Jurisdiction, on the other hand, including, without limitation, such holder (or such fiduciary, settlor, beneficiary, member or shareholder) being or having been a citizen or resident thereof or being or having been engaged in a trade or business or present therein or having, or having had, a permanent establishment therein, or any other connection of any kind, other than the mere receipt of such payment or the ownership or holding of such new note; (ii) any Tax which would not have been imposed, withheld or otherwise deducted but for the presentation by such holder of new notes for payment (where presentation is required) on a date more than 30 days after the date on which such payment became due and payable or the date on which payment thereof is duly -30- provided for, whichever occurs later; (iii) the extent that the Taxes would not have been imposed, withheld or otherwise deducted but for the failure of such holder of new notes to comply with any certification, identification or other reporting requirements concerning the nationality, residence, identity or connection with the Taxing Jurisdiction of the holder of new notes if (a) such compliance is required or imposed by statute, regulation, administrative practice or treaty or other applicable law of such Taxing Jurisdiction as a precondition to exemption from all or a part of such Tax and (b) at least 30 days prior to the date on which the Companies apply this clause (iii), the Company shall have notified such holder of new notes that some or all holders of new notes shall be required to comply with such requirement; (iv) a Tax imposed, withheld or otherwise deducted on a payment to an individual and required to be made pursuant to European Council Directive 2003/48/EC or any other Directive implementing the conclusions of the ECOFIN Council Meeting of 26-27 November 2000 on the taxation of savings income or any law complying with, or introduced in order to conform to, such Directive; (v) any Tax imposed, withheld or otherwise deducted on a new note presented for payment by or on behalf of a holder of new notes who would have been able to avoid such withholding or deduction by presenting the relevant new note to another Paying Agent; (vi) any estate, inheritance, gift, sales, transfer or personal property tax or similar Tax or any Tax payable other than by withholding on a payment on the new notes; or (vii) any combination of items (i) through (vi) above. The Company shall also pay any duly evidenced present or future stamp, court or documentary taxes or any other excise taxes, charges or similar levies which arise in any jurisdiction from the execution, delivery, registration or the making of payments in respect of the new notes, excluding any such taxes, charges or similar levies imposed by any jurisdiction outside of any Taxing Jurisdiction other than those resulting from, or required to be paid in connection with, the enforcement of the new notes following the occurrence of any Default. No Additional Amounts shall be paid with respect to a payment on a new note to a holder of new notes that is a fiduciary or partnership or other than the sole beneficial owner of such payment to the extent a beneficiary or settlor with respect to such fiduciary or a member of such partnership or beneficial owner would not have been entitled to receive payment of the Additional Amounts had the beneficiary, settlor, member or beneficial owner been the holder of new notes of the new note. The Company shall provide the Trustee with the official acknowledgment of the relevant taxing authority (or, if such acknowledgment is not available, a certified copy thereof, if available) evidencing the payment of taxes in any Taxing Jurisdiction in respect of which the Company has paid any Additional Amounts. Copies of such documentation shall be made available to the Paying Agents upon request therefor. The Company will: (i) at least 10 Business Days prior to the first interest payment date (and at least 10 Business Days prior to each succeeding interest payment date or any redemption date or the maturity date if there has been any change with respect to the matters set forth in the below-mentioned officer's certificate), deliver to the Trustee and each paying agent an officer's certificate (a) specifying the amount, if any, of taxes described in this section "-Additional Amounts" imposed or levied by or on behalf of any Taxing Jurisdiction (the "Relevant Withholding Taxes") required to be deducted or withheld on the payment of principal of or interest on the new notes to holders of new notes and the Additional Amounts, if any, due to holders of new notes in connection with such payment, and (b) certifying that the Company will pay such deduction or withholding; (ii) prior to the due date for the payment thereof, pay any such Relevant Withholding Taxes, together with any penalties or interest applicable thereto; (iii) within 15 days after paying such Relevant Withholding Taxes, deliver to the Trustee and each paying agent evidence of such payment and of the remittance thereof to the relevant taxing or other authority as described herein; and (iv) pay any Additional Amounts due to holders of new notes on any interest payment date, redemption date or the maturity date to the Trustee in accordance with the provisions of this section. Any such officer's certificate will be deemed to be duly provided if sent by facsimile to the Trustee and each paying agent. The Company hereby covenants to indemnify the Trustee and each paying agent for, and to hold each harmless against, any loss, liability or expense reasonably incurred without negligence, bad faith or willful misconduct on such person's part, arising out of or in connection with actions taken or omitted by any of them in reliance on any officer's certificate furnished pursuant to this section or the failure of the Trustee or any paying agent for any reason (other than its own negligence, bad faith or willful misconduct) to receive on a timely basis any such officer's certificate or any information or documentation requested by it or otherwise required by applicable law or regulations to be obtained, furnished or filed in respect of such Relevant Withholding Taxes. The Company -31- will make available to any holder of new notes requesting the same, evidence that the applicable Relevant Withholding Taxes have been paid. Whenever in the Indenture or in this "Description of the 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 new 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 new notes may be redeemed at the option of the Company, in whole but not in part, at any time prior to maturity if as the result of any change in or amendment to the laws, regulations or rulings of Brazil 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 has or will become obligated to pay Additional Amounts (excluding interest and penalties) in excess of the Additional Amounts that the Company 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 taking reasonable measures available to them, then the Company may, at its option, redeem or cause the redemption of the new notes, as a whole but not in part, upon not more than 60 nor less than 30 days' notice to the holders of such new 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 new 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 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 would be obligated to pay such Additional Amounts were a payment in respect of the new notes then due and, at the time such notice of redemption is given, such obligation to pay such Additional Amounts remains in effect. Selection In the case of any partial redemption or repurchase, selection of the new 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 new note of US$1,000 in original principal amount or less will be redeemed or repurchased in part. If any new note is to be redeemed or repurchased in part only, the notice of redemption or repurchase relating to such new 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 new note. Ranking The new notes will be unsecured, senior obligations of the Company ranking equally 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. 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 June 30, 2004, the Company did not have any outstanding senior indebtedness other than the old notes (exclusive of unused commitments) and short term debt). Defaults An "Event of Default" is defined in the Indenture as (i) a default in any payment of interest on any new note when due, continued for 30 days, (ii) a default in the payment of principal or premium, if any, of any new note when due at its Stated Maturity, upon optional redemption, upon required repurchase, upon declaration or otherwise, -32- (iii) the failure by us to comply with any other agreements contained in the Indenture for 45 days after notice (in each case, other than a failure to purchase new notes which shall constitute an Event of Default under clause (ii) above), (iv) indebtedness of ours (other than the Excluded Debt) 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 (the "cross acceleration provision"); provided, however, that it shall constitute an Event of Default hereunder if the outstanding Excluded Debt that is held by Persons who are not Affiliates of the Company 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 US$35 million, (v) certain events of bankruptcy, insolvency or reorganization of ours (the "bankruptcy provisions"), (vi) any judgment or decree for the payment of money in excess of US$5 million (to the extent not covered by insurance as acknowledged in writing by the insurer) is rendered against us 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"), or (vii) there shall have occurred any seizure, compulsory acquisition, expropriation or nationalization of material assets of ours and our Subsidiaries. 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 new notes notify us 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 new notes by notice to us may declare the principal of and accrued and unpaid interest on all the new 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 ours occurs and is continuing, the principal of and accrued and unpaid interest on all the new 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 new notes may rescind any such acceleration with respect to the new 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 new 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 new 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 new 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 new 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 new 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. We also are 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. -33- 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 new 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 new notes then outstanding. However, without the consent of each holder of an outstanding new note affected, no amendment may, among other things, (i) reduce the amount of new notes whose holders must consent to an amendment, (ii) reduce the rate of or extend the time for payment of interest on any new note, (iii) reduce the principal of or extend the Stated Maturity of any new note, (iv) reduce the premium payable upon the redemption or repurchase of any new note or change the time at which any new note may be redeemed as described under "--Optional Redemption" above, (v) make any new note payable in money other than that stated in the new note, (vi) amend or modify any of the provisions of the Indenture relating to the ranking of the new notes in any manner that adversely affects the rights of any holder of the new notes, (vii) impair the right of any holder to receive payment of principal of and interest on such holder's new 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 new notes, or (viii) 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 ours under the Indenture, to provide for uncertificated new notes in addition to or in place of certificated new notes (provided that the uncertificated new notes are issued in registered form for purposes of Section 163(f) of the Code, to secure the new notes, to add to the covenants of ours for the benefit of the new noteholders or to surrender any right or power conferred upon us, 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 new 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 new note selected for redemption or to transfer or exchange any new note for a period of 15 days prior to a selection of new notes to be redeemed. The new notes will be issued in registered form, and the registered holder of a new note will be treated as the owner of such new note for all purposes. Defeasance The Company at any time may terminate all its obligations under the new 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 new notes, to replace mutilated, destroyed, lost or stolen new notes and to maintain a registrar and paying agent in respect of the new notes. The Company at any time may terminate its obligations under the operation of the cross acceleration provision and the judgment default provision described under "Defaults" 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 new notes may not be accelerated because of an Event of Default with respect thereto. If the Company exercises its covenant defeasance -34- option, payment of the new notes may not be accelerated because of an Event of Default specified in clause (iii), (iv) and (vi) under "Defaults" 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 new 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 new notes will not recognize income, gain or loss for US Federal income tax purposes as a result of such deposit and defeasance and will be subject to US 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 new notes 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 new notes, any restrictions or prohibition of access to the Brazilian foreign exchange market exists, the Company agrees to pay all amounts payable under the new notes in the currency of such new 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 new notes. All costs and taxes payable in connection with the procedures referred to in this covenant shall be borne by the Company. US dollars are the sole currency of account and payment for all sums payable by the Company under or in connection with the new notes, 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 or otherwise) by any holder of a new note in respect of any sum expressed to be due to it from the Company shall only constitute a discharge to the Company 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 new note, the Company shall indemnify it against any loss sustained by it as a result. In any event the Company shall 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 new 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, shall give rise to a separate and independent cause of action, shall apply irrespective of any indulgence granted by any holder of a new 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 new note. Enforceability Of Judgments With Respect To The New Notes Service of process upon the Company (other than an insolvency, liquidation or bankruptcy proceeding or any other proceeding in the nature of an in rem or quasi in rem proceeding) to enforce their obligations under the Indenture or the new notes may be obtained within the United States by service upon CT Corporation System. 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, including judgments with respect to the payment of amounts owing with respect to the new notes, 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 under the Indenture and the new 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, such foreign judgment must meet the following conditions: (a) it must comply with all formalities -35- 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 in a court in Brazil under any new 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 is declared bankrupt or enters into a Concordata, the new notes will be considered general unsecured indebtedness of the Company and therefore will be subject to such proceedings. Under a bankruptcy proceeding (essentially a liquidation proceeding), payments in respect of the new 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 new 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 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 will appoint CT Corporation System as its agent for service of process in any suit, action or proceeding with respect to the Indenture or the new notes 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. -36- Concerning The Trustee HSBC Bank USA, National Association is to be the Trustee under the Indenture and has been appointed by the Company as Registrar, and HSBC Bank USA, National Association has been appointed as Paying Agent with regard to the new notes. Governing Law The Indenture provides that it and the new 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. Certain Definitions For purposes of the following definitions and the Indenture generally, all calculations and determinations shall be made in accordance with GAAP and shall be based upon the consolidated financial statements of the Company and its Subsidiaries prepared in accordance with GAAP. "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. "Board of Directors" means the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of such Board. "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 but excluding any debt securities convertible into such equity. "Code" means the United States Internal Revenue Code of 1986, as amended. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. "Exchange Act" means the United States Securities Exchange Act of 1934, as amended. "Exchange Adjustment" means: (i) with respect to the First Redemption Date, the amount which is "a" where: a = (ERI - 0.3) x IA where: "ERI" is the Exchange Rate Increase applicable to the First Redemption Date; and "IA" is the Installment Amount due on the First Redemption Date; and (ii) with respect to the Second Redemption Date, the amount which is "a" where: a = (ERI - 0.4) x IA where: -37- "ERI" is the Exchange Rate Increase applicable to the Second Redemption Date; and "IA" is the Installment Amount due on the Second Redemption Date but as adjusted, if applicable, in accordance with subsection (b)(i)(II) under "--Scheduled Redemption." "Exchange Rate Increase" means, with respect to the First Redemption Date or the Second Redemption Date, the amount of the increase (expressed as a decimal fraction of the exchange rate applicable at 7:30 p.m. (Sao Paulo time) on the day which is one Sao Paulo business day prior to November 26, 2004, if any, in the exchange rate for the purchase of Brazilian reais with US dollars, for the period from 7:30 p.m. (Sao Paulo time) on the day which is one Sao Paulo business day prior to November 26, 2004 until 7:30 p.m. (Sao Paulo time) on the day which is five Sao Paulo business days prior to the First Redemption Date or the Second Redemption Date (as applicable), using the Real/US dollar commercial rate, expressed as the amount of reais per one US dollar, reported by the Bancon Central do Brasil on SISBACEN Data System under transaction code PTAX-800 ("Consultas de Cambio" or Exchange Rate Inquiry) Option 5 ("Cotacoes para Contabilidade" or Rates for Accounting Purposes) market type L (corresponding to US dollars traded in the foreign exchange market segment officially denominated "Livre" and commonly known as "Commercial"). "Excluded Debt" means any of the Company's old notes. "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. "Holder," "holder" or "Noteholder" means the Person in whose name a note is registered on the Registrar's books. "Issue Date" means the date on which the new notes are originally issued. "Officers' Certificate" means a certificate signed by two Officers; provided that one of the officers giving an Officers' Certificate pursuant to Section 4.3 of the Indenture shall be the principal executive, financial or accounting officer of the Company. "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. "Person" means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision hereof or any other entity. "SEC" or "Commission" means the United States Securities and Exchange Commission. "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. "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. -38- "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. "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. Book-Entry; Delivery and Form The new notes are issued in the form of global securities held in book-entry form. DTC or its nominee is the sole registered holder of the new notes for all purposes under the Indenture. Owners of beneficial interests in the new notes represented by the global securities hold their interests pursuant to the procedures and practices of DTC. As a result, beneficial interests in any such securities are shown on, and transfers are effected only through, records maintained by DTC and its direct and indirect participants. Any such interests may not be exchanged for certificated securities, except in limited circumstances. Owners of beneficial interests must exercise any rights in respect of their interests, including any right to convert or require repurchase of their interests in the new notes, in accordance with the procedures and practices of DTC. Beneficial owners are not holders and are not entitled to any rights under the global securities or the Indenture. The Company and the trustee, and any of our respective agents, may treat DTC as the sole holder and registered owner of the global securities. 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. Investors 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 new 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 own and that security interests in negotiable instruments can only be perfected by delivery of certificates representing the instruments. Consequently, the ability to transfer new notes or to pledge the new 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 new 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 new 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 new 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. -39- 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 new notes by the Depository, or for maintaining, supervising or reviewing any records of the Depository relating to such new notes. Payments with respect to the principal of, premium, if any, and interest on any new 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 new notes under the Indenture. Under the terms of the Indenture, the Company and the Trustee may treat the persons in whose names the new 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 new 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 new 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 new 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 new notes represented by the Global Note. In addition, subject to certain conditions, any person having a beneficial interest in a Global Note may, 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 new 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 new notes to be issued). Same-Day Settlement And Payment Settlement for the new notes will be made in immediately available funds. So long as the new 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 new 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 new notes are expected to trade in the Depositary's Same-Day Funds Settlement System, and secondary market trading activity in the new notes will therefore be required by the Depositary to settle in immediately available -40- funds. No assurance can be given as to the effect, if any, of settlement in immediately available funds on the trading activity in the new notes. -41- THE EXCHANGE Upon the terms and subject to the conditions of this exchange offer, we will, unless such old notes are withdrawn in accordance with the withdrawal rights specified in "--Withdrawal of Tenders" below, accept any and all old notes validly tendered prior to 5:00 p.m., New York City time, on the Expiration Date. We will issue, on or promptly after the Expiration Date, an aggregate principal amount of up to US$48,022,000 of new notes in exchange for the same principal amount of outstanding old notes tendered and accepted in connection with this exchange offer. The new notes issued in connection with this exchange offer will be delivered on November 26, 2004 or otherwise on the earliest practicable date on or following the Expiration Date. Holders must tender all of their old notes in connection with this exchange offer in order to have their tender accepted. The new notes will have the terms and be subject to the conditions of an Indenture dated November 26, 2004 between us, the Trustee and HSBC Bank USA, National Association, as Paying Agent. As of the date of this Prospectus, US$48,022,000 aggregate principal amount of the old notes is outstanding to persons not affiliated with us. In connection with the issuance of the old notes, we 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 new 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. Holders of old notes do not have any appraisal or dissenters' rights in connection with this exchange offer. Old notes which are not tendered for exchange or are tendered but not accepted in connection with this exchange offer will remain outstanding and will not be entitled to the covenant restrictions originally provided for under the indenture relating to the old notes and stripped out in later amendments and supplements to such indenture. We shall be deemed to have accepted validly tendered old notes when, as and if we have 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 new notes from us. If any tendered old notes 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 notes will be returned, without expense, to the tendering holder thereof as promptly as practicable after the Expiration Date. Holders who tender old notes in connection with this 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 notes in connection with this exchange offer. We will pay all charges and expenses, other than certain applicable taxes described below, in connection with this exchange offer. See "--Fees and Expenses." Expiration Date; Extensions The term "Expiration Date" shall mean 5:00 p.m., New York City time, on , 2004, unless extended by us in our sole discretion, in which case the term "Expiration Date" shall mean the latest date and time to which this exchange offer is extended. We reserve the right to extend the Expiration Date at any time and from time to time, in accordance with applicable laws and regulations, regardless of the amount of tenders of old notes we have received, by issuing a press release or making any other public announcement (or by written notice to the holders of record of the old notes as of the immediately preceding day) as promptly as practicable, and in no event later than 9:00 a.m., New York City time, on the next day other than Saturday, Sunday or any other day on which banks located in New York, New York, USA or Sao Paulo, Brazil are authorized or obligated to close (each, a "Business Day") after the previously announced Expiration Date. Such announcement or notice may state that we are extending the solicitation for a specified period of time or on a daily basis. Exchange Offer Procedures Only a holder of record of old notes on , 2004, may tender such old notes in connection with this exchange offer. The tender to us of old notes by a holder thereof as set forth below and the acceptance thereof by us will constitute a binding agreement between the tendering holder and us 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 notes for exchange pursuant to this exchange offer must transmit a properly completed and duly executed Letter of Transmittal, including all other documents -42- required by such Letter of Transmittal, to the Exchange Agent at the address 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 notes 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 notes, 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 NOTES, 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 NOTES SHOULD BE SENT TO US. Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed unless the old notes surrendered for exchange pursuant thereto are tendered (i) by a registered holder of the old notes 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 notes are registered in the name of a person other than the signer of a Letter of Transmittal, the old notes 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 us in our 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 notes tendered for exchange will be determined by us in our sole discretion, which determination shall be final and binding. We reserve the absolute right to reject any and all tenders of any particular old notes not properly tendered or to not accept any particular old notes which acceptance might, in our judgment or our counsel's judgment, be unlawful. We also reserve the absolute right to waive any defects or irregularities or conditions of this exchange offer as to any particular old notes either before or after the Expiration Date (including the right to waive the ineligibility of any holder who seeks to tender old notes in this exchange offer). The interpretation of the terms and conditions of this exchange offer as to any particular old notes either before or after the Expiration Date (including the Letter of Transmittal and the instructions thereto) by us shall be final and binding on all parties. Unless waived, all defects or irregularities in connection with tenders of old notes for exchange must be cured within such reasonable period of time as we shall determine. Neither we, 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 notes 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 notes, such old notes 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 notes. If the Letter of Transmittal or any old notes 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 us, proper evidence satisfactory to us of their authority to so act must be submitted. By tendering, each holder will represent to us that, among other things, the new notes acquired pursuant to this exchange offer are being obtained in the ordinary course of business of the person receiving such new notes, whether or not such person is the holder and such person has no arrangement with any person to participate in the distribution of the new notes. If any holder or any such other person is an "affiliate," as defined under Rule 405 of the Securities Act, of ours, is engaged in or intends to engage in or has an arrangement or understanding with any person to participate in a distribution of such new notes to be acquired pursuant to this exchange offer, or acquired -43- the old notes 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 new notes for its own account in exchange for old notes, where such old notes 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 new notes. 