UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F/A
(Amendment No. 1)
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F/A
(Amendment No. 1)
| (Mark One) | ||
 | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF | |
| THE SECURITIES EXCHANGE ACT OF 1934 | ||
| OR | ||
 | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE | |
| SECURITIES EXCHANGE ACT OF 1934 | ||
| For the fiscal year ended December 31, 2005 | ||
| OR | ||
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF | |
| THE SECURITIES EXCHANGE ACT OF 1934 | ||
| OR | ||
| SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF | |
| THE SECURITIES EXCHANGE ACT OF 1934 | ||
Commission File Number: 0-28860 |
NET SERVIÇOS DE COMUNICAÇÃO S.A.
(Exact name of Registrant as specified in its charter)
| Net Communications Services Inc. | The Federative Republic of Brazil |
| (Translation of Registrant’s name into English) | (Jurisdiction of incorporation or organization) |
Rua Verbo Divino, 1356
São Paulo-SP-04719-002
Brazil
(Telephone: +55-11-2111-2785)
(Address and telephone number of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act: None
Securities registered or to be registered pursuant to Section 12(g) of the Act:
| Title of each class | Name of each exchange on which registered |
| American Depositary Shares, evidenced by American Depositary | |
| Receipts, each representing ten preferred shares, no par value | Nasdaq National Market |
| Preferred shares, no par value | Nasdaq National Market* |
*Not for trading but only in connection with the registration of the American Depositary Shares.
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:| 1,613,225,102 | Common Shares, as of December 31, 2005 | |
| 2,339,738,563 | Preferred Shares, as of December 31, 2005 |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
No If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
No Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:
No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Securities Act.
ACCELERATED FILER NON-ACCELERATED FILER Indicate by check mark which financial statements item the registrant has elected to follow:
Item 18 If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
No TABLE OF CONTENTS
| Explanatory Note | ii | |||||
| Item 9. The Offer and Listing | 1 | |||||
| Item 16A. Audit Committee Financial Expert | 10 | |||||
| Item 19. Exhibits | 11 | |||||
i
Explanatory Note
The purpose of this Amendment No. 1 on Form 20-F/A to the annual report on Form 20-F of Net Serviços de Comunicação S.A. for the year ended December 31, 2005, filed with the U.S. Securities and Exchange Commission on June 1, 2006 (the “Original Form 20-F Filing”) is to amend “Item 9. The Offer and Listing—Trading Markets—Compliance with Certain Nasdaq Corporate Governance Rules” and “Item 16A. Audit Committee Financial Expert” to provide further disclosure regarding our compliance with the corporate governance rules of the Nasdaq Stock Market, Inc.
This Form 20-F/A does not reflect events occurring after the Original Form 20-F Filing or modify or update those disclosures affected by subsequent events. Rather, except as described above, information is unchanged and reflects the disclosures made at the time of the Original Form 20-F Filing on June 1, 2006. Accordingly, this Form 20-F/A should be read in conjunction with the Original Form 20-F Filing and our filings made subsequent thereto, including any amendments to those filings. In accordance with Rule 12b-15 promulgated under the Securities Exchange Act of 1934, as amended, the complete text of each of Item 9 and Item 16A is set forth herein, including those portions of such text that have not been amended from that set forth in the Original Form 20-F Filing.
In this annual report on Form 20-F/A, references to “Net Serviços,” “we,” “us” and “our” are to Net Serviços de Comunicação S.A. and, unless the context requires otherwise, include the consolidated subsidiaries of Net Serviços de Comunicação S.A. References to our “ADSs” are to our American Depositary Shares, each of which represented, as of June 1, 2006, ten of our preferred shares.
ii
Part I
ITEM 9. THE OFFER AND LISTING.
General
The principal non-United States market for our preferred shares is the Bovespa. Until May 2, 2005, our preferred shares were traded on the Bovespa under the symbol “PLIM4.” Since May 2, 2005, our preferred shares have been traded on the Bovespa under the symbol “NETC4.” We changed the symbol from “PLIM4” to “NETC4” so that the shares are more readily identifiable with the Net Serviços name.
