As filed with the Securities and Exchange Commission on May 14, 2012
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 20-F
 
o
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
 
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2011
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
OR
 
o
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report
 
Commission file number:  001-14491
 
TIM PARTICIPAÇÕES S.A.
(Exact name of Registrant as specified in its charter)
 
TIM HOLDING COMPANY
THE FEDERATIVE REPUBLIC OF BRAZIL
(Translation of Registrant’s name into English)
(Jurisdiction of incorporation or organization)


Avenida das Américas, 3,434 - 7º andar
22640-102 Rio de Janeiro, RJ, Brasil
(Address of principal executive offices)
Claudio Zezza
Chief Financial Officer
TIM Participações S.A.
Avenida das Américas, 3,434 - 7º andar
22640-102 Rio de Janeiro, RJ, Brazil
Tel: 55 21 4009-4000 / Fax: 55 21 4009-3990
czezza@timbrasil.com.br
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
 
Securities registered or to be registered pursuant to Section 12(b) of the Act:
 
Title of each class
Name of each exchange on which registered
Common Shares, without par value*
New York Stock Exchange
American Depositary Shares, as evidenced by American Depositary Receipts, each representing five Common Shares
New York Stock Exchange
* Not for trading, but only in connection with the listing of American Depositary Shares on the New York Stock Exchange
 
 
Securities registered or to be registered pursuant to Section 12(g) of the Act:  None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:  None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
 
Title of Class
Number of Shares Outstanding
Common Shares, without par value
2,417,632,647
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  x Yes    o  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.   o Yes    x  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.   x  Yes    o  No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    o  Yes    x  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 Exchange Act. (check one):
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o
 
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
o  U.S. GAAP
x  International Financial Reporting Standards as issued by the International Accounting Standards Board
 Other
 
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
o  Item 17                x 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)
   o Yes                      x  No

 
 
 
 
TABLE OF CONTENTS

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PRESENTATION OF INFORMATION
 
In this annual report, TIM Participações S.A., a publicly-held company ( sociedade anônima ) organized under the laws of the Federative Republic of Brazil, is referred to as “TIM,” “TIM Participações,” the “Company” or the “Holding Company.”  References to “we,” “us” and “our” are to TIM together with, where the context so requires and as explained more fully below, one or more of TIM Sul S.A. (“TIM Sul”), TIM Nordeste Telecomunicações S.A. (“TIM Nordeste Telecomunicações”), TIM Celular S.A. (“TIM Celular”), Maxitel S.A. (“TIM Maxitel”), Intelig Telecomunicações Ltda. (“Intelig”), TIM Fiber SP Ltda. (“TIM Fiber SP”) and TIM Fiber RJ S.A. (“TIM Fiber RJ” and together with TIB Fiber SP, “TIM Fiber”), each a directly or indirectly wholly-owned operating subsidiary of the Holding Company and a corporation organized under the laws of the Federative Republic of Brazil.
 
References in this annual report to the “common shares” are to the common shares of TIM.  References to the “American Depositary Shares” or “ADSs” are to TIM’s American Depositary Shares, each representing five common shares.  The ADSs are evidenced by American Depositary Receipts, or “ADRs,” which are listed on the New York Stock Exchange, or the NYSE, under the symbol “TSU.”
 
Prior to August 2, 2011 we had common shares and preferred shares listed on the BM&FBOVESPA under the symbols “TCSL3” and “TCSL4,” respectively, and our ADSs each represented ten preferred shares. As part of our migration to the Novo Mercado listing segment of the BM&FBOVESPA, our preferred shares ceased to trade on August 2, 2011.  On August 4, 2011, our ADSs representing preferred shares ceased to trade on the NYSE.  From August 3, 2011, we only had common shares traded on the Novo Mercado listing segment of BM&FBOVESPA, under the symbol “TIMP3” and as from August 5, 2011, our ADSs representing five common shares instead of ten preferred shares commenced trading on the NYSE.
 
Market Share Data
 
Market share information is calculated by us based on information provided by Brazil’s National Telecommunications Agency ( Agência Nacional de Telecomunicações , or “Anatel”).  Penetration data is calculated by us based on information provided by the Brazilian Institute of Geography and Statistics ( Instituto Brasileiro de Geografia e Estatística , or “IBGE”).
 
Presentation of Financial Information
 
We maintain our books and records in reais .  We prepared our consolidated financial statements included in this annual report in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).  The selected financial information for the Company included in “Item 3A. Key Information—Selected Financial Data” should be read in conjunction with, and is qualified in its entirety by, the IFRS financial statements of the Company and “Item 5. Operating and Financial Review and Prospects” appearing elsewhere in this annual report.
 
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates.  It also requires management to exercise its judgment in the process of applying our accounting policies.  Those areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 4 to our consolidated financial statements.
 
On December 30, 2009, TIM Participações S.A. acquired Holdco Participações Ltda. (“Holdco”), which held 100% of the ownership of the telecommunications company Intelig, from JVCO Participações Ltda. (“JVCO”) in exchange for a 5.14% participation in TIM Participações’ capital stock.  We have included Intelig in our results of operations since November 30, 2009.  Because Intelig is included in all 12 months of our 2010 results but only one month of 2009, our results of operations in 2010 are not fully comparable with our results of operations in 2009.
 
On October 31, 2011 we completed the acquisition of all of AES Elpa S.A.’s equity interests in Eletropaulo Telecomunicações Ltda. and 98.3% of the interest of AES Communications Rio de Janeiro S.A.  We have included the results of operations of Eletropaulo Telecomunicações Ltda. and AES Communications Rio de Janeiro S.A. in our consolidated results of operations from November 1, 2011.  The inclusion of these companies in our results of operations for the final two months of the year ended December 31, 2011 affects the comparability of our results of
 
operations with the year ended December 31, 2010 and will affect the comparability of our results of operations in future periods.  See “Item 5.  Operating and Financial Review and Prospects—Factors Affecting the Comparability of  our Results of Operations—Acquisition of AES Atimus.”
 
All references herein to the “ real ,” “ reais ” or “R$” are to the Brazilian real , the official currency of Brazil. All references to “U.S. dollars,” “dollars” or “U.S.$” are to United States dollars.
 
Solely for the convenience of the reader, we have translated some amounts included in “Item 3A. Key Information—Selected Financial Data” and elsewhere in this annual report from reais into U.S. dollars using the commercial selling exchange rate as reported by the Banco Central do Brasil or Central Bank of Brazil (the “Central Bank”) at December 31, 2011 of R$1.8758 to U.S.$1.00.  These translations should not be considered representations that any such amounts have been, could have been or could be converted into U.S. dollars at that or at any other exchange rate.  Such translations should not be construed as representations that the real amounts represent or have been or could be converted into U.S. dollars as of that or any other date.  See “Item 3. Key Information—A. Selected Financial Data—Exchange Rates” for information regarding exchange rates for the Brazilian currency.
 
Certain figures included in this annual report have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures that precede them.
 
The “Technical Glossary” at the end of this annual report provides definitions of certain technical terms used in this annual report and in the documents incorporated in this annual report by reference.
 
 
FORWARD LOOKING INFORMATION
 
This annual report contains statements in relation to our plans, forecasts, expectations regarding future events, strategies and projections, which are forward-looking statements and involve risks and uncertainties and are therefore, not guarantees of future results.  Forward looking statements speak only as of the date they were made, and we undertake no obligation to update publicly or revise any forward-looking statements after we file this annual report because of new information, future events and other factors.  We and our representatives may also make forward-looking statements in press releases and oral statements.  Statements that are not statements of historical fact, including statements about the beliefs and expectations of our management, are forward-looking statements.  Words such as “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “intend,” “plan,” “predict,” “project” and “target” and similar words are intended to identify forward-looking statements, which necessarily involve known and unknown risks and uncertainties.  Our actual results and performance could differ substantially from those anticipated in our forward-looking statements.  These statements appear in a number of places in this annual report, principally in “Item 4. Information on the Company” and “Item 5. Operating and Financial Review and Prospects,” and include, but are not limited to, statements regarding our intent, belief or current expectations with respect to:
 
 
·  
Brazilian wireless industry conditions, size and trends;
 
 
·  
characteristics of competing networks’ products and services;
 
 
·  
estimated demand forecasts;
 
 
·  
growing our subscriber base and especially our postpaid subscribers;
 
 
·  
development of additional sources of revenue;
 
 
·  
strategy for marketing and operational expansion;
 
 
·  
achieving and maintaining customer satisfaction;
 
 
·  
development of higher profit margin activities, attaining higher margins, and controlling customer acquisition and other costs; and
 
 
·  
capital expenditures forecasts, funding needs and financing resources.
 
Because forward-looking statements are subject to risks and uncertainties, our actual results and performance could differ significantly from those anticipated in such statements and the anticipated events or circumstances might not occur.  The risks and uncertainties include, but are not limited to:
 
 
·  
government policy and changes in the regulatory environment in Brazil;
 
 
·  
an increase in the number of competitors in the telecommunications industry that could affect our market share;
 
 
·  
increased competition in our principal markets that could affect the prices we charge for our services;
 
 
·  
our ability to strengthen our competitive position in the Brazilian mobile telecommunications market;
 
 
·  
our ability to develop and introduce new and innovative technologies that are received favorably by the market, and to provide value-added services to encourage the use of our network;
 
 
·  
the introduction of transformative technologies that could cause a significant decrease in revenues for all mobile telephone carriers;
 
 
·  
our ability to integrate acquired businesses and implement operational efficiency;
 
 
·  
our ability to operate efficiently and to refinance our debt as it comes due, particularly in consideration of uncertainties in credit and capital markets;
 
 
·  
our ability to attract and retain qualified personnel;
 
 
·  
our ability to integrate companies and assets that we acquire;
 
 
·  
the effect of exchange rate fluctuations; and
 
 
·  
other factors identified or discussed under “Item 3. Key Information—D. Risk Factors” and elsewhere in this annual report.
 
 
PART I
 
Item 1.  Identity of Directors, Senior Management and Advisers
 
Not applicable.
 
Item 2.  Offer Statistics and Expected Timetable
 
Not applicable.
 
Item 3.  Key Information
 
A. 
Selected Financial Data
 
The selected financial data presented below should be read in conjunction with our consolidated financial statements, including the notes thereto.  Our consolidated financial statements included herein as of and for the years ended December 31, 2011, 2010 and 2009 have been audited by PricewaterhouseCoopers Auditores Independentes.  The report of PricewaterhouseCoopers Auditores Independentes on the consolidated financial statements appears elsewhere in this annual report.
 
Our first financial statements prepared in accordance with IFRS were those as of and for the year ended December 31, 2010, which contain comparative amounts related to the year ended December 31, 2009, also prepared under IFRS.  These financial statements were filed with the CVM and made publicly available in Brazil.
 
Until December 31, 2009, our consolidated financial statements were prepared in accordance with Brazilian GAAP.  Brazilian GAAP is based on the Brazilian corporate law No. 6,404 of December 15, 1976, as amended, and included the provisions of Law No. 11,638/07 and Law No. 11,941/09; the accounting standards issued by the CFC; the accounting standards issued by the CPC; and the rules and regulations issued by the CVM. After the adoption of CPCs No. 15 to 43, Brazilian GAAP does not differ from IFRS as regards the preparation of consolidated financial statements.  The comparative figures with respect to 2009 have been restated to reflect adjustments made as a result of the adoption of IFRS.
 
Our summary financial data prepared in accordance with IFRS is not comparable with our summary financial data prepared in accordance Brazilian GAAP presented below as of and for the years ended December 31, 2008 and 2007 and in previous annual reports on Form 20-F.  The following table presents a summary of our historical consolidated financial and operating data for each of the periods indicated.  Solely for the convenience of the reader, real amounts as of and for the year ended December 31, 2011 have been translated into U.S. dollars at the commercial market rate in effect on December 31, 2011 (as reported by the Central Bank of R$1.8758 to U.S.$1.00).  See “Item 3. Key Information—A. Selected Financial Data—Exchange Rates” for information regarding exchange rates for the Brazilian real .  You should read the following information together with our consolidated financial statements and the notes thereto included elsewhere in this annual report and with “Item 5.   Operating and Financial Review and Prospects.”
 
   
As of and for the Year Ended December 31,
 
   
2011
U.S.$
    2011
R$
    2010
R$
    2009
R$
 
   
(thousands of reais or U.S. dollars, unless otherwise indicated)
 
Income Statement Data:
                       
Net operating revenue
    9,108,634       17,085,976       14,457,450       13,158,134  
Cost of service provided and goods sold
    (4,564,150 )     (8,561,433 )     (7,305,767 )     (6,672,369 )
Gross profit
    4,544,484       8,524,544       7,151,683       6,485,765  
Operating revenue (expenses):
                               
Selling expenses
    (2,583,278 )     (4,845,712 )     (4,494,608 )     (4,436,751 )
General and administrative expenses
    (513,591 )     (963,394 )     (1,008,694 )     (1,033,438 )
Other revenue (expenses), net
    (345,450 )     (647,996 )     (448,247 )     (462,114 )
Operating profit before financial income (expense)
    1,102,165       2,067,442       1,200,134       553,462  
 
 
   
As of and for the Year Ended December 31,
 
   
2011
U.S.$
    2011
R$
    2010
R$
    2009
R$
 
   
(thousands of reais or U.S. dollars, unless otherwise indicated)
 
                                 
Financial income (expenses)
    (127,337 )     (238,858 )     (245,457 )     (245,115 )
Income before income tax and social tax contribution
    974,829       1,828,584       954,677       308,347  
Income tax and social contribution
    (291,799 )     (547,356 )     1,257,038       33,026  
Net income for the year
    683,030       1,281,228       2,211,715       341,373  
Net income per share
    0.3017       0.5660       0.8955       0.1379  
Diluted net income per share
    0.3016       0.5657       0.8955       0.1379  
Number of shares outstanding:
                               
Common shares (in millions)
    2,418       2,418       843       843  
Preferred shares (in millions)
    0       0       1,632       1,632  
Dividends per share
    0.0671       0.1259       0.2006       0.1251  
Balance Sheet Data:
                               
Property, plant, equipment and intangibles, net
    6,609,637       12,398,357       10,399,571       9,741,375  
Total assets
    12,495,053       23,438,221       19,370,852       16,109,896  
Loans and financing
    1,951,478       3,660,583       3,234,670       3,549,219  
Shareholders’ equity
    6,907,313       12,956,737       10,300,809       7,695,618  
Capital stock
    5,245,639       9,839,770       8,149,096       7,613,610  
Cash Flow Data:
                               
Operating Activities:
                               
Net cash provided by operations
    2,201,430       4,129,443       3,972,332       3,035,559  
Investing Activities
                               
Net cash used in investing activities
    (2,289,432 )     (4,294,516 )     (2,544,335 )     (2,544,848 )
Financing Activities:
                               
Net cash provided (used) in financing activities
    560,665       1,051,696       (1,464,789 )     390,770  
Increase (decrease) in cash and cash equivalents
    472,664       886,623       (36,792 )     881,481  
Cash and cash equivalents at beginning of year
    1,266,783       2,376,232       2,413,024       1,531,543  
Cash and cash equivalents at end of year
    1,739,447       3,262,855       2,376,232       2,413,024  
 
The following table sets forth financial information as of and for the years ended December 31, 2008 and 2007 and has been prepared in accordance with Brazilian GAAP, which was the basis for the preparation of our consolidated financial statements prior to December 31, 2009.  See “Presentation of Financial and Other Information.”  Our first financial statements prepared in accordance with IFRS were those as of and for the year ended December 31, 2010, which contain comparative amounts related to the year ended December 31, 2009, also prepared under IFRS.  The financial information as of and for the years as of ended December 31, 2008 and 2007 presented below is not comparable to the financing information as of  and for the years ended December 31, 2011, 2010 and 2009.  Certain information below is presented in accordance with US GAAP.
 
   
As of and for the Year Ended December 31,
 
   
2008(1) as
adjusted
   
2007(1)(2) as
adjusted
 
   
(millions of reais , unless otherwise indicated)
 
Statement of Operations Data:
           
Brazilian GAAP
           
Net operating revenue
    13,147.2       12,483.8  
Cost of goods and services
    (7,063.8 )     (6,731.9 )
Gross profit
    6,083.4       5,751.9  
Operating expenses:
               
Selling expenses
    (4,098.4 )     (3,890.9 )
General and administrative expenses
    (1,127.4 )     (1,032.8 )
Other net operating expense
    (366.7 )     (311.6 )
Operating income (loss) before financial income (expenses)
    490.9       516.6  
Net financial income (expense)
    (375.0 )     (281.5 )
Operating income (loss)
    115.9       235.1  
Net non-operating income (expense)
    —       —  
Income (loss) before taxes and minority interests
    115.9       235.1  
Income and social contribution taxes
    64.3       (166.8 )
Minority interests
    —       —  
Net income (loss)
    180.2       68.3  
Net income (loss per share ( reais )  
    0.08       0.03  
Number of shares outstanding:
               
Common shares (in millions)
    798       795  
Preferred shares (in millions)
    1,545       1,539  
Dividends per shares ( reais )(3)  
    0.11       0.14  
U.S. GAAP
               
Net operating revenues
    13,150.0       12,536.1  
Operating income (expense)
    52.1       208.4  
Net income (loss)
    151.5       68.3  
Balance Sheet Data:
               
Brazilian GAAP
               
Property, plant, equipment and software, net
    6,971.4       7,021.8  
Total assets
    16,239.5       14,564.0  
Loans, financing and debentures
    3,497.7       2,097.4  
Shareholder’s equity
    7,790.5       7,771.8  
Capital stock
    7,613.6       7,550.5  
U.S. GAAP
               
Property, plant, equipment and software, net
    6,781.6       6,916.9  
Total assets
    16,339.9       14,667.6  
Loans and financing
    3,497.7       2,113.5  
Shareholders’ equity
    7,876.6       7,886.6  
(1)
Amounts in 2008 and 2007 have been adjusted to reflect the reclassification of “penalties for contract break” to service revenues, previously classified as other operating income.
 
(2)
For consistency of presentation with 2008, amounts in 2007 been adjusted to reflect: reclassification of intangible assets intended for the Company’s operations to a specific group called “intangible”; accounting of borrowing costs as a reduction of “loans and financing” and amortization of them over the contract period (up to December 31, 2007, these costs were amortized on a straight-line basis, over the duration of the loan); accounting of derivative instruments at fair value; new treatment for lapsed dividends (dividends not claimed by shareholders within the time limit determined by Brazilian law), earlier accounted for in profit and loss, now to
 
 
 
 
 
be accounted for within shareholders’ equity; reclassification of non operating income to other operating income.
 
(3)
Dividends per share have been computed as the sum of dividends and interest on shareholders’ equity (“ juros sabre capital próprio ,” according to Brazilian law), an alternative under Brazilian Corporations Law to the distribution of dividends to shareholders. The distribution of dividends and interest on shareholders’ equity, in each year, proceeded according to the terms set forth by our common shareholders, at the relevant annual general meeting. Dividends per share have been determined as the sum of declared dividends and interest on shareholders’ equity, divided by the total number of common shares and preferred shares outstanding as of the common shareholders’ meeting date. See “Item 10E. Additional Information—Taxation—Brazilian Tax Considerations—Distributions of Interest on Capital.”
 
Brazilian Economic Environment
 
Our business, prospects, financial condition and results of operations are dependent on general economic conditions in Brazil.
 
The international financial crisis in 2008 had an adverse impact on the Brazilian economy in 2009. However, economic indicators in Brazil were less affected than in other areas including the United States and Europe, partially due to a combination of the positive effects of previous macro-econonomic policies and a prompt fiscal, monetary and economic response by the Brazilian federal government.  During this period, the Special System of Settlement and Custody basic interest rate ( Sistema Especial de Liquidação e Custódia or “SELIC” (which is the benchmark interest rate payable to holders of certain securities issued by the Brazilian government)) reached a historically low level of 8.75% per annum.
 
In 2010, the Brazilian economy continued to recover from the global financial crisis of 2008.  The Brazilian economy’s robust domestic market and recent trend of price stability contributed to economic strength in Brazil during the global economic crisis, which has been demonstrated in a pattern of consistent, sustainable economic expansion.  In 2010, Brazilian GDP increased by 7.5%, continuing the rapid economic expansion from late 2009 and early 2010, reaching a value of approximately U.S.$2.024 trillion.  Following this rapid expansion, the government and the financial markets have begun to express concerns for rising inflation spurred by this strong economic activity.
 