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 Notes For Exchange; Delivery of New Notes Upon the terms and subject to the conditions of this exchange offer, we will accept all old notes properly tendered and will issue the new notes on November 29, 2004 or otherwise on the earliest practicable date on or following the Expiration Date. For purposes of this exchange offer, we shall be deemed to have accepted properly tendered old notes for exchange when, as and if we have 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 new notes for old notes that are accepted for exchange pursuant to this exchange offer will be made only after timely receipt by the Exchange Agent of (i) certificates for such old notes or a timely confirmation of such old notes 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 notes are not accepted for any reason set forth in the terms and conditions of this exchange offer, or if old notes are submitted for a greater amount than the holder desires to exchange, such unaccepted or unexchanged old notes will be returned without expense to the tendering holder thereof (or, in the case of old notes tendered by book-entry transfer into the Exchange Agent's account at DTC pursuant to the book-entry procedures described below, such nonexchanged old notes will be credited to an account maintained with DTC) designated by the tendering holder as promptly as practicable after the expiration or termination of this exchange offer. Book-Entry Transfer The Exchange Agent will make a request to establish an account with respect to the old notes at DTC for purposes of this 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 notes by causing DTC to transfer such old notes into the Exchange Agent's account at DTC in accordance with such DTC's procedures for transfer. However, although delivery of old notes 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 the address 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 notes desires to tender such old notes and the old notes are not immediately available, or time will not permit such holder's old notes 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 notes and the amount of old notes 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 notes, 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 notes, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, and all other documents required by the Letter of -44- 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 notes may be not withdrawn at any time; provided, however, that if the exchange of old notes for new notes as part of the exchange offer has not occurred on or before January 31, 2005, holders of old notes who have tendered their old notes in connection with the offer may withdraw their tender of their old notes at any time thereafter. Subject to the preceding sentence, for a withdrawal to be effective, a written notice of withdrawal must be received by the Exchange Agent at the address set forth below under "Exchange Agent." Any such notice of withdrawal must specify the name of the person having tendered the old notes to be withdrawn, identify the old notes to be withdrawn (including the amount of such old notes), and (where certificates for old notes have been transmitted) specify the name in which such old notes are registered, if different from that of the withdrawing holder. If certificates for old notes 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 notes have been tendered pursuant to the procedure for book-entry 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 notes and otherwise comply with the procedures of such facility. We reserve the right to contest the validity of any such withdrawal. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by us, whose determination shall be final and binding on all parties. Any old notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of this exchange offer. Any old notes 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 notes tendered by book-entry transfer into the Exchange Agent's account at DTC pursuant to the book-entry transfer procedures described above, such old notes will be credited to an account with DTC specified by the Holder) as soon as practicable after withdrawal, rejection of tender or termination of this exchange offer, and all of the rights of the holders with respect to such old notes existing prior to the date that such old notes were tendered will again be in effect. Properly withdrawn old notes 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 HSBC Bank USA, National Association has been appointed as Exchange Agent in connection with this 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. HSBC Bank USA, National Association's office is located at 425 Fifth Avenue, New York, NY 10018-2706. HSBC Bank USA, National Branch may also be reached by telephone at 212-525-1316 or by facsimile at 212-525-1300. Fees and Expenses We will pay certain fees to the Solicitation Agents to Eurovest Global Securities Inc. only in connection with old notes held by non-U.S. Persons outside the United States) for soliciting acceptances of this exchange offer. We will pay certain other expenses to be incurred in connection with this exchange offer, including the fees and expenses of the Trustee, accounting and certain legal fees. Holders who tender their old notes for exchange will not be obligated to pay any transfer taxes in connection therewith. If, however, new notes are to be delivered to, or are to be issued in the name of, any person other than the registered holder of the old notes tendered, or if tendered old notes 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 notes in connection with this 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. -45- Consequences of Failure to Properly Tender Old Notes in the Exchange Issuance of the new notes in exchange for the old notes pursuant to this exchange offer will be made only after timely receipt by the Exchange Agent of such old notes, a properly completed and duly executed Letter of Transmittal and all other required documents. Therefore, holders of the old notes desiring to tender such old notes in exchange for new notes should allow sufficient time to ensure timely delivery. We are under no duty to give notification of defects or irregularities with respect to tenders of old notes for exchange. We anticipate that we will not be able to make principal payments on the old notes at their current maturity. Upon consummation of the exchange offer and issuance of the new notes, we anticipate that we will continue to be unable to make principal payments on any old notes that have not been exchanged pursuant to the exchange offer. Holders of old notes who do not exchange them in the exchange offer will not receive payments of principal on the current maturity of the old notes, and we cannot predict when we may be able to make such principal payments. As a condition to the offering, which we may waive at any time, holders of old notes in the aggregate principal amount of at least 95% of the principal amount of US$48,022,000 held by non-affiliates of ours must exchange their old notes for new notes pursuant to the offer. In the event this minimum threshold is met, we intend to exchange the old notes that TVA Communications Ltd. holds in the amount of US$201,978,000 on terms that are materially less favorable to TVA Communications Ltd. than those offered to the other holders of old notes hereby. In the event this minimum threshold is not met, we do not currently intend to exchange the old notes held by TVA Communications Ltd. on terms that are materially less favorable to TVA Communications Ltd. than this offer. In that event, we may elect to treat TVA Communications Ltd. and the other holders of the old notes in the same manner, which we anticipate will be materially less favorable than the terms offered in this exchange offer. -46- TAX CONSIDERATIONS Brazil PROSPECTIVE HOLDERS OF THE NEW NOTES ARE ADVISED TO CONSULT THEIR OWN TAX ADVISERS AS TO THE CONSEQUENCES OF HOLDING THE NEW NOTES, INCLUDING, WITHOUT LIMITATION, THE CONSEQUENCES OF THE RECEIPT OF INTEREST AND THE SALE, REDEMPTION OR REPAYMENT OF THE NEW NOTES. Brazilian Tax Considerations The following discussion is a summary of the Brazilian tax considerations relating to an investment in the new notes by a non-resident of Brazil. The discussion is based on the tax laws of Brazil as in effect on the date hereof and is subject to any change in Brazilian law that may come into effect after such date. The information set forth below is intended to be a general discussion only and does not address all possible tax consequences relating to an investment in the new notes. Interest (including original issue discount), fees, commissions, expenses, and any other income payable by a Brazilian borrower to an individual, entity, trust or organization domiciled outside Brazil are generally subject to withholding income tax. As of January 1, 1996, the rate of withholding tax is 15% or such other lower rate as provided for in any applicable tax treaty between Brazil and another country. In the event the recipient of the payment is domiciled in a tax haven jurisdiction, as defined by Brazilian tax regulations, the rate will be 25%, except for payments related to debt securities registered with the Brazilian Central Bank, such as the notes, which rate is also subject to 15% in accordance with Normative Act SRF 252, of 2002. Notwithstanding the foregoing, the applicable withholding tax rate on interest, fees, commissions and original issue discount under instruments with a minimum average maturity greater than 96 months such as the old Notes was reduced to 0%, pursuant to Law 9481 of August 13, 1997, as amended by Law 9532 of December 10, 1997. However, pursuant to Law 9959 of January 27, 2000, this reduced rate is no longer in effect for new debt securities issued as of January 1, 2000. In this respect, according to Law 9959 of January 27, 2000, the withholding income tax applicable to these transactions as of January 1, 2000 is 15%. However, according to Law 10925 of July 23, 2004 such reduction was maintained in case of renegotiation of debt securities with a minimum average maturity greater than 96 months, such as the old Notes. Accordingly, we believe and understand that the applicable rate of withholding income tax on interest, fees, commissions and original issue discount under the new notes is also of 0%. Any earnings or capital gains made outside Brazil as a result of a transaction between two non-residents of Brazil in respect of debt instruments issued by a non-Brazilian company are not subject to a tax in Brazil. In such circumstances, gains resulting from discounts obtained by a non-resident in the purchase of the new notes or capital gains realized on the sale of such securities are not subject to tax in Brazil. However, according to Law 10833, dated December 29, 2003, which came into force on January 1, 2004, the disposition of assets located in Brazil by non-residents, whether to other non-residents or Brazilian residents, may become subject to taxation in Brazil. Although the new notes should not fall within the definition of assets located in Brazil for purposes of Law 10833, considering the general and unclear scope of Law 10833 and the absence of judicial court rulings with respect thereto, it is unpredictable whether such understanding ultimately will prevail in the courts of Brazil. In principle, any profits realized on a sale of the new notes by the non-residents of Brazil would not be subject to taxation in Brazil. Generally, there are no stamp, transfer or other similar taxes in Brazil with respect to the transfer, assignment or sale of the new notes outside Brazil, nor any inheritance, gift or succession tax applicable to the ownership, transfer or disposition of the new notes, except for gift and inheritance taxes imposed in some states of Brazil on gifts and bequests by individuals or entities not domiciled or residing in Brazil to individuals or entities domiciled or residing within such Brazilian states. -47- Certain U.S. Federal Income Tax Consequences The following discussion is a summary of certain U.S. federal income tax consequences to holders of old notes or new notes ("Holders") of (i) exchanging old notes for new notes and (ii) holding new notes received in the exchange offer. This summary is based upon the Internal Revenue Code of 1986, as amended (the "Code"), proposed, temporary and final Treasury regulations ("Treasury Regulations"), published administrative interpretations of the IRS and judicial decisions, all of which are subject to change, possibly on a retroactive basis. This summary does not purport to consider all aspects of U.S. federal income taxation that may be relevant to a particular Holder. Further, the U.S. federal income tax treatment of a Holder may vary depending on such Holder's particular situation. Certain classes of Holders (including foreign persons, insurance companies, tax-exempt organizations, employee stock ownership plans, financial institutions, brokers, dealers, subchapter S corporations, persons whose functional currency is not the U.S. dollar, persons in whose hands the old notes or the new notes are not "capital assets" (as defined in Section 1221 of the Code), persons that hold old notes (or will hold new notes) as a hedge or otherwise have hedged (or will hedge) the risk of holding old notes (or new notes), persons that hold old notes (or will hold new notes) as part of (or in connection with) a "straddle," "conversion" or other integrated transaction and persons that use the mark-to-market method of accounting) may be subject to special rules not discussed below. The discussion below does not consider the effect of any non-U.S., state, local or other tax laws or any U.S. tax considerations (e.g., estate or gift tax) other than the U.S. federal income tax considerations specifically discussed herein that may be applicable to a particular Holder. We have not sought any rulings from the Internal Revenue Service (the "IRS") with respect to the statements made in this discussion, and there can be no assurance that the IRS will agree with such statements. This summary does not deal with persons that acquire new notes subsequent to the exchange offer. EACH HOLDER IS URGED TO CONSULT SUCH HOLDER'S OWN TAX ADVISOR TO DETERMINE THE PARTICULAR U.S. FEDERAL, STATE, LOCAL, NON-U.S. AND OTHER TAX CONSEQUENCES TO SUCH HOLDER OF THE EXCHANGE OFFER AND HOLDING EXCHANGE NOTES. For purposes of the discussion herein, a "U.S. Holder" means a Holder that is (i) a citizen of the United States or a resident of the United States for U.S. federal income tax purposes, (ii) a corporation or another entity treated as a corporation for U.S. federal income tax purposes created or organized in or under the laws of the United States, any state thereof or the District of Columbia, (iii) an estate the income of which is subject to U.S. federal income tax without regard to its source or (iv) a trust if (x) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust or (y) the trust has a valid election in effect under applicable Treasury Regulations to be treated as a United States person. This discussion does not address the tax consequences applicable to Holders that are not U.S. Holders, including foreign persons and partnerships (including for this purpose any entity treated as a partnership for U.S. federal income tax purposes). A Holder that is not a U.S. Holder should consult its own tax advisor. Overview Whether and to what extent a U.S. Holder that exchanges old notes for new notes pursuant to the exchange offer will recognize taxable gain or loss will depend on whether the exchange qualifies as a tax-free recapitalization for U.S. federal income tax purposes. An exchange of old notes for new notes will qualify as a recapitalization only if the old notes and the new notes that are part of such exchange constitute "stock or securities" for purpose of the reorganization provisions of the Code. The rules for determining whether a debt instrument constitutes a security for this purpose are unclear. The term "security" is not defined in the Code or Treasury Regulations and has not been clearly defined by judicial decisions. The test as to whether a debt instrument is a security involves an overall evaluation of the nature of the debt instrument, the extent of the investor's proprietary interest in the issuer compared with the similarity of the debt -48- instrument to a right to receive a cash payment and certain other considerations. One of the most significant factors considered in determining whether a particular debt instrument is a security is its original term. In general, debt instruments with a term of less than five years are not likely to (but may in certain circumstances) be considered securities, debt instruments with a term of ten years or more are highly likely to be considered securities, and debt instruments with an initial term at issuance of five to ten years are often considered securities, but their status may be unclear. Although it is unclear, we intend to take the position that the notes will not constitute "stock or securities" for purposes of the reorganization provisions of the Code. Therefor, we intend to treat the exchange of old notes for new notes as a taxable exchange for U.S. federal income tax purposes. Unless otherwise specified, the following discussion assumes the correctness of such treatment. Notwithstanding the foregoing, it is possible that the IRS could assert that the notes are either our "securities" or, due to our financial condition and the effective subordination of the notes to the creditors of our subsidiary, a form of preferred equity in us. A successful recharacterization of the notes as "stock or securities" and the treatment of the exchange as a tax-free reorganization could have adverse federal income tax consequences to the Holders. Holders are advised to consult their tax advisors regarding the effect of any such recharacterization. Exchange of old notes for new notes A U.S. Holder that exchanges old notes for new notes generally will recognize taxable gain or loss equal to the difference between (i) the amount realized (as defined below) in the exchange and (ii) the U.S. Holder's adjusted tax basis (as defined below) in the old notes. This amount realized is allocated between principal and accrued interest (including OID). We intend, and each Holder agrees by participating in the exchange offer to allocate all the new notes received under the exchange to the principal amount (rather than to accrued interest) of its old notes. The gain or loss on the principal portion is the difference between the amount realized allocable to principal and the tax basis of the principal. Such gain or loss generally will be capital gain or loss if the old notes are held as a capital asset, and will be long-term capital gain or loss if the U.S. Holder's holding period in the old notes is more than one year. The deductibility of capital losses is subject to limitations under the Code. A U.S. Holder that acquired old notes with market discount generally will be required to treat a portion of any gain as ordinary income to the extent of any accrued market discount not previously included in income. The portion of the amount realized allocable to interest will be included in gross income by a U.S. Holder to the extent it has not previously been taken into account under the OID rules. A U.S. Holder will be entitled to a deduction for interest, including OID, previously accrued in excess of the amount realized allocable to interest. The amount realized generally will equal the issue price of the new notes, i.e., the fair market value of the old notes on the date of the exchange. A U.S. Holder's adjusted tax basis in the U.S. Holder's old notes generally will equal the price such U.S. Holder paid therefor, increased by the amount of any market discount and OID previously included in income by such U.S. Holder with respect to such debt, and reduced (but not below zero) by any amortizable bond premium previously amortized with respect to the debt. The U.S. Holder's tax basis in the new notes received in such a taxable exchange will equal the "issue price" of the new notes it receives, and the U.S. Holder's holding period for the U.S. Holder's new notes will begin on the date following the date the exchange. Consequences of holding new notes In General We intend to treat the new notes as indebtedness for U.S. federal income tax purposes. Original Issue Discount The new notes may be treated as issued with OID for U.S. federal income tax purposes. OID is defined as the excess of a debt instrument's stated redemption price at maturity over its issue price. As noted above, the issue price of a new note will equal the fair market value of the old note exchanged therefor. The stated redemption price -49- at maturity of a new note is the sum of all payments due under the new note other than payments of qualified stated interest. The payments of interest on the new notes will constitute qualified stated interest and thus will not factor into the calculation of the stated redemption price at maturity. In general, a U.S. Holder of a new note will be required to include OID thereon in gross income as ordinary interest income under a constant yield method over the term of the new note in advance of cash payments attributable to such income, regardless of whether such U.S. Holder is a cash or accrual method taxpayer and without regard to the timing or amount of actual payments. Sale, Retirement or Other Taxable Disposition Upon the sale, retirement or other taxable disposition of a new note, a U.S. Holder generally would recognize gain or loss equal to the difference between the amount realized upon the sale, retirement or other taxable disposition (other than amounts relating to interest that has accrued but not yet taken into account, which will be taxable as such) and the U.S. Holder's adjusted tax basis in the new note. Such gain or loss generally would be capital gain or loss (except that gain would be taxable as ordinary income to the extent attributable to accrued market discount that has not previously been included in gross income by the U.S. Holder), and would be long-term capital gain or loss if the holding period for the new note exceeded one year at the time of the sale, retirement or other taxable disposition. In general, a U.S. Holder's adjusted tax basis in a new note would equal the initial tax basis of the new note at the time of its receipt in the exchange determined in the manner described above, increased by the amount of OID. The ability of a U.S. Holder to deduct a capital loss could be subject to limitations under the Code. Backup Withholding and Information Reporting The new notes may be subject to information reporting requirements and U.S. federal backup withholding tax at the then applicable rate if the Holder fails to supply an accurate taxpayer identification number or otherwise fails to comply with applicable U.S. information reporting or certification requirements. A U.S. Holder that provides a properly executed IRS Form W-9 will be treated as complying with applicable backup withholding and information reporting rules. Any amounts withheld will be allowed as a refund with respect to, or credit against, the Holder's U.S. federal income tax liability. THE PRECEDING DISCUSSION OF CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. EACH HOLDER SHOULD CONSULT SUCH HOLDER'S TAX ADVISOR REGARDING THE PARTICULAR U.S. FEDERAL, STATE, LOCAL, NON-U.S. AND OTHER TAX CONSEQUENCES OF PURCHASING, HOLDING, EXCHANGING AND DISPOSING OF OUR OLD NOTES AND NEW NOTES AND PARTICIPATING IN THE EXCHANGE, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE LAWS. EXPERTS The audited consolidated financial statements of Tevecap S.A. and subsidiaries incorporated in this prospectus by reference from our Annual Report on Form 20-F/A for the year ended December 31, 2003, have been audited by Deloitte Touche Tohmatsu Auditores Independentes, an independent registered public accounting firm, as stated in their report, which is incorporated herein by reference, and have been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. The audited financial statements of CCS-Camboriu Cable System de TeleComunicacoes Ltda. Incorporated in his prospectus by reference from our Annual Report on Form 20-F/A for the year ended December 31, 2003, have been audited by Deloitte Touche Tohmatsu Auditores Independentes, an independent registered public accounting firm, as stated in their report, which is incorporated herein by reference, and have been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. -50- LEGAL MATTERS The validity of the new notes under New York law will be passed upon by Clifford Chance US LLP, New York, New York, United States. The validity of the new notes and certain matters of Brazilian law relating to the new notes and the indenture relating thereto will also be passed upon for us by Machado, Meyer, Sendacze e Opice, Sao Paulo, Brazil. ENFORCEABILITY OF CIVIL LIABILITIES We are a sociedade anonima, organized under the laws of the Federative Republic of Brazil. All of our executive officers and directors presently reside in Brazil. Under the terms and conditions of the new notes, we will agree (and under the terms of the old notes, we agreed) that the courts of the State of New York and the federal courts of the United States, in each case sitting in The City of New York, New York, shall have jurisdiction to hear and determine any suit, action or proceeding, and to settle any disputes, which may arise out of or in connection with the new notes (or the old notes, as the case may be) and, for such purposes, irrevocably submit to the jurisdiction of such courts. However, most of our assets are located in Brazil. As a result, it will be necessary for you to comply with Brazilian law in order to obtain an enforceable judgment against these foreign resident persons or our assets. It may not be possible for investors to effect service of process within the United States upon our executive officers and directors, or to realize in the United States upon judgments against these persons obtained in US courts based upon civil liabilities of these persons, including any judgments based upon US federal securities laws, to the extent these judgments exceed these persons' US assets. Specifically, our Brazilian legal counsel, Machado, Meyer, Sendacze e Opice, has advised us that Brazilian courts will enforce judgments of US courts for civil liabilities predicated on the US securities laws, without reconsideration of the merits, only if the judgment satisfies certain requirements and receives confirmation from the Federal Supreme Court of Brazil. The foreign judgment will be confirmed if: o it fulfills all formalities required for its enforceability under the laws of the country that granted the foreign judgment; o it was issued by a competent court in the jurisdiction where the judgment was awarded after service of process was properly made in accordance with applicable law; o it is not subject to appeal; o it is for the payment of a sum certain of money; o it is authenticated by a Brazilian consular office in the country where it was issued, and is accompanied by a sworn translation into Portuguese; and o it is not contrary to Brazilian national sovereignty, public policy or good morals, and does not contain any provision which for any reason would not be upheld by the courts of Brazil. Notwithstanding the foregoing, we cannot assure you that such confirmation would be obtained, that the process described above would 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 new notes or the old notes, as the case may be. Our Brazilian legal counsel, Machado, Meyer, Sendacze e Opice, has also advised us that: o as a plaintiff, you may bring an original action predicated on the US securities laws in Brazilian courts and that, subject to applicable laws, Brazilian courts may enforce liabilities in these types of actions against us, our respective directors, and certain of our respective officers and advisors under certain circumstances; -51- o if you reside outside Brazil and own no real property in Brazil, you must provide a bond sufficient to guarantee court costs and legal fees, including the defendant's attorneys' fees, as determined by the Brazilian court in connection with litigation in Brazil, except in the case of the enforcement of a foreign judgment which has been confirmed by the Brazilian Federal Supreme Court; and o Brazilian law limits investors' abilities as judgment creditors to satisfy a judgment against their debtors by attaching certain of their respective assets. -52- Tevecap S.A. and Subsidiaries Consolidated Financial Statements for the Six-month Periods Ended June 30, 2004 and 2003 F-1 TEVECAP S.A. AND SUBSIDIARIES Index to Consolidated Financial Statements Contents Page Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003 F-3 Consolidated Statements of Operations for the six-month periods ended June 30, 2004 F-5 Consolidated Statements of Changes in Shareholders' Deficity and Redeemable common stock for the six-month periods ended June 30, 2004 F-7 Consolidated Statements of Cash Flows for the six-month periods ended June 30, 2004 and 2003 F-8 Notes to The Consolidated Financial Statements F-9 F-2 TEVECAP S.A. AND SUBSIDIARIES Consolidated Balance Sheets June 30, 2004 and December 31, 2003 in thousands of U.S. dollars June 30, December 31, ----------- ------------ 2004 2003 ----------- ------------ (Unaudited) (Unaudited) ASSETS Current assets Cash and cash equivalents $ 797 $ 292 Accounts receivable, net (Note 3) 2,713 4,426 Inventories, net 8,600 8,470 Prepaid and other assets 175 677 Recoverable taxes 505 632 Other accounts receivable 843 946 ----------- ------------ Total current assets 13,633 15,443 ----------- ------------ Property, plant and equipment, net (Note 7) 62,602 76,317 Investments - equity basis (Note 6) -- 549 Intangible assets, net 4,587 5,725 Loans receivable from related companies (Note 4) 6,020 3,271 Deferred income taxes 110 -- Judicial deposits 6,685 6,626 ----------- ------------ Total assets $ 93,637 $ 107,931 =========== ============ The accompanying notes are an integral part of the consolidated financial statements F-3 TEVECAP S.A. AND SUBSIDIARIES Consolidated Balance Sheets, continued As of June 30, 2004 and December 31, 2003 in thousands of U.S. dollars
June 30, December 31, ----------- ------------ 2004 2003 ----------- ------------ LIABILITIES AND SHAREHOLDERS' DEFICIENCY (Unaudited) (Unaudited) Current liabilities Loans (Note 8) $ 56,175 $ 56,081 Film suppliers 5,355 6,619 Other suppliers 2,647 4,333 Tax recovery program - PAES/REFIS (Note 9) 1,235 1,497 Taxes payable other than income taxes 6,028 7,867 Income tax payable 125 278 Accrued payroll and related liabilities 1,393 1,437 Advances from customers 3,097 2,839 Deferred income tax (Note 5.2) 11,241 19,292 Other accounts payable 2,069 2,398 ----------- ------------ Total current liabilities 89,365 102,641 ----------- ------------ Long-term liabilities Loans payable to related companies (Note 4) 41,140 39,712 Tax recovery program - PAES/REFIS (Note 9) 12,132 12,836 Accrual for contingencies (Note 14) 12,771 11,272 Liability to fund equity investees (Note 6) -- 5,349 Other accounts payable 355 211 ----------- ------------ Total long-term liabilities 66,398 69,380 ----------- ------------ Commitments (Footnote 11) Minority interest 1,182 1,140 Redeemable common stock, no par value, 46,294,952 shares authorized, issued and outstanding as of June 30, 2004 and December 31, 2003 (Note 12) 24,019 24,201 Shareholders' deficiency Common stock, no par value, 438,925,488 shares authorized, issued and outstanding as June 30, 2004 and December 31, 2003 446,026 446,026 Accumulated other comprehensive income 6,744 2,716 Accumulated deficit (540,097) (538,173) ----------- ------------ Total shareholders' deficiency (87,327) (89,431) ----------- ------------ Total liabilities and shareholders' deficiency $ 93,637 $ 107,931 =========== ============
The accompanying notes are an integral part of the consolidated financial statements F-4 TEVECAP S.A. AND SUBSIDIARIES Consolidated Statements of Operations For the six-month periods ended June 30, 2004 and 2003 in thousands of U.S. dollars