In June 2002, we complied with the requirements of Corporate Governance Level 2, or Level 2, of the Bovespa. Level 2 is a listing segment created for the trading of shares issued by companies that voluntarily undertake to comply with certain corporate governance practices and disclosure requirements that are in addition to those imposed by Brazilian law. The inclusion of an issuer in Level 2 signifies the issuer’s compliance with a series of corporate rules, known as good practices of corporate governance, which are more rigid than those required by the Brazilian legislation. These rules increase the rights of the shareholders as well as improve the quality of information we provide to the market.
Our predecessor company, Multicanal, conducted an offering of ADSs in October 1996. Each ADS represents ten preferred shares. The ADSs trade in the United States on the Nasdaq National Market under the symbol “NETC” and are evidenced by ADRs. The ADSs are outstanding under an amended and restated deposit agreement dated as of December 17, 2001 among us, JPMorgan Chase Bank as depositary, and the owners and holders from time to time of the ADSs. On December 17, 2001, JPMorgan Chase Bank succeeded The Bank of New York as depositary for the ADSs. An ADR may represent any number of ADSs. Only persons in whose names ADSs are registered on the books of the depositary are treated as owners of ADSs under the deposit agreement.
The table below sets forth, for each period indicated, the high and low closing prices in reais for the preferred shares on the Bovespa and the high and low closing prices of the ADSs in U.S. dollars as reported by the Nasdaq National Market.
| Bovespa(1) | Nasdaq | |||||||
| R$ per preferred share | US$ per ADS | |||||||
| Year | High | Low | High | Low | ||||
| 2001 | 24.40 | 5.60 | 125.00 | 19.20 | ||||
| 2002 | 8.50 | 0.19 | 37.00 | 0.42 | ||||
| 2003 | 1.27 | 0.25 | 4.36 | 0.65 | ||||
| 2004 | 1.08 | 0.78 | 3.60 | 1.64 | ||||
| 2005 | 1.17 | 0.43 | 5.48 | 2.12 | ||||
| Quarter | ||||||||
| 1Q/03 | 0.53 | 0.25 | 1.90 | 0.65 | ||||
| 2Q/03 | 0.43 | 0.27 | 1.72 | 0.80 | ||||
| 3Q/03 | 0.74 | 0.28 | 2.55 | 0.87 | ||||
| 4Q/03 | 1.27 | 0.58 | 4.36 | 1.86 | ||||
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| Bovespa(1) | Nasdaq | |||||||
| R$ per preferred share | US$ per ADS | |||||||
| Quarter | High | Low | High | Low | ||||
| 1Q/04 | 1.01 | 0.65 | 3.60 | 1.95 | ||||
| 2Q/04 | 0.91 | 0.60 | 3.18 | 1.90 | ||||
| 3Q/04 | 0.71 | 0.52 | 2.28 | 1.67 | ||||
| 4Q/04 | 0.65 | 0.49 | 2.51 | 1.64 | ||||
| 1Q/05(2) | 0.72 | 0.43 | 3.75 | 2.23 | ||||
| 2Q/05 | 0.73 | 0.56 | 3.96 | 2.12 | ||||
| 3Q/05 | 1.03 | 0.52 | 4.62 | 2.16 | ||||
| 4Q/05 | 1.17 | 0.86 | 5.48 | 3.50 | ||||
| 1Q/06 | 1.29 | 1.06 | 5.90 | 4.20 | ||||
| Month | ||||||||
| December 2005 | 1.17 | 0.98 | 5.48 | 4.36 | ||||
| January 2006 | 1.29 | 1.03 | 5.86 | 4.52 | ||||
| February 2006 | 1.21 | 1.06 | 5.61 | 4.95 | ||||
| March 2006 | 1.17 | 0.98 | 5.90 | 4.20 | ||||
| April 2006 | 1.27 | 1.08 | 6.25 | 5.09 | ||||
| May 2006 (through May 26) | 1.32 | 1.04 | 6.38 | 4.39 | ||||
| __________________________ | ||||||||
| (1) Reais per share reflected nominal price at trade date. | ||||||||
| (2) Reflects an adjustment of R$0.35 to account for the subscription price for preferred shares issued to our existing shareholders in the restructuring. | ||||||||
Trading Markets
Nasdaq National Market
The primary market for our preferred shares held in the form of ADSs is the Nasdaq National Market. On March 31, 2006, there were 11,735,589 ADSs outstanding, representing 7% of the total amount of preferred shares held by public shareholders (which are all preferred shares not owned by our major shareholders discussed in “Item 7. Major Shareholders and Related Party Transactions—Major Shareholders”). The average daily trading volume of the ADSs on the Nasdaq National Market during 2005 was approximately US$259,000, or 68,000 ADSs.