The official inflation rate in Brazil ( Índice de Preços ao Consumidor Amplo, or “IPCA”) ended 2010 at 5.91%, the highest rate since 2004.  The figure was above the Central Bank’s target of 4.5%, though within the 2 percentage points margin that is considered acceptable by the government.  However, to manage market expectations, the government initiated a process of monetary contraction by increasing the SELIC to 10.75% per annum at the end of 2010, from 8.75% per annum in 2009.
 
The rate of inflation in Brazil increased during the first half of 2011, causing the government to respond by tightening monetary policy.  The official Brazilian inflation rate, the IPCA, was at its highest levels since 2004.  Through June 2011, the inflation rate was of 3.87%, equivalent to a twelve-month rate of 6.71%, exceeding the target set by the Central Bank.  As a result, the Central Bank has changed interest rates: after reaching 10.75% by the end of 2010, the SELIC rate was revised, positively and negatively, during 2011 and was 11% as of December 31, 2011.  The IPCA ended the year with an increase of 6.4%, the highest since 2004. Low unemployment in Brazil and the expansion of the domestic market have contributed to strong domestic spending.  Despite government measures to curb consumer spending, it currently shows no signs of cooling and will likely remain at high levels in the foreseeable future.
 
The Brazilian government remains active in foreign exchange markets in an effort to curb the appreciation of the real .  In addition to participating almost daily in the foreign exchange market buying dollars, the government has adopted several measures to contain the appreciation of the real against the dollar, such as an increase of the tax on financial operations ( Imposto sobre Operações Financeiras , or “IOF”) and restrictive measures in relation to foreign investment in Brazil.  Despite these measures, the U.S. dollar depreciated 5.9% against the real in the first half of 2011.  Foreign exchange markets began to shift in the second half of 2011, and the real depreciated 20% against the U.S. dollar in the second half of 2011.  Unlike in 2010, when the foreign trade balance showed a reduction in the accumulated surplus, in the first half of 2011 the accumulated surplus increased significantly, with a trade balance of
 
R$42.9 billion, compared to R$16.6 billion in 2010 primarily due to purchases of U.S. dollars by the Central Bank, which totaled U.S.$38 billion.  In the second half of 2011, the accumulated surplus increased, with a trade balance of U.S.$ 16.8 billion compared to U.S.$12.4 billion in 2010. In 2011 the accumulated surplus increased 47.8% compared to 2010 (from U.S.$20.1 to U.S.$29.8 billion), the biggest increased since 2007 (U.S.$40.0 billion).
 
The table below sets forth data regarding GDP growth, inflation, interest rates and real /U.S. dollar exchange rates in the periods indicated:
 
   
For the Year Ended December 31,
 
   
2011
   
2010
   
2009
 
GDP growth (1)
    2.7 %     7.5 %     (0.2 )%
Inflation (IGP-M) (2)
    5.10 %     11.32 %     (1.72 )%
Inflation (IPCA) (3)
    6.5 %     5.91 %     4.31 %
DI Rate (4)
    10.87 %     10.64 %     8.61 %
TJLP (5)
    6.0 %     6.0 %     6.0 %
Appreciation (devaluation) of the real against the U.S. dollar
    12.59 %     (4.3 )%     25.4 %
Exchange rate (closing)—R$ per U.S.$1.00
    1.8751       1.6654       1.7412  
Average exchange rate—R$ per U.S.$1.00 (6)
    1.6738       1.7684       1.9935  
(1)
Brazilian GDP for 2011, 2010 and 2009 was calculated using the new procedures adopted by the IBGE.
 
(2)
Inflation (IGP-M) is the general market price index as measured by FGV, and represents data accumulated over the 12 months in each year ended December 31, 2011, 2010 and 2009.
 
(3)
Inflation (IPCA) is a consumer price index measured by IBGE, and represents data accumulated over the 12 months in each year ended December 31, 2011, 2010 and 2009.
 
(4)
The DI rate is the average inter-bank deposit rate performed during the day in Brazil (accrued as of the last month of the period, annualized).
 
(5)
Represents the interest rate applied by BNDES in long-term financings (end of the period).
 
(6)
Average exchange rate on the last day of each year.
 
Sources:   Banco Nacional de Desenvolvimento Econômico – BNDES, Central Bank, Fundação Getulio Vargas – FGV, and IBGE.
 
Exchange Rates
 
We will pay any cash dividends, interest on shareholders’ equity and any other cash distributions with respect to our common shares in reais . Accordingly, exchange rate fluctuations will affect the U.S. dollar amounts received by the holders of ADSs on conversion by the Depositary of dividends and other distributions in Brazilian currency on our common shares represented by ADSs.  Fluctuations in the exchange rate between Brazilian currency and the U.S. dollar will affect the U.S. dollar equivalent price of our common shares on the Brazilian stock exchanges.  In addition, exchange rate fluctuations may also affect our dollar equivalent results of operations.  See “Item 5. Operating and Financial Review and Prospects.”
 
Since 1999, the Central Bank has allowed the real /U.S. dollar exchange rate to float freely, and, since that time, the real /U.S. dollar exchange rate has fluctuated considerably.  The real depreciated against the U.S. dollar by 15.7% in 2001 and 34.3% in 2002. Although the real appreciated by 22.3%, 8.8%, 13.4%, 9.5% and 20.7% against the U.S. dollar in 2003, 2004, 2005, 2006 and 2007, respectively, in 2008, as a result of the international financial and economic crisis, the real depreciated against the U.S. dollar by 24.0%.  In 2009 and 2010, the real appreciated against the U.S. dollar by 25.5% and 4.3%, respectively.  In 2011, the real depreciated by 4.8% against the U.S. dollar.  On December 31, 2011, the period-end real /U.S. dollar exchange rate was R$1.8758 per U.S.$1.00.
 
In the past, the Brazilian government has implemented various economic plans and utilized a number of exchange rate policies, including sudden devaluations, periodic mini-devaluations during which the frequency of adjustments ranged from a daily to a monthly basis, floating exchange rate systems, exchange controls and dual exchange rate markets.  We cannot predict whether the Central Bank or the Brazilian government will continue to let
 
the real float freely or intervene in the exchange rate market by returning to a currency band system or otherwise.  The real may depreciate or appreciate substantially against the U.S. dollar.
 
The following table shows the selling rate for U.S. dollars for the periods and dates indicated.  The information in the “Average” column represents the annual average of the exchange rates during the periods presented.
 
   
Reais per U.S. dollar
 
Year
 
High
   
Low
   
Average
   
Year End
 
2007
    2.1556       1.7325       1.9483       1.7713  
2008
    2.5004       1.5593       1.8375       2.3370  
2009
    2.4218       1.7024       1.9935       1.7412  
2010
    1.8811       1.6554       1.7593       1.6662  
2011
    1.9016       1.5345       1.6746       1.8758  

 
   
Reais per U.S. dollar
 
Month
 
High
   
Low
 
November 2011
    1.8937       1.7270  
December 2011
    1.8758       1.7830  
January, 2012
    1.8683       1.7389  
February, 2012
    1.7376       1.7024  
March, 2012
    1.8334       1.7152  
April, 2012
  1.8918     1.8256  
May, 2012 (through May 11)   1.9581     1.9149  
Source: Central Bank/Bloomberg
 
On May 11, 2012, the selling rate was R$1.9513 to U.S.$1.00.  The real /dollar exchange rate fluctuates and, therefore, the selling rate at May 11, 2012 may not be indicative of future exchange rates.
 
Brazilian law provides that, whenever there is a serious imbalance in Brazil’s balance of payments or serious reasons to foresee such imbalance, temporary restrictions may be imposed on remittances of foreign capital abroad.  For approximately six months in 1989, and early 1990, for example, the Federal Government froze all dividend and capital repatriations that were owed to foreign equity investors.  These amounts were subsequently released in accordance with Federal Government directives.  There can be no assurance that similar measures will not be taken by the Federal Government in the future.
 
B. 
Capitalization and Indebtedness
 
Not applicable.
 
C. 
Reasons for the Offer and Use of Proceeds
 
Not applicable.
 
D. 
Risk Factors
 
This section is intended to be a summary of more detailed discussions contained elsewhere in this annual report.  The risks described below are not the only ones we face.  Our business, results of operations or financial condition could be harmed if any of these risks materializes and, as a result, the trading price of our shares and our ADSs could decline.
 
 
11
 
Risks Relating to our Business
 
Our business will be adversely affected if we are unable to successfully implement our strategic objectives.  Factors beyond our control may prevent us from successfully implementing our strategy.
 
Our business strategy is aimed at improving revenues and selective growth, while maintaining financial discipline.  To achieve this goal, seek to strengthen our market position by leveraging mobile telephony to increase broadband usage and exploiting opportunities arising from fixed-to-mobile substitution.
 
Our ability to implement our strategy is influenced by many factors outside of our control, including:
 
 
·  
government policy and changes in the regulatory environment in Brazil;
 
 
·  
an increase in the number of competitors in the telecommunications industry that could affect our market share;
 
 
·  
increased competition in our principal markets that could affect the prices we charge for our services;
 
 
·  
our ability to strengthen our competitive position in the Brazilian mobile telecommunications market;
 
 
·  
our ability to develop and introduce new and innovative technologies that are received favorably by the market, and to provide value-added services to encourage the use of our network;
 
 
·  
the introduction of transformative technologies that could cause a significant decrease in revenues for all mobile telephone carriers;
 
 
·  
our ability to integrate acquired businesses and implement operational efficiency;
 
 
·  
our ability to operate efficiently and to refinance our debt as it comes due, particularly in consideration of uncertainties in credit and capital markets;
 
 
·  
our ability to attract and retain qualified personnel;
 
 
·  
our ability to integrate companies and assets that we acquire; and
 
 
·  
the effect of exchange rate fluctuations.
 
As a result of these uncertainties, there can be no assurance that our strategic objectives can effectively be attained in the manner and within the timeframes described.
 
We face increasing competition, which may adversely affect our results of operations.
 
The opening of the Brazilian market to competition for telecommunications services has adversely affected historical margins in the industry.  We face increased competition throughout Brazil from new entrants in the personal communications service, or “PCS,” market.  We compete with providers of wireless services and trunking and with providers of fixed-line telecommunications and Internet access services, because of the trend toward the convergence and substitution of mobile services for these and other services and a trend of bundling PCS with Internet and other services. As a result, the cost of maintaining our revenue share has increased and in the future we may incur higher advertising and other costs as we attempt to maintain or expand our market presence.  Claro and Vivo Participações S.A., or “Vivo,” received authorization to provide PCS in the same regions as TIM, completing their national coverage. Also, “Oi” (the new Tele Norte Leste Participações S.A. brand) received authorization to provide PCS in the State of São Paulo.
 
We also expect to face increased competition from other wireless telecommunications services, such as digital trunking, because these services are generally less expensive than cellular telecommunications services.  In addition, technological changes in the telecommunications field, such as the development of Third and Fourth Generations or “3G” and “4G,” and Voice over Internet Protocol or “VOIP,” are expected to introduce additional sources of competition.
 
 
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Increased competition may increase our churn rate and could continue to adversely affect our market share and margins.  Our ability to compete successfully will depend on the effectiveness of our marketing efforts and our ability to anticipate and respond to developments in the industry, including new services that may be introduced, changes in consumer preferences, demographic trends, economic conditions and discount pricing strategies by competitors. Additionally, we may face competitors with greater access to financial resources.  We cannot predict which of many possible factors will be important in maintaining our competitive position or what expenditures will be required to develop and provide new technologies, products or services to our customers.  If we are unable to compete successfully, our business, financial condition and results of operations will be materially adversely affected.
 
Recent market consolidation, including the merger of Vivo and Telecomunicações de São Paulo S.A. – Telesp, may allow other telecommunications companies to compete more aggressively against us.  In addition, Anatel is expected to auction bandwidths in the 3.5 and 10.5 GHZ (WI-MAX) spectrum to provide broadband wireless and fixed telephony services, and it is uncertain when these auctions will occur, as they have been delayed due to certain issues regarding band attribution, though we expect they may take place in the second half of 2012.  We are still analyzing whether to bid for this bandwidth, and even if we do bid, there is no assurance that our bids will be successful.  Purchasers of these bandwidths could potentially offer services that could compete with our services.
 
In December 2010, Anatel held an auction for Band H in which it gave preference to new operators such as Nextel and CTBC, in a move to increase competition nationwide.  We and other existing operators such as Oi, Claro and Vivo formally protested the auction rules, but these complaints were ultimately denied by the government regulator.  Nextel won 11 of the 13 lots involving new 3G frequencies for the 1,900 to 2,100 MHz range, which included coverage areas from populous states, such as São Paulo and Rio de Janeiro, and more remote states, such as Roraima and Alagoas.  Though Nextel has not been able to take full advantage of these bandwidths due to its coverage obligations, the award of these bandwidths to Nextel could lead to increased competition, as it will be a new entrant in the mobile market solely providing services on 3G frequencies.
 
We may be unable to respond to the recent trend towards consolidation in the Brazilian wireless telecommunications market.
 
The Brazilian telecommunication market has been consolidating and we believe such trend is likely to continue. Additional joint ventures, mergers and acquisitions among telecommunications service providers are possible in the future.  If such consolidation occurs, it may result in increased competition within our market.  We may be unable to adequately respond to pricing pressures resulting from consolidation in our market, adversely affecting our business, financial condition and results of operations.
 
We may not receive as much interconnection revenue as we receive today.
 
Beginning in July 2004, interconnection charges became freely negotiable by cellular telecommunications service providers in Brazil, pursuant to rules issued by Anatel. As a result, the interconnection fees we were able to charge in the past have decreased, after adjustment for inflation.  The interconnection fees we charge may continue to decrease and as a result our interconnection revenue may decrease below its current levels, which may have an adverse effect on our business, financial condition and results of operations.
 
We may face difficulties responding to new telecommunications technologies.
 
The Brazilian wireless telecommunications market is experiencing significant technological changes, as evidenced by, among other factors:
 
 
·  
the changing regulatory environment, such as the introduction of number portability;
 
 
·  
shorter time periods between the introduction of new telecommunication technologies and subsequent upgrades or replacements;
 
 
·  
ongoing improvements in the capacity and quality of digital technology available in Brazil; and
 
 
13
 
 
·  
the anticipated auction of licenses for the operation of 3.5 GHz and 10.5 GHz (WI-MAX) bandwidths with limited mobility.
 
We may be unable to keep pace with these technological changes, which could affect our ability to compete effectively and have a material adverse effect on our business, financial condition and results of operations.
 
Our business is dependent on our ability to expand our services and to maintain the quality of the services provided.
 
Our business as a cellular telecommunications services provider depends on our ability to maintain and expand our cellular telecommunications services network.  We believe that our expected growth will require, among other things:
 
 
·  
continuous development of our operational and administrative systems;
 
 
·  
increasing marketing activities; and
 
 
·  
attracting, training and retaining qualified management, technical, customer relations, and sales personnel.
 
We believe that these requirements will place significant demand on our managerial, operational and financial resources.  Failure to manage successfully our expected growth could reduce the quality of our services, with adverse effects on our business, financial condition and results of operations.
 
Our operations are dependent upon our ability to maintain and protect our network.  Damage to our network and backup systems could result in service delays or interruptions and limit our ability to provide customers with reliable service over our network.  The occurrence of any event that damages our network may adversely affect our business, financial condition and results of operations.
 
Our operations depend on our ability to maintain, upgrade and efficiently operate accounting, billing, customer service, information technology and management information systems.
 
Sophisticated information and processing systems are vital to our growth and our ability to monitor costs, render monthly invoices, process customer orders, provide customer service and achieve operating efficiencies.  We cannot assure that we will be able to successfully operate and upgrade our accounting, information and processing systems or that they will continue to perform as expected. Any failure in our accounting, information and processing systems could impair our ability to collect payments from customers and respond satisfactorily to customer needs, which could adversely affect our business, financial condition and results of operations.
 
We may experience a decrease in customer growth and high rate of customer turnover which could increase our costs of operations and reduce our revenue.
 
Our subscriber acquisition rate can be negatively affected by overall market penetration. Additionally, our high churn rates are primarily a result of our competitors’ aggressive subsidization of handset sales, adverse macroeconomic conditions in Brazil and our strict policy of terminating customers who do not continue to use our services or do not pay their bills on time.  Churn reflects the number of customers who terminate their service or have their service terminated during a period, expressed as a percentage of the simple average of customers at the beginning and end of the period. As indicated by historical churn rates, we may experience a high rate of customer turnover which could increase our cost of operations and reduce our revenue.  Several factors in addition to competitive pressures could influence our subscriber acquisition rate and our churn rate, including limited network coverage, lack of reliable service and economic conditions in Brazil.
 
Our controlling shareholder may exercise its control in a manner that differs from the interests of other shareholders.
 
Telecom Italia, through its ownership of TIM Brasil, our controlling shareholder, has the ability to determine actions that require shareholder approval, including the election of a majority of our directors and, subject to Brazilian law, the payment of dividends and other distributions.  Telecom Italia may pursue acquisitions, asset sales,
 
 
14
 
joint ventures or financing arrangements or may pursue other objectives that conflict with the interests of other shareholders and which could adversely affect our business, financial condition and results of operations.
 
Certain debt agreements of our subsidiaries contain financial covenants and any default under such debt agreements may have a material adverse effect on our financial condition and cash flows.
 
Certain of our subsidiaries’ existing debt agreements contain restrictions and covenants and require the maintenance or satisfaction of specified financial ratios and tests.  The ability of our subsidiaries to meet these financial ratios and tests can be affected by events beyond our and their control, and we cannot assure that they will meet those tests.  Failure to meet or satisfy any of these covenants, financial ratios or financial tests could result in an event of default under these agreements. As of December 31, 2011, we had approximately R$3.7 billion in consolidated outstanding indebtedness of which 28% was denominated in foreign currency (primarily U.S. dollars), for which we use derivative instruments to offset exposure to foreign currency.  If we are unable to meet these debt service obligations, or comply with these debt covenants, we could be forced to restructure or refinance this indebtedness, seek additional equity capital or sell assets.  In addition, because of our net debt position in 2011 of R$411 million (loans plus accrued interest and derivatives (liabilities), less cash and cash equivalents, derivatives (assets) and short term investments), we may need additional funding to meet our obligations and to conduct our activities and if public or private financial is unavailable, our financial condition and results of operations and, consequently, the market price for our shares may be adversely affected.
 
We are subject to numerous legal proceedings.
 
We and our subsidiaries are party to a number of lawsuits and other proceedings. An adverse outcome in, or any settlement of, these or other lawsuits could result in losses and significant costs to us.  In addition, our senior management may be required to devote substantial time to these lawsuits, which they could otherwise devote to our business.
 
Any modification or termination of our ability to use the “TIM” trade name may adversely affect our business and operating results.
 
Telecom Italia owns the rights to the “TIM” trade name which is currently licensed to us.  Telecom Italia may stop us from using the TIM trade name any time.  The loss of the use of the “TIM” trade name could have a material adverse effect on our business and operating results.
 
The shareholding structure of our parent company, Telecom Italia S.p.A., has undergone significant changes which has subjected us to increased government oversight.
 
On April 28, 2007, Assicurazioni Generali S.p.A., Intesa San Paolo S.p.A., Mediobanca S.p.A., Sintonia S.p.A. and Telefónica S.A. entered into an agreement to acquire the entire share capital of Olimpia S.p.A., a company which, at the time, held approximately 18% of the voting capital of Telecom Itália S.p.A., our indirect parent company.  This acquisition was made through Telco S.p.A., or “Telco.”  With the conclusion of the transaction and the subsequent merger of Olimpia S.p.A. with and into Telco in December 2007, Telco became the holder of 23.6% and currently holds 22.4% of the voting capital of Telecom Italia S.p.A. the indirect parent company of TIM.
 