Six-month periods ended June 30, -------------------------------- 2004 2003 ----------- ----------- Gross revenues (Unaudited) (Unaudited) Monthly subscriptions $ 44,507 $ 38,857 Installation 581 675 Advertising 1,622 923 Additional services 2,425 1,897 Taxes on revenues (6,868) (6,233) ----------- ----------- 42,267 36,119 ----------- ----------- Direct operating expenses (excluding depreciation and amortization stated separately below) Payroll and benefits 1,276 1,556 Programming 12,710 11,924 Technical assistance 609 764 TVA magazine 783 741 Pole rental 684 379 Other costs 3,715 4,210 ----------- ----------- 19,777 19,574 ----------- ----------- Selling, general and administrative expenses 10,234 10,937 Depreciation e amortization 12,072 11,531 Tax recovery program 657 -- Other operating (income) expense, net (Note 10) (6,948) 1,342 ----------- ----------- Income (loss) from operations 6,475 (7,265) ----------- ----------- Interest income (368) (119) Interest expense 10,652 8,653 Foreign currency transaction (income) loss, net 4,327 (12,833) ----------- ----------- Loss before income taxes, equity in (income) losses of affiliates, and minority interest (8,136) (2,966) Income tax expense - current (Note 5.1) 135 98 Income tax (benefit) expense - deferred (Note 5.1) (6,760) 19,813 ----------- ----------- Loss before equity in (income) losses of affiliates and minority interest (1,511) (22,877) Equity in (income) losses of affiliates, (Note 6) 468 (439) ----------- ----------- Loss before minority interest (1,979) (22,438) Minority interest 127 111 ----------- ----------- Net loss (2,106) (22,549) =========== ===========
The accompanying notes are an integral part of the consolidated financial statements F-5 TEVECAP S.A. AND SUBSIDIARIES Consolidated Statements of Operations, continued For the six-month periods ended June 30, 2004 and 2003 in thousands of U.S. dollars
Six-month periods ended June 30, ----------------------------------- 2004 2003 ----------- ----------- (Unaudited) (Unaudited) Other comprehensive income (loss) - Foreign currency translation adjustment $ (4,028) $ 5,913 ----------- ----------- Comprehensive income (loss) $ 1,922 $ (28,462) =========== ===========
The accompanying notes are an integral part of the consolidated financial statements F-6 Consolidated Statements of Changes in Shareholders' Deficit and Redeemable Common Stock for the six-month period ended June 30, 2004 in thousands of U.S. dollars (Unaudited)
Accumulated Other Total Redeemable Common Accumulated Comprehensive Shareholders' Common Stock Deficit Income (Loss) Deficit Stock --------- ----------- ------------- ------------- ---------- Balance as of December 31, 2003 446,026 (538,173) 2,716 (89,431) 24,201 Foreign currency translation adjustments, net 4,028 4,028 of tax of $0 (unaudited) Net loss (unaudited) (2,106) (2,106) Adjustment of redeemable common Stock to redemption price 182 182 (182) --------- --------- --------- --------- --------- Balance as of June 30, 2004 (unaudited) $ 446,026 $(540,097) $ 6,744 $ (87,327) 24,019
The accompanying notes are an integral part of the consolidated financial statements F-7 TEVECAP S.A. AND SUBSIDIARIES Consolidated Statements of Cash Flows For the six-month periods ended June 30, 2004, and 2003 in thousands of U.S. dollars
Six-month periods ended June 30, -------------------------------- 2004 2003 ----------- ----------- (Unaudited) (Unaudited) ----------- ----------- Cash flows from operating activities: $ 10,037 (1,740) ----------- ----------- Cash flows from investing activities: Purchases of property, plant and equipment (3,806) (3,488) Purchases of intangible assets (475) (284) Loans to related companies -- (230) Repayments of loans to related companies -- 125 ----------- ----------- Net cash used in investing activities (4,281) (3,877) ----------- ----------- Cash flows from financing activities: Proceeds from bank loans 17,259 10,638 Repayment of loans from banks (20,646) (19,816) Proceeds from loans from shareholders 23,158 38,455 Repayments of loans from shareholders (23,013) (25,352) ----------- ----------- Net cash provided by (used in) financing activities (3,242) 3,925 ----------- ----------- Effect of exchange rate changes on cash and cash equivalents (2,009) 1,687 ----------- ----------- Net increase (decrease) in cash and cash equivalents 505 (5) Cash and cash equivalents at beginning of the period 292 245 ----------- ----------- Cash and cash equivalents at end of the period $ 797 $ 240 =========== =========== Supplemental cash disclosure: Cash paid for interest $ 3,903 4,221 Cash paid for income tax $ 268 122 Supplemental non-cash financing and investing activities: Accrued interest on related company loans refinanced as principal balance $ 7,469 6,497 Recognition of loans receivable to shareholder in connection with the sale of investments (Note 6) $ 5,518 --
The accompanying notes are an integral part of the consolidated financial statements F-8 TEVECAP S.A. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts expressed in thousands of U.S. dollars, unless otherwise indicated) 1. The Company and its principal operations 1.1. General The consolidated financial statements have been prepared to reflect the consolidated results of Tevecap S.A. ("Tevecap") and its subsidiaries (the "Company"). Tevecap is a holding company, the subsidiaries of which render services related to wireless cable, cable and high-speed internet, 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. As of June 30, 2004, Abril Comunicacoes S.A. ("Abrilcom"), a printing and distribution company, was the majority shareholder of the Company. In the Company's opinion, all adjustments necessary for a fair presentation of the unaudited results of operations for the six-month periods ended June, 30 2004 and 2003, are included. All such adjustments are accruals of a normal and recurring nature. The results of operations for the period ended June 30, 2004 are not necessarily indicative of the results of operations to be expected for the full year. The accompanying consolidated financial statements are unaudited and should be read in conjunction with the consolidated financial statements for the year ended December 31, 2003 included in the Company's 2003 annual report on Form 20-F/A. 1.2 Significant risks and uncertainties The Company's consolidated financial statements for the period ended June 30, 2004 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 a net loss of $2,106 during the period ended June 30, 2004 and had negative working capital of $75,732 and a shareholders' deficiency of $87,327 at June 30, 2004. The continuation of the Company as a going concern is dependent upon its ability to generate sufficient cash from operating and financing activities. In this regard, managements' plans include: (i) increasing the Company's subscriber base and implementing technological upgrades to its pay television networks; (ii) streamlining the Company's principal operating procedures to increase productivity and profitability; (iii) the continuation of a cost reduction program which was initiated in 2002; (iii) adjusting the Company's capitalization (including indebtedness) to provide for long term growth and stability and (iv) sales of non- F-9 TEVECAP S.A. AND SUBSIDIARIES strategic assets and the discontinuation of noncompetitive businesses. The consolidated 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. 2. Summary of significant accounting policies Significant policies followed in the preparation of the consolidated financial statements are described in the annual consolidated financial statements. 2.1. Basis of presentation The consolidated financial statements are presented in United States 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 in accordance with U.S. GAAP 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 these estimates. F-10 TEVECAP S.A. AND SUBSIDIARIES 3. Accounts receivable, net As of June 30, 2004 and December 31, 2003, accounts receivable were comprised of: June 30, 2004 December 31, 2003 ------------- ----------------- (Unaudited) (Unaudited) Subscriptions and installation fees $ 4,861 $ 4,785 Advertising 372 380 Programming 42 30 Barter transactions of advertising 749 2,224 Other 173 255 Provision for doubtful accounts (3,484) (3,248) ----------- ----------- $ 2,713 $ 4,426 =========== =========== No single customer accounted for more than 10% of total accounts receivable as of June 30, 2004 and December 31, 2003. F-11 TEVECAP S.A. AND SUBSIDIARIES 4. Related party balances and transactions The following tables summarize the balances as of June 30, 2004 and December 31, 2003 and transactions for the six-month periods ended June 30, 2004 and 2003 between the Company and its related parties:
June 30, December 31, ----------- ------------- 2004 2003 ----------- ------------- (Unaudited) (Unaudited) Editora Abril S.A Loans payable $ 33,307 $ 32,128 Abril Comunicacoes S.A Loans receivable 5,518 -- Loans payable 966 1,039 Canbras TVA Cabo Ltda. (equity affiliate) Loans receivable 20 21 Parana Participacoes Ltda Loans receivable -- 1,132 Zerelda Participacoes S/C Ltda. (equity affiliate) Loans receivable -- 820 TV Jacaranda Ltda. (equity affiliate) Loans receivable -- 809 Abril Investments Corporation Loans receivable 365 365 Loans payable 6,867 6,545 Others Loans receivable 117 124 ----------- ------------- Loans receivable - noncurrent assets $ 6,020 $ 3,271 Loans payable - long-term liabilities $ 41,140 $ 39,712
F-12 TEVECAP S.A. AND SUBSIDIARIES 4. Related party transactions and balances (Continued) Transactions June 30, 2004 June 30, 2003 ------------- ------------- (Unaudited) (Unaudited) Editora Abril S.A Net interest expense $ 3,301 $ 1,549 Printing costs 830 561 Parana Participacoes S/C Ltda Interest income (47) (628) Abril Investments Corporation Interest expense (income) 808 (921) The terms of the above related party transactions and balances are consistent with those described in the annual consolidated financial statements. Pledge of the Company's shares In order to fulfil certain obligations of Editora Abril S.A. in connection with the non-convertible debentures issued by Editora Abril S.A. on October 19, 2001, Abril Comunicacoes S.A. granted to the debenture holders of Editora Abril S.A., a pledge in 62.2% the Company's outstanding common shares. Capitalization of the loans payable to Editora Abril S.A. In the first half of 2004, Editora Abril S.A.'s Board of Directors approved the capitalization of the Company's loans payable to Editora Abril S.A. F-13 TEVECAP S.A. AND SUBSIDIARIES 5. Income taxes 5.1. The amounts charged to the provision for income tax in results for the period ended June 30, 2004 and 2003, are comprised as follows: June 30, 2004 December 31, 2003 ------------- ----------------- (Unaudited) (Unaudited) Current income tax provision (135) (98) Deferred income taxes 6,760 (19,813) ----------- ----------- 6,625 (19,911) =========== =========== 5.2. The tax effects of temporary differences that give rise to deferred tax assets as of June 30, 2004 and December 31, 2003 are as follows:
June 30, 2004 December 31, 2003 ------------- ----------------- (Unaudited) (Unaudited) Deferred tax assets: Net operating loss carryforwards $ 84,970 $ 77,105 Provision for obsolescence 1,903 1,496 Provision for claims 4,943 5,850 Other 6,795 6,888 ----------- ----------- Total gross deferred tax asset 98,611 91,339 ----------- ----------- Less valuation allowance (98,501) (91,339) ----------- ----------- Deferred tax asset $ 110 $ -- ----------- ----------- Deferred tax liability: Foreign currency exchange gain deferred for tax purposes (11,241) (19,292) ----------- ----------- Deferred tax liability $ (11,241) $ (19,292) ----------- -----------
5.3. Management has established a full valuation allowance against the deferred tax assets as it is more likely than not that the deferred tax assets will not be realized. As of June 30, 2004, the Company and subsidiaries have accumulated tax losses of $249,912 that do not expire. F-14 TEVECAP S.A. AND SUBSIDIARIES The consolidated income taxes are different from the amount computed using the Brazilian statutory income tax rate for the reasons set forth in the following table:
June 30, -------------------------- 2004 2003 ----------- ----------- (Unaudited) (Unaudited) Income (loss) before income taxes $ (8,136) $ (2,966) Statutory income tax rate 34% 34% ----------- ----------- Computed income tax benefit (2,766) (1,008) Amortization of deferred charges (749) (769) Translation (gain) loss on tax losses 5,520 (13,119) (Earnings) losses in affiliates abroad (12,342) 17,808 Capital gain sale of investments (2,907) -- (Deductible) taxable devaluation gain (loss) for Brazilian statutory purposes 637 2,162 Other (1,180) (451) Increase in valuation allowance 7,162 15,288 ----------- ----------- Total income tax expense per consolidated statements of operations $ (6,625) $ 19,911 =========== ===========
Income tax expense represents amounts owed by subsidiaries calculated on a stand-alone basis, as Brazilian income tax law does not allow consolidated tax returns. F-15 TEVECAP S.A. AND SUBSIDIARIES 6. Investments Investments are summarized as follows:
Equity in earnings (losses) for the six Investments months ended Percentage of -------------------------- ---------------------- control June 30, December 31, June 30, June 30, ------------- ---------- ------------- ---------- ---------- 2004 2003 2004 2003 ---------- ------------- ---------- ---------- (Unaudited) Equity method investments: - TV Manaca Ltda. 64.00% -- 549 -- -- ---------- ------------- ---------- ---------- Total -- 549 -- -- ========== ============= ========== ========== Equity in earnings (losses) for the six months ended Percentage of ------------------------- control June 30, December 31, June 30, June 30, ------------- ---------- ------------- ----------- ----------- 2004 2003 2004 2003 ---------- ------------- ----------- ----------- (Unaudited) (Unaudited) (Unaudited) Liability to fund equity investees: - Parana Participacoes Ltda. 65.44% -- 712 (149) -- - Zerelda Participacoes S/C Ltda. 36.00% -- 1,015 (266) (2,168) - Canbras TVA Cabo Ltda. 36.00% -- 3,325 (43) 2,557 - TV Jacaranda Ltda. 34.00% -- 297 (10) 50 ---------- ------------- ----------- ----------- Total -- 5,349 (468) 439 ========== ============= =========== =========== Total equity in earnings (losses) (468) 439 =========== ===========
As of December 31, 2003, TVA held a minority interest in each of Canbras TVA Cabo Ltda., TV Cabo Santa Branca Comercio Ltda. and Canbras Parana Ltda. (collectively, "Canbras TVA"), which together provide cable television services to an additional 19 cities with a total population of 2.9 million. In October 2003, the Company entered into an agreement to sell its interests in Canbras TVA to Horizon Cablevision do Brasil S.A. for U.S.$5,518. At that time, the consummation of the sale was pending ANATEL approval and consequently, the sale was not recorded by the Company. ANATEL approval was received on June 16, 2004, at which time the sale was recognized. The proceeds from the sale were paid directly to Abril Comunicacoes S.A. in 2003, the Company's principal shareholder for which the Company recognized a receivable from its shareholder. In connection with the sale, the Company recognized a gain of approximately U.S.$8,673 during the six-month period ended June 30, 2004 (Note 10). F-16 TEVECAP S.A. AND SUBSIDIARIES 7. Property, plant and equipment, net As of June 30, 2004 and December 31, 2003, property, plant and equipment were comprised of:
Annual Depreciation Rate June 30, December 31, ---------------------------- ----------- ----------- % 2004 2003 ---------------------------- ----------- ----------- (Unaudited) (Unaudited) Reception equipment 20 $ 91,641 $ 95,264 Cable plant 10 47,876 51,418 Machinery and equipment 10 37,964 40,614 Decoders 10 51,469 55,165 Leasehold improvements 25 1,260 1,355 Furniture and fixtures 10 1,098 1,178 Premises 10 986 1,061 Vehicles 20 1,068 1,139 Tools 10 539 577 Building 4 2,244 2,413 Other 1,235 1,477 Accumulated depreciation (174,778) (175,344) --------- ---------- $ 62,602 $ 76,317 ========= ==========
8. Loans As of June 30, 2004 and December 31, 2003, loans were comprised of: June 30, 2004 December 31, 2003 ------------- ----------------- Short-term Short-term ------------- ----------------- (Unaudited) (Unaudited) Senior Notes due 2004 (a) $48,022 $48,022 Bank loans 7,580 7,486 Accrued interest 573 573 ------- ------- $56,175 $56,081 ======= ======= a. On November 26, 1996, Tevecap raised funds in a foreign market through a private placement of Senior Notes amounting to US$250,000. These Senior Notes mature on November 26, 2004 and are guaranteed by certain of Tevecap's subsidiaries (see Note 16). Interest thereon is at 12.625% per annum and is payable on May 25 and November 25 of each year commencing on May 25, 1997. On July 28, 1999, the subsidiary TVA Communications Ltd. repurchased in the foreign market $201,978 aggregate principal amount of Tevecap's Senior Notes. At the time the F-17 TEVECAP S.A. AND SUBSIDIARIES Senior Notes were repurchased, Tevecap obtained consent from the remaining note holders to eliminate the significant restrictive covenants in the Senior Notes agreements. b. Bank loans are comprised of the following:
June 30, 2004 December 31, 2003 ------------------------- ------------------------- Short-Term Long Term Short-Term Long-Term ----------- ----------- ----------- ----------- (Unaudited) (Unaudited) (Unaudited) (Unaudited) Banco Bradesco - revolving credit facility, interest of 1,68% per month $ -- -- $ 2,303 -- Banco Daycoval - revolving credit facility, interest of 1,20% plus CDI rate per month (2.63% plus CDI rate per month as of December 31, 2003) 553 -- 622 -- Citibank - fixed in U.S. dollars, due August 28, 2004, interest of 13% per annum per month as of June 30, 2004 and December 31, 2003 42 -- 369 -- Banco Safra - annual interest 2,05% per month (2,65% as of December 31, 2003) 2,533 -- 3,104 -- HSBC - revolving credit facility, interest of 0,64% plus CDI rate 138 -- -- -- per month Banco Industrial e Comercial - revolving credit facility, interest of 3,309 -- -- -- 1% plus CDI rate per month Banco General Motors fixed in Reais, interest of 1,77% per month 23 -- -- -- Credibel - revolving credit facility, interest of 1% plus CDI rate per month (2.32% plus CDI per month as of December 31, 2003) 982 -- 1,088 -- ----------- ----------- ----------- ----------- Total $ 7,580 -- $ 7,486 -- =========== =========== =========== ===========
9. Tax recovery program (REFIS) and special installment program (PAES) On April 5, 2000, Tevecap S.A. and its subsidiaries opted for the Government's Tax Recovery Program (REFIS), implemented by Decree No. 3,342 of January 25, 2000, later converted into Law No. 9,964 of April 10, 2000. In addition, the indirect subsidiary TVA Sistema de Televisao S.A. used its credits for tax loss carryforwards amounting to $5,263 for amortization of interest and fines. In guarantee of the payment of the debts included in the program, the subsidiary pledged property items as collateral in the amount of $5,267. F-18 TEVECAP S.A. AND SUBSIDIARIES On July 31, 2003, certain subsidiaries of the Company, including TVA Sistema de Televisao S.A., through a protocol filed with the Federal Revenue Service, opted for the Federal Tax Financing Program (PAES), established by Law No. 10,684 of May 30, 2003. The main reasons for this option were the extension of maturity dates, refinancing through PAES (Special Installment Program), inclusion of new taxes, and the use of TJLP (long-term interest rate) for monetary restatement. Management believes that this payment will be made in approximately 135 monthly installments, adjusted by TJLP. As of June 30, 2004 and December 31, 2003, this accounts payable is segregated between short and long-term as follows: June 30, 2004 December 31, 2003 ------------- ----------------- (Unaudited) (Unaudited) Short-term 1,235 1,497 Long-term 12,132 12,836 -------- -------- Total 13,367 14,333 ======== ======== 10. Other operating (income) expense, net
June 30, --------------------------- 2004 2003 ----------- ----------- (Unaudited) (Unaudited) Write-off of assets related to cancellation of subscriptions $ 1,310 $ 1,314 Gain (loss) on disposal of property and equipment 232 (169) Gain on sale of investments (i) (8,673) -- Other 183 197 ----------- ----------- $ (6,948) $ 1,342 =========== ===========
(i) See Note 6 for a description of this transaction. F-19 TEVECAP S.A. AND SUBSIDIARIES 11. Commitments The Company has rented its office space through the year 2008. As of June 30, 2004, future minimum rental payments applicable to operating leases in respect of this space aggregate approximately $81,600, as follows: 2004 14,707 2005 28,959 2006 21,298 2007 16,225 2008 411 ------- Total $81,600 ======= 12. Redeemable Common Stock The Company has outstanding redeemable common stock during as follows: As of June 30, 2004, 9.5% 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 stockholders (other than 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 stockholders are publicly registered, listed or traded. In addition, as of June 30, 2004, 5.8% of the common stock of Tevecap (27,930 thousand stocks) are also subject to a Time Put whereby, pursuant to the Stockholders' Agreement, shareholder Falcon International Communications ("Falcon") may demand that Tevecap buy all or a portion of Falcon's 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 its affiliates representing 50% or more of the voting capital stock of Tevecap; F-20 TEVECAP S.A. AND SUBSIDIARIES (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 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 their Event Put, is remote. However, Tevecap has public debt in the United States of America, and which therefore is required to register its securities with the United States Securities and Exchange Commission, 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. The common stocks subject to the Time Put are redeemable at fair value as determined by appraisal. In the event Tevecap does not have the funds to satisfy its payment obligations under the Time Put, then, subject to a number of conditions, Tevecap may deliver to Falcon promissory notes payable three years from the issue date thereof. In the event Tevecap is unable to satisfy its payment obligations under these promissory notes, Falcon may be entitled, subject to a number of conditions, to sell its shares of Tevecap to a third party. As of the date of these financial statements, Falcon has not exercised the Falcon Time Put. On December 19, 2003, Abril Comunicacoes S.A. acquired the participation held by Hearst ABC Video Services of 8,1% increasing their total ownership interest in the Company to 90.45%. As a result of the acquisition, the redemption features related to these common shares were removed. Therefore, the amount related to the redeemable common stock that was held by Hearst was reclassified from liabilities to shareholders equity in the Company's financial statements. F-21 TEVECAP S.A. AND SUBSIDIARIES 13. Capital Stock The capital stock of the Company as of June 30, 2004, held entirely by Brazilian stockholders, is represented by 485.220.440 common stocks. The Company's bylaws provide that stockholders are entitled to a minimum dividend of 25% of annual net income in accordance with Brazilian Corporate Law, after deduction of the allocation to the legal reserve. Additionally, Law No. 9,249/95 introduced the option of paying interest on capital, calculated based on the TJLP in effect for the period, which may also be considered as part of the minimum mandatory dividend. 14. Accrual for contingencies 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"), 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. ECAD is seeking a judgment award of 2.55% of all past and present revenues generated by the operators. The suits are currently being submitted to the Superior Tribunal de Justica in order to determine whether ECAD is entitled to benefit from the copyrights relating to musical works broadcast on pay television. Suits were filed against TVA in the 1 Vara Civel Forum Central de Curitiba (against TVA Sul) and the 14 Vara Civel Forum Central de Sao Paulo (against TVA Brasil). The suit against TVA Sul has been initially ruled in TVA's favor, while the suit against TVA Brasil is currently awaiting judgment. Based on the opinion of its attorneys, management of TVA believes that TVA is likely to prevail in these suits. In the event the Company does not prevail in connection with these proceedings, however, the consolidated financial position of the Company may be materially adversely affected. The Company is also involved in litigation against Centrais Eletricas de Santa Catarina-CELESC, Companhia Paranaense de Energia Eletrica-COPEL and Eletropaulo Metropolitana de Sao Paulo relating to its contracts with these entities. During the first half of 2004, the Company entered into settlement negotiations with Eletropaulo Metropolitana de Sao Paulo, whose claims against the Company amount to R$128,135.94 of the total of R$412,106.86 claimed by the three entities. Based the opinion of external legal counsel, the Company's management believes that the likelihood of an unfavorable outcome relating to these lawsuits is possible. In the opinion of the Company's management and external legal counsel, a provision was recorded for all lawsuits for which the likelihood of an adverse outcome is probable. The Company has not recorded provisions for lawsuits for which the likelihood of an adverse outcome is possible or remote. The accrued amounts being contested in court are as follows: F-22 TEVECAP S.A. AND SUBSIDIARIES
June 30, 2004 December 31, 2003 ------------- ----------------- Long-term Long-term ------------- ----------------- (Unaudited) (Unaudited) Civil and labor lawsuits 2,487 2,541 COFINS (Tax on revenue) 11 11 ICMS (VAT state tax) 8,680 6,853 FGTS (Social security compulsory deposit) -- 185 IOF 1,485 -- Other 108 1,682 ----------- ----------- 12,771 11,272 =========== ===========
For certain accrued lawsuits, the Company and its subsidiaries have judicial deposits in the amount of $6,685 and $6,626 as of June 30, 2004 and December 31, 2003. The Company pledged property items as collateral in the amount of $ 18,071 as of June 30, 2004. 15. Segments Segment information has been prepared in accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The Company's reportable segments are determined based on products and services provided by each segment: a. Pay Tv - programming packages consisting of 15 to 57 television channels; b. Internet - high speed broadband internet access; and The accounting policies of the segments are the same as those described in the summary of significant accounting policies. F-23 TEVECAP S.A. AND SUBSIDIARIES 15. Segments June 30, 2004
Pay Tv Internet TOTAL ----------- ----------- ----------- (Unaudited) (Unaudited) (Unaudited) Net revenues 37,695 4,572 42,267 Direct operating expenses and SG&A expenses 28,184 1,827 30,011 Depreciation and amortization 10,944 1,128 12,072 Other operating expense, net (6,291) -- (6,291) Interest income (368) -- (368) Interest expense 10,652 -- 10,652 Foreign currency transaction loss, net 4,327 -- 4,327 Income tax expense (6,625) -- (6,625) Equity in losses of affiliates 468 -- 468 Minority interest 127 -- 127 Net (loss) income (3,723) 1,617 (2,106) Capital expenditures 4,281 -- 4,281 Total assets 93,637 -- 93,637
F-24 TEVECAP S.A. AND SUBSIDIARIES 15. Segments (Continued) June 30, 2003
Pay Tv Internet TOTAL ----------- ----------- ----------- (Unaudited) (Unaudited) (Unaudited) Gross revenues 32,061 4,058 36,119 Direct operating expenses and SG&A expenses 28,171 2,340 30,511 Depreciation and amortization 9,953 1,578 11,531 Other operating expense, net 1,335 7 1,342 Interest income (94) (25) (119) Interest expense 8,615 38 8,653 Foreign currency transaction loss, net (12,833) -- (12,833) Income tax expense 19,911 -- 19,911 Equity in losses of affiliates (439) -- (439) Minority interest 111 -- 111 Net (loss) income (22,669) 120 (22,549) Capital expenditures 3,772 -- 3,772 Total assets 107,931 -- 107,931
F-25 TEVECAP S.A. AND SUBSIDIARIES 16. Financial information for subsidiary guarantors and non-guarantor subsidiaries Tevecap conducts a significant portion of its business through subsidiaries. The $250,000 12 5/8% Senior Notes issued to 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.V., TVA Channels Ltda., Rede Ajato Ltda., Ype Radio and Televisao Ltda., TVA Inc, TVA Overseas Ltd. and TVA TCG Sistema de Televisao Porto Alegre. Presented below is condensed consolidating 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 Distribuidora S.A. (merged in 2001 and wholly-owned in 2000) - TVA Programadora Ltda. (merged in 2001 and wholly-owned in 2000) - TVA Par S.A. (merged in 2001 and wholly-owned in 2000) - TVA Communications Ltd. - Comercial Cabo TV Sao Paulo Ltda. - TVA Sistema de Televisao S.A. (majority-owned in 2000) - TVA Sul Parana Ltda. (majority-owned in 2000) b) Majority-Owned Guarantor Subsidiaries - CCS Camboriu Cable System de Telecomunicacoes Ltda. F-26 TEVECAP S.A. AND SUBSIDIARIES 16. Financial information for subsidiary guarantors and non-guarantor subsidiaries (Continued) c) Non-Guarantor Subsidiaries - TVA Communications Aruba N.V. - TVA TCG Sistema de Televisao de Porto Alegre S.A. (merged in 2001 and non guarantor in 2000) - Rede Ajato Ltda. - TVA Channel Ltda. (merged in 2001 and non-guarantor in 2000) - Ype Radio e Televisao Ltda. (merged in 2001 and non-guarantor in 2000) - TVA Overseas Ltd. - TVA Inc - TVA Continental S.A. - TVA Pelicano S.A. - TVA Network Participacoes S.A. Separate financial statements have been presented for CCS Camboriu Cable System Telecomunicacoes Ltda. as of June 30, 2004 and 2003. F-27 TEVECAP S.A. AND SUBSIDIARIES 16. Financial information for subsidiary guarantors and non-guarantor subsidiaries (Continued) Consolidated Balance Sheets as of June 30, 2004
Wholly- Majority- Owned Owned Non- Parent Guarantor Guarantor guarantor Assets Company Subsidiaries Subsidiaries subsidiaries Eliminations Consolidated ----------- ------------ ------------ ------------ ------------ ------------ (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) Current assets Cash and cash equivalents $ 6 $ 458 $ 327 $ 6 $ -- $ 797 Accounts receivable, net -- 2,716 -- 1,388 (1,391) 2,713 Inventories, net -- 8,523 77 -- -- 8,600 Prepaid and other assets 117 57 1 -- -- 175 Other accounts receivable 150 332,955 114 70 (331,941) 1,348 --------- --------- --------- --------- --------- --------- Total current assets 273 344,709 519 1,464 (333,332) 13,633 --------- --------- --------- --------- --------- --------- Property, plant and equipment, net -- 61,635 1,856 -- (889) 62,602 Investments Equity basis 36,749 1,774 -- -- (38,523) -- Intangible assets, net 678 3,909 -- -- -- 4,587 Loans to related companies 49,235 20,116 1,461 54,258 (119,050) 6,020 Dividends receivable 299,688 -- -- -- (299,688) -- Deferred income taxes -- -- 110 -- -- 110 Judicial deposits -- 6,467 218 -- -- 6,685 --------- --------- --------- --------- --------- --------- Total assets $ 386,623 $ 438,610 $ 4,164 $ 55,722 $(791,482) $ 93,637 ========= ========= ========= ========= ========= =========
F-28 TEVECAP S.A. AND SUBSIDIARIES 16. Financial information for subsidiary guarantors and non-guarantor subsidiaries (Continued) Consolidated Balance Sheets as of June 30, 2004
Wholly- Majority- Owned Owned Non- Parent Guarantor Guarantor Guarantor Liabilities and Shareholders' Equity Company Subsidiaries Subsidiaries Subsidiaries Eliminations Consolidated ----------- ------------ ------------ ------------ ------------ ------------ (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) Current Liabilities Loans 380,480 7,580 -- -- (331,885) 56,175 Film suppliers -- 5,135 220 -- -- 5,355 Other suppliers 13 4,011 14 -- (1,391) 2,647 Tax recovery program 356 879 -- -- -- 1,235 Taxes payable other than income taxes 1,492 4,442 94 -- -- 6,028 Income tax payable -- -- 125 -- -- 125 Accrued payroll and related liabilities -- 1,378 15 -- -- 1,393 Advance payments received from subscribers -- 3,097 -- -- -- 3,097 Deferred income tax 11,241 -- -- -- -- 11,241 Other accounts payable 92 1,780 239 14 (56) 2,069 ----------- ----------- ----------- ----------- ----------- ----------- Total current liabilities 393,674 28,302 707 14 (333,332) 89,365 ----------- ----------- ----------- ----------- ----------- ----------- Long-term liabilities Loans from related companies 25,400 112,188 -- 22,602 (119,050) 41,140 Tax recovery program 4,700 7,432 -- -- -- 12,132 Accrual for contingencies 2,934 9,336 501 -- -- 12,771 Dividends payable -- 254,744 -- 44,944 (299,688) -- Liability to fund equity investee 13,213 -- -- -- (13,213) -- Other accounts payable -- 355 -- -- -- 355 ----------- ----------- ----------- ----------- ----------- ----------- Total long-term liabilities 46,247 384,055 501 67,546 (431,951) 66,398 ----------- ----------- ----------- ----------- ----------- ----------- Minority interest -- -- -- -- 1,182 1,182 Redeemable common stock 24,019 -- -- -- -- 24,019 Shareholders' deficit Common stock 445,313 284,076 4,012 15,068 (302,443) 446,026 Accumulated other comprehensive income (loss) (429) 213,032 (1,660) 6,217 (210,416) 6,744 Accumulated deficit (522,201) (470,855) 604 (33,123) 485,478 (540,097) ----------- ----------- ----------- ----------- ----------- ----------- Total shareholders' deficit (77,317) 26,253 2,956 (11,838) (27,381) (87,327) ----------- ----------- ----------- ----------- ----------- ----------- Total liabilities and shareholders' deficit 386,623 438,610 4,164 55,722 (791,482) 93,637 =========== =========== =========== =========== =========== ===========