Compliance with Certain Nasdaq Corporate Governance Rules
Under the Nasdaq Marketplace rules, a foreign private issuer may follow its home country corporate governance practices in lieu of certain Nasdaq corporate governance rules subject to certain requirements. The practices we follow in lieu of certain Nasdaq rules are described below.
Independent directors. Rule 4350(c)(1) requires that a majority of a listed company’s board of directors be comprised of independent directors. In lieu of complying with Rule 4350(c)(1), we follow Brazilian corporate law, which does not require us to have independent directors on our board of directors. However, as required by Level 2 of Bovespa’s Corporate Governance requirements, 20% of the members of our board of directors are independent.
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Executive Sessions. Rule 4350(c)(2) requires that a listed company’s independent directors have regularly scheduled meetings at which only independent directors are present. In lieu of complying with Rule 4350(c)(2), we follow Brazilian corporate law, which does not require our independent directors to have regularly scheduled meetings at which only independent directors are present.
Compensation of Officers. Rule 4350(c)(3) requires that the compensation of a listed company’s executive officers be determined, or recommended to the board of directors for determination, either by (i) a majority of the independent directors, or (ii) a compensation committee comprised solely of independent directors. In lieu of complying with Rule 4350(c)(3), we follow Brazilian corporate law, which does not require us to have either a compensation committee or independent directors on our board of directors. Compensation of our executive officers is determined by our board of directors.
Nomination of Directors.Rule 4350(c)(4)(A), requires that a listed company’s director nominees be selected, or recommended to the board of directors for selection, either by (i) a majority of the independent directors, or (ii) a nominations committee comprised solely of independent directors. In lieu of complying with Rule 4350(c)(4)(A), we follow Brazilian corporate law, which does not require us to have either a nominations committee or independent directors on our board of directors. Instead, our directors are appointed as described under “Item 7. Major Shareholders and Related Party Transactions—New Shareholders’ Agreements—Board of directors (Conselho de Administração).”
Nominating Committee Charter. Rule 4350(c)(4)(B) requires that a listed company adopt a formal written charter or board resolution addressing the director nomination process. In lieu of complying with Rule 4350(c)(4)(B), we follow Brazilian corporate law, which does not require us to adopt a formal written charter or board resolution addressing the process for nomination of directors.
Audit committee composition. Rule 4350(d) requires, among other things, that a listed company maintain an audit committee comprised of at least three members, each of whom must be independent as defined in the Nasdaq rules. In lieu of complying with Rule 4350(d), we follow Brazilian corporate law and we maintain a permanent fiscal board, orConselho Fiscal. OurConselho Fiscal complies with the requirements of Rule 10A-3 of the Exchange Act. See “Item 6. Directors, Senior Management and Employees—Directors and Board Practices—Audit Committee.”
Quorum. Rule 4350(f) requires that a listed company’s by-laws provide for a quorum for any meeting of the holders of common stock of at least 33 1/3 % of the outstanding shares of the listed company’s common voting stock. In lieu of complying with Rule 4350(f), we follow Brazilian corporate law, which requires a minimum quorum for a shareholders’ meeting of 25% of the outstanding shares of common voting stock on a first summoning of shareholders. Under Brazilian corporate law, however, there is no minimum quorum requirement in the event that a first summoning of shareholders does not elicit a quorum and a second summoning of shareholders is made.