In connection with the approval of the acquisition, through Act No. 68,276/2007, of October 31, 2007, Anatel imposed certain restrictions to guarantee the total segregation of the business and operations of Telefónica and TIM in Brazil, including, among other things, the obligation that the Telecom Italia group companies directly or indirectly involved in the Brazilian telecommunications sector present Anatel with copies of the minutes of the meetings of their respective boards of directors. On July 7, 2009, Anatel issued Act No. 3,804/2009, that considered accomplished some of the obligations imposed by Act No. 68,276/2007, as well as established other obligations related to the filing of minutes of meetings of the respective boards of directors of the companies which directly or indirectly operate in the Brazilian telecommunication market and minutes of the shareholders meetings in which directors are appointed. The companies in Brazil were also obliged to present information related to the execution of any agreements between companies under the shareholding control of Telefónica and Telecom Italia in connection with telecom services offered in Brazil and also copies of minutes of the meetings of their respective boards of directors in which these agreements are discussed.  Recently, on November 8, 2011, Anatel issued a new decision (No. 9,403/2011) clarifying that, according to its interpretation of Act No. 68,276/2007, companies of the Telecom Italia group to which the restrictions were addressed are also obliged to present Anatel with copies of the minutes of all meetings of the respective boards of directors, regardless of whether or not the members of such body were appointed following direct or indirect nomination by Telefónica and whether or not matters concerning activities relating to the provision of telecommunications services in the Brazilian market were discussed. In order to ensure full compliance with such restrictions and also considering those clarifications provided by Anatel, some internal procedures were approved and adopted by each of the companies to which the restrictions were addressed, by means of a resolution of the applicable administrative body. Such procedures were approved by our Board of Directors at a meeting held on February 15, 2012.
 
 
15
 
We are subject to credit risk with respect to our customers.
 
Our operations depend to a significant extent on the ability of our customers to pay for our services.  In the years ended December 31, 2011 and 2010, we made allowances for doubtful accounts in the amounts of R$231.5 million and R$310.5 million, respectively, primarily due to defaults in payment by our customers.  As a percentage of our gross revenue, our provisions for doubtful accounts amounted to 0.9% and 1.5% in the years ended December 31, 2011 and 2010, respectively.  Under Anatel regulations, we are allowed to undertake certain measures to reduce customer defaults, such as restricting or limiting the services we provide to customers with a history of defaults.  If we are unable to undertake measures to limit payment defaults by our subscribers or that allow us to accept new subscribers based on credit history, we will remain subject to outstanding uncollectible amounts which could have an adverse effect on our results of operations.
 
We may be subject to liability related to outsourcing certain functions to third-party service providers.
 
We may be exposed to liabilities due to our outsourcing of certain functions to third-party service providers, for which we may not have made sufficient provisions. Recent government announcements and legal proceedings have called into question the ability of public service concessionaires to carry out their operations by outsourcing certain functions.  Though no definitive position has been reached by any governmental authority, recent court opinions could set legal precedent that could call into question our ability to outsource certain operations.  This may require us to hire as employees certain workers who currently work for us on an outsourced basis, which could adversely affect our results of operations and financial condition.
 
We depend on key suppliers.
 
We rely on various suppliers and vendors, including Ericsson, Alcatel-Lucent S.A., Huawei and Nokia, to supply network equipment and mobile handsets and accessories necessary for our business.  These suppliers may, among other things, delay delivery periods, increase their prices, limit the amounts they are willing to supply to us, or may suffer disruptions in their own supply chains.  If these suppliers are unable or unwilling to provide us with equipment or supplies on a regular basis, we could face difficulties in carrying out our operations, which could negatively affect our results of operations and limit our ability to execute our concession agreements.
 
Our infrastructure could be damaged as a result of natural disasters.
 
Our operations may be suspended or interrupted for an indeterminate period if any of our transmission bases are damaged by natural disasters, including by fire, explosion, storms or similar events.  If we are unable to prevent against such damage in the event of a natural disaster, the interruption of our operations would have a material adverse effect on our business and results of operations.
 
Risks Relating to the Brazilian Telecommunications Industry
 
We may be classified by Anatel as an economic group with significant market power, which will subject us to increased regulation.
 
In 2005, Anatel issued specific regulations regarding telecommunications service providers with significant market power. Anatel has indicated that it will establish more stringent regulation for economic groups with significant market power in order to ensure competition.  We cannot give assurance that we will not be deemed to have significant market power, and thus be subject to increased regulatory requirements.
 
In July 2006, Anatel issued regulations regarding the remuneration of the mobile operator’s network and introduced the concept of significant market power in the industry.  Under this regulation, the network usage fee, or VU-M, is freely negotiated between operators, but if operators have not negotiated a fee by 2010, Anatel will determine, through an arbitration procedure and based on a fully allocated cost model, a reference value VU-M companies it deems to hold significant market power in their respective service areas. New rules applicable to PCS
 
 
16
 
operators with regard to this issue are currently being analyzed by Anatel, though currently all PCS operators are considered as having significant market power in their respective serivce areas. In making future determinations of companies that have significant market power, Anatel will consider market share in the mobile interconnection market and in the mobile services market, economies of scope and scale, infrastructure dominance that cannot be replicated economically, bargaining power vis-à-vis suppliers, existence of vertical integration, existence of barriers to entry and access to financing sources.  For purposes of the mobile network remuneration rules, until Anatel defines which operators have significant market power, all operators that include a PCS provider will continue to be considered as having significant market power in the provision of mobile interconnection in their respective service areas. The new rules for PCS providers regarding the regulation of PGMC ( Plano Geral de Metas de Competição ) are currently being analyzed by Anatel with the expectation of publication sometime in 2012.  If we are deemed to have significant market power under the new rules, we may be subject to increased regulatory requirements which could have an adverse effect on our business financial condition and results of operations.
 
We are subject to various obligations in the performance of our activities with which we may be unable to comply.
 
In the performance of our telecommunications services, we are subject to compliance with various legal and regulatory obligations including, but not limited to, the obligations arising from the following:
 
 
·  
the rules set forth by Anatel, the primary telecommunications industry regulator in Brazil;
 
 
·  
the PCS authorizations under which we operate our cellular telecommunications business;
 
 
·  
the fixed authorizations (local, national long distance, international long distance under and multimedia service) under which we operate our telecommunications business;
 
 
·  
the Consumer Defense Code; and
 
 
·  
the General Telecommunications Law (Law No. 9,472/97, as amended).
 
We believe that we are currently in material compliance with our obligations arising out of each of the above referenced laws, regulations and authorizations. However, in light of the administrative proceedings for breach of quality standards brought since December 2004 by Anatel against TIM Celular and TIM Nordeste, we cannot provide any assurance that we are in full compliance with our quality of service obligations under the PCS authorizations.  In fact, there are some administrative proceedings regarding noncompliance with quality goals and regulatory obligations that resulted in fees levied by Anatel against TIM Celular and TIM Nordeste.
 
We cannot assure that we will be able to fully comply with each of the applicable laws, regulations and authorizations or that we will be able to comply with future changes in the laws and regulations to which we are subject.  These regulatory developments or our failure to comply with them could have a material adverse effect on our business, financial condition and results of operations.
 
Extensive government regulation of the telecommunications industry may limit our flexibility in responding to market conditions, competition and changes in our cost structure.
 
Our business is subject to extensive government regulation, including any changes that may occur during the period of our concession to provide telecommunication services. Anatel, which is the main telecommunications industry regulator in Brazil, regulates, among others:
 
 
·  
industry policies and regulations;
 
 
·  
licensing;
 
 
·  
rates and tariffs for telecommunications services;
 
 
·  
competition;
 
 
17
 
 
·  
telecommunications resource allocation;
 
 
·  
service standards;
 
 
·  
technical standards;
 
 
·  
quality standards;
 
 
·  
interconnection and settlement arrangements; and
 
 
·  
universal service obligations.
 
This extensive regulation and the conditions imposed by our authorization to provide telecommunication services may limit our flexibility in responding to market conditions, competition and changes in our cost structure.
 
Our authorizations may be terminated by the Brazilian government under certain circumstances or we may not receive renewals of our authorizations.
 
We operate our business under authorizations granted by the Brazilian government. As a result, we are obligated to maintain minimum quality and service standards, including targets for call completion rates, geographic coverage and voice channel traffic rates, user complaint rates and customer care call completion rates.  Our ability to satisfy these standards, as well as others, may be affected by factors beyond our control.  We cannot assure you that, going forward, we will be able to comply with all of the requirements imposed on us by Anatel or the Brazilian government.  Our failure to comply with these requirements may result in the imposition of fines or other government actions, including, in an extreme situation, the termination of our authorizations in the event of material non-compliance.
 
Our radio frequency authorizations for the 800 MHz, 900 MHz and 1800 MHz bands that we use to provide PCS services started to expire in September 2007 (under the Term of Authorization for the State of Paraná except the Londrina and Tamarana municipalities) and are renewable for one additional 15-year period, requiring payment at every two-year period equal to 2% of the prior year’s revenue net of taxes, by way of investment under the Basic and Alternative Service Plans, which are intended to increase telecommunications penetration throughout Brazil.
 
Our radio frequency authorizations for the 2100 MHz band that we use to provide data services will expire in April 2023 and are renewable for one additional 15-year period, requiring payment in two-year intervals of the equivalent to 2% of the prior year’s service revenue net of tax, including interconnection and excluding value-added services revenues, by way of investment under the Basic and Alternative Service Plans.  Any partial or total revocation of our authorizations or failure to receive renewal of such authorizations when they expire would have a material adverse effect on our financial condition and results of operations.
 
The telecommunications industry is subject to rapid technological changes and these changes could have a material adverse effect on our ability to provide competitive services.
 
The telecommunications industry is subject to rapid and significant technological changes, including, for example, the introduction of 3G and 4G mobile telephone services.  Our future success depends, in part, on our ability to anticipate and adapt in a timely manner to technological changes.  We expect that new products and technologies will emerge and that existing products and technologies will be further developed.
 
The advent of new products and technologies could have a variety of consequences for us.  New products and technologies may reduce the price of our services by providing lower-cost alternatives, or they may also be superior to, and render obsolete, the products and services we offer and the technologies we use, thus requiring investment in new technology.  If such changes occur, our most significant competitors in the future may be new participants in the market without the burden of an installed base of older equipment.  The cost of upgrading our infrastructure and technology to continue to compete effectively could be significant.
 
 
18
 
Due to the nature of our business we are exposed to numerous consumer claims and tax-related proceedings.
 
Our business exposes us to a variety of lawsuits brought by or on behalf of consumers in the ordinary course of our operations as a mobile telecommunications provider in Brazil.  We are subject to a number of public civil actions and class actions that have been brought against mobile telecommunications providers in Brazil relating principally to the expiration of prepaid usage credits, minimum term clauses, subscription fees and the use of land to install our network sites.  These suits include claims contesting certain aspects of the fee structure of our prepaid and postpaid plans which are commonplace in the Brazilian telecommunications industry.
 
In addition, federal, state and municipal tax authorities have questioned some tax procedures adopted by us, emphasizing the issues related to the offset of taxes by goodwill amortization as well as questions regarding the calculation of the basis for certain sector-specific contributions (FUST and FUNTTEL). As of December 31, 2011, we are subject to approximately 1,957 tax-related lawsuits and administrative proceedings with an aggregate value of approximately R$7.0 billion.  Although many of these consumer and tax claims relate to general business practices in the Brazilian mobile telecommunications industry, adverse determinations could have an adverse effect on our business practices and results of operations.
 
In addition, federal, state and municipal tax authorities have questioned some tax procedures adopted by us, emphasizing the issues related to the offset of taxes by goodwill amortization as well as questions regarding the calculation of the basis for certain sector-specific contributions (FUST and FUNTTEL). On December 31, 2011, our aggregate tax contingency totaled approximately R$7.0 billion.
 
The mobile industry, including our company, may be harmed by reports suggesting that radio frequency emissions cause health problems and interfere with medical devices.
 
Media and other reports have suggested that radio frequency emissions from wireless handsets and base stations may cause health problems.  If consumers harbor health-related concerns, they may be discouraged from using wireless handsets.  These concerns could have an adverse effect on the wireless communications industry and, possibly, expose wireless providers, including us, to litigation.  We cannot assure you that further medical research and studies will refute a link between the radio frequency emissions of wireless handsets and base stations and these health concerns.
 
Government authorities could increase regulation of wireless handsets and base stations as a result of these health concerns or wireless companies, including us, could be held liable for costs or damages associated with these concerns, which could have an adverse effect on our business, financial condition and results of operation.  The expansion of our network may be affected by these perceived risks if we experience problems in finding new sites, which in turn may delay the expansion and may affect the quality of our services.  On July 2, 2002, Anatel published Resolution No. 303 that limits emission and exposure for fields with frequencies between 9 kHz and 300 GHz.  In addition, the Brazilian government is developing specific legislation for the deployment of radio frequency transmission stations that will supersede the existing state and municipal laws.  The new laws may create additional transmission regulations which, in turn, could have an adverse effect on our business.
 
The new index applied for the remuneration for the use of PCS networks may not be adequate.
 
Since 2006, Anatel uses IST index ( Índice de Serviços de Telecomunicações ) to adjust Intelig for Fixed Switched Telephone Services (“STFC”) Concessionaires’ rates, Industrial Exploration of Dedicated Lines (“ Exploração Industrial de Linha Dedicada ” or “EILD”) and remuneration for the use of PCS, which substitutes the General Price Index, or the IGP-DI (the Índice Geral de Preços Disponibilidade Interna ), an inflation index developed by the FGV, a private Brazilian foundation.  Thus, the prices we may charge for our services may be indirectly impacted by this new index. Anatel begins to regulate the telecommunications industry based on a model that analyzes company costs based on a hypothetical company’s costs and other factors.  If this new adjustment mechanism, or any other mechanism chosen by Anatel in the future, does not adequately reflect the true effect of inflation on our prices, our results of operations could be adversely affected.
 
 
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Anatel’s proposal regarding the consolidation of prices could have an adverse effect on our results.
 
Anatel issued new regulations on interconnection rules from 1997 to 2005, some of which could have an adverse effect on our results.  The rules that may adversely affect our results are (1) Anatel had defined clearly that the same PCS provider with different authorization areas may receive only one instead of two interconnection charges (“VU-M”) for long distance calls originated and terminated in their networks, and (2) if the free-market negotiation of prices for VU-M is not successful, Anatel can, from April 2010 on, apply a full allocated cost model (by allocating the various service costs to determine a basic price.  Final rules regarding these prices are still pending.  These regulations can have an adverse effect on our results of operations because (1) our interconnection charges would drop significantly, thereby reducing our revenues, and (2) Anatel may allow more favorable prices for operators without significant market power.
 
Anatel’s new regulation regarding number portability could have an adverse effect on our results.
 
In March 2007, Anatel issued regulations regarding the implementation of number portability in Brazil for fixed telephony and PCS providers.  Portability is limited to migration between providers of the same telecommunications services.  For PCS providers, portability can take place when customers change service providers within the same Registration Area (the areas into which we divide our coverage) as well as when customers change their service plan of the same service provider.  We expect number portability to increase competition among services providers as customers can move freely among providers without losing their telephone numbers.  We view this as an opportunity to increase our customer base due to the quality of our service. However, if we are unable to maintain our quality or attract and retain customers, number portability could have an adverse effect on our results of operations as clients can more easily transfer to other services.
 
In February 2010, a system of automatic authorization for portability requests came into effect.  Under this system, if the donor operator does not respond to the request within one day, the portability request will be approved automatically, and the transfer process commences.  Furthermore, after March 2010 the portability completion period was reduced from five to three working days, increasing the challenge for the operators.  Failure to respond to these requests in a timely manner could cause us to lose additional customers and could have a material and adverse affect on our results of operations.
 
The introduction of MVNOs (Mobile Virtual Network Operators) in the Brazilian market could have an adverse effect on our results.
 
On December 22, 2009, Anatel announced that it would establish criteria and procedures for the exploration of virtual network services and standards for regulation, which process was completed on March 22, 2010.  MVNOs provide low-cost mobile phone services by relying on business arrangements with traditional mobile operators to purchase minutes of use (MOU) for sale to their own customers rather than their own licensed frequency allocation or operational infrastructure.  Increased competition from MVNOs could reduce the profitability of the mobile telecommunications industry, reducing the capacity for investment and innovation.  Such increased competition could have a material adverse effect on our results of operations.
 
The effects of the recent global economic crisis could reduce purchases of our products and services and adversely affect our results of operations, cash flows and financial condition.
 
Although the global economy recently has been showing signs of improvement, there is still uncertainty about the sustainability of any recovery.  Unemployment levels continue to be high by historic standards, and consumers and businesses may postpone spending in response to tighter credit, negative financial news or declines in income or asset values, all of which could have a material adverse effect on the demand for our products and services. A loss of customers or a reduction in purchases by our current customers could have a material adverse effect on our financial condition, results of operations and cash flow and may negatively affect our ability to meet our growth targets.
 
 
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Risks Relating to Brazil
 
The Brazilian government has exerted significant influence over the Brazilian economy and continues to do so.  This involvement, like local political and economic conditions, may have an adverse effect on our activities, our business, or the market prices of our shares and ADSs.
 
The Brazilian government has frequently intervened in the Brazilian economy and occasionally made drastic changes in economic policy.  To influence the course of Brazil’s economy, control inflation and implement other policies, the Brazilian government has taken various measures, including the use of wage and price controls, currency devaluations, capital controls and limits on imports and freezing bank accounts.  We have no control over, and cannot predict what measures or policies the Brazilian government may take or adopt in the future.  Our business, financial condition, revenues, results of operations, prospects and the trading price of our securities may be adversely affected by changes in government policies and regulations, as well as other factors, such as:
 
 
·  
fluctuating exchange rates;
 
 
·  
inflation;
 
 
·  
interest rates;
 
 
·  
monetary policy;
 
 
·  
changes in tax regimes;
 
 
·  
liquidity in domestic capital and credit markets;
 
 
·  
fiscal policy;
 
 
·  
political instability;
 
 
·  
reductions in salaries or income levels;
 
 
·  
rising unemployment rates;
 
 
·  
tax policies (including those currently under consideration by the Brazilian Congress);
 
 
·  
exchange controls and restrictions on remittances abroad; and
 
 
·  
other political, diplomatic, social or economic developments in or affecting Brazil.
 
Uncertainty regarding changes by the Brazilian government to the policies or standards that affect these or other factors could contribute to economic uncertainty in Brazil and increase the volatility of the Brazilian securities market and of securities issued abroad by Brazilian companies.
 
Additionally, interruptions in the credit and other financial markets, and the deterioration of the Brazilian and/or global economic environment may, among other effects: (1) have a negative impact on demand, which may reduce sales, operating income and cash flow; (2) decrease consumption of our products; (3) restrict the availability of financing for our operations or investments, or for the refinancing of our debt in the future; (4) cause creditors to modify their credit risk policies and restrict our ability to negotiate any of the terms of our debt in the future; (5) cause the financial situation of our clients or suppliers to deteriorate or (6) decrease the value of our investments.
 
Tax reforms may affect our prices.
 
The Brazilian government has proposed tax reforms that are currently being considered by the Brazilian Congress.  If we experience a higher tax burden as a result of the tax reform, we may have to pass the cost of that tax increase to our customers.  This increase may have a material negative impact on the dividends paid by our subsidiaries to us and on our revenues and operating results.
 
 
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In 2010, the Brazilian government increased the IOF (“ Imposto sobre Operações Financeiras ”) rate on foreign investments in fixed income securities from 2% to 4%.  This change reinforces the government’s decision taken in 2009, when these operations began to be taxed by the IOF.  This tax increase is intended to decrease speculation on Brazilian markets and to reduce the volatility of appreciation of the real , reinforcing the efforts to discourage foreign investment by increasing transaction costs.
 
In 2011, the IOF was expanded to tax loans entered into by banks and companies outside of Brazil with a maturity of 90 days. Additionally, the IOF rate related to exchange currency incresead from 0% to 0.38%. In 2012, the IOF rate related to tax loans entered in Brazil by foreign banks and companies remained 6%, however the maturity was increased to 1800 days (approximately 5 years).  With this measure, the government intended to stem the flow of foreign capital entering Brazil through loans entered into outside of Brazil and contribute to decrease the value of the U.S. dollar in comparison to the real .
 
Inflation, and government measures to curb inflation, may adversely affect the Brazilian economy, the Brazilian securities market, our business and operations and the market prices of our shares or the ADSs.
 