F-29 TEVECAP S.A. AND SUBSIDIARIES 16. Financial information for subsidiary guarantors and non-guarantor Subsidiaries (Continued) Consolidated Statements of Operations for the period ended June 30, 2004
Wholly- Owned Majority- Non- Parent Guarantor Owned Guarantor Description Company Subsidiaries Guarantor Subsidiaries Eliminations Consolidated ----------- ------------ --------- ------------ ------------ ------------ (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) Gross revenues Monthly subscriptions -- 43,338 1,169 -- -- 44,507 Installation -- 565 16 -- -- 581 Advertising -- 1,622 -- -- -- 1,622 Other -- 2,404 21 -- -- 2,425 Taxes on revenue -- (6,699) (170) 1 -- (6,868) ----------- ----------- ----------- ----------- ----------- ----------- Net revenue -- 41,230 1,036 1 -- 42,267 ----------- ----------- ----------- ----------- ----------- ----------- Direct operating expenses -- 19,265 512 -- -- 19,777 Selling, general and administrative expenses 149 9,962 122 1 -- 10,234 Depreciation and amortization 211 11,874 135 -- (148) 12,072 Other operating expense, net (8,193) 1,937 -- (35) -- (6,291) ----------- ----------- ----------- ----------- ----------- ----------- Operating loss 7,833 (1,808) 267 35 148 6,475 ----------- ----------- ----------- ----------- ----------- ----------- Interest income (554) (14,049) (113) -- 14,348 (368) Interest expense 19,149 5,507 25 319 (14,348) 10,652 Foreign currency transaction (income) loss, net 27,092 (20,186) 14 (2,593) -- 4,327 ----------- ----------- ----------- ----------- ----------- ----------- Income (loss) before income taxes, income (loss) of equity affiliates and minority interest (37,854) 26,920 341 2,309 148 (8,136) Income taxes (6,650) -- 25 -- -- (6,625) ----------- ----------- ----------- ----------- ----------- ----------- Income (loss) before income (loss) of equity in affiliates and minority interest (31,204) 26,920 316 2,309 148 (1,511) Equity in (losses) of affiliates, net (29,088) (191) -- 6 29,741 468 ----------- ----------- ----------- ----------- ----------- ----------- Income (loss) before minority interest (2,116) 27,111 316 2,303 (29,593) (1,979) Minority interest -- -- -- -- 127 127 ----------- ----------- ----------- ----------- ----------- ----------- Net income (loss) (2,116) 27,111 316 2,303 (29,720) (2,106) =========== =========== =========== =========== =========== ===========
F-30 TEVECAP S.A. AND SUBSIDIARIES 16. Financial information for subsidiary guarantors and non-guarantor subsidiaries (Continued) Consolidated Statement's of Cash Flows for the period ended June 30, 2004
Wholly- Majority- Non- Parent Owned Owned Guarantor Company Subsidiaries Subsidiaries Subsidiaries Eliminations Consolidated ----------- ------------ ------------ ------------ ------------ ------------ (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) ----------- ------------ ------------ ------------ ------------ ------------ ----------- ----------- ----------- ----------- ----------- ----------- Cash flows from operating activities: 578 8,860 612 (17) 4 10,037 ----------- ----------- ----------- ----------- ----------- ----------- Cash flows from investing activities: Purchase of property, plant and equipment -- (3,771) (35) -- -- (3,806) Purchase of intangible assets -- (475) -- -- -- (475) Loans to related companies (221) -- (7) -- 228 -- Repayment of loans to related companies 81 -- -- -- (81) -- ----------- ----------- ----------- ----------- ----------- ----------- Net cash used in investing activities (140) (4,246) (42) -- 147 (4,281) ----------- ----------- ----------- ----------- ----------- ----------- Cash flows from financing activities: Proceeds from bank loans -- 17,259 -- -- -- 17,259 Repayments of loans from banks (3,031) (17,615) -- -- -- (20,646) Proceeds from loans from shareholders 3,958 19,422 -- 6 (228) 23,158 Repayments of loans from shareholders (262) (22,832) -- -- 81 (23,013) ----------- ----------- ----------- ----------- ----------- ----------- Net cash provided by financing activities 665 (3,766) -- 6 (147) (3,242) ----------- ----------- ----------- ----------- ----------- ----------- Effect of exchange rate changes (1,192) (518) (304) 9 (4) (2,009) ----------- ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents (89) 330 266 (2) -- 505 Cash and cash equivalents at beginning of the period 95 128 61 8 -- 292 ----------- ----------- ----------- ----------- ----------- ----------- Cash and cash equivalents at end of the period 6 458 327 6 -- 797 =========== =========== =========== =========== =========== ===========
F-31 TEVECAP S.A. AND SUBSIDIARIES 16. Financial information for subsidiary guarantors and non-guarantor subsidiaries (Continued) Consolidated Balance Sheets as of December 31, 2003
Wholly- Majority- Owned Owned Non- Parent Guarantor Guarantor guarantor Assets Company Subsidiaries Subsidiaries subsidiaries Eliminations Consolidated ----------- ------------ ------------ ------------ ------------ ------------ Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Current assets Cash and cash equivalents $ 95 $ 128 $ 61 $ 8 $ -- $ 292 Accounts receivable, net -- 4,432 (4) 1,493 (1,495) 4,426 Inventories, net -- 8,400 70 -- -- 8,470 Prepaid and other assets 278 397 2 -- -- 677 Other accounts receivable 142 320,289 271 64 (319,188) 1,578 ----------- ----------- ----------- ----------- ----------- ----------- Total current assets 515 333,646 400 1,565 (320,683) 15,443 ----------- ----------- ----------- ----------- ----------- ----------- Property, plant and equipment, net -- 75,327 2,099 -- (1,109) 76,317 Investments Equity basis 25,626 1,710 -- 549 (27,336) 549 Intangible assets, net 986 4,739 -- -- -- 5,725 Loans to related companies 49,305 18,677 1,452 54,258 (120,421) 3,271 Dividends receivable 322,332 -- -- -- (322,332) -- Judicial deposits -- 6,407 219 -- -- 6,626 ----------- ----------- ----------- ----------- ----------- ----------- Total assets $ 398,764 $ 440,506 $ 4,170 $ 56,372 $ (791,881) $ 107,931 =========== =========== =========== =========== =========== ===========
F-32 TEVECAP S.A. AND SUBSIDIARIES 16. Financial information for subsidiary guarantors and non-guarantor subsidiaries (Continued) Consolidated Balance Sheets as of December 31, 2003
Wholly- Majority- Owned Owned Non- Parent Guarantor Guarantor Guarantor Liabilities and Shareholders' Equity Company Subsidiaries Subsidiaries Subsidiaries Eliminations Consolidated --------- ------------ ------------ ------------ ------------ ------------ Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Current Liabilities Loans 367,730 7,486 -- -- (319,135) 56,081 Film suppliers -- 6,474 145 -- -- 6,619 Other suppliers 14 5,798 19 -- (1,498) 4,333 Tax recovery program 563 934 -- -- -- 1,497 Taxes payable other than income taxes 3,802 3,974 91 -- -- 7,867 Income tax payable -- 1 277 -- -- 278 Accrued payroll and related liabilities -- 1,424 13 -- -- 1,437 Advance payments received from subscribers -- 2,844 (5) -- -- 2,839 Deferred income tax 19,292 -- -- -- -- 19,292 Other accounts payable 97 2,106 230 15 (50) 2,398 ----------- ----------- ----------- ----------- ----------- ----------- Total current liabilities 391,498 31,041 770 15 (320,683) 102,641 ----------- ----------- ----------- ----------- ----------- ----------- Long-term liabilities Loans from related companies 21,415 116,129 -- 22,588 (120,420) 39,712 Tax recovery program 4,783 8,053 -- -- -- 12,836 Accrual for contingencies -- 10,723 549 -- -- 11,272 Dividends payable -- 273,992 -- 48,340 (322,332) -- Liability to fund equity investee 35,524 -- -- 154 (30,329) 5,349 Other accounts payable -- 211 -- -- -- 211 ----------- ----------- ----------- ----------- ----------- ----------- Total long-term liabilities 61,722 409,108 549 71,082 (473,081) 69,380 ----------- ----------- ----------- ----------- ----------- ----------- Minority interest -- -- -- -- 1,140 1,140 Redeemable stock 24,201 -- -- -- -- 24,201 Shareholders' deficit Common stock 445,313 284,076 4,012 15,068 (302,443) 446,026 Accumulated other comprehensive income (loss) (3,703) 214,247 (1,449) 5,633 (212,012) 2,716 Accumulated deficit (520,267) (497,966) 288 (35,426) 515,198 (538,173) ----------- ----------- ----------- ----------- ----------- ----------- Total shareholders' deficit (78,657) 357 2,851 (14,725) 743 (89,431) ----------- ----------- ----------- ----------- ----------- ----------- Total liabilities and shareholders' deficit 398,764 440,506 4,170 56,372 (791,881) 107,931 =========== =========== =========== =========== =========== ===========
F-33 TEVECAP S.A. AND SUBSIDIARIES 16. Financial information for subsidiary guarantors and non-guarantor subsidiaries (Continued) Consolidated Statements of Operations for the period ended June 30, 2003
Wholly- Owned Majority- Non- Parent Guarantor Owned Guarantor Description Company Subsidiaries Guarantor Subsidiaries Eliminations Consolidated ------- ------------ ----------- ------------ ------------ ------------ (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) Gross revenues Monthly subscriptions -- 36,810 944 1,103 -- 38,857 Installation -- 645 21 9 -- 675 Advertising -- 891 -- 32 -- 923 Other -- 1,711 14 174 (2) 1,897 Taxes on revenue (5,956) (143) (134) (6,233) ----------- ----------- ----------- ----------- ----------- ----------- Net revenue -- 34,101 836 1,184 (2) 36,119 ----------- ----------- ----------- ----------- ----------- ----------- Direct operating expenses -- 18,205 470 901 (2) 19,574 Selling, general and administrative expenses 1,360 9,373 80 124 -- 10,937 Depreciation and amortization 195 11,083 132 257 (136) 11,531 Other operating expense, net -- 1,342 -- -- -- 1,342 ----------- ----------- ----------- ----------- ----------- ----------- Operating loss (1,555) (5,902) 154 (98) 136 (7,265) ----------- ----------- ----------- ----------- ----------- ----------- Interest income (974) (11,174) (164) 562 11,631 (119) Interest expense 14,813 5,507 7 (43) (11,631) 8,653 Foreign currency transaction (income) loss, net (74,102) 54,000 (62) 7,331 -- (12,833) Income (loss) before income taxes, income (losses) of equity affiliates and minority interest 58,708 (54,235) 373 (7,948) 136 (2,966) Income taxes 19,813 -- 98 -- -- 19,911 ----------- ----------- ----------- ----------- ----------- ----------- Income (loss) before income (losses) of equity in affiliates and minority interest 38,895 (54,235) 275 (7,948) 136 (22,877) Equity in (losses) of affiliates, net 61,323 (167) -- (50) (61,545) (439) ----------- ----------- ----------- ----------- ----------- ----------- Income (loss) before minority interest (22,428) (54,068) 275 (7,898) 61,681 (22,438) Minority interest -- -- -- -- 111 111 ----------- ----------- ----------- ----------- ----------- ----------- Net income (loss) (22,428) (54,068) 275 (7,898) 61,570 (22,549) =========== =========== =========== =========== =========== ===========
F-34 TEVECAP S.A. AND SUBSIDIARIES 16. Financial information for subsidiary guarantors and non-guarantor subsidiaries (Continued) Consolidated Statement's of Cash Flows for the semester ended June 30, 2003
Wholly- Majority- Non- Parent Owned Owned Guarantor Company Subsidiaries Subsidiaries Subsidiaries Eliminations Consolidated ----------- ------------ ------------ ------------ ------------ ------------ (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) ----------- ------------ ------------ ------------ ------------ ------------ Cash flows from operating activities: 773 (2,641) (1) 129 -- (1,740) ----------- ----------- ----------- ----------- ----------- ----------- Cash flows from investing activities: Purchase of property, plant and equipment -- (3,450) (24) (14) -- (3,488) Purchase of intangible assets -- (284) -- -- -- (284) Loans to related companies (3,021) -- (632) (438) 3,861 (230) Repayment of loans to related companies 4,378 -- 631 217 (5,101) 125 ----------- ----------- ----------- ----------- ----------- ----------- Net cash used in investing activities 1,357 (3,734) (25) (235) (1,240) (3,877) ----------- ----------- ----------- ----------- ----------- ----------- Cash flows from financing activities: Proceeds from bank loans -- 10,638 -- -- -- 10,638 Repayments of loans from banks (2,749) (17,034) -- (33) -- (19,816) Proceeds from loans from shareholders 13,122 29,184 -- 10 (3,861) 38,455 Repayments of loans from shareholders (16,415) (14,038) -- -- 5,101 (25,352) ----------- ----------- ----------- ----------- ----------- ----------- Net cash provided by financing activities (6,042) 8,750 -- (23) 1,240 3,925 ----------- ----------- ----------- ----------- ----------- ----------- Effect of exchange rate changes 3,890 (2,301) 32 66 -- 1,687 ----------- ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents (22) 74 6 (63) -- (5) Cash and cash equivalents at beginning of the period 26 110 24 85 -- 245 ----------- ----------- ----------- ----------- ----------- ----------- Cash and cash equivalents at end of the period 4 184 30 22 -- 240 =========== =========== =========== =========== =========== ===========
* * * * * * * F-35 CCS - CAMBORIU CABLE SYSTEM TELECOMUNICACOES LTDA. Interim Unaudited Financial Statements for the Six-month Periods Ended June 30, 2004 and 2003 F-36 CCS - CAMBORIU CABLE SYSTEM TELECOMUNICACOES LTDA. INDEX TO FINANCIAL STATEMENTS Contents
Page Balance Sheets as of June 30, 2004 and December 31, 2003 F-38 Statements of Operations for the six-month periods ended June 30, 2004 and 2003 F-40 Statements of Changes in Shareholders' Equity for the six-month period ended June 30, 2004 F-41 Statements of Cash Flows for the six-month periods ended June 30, 2004 and 2003 F-42 Notes to Financial Statements F-43
F-37 CCS - CAMBORIU CABLE SYSTEM TELECOMUNICACOES LTDA. Balance Sheets As of June 30, 2004 and December 31, 2003 (in thousands of U.S. dollars) June 30, December 31, ----------- ------------ 2004 2003 ----------- ------------ (Unaudited) (Unaudited) ASSETS Current assets Cash and cash equivalents $ 327 $ 61 Inventories 77 70 Prepaid and other assets 1 2 Recoverable taxes 105 255 Other accounts receivable 9 12 ----------- ----------- Total current assets 519 400 ----------- ----------- Property, plant and equipment, net (Note 5) 1,856 2,099 Loans to related companies (Note 3) 1,461 1,452 Deferred income taxes 110 -- Judicial deposits 218 219 ----------- ----------- Total assets $ 4,164 $ 4,170 =========== =========== The accompanying notes are an integral part of the financial statements F-38 CCS - CAMBORIU CABLE SYSTEM TELECOMUNICACOES LTDA. Balance Sheets, continued As of June 30, 2004 and December 31, 2003 (in thousands of U.S. dollars)
June 30, December 31, ----------- ------------ 2004 2003 ----------- ------------ (Unaudited) (Unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Film suppliers $ 220 $ 145 Other suppliers 14 19 Taxes payable other than income taxes 219 368 Accrued payroll and related liabilities 15 13 Rent payable 137 134 Other accounts payable 102 91 ----------- ------------ Total current liabilities 707 770 ----------- ------------ Long-term liabilities Taxes payable other than income taxes 346 384 Provision for claims (Note 8) 155 165 ----------- ------------ Total long-term liabilities 501 549 ----------- ------------ Shareholders' equity Common stock, no par value, 4,850,000 shares authorized, issued and outstanding (Note 6) 4,012 4,012 Accumulated other comprehensive loss (1,660) (1,449) Accumulated income 604 288 ----------- ------------ Total shareholders' equity 2,956 2,851 ----------- ------------ Total liabilities and shareholders' equity $ 4,164 $ 4,170 =========== ============
The accompanying notes are an integral part of the financial statements F-39 CCS - CAMBORIU CABLE SYSTEM TELECOMUNICACOES LTDA. Statements of Operations For the six-month periods ended June 30, 2004 and 2003 (in thousands of U.S. dollars)
Six-month periods ended June 30, -------------------------------- 2004 2003 ------------ ------------- Gross revenues (Unaudited) (Unaudited) Monthly subscriptions $ 1,169 $ 944 Installation 16 21 Additional services 21 14 Taxes on revenues (170) (143) ----------- ------------ 1,036 836 ----------- ------------ Direct operating expenses (excluding depreciation stated separately below) Payroll and benefits 22 17 Programming 404 299 Other costs 86 154 ----------- ------------ 512 470 ----------- ------------ Selling, general and administrative expenses 122 80 ----------- ------------ Depreciation 135 132 ----------- ------------ Operating income 267 154 ----------- ------------ Interest income (113) (164) Interest expense 25 7 Foreign currency transaction (gain) loss, net 14 (62) ----------- ------------ Income (loss) before income taxes 341 373 ----------- ------------ Income tax expense - current (Note 4) 135 98 Income tax (benefit) expense - deferred (Note 4) (110) -- ----------- ------------ Net income (loss) $ 316 $ 275 =========== ============ Other comprehensive loss - Foreign currency translation adjustment 211 (528) ----------- ------------ Comprehensive income (loss) $ 105 $ 803 =========== ============
The accompanying notes are an integral part of the financial statements F-40 CCS - CAMBORIU CABLE SYSTEM TELECOMUNICACOES LTDA. Statements of Changes in Shareholders' Equity For the six-month period ended June 30, 2004 (in thousands of U.S. dollars) (Unaudited)
Accumulated Other Common Accumulated Comprehensive Stock Deficit Loss Total -------- ----------- ------------- -------- Balance as of December 31, 2003 4,012 288 (1,449) 2,851 Foreign currency translation adjustment, net of tax of $0 (unaudited) -- -- (211) (211) Net income (unaudited) -- 316 -- 316 -------- -------- -------- -------- Balance as of June 30, 2004 (unaudited) $ 4,012 $ 604 $ (1,660) $ 2,956 ======== ======== ======== ========
The accompanying notes are an integral part of the financial statements F-41 CCS - CAMBORIU CABLE SYSTEM TELECOMUNICACOES LTDA. Statements of Cash Flows For the six-month periods ended June 30, 2004 and 2003 (in thousands of U.S. dollars)
Six-month periods ended June 30, -------------------------------- 2004 2003 ------------ ------------ (Unaudited) (Unaudited) ----------- ----------- Cash flows from operating activities: 613 (1) ----------- ----------- Cash flows from investing activities: Purchases of property, plant and equipment (35) (24) Loans to related companies (7) (632) Repayments of loans to related companies -- 631 ----------- ----------- Net cash used in investing activities (42) (25) ----------- ----------- Effect of exchange rate changes on cash and cash equivalents (305) 32 ----------- ----------- Net increase (decrease) in cash and cash equivalents 266 6 Cash and cash equivalents at beginning of the period 61 24 ----------- ----------- Cash and cash equivalents at end of the year $ 327 $ 30 =========== ===========
The accompanying notes are an integral part of the financial statements F-42 CCS - CAMBORIU CABLE SYSTEM TELECOMUNICACOES LTDA. Notes to Financial Statements (Continued) (in thousands of U.S. dollars) 1. The Company and its principal operations CCS - Camboriu Cable System Telecomunicacoes Ltda. (the "Company") renders 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 the city of Camboriu. The Company's operations are substantially dependent on the Tevecap Group regarding programming, marketing, financial and administrative systems. In the Company's opinion, all adjustments necessary for a fair presentation of the unaudited results of operations for the six-month periods ended June, 30 2004 and 2003, are included. All such adjustments are accruals of a normal and recurring nature. The results of operations for the period ended June 30, 2004 are not necessarily indicative of the results of operations to be expected for the full year. The accompanying consolidated financial statements are unaudited and should be read in conjunction with the consolidated financial statements for the year ended December 31, 2003 included in the Company's 2003 annual report on Form 20-F. 1.2 Significant risks and uncertainties The Company's financial statements for the period ended June 30, 2004 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 during the period ended June 30, 2004 had negative working capital of $188. The continuation of the Company as a going concern is dependent upon its ability to generate sufficient cash from operating and financing activities. In this regard, managements' plans include: (i) increasing the Company's subscriber base and implementing technological upgrades to its pay television networks; (ii) streamlining the Company's principal operating procedures to increase productivity and profitability; (iii) the continuation of a cost reduction program which was initiated in 2002 and (iii) adjusting the Company's capitalization (including indebtedness) to provide for long term growth and stability. 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. 2. Summary of significant accounting policies Significant policies followed in the preparation of the consolidated financial statements are described in the annual consolidated financial statements. F-43 CCS - CAMBORIU CABLE SYSTEM TELECOMUNICACOES LTDA. Notes to Financial Statements (Continued) (in thousands of U.S. dollars) 2.1. Basis of presentation The financial statements are presented in United States 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 in accordance with U.S. GAAP 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 these estimates. 3. Related party transactions The following tables summarize the transactions between the Company and related parties as of June 30, 2004 and December 31, 2003: June 30, December 31, ----------- ------------ 2004 2003 ----------- ------------ (Unaudited) (Unaudited) TVA Sul Parana Ltda. (parent company) Loans receivable 1,461 1,452 ----------- ------------ Loans receivable $ 1,461 $ 1,452 The Company and its related parties maintain a cash management system centralized at TVA Sul Parana Ltda. The centralized cash management system results in accounts receivable from and payable to related parties depending on the cash needs of the companies. Loans granted to or obtained from related companies, under loan agreements, are denominated in reais and subject to variable interest of 1.88% per month as of June 30, 2004 (1.96% per month as of December 31, 2003). The accompanying notes are an integral part of the financial statements F-44 CCS - CAMBORIU CABLE SYSTEM TELECOMUNICACOES LTDA. Notes to Financial Statements (Continued) (in thousands of U.S. dollars) 4. Income taxes Deferred income taxes reflect the future tax consequences of net operating loss carryforwards and differences between the tax basis and the financial reporting basis of assets and liabilities. A valuation allowance has been established against the net deferred tax asset (primarily consisting of net operating loss carryforwards and provisions) as management believes it is more likely than not that the deferred tax assets will not be realized. Accordingly, no benefit has been recognized for the Company's net operating losses and other deferred tax assets. As of June 30, 2004, the Company had no net operating loss carryforwards. The tax effects of temporary differences that give rise to deferred tax assets as of of June 30, 2004 and December 31, 2003 are as follows: June 30, December 31, -------------------------- 2004 2003 -------------------------- (Unaudited) (Unaudited) Deferred tax assets: Provision for claims 58 58 Other 52 19 -------------------------- Total gross deferred tax asset 110 77 -------------------------- Less valuation allowance -- (77) -------------------------- Deferred tax asset 110 -- -------------------------- The accompanying notes are an integral part of the financial statements F-45 CCS - CAMBORIU CABLE SYSTEM TELECOMUNICACOES LTDA. Notes to Financial Statements (Continued) (in thousands of U.S. dollars) 4. Income taxes (continued) The income tax expense was different from the amount computed using the Brazilian statutory income tax for the reasons set forth in the following table:
June 30, June 30, ------------ ------------ 2004 2003 ------------ ------------ (Unaudited) (Unaudited) Income (loss) before income taxes $ 341 $ 373 Statutory income tax rate 34% 34% ------------ ------------ Computed income tax expense (benefit) 116 127 Deductible devaluation loss for Brazilian statutory purposes -- 17 Other (14) (65) Change in valuation allowance (77) 19 ------------ ------------ Income tax expense per statements of operations $ 25 $ 98 ============ ============
5. Property, plant and equipment, net As of June 30, 2004 and December 31, 2003, property, plant and equipment were comprised of:
Annual Depreciation Rate June 30, December 31, ----------- ------------ % 2004 2003 ----------- ------------ (Unaudited) (Unaudited) Reception equipment 20 $ 590 $ 605 Cable plant 10 655 704 Machinery and equipment 10 207 220 Decoders 10 98 101 Leasehold improvements 25 5 5 Building 4 1,896 2,039 Furniture and fixtures 10 41 43 Vehicles 20 37 40 Software 20 9 9 Tools 10 2 2 Other 4 8 Accumulated depreciation (1,688) (1,677) ----------- ----------- $ 1,856 $ 2,099 =========== ===========
The accompanying notes are an integral part of the financial statements F-46 CCS - CAMBORIU CABLE SYSTEM TELECOMUNICACOES LTDA. Notes to Financial Statements (Continued) (in thousands of U.S. dollars) 6. Shareholder's equity Common stock as of June 30, 2004 and December 31, 2003 was comprised of:
June 30, 2004 December 31, 2003 ------------------------ ------------------------ $ Shares $ Shares ---------- ---------- ---------- ---------- Construtora ENE ESSE Ltda $ 1,605 1,940,000 $ 1,605 1,940,000 TVA Sul Parana Ltda 2,407 2,910,000 2,407 2,910,000 ---------- ---------- ---------- ---------- $ 4,012 4,850,000 $ 4,012 4,850,000 ========== ========== ========== ==========
7. Loan guarantees In November 1996, Tevecap issued $250,000 12-5/8% Senior Notes to institutional buyers in a private placement. The Notes, which mature in November 2004, were subsequently registered with the Securities and Exchange Commission in May 1997. These Notes are jointly and severally, irrevocably and fully unconditionally guaranteed, on a senior basis, by Tevecap's direct and indirect subsidiaries, including the Company. On July 28, 1999 the related company, TVA Communications Ltd., repurchased 80.79% of these Notes. 8. 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 the opinion of the Company's management and external legal counsel, a provision was recorded for all lawsuits for which the likelihood of an adverse outcome is probable. The Company has not recorded provisions for lawsuits for which the likelihood of an adverse outcome is possible or remote. ******* F-47 PART II Information not Required in Prospectus Item 20. Indemnification of Directors and Officers Neither the laws of Brazil nor our charter or other constitutive documents provide for indemnification of directors and officers. Our directors and officers are insured in connection with certain liabilities incurred in their respective capacities as directors or officers of us. Item 21. Exhibits The following documents are filed as part of this registration statement: Exhibit Number Description - -------- ----------- 3.1 Articles of Incorporation(1) 3.2 By-laws (Estatuto social) of Tevecap S.A.(1) 4.1 Form of Indenture dated November 26, 2004 among Tevecap S.A., HSBC Bank USA, National Association, as indenture trustee, registrar, New York paying agent, transfer agent and as principal paying agent. 4.2 Form of Debt Security (included in Exhibits 4.1) 5.1 Opinion of Clifford Chance US LLP with respect to the new notes. 5.2 Opinion of Machado, Meyer, Sendacze e Opice, with respect to authorization of the new notes and the enforcement of civil liabilities in Brazil. 12.1 Computation of Ratio of Earnings to Fixed Charges. 23.1 Consent of Deloitte Touche Tohmatsu Auditores Independentes. 23.2 Consent Clifford Chance US LLP (included in Exhibit 5.1). 23.3 Consent of Machado, Meyer, Sendacze e Opice (included in Exhibit 5.2). 24.1 Power of Attorney (included on the Signature Page). 25.1 Statement of Eligibility under the Trust Indenture Act of 1939 on Form T-1 of HSBC Bank USA, National Association, as Trustee. 99.1 Form of Letter of Transmittal. 99.2 Form of Notice of Guaranteed Delivery. 99.3 Form of Letter to Clients. 99.4 Form of Letter to Nominees. (1) Filed as an exhibit to our Annual Report on Form 20-F, filed on June 30, 2004. -53- Item 22. Undertakings (a) The registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended; (ii) 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; and (iii) 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. (2) 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 herein, and the offering of such securities at that time shall be deemed to be the initial protected offering thereof. (3) 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. (4) To file a post-effective amendment to the Registration Statement to include any financial statements required by Item 8 of Form 20-F at the start of any delayed offering or throughout a continuous offering. (b) The undersigned registrant undertakes hereby that, for purposes of determining liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement 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) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been informed 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 co-registrant of expenses incurred or paid by a director, officer or controlling person of the co-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 co-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. (d) The registrant hereby undertakes that (i) to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 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 US for the purpose of responding to such requests. The undertaking in subparagraph (i) above include information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. -54- (e) 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. -55- Signature Page of Tevecap S.A. Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Sao Paulo, Brazil on September 27, 2004. TEVECAP S.A. By: ---------------------------- Name: Leila Abraham Loria Title: Chief Executive Officer By: ---------------------------- Name: Carlos Eduardo Malagoni Title: Chief Financial Officer KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoint each of Carlos Eduardo Malagoni and Leila Abraham Loria to act as his/her true and lawful attorney-in-fact and agent, with full power of substitution, for him/her and in his/her name, place and stead, in any and all such capacities, to sign any and all amendments, including post-effective amendments, and supplements to this registration statement, and all additional registration statements pursuant to Rule 462(b) of the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto and other documents in connection therewith, with the United States Security and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as s/he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his/her substitute or substitutes, may lawfully do or cause to be done in virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement on Form F-4 has been signed by the following persons in the following capacities on the dates indicated.