Shareholder Approval. Rule 4350(i)(1) generally requires that a listed company obtain shareholder approval at or prior to the issuance of securities in connection with (a) the establishment or amendment of a compensation arrangement pursuant to which stock may be acquired by officers, directors, employees, or consultants; (b) certain acquisitions of stock of another company; (c) an issuance of securities that will result in a change of control of the issuer; or (d) certain transactions
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other than a public offering. In lieu of complying with Rule 4350(i)(1), we follow Brazilian corporate law, which does not require us to obtain shareholder approval at or prior to the issuance of securities in connection with the above mentioned topics.
Code of Ethics. Rule 4350(n) requires that a listed company adopt a code of conduct applicable to all directors, officers and employees, which is publicly available. In lieu of complying with Rule 4350(n) with respect to our directors, we follow Brazilian corporate law, which does not require us to adopt a code of ethics, such as that required by the Nasdaq rules, for our directors. However, pursuant to applicable Brazilian corporate and securities laws, our directors and officers are required to publicly disclose certain facts and information, including trading in our securities.
Brazilian Stock Exchanges
In 2000, Brazilian stock exchanges were reorganized through the execution of a memorandum of understanding. Pursuant to the memorandum, all securities are now traded only on the Bovespa, with the exception of electronically traded public debt securities and privatization auctions, which are traded on the Rio de Janeiro Stock Exchange. In 2005, the Bovespa accounted for 100% of the trading volume of equity securities. The Bovespa is a non-profit entity owned by its member brokerage firms. Trading on the Bovespa is limited to member brokerage firms and a limited number of authorized non-members.
Trading. Trading is conducted between 11:00 a.m. and 6:00 p.m., or between 10:00 a.m. and 5:00 p.m. during daylight savings time in the United States, on an automated system known as the Computer Assisted Trading System on the Bovespa and on the National Electronic Trading System. This system is a computerized system which links electronically with the seven smaller regional exchanges.
The Bovespa also permits trading from 6:45 p.m. to 7:30 p.m. on an online system connected to traditional and internet brokers called the “After Market.” Trading on the After Market is subject to regulatory limits on price volatility and on the volume of shares transacted through internet brokers. There are no specialists or officially recognized market makers on the Bovespa. Trading in securities listed on the Brazilian stock exchanges may be effected off the exchanges in certain circumstances, although such trading is very limited.
In order to better control volatility, the Bovespa adopted a “circuit breaker” system pursuant to which trading sessions may be suspended for a period of 30 minutes or one hour whenever the Ibovespa falls 10% or 15%, respectively, in relation to the index registered in the previous trading session.
Settlement of transactions is effected three business days after the trade date without adjustment of the purchase price for inflation. Delivery of and payment for shares are made through the facilities of a clearinghouse, orCâmara Brasileira de Liquida��ão e Custódia S.A., which maintains accounts for member brokerage firms. The seller is ordinarily required to deliver shares to the exchanges on the second business day following the trade date.
Market Size. As of December 31, 2005, the aggregate market capitalization of all the companies listed on the Bovespa was equivalent to approximately US$482,1 billion. Although any of the outstanding shares of a listed company may trade on a Brazilian stock exchange, in most cases fewer than half of the listed shares are actually available for public trading. The remaining shares are held by small groups of controlling persons, by governmental entities or by one principal
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shareholder. As of December 31, 2005, we accounted for approximately 0.4% of the market capitalization of all listed companies on the Bovespa.
Although at December 31, 2005 the Brazilian equity market was Latin America’s largest in terms of market capitalization expressed in U.S. dollars, it remains relatively small and less liquid compared to major world markets. In 2005, the average daily trading value on the Bovespa was approximately US$585.5 million.