Historically, Brazil has experienced high rates of inflation.  Inflation and some of the Brazilian government’s measures taken in an attempt to curb inflation have had significant negative effects on the Brazilian economy generally.  Inflation, policies adopted to contain inflationary pressures and uncertainties regarding possible future governmental intervention have contributed to economic uncertainty and heightened volatility in the Brazilian securities market.
 
Since the introduction of the real in 1994, Brazil’s inflation rate has been substantially lower than in previous periods. According to the General Market Price Index ( Índice Geral de Preços do Mercado , or IGP-M), a general price inflation index developed by Fundação Getulio Vargas – FGV, the inflation rates in Brazil were 12.4% in 2004, 1.2% in 2005, 3.8% in 2006, 7.8% in 2007, 9.8% in 2008, negative 1.72% in 2009, 11.32% in 2010 and 5.10% in 2011.  In addition, according to the National Extended Consumer Price Index ( Índice Nacional de Preços ao Consumidor Amplo , or IPCA), published by the Brazilian Institute of Geography and Statistics ( Instituto Brasileiro de Geografia e Estatística , or IBGE), the Brazilian consumer price inflation rates were, 7.6% in 2004, 5.7% in 2005, 3.1% in 2006, 4.6% in 2007, 5.9% in 2008, 4.3% in 2009, 5.9% in 2010 and 6.5% in 2011.  The Brazilian government’s measures to control inflation have often included maintaining a tight monetary policy with high interest rates, thereby restricting availability of credit and reducing economic growth.  Inflation, actions to combat inflation and public speculation about possible additional actions have also contributed materially to economic uncertainty in Brazil and to heightened volatility in the Brazilian securities markets.
 
Inflation may increase in Brazil in the future.  Periods of higher inflation may decrease the rate of growth of the Brazilian economy, which could lead to reduced demand for our products in Brazil and decreased net sales.  Inflation is also likely to increase some of our costs and expenses, which we may not be able to pass on to our customers and, as a result, may reduce our profit margins and net income.  In addition, higher inflation generally leads to higher domestic interest rates, and, as a result, the costs of servicing our debt may increase, resulting in lower net income.  Inflation and its effect on domestic interest rates can, in addition, lead to reduced liquidity in the domestic capital and lending markets, which could affect our ability to refinance our indebtedness in those markets. Any decline in our net sales or net income and any deterioration in our financial condition would also likely lead to a decline in the market price of our shares and the ADSs.
 
Exchange rate movements may adversely affect our financial condition and results of operations.
 
The Brazilian currency has been devalued frequently over the past four decades.  Throughout this period, the Brazilian government has implemented various economic plans and exchange rate policies, including sudden devaluations, periodic mini-devaluations (during which the frequency of adjustments has ranged from daily to monthly), exchange controls, dual exchange rate markets and a floating exchange rate system.  From time to time, there have been significant fluctuations in the exchange rate between the Brazilian currency and the U.S. dollar and other currencies.  For example, the real depreciated against the U.S. dollar by 15.7% in 2001, 34.3% in 2002, 32% in 2008, and 4.8% in 2011.  Notwithstanding the fact that the real has appreciated 11.5%, 8.7%, 25.4%, and 4.3% in 2006, 2007, 2009 and 2010, respectively, there can be no guarantees as to whether the real will depreciate or appreciate against the U.S. dollar in the future.
 
 
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Continuing appreciation of the real against the U.S. dollar may lead to a deterioration of the country’s current account and the balance of payments, as well as to a dampening of export-driven growth. Any such appreciation could reduce the competitiveness of our exports and adversely affect our net sales and our cash flows from exports.  Devaluation of the real relative to the U.S. dollar could create additional inflationary pressures in Brazil by increasing the price of imported products which may result in the adoption of deflationary government policies.  The sharp depreciation of the real in relation to the U.S. dollar may generate inflation and governmental measures to fight possible inflationary outbreaks, including the increase in interest rates.  Devaluations of the real would reduce the U.S. dollar value of distributions and dividends on our common shares and ADSs and may also reduce the market value of such securities. Any such macroeconomic effects could adversely affect our net operating revenues and our overall financial performance.
 
We acquire our equipment and handsets from global suppliers, the prices of which are denominated in U.S. dollars.  Depreciation of the real against the U.S. dollar may result in a relative increase in the price of our equipment and handsets.  Thus, we are exposed to foreign exchange risk arising from our need to make substantial dollar-denominated expenditures, particularly for imported components, equipment and handsets, that we have limited capacity to hedge.
 
Fluctuations in interest rates may have an adverse effect on our business and the market prices of our shares or the ADSs.
 
The Central Bank establishes the basic interest rate target (the SELIC rate) for the Brazilian financial system by reference to the level of economic growth of the Brazilian economy, the level of inflation and other economic indicators.  From February to July 17, 2002, the Central Bank reduced the basic interest rate from 19% to 18%.  From October 2002 to February 2003, the Central Bank increased the basic interest rate by 8.5 percentage points, to 26.5% on February 19, 2003.  The basic interest rate continued to increase until June 2003 when the Central Bank started to decrease it.  Subsequently, the basic interest rate suffered further fluctuations, and, in December 2011, the basic interest rate was 11%.
 
At December 31, 2011, all of our indebtedness was either denominated in reais and subject to Brazilian floating interest rates or subject to currency swaps that are tied to Brazilian floating interest rates, such as the Long-Term Interest Rate ( Taxa de Juros de Longo Prazo , or TJLP), the interest rate used in our financing agreements with Brazilian National Bank for Economic and Social Development ( Banco Nacional de Desenvolvimento Econômico e Social – BNDES, or BNDES), and the Interbank Deposit Certificate Rate ( Certificado de Depositário Interbancário , or CDI rate), an interbank certificate of deposit rate that applies to our foreign currency swaps and some of our other real -denominated indebtedness. At December 31, 2011, R$3,522 million (after hedging) of our total consolidated indebtedness was subject to floating interest rates. Any increase in the CDI rate or the TJLP rate may have an adverse impact on our financial expenses and our results of operations.
 
Events in other countries may have a negative impact on the Brazilian economy and the market value of our securities.
 
Economic conditions and markets in other countries, including United States, Latin American and other emerging market countries, may affect the Brazilian economy and the market for securities issued by Brazilian companies. Although economic conditions in these countries may differ significantly from those in Brazil, investors’ reactions to developments in these other countries may have an adverse effect on the market value of securities of Brazilian issuers.  Crises in other emerging market countries could dampen investor enthusiasm for securities of Brazilian issuers, including ours, which could adversely affect the market price of our shares and ADSs.
 
In addition, the Brazilian economy is affected by international economic and market conditions generally, especially economic conditions in the United States.  Share prices on the BM&FBOVESPA, the São Paulo Stock Exchange, for example, have historically been sensitive to fluctuations in U.S. interest rates and the behavior of the major U.S. stock indexes. An increase in the interest rates in other countries, especially the United States, may reduce global liquidity and investors’ interest in the Brazilian capital markets, adversely impacting the price of our shares and ADSs.
 
 
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We may be vulnerable to the current disruptions and volatility in the global financial markets.
 
The global financial system has since mid 2007 experienced severe credit and liquidity conditions and disruptions leading to greater volatility.  Since the fall of 2008, global financial markets deteriorated sharply and a number of major foreign financial institutions, including some of the largest global commercial banks, investment banks, mortgage lenders, mortgage guarantors and insurance companies, were experiencing significant difficulties including runs on their deposits and inadequate liquidity.
 
In an attempt to increase liquidity in the financial markets and prevent the failure of the financial system, various governments have intervened on an unprecedented scale. Although the global economy has recently been showing signs of recovery there is no assurance that such recovery will continue once the effects of various government stimulus efforts have worn off.  In the long term, as a consequence, global investor confidence will likely remain low and credit will likely remain relatively lacking. Hence, additional volatility in the global financial markets may occur.
 
However, additional volatility in the global financial markets could have a material adverse effect on our ability to access capital and liquidity on acceptable financial terms, and consequently on our operations.  Furthermore, an economic downturn could negatively affect the financial stability of our customers, which could result in a general reduction in business activity and a consequent loss of income for us.
 
Risks Relating to Our Commons Shares and the ADSs
 
Holders of our ADSs are not entitled to attend shareholders’ meetings and may only vote through the Depositary.
 
Under Brazilian law, only shareholders registered as such in our corporate books may attend shareholders’ meetings. All common shares underlying our ADSs are registered in the name of the depositary. A holder of ADSs, accordingly, is not entitled to attend shareholders’ meetings. Holders of our ADSs may exercise their limited voting rights with respect to our common shares represented by the ADSs only in accordance with the deposit agreement relating to the ADSs.  There are practical limitations upon the ability of ADS holders to exercise their voting rights due to the additional steps involved in communicating with ADS holders.  For example, we are required to publish a notice of our shareholders’ general meetings in certain newspapers in Brazil. Holders of our shares can exercise their right to vote at a shareholders’ general meeting by attending the meeting in person or voting by proxy.  By contrast, holders of our ADSs will receive notice of a shareholders’ general meeting by mail from the ADR depositary following our notice to the ADR depositary requesting the ADR depositary to do so.  To exercise their voting rights, ADS holders must instruct the ADR depositary on a timely basis.  This voting process will take longer for ADS holders than for direct holders of our shares.
 
We cannot assure you that holders will receive the voting materials in time to ensure that such holders can instruct the depositary to vote the shares underlying their respective ADSs.  In addition, the depositary and its agents are not responsible for failing to carry out holder’s voting instructions or for the manner of carrying out your voting instructions.  This means that holders may not be able to exercise their right to vote and may have no recourse if our shares held by such holders are not voted as requested.
 
Holders of our ADSs or common shares in the United States may not be entitled to participate in future preemptive rights offerings.
 
Under Brazilian law, if we issue new shares for cash as part of a capital increase, we generally must grant our shareholders the right to purchase a sufficient number of shares to maintain their existing ownership percentage.  Rights to purchase shares in these circumstances are known as preemptive rights.  We may not legally allow holders of our ADSs or common shares in the United States to exercise any preemptive rights in any future capital increase unless we file a registration statement with the SEC with respect to that future issuance of shares or the offering qualifies for an exemption from the registration requirements of the Securities Act. At the time of any future capital increase, we will evaluate the costs and potential liabilities associated with filing a registration statement with the SEC and any other factors that we consider important to determine whether to file such a registration statement.  We cannot assure holders of our ADSs or common shares in the United States that we will file a registration statement
 
 
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with the SEC to allow them to participate in a preemptive rights offering. As a result, the equity interest of those holders in us may be diluted proportionately.
 
Judgments seeking to enforce our obligations in respect of our shares or ADSs in Brazil will be payable only in reais.
 
If proceedings are brought in the courts of Brazil seeking to enforce our obligations with respect to our shares or ADSs, we will not be required to discharge our obligations in a currency other than reais .  Under Brazilian exchange control limitations, an obligation in Brazil to pay amounts denominated in a currency other than reais may only be satisfied in Brazilian currency at the exchange rate, as determined by the Central Bank, in effect on the date the judgment is obtained, and such amounts are then adjusted to reflect exchange rate variations through the effective payment date.  The then prevailing exchange may not afford non-Brazilian investors with full compensation for any claim arising out of or related to our obligations under our shares or the ADSs.
 
Volatility and lack of liquidity in the Brazilian stock market may substantially limit investors’ ability to sell shares at the price and time desired.
 
Investment in securities traded in emerging markets such as Brazil often involves more risk than other world markets, given the track record of economical instability and constant changes.  The Brazilian stock market is significantly smaller, less liquid and more concentrated, compared to the world’s major stock market. At December 31, 2011, BM&FBOVESPA’s market capitalization was approximately R$2.3 trillion (U.S.$1.2 trillion).  The Brazilian capital market shows significant concentration.  The top ten shares in terms of trading volume accounted for approximately 53.1% of all shares traded on the BM&FBOVESPA in the year ended December 31, 2011.  These characteristics of the Brazilian capital market may substantially limit the ability of investors to sell shares at the desired price and time, which may materially and adversely affect share prices.
 
Shares eligible for future sale may adversely affect the market value of our shares and ADSs.
 
All of our shareholders have the ability, subject to applicable Brazilian laws and regulations and applicable securities laws in the relevant jurisdictions, to sell our shares and ADSs.  We cannot predict what effect, if any, future sales of our shares or ADSs may have on the market price of our shares or ADSs.  Future sales of substantial amounts of such shares or ADSs, or the perception that such sales could occur, could adversely affect the market prices of our shares or ADSs.
 
Holders of ADSs or common shares could be subject to Brazilian income tax on capital gains from sales of ADSs or common shares.
 
According to Article 26 of Law No. 10,833 of December 29, 2003, which came into force on February 1, 2004, capital gains realized on the disposition of assets located in Brazil by non-Brazilian residents, whether or not to other non-residents and whether made outside or within Brazil, are subject to taxation in Brazil at a rate of 15%, or 25% if realized by investors resident in a “tax haven” jurisdiction (i.e., a country that does not impose any income tax or that imposes tax at a maximum rate of less than 20%). Although we believe that the ADSs will not fall within the definition of assets located in Brazil for the purposes of Law No. 10,833, considering the general and unclear scope of Law 10,833 and the absence of any judicial guidance in respect thereof, we are unable to predict whether such interpretation will ultimately prevail in the Brazilian courts.  See “Item 10. Additional Information—E. Taxation—Brazilian Tax Considerations.”
 
Gains realized by non-Brazilian holders on dispositions of common shares in Brazil or in transactions with Brazilian residents may be exempt from Brazilian income tax, or taxed at a rate of 15% or 25%, depending on the circumstances.  Gains realized through transactions on Brazilian stock exchanges, if carried out in accordance with Resolution 2,689, of January 26, 2000, as amended, or “Resolution CMN 2,689” of the National Monetary Council ( Conselho Monetário Nacional CMN , or “CMN”) as described below in “Item 10. Additional Information—E. Taxation—Brazilian Tax Considerations—Taxation of Gains,” are exempt from the Brazilian income tax.  Gains realized through transactions on Brazilian stock exchanges not in accordance with Resolution CMN 2,689 are subject to tax at a rate of 15% and also to withholding income tax at a rate of 0.005% (to offset the tax due on eventual capital gain).  Gains realized through transactions with Brazilian residents or through transactions in Brazil
 
 
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not on the Brazilian stock exchanges and not in accordance with Resolution CMN 2,689 are subject to tax at a rate of 15%, or 25% if realized by investors resident in a tax haven jurisdiction.
 
An exchange of ADSs for common shares risks loss of certain foreign currency remittance and Brazilian tax advantages.
 
The ADSs benefit from the certificate of foreign capital registration, which permits J.P. Morgan Chase Bank, as depositary, to convert dividends and other distributions with respect to common shares into foreign currency, and to remit the proceeds abroad. Holders of ADSs who exchange their ADSs for common shares will then be entitled to rely on the depositary’s certificate of foreign capital registration for five business days from the date of exchange.  Thereafter, they will not be able to remit non-Brazilian currency abroad unless they obtain their own certificate of foreign capital registration, or unless they qualify under Resolution CMN 2,689, which entitles certain investors to buy and sell shares on Brazilian stock exchanges without obtaining separate certificates of registration.
 
If holders of ADSs do not qualify under Resolution CMN 2,689, they will generally be subject to less favorable tax treatment on distributions with respect to our common shares.  There can be no assurance that the depositary’s certificate of registration or any certificate of foreign capital registration obtained by holders of ADSs will not be affected by future legislative or regulatory changes, or that additional Brazilian law restrictions applicable to their investment in the ADSs may not be imposed in the future.
 
If we raise additional capital through an offering of shares, investors’ holdings may be diluted.
 
We may need to raise additional funds through a capital increase, public or private debt financings, or a new share issuance in connection with our business. Any additional capital raised through the issuance of shares or securities convertible into shares conducted on stock exchanges or through public offerings may be made, according to Brazilian law, without preemptive rights for the holders of our shares, which may result in the dilution of our holdings in our share capital.
 
Item 4.  Information on the Company
 
A. 
History and Development of the Company
 
Basic Information
 
TIM Participações S.A. is a corporation ( sociedade anônima ) organized under the laws of the Federative Republic of Brazil.  The Company was incorporated on May 22, 1998 under the name Tele Celular Sul Participações S.A., which was later changed to TIM Participações S.A. on August 30, 2004.
 
Our headquarters are located at Avenida das Américas, 3434-7th floor, 22640-102 Rio de Janeiro, Brazil and our telephone number is +55 (21) 4109-3742 and our fax number is +55 (21) 4109-3314.
 
Our agent for service of process in the United States is CT Corporation located at 111 Eighth Avenue, New York, NY 10011.
 
Historical Background
 
Our indirect controlling shareholder, Telecom Italia, began operating in Brazil in 1998 and through us is currently a leading wireless operator in the country.  In the 2001 auctions held by Anatel for Bands D and E, Telecom Italia was the only company to be awarded licenses covering the entirety of the Brazilian territory, which at the time made Telecom Italia the sole operator to offer services on a nationwide level under the same brand.  In 2002, Telecom Italia (then Telecom Italia Mobile) formed TIM Brasil, the holding company of Telecom Italia’s operating companies in Brazil.
 
Prior to the incorporation of Telebrás in 1972, there were more than 900 telecommunications companies operating throughout Brazil.  Between 1972 and 1975, Telebrás, as a regulated monopoly, acquired almost all the telephone companies operating in Brazil.  Beginning in 1995, the Brazilian federal government undertook a comprehensive reform of Brazil’s telecommunications regulatory system.  In 1996 and 1997, the Brazilian
 
government privatized Telebrás and established Anatel as an independent regulatory agency.  In connection with the privatization, Telebrás was broken up (the “Breakup”) into 12 new holding companies (the “New Holding Companies”) that consisted of
 
 
·  
eight cellular telecommunications service providers, each operating in one of ten regions (each a “Cellular Region”);
 
 
·  
three fixed-line telecommunications service providers, each providing local service and intraregional long distance service in one of three regions (each a “Fixed-Line Region”); and
 
 
·  
Embratel Participações S.A. — Embratel (“Embratel”), which provides domestic long distance telecommunications service (including intraregional and interregional), as well as international telecommunications service throughout Brazil.
 
Upon the Breakup of the Telebrás System, the Brazilian territory was initially divided by Anatel into ten separate cellular service regions (“Band A”), each serviced by one of the New Holding Companies operating in the cellular telecommunications business.  In addition, under the General Telecommunications Law, the federal government granted authorizations to new companies to provide cellular telecommunications service within a 25 MHz sub-band within the band of 800 to 850 MHz, which is referred to as Band B (“Band B”).  Companies operating under the Band B were distributed throughout ten different regions, which generally overlap with the Band A regions.  Anatel’s rules at the time prevented the controlling shareholders of Band A and Band B cellular service providers from holding more than one license, either in the form of an authorization or a concession, in a single PCS region and as a result, some companies controlled by Telecom Italia waived their rights to provide PCS services in certain areas.
 
In July 1998, the Federal Government sold substantially all its shares of the New Holding Companies, including its shares of Tele Sudeste Celular Participações S.A. (“TSU”) and Tele Nordeste Celular Participações S.A. (“TND”), the two companies that, following a series of acquisitions, corporate reorganizations and corporate name changes, merged to form TIM Participações (“TIM”) in 2004.  In December 2002, TIM Sul, TIM Nordeste Telecomunicações and TIM Maxitel had converted their respective concessions to operate under Cellular Mobile Service (“SMC”) regulations into authorizations to operate under PCS regulations.  We continued to expand and restructure our operations through a series of corporate reorganizations, mergers, acquisitions and name changes, and we are currently held, directly and indirectly, by Telecom Italia through its wholly-owned subsidiary, TIM Brasil.  See “Item 4. Information on the Company—C. Organizational Structure” for a description of our current corporate structure and Exhibit 8.1 attached hereto for a list of our significant subsidiaries as of the date of this annual report.
 
2011 Important Events
 
Migration to the Novo Mercado listing segment
 
At an extraordinary shareholders meeting held on June 22, 2011 our shareholders approved, among other things: (1) the conversion of all of our preferred shares into common shares, at a ratio of 0.8406 common shares for each preferred share; (2) our adherence to the Novo Mercado rules and the transfer of trading of the shares issued by us to the Novo Mercado , and (3) amendments to our bylaws.
 