SIGNATURE TITLE DATE Chief Executive Officer September ____, 2004 - ------------------------------------------- (Principal Executive Officer) Leila Abraham Loria Chief Financial Officer September ____, 2004 - ------------------------------------------- (Principal Financial Officer) Carlos Eduardo Malagoni Chief Controller September ____, 2004 - ------------------------------------------- (Principal Accounting Officer) Manoel Bizarria Guilherme Neto Chairman of the Board of Directors September ____, 2004 - ------------------------------------------ Maurizio Mauro
-56-
SIGNATURE TITLE DATE Director September ____, 2004 - ---------------------------------- Emilio Humberto Carazzai Sobrinho Director September ____, 2004 - ---------------------------------- Arnaldo Figueiredo Tibyrica Director September ____, 2004 - ---------------------------------- Deborah Patricia Wright Director September ____, 2004 - ---------------------------------- Leila Abraham Loria Director September ____, 2004 - ---------------------------------- Marcelo Vaz Bonini Authorized Representative - ---------------------------------- in the United States September ____, 2004
-57- EX-4.1 2 d60792_ex4-1.txt INDENTURE Exhibit 4.1 TEVECAP S.A. 12.625% Senior Notes due 2009 INDENTURE Dated as of , 2004 HSBC BANK USA, NATIONAL ASSOCIATION Trustee and Principal Paying Agent CROSS-REFERENCE TABLE TIA Indenture Section Section - ------- ------- 310(a)(1) ........................................... 6.10 (a)(2) ........................................... 6.10 (a)(3) ........................................... N.A. (a)(4) ........................................... N.A. (b) ........................................... 6.8; 6.10 (c) ........................................... N.A. 311(a) ........................................... 6.11 (b) ........................................... 6.11 (c) ........................................... N.A. 312(a) ........................................... 2.16 (b) ........................................... 9.3 (c) ........................................... 9.3 313(a) ........................................... 6.6 (b)(1) ........................................... N.A. (b)(2) ........................................... 6.6 (c) ........................................... 6.6 (d) ........................................... 6.6 314(a) ........................................... N.A. 9.2 (b) ........................................... N.A. (c)(1) ........................................... 9.4 (c)(2) ........................................... 9.4 (c)(3) ........................................... N.A. (d) ........................................... N.A. (e) ........................................... 9.5 (f) ........................................... N.A. 315(a) ........................................... 6.1 (b) ........................................... 6.1 (c) ........................................... 6.1 (d) ........................................... 6.1 (e) ........................................... 5.11 316(a)(last sentence) ........................................... 9.6 (a)(1)(A) ........................................... 5.5 (a)(1)(B) ........................................... 5.4 (a)(2) ........................................... N.A. (b) ........................................... 5.7 317(a)(1) ........................................... 5.8 (a)(2) ........................................... 5.9 (b) ........................................... 2.8 318(a) ........................................... 9.1 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...................................................................4 SECTION 1.3. Incorporation by Reference of Trust Indenture Act...................................5 SECTION 1.4. Rules of Construction...............................................................5 ARTICLE II THE NOTES..................................................................................6 SECTION 2.1. Title and Terms; Form...............................................................6 SECTION 2.2. Denominations.......................................................................6 SECTION 2.3. Execution, Authentication, Delivery and Dating......................................6 SECTION 2.4. Temporary Notes.....................................................................7 SECTION 2.5. Registration, Registration of Transfer and Exchange.................................8 SECTION 2.6. Mutilated, Destroyed, Lost and Stolen Notes.........................................8 SECTION 2.7. Payment of Interest; Interest Rights Preserved......................................9 SECTION 2.8. Paying Agents; Discharge of Payment Obligations; Indemnity of Holders..............10 SECTION 2.9. Persons Deemed Owners..............................................................10 SECTION 2.10. Cancellation.......................................................................11 SECTION 2.11. Computation of Interest............................................................11 SECTION 2.12. Legal Holidays.....................................................................11 SECTION 2.13. CUSIP and CINS Numbers.............................................................11 SECTION 2.14. Book-Entry Provisions for Global Notes.............................................11 SECTION 2.15. Money for Note Payments To be Held in Trust........................................12 SECTION 2.16. Noteholder Lists...................................................................13 SECTION 2.17. Outstanding Notes..................................................................14 ARTICLE III REDEMPTION................................................................................14 SECTION 3.1. Scheduled Redemption...............................................................14 SECTION 3.2. Optional Redemption................................................................15 SECTION 3.3. Notices to Trustee.................................................................15 SECTION 3.4. Selection of Notes To Be Redeemed..................................................15 SECTION 3.5. Notice of Redemption...............................................................15 SECTION 3.6. Effect of Notice of Redemption.....................................................16 SECTION 3.7. Deposit of Redemption Price........................................................16 SECTION 3.8. Notes Redeemed in Part.............................................................16 ARTICLE IV COVENANTS.................................................................................16
i TABLE OF CONTENTS (continued)
Page ---- SECTION 4.1. Payment of Notes...................................................................16 SECTION 4.2. Payment of Additional Amounts......................................................17 SECTION 4.3. Compliance Certificate.............................................................19 SECTION 4.4. Further Instruments and Acts.......................................................19 ARTICLE V DEFAULTS AND REMEDIES.....................................................................19 SECTION 5.1. Events of Default..................................................................19 SECTION 5.2. Acceleration.......................................................................21 SECTION 5.3. Other Remedies.....................................................................21 SECTION 5.4. Waiver of Past Defaults............................................................21 SECTION 5.5. Control by Majority................................................................21 SECTION 5.6. Limitation on Suits................................................................21 SECTION 5.7. Rights of Holders to Receive Payment...............................................22 SECTION 5.8. Collection Suit by Trustee.........................................................22 SECTION 5.9. Trustee May File Proofs of Claim...................................................22 SECTION 5.10. Priorities.........................................................................22 SECTION 5.11. Undertaking for Costs..............................................................23 ARTICLE VI TRUSTEE...................................................................................23 SECTION 6.1. Duties of Trustee..................................................................23 SECTION 6.2. Rights of Trustee..................................................................24 SECTION 6.3. Individual Rights of Trustee.......................................................24 SECTION 6.4. Trustee's Disclaimer...............................................................24 SECTION 6.5. Intentionally Omitted..............................................................25 SECTION 6.6. Reports by Trustee to Holders......................................................25 SECTION 6.7. Compensation and Indemnity.........................................................25 SECTION 6.8. Replacement of Trustee.............................................................25 SECTION 6.9. Successor Trustee by Merger........................................................26 SECTION 6.10. Eligibility; Disqualification......................................................26 SECTION 6.11. Preferential Collection of Claims Against Company..................................27 ARTICLE VII DISCHARGE OF INDENTURE; DEFEASANCE........................................................27 SECTION 7.1. Discharge of Liability on Notes; Defeasance........................................27 SECTION 7.2. Conditions to Defeasance...........................................................27 SECTION 7.3. Application of Trust Money.........................................................29 SECTION 7.4. Repayment to Company...............................................................29
ii TABLE OF CONTENTS (continued)
Page ---- SECTION 7.5. Indemnity for U.S. Government Obligations..........................................29 SECTION 7.6. Reinstatement......................................................................29 ARTICLE VIII AMENDMENTS................................................................................29 SECTION 8.1. Without Consent of Holders.........................................................29 SECTION 8.2. With Consent of Holders............................................................30 SECTION 8.3. Compliance with Trust Indenture Act................................................31 SECTION 8.4. Revocation and Effect of Consents and Waivers......................................31 SECTION 8.5. Notation on or Exchange of Notes...................................................31 SECTION 8.6. Trustee To Sign Amendments.........................................................31 ARTICLE IX MISCELLANEOUS.............................................................................31 SECTION 9.1. Trust Indenture Act Controls.......................................................31 SECTION 9.2. Notices............................................................................31 SECTION 9.3. Communication by Holders with other Holders........................................33 SECTION 9.4. Certificate and Opinion as to Conditions Precedent.................................33 SECTION 9.5. Statements Required in Certificate or Opinion......................................33 SECTION 9.6. When Notes Disregarded.............................................................33 SECTION 9.7. Rules by Trustee, Paying Agent and Registrar.......................................33 SECTION 9.8. Legal Holidays.....................................................................33 SECTION 9.9. Governing Law......................................................................34 SECTION 9.10. No Recourse Against Others.........................................................34 SECTION 9.11. Successors.........................................................................34 SECTION 9.12. Multiple Originals.................................................................34 SECTION 9.13. Variable Provisions................................................................34 SECTION 9.14. Qualification of Indenture.........................................................34 SECTION 9.15. Table of Contents; Headings........................................................34 SECTION 9.16. Agent for Service; Submission to Jurisdiction; Waiver of Immunities................34 SECTION 9.17. Currency of Account; Conversion of Currency; Foreign Exchange Restrictions.........35
iii INDENTURE, dated as of , 2004, among TEVECAP S.A., a sociedade anonima organized under the laws of the Federative Republic of Brazil (the "Company") HSBC Bank USA, National Association as Trustee, (the "Trustee") and, as Principal Paying Agent. The Company 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 12.625% Senior Notes due 2009 (the "Notes"): ARTICLE I Definitions and Incorporation by Reference SECTION 1.1. Definitions. "Additional Amounts" shall have the meaning specified in Section 4.2 hereof. "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 Notes, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Business Day" means each day which is not a Legal Holiday. "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, excluding any debt securities convertible into such equity. "Code" means the United States 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. "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. "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 452 Fifth Avenue, New York, NY 10018, Attention: Corporate Trust. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. "Depository" means The Depository Trust Company, its nominees and their respective successors. "Exchange Act" means the United States Securities Exchange Act of 1934, as amended. "Exchange Adjustment" means: (i) with respect to the First Redemption Date, the amount which is "a" where: a = (ERI - 0.3) x IA where: "ERI" is the Exchange Rate Increase applicable to the First Redemption Date; and "IA" is the Installment Amount due on the First Redemption Date; and (ii) with respect to the Second Redemption Date, the amount which is "a" where: a = (ERI - 0.4) x IA where: "ERI" is the Exchange Rate Increase applicable to the Second Redemption Date; and "IA" is the Installment Amount due on the Second Redemption Date but as adjusted, if applicable, in accordance with Section 3.1 (b)(1)(ii). "Exchange Rate Increase" means, with respect to the First Redemption Date or the Second Redemption Date, the amount of the increase (expressed as a decimal fraction of the exchange rate applicable at 7:30 p.m. (Sao Paulo time) on the day which is one Sao Paulo business day prior to November 26, 2004, if any, in the exchange rate for the purchase of Brazilian reais with U.S. dollars, for the period from 7:30 p.m. (Sao Paulo time) on the day which is one Sao Paulo business day prior to November 26, 2004 until 7:30 p.m. (Sao Paulo time) on the day which is five Sao Paulo business days prior to the First Redemption Date or the Second Redemption Date (as applicable), using the Real/U.S. dollar commercial rate, expressed as the amount of reais per one U.S. dollar, reported by the Bancon Central do Brasil on SISBACEN Data System under transaction code PTAX-800 ("Consultas de Cambio" or Exchange Rate Inquiry) Option 5 ("Cotacoes para Contabilidade" or Rates for Accounting Purposes) market type L (corresponding to U.S. dollars traded in the foreign exchange market segment officially denominated "Livre" and commonly known as "Commercial"). "Excluded Debt" means any outstanding indebtedness with respect to the Company's 12.625% Senior Notes due 2004. "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. "Holder" or "Noteholder" means the Person in whose name a Note is registered on the Registrar's books. 2 "Indenture" means this Indenture as amended or supplemented from time to time. "Issue Date" means the date on which the Notes are originally issued. "Legal Holiday" has the meaning ascribed in Section 9.8. "Notes" means the Notes issued under this Indenture. "Notes Custodian" means the custodian with respect to the Global Notes (as appointed by the Depository), or any successor Person thereto and shall initially be the Trustee. "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. One of the officers giving an Officers' Certificate pursuant to Section 4.3 shall be the principal executive, financial or accounting officer of the Company. "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 Notes on behalf of the Company. The Company may so authorize a principal Paying Agent and one or more co-Paying Agents. "Person" means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision hereof or any other entity. "Physical Note" means a certificated Note registered in the name of the Holder thereof and issued in accordance with this Indenture, in the form of Exhibit A, except that such Note shall not bear the global note legend and shall not have the "Schedule of Exchanges of Interests in the Global Note" attached thereto. "Predecessor Note" means, with respect to any particular Note, every previous Note evidencing all or a portion of the same debt as that evidenced by such particular Note; and, for the purposes of this definition, any Note authenticated and delivered under Section 2.3 hereof in exchange for a mutilated Note or in lieu of a lost, destroyed or stolen Note shall be deemed to evidence the same debt as the mutilated, lost, destroyed or stolen Note. "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. "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 Notes pursuant to paragraph 5 or 6 of the Notes. "Securities Act" means the Securities Act of 1933, as amended. "Stated Maturity" means, with respect to any Note, the date specified in such Note as the fixed date on which the payment of principal of such Note is due and payable. 3 "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. "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 any state of the Federative Republic of Brazil or any political subdivision or territory or possession of the government of the Federative Republic of Brazil or any jurisdiction in which the Company 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. "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; provided, however, that in the Event the Trust Indenture Act of 1939 is amended after such dated, "TIA" means, to the extent required by any such amendment the Trust Indenture Act of 1939 as so amended. "Trustee" means HSBC Bank USA, National Association until a successor replaces it and, thereafter, means the successor. "Trust Officer" means any officer of the Trustee having direct responsibility for the administration of this Indenture. "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. "U.S. 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. SECTION 1.2. Other Definitions. Defined in Term Section ---- ------- "Agent Member"................................ 2.14(a) "Bankruptcy Law".............................. 5.1 "covenant defeasance option".................. 7.1(b) "Custodian"................................... 5.1 "Event of Default"............................ 5.1 4 "First Redemption Date"....................... 3.1 "Global Note"................................. 2.1 "Installment Amount".......................... 3.1 "legal defeasance option"..................... 7.1(b) "Note Register"............................... 2.5 "Note Registrar".............................. 2.5 "Second Redemption Date"...................... 3.1 "Third Redemption Date"....................... 3.1 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: "indenture Notes" means the Notes. "indenture Note holder" means a Noteholder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the indenture Notes means the Company and any other obligor on the indenture Notes. 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; (7) the principal amount of any noninterest bearing or other discount Note 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. 5 ARTICLE II The Notes SECTION 2.1. Title and Terms; Form. The aggregate principal amount of Notes which may be authenticated and delivered under this Indenture is limited to US$48,022,000 in aggregate principal amount of Notes, except for Notes authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Notes pursuant to Section 2.3, 2.4, 2.5, 2.6, 3.6 or 8.5. The Notes shall be known and designated as the "12.625% Senior Notes due 2009" of the Company. The final Stated Maturity of the Notes shall be November 26, 2009, and the Notes shall bear interest at the rate of 12.625% per annum 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, 2005 to holders of record at the close of business on the May 1 or November 1 immediately preceding the interest payment date, 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 Notes shall be issued in the form of one or more permanent global Notes in fully registered form without interest coupons (each, a "Global Note"). Physical Notes shall be in substantially the form set forth in Exhibit A hereof excluding the Global Notes Legend. The principal of, premium, if any, and interest (and any Additional Amounts) on Global Notes shall be payable to the Depository or its nominee, as the case may be, as the sole registered owner and the sole holder of the Global Notes represented thereby. The principal of, premium, if any, and interest on Physical Notes shall be payable, and the Notes may be exchanged or transferred, at the office or agency of the Company maintained for such purpose in the City of New York (which initially shall be the corporate trust office of the Trustee 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 Note Register. SECTION 2.2. Denominations. The Notes shall be issuable only in fully registered form without coupons and only in denominations of US$1.00 and any integral multiple thereof. SECTION 2.3. Execution, Authentication, Delivery and Dating. The Notes 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. Notes 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 Notes or did not hold such offices on the date of such Notes. At any time and from time to time upon or after the execution and delivery of this Indenture, the Company may deliver Notes executed by the Company to the Trustee for authentication, together with a Company Order for authentication and delivery of such Notes as provided in this Indenture and not otherwise. 6 No Note shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Note a certificate of authentication substantially in the form provided for in Exhibit A hereto duly executed by the Trustee by manual signature of an authorized representative, and such certificate upon any Note shall be conclusive evidence, and the only evidence, that such Note has been duly authenticated and delivered hereunder. In case the Company 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, any of the Notes 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 Notes executed in the name of the successor Person with such changes in terminology and form as may be appropriate, but otherwise in substance of the same tenor as the Notes surrendered for such exchange and the same principal amount; and the Trustee, upon Company Order of the successor Person, shall authenticate and deliver replacement Notes as specified in such request for the purpose of such exchange. If such Notes 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 Notes, such successor Person, at the option of the Holders but without expense to them, shall provide for the exchange of all Notes at the time Outstanding for Notes authenticated and delivered in such new name. The Trustee may appoint an authenticating agent to authenticate Notes 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 Note Registrar or Paying Agent to deal with the Company and its Affiliates. If any of the Notes are to be issued in the form of one or more Global Notes, then the Company shall execute and the Trustee shall authenticate and deliver one or more Global Notes that (i) shall be in minimum denominations of US$1.00 or integral multiples thereof, (ii) shall be registered in the name of the Depository for such Global Note or Notes or the nominee of such Depository, (iii) shall be delivered to the Trustee as Notes Custodian for such Depository and (iv) shall bear the Global Notes legend in substantially the form set forth in Exhibit A. SECTION 2.4. Temporary Notes. Pending the preparation of definitive Notes, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Notes. Temporary Notes may be printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Notes in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the Officers executing such Notes may determine, as conclusively evidenced by their execution of such Notes. If temporary Notes are issued, the Company will cause definitive Notes to be prepared without unreasonable delay but in no event later than the Issue Date of the Notes. After the preparation of definitive Notes, the temporary Notes shall be exchangeable for definitive Notes upon surrender of the temporary Notes at the office or agency of the Company, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Notes the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor the same principal amount of definitive Notes of authorized denominations. Until so exchanged, the temporary Notes shall in all respects be entitled to the same benefits under this Indenture as definitive Notes. 7 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 "Note Register") in which, subject to such reasonable regulations as the Note Registrar may prescribe, the Company shall provide for the registration of Notes and of transfers of Notes. The Trustee is hereby initially appointed "Note Registrar" for the purpose of registering Notes and transfers of Notes as herein provided. Upon surrender for registration of transfer of any Note at the office or agency of the Company, 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 Notes of any authorized denomination or denominations, of the same aggregate principal amount. At the option of the Holder, subject to the terms of this Indenture, Notes in certificated form may be exchanged for other Notes of any authorized denomination or denominations, of the same aggregate principal amount, upon surrender of the Notes to be exchanged at such office or agency. Whenever any Notes are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Notes which the Holder making the exchange is entitled to receive. Every Note presented or surrendered for registration of transfer, or for exchange or redemption shall (if so required by the Company or the Note Registrar) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Note Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made to a Holder for any registration of transfer or exchange or redemption of Notes, but the Company or the Trustee 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 Notes, other than exchanges pursuant to Section 2.3, 2.4 and 3.6 not involving any transfer. The Company shall not be required (a) to issue, register the transfer of or exchange any Note during a period beginning at the opening of business 15 days before the mailing of a notice of redemption of the Notes 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 Note so selected for redemption in whole or in part, except the unredeemed portion of Notes being redeemed in part. Any Holder of a Global Note shall, by acceptance of such Global Note, agree that transfers of beneficial interests in such Global Note may be effected only through a book-entry system maintained by the Holder of such Global Note (or its agent), and that ownership of a beneficial interest in the Note shall be required to be reflected in a book-entry. When Notes are presented to the Note Registrar with a request to register the transfer or to exchange them for an equal principal amount of Notes of other authorized denominations, the Note 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 Notes at the Note Registrar's request. SECTION 2.6. Mutilated, Destroyed, Lost and Stolen Notes. If (a) any mutilated Note 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 Note, and there is delivered to the Company and the Trustee, such Note 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 Note is replaced, then, in the absence of notice to the Company or the Trustee that such Note has been acquired by a protected purchaser, the Company shall execute and upon a 8 Company Order the Trustee shall authenticate and deliver, in exchange for any such mutilated Note or in lieu of any such destroyed, lost or stolen Note, a replacement Note of the same tenor and principal amount, bearing a number not contemporaneously outstanding. Upon the issuance of any replacement Notes under this Section, the Company may require the payment of a sum sufficient to cover any tax or other 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 Note issued pursuant to this Section in lieu of any destroyed, lost or stolen Note shall constitute an original additional contractual obligation of the Company whether or not the destroyed, lost or stolen Note 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 Notes 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 Notes. SECTION 2.7. Payment of Interest; Interest Rights Preserved. Interest relating to the Notes, on any Note (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 Note (or one or more Predecessor Notes) is registered at the close of business on the regular record date for such interest. Any interest on any Note (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 Notes, 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 Notes (or their respective Predecessor Notes) 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 Note 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 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 Note 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 9 Notes (or their respective Predecessor Notes) 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 Notes exchange on which the Notes 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 Note delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Note shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Note. 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 Notes. By its execution and delivery of this Indenture, the Company hereby initially designates and appoints HSBC Bank USA, National Association as Principal Paying Agent. Subject to Section 2.15, the Company may act as Paying Agent. (b) Unless the Company shall be acting as Paying Agent as provided in Section 2.15, 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 Notes (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 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 to the Trustee pursuant to this Indenture, of the principal, and premium, if any, and interest (including Additional Amounts, if any) on the Notes 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 Notes 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 2.15, 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 Notes by the Company to or to the order of a Paying Agent shall be in satisfaction pro tanto of the obligations of the Company under the Notes. 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 Notes 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 Notes, 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 Notes 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 Notes 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 10 treat the person in whose name any Note is registered in the Note Register as the owner of such Note for the purpose of receiving payment of principal of, premium, if any, and (subject to Section 2.7) interest on such Note and for all other purposes whatsoever, whether or not such Note 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 Notes 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 may at any time deliver to the Trustee for cancellation any Notes previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Notes so delivered shall be promptly cancelled by the Trustee. No Notes shall be authenticated in lieu of or in exchange for any Notes cancelled as provided in this Section 2.10, except as expressly permitted by this Indenture. All cancelled Notes held by the Trustee shall be destroyed in accordance with its customary procedures and certification of their destruction delivered to the Company unless by a Company Order the Company shall direct that the cancelled Notes be returned to it. The Trustee shall provide the Company a list of all Notes that have been cancelled from time to time as requested by the Company in writing. SECTION 2.11. Computation of Interest. Interest on the Notes 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 Note shall not be a Business Day, then (notwithstanding any other provision of this Indenture or of the Notes) 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 Notes 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 Notes, and that reliance may be placed only on the other identification numbers printed on the Notes. All Notes shall bear identical CUSIP numbers. The Company shall promptly notify the Trustee in writing of any change in the CUSIP, Common Code or CINS number. SECTION 2.14. Book-Entry Provisions for Global Notes. (a) Each Global Note shall (i) be registered in the name of the Depository for such Global Note or the nominee of such Depository, (ii) be delivered to the Trustee as Notes Custodian for such Depository and (iii) bear the Global Notes legend as set forth in Exhibit A. Members of, or participants in, the Depository ("Agent Members") shall have no rights under this Indenture with respect to any Global Note held on their behalf by the Depository, or the Trustee as its custodian, or under such Global Note, and the Depository may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee, from giving effect to any written certification, proxy 11 or other authorization furnished by the Depository or shall impair, as between the Depository and its Agent Members, the operation of customary practices governing the exercise of the rights of a holder of any Note. (b) Transfers of a Global Note shall be limited to transfers of such Global Note in whole, but not in part, to the Depository, its successors or their respective nominees. Interests of beneficial owners in a Global Note may be transferred in accordance with the rules and procedures of the Depository and the provisions of Section 2.14. Beneficial owners may obtain Physical Notes in exchange for their beneficial interests in a Global Note upon request in accordance with the Depository's and the Note Registrar's procedures at any time. In addition, Physical Notes shall be issued in exchange for a Global Note if (i) the Depository notifies the Company that it is unwilling or unable to continue as Depository for a Global Note or the Depository 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 Notes represented by a Global Note and Holders who hold more than 25% in aggregate principal amount of the Notes at the time outstanding represented by such Global Note advise the Trustee through the Depository in writing that the continuation of a book-entry system through the Depository (or a successor thereto) with respect to such Global Note is no longer required and the Note Registrar has received a request from the Depository to issue Physical Notes. (c) Any beneficial interest in one of the Global Notes that is transferred to a person who takes delivery in the form of an interest in the other Global Note will, upon transfer, cease to be an interest in such Global Note and become an interest in the other Global Note and, accordingly, will thereafter be subject to all transfer restrictions, if any, and other procedures applicable to beneficial interests in such other Global Note 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 Note to beneficial owners pursuant to subsection (b) of this Section, the Note Registrar shall reflect on its books and records the date and a decrease in the principal amount of a Global Note in an amount equal to the principal amount of the beneficial interest in a Global Note to be transferred, and the Company shall execute, and the Trustee shall authenticate and deliver, one or more Physical Notes of the same tenor and amount. (e) In connection with the transfer of an entire Global Note to beneficial owners thereof pursuant to subsection (b) of this Section, such Global Note 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 Depository in exchange for its beneficial interest in such Global Note, an equal aggregate principal amount of Physical Notes of authorized denominations. (f) The registered holder of a Global Note 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 Notes. SECTION 2.15. Money for Note 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 Notes, 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 or otherwise disposed of as herein provided, and shall promptly notify the Trustee of its action or failure so to act. 12 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 Notes, 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 2.15, 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 Notes 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 other obligor upon the Notes) in the making of any payment of principal of, premium, if any, or interest on the Notes; (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. 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 Note 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 Note 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 2.16. Noteholder 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 Noteholders and shall otherwise comply with TIA ss. 312(a). If the Trustee is not the Note 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 13 Trustee may reasonably require of the names and addresses of Noteholders and the Company shall otherwise comply with TIA ss. 312(a). SECTION 2.17. Outstanding Notes. Notes outstanding at any time are all Notes 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 Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Note. If a Note is replaced pursuant to Section 2.6, it ceases to be outstanding unless the Trustee and the Company receive proof satisfactory to them that the replaced Note is held by a protected 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 Notes (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 Noteholders on that date pursuant to the terms of this Indenture, then on and after that date such Notes (or portions thereof) cease to be outstanding and interest on them ceases to accrue. ARTICLE III Redemption SECTION 3.1. Scheduled Redemption. (a) Amortization. Unless previously redeemed, or purchased or cancelled, each Note will be redeemed (subject as provided in subsection (b) below in three equal installments on the dates and in the amounts set out below (each an "Installment Amount"):