Index. Net Serviços has been included as part of the Bovespa index, or the Ibovespa, since May 2000. The Ibovespa is the most representative indicator of the performance of the Brazilian stock market. On December 31, 2005, the weighting of our preferred shares in the index was 1.1% as compared to our weighting of 1.9% on December 31, 2004. Our securities also trade on several additional markets, including the Chicago, Pacific and American option exchanges, on which our options on ADSs began trading in February 2000, and Latibex, the trading market for Latin American companies that trade on the Madrid Stock Exchange, on which our shares began trading in July 2000.
Tax Matters. Trading on Brazilian stock exchanges by a holder not deemed to be domiciled in Brazil for Brazilian tax and regulatory purposes, or a non-Brazilian holder, is subject to certain limitations under Brazilian foreign investment legislation. With limited exceptions, non-Brazilian holders may only trade on Brazilian stock exchanges in accordance with the requirements of Resolution No. 2,689, of January 26, 2000, of the National Monetary Council. Resolution No. 2,689 requires that securities held by non-Brazilian holders be maintained in the custody of, or in deposit accounts with, financial institutions duly authorized by the Central Bank and the Brazilian securities commission. In addition, Resolution No. 2,689 requires non-Brazilian holders to restrict their securities trading to transactions on Brazilian stock exchanges or qualified over-the-counter markets. With limited exceptions, non-Brazilian holders may not transfer the ownership of investments made under Resolution No. 2,689 to other non-Brazilian holders through a private transaction. See “Item 10. Additional Information—Taxation—Material Brazilian Taxation Considerations—Taxation of Gains” for a description of certain tax benefits extended to non-Brazilian holders who qualify under Resolution No. 2,689.
Level 2 of the Bovespa
On December 11, 2000, the Bovespa launched three new listing segments designed for the trading of shares issued by publicly held companies: the Special Corporate Governance Level 1, the Special Corporate Governance Level 2 and theNovo Mercado of Bovespa. These listing segments were designed for the trading of shares issued by companies that voluntarily undertake to abide by corporate governance practices and disclosure requirements in addition to those required under Brazilian corporate law.
The inclusion of a company in any one of the segments implies the adherence to a series of corporate rules, known generally as good corporate governance practices. These rules are designed to increase shareholders’ rights and enhance the quality of information provided by Brazilian corporations to shareholders.
Our shares have been listed in Bovespa’s Special Corporate Governance Level 2, or Level 2, since June 2002. Pursuant to Level 2 requirements, we are required to adopt certain practices as part of our corporate structure. We have adopted such practices as follows:
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Preferred Shares with Voting Rights. In accordance with Level 2 rules, we have established, voting rights in relation to our preferred shares with respect to:
- our transformation, consolidation, merger or spin-off;
- valuation of assets used in increases in our share capital;
- approval of certain specified agreements between us and our controlling shareholders or their affiliates;
- selection of a specialized firm skilled in determining our fair market value, in relation to a public offering of our shares; and
- change or repeal of provisions of our by-laws that alter or modify any Bovespa requirements.
Tag-Along Rights. Upon the acquisition of a controlling interest in us, pursuant to Level 2 requirements, the purchaser must offer tag-along rights to the remaining shareholders in an amount equivalent to 100% of the price paid for each share in the controlling stake, in the case of holders of common shares, and at least 70% of the price paid for each share in the controlling stake, in the case of holders of preferred shares. Our by-laws require the purchaser to offer 100% of the price paid for each share in the controlling stake to holders of our common and preferred shares.
Establishment of a single one year mandate for the entire board of directors. Level 2 requires that directors are reelected annually for one year terms. Our by-laws provide that our board of directors shall be composed of no fewer than nine and no more than twelve members elected at an annual general meeting of shareholders, each to serve for a one year term, with the option for reelection. Furthermore, according to Level 2, 20% of the members of our board of directors must be, and currently are, independent.
Free float. Level 2 requires that at all times at least 25% of an issuer’s total capital stock is held by persons or entities other than those party to a shareholders’ agreement. We have been in compliance with this requirement since July 2004.