In order to join the Novo Mercado , we entered into a Novo Mercado Participation Agreement with the  BM&FBOVESPA.  Through this agreement, which became effective on July 27, 2011, we are required to adhere to heightened requirements relating to corporate governance and the disclosure of information to the market. Additionally, as of such date, our shares started trading on the Novo Mercado segment of the BM&FBOVESPA.  Pursuant to the Novo Mercado Regulations, we are not permitted to issue preferred shares, participation bonuses or any kind of shares with restricted voting rights.
 
Prior to August 2, 2011 we had common shares and preferred shares listed on the BM&FBOVESPA under the symbols “TCSL3” and “TCSL4,” respectively.  Our ADSs listed on the NYSE each represented 10 preferred shares.  As part of our migration to the Novo Mercado listing segment of the BM&FBOVESPA, our preferred shares
 
ceased to trade on August 2, 2011.  On August 4, 2011, our ADSs representing preferred shares ceased to trade on the NYSE.  From August 3, 2011, we only had common shares traded on the Novo Mercado listing segment of BM&FBOVESPA, by using the code “TIMP3” and as from August 5, 2011, our ADSs representing five common shares instead of ten preferred shares commenced trading on the NYSE.  See “Item 9.  The Offer and Listing—A.  Offer and Listing Details.”
 
Public offering of common shares
 
In September 2011, we publicly offered 200,258,368 newly issued common shares at an offering price of R$8.60 per share.  We received net proceeds of approximately R$1.7 billion in the offering, which were used to develop and expand our network infrastructure.  Our controlling shareholder acquired approximately 63% of our common shares issued in the offering.
 
Acquisition of AES Atimus, now TIM Fiber
 
On July 8, 2011, our wholly-owned subsidiary TIM Celular entered into an agreement with Companhia Brasiliana de Energia and AES Elpa S.A. (the AES Group in Brazil) for the purchase of all of AES Elpa S.A.’s equity interests in Eletropaulo Telecomunicações Ltda. and 98.3% of the interest of AES Communications Rio de Janeiro S.A. (the “AES Atimus Acquisition”).  We completed the acquisition on October 31, 2011, after all conditions precedent to the contract were completed and certain regulatory approvals were obtained.  We paid a total of R$1,074.2 million and R$447.5 million, respectively, for each of Eletropaulo Telecomunicações Ltda. and AES Communications Rio de Janeiro S.A.  In connection with the acquisition, Eletropaulo Telecomunicações Ltda. changed its corporate name to TIM Fiber SP Ltda., and AES Communications Rio de Janeiro S.A. changed its corporate name to TIM Fiber RJ S.A., and we call the business, collectively, TIM Fiber.
 
The AES Atimus Acquisition will allow us to expand our operations in the high-speed data communications market, allowing us to offer new products to our customers, as well as providing a reduction in infrastructure rental cost, and helping us obtain significant synergies related to Tim Fiber’s fiber optic network.
 
2011 mobile market developments
 
The Brazilian mobile market reached 242.2 million lines nationwide at the end of December 2011, corresponding to a penetration ratio of 123.4%, compared to 104.7% in 2010, and an annual growth rate of 19.4%, compared to 16.7% in 2010.  Brazil is the fifth largest mobile telephone market in the world, and telephony is currently the most common means of communication in Brazilian households among all social classes. According to Anatel, mobile market net adds reached 13.1 million in 2011 which represents a 31.7% increase from 2010.  The prepaid customer base continues to represent the greatest share of the total subscriber base, reaching 81.8% by the end of 2011.
 
Capital Expenditures
 
In 2011, our Board of Directors approved our budget for capital expenditures, which approved estimated expenditures of R$9.0 billion for 2011 through 2013.  We generally seek to budget approximately 12% of our total gross revenues for our capital expenditures.  Most of the capital expenditures we budgeted relate to the expansion of the capacity and quality of our 3G technology and development of technology infrastructure.  Our principle source of funds for our capital expenditures is cash from operations and, in 2011, proceeds from the issuance and sale of our common shares.
 
Our capital expenditures are based on commercial, technical and economic factors such as service rates, service demand, price and availability of equipment.  There is no assurance that our estimates of such commercial, technical and economic factors will prove to be correct, or that we will actually spend our planned capital expenditures in future periods.
 
Our main capital expenditure in 2011 was the AES Atimus Acquisition whereby we acquired the companies that now constitute TIM Fiber for a total purchase price of R$1,521.7 million.  Other capital expenditures in 2011 were also focused on development of our network infrastructure.
 
B. 
Business Overview
 
Market Characteristics
 
The Brazilian mobile telecommunications market has in recent years been characterized by the expansion of the number of subscribers, investment in network infrastructure and subsidies to attract and retain customers.  These expenditures have resulted in a significant increase in mobile penetration, revenue generation and competition for customers.  As of December 31, 2011, there were approximately 242.2 million mobile lines, representing approximately 123.9% of the population, compared to approximately 202.9 and 174 million mobile lines, representing approximately 104.7% and 91% of the population in 2010 and 2009, respectively, and approximately 151 million mobile lines, representing 78% of the population in 2008.
 
Although the industry has benefited from the increased purchasing power of Brazil’s less affluent population, market focus remains on the more affluent cities clustered in the south and southeast of the country.
 
As is the case throughout most of Latin America, the Brazilian mobile telecommunications market is characterized by a large number of prepaid customers.  According to Anatel, at the end of 2009, 2010 and 2011, approximately 82.6%, 82.3% and 81.8% respectively, of mobile lines were prepaid and 17.4%, 17.7% and 18.2%, respectively, were postpaid segment reached the number of 44.1 million lines, an annual expansion of 22.9%.  The average monthly revenue per mobile customer in Brazil was approximately R$26.6 for the year ended December 31, 2009, R$23.6 for the year ended December 31, 2010 and R$21.1 for the year ended December 31. 2011.
 
Our Business
 
We are the second largest provider of mobile telecommunication services in Brazil based on the number of phone lines, with 64.1 million lines and a market share of 26.5%, based on data from Anatel.  We led the mobile telecommunications market in net additions of lines in 2011 according to Anatel.  In the year ended December 31, 2011, we added 13.1 million net lines, an increase of approximately 25.6% compared to the year ended December 31, 2010.
 
We operate, through our subsidiaries in various telecommunications markets throughout Brazil including mobile, fixed and long distance telephony, data transmission and Internet services.  In the year ended December 31, 2011, our gross service revenue was R$24.8 billion, a 21.8% increase from the year ended December 31, 2010, following an 8.1% increase in gross service revenue from 2009 to 2010.
 
Through our GSM network, we serve approximately 94% of the urban population of Brazil, representing the largest GSM network coverage of any mobile telecommunications services provider in Brazil (based on publicly available data of other mobile telecommunications providers), with a presence in almost 3,300 municipalities.  We offer extensive data coverage throughout Brazil, with our general packet radio services technology, or GPRS, covering 100% of our coverage area and our EDGE technology reaching 80% of our coverage area, in addition to our sophisticated 3G network covering more than 67% of the urban population of Brazil. Our international roaming agreements include more than 527 networks available in over 200 countries. Our fiber network extends from northern to southern Brazil, with an extensive wide area network, or backbone, of approximately 15,000 kilometers, and metropolitan area networks, or backhaul.  Our fiber optic network has a unique capacity to offer high quality ultra-broadband service in the Rio de Janeiro and São Paulo metropolitan regions, which together represent 25% of Brazilian GDP and annual telecommunications industry revenues of R$30 billion according to data from IBGE.  The AES Atimus Acquisition provided us with a distinct competitive advantage as the TIM Fiber (formerly named AES Atimus) backhauling network is practically twice the size of our next closest competitor in the Rio de Janeiro and São Paulo markets, with over 5,500 kilometers of fiber-optic cable accessible to approximately 550,000 business customers.
 
We believe we have a strong brand and a reputation for innovation, having pioneered several product launches in Brazil, such as the introduction of multimedia messaging services, or MMS, and the BlackBerry product line.  Our mobile phone plans, such as Infinity Pré and Liberty, have transformed the mobile telecommunications market in Brazil, in line with our strategy to increase voice traffic and long distance calls in Brazil and to accelerate the growing trend in the substitution of fixed-line telephone services for mobile telephone services.  In addition, according to a marketing research survey of 12,550 mobile telephone users throughout Brazil conducted by
 
Synovate from April to June 2011 under an agreement with us, we are recognized as market leaders in terms of brand preference and innovation, among other attributes.
 
Our growth in the mobile telecommunications market does not result in revenue cannibalization (that is, substitution of fixed-line services for mobile services) as we are essentially a pure mobile operator unlike some of our competitors that offer both fixed-line and mobile telephony services. Also, we have a “no subsidy” policy for handset and accessories sales, which helps to avoid pressure on margins and costs as we grow.
 
In 2009, 2010 and 2011, we invested more in our infrastructure than any other mobile telecommunications operator in Brazil, based on capital expenditure data reported by our competitors. We believe this reflects our commitment to enhancing our ability to provide services of the highest quality and respond to the expected increasing demand in voice traffic in Brazil. According to Anatel, from in 2011, we were a leader in network quality, as the only company to have achieved 100% of the goals set for Personal Communication Service ( Serviço Móvel Pessoal , SMP or PCS) providers during that period.
 
As of December 31, 2011, we had more than 9,000 points of sales through premium shops and dealers (exclusive or multi-brand), in addition to relationships we have established through a network of large, established retail chains. In addition to these retail outlets, our customers have access to prepaid phone service as an alternative channel to access our products and services through supermarkets and newsstands and other smaller retailers, for a total of approximately 400,000 points of sale spread throughout Brazil.
 
On October 31, 2011, we completed the AES Atimus Acquisition as part of our business strategy to expand our operations and strengthen our network infrastructure.  TIM Fiber SP Ltda. (formerly named Eletropaulo Telecomunicações Ltda.) and TIM Fiber RJ S.A. (formerly named AES Communications Rio de Janeiro S.A.), which we refer to collectively as TIM Fiber, serve the principal metropolitan regions of the states of São Paulo and Rio de Janeiro, covering a potential market of approximately 8.5 million homes and an additional 550 thousand companies in 21 cities with a network of fiber optic cables extending 5.5 thousand kilometers.  We believe the completion of this acquisition significantly strengthens our network infrastructure, allowing us to provide high speed data solutions to our existing and potential new customers.
 
Competitive Strengths
 
We believe that our robust network infrastructure, together with our brand recognition and our widespread sales network positions us well to capitalize on opportunities in the telecommunications industry in Brazil and meet the growing demand in the mobile telecommunications market.  We believe our main strengths include:
 
Strong and sustainable revenue and margin growth coupled with leadership in attracting customers.   According to a marketing research survey conducted by Synovate from April to June 2011, we are viewed as market leaders in terms of brand preference and innovation.  We were also found to have the lowest rejection rate among our competitors according to this study.  We had the largest net additions in lines among mobile telecommunications providers in Brazil in 2011, with 13.1 million net additions in 2011, according to Anatel, reaching a client base of 64.1 million lines in December 2011.  In 2011, we obtained a 32.7% share of net additions. In the prepaid segment, we achieved 25.8% growth and in the postpaid segment, we achieved 24.4% growth.
 
Our leadership in customer acquisition is the result of factors such as: (1) innovative offerings that we believe have improved benefits to our customers when compared to our competitors, (2) community awareness in Brazil which has, in effect, through “word of mouth,” spread the benefits of our services, (3) superior network infrastructure that we believe allows users to fully enjoy our services, (4) strong brand recognition, and (5) clear and direct communication to our target client base.
 
Our growth in the mobile telecommunications market does not result in revenue cannibalization (that is, substitution of fixed-line services for mobile services) as we are essentially a pure mobile operator unlike some of our competitors that offer both fixed-line and mobile telephony services. Also, we have a “no subsidy” policy for handset and accessories sales, which helps to avoid pressure on margins and costs as we grow.  We expanded our customer base by 16.7% from December 31, 2009 on a pro-forma basis to December 31, 2010, and 25.6% between December 31, 2010 and December 31, 2011.  During these periods, we increased our net operating revenue by 9.9% and 18.2%, respectively.
 
High quality services.   According to Anatel, we are a leader in terms of network quality, as the only company to have achieved 100% of the goals of providing PCS in 2011. These results demonstrate our commitment to providing our customers with the highest quality service and responding adequately to rising service demand in Brazil, as we implement a strategy of increasing MOUs and stimulating data usage.  We established this position through the growth and improvement in our network infrastructure and our information technology during 2009 and 2010, during which time we consolidated our position as the leading mobile telecommunications operator in infrastructure investments, based on public capital expenditure data reported by other operators. Such investments have been achieved organically, including through building long distance networks and establishing our metropolitan fiber optic cable network and through increased coverage and capacity, as well as by means of inorganic growth, for example, though the acquisition of assets such as Intelig and TIM Fiber.
 
During the period from January 1, 2009 to December 30, 2010, we increased the capacity of our voice network by 77.5%, based on installed TRX, which is the network element responsible for adding traffic capacity to an antenna. In this same period, our 3G network coverage grew by more than five times in terms of the number of cities covered, reaching 54% of Brazil’s urban population.
 
The acquisition of Intelig added to our network infrastructure for a 100% digital fiber optic network installed from Northern to Southern Brazil, totaling more than 500 thousand kilometers of fiber cables, with an extensive wide area network (backbone) of approximately 15,000 kilometers and metropolitan area networks (backhaul) in Brazil’s principal cities. In addition, we added to our network telephone exchanges and satellite stations, connecting to major networks and with capability in major international submarine cable systems.  The AES Atimus Acquisition positions us well, relative to our competitors, to capture broadband Internet market share. In Rio de Janeiro and São Paulo, Brazil’s two largest cities, the AES Atimus (now TIM Fiber) network is capable of reaching almost double the network size of our competitors in these markets, with a total of 5,500 kilometers of fiber optic cable spread over Rio de Janeiro and São Paulo, available to approximately 550,000 businesses.
 
Strong brand associated with innovation.   We believe we have a reputation for innovation, as supported by a survey of the mobile market conducted by Synovate from April to June 2011, which found us to be market leaders in Brazil, particularly in terms of brand preference and innovation. We have pioneered the launch of several products and services in Brazil, such as MMS services and BlackBerry handsets.
 
We believe our offering of innovative plans in the Brazilian market has contributed to the increase in voice traffic in Brazil and has been instrumental in positioning us as a service provider capable of establishing the new standard in the market. Among these plans are our Infinity Pré plan in the prepaid segment, which introduced the concept of charging per call (rather than per minute) and equalization of tariffs for local calls and long distance within our network. In the postpaid segment, we launched the concept of unlimited calls within the TIM network with our TIM Liberty plan.  We believe the subsequent development of other plans based on these concepts (Infinity Web – prepaid data; Liberty Web – postpaid data; More Infinity – calls to landlines; and Infinity Torpedo – text messaging) strengthen our leadership position vis-à-vis our competitors in terms of innovation.
 
The only Brazilian telecommunications company listed on the Novo Mercado .   Since our listing on the Novo Mercado in July 2011, we are the only company in the Brazilian telecommunications sector listed on this segment of the BM&FBOVESPA.  We believe that the recent listing on the Novo Mercado provides greater liquidity and value for our shares and allows us greater access to international markets, promotes the strengthening of our corporate image and increases confidence in us, in addition to reaffirming the long-term commitment of the Telecom Italia Group in Brazil. We believe listing on the Novo Mercado also aligns the interests among our controlling and minority shareholders with respect to voting rights, tag along rights and dividend policy.
 
In addition, we are the only company in the industry that belongs to a select group of companies comprising the portfolio of the Corporate Governance Index (CGI), the BM&FBOVESPA Tag Along Stock Index (ITAG), and the Carbon Efficient Index (ICO2), comprised of companies that have committed to adopt transparent practices with respect to their emissions of greenhouse gases. We are also part of the portfolio of the Corporate Sustainability Index (ISE) of the BM&FBOVESPA, an index comprised of companies that have a strong commitment to sustainability and social responsibility.
 
Highly qualified and experienced executives and controlling shareholder support.   We have a team of highly qualified executives, widely recognized in the industry and possessing extensive experience in telecommunications markets in Europe and emerging countries. Our executives have been nominated for various awards such as “CEO of the Year” by the World Communication Awards in 2010 and as finalists for the Second Business Marketing Leader Award and the Marketing Professionals Award in 2011 by Marketing Magazine. Our executive compensation policy seeks to align the interests of our executives with those of our shareholders, through variable compensation plans and stock options that reward good performance and the accomplishment of certain goals, as well as provide for improved executive retention.
 
Following significant losses in 2008, our controlling shareholder, Telecom Italia, restructured our management, which helped reposition us as the second leading mobile telecommunications in Brazil provider in terms of subscriber lines. Our controlling shareholder’s support in our operations is further demonstrated through the sharing of know-how and best practices and development of new solutions for networking, marketing and finance, which are rapidly rolled out under a “plug & play” strategy, under which network innovations may be developed by our parent company first in other regions and then implemented with us.
 
Our Strategy
 
Our strategy includes:
 
Strengthening our customer base and improving our network.   The Brazilian mobile telecommunications market has grown significantly in recent years.  We believe that there is still significant opportunity for growth in our user base beyond the estimates reported by Anatel because these estimates do not take into account the existence of multiple lines per user and non-human (machine-to-machine) access, such as points of sale and tracking services that use a GSM SIM card for data communication.
 
Our growth strategy involves strengthening our existing customer base by offering exclusive products to existing customers and by improving the quality of local and long-distance communications within our network. We believe this strategy will allow us to strengthen customer loyalty without requiring us to incur higher costs, as increased traffic within our own network does not cause us to incur interconnection charges.  We are also constantly seeking new customers through new marketing efforts and promotional initiatives.
 
Capitalizing on the acceleration of fixed-mobile substitution.   We seek to capitalize on the opportunity for growth in voice traffic and encourage the use of mobile devices, rather than fixed lines, for long distance communication, through fixed-mobile substitution.  We believe that the main advantage of our product offerings is that our users are able to use our network more than that of other mobile telecommunications providers.  Our prepaid “Infinity” plans and postpaid “Liberty” plans were initially developed in 2009 in connection with this strategy and we continue to develop these product offerings.
 
This strategy has been successful in part due to the limited service offerings of other long distance carriers in Brazil and the acceleration of fixed to mobile substitution.  We have become the market leader in the long distance telecommunications market based on our market share, which in 2007 amounted to 11.5% and by December 2011 exceeded 26.5% according to Anatel.  Fixed-mobile substitution is increasingly evident in the Brazilian market, as fixed telephony operators have experienced a decline in the number of users and revenue. Since we are primarily a mobile operator with robust network infrastructure, the impact of any reduction in the fixed telephony market does not impact our performance and we therefore encourage the acceleration of fixed-mobile substitution, which in turn increases demand for our services.
 
Providing universal Internet access to our customer base.   We intend to provide universal Internet access to all segments of our customer base, offering our prepaid and postpaid customers competitive data usage plans through wireless handsets or accessories.  Our focus on increased data usage among our customers depends on our ability to effectively manage our handset and accessories sales, with primary focus on models that provide for quality Internet access at a low cost, such as webphones.  Since it is our policy not to subsidize our customers’ purchases of handsets and accessories, this approach has allowed us to offer our services at a highly competitive price, offer convenient payment methods, meet market demand and allow for opportunities for innovation. The result of this strategy can be
 
seen in the increase of 63.1% of gross revenue earned from sales of handsets in the year ended December 31, 2011 compared to the corresponding period in 2010.
 
Construction of a unique infrastructure network in the Brazilian market.   We are committed to developing a robust network infrastructure capable of serving our expanding customer base and anticipating new trends and technologies in the industry. The development of this infrastructure requires both organic (planning and infrastructure development projects for the existing network) and inorganic (acquisitions) investments.  As part of our strategy to focus our investments in infrastructure, we acquired Intelig in December 2009 to establish our own fiber optic network and develop automation projects and acquired TIM Fiber (formerly AES Atimus) in 2011 to strengthen and expand our fiber optic network.  Our zero-subsidy handset policy further supports our strategy to invest in infrastructure because it frees up capital expenditures for spending on infrastructure. We believe that the implementation of our zero-subsidy policy between 2009 and 2010 has given us a significant competitive advantage compared to other mobile telecommunications operators in the marketplace.  We plan to continue to invest in infrastructure in coming years, with an estimated capital expenditures budget for 2011 to 2013 of approximately R$9.0 billion.  We believe the construction of a differentiated network is an effective strategy for sustained growth as evidenced by our leadership position in the provision quality services as measured by Anatel, even our as customer base has grown significantly in the past two years.
 