Scheduled Redemption Date Installment Amount ------------------------- ------------------ November 26, 2007 (the "First Redemption Date") US$16,007,333.33 November 26, 2008 (the "Second Redemption Date") US$16,007,333.33 November 26, 2009 (the "Third Redemption Date") US$16,007,333.34
(b) Adustment of Installment Amounts. (1) If the Exchange Rate Increase with respect to the First Redemption Date is in excess of 0.3, then: (i) the Installment Amount due on the First Redemption Date shall be reduced by the U.S. dollar equivalent of the Exchange Adjustment applicable to the First Redemption Date; (ii) the Installment Amount due on the Second Redemption Date shall be increased by the amount which is equal to 50% of the U.S. dollar equivalent of the Exchange Adjustment applicable to the First Redemption Date; and (iii) the Installment Amount due on the Third Redemption Date shall be increased by the amount which is equal to 50% of the U.S. dollar equivalent of the Exchange Adjustment applicable to the First Redemption Date. (2) If the Exchange Rate Increase with respect to the Second Redemption Date is in excess of 0.4, then: 14 (i) the Installment Amount due on the Second Redemption Date (as adjusted, if applicable, in accordance with subsection (b)(1)(ii) above) shall be reduced by the U.S. dollar equivalent of the Exchange Adjustment applicable to the First Redemption Date; and (ii) the Installment Amount due on the Third Redemption Date (as adjusted, if applicable, in accordance with subsection (b)(1)(ii) above) shall be increased by the U.S. dollar equivalent of the Exchange Adjustment applicable to the Second Redemption Date. SECTION 3.2. Optional Redemption. On any of the First Redemption Date, the Second Redemption Date, or the Third Redemption Date, the Company may redeem all of the Notes, at a redemption price of 100% of the outstanding principal amount, 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). SECTION 3.3. Notices to Trustee. If the Company elects to redeem Notes pursuant to Section 3.1 or 3.2, it shall notify the Trustee in writing of the redemption date and the principal amount of Notes 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 Notes 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 3.4. Selection of Notes To Be Redeemed. If fewer than all the Notes are to be redeemed, the Trustee shall select the Notes to be redeemed pro rata or by lot or by a method that complies with applicable legal and Notes 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 Notes not previously called for redemption. The Trustee may select for redemption portions of the principal of Notes that have denominations larger than US$1,000. Notes and portions of them the Trustee selects shall be in amounts of US$1,000 or a whole multiple of US$1,000. Provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. The Trustee shall notify the Company promptly of the Notes or portions of Notes to be redeemed. SECTION 3.5. Notice of Redemption. At least 30 days but not more than 60 days before a date for redemption of Notes, the Company shall mail a notice of redemption by first-class mail to each Holder of Notes to be redeemed. A copy of such notice shall be delivered to the Trustee. The notice shall identify the Notes to be redeemed and shall state: (1) the redemption date; (2) the redemption price; (3) the name and address of the Paying Agent; (4) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; 15 (5) if fewer than all the outstanding Notes are to be redeemed, the identification and principal amounts of the particular Notes 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 Notes (or portion thereof) called for redemption ceases to accrue on and after the redemption date; (7) the CUSIP number, if any, printed on the Notes 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 Notes; and (9) the paragraph of the Notes pursuant to which the Notes 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 3.6. Effect of Notice of Redemption. Once notice of redemption is mailed, Notes 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 Notes 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 Noteholder of the redeemed Notes 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 3.7. 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 Note 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 Notes to be redeemed on that date other than Notes or portions of Notes 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. If the Company complies with the preceding paragraph, then, unless the Company defaults in the payment of such redemption price, interest on the Notes to be redeemed will cease to accrue on and after the applicable redemption date, whether or not such Notes are presented for payment. SECTION 3.8. Notes Redeemed in Part. Upon surrender of a Note that is redeemed in part, the Company shall execute and the Trustee shall authenticate for the Holder (at the Company's expense) a Note equal in a principal amount to the unredeemed portion of the Note surrendered. ARTICLE IV Covenants SECTION 4.1. Payment of Notes. The Company shall promptly pay the principal of and interest and any Additional Amounts payable in respect thereof on the Notes on the dates and in the manner provided in the Notes and in this Indenture. Principal and interest shall be considered paid on the 16 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 Noteholders 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 Notes, 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. Payment of Additional Amounts. (a) All payments by the Company under or in respect of the Notes will be made free and clear of, and without withholding or deduction for or on account of, any present or future taxes, duties, assessments, fees or other governmental charges of whatever nature (and any fines, penalties or interest related thereto) (collectively, "Taxes") imposed or levied by or on behalf of the Federative Republic of Brazil or the successor jurisdiction (if any) of any paying agent or, in each case, any political subdivision thereof or taxing authority therein (each, a "Taxing Jurisdiction"), unless such withholding or deduction is required by law. In that event, the Company, as the case may be, shall pay to each holder or Notes such additional amounts ("Additional Amounts") duly evidenced as may be necessary in order that every net payment made by the Company, as the case may be, on each Note after deduction or withholding for or on account of any Tax imposed upon or as a result of such payment by the Taxing Jurisdiction will not be less than the amount then due and payable on such Note. The foregoing obligation to pay Additional Amounts, however, will not apply to: (i) any Tax which would not have been imposed, withheld or otherwise deducted but for the existence of any present or former connection between such holder of Notes (or between a fiduciary, settlor, beneficiary, member or shareholder of such holder, if such holder is an estate, a trust, a partnership or a corporation), on the one hand, and the Taxing Jurisdiction, on the other hand, including, without limitation, such holder (or such fiduciary, settlor, beneficiary, member or shareholder) being or having been a citizen or resident thereof or being or having been engaged in a trade or business or present therein or having, or having had, a permanent establishment therein, or any other connection of any kind, other than the mere receipt of such payment or the ownership or holding of such Note; (ii) any Tax which would not have been imposed, withheld or otherwise deducted but for the presentation by such holder of Notes for payment (where presentation is required) on a date more than 30 days after the date on which such payment became due and payable or the date on which payment thereof is duly provided for, whichever occurs later; (iii) the extent that the Taxes would not have been imposed, withheld or otherwise deducted but for the failure of such holder of Notes to comply with any certification, identification or other reporting requirements concerning the nationality, residence, identity or connection with the Taxing Jurisdiction of the holder of Notes if (a) such compliance is required or imposed by statute, regulation, administrative practice or treaty or other applicable law of such Taxing Jurisdiction as a precondition to exemption from all or a part of such Tax and (b) at least 30 days prior to the date on which the Companies apply this clause (iii), the Company shall have notified such holder of Notes that some or all holders of Notes shall be required to comply with such requirement; (iv) a Tax imposed, withheld or otherwise deducted on a payment to an individual and required to be made pursuant to European Council Directive 2003/48/EC or any other Directive implementing the conclusions of the ECOFIN Council Meeting of 26-27 November 2000 on the taxation of savings income or any law complying with, or introduced in order to conform to, such Directive; (v) any Tax imposed, withheld or otherwise deducted on a Note presented for payment by or on behalf of a holder of Notes who would have been able to avoid such withholding or deduction by presenting the relevant Note to another Paying Agent; (vi) any estate, inheritance, gift, sales, transfer or personal property tax or similar Tax or any Tax payable other than by withholding on a payment on the Notes; or (vii) any combination of items (i) through (vi) above. 17 (b) The Company shall also pay any duly evidenced present or future stamp, court or documentary taxes or any other excise taxes, charges or similar levies which arise in any jurisdiction from the execution, delivery, registration or the making of payments in respect of the Notes, excluding any such taxes, charges or similar levies imposed by any jurisdiction outside of any Taxing Jurisdiction other than those resulting from, or required to be paid in connection with, the enforcement of the Notes following the occurrence of any Default. No Additional Amounts shall be paid with respect to a payment on a Note to a holder of Notes that is a fiduciary or partnership or other than the sole beneficial owner of such payment to the extent a beneficiary or settlor with respect to such fiduciary or a member of such partnership or beneficial owner would not have been entitled to receive payment of the Additional Amounts had the beneficiary, settlor, member or beneficial owner been the holder of Notes of the Note. The Company shall provide the Trustee with the official acknowledgment of the relevant taxing authority (or, if such acknowledgment is not available, a certified copy thereof, if available) evidencing the payment of taxes in any Taxing Jurisdiction in respect of which the Company has paid any Additional Amounts. Copies of such documentation shall be made available to the Paying Agents upon request therefor. (c) The Company will: (i) at least 10 Business Days prior to the first interest payment date (and at least 10 Business Days prior to each succeeding interest payment date or any redemption date or the maturity date if there has been any change with respect to the matters set forth in the below-mentioned officer's certificate), deliver to the Trustee and each Paying Agent an Officer's Certificate (a) specifying the amount, if any, of taxes described in this section "-Additional Amounts" imposed or levied by or on behalf of any Taxing Jurisdiction (the "Relevant Withholding Taxes") required to be deducted or withheld on the payment of principal of or interest on the Notes to holders of Notes and the Additional Amounts, if any, due to holders of Notes in connection with such payment, and (b) certifying that the Company will pay such deduction or withholding; (ii) prior to the due date for the payment thereof, pay any such Relevant Withholding Taxes, together with any penalties or interest applicable thereto; (iii) within 15 days after paying such Relevant Withholding Taxes, deliver to the Trustee and each Paying Agent evidence of such payment and of the remittance thereof to the relevant taxing or other authority as described herein; and (iv) pay any Additional Amounts due to holders of Notes on any interest payment date, redemption date or the maturity date to the Trustee in accordance with the provisions of this section. Any such Officer's Certificate will be deemed to be duly provided if sent by facsimile to the Trustee and each paying agent. The Company hereby covenants to indemnify the Trustee and each Paying Agent for, and to hold each harmless against, any loss, liability or expense reasonably incurred without negligence, bad faith or willful misconduct on such Person's part, arising out of or in connection with actions taken or omitted by any of them in reliance on any Officer's Certificate furnished pursuant to this section or the failure of the Trustee or any Paying Agent for any reason (other than its own negligence, bad faith or willful misconduct) to receive on a timely basis any such Officer's Certificate or any information or documentation requested by it or otherwise required by applicable law or regulations to be obtained, furnished or filed in respect of such Relevant Withholding Taxes. The Company will make available to any holder of Notes requesting the same, evidence that the applicable Relevant Withholding Taxes have been paid. (d) Whenever in this Indenture 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. 18 (e) The obligations of the Company under this Section 4.2 shall survive the termination of this Indenture and the payment of all other amounts under or with respect to the Notes. SECTION 4.3. 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 4.4. 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. ARTICLE V Defaults and Remedies SECTION 5.1. Events of Default. An "Event of Default" occurs if: (1) the Company defaults in any payment of interest on any Note 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 Note when the same becomes due and payable at its Stated Maturity, upon optional redemption, upon required repurchase, upon declaration or otherwise; (3) the Company fails to comply with any of its agreements in the Notes or this Indenture (other than those referred to in (1), (2) or (3) above) and such failure continues for 45 days after the notice specified below; (4) indebtedness of the Company (other than the Excluded Debt) 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; provided, however that it shall constitute an Event of Default hereunder if the outstanding Excluded Debt that is held by Persons who are not Affiliates of the Company is not paid within an 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 US$35 million; (5) the Company 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; 19 or takes any comparable action under any foreign laws relating to insolvency; (6) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against the Company in an involuntary case; (B) appoints a Custodian of the Company or for any substantial part of its property; or (C) orders the winding up or liquidation of the Company; or any similar relief is granted under any foreign laws and the order, decree or relief remains unstayed and in effect for 60 days; (7) any judgment or decree for the payment of money in excess of US$5 million (to the extent not covered by insurance as acknowledged in writing by the insurer) is rendered against the Company and such judgment or decree remains undischarged or unstayed for a period of 60 days after such judgment becomes final and non-appealable; or (8) there shall have occurred any seizure, compulsory acquisition, expropriation or nationalization of material assets of the Company and its Subsidiaries. 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) of this Section 5.1 will not constitute an Event of Default until the Trustee or the Holders of at least 25% in principal amount of the outstanding Notes notify the Company of the Default and the Company does not cure such Default within the time specified in said clause (4) 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 5.1, 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 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), (8) or (10) of this Section 5.1. 20 SECTION 5.2. Acceleration. If an Event of Default (other than an Event of Default specified in Section 5.1(6), (7) or (9)) occurs and is continuing, the Trustee by notice to the Company, or the Holders of at least 25% in outstanding principal amount of the Notes by notice to the Company and the Trustee, may declare the principal of and accrued and unpaid interest on all the Notes (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 5.1(6), (7) or (9), the principal of and accrued and unpaid interest on all the Notes (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 Noteholders. The Holders of a majority in principal amount of the Notes by notice to the Trustee may rescind an acceleration and its consequences, provided (a) the Company has paid or deposited with the Trustee a sum sufficient to pay (i) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and all other amounts due to the Trustee under Section 6.7, (ii) all overdue interest on all Notes, (iii) the principal of the premium, if any, on any Notes that have become due otherwise than by such declaration or occurrence of acceleration and interest thereon at the rate prescribed therefore by such Notes and (iv) to the extent that payment of such interest is lawful, interest upon overdue interest, if any, at the rate prescribed therefore by such Notes, (b) all existing Events of Default, other than the non-payment of principal of, premium, if any, and accrued interest on the Notes that have become due solely by such declaration of acceleration, have been cured or waived and (c) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction. SECTION 5.3. 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 Notes or to enforce the performance of any provision of the Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Noteholder 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 5.4. Waiver of Past Defaults. Subject to Section 5.2 the Holders of a majority in principal amount of the Notes by notice to the Trustee may waive an existing Default or Event of Default and its consequences except a Default or Event of Default in the payment of the principal of or interest on a Note 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 5.5. Control by Majority. The Holders of a majority in principal amount of the Notes 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 6.1, that the Trustee determines is unduly prejudicial to the rights of other Noteholders 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 5.6. Limitation on Suits. A Noteholder may not pursue any remedy with respect to this Indenture or the Notes, except the right to receive payment of principal, premium (if any) or interest when due, unless: 21 (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 Notes make a written request to the Trustee to pursue the remedy; (3) such Holder or Holders offer to the Trustee reasonable Note 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 Note or indemnity; and (5) the Holders of a majority in principal amount of the Notes do not give the Trustee a direction inconsistent with the request during such 60-day period. A Noteholder may not use this Indenture to prejudice the rights of another Noteholder or to obtain a preference or priority over another Noteholder. SECTION 5.7. Rights of Holders to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal of and interest on the Notes held by such Holder, on or after the respective due dates expressed in the Notes, 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 5.8. Collection Suit by Trustee. If an Event of Default specified in Section 5.1(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 6.7. SECTION 5.9. 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 Noteholders 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 6.7. SECTION 5.10. Priorities. If the Trustee collects any money or property pursuant to this Article V, it shall pay out the money or property in the following order: FIRST: to the Trustee for amounts due under Section 6.7; SECOND: to Noteholders for amounts due and unpaid on the Notes for principal and interest (including Additional Amounts), ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal and interest, respectively; and THIRD: to the Company. 22 The Trustee may fix a record date and payment date for any payment to Noteholders pursuant to this Section. At least 15 days before such record date, the Company shall mail to each Noteholder and the Trustee a notice that states the record date, the payment date and amount to be paid. SECTION 5.11. 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 5.7 or a suit by Holders of more than 10% in outstanding principal amount of the Notes. ARTICLE VI Trustee SECTION 6.1. 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; (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 5.5. (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. 23 (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 6.2. 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. (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 Notes 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. (f) The Trustee shall not be deemed to have notice of a Default or an Event of Default unless (a) the Trustee has received written notice thereof from the Company or any Holder or (b) a Trust Officer shall have actual knowledge thereof. (g) The permissive rights of the Trustee to do things enumerated in this Indenture shall not be construed as a duty unless so specified herein. SECTION 6.3. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. Any Paying Agent, Note Registrar, co-registrar or co-paying agent may do the same with like rights. However, the Trustee must comply with Sections 6.10 and 6.11. SECTION 6.4. 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 Notes, it shall not be accountable for the Company's use of the proceeds from the Notes, and it shall not be responsible for any 24 statement of the Company in this Indenture or in any document issued in connection with the sale of the Notes or in the Notes other than the Trustee's certificate of authentication. SECTION 6.5. Intentionally Omitted. SECTION 6.6. 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 Noteholder 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 Noteholders shall be filed with the SEC and each stock exchange (if any) on which the Notes are listed. The Company agrees to notify promptly the Trustee whenever the Notes become listed on any stock exchange and of any delisting thereof. SECTION 6.7. 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 Noteholders and reasonable costs of counsel retained by the Trustee in connection with the delivery of an Opinion of Counsel or 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 6.7) and of defending itself against any claims (whether asserted by any Noteholder, 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 willful misconduct, negligence or bad faith. Any Paying Agent, Note 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 Notes 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 Notes. The Trustee's right to receive payment of any amounts due under this Section 6.7 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 resignation or removal of the Trustee and the satisfaction and discharge of this Indenture. When the Trustee incurs expenses after the occurrence of a Default specified in Section 5.1(6) or (7) with respect to the Company, the expenses are intended to constitute expenses of administration under any Bankruptcy Law. SECTION 6.8. 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 Notes may remove the 25 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 6.10; (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. If the Trustee resigns or is removed by the Company or by the Holders of a majority in principal amount of the Notes 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 Noteholders. 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 6.7. 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 Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 6.10, any Noteholder 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 6.7 shall continue for the benefit of the retiring or removed Trustee. SECTION 6.9. 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 Notes 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 Notes so authenticated; and in case at that time any of the Notes shall not have been authenticated, any successor to the Trustee may authenticate such Notes 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 Notes or in this Indenture provided that the certificate of the Trustee shall have. SECTION 6.10. 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 US$100 26 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 Notes or certificates of interest or participation in other Notes of the Company are outstanding if the requirements for such exclusion set forth in TIA ss. 310(b)(1) are met. SECTION 6.11. 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 VII Discharge of Indenture; Defeasance SECTION 7.1. Discharge of Liability on Notes; Defeasance. (a) When (i) the Company delivers to the Trustee all outstanding Notes (other than Notes replaced pursuant to Section 2.6) for cancellation or (ii) all outstanding Notes 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 Notes (other than Notes 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 7.1(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 7.1(c) and 7.2, the Company at any time may terminate (i) all its obligations under the Notes and this Indenture ("legal defeasance option") or (ii) the operation of Sections 5.1(3), 5.1(4) and 5.1(7) ("covenant 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 Notes may not be accelerated because of an Event of Default. If the Company exercises its covenant defeasance option, payment of the Notes may not be accelerated because of an Event of Default specified in Sections 5.2(3), 5.1(4) and 5.1(7). 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 7.1(a) and (b), the Company's obligations in Sections 2.5, 2.6, 2.7, 2.8, 2.16, 2.17, 4.1, 4.2, 6.7, 6.8, 7.4, 7.5 and 7.6 shall survive until the Notes have been paid in full. For the purpose of applying Section 4.2, 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 6.7, 7.4 and 7.5 shall survive. SECTION 7.2. Conditions to Defeasance. The Company may exercise its legal defeasance option or its covenant defeasance option only if: 27 (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 Notes (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 Notes to maturity or redemption, as the case may be; (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 Noteholders 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 Noteholders 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 Notes and this Indenture as contemplated by this Article VII 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 Notes 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 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; 28 Before or after a deposit, the Company may make arrangements satisfactory to the Trustee for the redemption of Notes at a future date in accordance with Article III. SECTION 7.3. Application of Trust Money. The Trustee shall hold in trust money or U.S. Government Obligations deposited with it pursuant to this Article VII. 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 Notes. SECTION 7.4. Repayment to Company. The Trustee and the Paying Agent shall promptly turn over to the Company upon request any excess money or Notes 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 Notes that remains unclaimed for two years, and, thereafter, Noteholders entitled to the money must look to the Company for payment as general creditors. SECTION 7.5. 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 7.6. Reinstatement. If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with this Article VII 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 under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to this Article VII 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 VII; provided, however, that, if the Company has made any payment of interest on or principal of any Notes because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent. ARTICLE VIII Amendments SECTION 8.1. Without Consent of Holders. The Company and the Trustee may amend this Indenture or the Notes without notice to or consent of any Noteholder: (1) to cure any ambiguity, omission, defect or inconsistency; (2) to provide for the assumption by a successor corporation of the obligations of the Company under this Indenture; (3) to provide for uncertificated Notes in addition to or in place of certificated Notes; provided, however, that the uncertificated Notes are issued in registered form for purposes of Section 163(f) of the Code or in a manner such that the uncertificated Notes are described in Section 163(f)(2)(B) of the Code; (4) to add guarantees with respect to the Notes or to secure the Notes; 29 (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;or (7) to make any change that does not adversely affect the rights of any Noteholder. After an amendment under this Section becomes effective, the Company shall mail to Noteholders a notice briefly describing such amendment. The failure to give such notice to all Noteholders, or any defect therein, shall not impair or affect the validity of an amendment under this Section. SECTION 8.2. With Consent of Holders. The Company and the Trustee may amend this Indenture or the Notes or waive any past default or compliance with any provision of this Indenture or the Notes with the written consent of the Holders of at least a majority in principal amount of the Notes. However, without the consent of each Noteholder affected, an amendment may not: (1) reduce the amount of Notes whose Holders must consent to an amendment; (2) reduce the rate of or extend the time for payment of interest on any Note or reduce any Additional Amounts in respect thereof; (3) reduce the principal of or extend the Stated Maturity of any Note; (4) reduce the premium payable upon the redemption or repurchase of any Note or change the time at which any Note may or shall be redeemed or repurchased in accordance with this Indenture; (5) make any Note payable in money other than that stated in the Note; (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 Notes; (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 Notes or the right of any Holder to institute suit for enforcement of any payment on or with respect to such Holder's Notes; (8) make any change in Section 5.4 or 5.7 or the second sentence of this Section 8.2; or (9) amend or modify the provisions of Section 4.2. 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 Noteholders a notice briefly describing such amendment. The failure to give such notice to all 30 Noteholders, or any defect therein, shall not impair or affect the validity of an amendment under this Section. SECTION 8.3. Compliance with Trust Indenture Act. Every amendment to this Indenture or the Notes shall comply with the TIA as then in effect. SECTION 8.4. Revocation and Effect of Consents and Waivers. A consent to an amendment or a waiver by a Holder of a Note shall bind the Holder and every subsequent Holder of that Note or portion of the Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent or waiver is not made on the Note. However, any such Holder or subsequent Holder may revoke the consent or waiver as to such Holder's Note or portion of the Note 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 Noteholder. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Noteholders 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 Noteholders 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 8.5. Notation on or Exchange of Notes. If an amendment changes the terms of a Note, the Trustee may require the Holder of the Note to deliver it to the Trustee. The Trustee may place an appropriate notation on the Note 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 Note shall issue and the Trustee shall authenticate a new Note that reflects the changed terms. Failure to make the appropriate notation or to issue a new Note shall not affect the validity of such amendment. SECTION 8.6. Trustee To Sign Amendments. The Trustee may, but need not, sign any amendment authorized pursuant to this Article XIII 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, in addition to the documents required by Section 9.4, and (subject to Section 6.1) shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel stating that such amendment is authorized or permitted by this Indenture. ARTICLE IX Miscellaneous SECTION 9.1. 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 9.2. Notices. Any notice or communication shall be in writing and delivered in person or mailed by first-class mail addressed as follows: 31 if to the Company: Tevecap S.A. Av. Das Nacoes Unidas, 7221 - 7(o) andar Sao Paulo, SP Brazil, 05425-902 Tel: 011-55-11-3037-5127 Fax: 011-55-11-3037-3460 Attention: Carlos Eduardo Malagoni if to the Trustee or the Paying Agent: HSBC Bank USA, National Association 452 Fifth Avenue New York, NY 10018 Attention: Corporate Trust Tel.: 212-525-1316 Fax: 212-525-1300 if to the Principal Paying Agent: HSBC Bank USA, National Association 452 Fifth Avenue New York, NY 10018 Attention: Corporate Trust Tel.: 212-525-1316 Fax: 212-525-1300 The Company 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 Noteholder shall be mailed to the Noteholder at the Noteholder's address as it appears on the registration books of the Note Registrar and shall be sufficiently given if so mailed within the time prescribed. Failure to mail a notice or communication to a Noteholder or any defect in it shall not affect its sufficiency with respect to other Noteholders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. SECTION 9.3. Communication by Holders with other Holders. Noteholders may communicate pursuant to TIA ss. 312(b) with other Noteholders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, the Note Registrar and anyone else shall have the protection of TIA ss. 312(c). SECTION 9.4. 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 32 (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 9.5. 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 9.6. When Notes Disregarded. In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Company or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company shall be disregarded and deemed not to be outstanding, except that, for the purpose of determining whether a Trust Officer of the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes which the Trustee knows are so owned shall be so disregarded. Also, subject to the foregoing, only Notes outstanding at the time shall be considered in any such determination. SECTION 9.7. Rules by Trustee, Paying Agent and Registrar. The Trustee may make reasonable rules for action by or a meeting of Noteholders. The Note Registrar and the Paying Agent may make reasonable rules for their functions. SECTION 9.8. 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 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 9.9. Governing Law. This Indenture and the Notes 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 9.10. 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 Notes or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Note, each Noteholder shall waive and release all such liability. The waiver and release shall be part of the consideration for the issue of the Notes. 