Public offers of shares through mechanisms intending to favor capital dispersion and broader retail access. In any and all public distributions of stock, Level 2 requires us to exert our best efforts towards shareholding dispersion. Toward this end, we have adopted special procedures to ensure, in any public offer of our shares by us, (i) access to all interested investors and (ii) allocation of at least 10% of the total distribution to individuals or non-institutional investors.
Improvements, in addition to quarterly information statements. In addition to the information to be included in quarterly information statements as required by law, Level 2 requires us to, and we do:
- present a consolidated balance sheet, a consolidated statement of results, a consolidated cash flow statement and a consolidated performance report, whenever we are required to submit year-end consolidated financial statements;
- disclose any direct or indirect ownership interest exceeding 5% of our voting capital;
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- inform, on a consolidated basis, the quantity and class of those of our securities held, directly or indirectly, by our controlling shareholders, by members of our board of directors, by our executive officers and by the members of our fiscal board;
- report any trades of securities held by our controlling shareholders, by members of our board of directors, by our executive officers and by the members of our fiscal board within the immediately preceding twelve months;
- include, in explanatory notes, our cash flow statements; and
- disclose the quantity of our outstanding shares and the percentage expressed in relation to the total amount of shares issued.
Furthermore, under Level 2, each fiscal quarter a quarterly information statement must be filed with CVM. The quarterly information statement must include a special report issued by an independent auditor duly registered with CVM, in accordance with CVM regulations.
Trading of securities and derivatives by members of our board of directors and fiscal board, executive officers and controlling shareholders. Pursuant to Level 2 requirements, members of our board of directors and fiscal board, executive officers and controlling shareholders are obligated to report to Bovespa the volume and the class of our securities held by them, directly or indirectly, including any related derivatives. Any trades in securities and derivatives by such persons are reported in detail to Bovespa within ten days as of the last day of the month in which such trade occurs.
Self-regulatory procedures. We have an internal self-regulatory management committee that adopts internal policies with respect to trading in our securities and related derivatives. This committee has passed the following resolutions:
- from one month before the end of each fiscal year until the publication of the notice to shareholders regarding the availability of our financial statements for such year, our senior managers and controlling shareholders are obligated to abstain from trading in our securities and related derivatives;
- following a decision to raise capital, distribute dividends to shareholders, distribute bonuses in shares and/or related derivatives or adopt a share split, until the publication of the notice announcing such decision, our senior managers and controlling shareholders are obligated to abstain from trading in our securities and related derivatives;
- our senior managers and controlling shareholders are obligated to periodically inform Bovespa and us of their plan to trade in our securities and related derivatives, and if such plan changes, they are required to notify Bovespa and us of the change.
Shareholder agreement, stock option program and contracts with the same economic group. Upon the signature of a new shareholders’ agreement with us, Level 2 mandates that within five days of such signature, we file with Bovespa a copy of the agreement. Similarly, a copy of all option plans for our employees and administrators are also to be filed with Bovespa within five days.
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In addition, whenever a single contract or a series of related contracts within any twelve month period, between ourselves and a subsidiary, senior manager or controlling shareholder, involves an amount equal to or greater than R$200,000 (US$75,347) or involves an amount equal to or greater than 1% of our net worth, we are required to notify Bovespa of this fact and make a public disclosure of such contract or series of contracts.
Resolution of corporate conflicts through arbitration. Under Level 2, we, our controlling shareholders, senior managers and, to the extent we establish aConselho Fiscal, the members of suchConselho Fiscal are required to refer to arbitration any and all disputes or controversies arising out of the listing segment rules, CVM rules, Central Bank rules, National Monetary Council Rules or any other corporate matters.