In 2012, we plan to carry out this strategy through ongoing investments in projects that will continue to differentiate and strengthen our network, such as the construction of new fiber optic networks in the North and Northeast of Brazil.
 
Aligning our business with rising incomes in Brazil. Brazilian demographics have changed substantially in recent years, with the growth in Classes C and D and the increase in average salaries in Brazil.  Because we pioneered the use of unlimited service at a fixed price and we have emphasized increasing the use of voice and data, we believe we have an advantage over our competitors in accessing this demographic shift.  In 2011, our net additions reached 13.1 million lines, or the equivalent of 32.7% of all new lines in the market, with significant concentration in Classes C and D. The volume of unit sales in the same period increased markedly due to the growth of handset and accessory use as an affordable alternative for Internet access for Classes C and D users. As evidence of this trend, mobile Internet devices represented more than half of our total sales in 2011.
 
Expansion into new businesses.   To capture new opportunities for growth in the mobile telecommunications sector goal, we entered into a partnership with the Ministry of Communications to join the National Broadband Program and formed a partnership with the insurance company Porto Seguro to create a Mobile Virtual Network Operator, or MVNO, which is a mobile operator without a proprietary network but which uses the network of other operators and buys minutes, SMS and/or data, among other services, at wholesale prices, paying a discounted price compared to average retail price, or entering into a revenue sharing arrangement.  In addition, with the acquisition of AES Atimus, we believe that we will be able to capture opportunities in the corporate segment with more robust and responsive services.  We also believe we can capture market share in the residential broadband segment, with offerings of high quality ultra-broadband, operating within Rio de Janeiro and São Paulo, markets that accounted for 25% of Brazilian GDP and which represent revenue potential of R$30 billion a year.
 
Regional Overview — Operations Under TIM Trademark
 
We offer GSM telecommunications services with a national reach to 94% of the urban population, which is the most extensive GSM coverage in Brazil, with a presence in almost 3,300 cities.  We also provide extensive data coverage across Brazil using 100% GPRS technology, of which 80% is EDGE technology.  We also have 3G coverage available to approximately 67% of the urban population in Brazil.  The following map shows our coverage areas with the types of service available in each area.
 
 
Through our subsidiaries, we provide mobile telecommunications services using digital technologies, including GSM and 3G, AM, to the ten wireless areas of Brazil shown in the above map.
 
The following table shows combined information regarding the Brazilian mobile telecommunications market and our customer base, coverage and related matters, at the dates indicated.  Except as otherwise indicated, the amounts presented in the following table are our estimates.
 
   
As of or For the Year Ended December 31,
 
   
2011
   
2010
   
2009
 
Brazilian population (1)
    195.0       190.8       191.5  
Total penetration(2)(3)
    123.9 %     104.7 %     91 %
Brazilian subscribers
    242.2       202.9       174.0  
National percentage subscriber growth
    19.4       16.7 %     15.5 %
Population we cover(1)
    184       173       169  
Percentage of urban population we cover(4)
    94.4       94 %     94 %
Total number of our subscribers
    64.1       51.0       41.1  
Our percentage growth in subscribers
    25.6 %     24.1 %     12.9 %
Our percentage of postpaid customers
    17.0       17.7 %     17.4 %
Our ARPU(5)
    21.4       23.7       26.6  
(1)
According to the latest information available from IBGE.
 
(2)
Percentage of the total population of Brazil using mobile services, equating one mobile line to one subscriber.
 
(3)
Based on information published by Anatel and IBGE.
 
(4)
Number of people able to access our mobile network, based on Anatel’s coverage criteria.
 
(5)
Average monthly revenue earned per TIM subscriber.
 
Mobile Service Rates and Plans
 
In Brazil, as in most of Latin America, mobile telecommunications service is offered on a “calling party pays” basis, under which the customer generally pays only for outgoing calls.  Additional charges apply when a customer receives or places calls while outside of the customer’s “registration area,” which are the areas into which we divide our coverage areas.
 
Under our current authorizations, we are allowed to set prices for our service plans, provided that such amounts do not exceed a specified inflation adjusted cap.  Anatel must ratify our basic and other service plans, but its focus is on compliance with the relevant regulatory rules rather than the prices charged.  See “—Regulation of the Brazilian Telecommunications Industry—Rate Regulation.” We charge different rates for our services, which vary according to the customer’s service plan.  Per minute prices decrease as customers commit to purchasing more minutes per month.  Prices can also vary depending on the time of the day, the type of call (for example, calls from other operators on fixed lines or calls outside of the network for cellular calls) or the location of the parties on a call.
 
Anatel regulations require mobile telecommunications providers to offer service to all individuals regardless of income level.  We recommend service plans that are suitable to each potential customer’s needs and credit history, such as our prepaid service plans described below.  If a customer fails to make timely payment, services can be interrupted.  See “—Billing and Collection.”
 
We offer mobile services under a variety of rate plans to meet the needs of different customer segments, including our corporate customers.  The rate plans are either postpaid, where the customer is billed monthly for the previous month, or prepaid, where the customer pays in advance for a specified volume of use over a specified period.
 
Our postpaid plans include the following charges:
 
 
·  
monthly subscription charges, which usually include a number of minutes of use that are included in the monthly service charge;
 
 
·  
usage charges, for usage in excess of the specified number of minutes included in the monthly subscription charge; and
 
 
·  
additional charges, including charges for value-added services and data services.
 
Certain plans include the cost of national roaming and long distance in the price per minute so that all calls within Brazil cost the same amount per minute.  Some postpaid plans are designed for high and moderate usage subscribers, who are typically willing to pay higher monthly fees in exchange for minutes included in the monthly service charge and lower per minute usage charges under a single contract while other plans are designed to satisfy the more limited needs of low-usage postpaid subscribers.  We also offer customized services to our corporate clients which may include local call rates between employees wherever located in Brazil.
 
We also offer several prepaid plans, none of which include monthly charges.  Prepaid customers can purchase a prepaid credits plan that provides a specific amount of usage time and may receive additional services such as voicemail and caller identification.  In 2011 we expanded our prepaid recharge stations by 27.0%.  There are already over 445,963 recharge stations nationwide, offering two recharge options: physical (using prepaid cards) and electronic (both online and using a PIN system).  We have agreements with large national retail stores chains, in addition to partnerships with regional retail stores chains, to offer online recharge.  Customers with debit cards that use Banco 24Horas (a network ATMs in Brazil), as well as customers using Visa, MasterCard or Diners Club credit cards can recharge their prepaid phones straight from their mobile handsets.
 
Despite the highly competitive environment, we have maintained our focus on the mobile market’s value segment, developing communication solutions that encourage clients to use our data and voice services more often. “ TIM Web ” and “ TIM Mais Completo ” were an example of the evolution in our marketing activities. “ TIM Web ” is a postpaid plan for internet access from laptops or desktops without the need of an Internet service provider, while “ TIM Mais Completo ” combines mobile and residential telephony with internet access.  The two products are part of our strategy of offering increasingly convergent services and thus, in addition to competitive prices, mobility and internet portability, without the need for a separate access provider.
 
Each of our customer segments has options specially tailored for pre-paid, post-paid, and fixed clients.  New 3G technology has allowed us to broaden convergence of our services, offering a new portfolio of options to meet a greater number of market needs, such as 3G mobile broadband, iPhone sales and service, and TIM TV, which provides the ability to watch a selection of TV channels through mobile handsets.
 
2010 and 2011 were years of consolidation and evolution of our offering portfolio, which had been completely redesigned in 2009.  We have developed distinct product offerings for our consumer clients and our business clients that allow us to meet the specific needs of our customers in each target market.
 
Consumer Plans
 
We have continued to build upon the strength of our leading market position in voice traffic in our product offerings to consumers, focusing on our Infinity and Liberty calling plans which we believe reinforce the strength  of the TIM network by relying on the favorable calling options for the 64.1 million lines within our network.  Within the consumer business, our main plans include:
 
 
·  
Infinity (pre- or post-paid): in these plans, the customer is only charged for the first minute of each call to any TIM number, paying a fixed rate per call (and not per minute);
 
 
·  
Liberty: for a monthly flat fee, the customer has unlimited talk time with any number on the TIM network, with no restriction on the number or duration of calls.
 
In 2011, we launched a special offer during Father’s Day in Brazil, offering unlimited local and long-distance calling using the prefix code (41) to any phone number in the country on the TIM network.  Liberty customers also had unlimited talk time with any radio user without using any minutes in their calling plans.
 
We also enhanced our regional offerings in certain areas where we identified greater opportunities for expansion, such as with the launch of the Infinity TRI offering in the state of Rio Grande do Sul.  In an offering that we believe is well-adapted to the culture of this region, we offered new Infinity plans whereby the caller is charged a fixed rate per day of use, rather than per call.  This offering reinforced our commitment to establishing our presence in this region.
 
In 2011, we also increased the outlets through which our Infinity Pré and Infinity Controle customers can recharge their accounts.  In particular, customers can now recharge their pre-paid phones through our website.
 
The following presents a brief summary of certain key elements of our Infinity and Liberty consumer plans:
 
 
·  
Infinity Pré , which consists of a promotional fixed 25 cent rate for calls to other TIM users;
 
 
·  
Infinity Mais , which charges a fixed 50 cent rate to landlines;
 
 
·  
Infinity Web , where users in the Infinity Pré plan get one free month of unlimited Internet access and after this period pay 50 cents per day for unlimited Internet access;
 
 
·  
Infinity Zero , which is a plan without a monthly subscription charge and the customer only pays for monthly utilization and can also rely on Infinity plan benefits, such as charge per call, for local and long distance calls using code CSP41;
 
 
·  
Liberty+100 , which offers competitive subscription rates for SIM-only customers, offering the same benefits as the standard Liberty plans plus 100 minutes for calls outside of the TIM network and unlimited calls for radio users;
 
 
·  
TIM Turbo , which has special voice packages for post-paid customers, including the Predileto Local and Predileto DDD packages, which offered unlimited calls to fixed or mobile TIM numbers through a monthly subscription.
 
 
·  
Infinity Family , which offers free and unlimited calls between family members all using phones on the TIM network, including calls to TIM Fixo .
 
 
·  
Combos Liberty , that packages the Liberty plan benefits with the Liberty Web promotion, including, among other things, six months of free unlimited Internet access for customers that purchase a new unsubsidized handset.
 
In 2011, we maintained our SIM-only strategy, where customers may choose discounts in service rather than having the handset purchase subsidized by us.  We believe this allows us to offer differentiated services at competitive prices and make handsets available without providing them to customers for free.
 
Business Plans
 
In 2011, we continued to enhance our unique product offerings to our business clients, maintaining an emphasis on simplified service and transparency with the aim of provided unlimited, worry-free use.  We launched a number of new products and services based on the unique needs of our business clients.  We also increased our focus on the provision of Internet solutions, providing companies of all sizes with improved, unlimited Internet connectivity.
 
The TIM Liberty Empresa plans, which already offered unlimited voice usage with other numbers on the TIM network, also began offering Liberty Web Smart, which allows our customers to access unlimited data usage, and customers only pay for such usage in any month in which such service is actually used.  This product offering is unique to TIM and we believe provides convenience and transparency to our customers.
 
In 2011, we also launched “TIM Radar,” a simple location application that allows small businesses to monitor the location of their labor force in the field.  At a promotional price of R$9.90 per month, our offering became the most low-cost solution for employee monitoring solutions that previously had been available only to larger companies.
 
We also launched four new broadband Internet plans for businesses during 2011, each providing for unlimited data use, allowing for convenience and transparency in billing.  In connection with the launch of these broadband plans, we also offered certain tablet computers to our customers at promotional prices.
 
With a view to providing customized solutions to targeted professionals, we launched a special promotion targeted at medical providers, whereby we offered physicians a special package that includes a smartphone, a cable modem, a tablet PC and fixed telephone service for a fixed monthly price, starting at R$279 per month.  As part of the promotion, each physician receives six free months of our specialized data solutions for healthcare professionals, providing direct access to medical information, scheduling software with appointment reminders sent by text message, and medical calculators.
 
Sources of Revenue
 
Our total gross revenue by category of activity for each of the last three years is set forth below.
 
   
Year ended December 31,
 
 
Category of Activity
 
2011
   
2010
   
2009
 
   
(in millions of R$)
 
Gross mobile telephone services
    22,217.1       18,761.4       16,357.0  
Gross sales of handsets and accessories
    2,540.5       1,557.9       1,717.7  
Total
    24,757.6       20,319.3       18,074.7  
 
 
Revenue from mobile telephone services includes revenue from:
 
 
·  
monthly subscription charges;
 
 
·  
network usage charges for local mobile calls;
 
 
·  
roaming fees;
 
 
·  
interconnection charges;
 
 
·  
national and international long distance calls; and
 
 
·  
value-added services, including charges for short message services or text messaging, multimedia messaging services, push-mail, BlackBerry service, video call, turbo mail, WAP downloads, web browsing, business data solutions, songs, games, TV access, voicemail, conference calling, chats and other content and services.
 
We also earn revenues from sales of mobile handsets and accessories.
 
Monthly Subscription Charges
 
We receive a monthly subscription fee under our postpaid mobile plans which varies based on the usage limits under the relevant plan.
 
Network Usage Charges
 
We divide our coverage areas into certain areas defined as “home registration areas.”  Calls within the same home registration area are considered local calls.  Each of our customers is registered as a user of one of our home registration areas.
 
As determined by Anatel, our usage rate categories for local mobile services on a prepaid or postpaid basis are as follows:
 
 
·  
VC1.  The VC1 rate is our base rate per minute and applies to mobile / fixed calls made by a customer located in the customer’s home registration area to a person registered in the same home registration area.
 
 
·  
VC.  The VC rate is our base rate per minute and applies to mobile / mobile calls made by a customer located in the customer’s home registration area to a person registered in the same home registration area.
 
 
·  
AD.  AD is a per-call surcharge applicable to all outgoing calls or incoming calls made or received by a customer while outside such customer’s home registration area.
 
 
·  
VU-M.  VU-M is the fee another telecommunications service provider pays us for the use of our network by such provider’s customers, in this case for local calls. (See “—Interconnection  Charges”).
 
Usage charges are for minutes in excess of those included as part of the monthly subscription charge under the relevant postpaid plan.
 
Roaming Fees
 
We receive revenue pursuant to roaming agreements we have entered into with other mobile telecommunications service providers.  When a call is made from within our coverage area by a client of another
 
mobile service provider, that service provider is charged a roaming fee for the service used, be it voice, text messaging or data, at our applicable rates.  Similarly, when one of our clients makes a mobile call when that customer is outside of our coverage area using the network of another service provider, we must pay the charges associated with that call to the mobile service provider in whose coverage area the call originates at the applicable rate of such mobile service provider.
 
Automatic national roaming permits our customers to use their mobile telephones on the networks of other mobile service providers while traveling or “roaming” in the limited areas of Brazil that are outside of our network, complementing our current mobile coverage.  Similarly, we provide mobile telecommunications service to customers of other mobile service providers when those customers place or receive calls while in our network.  Mobile service providers party to roaming agreements must provide service to roaming customers on the same basis that such providers provide service to their own clients.  All such providers carry out a monthly reconciliation of roaming charges.  Our roaming agreements have a one-year term and automatically renew for additional one-year terms.
 
Interconnection Charges
 
Interconnection charges represent a significant part of our revenues.  We receive interconnection revenues in connection with any call originating from another service provider’s network, mobile or fixed line, which is received by any mobile customer, of ours or of another provider’s, while using our network.  We charge the service provider from whose network the call originates an interconnection fee for every minute our network is used in connection with the call.  The interconnection fees we charge other service providers became freely negotiable in 2005.
 
We have entered into interconnection agreements with all the telecommunications service providers operating in Brazil, which include provisions specifying the number of interconnection points, the method by which signals must be received and transmitted, and the costs and fees for interconnection services.  Nevertheless, even in the absence of approval by Anatel, the parties to these interconnection agreements are obligated to offer interconnection services to each other.  See “—Regulation of the Brazilian Telecommunications Industry—Interconnection Regulation.” The interconnection fees we were permitted to charge other mobile telecommunications providers, and which other mobile telecommunications providers charge us, has in the past frequently been adjusted by inflation.
 
In 2007, an additional agreement relating to interconnection fees entered into among the fixed telephony incumbents (with the exception of Embratel) and the mobile service providers established an average VU-M increase of 2%.  The same parties also executed an additional agreement, which was homologated by Anatel, contemplating a 68.5% increase in the VU-M fee over the VC-1 adjustment for 2008.  Accordingly, in 2008, the mobile received also an average VU-M increase of 2%.
 
In March, 2009, there was an agreement between TIM and Embratel (because Embratel did not participate in the previous agreements) to establish the same conditions agreed between TIM and the other incumbents, with the applicable adjustments in terms of financial agreements.  In December, 2009, Anatel determined that we must have only three VU-Ms, according to the three authorization areas (PGA regions).
 
In October 2011 Anatel reduced fixed to mobile rates, which was based on a reduction in the respective wholesale interconnection levels on call termination.  Anatel proposed a reduction of the fixed to mobile rates of 18% in 2012, 12% in 2013 and 10% in 2014, based on nominal declines.  In the future, Anatel intends to establish the reference tariffs for Significant Market Power operators based on the fully allocated historic costs system, which reference tariffs are already under development by Anatel in consultation with a consortium formed by three companies (Advisia, Analysis Mason and Grant Thornton).  The contract signed in August 2011 between Anatel and the consortium provides for a cost model in the amount of U.S.$8.22 million, to be implemented by 2014, which will likely imply a reduction of the mobile termination rate.
 
Long Distance
 
Telecommunications customers in Brazil are able to select long distance carriers on a per-call basis under the Carrier Selection, or the CSP program, introduced in July 2003, by punching in a two digit code prior to dialing long
 
distance.  This regulation also increased the size of home registration areas, calls within which are local calls and, as a result, reduced the number of home registration areas.
 
For mobile customers, we offer long distance services throughout Brazil through our wholly-owned subsidiary TIM Celular.  This service allows our mobile customers the option of continuing to use our service for long distance calls, which we believe strengthens our respective relationship and loyalty, and enhances the perception of our brand as a comprehensive mobile telecommunications service.  Mobile customers of other service providers can also choose to use our long distance service.
 
Under this structure, a customer is charged the VC1 or VC rates directly by us only for calls made by and completed to a number registered within that customer’s home registration area.  Long distance calls, however, are charged to a customer by the chosen long distance carrier.  Other long distance carriers, in turn, pay us a VU-M fee for any use of our network for a long distance call.
 
As determined by Anatel, our long distance usage rate categories are as follows:
 
 
·  
VC2.  The VC2 rate applies to calls placed by a customer located in one of our home registration areas selecting us as the long distance carrier, on a per-call basis, to place a call to a person registered in another home registration area within the same wireless area recognized by Anatel;
 
 
·  
VC3.  The VC3 rate applies to calls placed by a customer located in one of our home registration areas selecting us as the long distance carrier, on a per-call basis, to place a call to a person registered outside the same wireless area recognized by Anatel; and
 
 
·  
VU-M.  VU-M is the fee another telecommunications service provider pays us for the use of our network by such provider’s customers, in this case for long distance calls. (See “—Interconnection Charges.”)
 
Intelig customers enjoy a 100% digital network covering international and domestic markets through long distance telecom services using the 23 operator code.
 
Value-Added Services
 
We offer, directly or through agreements entered into with third parties, value-added services, including short message services or text messaging, multimedia messaging services, push-mail, video call, turbo mail, WAP downloads, web browsing, business data solutions, songs, games, TV access, voicemail, conference calling, chats and other content to our postpaid and prepaid customers.  It is important to mention that we were the first mobile service provider in Brazil to offer subscriptions for BlackBerry service.  Under various postpaid mobile plans some value-added services are included in the monthly subscription charge at a specified level of usage.
 