33 SECTION 9.11. Successors. All agreements of the Company in this Indenture and the Notes shall bind their respective successors. All agreements of the Trustee in this Indenture shall bind its successors. SECTION 9.12. 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 9.13. Variable Provisions. The Company initially appoints the Trustee as Paying Agent and Note Registrar and custodian with respect to any Global Notes. SECTION 9.14. Qualification of Indenture. The Company shall qualify this Indenture under the TIA 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 Notes and printing this Indenture and the Notes. 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 9.15. 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 9.16. Agent for Service; Submission to Jurisdiction; Waiver of Immunities. By the execution and delivery of this Indenture or any amendment or supplement hereto, the Company, (i) acknowledges that it has, by separate written instrument, designated and appointed CT Corporation System, currently located at CT Corporation System, 111 Eighth Avenue, 13th Floor, New York, New York 10011, as its authorized agent upon which process may be served in any suit, action or proceeding with respect to, arising out of, or relating to, the Notes or this Indenture (other than an insolvency, liquidation or bankruptcy proceeding or any other proceeding in the nature of an in rem or quasi in rem proceeding), that may be instituted in any Federal or state court in the State of New York, The City of New York, the Borough of Manhattan, or brought under Federal or state Notes 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 in any such suit, action or proceeding. The Company 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 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 9.16 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 or (y) a corporate service company which acts as agent for service of process for 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 9.16. 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 34 times, be at least one agent for service of process for the Company appointed and acting in accordance with this Section 9.16. To the extent that the Company has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service of notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, the Company hereby irrevocably waives such immunity in respect of its obligations under this Indenture and the Notes, to the extent permitted by law. SECTION 9.17. 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 under or in connection with the Notes or this Indenture, including damages. Any amount received or recovered in a currency other than U.S. dollars (whether as a result of, or of the enforcement of, a judgment or order of a court of any jurisdiction, in the winding-up or dissolution of the Company or otherwise) by any Holder of the Notes in respect of any sum expressed to be due to it from the Company shall only constitute a discharge to the Company 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 Notes, the Company shall indemnify it against any loss sustained by it as a result as set forth in Section 9.17(b). In any event, the Company shall indemnify the recipient against the cost of making any such purchase. For the purposes of this Section 9.17, 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). The indemnities set forth in this 9.17 constitute separate and independent cause of action, shall apply irrespective of any indulgence granted by any Holder of the Notes 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 Notes. (b) The Company covenants and agrees that the following provisions shall apply to conversion of currency in the case of the Notes and this Indenture: (i) (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 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 at any time while any amount or damages owing under the Notes and this Indenture, or any judgment or order rendered 35 in respect thereof, shall remain outstanding 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 Notes 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 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 may be ascertained for such winding-up prior to payment by the liquidator or otherwise in respect thereto. (iii) The obligations contained in Subsections (a), (b)(i)(B), (b)(ii) and (b)(v) of this Section 9.17 shall constitute separate and independent obligations from the other Indenture obligations of the Company shall give rise to separate and independent causes of action against the Company, shall apply irrespective of any waiver or extension granted by any Holder 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 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 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 Notes, any restrictions or prohibition of access to the Brazilian foreign exchange market exists, the Company agrees to pay all amounts payable under the Notes in the currency of the Notes by 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 Notes, for the purchase of the currency of such Notes. All costs and taxes payable in connection with the procedures referred to in this Section 9.17 shall be borne by the Company. [The remainder of the page has been left blank intentionally.] 36 IN WITNESS WHEREOF, the parties have caused this Indenture to be duly executed as of the date first written above. TEVECAP S.A. by: ______________________________ Name: Title: HSBC BANK USA, NATIONAL ASSOCIATION, as Trustee by: ______________________________ Name: Title: 37 STATE OF NEW YORK ) : ss. COUNTY OF NEW YORK ) On this ____ day of September, 2004, 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 Tevecap S.A., 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] 38 STATE OF NEW YORK ) : ss. COUNTY OF NEW YORK ) On this ____ day of September, 2004, 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 HSBC Bank USA, National Association, 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] 39 EXHIBIT A [FORM OF NEW NOTE] [Global Notes 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 NOTE 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 NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF. 40 No. [ ] Principal Amount US$[ ] CUSIP NO. 12.625% Senior Note due 2009 Tevecap S.A., a sociedade 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, 2009 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 Note are set forth on the other side of this Note. Dated: [ ], 2004 TEVECAP S.A. By: ------------------------------------- Name: Title: By: ------------------------------------- Name: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION HSBC BANK USA, NATIONAL ASSOCIATION as Trustee, certifies that this is one of the Notes referred to in the Indenture.] By:_______________________________ Authorized Officer 41 [FORM OF REVERSE SIDE OF NEW NOTE] 12.625% Senior Note due 2004 1. Interest Tevecap S.A., a sociedade 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 Note 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, 2005. Interest on the Notes will accrue from the most recent date to which interest has been paid on the Notes or, if no interest has been paid, from November 26, 2004. The Company shall pay interest on overdue principal or premium, if any, at the rate borne by the Notes 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 Note 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 Notes at the close of business on the May 1 or November 1 next preceding the interest payment date even if Notes are cancelled, repurchased or redeemed after the record date and on or before the interest payment date. Holders must surrender Notes 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 Notes, 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 Note (or one or more Predecessor Notes) 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 Notes 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 Notes exchange on which the Notes may be listed, and upon such notice as may be required by the Depository or any such clearing agency or exchange, all as more fully provided in such Indenture. In addition, the Company will pay to the Holder of this Note such Additional Amounts as may become payable under Section 4.2 of the Indenture. 3. Paying Agent and Registrar Initially, the HSBC Bank USA, National Association, a national banking association ("Trustee"), will act as Paying Agent and Note Registrar. Initially, HSBC Bank USA, National Association will act as Principal Paying Agent. The Company may appoint and change any Paying Agent, Registrar or co-registrar without notice to any Noteholder. The Company may act as Paying Agent, Note Registrar or co-registrar. 42 4. Indenture The Company issued the Notes under an Indenture dated as of , 2004 (as it may be amended or supplemented from time to time in accordance with the terms thereof, the "Indenture"), between the Company and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (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 Notes are subject to all such terms, and Noteholders are referred to the Indenture and the Act for a statement of those terms. The Notes are general unsecured senior obligations of the Company limited to US$48,022,000 aggregate principal amount (subject to Section 2.6 of the Indenture), ranking pari passu with all other existing and future general unsecured senior indebtedness of the Company and senior in right of payment to all other existing and future subordinated indebtedness of the Company. This Note is one of the Notes referred to in the Indenture. 5. Scheduled redemption: Unless previously redeemed, or purchased or cancelled, each Note will be redeemed (subject as provided in subsection (b) below in three equal installments on the dates and in the amounts set out below (each an "Installment Amount"):
Scheduled Redemption Date Installment Amount ------------------------- ------------------ November 26, 2007 (the "First Redemption Date") US$16,007,333.33 November 26, 2008 (the "Second Redemption Date") US$16,007,333.33 November 26, 2009 (the "Third Redemption Date") US$16,007,333.34
6. Adustment of Installment Amounts: (i) If the Exchange Rate Increase with respect to the First Redemption Date is in excess of 0.3, then: (I) the Installment Amount due on the First Redemption Date shall be reduced by the U.S. dollar equivalent of the Exchange Adjustment applicable to the First Redemption Date; (II) the Installment Amount due on the Second Redemption Date shall be increased by the amount which is equal to 50% of the U.S. dollar equivalent of the Exchange Adjustment applicable to the First Redemption Date; and (III) the Installment Amount due on the Third Redemption Date shall be increased by the amount which is equal to 50% of the U.S. dollar equivalent of the Exchange Adjustment applicable to the First Redemption Date. (ii) If the Exchange Rate Increase with respect to the Second Redemption Date is in excess of 0.4, then: (I) the Installment Amount due on the Second Redemption Date (as adjusted, if applicable, in accordance with subsection (b)(i)(II) above) shall be reduced by the U.S. dollar equivalent of the Exchange Adjustment applicable to the First Redemption Date; and 43 (II) the Installment Amount due on the Third Redemption Date (as adjusted, if applicable, in accordance with subsection (b)(i)(II) above) shall be increased by the U.S. dollar equivalent of the Exchange Adjustment applicable to the Second Redemption Date. 7. Optional Redemption. On any of the First Redemption Date, the Second Redemption Date, or the Third Redemption Date, the Company may redeem all of the Notes, at a redemption price of 100% of the outstanding principal amount, 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). 8. Tax Redemption The Notes may be redeemed at the option of the Company, in whole but not in part, at any time prior to maturity if as the result of any change in or amendment to the laws, regulations or rulings of Brazil 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 has or will become obligated to pay Additional Amounts (excluding interest and penalties) in excess of the Additional Amounts that the Company 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 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 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 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 a written Opinion of Counsel to the effect that the applicable rate has so increased, or the Company 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 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. 9. 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 Notes to be redeemed at his registered address. Notes in denominations of principal amount larger than US$1,000 may be redeemed in part but only in whole multiples of US$1,000. If money sufficient to pay the redemption price of and accrued and unpaid interest on all Notes (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 Notes (or such portions thereof) called for redemption. 10. Denominations; Transfer; Exchange The Notes are in registered form without coupons in denominations of principal amount of US$1.00 and any integrals multiple thereof. A Holder may transfer or Notes in accordance with the Indenture. The Note Registrar may require a Holder, among other things, to furnish appropriate 44 endorsements or transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Note Registrar need not register the transfer of or exchange of any Notes selected for redemption (except, in the case of a Note to be redeemed in part, the portion of the Note 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 Notes selected for redemption and ending at the close of business on the day of such mailing. 11. Persons Deemed Owners The registered holder of this Note may be treated as the owner of it for all purposes. 12. 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. 13. 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 Notes 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 Notes to redemption or maturity, as the case may be. 14. Amendment, Waiver Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Notes may be amended with the written consent of the Holders of at least a majority in principal amount of the outstanding Notes 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 Notes. Subject to certain exceptions set forth in the Indenture, without the consent of any Noteholder, the Company and the Trustee may amend the Indenture or the Notes to cure any ambiguity, omission, defect or inconsistency or to provide for uncertificated Notes in addition to or in place of certificated Notes, or to add guarantees with respect to the Notes or to secure the Notes, or to add additional covenants or surrender rights and powers conferred on the Company for the benefit of the Noteholders, 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 Noteholder, or to provide for the issuance of Notes. 15. Defaults and Remedies Under the Indenture, Events of Default include (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 us to comply with 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), (iv) indebtedness of ours (other than the Excluded Debt) 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 (the "cross acceleration provision"); provided, however, that it shall constitute an Event of Default hereunder if the outstanding Excluded Debt that is held by Persons who are not Affiliates of the Company is not paid within any applicable grace period after failure to pay when due 45 or is accelerated by the holders thereof because of a default and the total amount of such indebtedness unpaid or accelerated exceeds US$35 million, (v) certain events of bankruptcy, insolvency or reorganization of ours (the "bankruptcy provisions"), (vi) any judgment or decree for the payment of money in excess of US$ 5 million (to the extent not covered by insurance as acknowledged in writing by the insurer) is rendered against us 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"), or (vii) there shall have occurred any seizure, compulsory acquisition, expropriation or nationalization of material assets of ours and our Subsidiaries. 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 notify us 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% in principal amount of the Notes may declare all the Notes 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 Notes being due and payable immediately upon the occurrence of such Events of Default. Noteholders may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Notes unless it receives reasonable indemnity or Note. Subject to certain limitations, Holders of a majority in principal amount of the Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Noteholders 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. 16. 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 Notes 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. 17. 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 Notes or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. By accepting a Note, each Noteholder waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Notes. 18. Authentication This Note 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 Note. 19. Abbreviations Customary abbreviations may be used in the name of a Noteholder 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). 46 20. CUSIP and CINS Numbers Pursuant to a recommendation promulgated by the Committee on Uniform Note Identification Procedures the Company has caused CUSIP and/or CINS numbers to be printed on the Notes and has directed the Trustee to use such numbers in notices of redemption as a convenience to Noteholders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. 21. Governing Law This Note 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. 22. Additional Amounts The Company will pay to the Holders of Notes such Additional Amounts as may become payable under Section 4.2 of the Indenture. 23. Conversion of Currency U.S. dollars are the sole currency of account and payment for all sums payable by the Company under or in connection with the Notes or the Indenture, including damages. The Company has agreed that the provisions of Section 9.17 of the Indenture shall apply to conversion of currency in the case of the Notes and the Indenture. Among other things, Section 9.17 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 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 Notes any restrictions or prohibition of access to the Brazilian foreign exchange market exists, the Company agrees to pay all amounts payable under the Notes in the currency of the Notes by 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 Notes, for the purchase of the currency of such Notes. All costs and taxes payable in connection with the procedures referred to in this paragraph shall be borne by the Company. 24. Agent for Service; Submission to Jurisdiction; Waiver of Immunities The Company has appointed CT Corporation System, currently located at 111 Eighth Avenue, 13th Floor, New York, New York 10011, 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 Note and the Indenture (other than an insolvency, liquidation or bankruptcy proceeding or any other proceeding in the nature of an in rem or quasi in rem proceeding), that may be instituted in any Federal or state court in the State of New York, The City of New York, the Borough of Manhattan, or brought under Federal or state Notes laws or brought by the Trustee (whether in its individual capacity or in its capacity as Trustee hereunder) and has agreed that there shall, at all time, be at least one agent for service of process for the Company appointed and acting in accordance with the provisions of Section 9.16 of the Indenture relating to agent for service of process. To the extent that the Company has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service of notice, 47 attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, the Company has irrevocably waived such immunity in respect of its obligations under the Indenture and this Note to the extent permitted by law. The Company will furnish to any Noteholder upon written request and without charge to the Noteholder a copy of the Indenture which has in it the text of this Note in larger type. Requests may be made to: Tevecap S.A. Attention of Chief Financial Officer 48 ASSIGNMENT FORM To assign this Note, fill in the form below: I or we assign and transfer this Note 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 Note 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 Note. 49 EX-5.1 3 d60792_ex5-1.txt OPINION OF CLIFFORD CHANCE Exhibit 5.1 September , 2004 Re: Tevecap S.A. US$48,022,000 12.625% Senior Notes due 2009 Exchange Offer Ladies and Gentlemen: We have acted as United States counsel in connection with the filing by Tevecap S.A., a Brazilian corporation (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$48,022,000 aggregate principal amount of the Company's 12.625% Senior Notes due 2004 (the "Old Notes") of US$48,022,000 aggregate principal amount of the Company's 12.625% Senior Notes due 2009 (the "New Notes"). The New Notes are to be issued pursuant to an Indenture, to be dated as of November , 2004 (the "Indenture"), between the Company, HSBC Bank USA, National Association, as Trustee (the "Trustee") and 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 forms of the New Notes 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 and the New Notes 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 the New Notes, when duly issued and authenticated in accordance with the provisions of the Indenture and delivered in exchange for the Old Notes, 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 are relevant to the opinions expressed herein, we have relied exclusively on the opinion of Machado, Meyer, Sendacze e Opice, Brazilian counsel for the Company, 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 New Notes on behalf of the Company in the Registration Statement filed 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 5.1 thereto. Very truly yours, /s/ CLIFFORD CHANCE US LLP - -------------------------------------- Clifford Chance US LLP 2 EX-5.2 4 d60792_ex5-2.txt OPINION OF MACHADO, MEYER, SENDACZE E OPICE Exhibit 5.2 [LETTERHEAD OF MACHADO, MEYER, SENDACZ ] September 27, 2004 To: Unibanco - Uniao de Bancos Brasileiros S.A. Av. Eusebio Matoso, n.(0) 891 Sao Paulo, SP 05423-901 Re: Tevecap S.A. US$48,200,00 12 5/8% Senior Notes due 2004 Exchange Offer Dear Sirs: We have acted as Brazilian counsel for Tevecap S.A. (the "Company"), a corporation organized and existing under the laws of the Federative Republic of Brazil ("Brazil") in connection with the filing by 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$48,200,000 aggregate principal amount of the Company's 12 5/8% Senior Notes due 2004 (the "Old Notes") of US$48,200,000 aggregate principal amount of the Company's 12 5/8% Senior Notes due 2009 (the "Exchange Notes"). The Exchange Notes are to be issued pursuant to an Exchange and Registration Agreement dated September 27, 2004 (the "Exchange and Registration Agreement"). Capitalized terms used herein and not otherwise defined therein have the meanings ascribed thereto in the Exchange and Registration Agreement. 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 Exchange and Registration Agreement, the indenture dated as of November 26, 1996, as amended and supplemented to date (the "Indenture"), the forms of the Exchange Securities, the Registration Statement, the Articles of Incorporation and the by-laws of the Company. 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. Based upon the foregoing, we are of the opinion that: (1) The Company is a sociedade anonima duly organized and validly existing under the laws of Brazil; (2) All necessary corporate actions have been taken by the Company to authorize the execution and delivery of the Indenture; (3) The Indenture has been duly executed and delivered by the Company; (4) All necessary corporate actions have been taken by the Company to authorize the issuance, execution and delivery of the Exchange Notes; and (5) Any judgment obtained against the Company outside Brazil is enforceable in Brazil, without reconsideration of the merits, upon confirmation of that judgment by the Brazilian Federal Supreme Court, which 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 acceptable under Brazilian law, (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 sworn translation into Portuguese, (v) is not contrary to Brazilian national sovereignty, public policy or "good-morals" (as set forth in Brazilian law), and (vi) is recorded with a Notary Office of Registry of Titles and Documents in Brazil. 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 documents filed with the SEC. Very truly yours, /s/ Jose Roberto Opice Jose Roberto Opice Machado, Meyer, Sendacz e Opice A d v o g a d o s EX-12.1 5 d60792_ex12-1.txt RATIO OF EARNING TO FIXED CHARGES Exhibit 12.1 Tevecap S.A. Computation of Earnings to Fixed Charges
For the six months ended June 30, For the year ended December 31, 2004 2003 2003 2002 2001 2000 1999 ----------------------------------------------------------------------- Ratio of earnings to fixed charges -- -- -- -- -- -- 4.35 In thousands of U.S. Dollars (Loss) income before income taxes, equity in (income) losses of affiliates and minority interest (8,136) (2,966) (24,120) (64,936) (73,726) (31,342) 74,436 Addback: Fixed charges (consisting of interest expense) 10,470 8,653 18,135 16,941 37,849 45,069 22,254 ----------------------------------------------------------------------- Adjusted earnings (losses) 2,334 5,687 (5,985) (47,995) (35,877) 13,727 96,690 ======================================================================= Earnings in deficit of fixed charges 8,136 2,966 24,120 64,936 73,726 31,342 -- =======================================================================
Fixed charges represent interest expense. Earnings represent (Loss) income before income taxes, equity in (income) losses of affiliates and minority interest plus fixed charges EX-23.1 6 d60792_ex23-1.txt CONSENT OF DELOITTE TOUCHE TOHMATSU Exhibit 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Registration Statement of Tevecap S.A. on Form F-4 (File No. 333- ) of our report dated April 29, 2004, except with respect to Note 26 as to which the date is September 24, 2004 (which expresses an unqualified opinion and includes explanatory paragraphs relating to matters that raise substantial doubt about Tevecap S.A.'s ability to continue as a going concern and the restatement described in Note 26), appearing in the Annual Report on Form 20-F/A of Tevecap S.A. for the year ended December 31, 2003 and to the reference to us under the heading "Experts" in the Prospectus, which is part of this Registration Statement. /s/ Deloitte Touche Tohmatsu Auditores Independentes - ---------------------------------------------------- September , 2004 EX-25.1 7 d60792_ex25-1.txt FORM T-1 Exhibit 25.1 CONFORMED COPY 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) HSBC Bank USA, National Association (Exact name of trustee as specified in its charter) N/A 20-1177241 (Jurisdiction of incorporation (I.R.S. Employer or organization if not a U.S. Identification No.) national bank) 90 Christiana Road New Castle, Delaware 19702 (Address of principal executive offices) (Zip Code) Warren L. Tischler, SVP HSBC Bank USA, National Association 452 Fifth Avenue New York, New York 10018-2706 Tel: (212) 525-1311 (Name, address and telephone number of agent for service) TEVECAP S.A. (Exact name of obligor as specified in its charter) The Federated Republic of Brazil N/A (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) Av. Das Nacoes Unidas, 7221-7(0) andar Sao Paulo, SP Brazil 05425-902 (55 11) 3037-5127 (Zip Code) (Address of principal executive offices) 12.625% Notes due 2009 (Title of Indenture Securities) General Item 1. General Information. Furnish the following information as to the trustee: (a) Name and address of each examining or supervisory authority to which it is subject. Comptroller of the Currency, New York, NY. Federal Deposit Insurance Corporation, Washington, D.C. Board of Governors of the Federal Reserve System, Washington, D.C. (b) Whether it is authorized to exercise corporate trust powers. Yes. Item 2. Affiliations with Obligor. If the obligor is an affiliate of the trustee, describe each such affiliation. None Item 3-15. Not Applicable Item 16. List of Exhibits Exhibit - ------- T1A(i) (1) Copy of the Articles of Association of HSBC Bank USA, National Association. T1A(ii) (1) Certificate of the Comptroller of the Currency dated July 1, 2004 as to the authority of HSBC Bank USA, National Association to commence business. T1A(iii) Certificate of Fiduciary Powers dated August 18, 2004 for HSBC Bank USA, National Association T1A(iv) (1) Copy of the existing By-Laws of HSBC Bank USA, National Association. T1A(v) Not applicable. T1A(vi) Consent of HSBC Bank USA, National Association required by Section 321(b) of the Trust Indenture Act of 1939. T1A(vii) Copy of the latest report of condition of the trustee (June 30, 2004), published pursuant to law or the requirement of its supervisory or examining authority. T1A(viii) Not applicable. T1A(ix) Not applicable. (1) Exhibits previously filed with the Securities and Exchange Commission with Registration No. 333-118523 and incorporated herein by reference thereto. SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee, HSBC Bank USA, National Association a national banking association organized and existing under the laws of the United States of America, 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 24th day of September, 2004. HSBC BANK USA, NATIONAL ASSOCIATION By: /s/ Frank J. Godino -------------------------------------- Frank J. Godino Vice President EXHIBIT T1A (iii) [LOGO] - -------------------------------------------------------------------------------- Comptroller of the Currency Administrator of National Banks - -------------------------------------------------------------------------------- Washington, D.C. 20219 CERTIFICATE OF FIDUCIARY POWERS I, John D. Ilawke, Jr., Comptroller of the Currency, do hereby certify that: 1. The Comptroller of the Currency, pursuant to Revised Statutes 324, et seq., as amended, 12 U.S.C. 1, et seq., as amended, has possession, custody and control of all records pertaining to the chartering of all National Banking Associations. 2. "HSBC Bank USA, National Association," New Castle, Delaware, (Charter No. 24522) was granted, under the hand and seal of the Comptroller, the right to act in all fiduciary capacities authorized under the provisions of the Act of Congress approved September 28, 1962, 76 Stat. 668, 12 U.S.C. 92a, and the authority so granted remains in full force and effect on the date of this Certificate. IN TESTIMONY WHEREOF, I have hereunto subscribed my name and caused my seal of office to be affised to these presents at the Treasury Department in the City of Washington and District of Columbia, this August 18, 2004 [SEAL] /s/ John D. Hawke, Jr. ---------------------------------- Comptroller of the Currency EXHIBIT T1A (vi) Securities and Exchange Commission Washington, D.C. 20549 Dear Sirs: Pursuant to Section 321(b) of the Trust Indenture Act of 1939 and subject to the qualifications and limitation of 321(b) and the other provisions of the Trust Indenture Act of 1939, the undersigned HSBC Bank USA, National Association consents that reports of examinations by Federal, State, Territorial, or District authorities may be furnished by such authorities to the Commission upon request therefor. Dated as of: September 21, 2004 HSBC Bank USA, National Association By: /s/ Frank J. Godino ------------------------------- Frank J. Godino Vice President Exhibit T1A (vii) Board of Governors of the Federal Reserve System OMB Number: 7100-0036 Federal Deposit Insurance Corporation OMB Number: 3064-0052 Office of the Comptroller of the Currency OMB Number: 1557-0081 Federal Financial Institutions Examination Council Expires March 31, 2007 - -------------------------------------------------------------------------------------------------------------------------------- Please refer to page i, Table of Contents, for |1| the required disclosure of estimated burden. - --------------------------------------------------------------------------------------------------------------------------------
Consolidated Reports of Condition and Income for A Bank With Domestic and Foreign Offices--FFIEC 031 Report at the close of business June 30, 2004 (20040630) ---------- (RCRI 9999) This report is required by law; 12 U.S.C. ss.324 (State This report form is to be filed by banks with branches and member banks); 12 U.S.C. ss.1817 (State nonmember banks); consolidated subsidiaries in U.S. territories and and 12 U.S.C. ss.161 (National banks). possessions, Edge or Agreement subsidiaries, foreign branches, consolidated foreign subsidiaries, or International Banking Facilities. NOTE: The Reports of Condition and Income must be The Reports of Condition and Income are to be prepared in signed by an authorized officer and the Report of accordance with Federal regulatory authority instructions. Condition must be attested to by not less than two directors (trustees) for State nonmember banks and We, the undersigned directors (trustees), attest to the three directors for State member and National Banks. correctness of this Report of Condition (including the supporting schedules) and declare that it has been examined I, Joseph R. Simpson, Controller by us and to the best of our knowledge and belief has been ---------------------------------------------------- prepared in conformance with the instructions issued by the Name and Title of Officer Authorized to Sign Report appropriate Federal regulatory authority and is true and correct. Of the named bank do hereby declare that these Reports of Condition and Income (including the supporting schedules) have been prepared in conformance with the instructions issued by the appropriate Federal regulatory authority and are true to the best of my knowledge and believe. /s/ Sal H. Alfieri ------------------------------------------------------------- Director (Trustee) /s/ Joseph R. Simpson /s/ Bernard J. Kennedy - ----------------------------------------------------------- ------------------------------------------------------------- Signature of Officer Authorized to Sign Report Director (Trustee) 8/9/04 /s/ Martin Glynn - ----------------------------------------------------------- ------------------------------------------------------------- Date of Signature Director (Trustee) - -------------------------------------------------------------------------------------------------------------------------------- Submission of Reports Each Bank must prepare its Reports of Condition and For electronic filing assistance, contact EDS Call report Income either: Services, 2150 N. Prospect Ave., Milwaukee, WI 53202, telephone (800) 255-1571. (a) in electronic form and then file the computer data file directly with the banking agencies' collection agent, To fulfill the signature and attestation requirement for the Electronic Data System Corporation (EDS), by modem or Reports of Condition and Income for this report date, attach computer diskette; or this signature page to the hard-copy f the completed report or that the bank places in its files. b) in hard-copy (paper) form and arrange for another party to convert the paper report to automated for. That party (if other than EDS) must transmit the bank's computer data file to EDS. - -------------------------------------------------------------------------------------------------------------------------------- FDIC Certificate Number | 0 | 0 | 5 | 8 | 9 | --------------------- (RCRI 9030) http://WWW.BANKING.US.HSBC.COM HSBC Bank USA, NATIONAL ASSOCIATION - ----------------------------------------------------------- ------------------------------------------------------------- Primary Internet Web Address of Bank (Home Page), if any Legal Title of Bank (TEXT 9010) (TEXT 4087) (Example: www.examplebank.com) Buffalo ------------------------------------------------------------- City (TEXT 9130) N.Y. 14203 ------------------------------------------------------------- State Abbrev. (TEXT 9200) ZIP Code (TEXT 9220)
Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency REPORT OF CONDITION Consolidated domestic subsidiaries HSBC Bank USA, National Association of Buffalo - -------------------------------------------------------------- Name of Bank City in the state of New York, at the close of business June 30, 2004