Regulation of Brazilian Securities Markets
The Brazilian securities markets are principally governed by (i) Law No. 6,385, of December 7, 1976, and Law No. 6,404, of December 15, 1976, which together, as amended and supplemented, comprise Brazilian corporate law and (ii) regulations issued by (x) the Brazilian securities commission, which has regulatory authority over the stock exchanges and securities markets, generally, (y) the National Monetary Council and (z) the Central Bank, which has licensing authority over brokerage firms and regulates foreign investment and foreign exchange transactions. Such regulations, among others, relate in part to disclosure requirements applicable to issuers of publicly traded securities, the protection of minority shareholders and criminal penalties for insider trading and market manipulation. They also provide for the licensing and oversight of brokerage firms and the governance of the Brazilian stock exchanges.
Under the Brazilian corporate law, a company is eithercompanhia aberta, or public, as we are, orcompanhia fechada, or closely held. All public companies, including us, are registered with the Brazilian securities commission and are subject to certain reporting requirements. A company registered with the Brazilian securities commission may have its securities trade on the Brazilian stock exchanges or in the Brazilian over-the-counter market. Our preferred shares are listed and traded on the Bovespa and may be traded privately, subject to some limitations.
In anticipation of a material announcement, issuers have the option to request that trading in their securities on the Bovespa be suspended. Trading may also be suspended at the discretion of the Bovespa or the Brazilian securities commission due to, among other things, a belief that an issuer has provided inadequate information regarding a material event or has provided inadequate responses to inquiries by the Bovespa or the Brazilian securities commission.
The Brazilian over-the-counter market consists of direct trades between individuals wherein a financial institution registered with the Brazilian securities commission serves as an intermediary. No special application, other than registration with the Brazilian securities commission, is necessary for securities of a public company to be traded in this market. The Brazilian securities commission requires it be given notice of all trades carried out in the Brazilian over-the-counter market by the respective intermediaries.
Trading on the Bovespa by non-residents of Brazil is subject to limitations under Brazilian foreign investment and tax legislation. To remit U.S. dollars abroad for the payment of dividends, other cash distributions or upon the disposition of shares and sales proceeds, the Brazilian custodian for the preferred shares which underlie our ADSs must, on behalf of the depositary for the ADSs, register with the Central Bank. In the event that a holder of ADSs exchanges ADSs for preferred shares, the holder will be entitled to continue to rely on the custodian’s registration for five business
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days after such exchange. Thereafter, the holder may not be able to obtain and remit U.S. dollars abroad upon the disposition of their preferred shares, or distributions relating to the preferred shares, unless the holder obtains their own registration.
Trading in Brazilian securities markets is not as highly regulated or supervised as it is in the United States and some other markets. Brazilian securities market laws and regulations prohibit market manipulation and insider trading, and it requires a company’s insiders, including directors, officers and major shareholders, as defined under Brazilian corporate law, to disclose all of their transactions in a given issuer’s securities. Brazilian corporate law also prohibits an issuer from trading in its own shares, subject to very limited exceptions. The enforcement of these legal provisions and the supervision of trading markets, however, are not as well developed as they are in the United States.
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Part II
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT.
In lieu of complying with Rule 4350(d), we follow Brazilian corporate law and we maintain a permanent fiscal board, orConselho Fiscal. OurConselho Fiscal complies with the requirements of Rule 10A-3 of the Exchange Act. See “Item 6. Directors, Senior Management and Employees—Directors and Board Practices—Audit Committee.” OurConselho Fiscal has one “audit committee financial expert,” as defined in Item 16A of Form 20-F under the Exchange Act. Our financial expert is Mr. Charles Barnsley Holland, and he is independent as defined by Rule 10A-3 of the Exchange Act.
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Part III
ITEM 19. EXHIBITS.
The following documents are attached herewith:
| Exhibit | ||
| Number | Description | |
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SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on this Amendment No.1 to Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
September 26, 2006
| NET SERVIÇOS DE COMUNICAÇÃO S.A. | |||
| /s/ Francisco Tosta Valim Filho | |||
| Name: | Francisco Tosta Valim Filho | ||
| Title: | Chief Executive Officer | ||
| /s/ Leonardo Porciúncula Gomes Pereira | |||
| Name: | Leonardo Porciúncula Gomes Pereira | ||
| Title: | Chief Financial Officer | ||
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EXHIBIT INDEX
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