Value-added services represented 12.8% of our gross service revenues in 2011, 12.0% in 2010 and 2009, 9.7% in 2008 and 7.9% in 2007. However, we continued to experience growth in usage of these services in 2011, as illustrated by revenue growth from value-added services of 41.3% compared to 2010.  We work with Telecom Italia, which makes substantial investment in developing new products, new technology and platforms, to evaluate the value-added services most prized by customers and to reduce implementation problems.
 
The following is a brief summary of our principal value-added services.
 
Short Message Services (“SMS”) or Text Messaging : Since December 2001, through agreements with other providers, we have offered two-way short (or text) message services, allowing our subscribers to send and receive short messages to and from users of networks of other carriers.  Notwithstanding the expectation that other value-added services will begin to generate more revenue, we expect the proportionate contribution of SMS to remain at similar levels, since we believe SMS usage can continue to increase based on the lower usage rates in Brazil compared to Europe and the United States.
 
Multimedia Messaging Service (“MMS”) :  As an enhanced version of SMS, MMS allows customers the capability to send, in a single message, multiple color images, sounds and different size text to another mobile phone or e-mail account.
 
 
Downloads :  We offer personalized ring tones, true tones, screen savers, business data solutions, games and video clips for downloading.
 
Web browsing : Wireless application protocol, or (“WAP”) is a global standard designed to make Internet services available to mobile telephone users.  WAP allows a micro “browser” in a mobile phone to link into a gateway service in our network enabling users to browse through different pages of information on the Internet.  We currently offer e-mail, data and information services and electronic commerce transactions, to our prepaid and postpaid users.
 
Data transmission :  We also offer general packet radio services (“GPRS”) to our postpaid and prepaid subscribers through our GSM network.  GPRS is a non-voice value-added service that allows information to be sent and received across a mobile network.  GPRS radio resources are used only when users are actually sending or receiving data.  Rather than dedicating a radio channel to a mobile data user for a fixed period of time, the available radio resource can be concurrently shared between several users.  As a result, large numbers of GPRS users can share the same bandwidth and be served from a single cell.  The number of users supported depends on the application being used and how much data is being transferred.  Because of the spectrum efficiency of GPRS, there is less need to build in idle capacity that is only used during peak hours.  GPRS therefore allows us to maximize the use of our network resources.  Our network allows customers with enabled devices to use EDGE technology, which is an evolution of GPRS allowing higher data transmission and a better using experience.  In 2008 we launched 3G services, which is a brand new technology that enhances the portfolio of value- added services (such as TV channels and speed of downloads).  We believe that 3G is an important milestone in our path towards achieving market leadership.
 
Sales of Mobile Handsets and BlackBerry
 
We offer a diverse portfolio of approximately 216 handset models and BlackBerry from several manufacturers, including Nokia, Samsung, Motorola, Sony, Ericsson and RIM, for sale through our dealer network, which includes our own stores, exclusive franchises, authorized dealers and department stores.  We are focused on offering an array of handsets, including web phones and smartphones such as the iPhone and BlackBerry devices with enhanced functionality for value-added services, including equipment that make 3G, GPRS, EDGE, MMS, MP3, tri-band, infra-red, Bluetooth, browsers, Internet, e-mail and Java available, while reducing reliance on the subsidies for handsets that have characterized the Brazilian market.  Our mobile handsets and BlackBerry can be used in conjunction with either our prepaid or postpaid service plans.  At present, we believe that supplies of mobile handsets and BlackBerry are sufficient to satisfy demand.  See “—Our Network.”
 
Co-Billing Services
 
Co-billing occurs when we bill our customers on behalf of another long distance service provider for services rendered to our customer by that carrier.  Beginning July 2003, we started providing co-billing services to other telecommunication service providers operating in Brazil.  The rates of such services are being negotiated under the supervision of Anatel.
 
Sales and Marketing
 
We commenced marketing our mobile telecommunications services under the brand “TIM” in March 1999.  We divide our market into three main categories: large business customers (businesses with four or more mobile lines), medium business customers (businesses with fewer than four mobile lines), and individual customers.  These categories are divided further according to level of usage, distinguishing, for example, high-volume users from other categories of usage.  We take these categories into account when developing service plans, sales strategies, customer service strategies and new products, as well as for billing and collection purposes.  We also use market research reports and focus group studies to analyze our customer base.  We refer to this analytical approach to our customer base as “customer segmentation.” Our strategy has been focused on the acquisition and retention of highly valued clients in all segments and on the pursuit of operating efficiency in supporting the expansion of or client base.  We currently intend to reduce our level of promotions and subsidies for handsets and certain prepaid services, and to focus our sales and marketing efforts on postpaid customers, high quality prepaid customers and service plans.  In
 
 
addition, although there can be no assurance, if we achieve and maintain a clear leadership position in customer satisfaction, we believe we will be well placed and benefit from number portability, recently introduced in Brazil.
 
As of December 31, 2011, our services were marketed through the largest distribution network in Brazil with over 9,296 points of sale (8,989 in 2010), of which approximately 81 were our own stores.  In addition, we had over 445 thousand recharging points for prepaid service.  We market our services through a network of stores, including general retail stores that sell our mobile telecommunications services and related goods on a non-exclusive basis, and dedicated outlets that sell our services and goods exclusively.  Sales of our products and services are offered by our sales personnel and also by authorized dealers, who are not our employees.  We select our authorized dealers based on a number of factors including the suitability of the premises in which our services and ancillary merchandise will be offered.  Our personnel and authorized dealers receive ongoing training and marketing support.
 
Our Network
 
Our wireless networks use only digital technologies, primarily GSM, and cover approximately 94% of the urban Brazilian population based on Anatel’s coverage criteria.  During 2010, we started to move away from TDMA technology, migrating customers to the GSM system, and promoting greater efficiency in terms of power consumption and we discontinued the use of TDMA in 2011.  During 2008 we implemented 3G services within our network, which enable users to experience a higher level of connectivity with broadband Internet access.  At the end of 2011, there were 11,716 sites:  11,336 GSM base transceiver stations (“BTS”) and 6,476 activated B nodes, all of them capable of offering high speed packet access, or “HSPA,” services.  With our acquisition of TIM Celular, we hold authorizations from Anatel to provide our mobile services in each of the ten wireless areas of Brazil over various frequency spectrums.  In December 2010 and in October 2011, we acquired additional bandwidth in the 1,800MHz band, in order to improve capacity and quality to the subscribers in the total amount of R$81.8 million, and we are still monitoring the status of the possible auctions for new bandwidth authorizations by Anatel (2.6MHz band for UBB applications).  We view the purchase of any frequency made available by Anatel for the provision of mobile services as a priority since having available frequency is core to our business.  In 2011, we made R$2.1 billion in investments to improve our network infrastructure, primarily the AES Atimus Acquisition.
 
Our wireless network principally includes transport and computer equipment, as well as exchange, and transmission equipment, consisting primarily of switches, 11,336 BTS in our GSM network and 6,476 B nodes as of December 2011.  The network is connected primarily by IP radio links and fiber-optic transmission systems from the recently acquired Intelig network.  The remaining sites are connected by leased lines.  Nokia Siemens Networks, Ericsson and Huawei are our main suppliers for GSM and 3G equipment.
 
In light of the widespread geographic coverage we have already achieved, we are focusing the further expansion and improvement of our GSM network on areas where it is important to increase the quality of our coverage, such as in tunnels, along major roadways, inside buildings in metropolitan areas and in high-traffic areas, such as tourist destinations, which typically experience high mobile use.  We also will continue to ensure our network has the capacity to absorb high call volume where relevant.
 
With the acquisition of Intelig, we have integrated more than 15 thousand kilometers of long-distance fiber optic cables connecting the main cities of Brazil.  We have been deploying 40G/DWDM/ROADM (dense wavelength-division multiplexing and reconfigurable optical add-drop multiplexer) layers on top of this existing network, modernizing the existing assets by replacing the legacy network.  In addition, we have entered into new joint construction contracts and other partnerships and initiatives to expand our fiber optic network by nearly 10 thousand kilometers by the end of 2011.  We have also established a partnership with a consortium of electric transmission line operators in the northern region of Brazil, where we acquired the right to launch optical ground wire cables, connecting the cities of Manaus, Tucuruí and Macapá by early 2013.  During the next few years, we plan to execute additional projects to increase the capillarity of our long-distance backbone network.
 
Our switching exchanges and intelligent network platform enable us to offer flexible, high quality voice service at extremely competitive prices.  Our satellite network covers distant areas of the country and is being expanded and renewed to provide high capacity private service to other carriers and corporate customers.  We also acquired capacity from major submarine cable systems such as AmericasII, Globenet and Atlantis2.  As mentioned above, we
 
 
have initiated a multi-year plan to expand the Intelig network with a goal of expanding coverage to the most isolated areas of Brazil.
 
Finally, the AES Atimus Acquisition and consequent creation of TIM Fiber has improved our fiber optic network presence in the metropolitan regions of Rio de Janeiro and São Paulo, with a network highlighted by the following characteristics:
 
 
·  
presence in 21 cities in the metropolitan regions of Rio de Janeiro and São Paulo;
 
 
·  
100 fiber optic networks using ITU-T g. SMF 652 standards;
 
 
·  
5,500 kilometers of fiber optic cabling deployed primarily over electrical utility poles;
 
 
·  
capability to provide connectivity (a “carrier’s carrier) through the electrical distribution network.
 
Site-Sharing Agreements
 
With the objective of avoiding unnecessary duplication of networks and infrastructures, Anatel permits telecommunications service providers to use other providers’ networks as secondary support in providing telecommunications services.  Therefore, we have allowed other telecommunications service providers to use our infrastructure, and we have used others’ infrastructure, pursuant to site-sharing agreements we have entered into with such providers.
 
Additionally, other sharing plans are being agreed among mobile operators, such as joint construction of long distance lines, backhaul sharing, and even studies for sharing radio access frequencies were made, with focus on lowering costs and increasing the penetration of the wireless services in Brazil.
 
Customer Service
 
We seek customer satisfaction through continuous improvements of processes and systems that facilitate the relationship between us and our customers regardless of the channel of communication.  We constantly monitor and record customer interactions with the company with our proprietary customer monitoring tool (“CRM”) through a customer-driven organization, offering unique and innovative service in all points of contact.
 
In this daily pursuit of customer satisfaction we continously train our customer service representatives, reviewing processes and procedures, improving and optimizing systems and thus ensuring that the daily relationship with our clients is of the highest standard of care and that our customers are satisfied with the level of care they receive.
 
We are continuously seeking ways to improve our level of customer service.  For example, we invested in an automated calling process which provides services through interactive voice response, enabling client identification and manual selection of options, and recording and reporting through a unique sequential protocol.  Additionally, we offer a cancellation and complaint option on our main calling menu to facilitate client access.  With respect to call transfers, we invested in our CRM tool, adding new functions that do not require the client to repeat a request if the client is transferred to a second operator.  These improvements of the computer telephony integration (“CTI”) and CRM systems ensure the transfer of customer data at the time of the call, minimizing the number of calls transferred improperly.
 
For hearing impaired clients, we offer a preferential service through text messages, with storage of historical data service, which can be retrieved for later delivery.  Furthermore, we invested in a tool that allows a client’s customer care service history to be retrieved and sent to the client on demand.  This service is available for communications via regular mail, e-mail, fax and through text messaging.  Finally, we have made customer servcie improvements to minimize waiting time.
 
Billing and Collection
 
Our company-wide, integrated billing and collection systems are provided by a third-party vendor.  These systems have four main functions:
 
 
·  
customer registration;
 
 
·  
customer information management;
 
 
·  
accounts receivable management; and
 
 
·  
billing and collection.
 
These billing systems give us significant flexibility in developing service plans and billing options.  Certain aspects of billing customers in Brazil are regulated by Anatel.  For mobile telephones, currently if a customer’s payment is more than 15 days overdue, we can suspend the customer’s ability to make outgoing calls, and if the payment is 45 days overdue, we can suspend the customer’s ability to receive incoming calls.  After 90 days from the customer’s payment due date, we generally discontinue service entirely, although discontinuation of service is sometimes delayed between 120 and 180 days after the due date for valued customers.  For fixed telephones, if a customer’s payment is more than 30 days overdue, we can suspend the customer’s ability to make outgoing calls, and if the payment is 60 days overdue, we can suspend the customer’s ability to receive incoming calls.  The rules of discontinuation of fixed service are the same as those applied for the mobile service.
 
Pursuant to Anatel regulations, we and other telephone service providers periodically reconcile the interconnection and roaming charges owed among them and settle on a net basis.  See “—Sources of Revenue—Interconnection Charges” and “—Sources of Revenue—Roaming Fees.” Currently, the roaming reconciliation process is largely managed by industry sponsored groups, including Verisign Clearing House for domestic roaming TDMA and MACH for domestic and international GSM, while the interconnection reconciliation process is primarily managed directly by us.
 
Fraud Detection and Prevention
 
“Subscription fraud,” which consists of using identification documents of another individual to obtain mobile services, and “cloning fraud,” which consists of duplicating the mobile signal of a mobile subscriber and thereby allowing the perpetrator to make calls using the subscriber’s signal, are the two principal types of fraud relating to mobile, fixed and long distance service.  Since a substantial majority of our customers use GSM, an entirely digital technology, we experience a low level of “cloning fraud” which is fairly common in parts of Brazil for users of TDMA, CDMA, and other technologies that use analog technology either entirely or in connection with some roaming services.
 
We have implemented cloning fraud-prevention measures, including restrictions on the level of international calls, and cloning fraud-detection measures, including review of call records to detect abnormal usage patterns, in an effort to detect fraud as quickly as possible and thereby reduce the associated costs.  We use a nationwide fraud detection system licensed from Hewlett Packard.  This system analyzes various aspects of mobile, fixed and long distance service usage including simultaneous usage by a single customer, call frequency and unusually high usage patterns.
 
As part of our commitment to excellent customer service, in the limited instances in which our customers experience cloning fraud, the customer’s number, mobile telephone or fixed telephone, or both, are changed free of charge.  If subscription fraud has occurred, both the applicable number and the mobile telephone line are terminated.  If part of a fraudulent call is carried by the network of another service provider, we are generally obligated to pay that service provider the applicable interconnection fee, regardless of whether we ever collect the receivable associated with the call.
 
Most of our efforts remain focused on implementing fraud prevention measures in point of sales, including digital authentication for our sales front end system and strong training program as well as monitoring and identification of points of sale.  Customers’ credit history is also being checked during the application process.
 
 
Competition
 
Mobile Competitors
 
TIM is the brand name under which we market our mobile telecommunications services.  We offer GSM, including 3G, EDGE, and TDMA technology.  Currently, our subsidiaries hold mobile licenses for each of the ten wireless areas of Brazil recognized by Anatel, making us the only mobile operator in Brazil offering nationwide coverage.  In two of our ten areas we are the Telebrás legacy provider.  See “Item 4.  Information on the Company—A. History and Development of the Company—Historical Background.”  Our network covers approximately 94% of the country’s population based on Anatel’s coverage criteria.
 
In addition to TIM, there are three other major participants in the Brazilian mobile market that offer nationwide coverage:  Vivo, Claro and Oi.
 
Our principal competitor in Brazil is Vivo, which is controlled by Spain’s Telefónica Móviles and until 2007 was operating in eight of the ten wireless areas of Brazil recognized by Anatel, using TDMA and CDMA, and in 2007 started to use GSM technology in 800 MHz and 1900 MHz and in 2008 started using UMTS in 2100 MHz.
 
In addition, we compete with Oi (the new Telemar brand) and Claro (which is controlled by America Móvil and until 2008 was operating in nine of the ten wireless areas of Brazil recognized by Anatel, using GSM and TDMA technology) in all areas.
 
The Brazilian mobile telecommunications industry is highly competitive.  Any adverse effects on our results and market share from competitive pressures will depend on a variety of factors that cannot be assessed with precision and that are beyond our control.  Among such factors are our competitors’ size, experience, business strategies and capabilities, the prevailing market conditions and the applicable regulations.
 
Other Competition
 
We also compete with fixed line telephone service providers.  The fixed line incumbent providers in Brazil (Oi, Brasil Telecom, Telefónica and Embratel) offer packages of services including voice (both fixed line and mobile), broadband and other services, an approach called “bundling.” Fixed line providers are, however, required to offer their services to unaffiliated mobile providers on the same basis they are offered to affiliated mobile providers.  Our acquisition of Intelig has broadened our participation in the fixed telecommunication sector.
 
On April 27, 2000, Anatel issued Resolution No. 221/00, later superseded by Regulation No. 404 of May 5, 2005, regulating Specialized Mobile Service, or trunking, which is based on push-to-talk technology, with rules similar to the ones applicable to the mobile telecommunications services.  Trunking service providers are not permitted to offer their services to individuals, and, therefore, will be competing with us exclusively in the corporate segment of our market.  Nextel has provided trunking services in Brazil since 2001.
 
We also compete in the corporate segment with Nextel, a digital trunking provider which operates under rules similar to the rules applicable to mobile telecommunications service providers, though trunking operators are not permitted to offer their services to individuals.  Nextel has provided trunking services in Brazil since 2001 and, on December 14, 2010, bid R$1.2 billion in winning 12 lots involving new GSM and UMTS frequencies in Anatel’s auction, which will give Nextel the opportunity to be the fifth nationwide mobile telecommunications competitor.
 
Seasonality
 
We have experienced a trend of generating a significantly higher number of new clients and handset sales in the fourth quarter of each year as compared to the other three fiscal quarters.  A number of factors contribute to this trend, including the increased use of retail distribution in which sales volume increases significantly during the year-end holiday shopping season, the timing of new product and service announcements and introductions, and aggressive marketing and promotions in the fourth quarter of each year.
 
 
Our Operational Contractual Obligations
 
For more information on our material contractual obligations, see “Item 10. Additional Information—C. Material Contracts.”
 
Interconnection Agreements
 
We have entered into interconnection agreements with most of the telecommunications service providers operating in Brazil.  The terms of our interconnection agreements include provisions specifying the number of interconnection points, the method by which signals must be received and transmitted, and the costs and fees for interconnection services.  Due to our migration to PCS, we have adapted our interconnection to conform to the new PCS rules and submitted these revised contracts to Anatel.  Nevertheless, even in the absence of approval by Anatel, the parties to these interconnection agreements are obligated to offer interconnection services to each other.  See “—Regulation of the Brazilian Telecommunications Industry—Interconnection Regulation.”
 
Roaming Agreements
 
We have entered into roaming agreements for automatic roaming with other cellular service providers operating outside our Regions.  Automatic roaming permits our clients to use their mobile telephones on the networks of other cellular service providers while traveling or “roaming” in Brazil outside our Regions.  Similarly, we provide cellular telecommunications service to customers of other cellular service providers when those customers place or receive calls while visiting our Regions.  The cellular service providers party to these agreements must provide service to roaming clients on the same basis that they provide service to their own clients and to carry out a monthly reconciliation of roaming charges.
 
Through TIM Brasil, we are a member of the Roaming Management Committee ( Associação Brasileira de Recursos em Telecomunicações ), a group comprised of all cellular and fixed telecommunications service providers operating in Brazil.  The Roaming Management Committee was created to independently control the activities related to TDMA and CDMA roaming services in Brazil and some international roaming agreements entered into by Brazilian companies with telecommunications service providers operating in the member countries of Mercosul.
 
Our GSM national and international roaming services are supported by individual agreements with our partners.
 
International Roaming Agreements
 
We also have roaming international agreements with 527 available networks in more than 200 countries.
 
Site-Sharing Agreement
 
With the objective of avoiding unnecessary duplication of networks and infrastructure, Anatel permits telecommunications service providers to use other providers’ networks as secondary support in providing telecommunications services.  Therefore, we have allowed other telecommunications service providers in our region to use our infrastructure, and we have used other providers’ infrastructure, pursuant to site-sharing agreements with such operators.
 
Co-billing services
 
Co-billing occurs when we bill one of our customers on behalf of a long distance service provider for services rendered to our customers by that carrier.  Beginning in July 2003, we started providing co-billing services to other telecommunication service providers operating in Brazil.  The rates of such services are being negotiated under the supervision of Anatel.
 