ASSETS Thousands of dollars Cash and balances due from depository institutions: ----------------------- a. Non-interest-bearing balances currency and coin $ 3,073,246 - ------------------------------------------------------------------------------------------------------------- b. Interest-bearing balances 1,572,569 - ------------------------------------------------------------------------------------------------------------- Held-to-maturity securities 3,978,492 - ------------------------------------------------------------------------------------------------------------- Available-for-sale securities 13,371,662 - ------------------------------------------------------------------------------------------------------------- Federal funds sold and securities purchased under agreements to resell: - ------------------------------------------------------------------------------------------------------------- a. Federal funds sold in domestic offices 950,000 b. Securities purchased under agreements to resell 2,776,306 ----------------------- Loans and lease financing receivables: ----------------------- Loans and leases held for sale $ 1,595,838 - ------------------------------------------------------------------------------------------------------------------------------------ Loans and leases net of unearned income $ 60,222,052 - ------------------------------------------------------------------------------------------------------------- LESS: Allowance for loan and lease losses 346,538 - ------------------------------------------------------------------------------------------------------------------------------------ Loans and lease, net of unearned income, allowance, and reserve $ 59,875,514 - ------------------------------------------------------------------------------------------------------------- Trading assets 15,455,724 - ------------------------------------------------------------------------------------------------------------- Premises and fixed assets 635,398 - ------------------------------------------------------------------------------------------------------------- Other real estate owned 14,384 - ------------------------------------------------------------------------------------------------------------- Investments in unconsolidated subsidiaries 266,145 - ------------------------------------------------------------------------------------------------------------- Customers' liability to this bank on acceptances outstanding 73,749 - ------------------------------------------------------------------------------------------------------------- Intangible assets: Goodwill 2,158,554 - ------------------------------------------------------------------------------------------------------------- Intangible assets: Other intangible assets 479,931 - ------------------------------------------------------------------------------------------------------------- Other assets 4,027,881 - ------------------------------------------------------------------------------------------------------------- Total assets 110,305,393 - ------------------------------------------------------------------------------------------------------------------------------------ LIABILITIES Deposits: ----------------------- In domestic offices 52,783,034 - ------------------------------------------------------------------------------------------------------------------------------------ Non-interest-bearing 7,064,064 - -------------------------------------------------------------------------------------- Interest-bearing 45,718,970 - ------------------------------------------------------------------------------------------------------------------------------------ In foreign offices 22,640,665 - -------------------------------------------------------------------------------------- -----------------------
- ------------------------------------------------------------------------------------------------------------- Non-interest-bearing 531,870 - -------------------------------------------------------------------------------------- Interest-bearing 22,108,795 - ------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------------------ Federal funds purchased and securities sold under agreements to repurchase: - ------------------------------------------------------------------------------------------------------------------------------------ a. Federal funds purchased in domestic offices 980,040 - ------------------------------------------------------------------------------------------------------------- b. Securities sold under agreements to repurchase 1,692,588 - ------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------- Trading Liabilities 10,960,317 - ------------------------------------------------------------------------------------------------------------- Other borrowed money 6,717,295 - ------------------------------------------------------------------------------------------------------------- Bank's liability on acceptances 73,749 - ------------------------------------------------------------------------------------------------------------- Subordinated notes and debentures 2,542,616 - ------------------------------------------------------------------------------------------------------------- Other liabilities 3,519,689 - ------------------------------------------------------------------------------------------------------------------------------------ Total liabilities 101,909,993 - ------------------------------------------------------------------------------------------------------------------------------------ Minority Interests in consolidated Subsidiaries 294 - ------------------------------------------------------------------------------------------------------------------------------------ EQUITY CAPITAL - ------------------------------------------------------------------------------------------------------------------------------------ Perpetual preferred stock and related surplus 0 - ------------------------------------------------------------------------------------------------------------- Common Stock 205,000 - ------------------------------------------------------------------------------------------------------------- Surplus 7,024,246 - ------------------------------------------------------------------------------------------------------------- Retained earnings 1,352,592 - ------------------------------------------------------------------------------------------------------------- Accumulated other comprehensive income -186,732 - ------------------------------------------------------------------------------------------------------------- Other equity capital components 0 - ------------------------------------------------------------------------------------------------------------- Total equity capital 8,395,106 - ------------------------------------------------------------------------------------------------------------- Total liabilities, minority interests and equity capital 110,305,393 - ------------------------------------------------------------------------------------------------------------------------------------
EX-99.1 8 d60792_ex99-1.txt LETTER OF TRANSMITTAL Exhibit 99.1 FORM OF LETTER OF TRANSMITTAL FOR TENDERS OF US$48,022,000 AGGREGATE PRINCIPAL AMOUNT OF 12.625% SENIOR NOTES DUE 2004 TEVECAP S.A. PURSUANT TO THE PROSPECTUS DATED , 2004 OF TEVECAP S.A. THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON , 2004 (UNLESS EXTENDED) (THE "EXPIRATION DATE"). TENDERS OF OLD NOTES MAY BE NOT WITHDRAWN AT ANY TIME; PROVIDED, HOWEVER, THAT IF THE EXCHANGE OF OLD NOTES FOR NEW NOTES AS PART OF THE EXCHANGE OFFER HAS NOT OCCURRED ON OR BEFORE JANUARY 31, 2005, HOLDERS OF OLD NOTES WHO HAVE TENDERED THEIR OLD NOTES IN CONNECTION WITH THE OFFER MAY WITHDRAW THEIR TENDER OF THEIR OLD NOTES AT ANY TIME THEREAFTER. Deliver to: HSBC Bank USA, National Association, Exchange Agent BY MAIL, BY OVERNIGHT COURIER OR BY HAND: HSBC BANK USA, NATIONAL ASSOCIATION 452 Fifth Avenue New York, New York 10018 Attn: Corporate Trust BY FACSIMILE: (212) 525-1300 CONFIRMED BY TELEPHONE: 212-525-1316 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 , 2004 (the "Prospectus"), of Tevecap S.A., a Brazilian sociedade anonima ("Tevecap"), and this Letter of Transmittal, which may be amended from time to time (this "Letter"), which together constitute Tevecap's offer (the "Exchange Offer") to exchange an aggregate principal amount of up to US$48,022,000 of its 12.625% Senior Notes due 2009 (the "New Notes"), 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 12.625% Senior Notes due 2004 (the "Old Notes") of which US$48,022,000 aggregate principal amount is outstanding and held by persons not affiliated with Tevecap. For each Old Note accepted for exchange, the Holder of such Old Note will receive a New 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 orNovember 26, 2004, whichever is later. Registered holders of New Notes on the relevant record date for the first interest payment date following the consummation of the Exchange Offer will receive interest accruing from the most recent date to which interest has been paid. Old Notes accepted for exchange will cease to accrue interest from and after the date of consummation of the 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 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 Notes are to be tendered in accordance with the guaranteed delivery procedures set forth in "The Exchange--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. Tevecap will accept for exchange any and all Old Notes validly tendered on or prior to 5:00 p.m., New York City time, on , 2004 (unless the Exchange Offer is extended by Tevecap) (the "Expiration Date"). Tenders of old notes may be not withdrawn at any time; provided, however, that if we extend the Expiration Date of the solicitation to a date later than December 31, 2004, holders of Old Notes who have tendered their Old Notes in connection with the offer may withdraw the Old Notes at any time prior to the Expiration Date. IMPORTANT: HOLDERS WHO WISH TO TENDER OLD NOTES IN THE EXCHANGE OFFER MUST COMPLETE THIS LETTER OF TRANSMITTAL AND TENDER THE OLD NOTES TO THE APPROPRIATE EXCHANGE AGENT AND NOT TO TEVECAP. As a condition to the Exchange Offer, which we may waive at any time, Holders of Old Notes in the aggregate principal amount of at least 95% of the outstanding principal amount of US$48,022,000 held by non-affiliates of Tevecap must exchange their Old Notes for New Notes pursuant to the Exchange Offer. The Exchange Offer is not being made to, nor will tenders be accepted from or on behalf of, Holders of Old Notes in any jurisdiction in which the making or acceptance of the Exchange Offer would not be in compliance with the laws of such jurisdiction. The instructions included with this Letter of Transmittal must be followed in their entirety. Questions and requests 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. 2 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 Notes indicated below under "Description of Old Notes," 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 $1.00 principal amount of Old Notes designated herein held by the undersigned and tendered hereby for $1.00 principal amount of the New Notes. New Notes will be issued only in integral multiples of $1.00 to each tendering Holder of Old Notes whose Old Notes are accepted in the Exchange Offer. Holders must tender all of their Old Notes pursuant to the Exchange Offer in order to have their tender accepted. Subject to, and effective upon, the acceptance for exchange of the Old Notes tendered herewith in accordance with the terms of the 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 Notes that are being tendered hereby and that are being accepted for exchange pursuant to the 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 such Exchange Agent also acts as the agent of Tevecap), with respect to the Old Notes tendered hereby and accepted for exchange pursuant to the 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 Notes 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 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. Any tender of Old Notes hereunder may be withdrawn only in accordance with the procedures set forth in "The Exchange--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 Notes 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 Notes tendered hereby. The undersigned has read and agrees to all of the terms of the Exchange Offer. The name(s) and address(es) of the registered Holder(s) should be printed herein under "Description of Old Notes" (unless a label setting forth such information appears thereunder), exactly as they appear on the Old Notes tendered hereby. The certificate number(s) and the principal amount of Old Notes to which this Letter relates, together with the principal amount of such Old Notes that the undersigned wishes to tender, should be indicated in the appropriate boxes herein under "Description of Old Notes." The undersigned understands that the tender of Old Notes pursuant to one of the procedures described in the Prospectus under "The Exchange--Exchange Offer Procedures" and the Instructions hereto will constitute the tendering Holder's acceptance of the terms and the conditions of the Exchange 3 Offer. The undersigned hereby represents and warrants to Tevecap that the New Notes to be acquired by such Holder pursuant to the 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 New Notes. Tevecap's acceptance of Old Notes for exchange tendered pursuant to the Exchange Offer will constitute a binding agreement between the tendering Holder and Tevecap upon the terms and subject to the conditions of the Exchange Offer. The undersigned understands that the New Notes issued in consideration of Old Notes accepted for exchange, and/or any principal amount of Old Notes not tendered or not accepted for exchange, will only be issued in the name of the Holder(s) appearing herein under "Description of Old Notes." Unless otherwise indicated under "Special Delivery Instructions," please mail the New Notes issued in consideration of Old Notes accepted for exchange, and/or any principal amount of Old Notes not tendered or not accepted for exchange (and accompanying documents, as appropriate), to the Holder(s) at the address(es) appearing herein under "Description of Old Notes." In the event that the Special Delivery Instructions are completed, please mail the New Notes issued in consideration of Old Notes accepted for exchange, and/or any Old Notes for any principal amount not tendered or not accepted for exchange, in the name of the Holder(s) appearing herein under "Description of Old Notes," and send such New Notes and/or Old Notes to, the address(es) so indicated. Any transfer of Old Notes to a different holder must be completed, according to the provisions on transfer of Old Notes contained in the Indenture. THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES" BELOW AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES AS SET FORTH IN SUCH BOX BELOW. 4 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE 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 the Old Notes tendered hereby are tendered by the Holder(s) of the Old Notes who has (have) not completed the box entitled "Special Delivery Instructions" on this Letter of Transmittal or the Old Notes are tendered for the account of an Eligible Institution. 2. DELIVERY OF THIS LETTER OF TRANSMITTAL AND OLD NOTES; GUARANTEED DELIVERY PROCEDURES. This Letter of Transmittal is to be used by all Holders who are not ATOP members, by Holders who are ATOP members but choose not to use ATOP or if the Old Notes are to be tendered in accordance with the guaranteed delivery procedures set forth in the Prospectus under "The Exchange--Guaranteed Delivery Procedures." To validly tender Old Notes, 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. The term "Expiration Date" means 5:00 p.m., New York City time, on [ ], 2004 (or such later date to which Tevecap may, in its sole discretion, extend the Exchange Offer). If this Exchange Offer is extended, the term "Expiration Date" shall mean the latest time and date to which the 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 Notes desires to tender such Old Notes 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 the tender is made through an Eligible Institution, 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 Notes and the principal amount of Old Notes 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 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 Exchange--Guaranteed Delivery Procedures" as set forth in the Prospectus. Only a Holder of Old Notes may tender Old Notes in the Exchange Offer. The term "Holder" as used herein with respect to the Old Notes means any person in whose name Old Notes are registered on the books of the Trustee. If the Letter of Transmittal or any Old Notes are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or 5 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 Notes are registered in the name of his broker, dealer, commercial bank, trust company or other nominee and who wishes to validly surrender those Old Notes in the 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 Notes 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 Notes for exchange. 3. INADEQUATE SPACE. If the space provided herein is inadequate, the certificate numbers and principal amount of the Old Notes to which this Letter of Transmittal relates should be listed on a separate signed schedule attached hereto. 4. WITHDRAWAL OF TENDER. Tenders of Old Notes may be not withdrawn at any time; provided, however, that if the exchange of old notes for new notes as part of the exchange offer has not occurred on or before January 31, 2005, holders of old notes who have tendered their old notes in connection with the offer may withdraw their tender of their old notes at any time thereafter. Subject to the preceding sentence, for a withdrawal to be effective, a written or facsimile notice of withdrawal must be received by the Exchange Agent at its address set forth herein on or prior to the Expiration Date. Any such notice of withdrawal must (i) specify the name of the person having tendered the Old Notes to be withdrawn, (ii) identify the Old Notes to be withdrawn (including the amount of such Old Notes), (iii) (where certificates for Old Notes have been transmitted) specify the name in which such Old Notes are registered, if different from that of the withdrawing Holder and (iv) be signed by the Holder in the same manner as the original signature on the Letter of Transmittal by which such Old Notes were tendered (including any required signature guarantees) or accompanied by evidence satisfactory to Tevecap that the Holder withdrawing such tender has succeeded to beneficial ownership of such Old Notes. If certificates for Old Notes 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 Notes have been tendered pursuant to the procedure for book-entry 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 Notes and otherwise comply with the procedures of DTC. Old Notes properly withdrawn will thereafter be deemed not validly tendered for purposes of the Exchange Offer; provided, however, that withdrawn Old Notes 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 6 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 Notes will be accepted only in integral multiples of $1.00. If less than the entire principal amount evidenced by any Old Notes is to be tendered, fill in the principal amount that is to be tendered in the box entitled "Principal Amount Tendered" below. The entire principal amount of all Old Notes 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 Notes tendered hereby, the signature must correspond with the name as written on the face of the certificate representing such Old Notes without alteration, enlargement or any change whatsoever. If any of the Old Notes 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 Notes 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 Notes 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 New Notes issued in consideration of Old Notes accepted for exchange, or Old Notes 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 Notes pursuant to the Exchange Offer. If, however, New Notes and/or substitute Old Notes for principal amounts not exchanged are to be delivered to any person other than the Holder of the Old Notes or if a transfer tax is imposed for any reason other than the exchange of Old Notes pursuant to the 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 Notes 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 Notes 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 7 defect, irregularity or condition of tender with regard to any particular Old Notes. Tevecap's interpretation of the terms of, and conditions to, the 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 either 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 Notes will not be deemed to have been made until all defects and irregularities have been cured or waived. Any Old Notes 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. 10. INTEREST ON EXCHANGED OLD NOTES. Holders whose Old Notes are accepted for exchange will receive accrued interest thereon on the date of exchange. See "Description of the Notes" in the Prospectus. 11. MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES. Holders whose certificates for Old Notes 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 APPROPRIATE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE. IMPORTANT TAX INFORMATION Under Federal income tax laws, a registered Holder of Old Notes or New Notes 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 Notes or New Notes 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 28% 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 Notes or New Notes the Holder is required to provide the Trustee with: 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) 8 and that such Holder is exempt from backup withholding, 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 the Internal Revenue Service has notified the Holder that the Holder is no longer subject to backup withholding; and if applicable, an adequate basis for exemption. 9
- ---------------------------------------------------------------------------------------------------------------------- PAYER'S NAME: [ ] - ---------------------------------------------------------------------------------------------------------------------- SUBSTITUTE FORM W-9 PART 1-PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND CERTIFY BY SIGNING AND DATING BELOW ---------------------------------- Social Security Number OR ---------------------------------- Employer Identification Number - ---------------------------------------------------------------------------------------------------------------------- PART 2-Certification-Under penalty of perjury, I certify that: Department of the (1) The number shown on this form is my correct Taxpayer Identification Number (or I Treasury Internal am waiting for a Taxpayer number to be issued to me); Revenue Service (2) I am not subject to backup withholding because (i) I am exempt from backup Payee's Request for withholding, (ii) I have not been notified by the Internal Revenue Service ("IRS") Taxpayer Identification that I am subject to backup withholding as a result of failure to report all Number ("TIN") 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). - ---------------------------------------------------------------------------------------------------------------------- SIGNATURE___________________________ PART 3 Date__________________________, 2004 - ---------------------------------------------------------------------------------------------------------------------- NAME________________________________ Awaiting TIN / / (Please print) - ----------------------------------------------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 28% 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. 10 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, 28% 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 New Notes issued in consideration of Old Notes exchanged, or certificates for Old Notes 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 NOTES (SEE INSTRUCTIONS 2 AND 7)
- ------------------------------------------------------------------------------------------------------------- NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) CERTIFICATE(S) (PLEASE FILL IN, IN (ATTACH ADDITIONAL SIGNED LIST, IF NECESSARY) BLANK) - ------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT OF AGGREGATE OLD NOTES PRINCIPAL AMOUNT TENDERED** OF OLD NOTES (MUST BE INTEGRAL CERTIFICATE EVIDENCED BY MULTIPLES NUMBER(S)* CERTIFICATE(S) OF $1.00) - ------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------- Total - -------------------------------------------------------------------------------------------------------------
- ------------- * Need not be completed if Old Notes are being tendered by book-entry transfer. ** Unless otherwise indicated, the entire principal amount of Old Notes 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 NOTES 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 NOTES 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 NOTES 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 NOTES FOR YOUR 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 NOTES 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 Notes as their name(s) appear(s) on certificate(s) for Old Notes 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 Notes to comply with the restrictions on transfer applicable to the Old Notes). 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 GIVE THE EMPLOYER OF ACCOUNT: SECURITY NUMBER OF IDENTIFICATION NUMBER OF - -------------------------------------------------------------------------------------------------- 1. Individual The individual - -------------------------------------------------------------------------------------------------- 2. Two or more individuals The actual owner of the account (joint accounts) 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 The actual owner is not a legal or valid trust under State law - -------------------------------------------------------------------------------------------------- 5. Sole proprietorship The owner(1) - -------------------------------------------------------------------------------------------------- 6. A valid trust, estate, or Legal entity(3) pension trust - -------------------------------------------------------------------------------------------------- 7. Corporate The corporation - -------------------------------------------------------------------------------------------------- 8. Association, club, religious, The organization charitable, educational or other tax-exempt organization - -------------------------------------------------------------------------------------------------- 9. Partnership The partnership - -------------------------------------------------------------------------------------------------- 10. A broker or registered nominee The broker or nominee - -------------------------------------------------------------------------------------------------- 11. Account with the Department The public entity of Agriculture in the name of a public entity (such as a State or local government, school district, or prison) that receives agricultural program payments - --------------------------------------------------------------------------------------------------
15 - -------------- (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. 16 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 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. 17 (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: - - Payments to nonresident aliens subject to withholding under section 1441. - - Payments to partnerships not engaged in a trade or business in the U.S. and which have at least one nonresident partner. - - Payments of patronage dividends not paid in money. - - Payments made by certain foreign organizations. - - Payments of interest on obligations issued by individuals. 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. - - Payments of tax-exempt interest (including exempt-interest dividends under section 852). - - Payments described in section 6049(b)(5) to nonresident aliens. - - Payments on tax-free covenant bonds under section 1451. - - 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 28% of taxable interest, dividend, and 18 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, and such failure is due to negligence, a penalty of 20% is imposed on any portion of any under-payment attributable to that failure. (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. 19 EX-99.2 9 d60792_ex99-2.txt NOTICE OF GUARANTEED DELIVERY Exhibit 99.2 FORM OF 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 Exchange Offer (as defined below) of Tevecap S.A. ("Tevecap") made pursuant to the Prospectus, dated , 2004 (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 document s cannot be delivered or transmitted by facsimile transmission, mail or hand delivery to HSBC Bank USA, National Association (the "Exchange Agent"), for the Old Notes 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 Exchange--Guaranteed Delivery Procedures" section in the Prospectus. The term "Old Notes" means Tevecap's outstanding 12.625% Senior Notes due 2004. THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON , 2004 (UNLESS EXTENDED) (THE "EXPIRATION DATE"). TENDERS OF OLD NOTES MAY BE NOT WITHDRAWN AT ANY TIME; PROVIDED, HOWEVER, THAT IF THE EXCHANGE OF OLD NOTES FOR NEW NOTES AS PART OF THE EXCHANGE OFFER HAS NOT OCCURRED ON OR BEFORE JANUARY 31, 2005, HOLDERS OF OLD NOTES WHO HAVE TENDERED THEIR OLD NOTES IN CONNECTION WITH THE OFFER MAY WITHDRAW THEIR TENDER OF THEIR OLD NOTES AT ANY TIME THEREAFTER. Deliver to: HSBC Bank USA, National Association, Exchange Agent BY MAIL, BY OVERNIGHT COURIER OR BY HAND: HSBC BANK USA, NATIONAL ASSOCIATION 452 Fifth Avenue New York, New York 10018 Attn: Corporate Trust BY FACSIMILE: (212) 525-1300 CONFIRMED BY TELEPHONE: 212-525-1316 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 "Exchange Offer"), receipt of which are hereby acknowledged, the aggregate principal amount of Old Notes set forth below pursuant to the guaranteed delivery procedure described in "The Exchange--Guaranteed Delivery Procedures" section in the Prospectus and the Letter of Transmittal. Principal Amount of Old Notes and Subsidiary Guarantees Signature(s) Tendered $ Signature(s)_____________________________ Certificate Nos. Please Print the Following Information (if available) Names(s) of Registered Holders Total Principal Amount Address Represented by Old Notes and Subsidiary Guarantees Address Certificate(s) If Old Notes will be tendered by Area Code and Telephone Number(s) Book-entry transfer, provide the Following information: DTC Account number Dated: , 2004
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 Notes tendered hereby in proper form for transfer, or confirmation of the book-entry transfer of such Old Notes 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 --------------------------------- -------------------------------- Address (Authorized Signature) Zip Code Name Area Code and Date Telephone Number 2 EX-99.3 10 d60792_ex99-3.txt LETTER TO CLIENTS Exhibit 99.3 TEVECAP S.A. OFFER FOR TENDERS OF US$48,022,000 AGGREGATE PRINCIPAL AMOUNT OF 12.625% SENIOR NOTES DUE 2004 IN EXCHANGE FOR REGISTERED 12.625% SENIOR NOTES DUE 2009 THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON , 2004 (UNLESS EXTENDED) (THE "EXPIRATION DATE"). TENDERS OF OLD NOTES MAY BE NOT WITHDRAWN AT ANY TIME; PROVIDED, HOWEVER, THAT IF THE EXCHANGE OF OLD NOTES FOR NEW NOTES AS PART OF THE EXCHANGE OFFER HAS NOT OCCURRED ON OR BEFORE JANUARY 31, 2005, HOLDERS OF OLD NOTES WHO HAVE TENDERED THEIR OLD NOTES IN CONNECTION WITH THE OFFER MAY WITHDRAW THEIR TENDER OF THEIR OLD NOTES AT ANY TIME THEREAFTER. To Our Clients: Enclosed for your consideration is a Prospectus, dated , 2004 (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 "Exchange Offer") of Tevecap S.A. ("Tevecap") to exchange an aggregate principal amount of up to US$48,022,000 of its 12.625% Senior Notes due 2009 (the "New Notes"), 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 12.625% Senior Notes due 2004 (the "Old Notes") of which US$48,022,000 aggregate principal amount is outstanding upon the terms and subject to the conditions described in the Prospectus and the Letter of Transmittal. Holders of Old Notes 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 Exchange--Guaranteed Delivery Procedures." This material is being forwarded to you as the beneficial owner of the Old Notes 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 Notes 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 Notes on your behalf in accordance with the provisions of the Exchange Offer. The Exchange Offer will expire at 5:00 p.m., New York City time, on , 2004, unless extended by Tevecap. Tenders of Old Notes may be not withdrawn at any time; provided, however, that if the exchange of old notes for new notes as part of the exchange offer has not occurred on or before January 31, 2005, holders of old notes who have tendered their old notes in connection with the offer may withdraw their tender of their old notes at any time thereafter. Your attention is directed to the following: 1. The Exchange Offer is for up to US$48,022,000 aggregate principal amount of Old Notes. 2. Any transfer taxes incident to the transfer of Old Notes from the holder to Tevecap will be paid by Tevecap, except as otherwise provided in Instruction 9 of the Letter of Transmittal. 3. The Exchange Offer expires at 5:00 p.m., New York City time, on , 2004 (unless extended by Tevecap). If you wish to have us tender your Old Notes, 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 NOTES HELD BY US AND REGISTERED IN OUR NAME FOR YOUR ACCOUNT OR BENEFIT. 2 INSTRUCTIONS WITH RESPECT TO THE EXCHANGE OFFER The undersigned acknowledge(s) receipt of your letter and the enclosed material referred to therein relating to the Exchange Offer made by Tevecap S.A. with respect to its Old Notes. This will instruct you to tender the Old Notes 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 Notes held by you for my account as indicated below: ----------------------------------------------- Aggregate principal amount of Old Notes ----------------------------------------------- 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 Notes 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 Notes held by us for your account. 3 EX-99.4 11 d60792_ex99-4.txt LETTER TO NOMINEES Exhibit 99.4 TEVECAP S.A. OFFER FOR TENDERS OF US$48,022,000 AGGREGATE PRINCIPAL AMOUNT OF 12.625% SENIOR NOTES DUE 2004 IN EXCHANGE FOR REGISTERED 12.625% SENIOR NOTES DUE 2009 THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON , 2004 (UNLESS EXTENDED) (THE "EXPIRATION DATE"). TENDERS OF OLD NOTES MAY BE NOT WITHDRAWN AT ANY TIME; PROVIDED, HOWEVER, THAT IF THE EXCHANGE OF OLD NOTES FOR NEW NOTES AS PART OF THE EXCHANGE OFFER HAS NOT OCCURRED ON OR BEFORE JANUARY 31, 2005, HOLDERS OF OLD NOTES WHO HAVE TENDERED THEIR OLD NOTES IN CONNECTION WITH THE OFFER MAY WITHDRAW THEIR TENDER OF THEIR OLD NOTES AT ANY TIME THEREAFTER. 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 , 2004 (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 "Exchange Offer") an aggregate principal amount of up to US$48,022,000 of its 12.625% Senior Notes Due 2009 (the "New Notes") for a like principal amount of its outstanding 12.625% Senior Notes Due 2004 (the "Old Notes"). We are requesting that you contact your clients for whom you hold Old Notes registered in your name or in the name of your nominee regarding the Exchange Offer. For your information and for forwarding to your clients for whom you hold Old Notes registered in your name or in the name of your nominee, or who hold Old Notes registered in their own names, we are enclosing the following documents: 1. Prospectus dated , 2004; 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 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 Notes registered in your name or the name of your nominee, with space provided for obtaining such clients' instructions with regard to the Exchange Offer; 5. A return envelope addressed to HSBC Bank USA, National Association, as the Exchange Agent (the "Exchange Agent"), for the Old Notes. Your prompt action is requested. The Exchange Offer will expire at 5:00 p.m., New York City time, on , 2004 (unless extended by the Company) (the "Expiration Date"). Tenders of Old Notes may be not withdrawn at any time; provided, however, that if the exchange of old notes for new notes as part of the exchange offer has not occurred on or before January 31, 2005, holders of old notes who have tendered their old notes in connection with the offer may withdraw their tender of their old notes at any time thereafter. To participate in the 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 Notes 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 Exchange--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 Notes 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 Notes pursuant to the Exchange Offer, except as set forth in Instruction 9 of the Letter of Transmittal. Any inquiries you may have with respect to the Exchange Offer, or requests for additional copies of the enclosed materials, should be directed to HSBC Bank USA, National Association, the Exchange Agent, at its address set forth on the front of the Letter of Transmittal. Very truly yours, TEVECAP S.A. NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY PERSON AS AN AGENT OF THE COMPANY OR EITHER EXCHANGE AGENT, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS ON BEHALF OF ANY OF THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN THE PROSPECTUS OR THE LETTER OF TRANSMITTAL. Enclosures -----END PRIVACY-ENHANCED MESSAGE-----