Taxes on Telecommunications Goods and Services
 
The costs of telecommunications goods and services to clients are subject to a variety of federal, state and local taxes (in addition to taxes on income), the most significant of which are ICMS, ISS, COFINS, PIS, FUST,
 
 
FUNTTEL, FISTEL, CONDECINE and Corporate Income Tax and Social Contribution on net income, which are described below.
 
 
·  
ICMS .  The principal tax applicable to telecommunications goods and services is a state value-added tax, the Imposto sobre Circulação de Mercadorias e Serviços (“ICMS”), which the Brazilian states levy at varying rates on certain revenues arising out of the sale of goods and services, including certain telecommunications services. The ICMS tax rate for domestic telecommunications services is levied at rates between 25% and 35%. The ICMS tax rate levied on the sale of mobile handsets averages 17% or 18% throughout the Regions, to the exception of certain handsets whose manufacturers are granted certain local tax benefits, thereby reducing the rate to as much as 7%. In 2005, certain of the Brazilian states started to charge ICMS on the sale of mobile handsets under a “tax replacement” system, under which the taxpayer that manufactures the goods is required to anticipate and pay ICMS amounts that would otherwise only become due in later steps of the distribution chain. In May 2005, the states decided, with the exception of the state of Alagoas and the Federal District, that as from January 2006, the telecommunications companies should issue invoices of communications services (Model 22) corresponding to the value of tax due on the sale of calling cards to dealers or final customers. The amount of ICMS tax due in such transactions is passed on to the dealers or final consumers and must be paid for the state where the services (the activation of the card) are provided.
 
 
·  
ISS .  The Imposto Sobre Serviços (“ISS”) is a municipal tax that applies on certain services listed in the List of Services prescribed by Complementary Law No. 116/03 (“LC116/03”).  This list also includes certain activities that have the purpose of providing goods. Municipalities impose this tax at varying rates, but in the majority of large cities, the ISS rate is the highest rate allowed, which is 5%.  The tax basis of the ISS is the price of the service, minus certain exceptions, such as construction services.  As provided by Constitutional Amendment No. 20, dated June 12, 2002, municipalities must charge a minimum rate of 2% and they must not directly or indirectly grant tax benefits that may result in an effective rate below 2%.  In August 2003, LC116/03, established a new framework for the ISS, which required municipalities to adapt their respective ISS legislation in order to comply with the rules set forth by LC116/03. Such new federal rules are effective as from January 1, 2004.
 
 
·  
COFINS .  The Contribuição Social para o Financiamento da Seguridade Social (“COFINS”) is a social contribution levied on gross revenues (financial revenues are levied at the rate of 0% due to Decree n. 5,442/2005 if the company is taxed in the non-cumulative method or if it applies both methods). Since January 1, 2000, companies began to pay the COFINS tax on their bills at a rate of 3%. In December 2003, through Law No. 10,833, the COFINS legislation was further amended, making this tax noncumulative, raising the rate to 7.6% for certain transactions, except in connection with telecommunications services, for which the method continues on a cumulative basis at a rate of 3%.
 
 
·  
PIS .  The Programa de Integração Social (“PIS”) is another social contribution levied at the rate of 0.65%, on gross revenues from telecommunications service activities. In December 2002, Law No. 10,637 was enacted, making such contribution non-cumulative and increasing the rate to 1.65% on gross revenues (financial revenues are levied at the rate of 0% due to Decree No. 5,442/2005 if the company is taxed in the non-cumulative method or if it applies both methods), except in connection with telecommunications services, for which the method continues on a cumulative basis at a rate of 0.65%.
 
 
·  
FUST .  On August 17, 2000, the Brazilian government created the Fundo de Universalização dos Serviços de Telecomunicações , (“FUST”), a fund that is supported by a tax applicable to all telecommunications services. The purpose of the FUST is to reimburse a portion of the costs incurred by telecommunications service providers to meet the universal service targets required by Anatel (such as targets for rural and impoverished areas, schools, libraries and hospitals), in case these costs are not entirely recovered through the collection of telecommunications service fees and charges.  FUST tax is imposed at a rate of 1% on gross operating revenues, net of discounts, ICMS, PIS and COFINS, and its cost may not be passed on to clients. Telecommunications companies can draw from the FUST to meet the universal service targets required by Anatel.
 
 
On December 15, 2005, Anatel enacted Precedent No. 7/05 requiring that FUST should be paid on revenues arising from interconnection charges since the effectiveness of the FUST. A notice was issued deciding that we must adjust values on the FUST calculation basis in order to include interconnection revenues received from other telecommunications companies. A writ of mandamus was filed against Anatel to avoid the terms of Precedent No. 7/05. The first level decision was issued in our favor. Although such first level decision may still be challenged in the near future (that is, it is still subject to appeal and does not constitute a final decision), it is now in full force and effect.
 
 
·  
FUNTTEL .  On November 28, 2000, the Brazilian government created the Fundo para Desenvolvimento Tecnológico das Telecomunicações (“FUNTTEL”), a fund that is supported by a social contribution tax applicable to all telecommunications services. The FUNTTEL is a fund managed by BNDES and FINEP, government research and development agencies. The purpose of the FUNTTEL is to promote the development of telecommunications technology in Brazil and to improve competition in the industry by financing research and development in the area of telecommunications technology.  FUNTTEL Tax is imposed at a rate of 0.5% on gross operating revenues, net of discount, ICMS, PIS and COFINS, and its cost may not be passed on to clients.
 
 
·  
FISTEL .  The Fundo de Fiscalização das Telecomunicações (“FISTEL”) is a fund supported by a tax applicable to telecommunications services, which was established in 1966 to provide financial resources to the Brazilian government for its regulation and inspection of the sector. The FISTEL consists of two types of fees: (1) an installation inspection fee assessed on telecommunications stations upon the issuance of their authorization certificates, as well as every time a new mobile number is activated, and (2) an annual operations inspection fee that is based on the number of authorized stations in operation, as well as the total basis of mobile numbers at the end of the previous calendar year. The amount of the installation inspection fee is a fixed value, depending  on the kind of equipment installed in the authorized telecommunication station. Effective April 2001, the installation and inspection fee is assessed based on net activations of mobile numbers (that is, the number of new cellular activations reduced by the number of cancelled subscriptions), as well as based on the net additions of radio base stations. The operations inspection fee equals 33% of the total amount of installation inspection fees that would have been paid with respect to existing equipment.
 
 
·  
CONDECINE . ( Contribuição para o Desenvolvimento da Indústria Nacional ) is a social contribution instituted to encourage development of the Brazilian film industry, established by Provisional Executive Order No. 2,228-1/2001, modified by Law No. 12,485/2011. It is levied on telecommunication services that distribute audio-visual contents. CONDECINE is payable by telecommunication companies annually with payment due by March 31 of each year .  The Government justified the creation of the CONDECINE tax based on the decrease of the TFF rate of 33%, so the companies will not have a higher tax burden.  Instead, companies will contribute at the same aggregate rate, but to different funds. The calculation base is the same as TFF.
 
 
·  
Corporate Income tax and Social Contribution on net income . Income tax expense is made up of two components, a corporate income tax (“IRPJ”) on taxable income and a social contribution tax on net income (“CSLL”). The corporate income tax is payable at the rate of 15% plus an additional rate of 10% (levied on the part of taxable profits that exceeds R$0.02 million per month or R$0.24 million per year). The social contribution tax is currently assessed at a rate of 9% of adjusted net income.
 
Companies are taxed based on their worldwide income rather than on income produced solely in Brazil. As a result, profits, capital gains and other income obtained abroad by Brazilian entities are added to their net profits for tax purposes. In addition, profits, capital gains and other income obtained by foreign branches or income obtained from subsidiaries or foreign corporations controlled by a Brazilian entity are computed in the calculation of an entity’s profits, in proportion to its participation in such foreign companies’ capital. At first, Brazilian  entities are allowed to deduct income tax paid abroad, up to the amount of Brazilian income taxes imposed on such income (reciprocity of treatment between Brazil and the country from which the income or gain comes from is required in order for this rule to apply). Effective January 1, 2002, profits (including retained profits from previous years) realized by a Brazilian entity from controlled or affiliated companies are taxed as of the date of the Brazilian entity’s year end balance sheet, unless the Brazilian
 
 
entity is liquidated before the date of its year end balance sheet, in which case the profits are taxed at the time of its liquidation.
 
Prior to January 1, 2002, profits realized by an entity in Brazil from a branch or agency were taxed as of the date of the Brazilian entity’s year end balance sheet, and profits from a controlled or affiliated company were taxed as of the date such amounts were paid or made available to the Brazilian company as dividends or otherwise.
 
Dividends are not subject to withholding income tax when paid. However, as the payment of dividends is not tax deductible for the company that is distributing them, there is an alternative regime for stockholder compensation called “interest on equity,” which allows companies to deduct any interest paid to stockholders from net profits for tax purposes.
 
These distributions may be paid in cash. The interest is calculated in accordance with daily pro rata variation of the Brazilian government’s long term interest rate - TJLP, as determined by the Central Bank from time to time, and cannot exceed the greater of: (1) 50% of the net income (before taxes and already considering the deduction of the own interest amount attributable to stockholders) related to the period in respect of which the payment is made; or (2) 50% of the sum retained profits and profits reserves as of the date of the beginning of the period in respect of which the payment is made.
 
Any payment of interest to stockholders is subject to withholding income tax at the rate of 15% or 25% in the case of a stockholder who is domiciled in a tax haven. These payments may be qualified, at their net value, as part of any mandatory dividend.
 
Losses carried forward are available for offset during any year up to 30.0% of annual taxable income. No time limit is currently imposed on the application of net operating losses on a given tax year to offset future taxable income within the same tax year.
 
Regulation of the Brazilian Telecommunications Industry
 
General
 
The telecommunications sector is regulated by Anatel, which was established by law and is administratively independent and financially autonomous from the Ministry of the Communications. Anatel is responsible for promulgating standards related to telecommunications services and regulating the relationship between different operators, as set forth in the General Law of Telecommunications ( Lei Geral de Telecomunicações ),  Law No. 9,472, dated July 16, 1997 and the Regulamento da Agência Nacional de Telecomunicações , or the Anatel Decree.
 
Despite liberalization, which occurred in 1997, the Brazilian telecommunications market still faces persistent dominant positions held by fixed incumbent operators.  In particular, broadband access is currently offered by operators over their own infrastructure and the respective regulatory framework is not always based on effective implementation of the wholesale access obligations.
 
Regarding the operating activities of TIM, Intelig and TIM Fiber, Anatel has developed a strict regulation of mobile communications services known as Personal Communication Service ( Serviço Móvel Pessoal ), or PCS, land line services known as Commuted Fixed Telephonic Service ( Serviço Telefônico Fixo Comutado ), or STFC and data communication known as Multimedia Service of Communication ( Serviço de Comunicação Multimedia ), or SCM.
 
Anatel may regularly alter these standards based on changes in technology, in particular regarding PCS technology, which are common to the telecommunications sector. In order to allow operators to plan for the implementation of these policies, Anatel approved a General Plan of Update of Telecommunications Regulation in Brazil ( Plano Geral para Atualização da Regulamentação das Telecomunicações no Brasil ), or PGR, pursuant to which it established short-, medium-, and long-term policies for two, five, and ten-year terms, respectively.  Anatel has authority to propose and to issue regulations that are legally binding on telecommunications service providers.  Any proposed regulation or action by Anatel is subject to a period of public comment, which may include public hearings, and may be challenged in Brazilian courts. This regulation process takes into consideration Anatel’s specialized analysis of different areas of the telecommunication sector and matters resulting from public hearings,
 
 
by means of which the regulation proposals are considered by Anatel, state authorities and the general public.  We follow these public hearings closely.
 
A presidential decree issued on June 30, 2011, established a bidding process for fourth generation radiofrequeencies, an important landmarks for the telecommunications sector. The notice to bidders is published by means of a public hearing and determined broadband quality goals, resulting in two new regulations to measure mobile and fixed broadband quality standards: the first one to review of PCS quality standards and a new one to introduce SCM measurement.  These standards are currently being implemented by Anatel and a group of interested companies. The full adaptation of these standards will require new investments.
 
Authorizations and Concessions
 
With the privatization of the Telebrás system and pursuant to the Lei Mínima (the “Minimum Law”), Band A and Band B service providers were granted concessions under SMC or Serviço Móvel Celular (“Cellular Mobile Service”) regulations.  Each concession was a specific grant of authority to supply cellular telecommunications services in a defined geographical area, subject to certain requirements contained in the applicable list of obligations attached to each concession.
 
Through resolutions enacted in September 2000 and January 2001, Anatel launched the PCS regime, and began encouraging cellular service providers operating under SMC regulations to convert their concessions into authorizations under PCS regulations.  According to the rules issued by Anatel, SMC providers would not be able to renew their concessions to provide SMC services, and were compelled to convert to the PCS regime in order to continue their operations.  The permission from Anatel to transfer the control of these companies was also conditioned on rules that compelled SMC providers to migrate its SMC concessions to PCS authorizations, and to operate under the PCS regulations.
 
In 1997 and 1998, our predecessors were granted SMC concessions and in December 2002, such SMC concessions were converted into PCS authorizations, with an option to renew the authorizations for an additional 15 years following the original expiration dates of the concessions.  TIM Celular acquired PCS authorizations in conjunction with auctions of bandwidth by Anatel in 2001, and subsequently acquired additional authorizations and operations under the PCS regulations as well.
 
On May 30, 2011, we entered into two new radiofrequency terms, formalizing the acquisition of excess radiofrequency in the states of Minas Gerais, Paraná, Santa Catarina, Amapá, Roraima, Pará, Amazonas and Maranhão and those new terms expire in April 2023.
 
The STFC and SCM authorization terms do not have an expiration date.
 
The following table shows the expiration date of the initial period of each of TIM Celular’s PCS authorizations.
 
   
Expiration date
   
Radiofrequency
Territory
 
800 MHz, 900 MHz
 
Excess of 1800 MHz
 
1900 /2100 MHz (3G)
States of Amapá, Roraima, Pará, Amazonas and Maranhão
 
March, 2016
 
April, 2023
 
April, 2023
States of Rio de Janeiro and Espírito Santo
 
March, 2016
     
April, 2023
States of Acre, Rondônia, Mato Grosso, Mato Grosso do Sul, Tocantins, Distrito Federal, Goiás, Rio Grande do Sul (except for the city of Pelotas and its surrounding region) and the cities of Londrina and Tamarana in the state of Paraná
 
March, 2016
     
April, 2023
State of São Paulo
 
March, 2016
     
April, 2023
State of Paraná (except for the cities of Londrina and Tamarana)
 
September, 2022
 
April, 2023
 
April, 2023
State of Santa Catarina
 
September, 2023
 
April, 2023
 
April, 2023
City of Pelotas and its surrounding region in the State of Rio Grande do Sul
 
April , 2024
     
April, 2023
State of Pernambuco
 
May, 2024
     
April, 2023
State of Ceará
 
November, 2023
     
April, 2023
State of Paraíba
 
December, 2023
     
April, 2023
State of Rio Grande do Norte
 
December, 2023
     
April, 2023
State of Alagoa
 
December, 2023
     
April, 2023
State of Piauí
 
March, 2024
     
April, 2023
State of Minas Gerais (except for the cities in sector 3 of PGO for radiofrequencies of 3G and excess radiofrequencies)
 
April, 2013
 
April, 2023
 
April, 2023
States of Bahia and Sergipe
 
August, 2013
     
April, 2023
 
According to the General Telecommunications Law and regulations issued by Anatel thereunder, licenses to provide telecommunications services are granted either under the public regime, by means of a concession or a permission, or under the private regime, by means of an authorization.  Only STFC incumbents are currently operating under the public regime.  All the other telecommunications services providers in Brazil are currently operating under the private regime, including all the PCS services providers.
 
Telecommunications services providers under the private regime are classified as either providing a service of collective interest or restricted interest.  Collective interest private regime services are subject to requirements imposed by Anatel under their authorizations and the General Telecommunications Law.  Restricted interest private regime services are subject to fewer requirements than public regime or collective interest private regime services.  According to the General Telecommunications Law and the regulation thereunder, all the PCS services providers in Brazil operate under the collective interest private regime.
 
In August 2009, Anatel gave its approval for the acquisition of the fixed line operator Intelig, which operates as a local, national and international long distance operator in Brazil and provides fixed broadband service in a number of regions in Brazil.  According to the regulations, TIM Brasil and Intelig are obliged to resolve the overlapping of the fixed service authorizations within 18 months from the acquisition, which was postoponed for one year in 2011 (that is by the end of June 2012) keeping only one authorization per class of service.  In addition, Anatel updated the contracts assigned to STFC Concessionaries and in particular will indicate new obligations related to the fixed line universal service obligations ( Plano Geral de Metas de Universalização ), or PGMU, namely referring to backhauling, public pay phones and telephone services for families with low incomes, among others.
 
In July 2011, TIM Celular acquired from the Companhia Brasiliana de Energia and AES Elpa S.A., its interest in Eletropaulo Telecommunications Ltda. (100%) and AES Communications Rio de Janeiro S.A. (98.3%) (together, “AES Atimus,” now named TIM Fiber).  The contract was signed on July 8, 2011.  On October 31, 2011, after all conditions set forth by the relevant regulatory agency were fulfilled, the transaction was completed.  With these new acquisitions, TIM Celular not only significantly expanded its operations in the data communications segment, or SCM, in the urban areas of the states of Rio de Janeiro and São Paulo, but also obtained important synergies related to the acquired fiber optic network.
 
National Broadband Program
 
In May 2010, the Brazilian government approved a National Broadband Program to extend national broadband coverage by 2014.  The plan includes the reactivation of Telebrás, which is responsible for managing and operating a national fiber optic network, and a new framework aimed at reducing the wholesale connectivity price and consequently allowing a more affordable price of “entry level” broadband residential connections.
 
Other measures included in the plan are represented by fiscal incentives to induce the operators to offer broadband access to low income families, public investments in research and financial support to national industries.
 
Obligations of Telecommunications Companies
 
In November 1999, Anatel and the Brazilian mobile service providers jointly adopted a Protocol for Mobile Cellular Service Providers (the Protocol).  The Protocol established additional quality of service targets and rates, which SMC operators were required to achieve by June 2001.  Although the General Telecommunications Law does not specify any penalties for failing to meet the targets required by the Protocol, Anatel was required to examine the performance of the Brazilian telecommunications companies under the Protocol’s standards.  Despite migration to PCS in December 2002, from January to June 2003, we reported to Anatel regarding, and had complied with, all quality of service indicators applicable to SMC operators. The Protocol ceased to be applicable to TIM Sul, TIM Nordeste Telecomunicações and TIM Maxitel after July 2003.
 
Beginning in September 2003, we became subject to the PCS quality of service indicators.  Our quality of service obligations under our PCS authorizations differ substantially from those under the previous SMC concessions.  See “—PCS Regulation.”  Since December 2003, we have achieved the majority of the service of quality requirements applicable to the PCS service operators.  Some of our PCS quality of service indicators are currently difficult to achieve due to, for example, our dependence on the performance of third parties and the continuing clarification of some of the quality of service measurements under the PCS rules.  As a result, since 2004 Anatel has been filing administrative proceedings against TIM Celular and TIM Nordeste for non-compliance with certain of our quality of service obligations.  In some of these proceedings, Anatel applied a fee that did not cause a material adverse effect on our business, financial condition and results of operations.  We will continue to strive to meet all of our quality of service obligations under the PCS authorizations.
 
In 2011, Anatel published Resolution No. 575/11 to Review of the Regulation on the Management of Quality of Service – PCS.  The new regulation established new quality goals, evaluation criteria, data collection and quality monitoring of Service Providers – PCS.  The Anatel regulation aims to create a comprehensive model of quality management of the PCS providers providing preventive and proactive on the part of the Agency, through the incorporation of indicators and benchmarks that allow the systematic evaluation of the quality of service in all its dimensions.
 
This new list of proposals for quality indicators is divided into two major groups: Operational Indicators and Indicators Research.
 
PCS Regulation
 
In September 2000, Anatel promulgated regulations regarding PCS wireless telecommunications services that are significantly different from the ones applicable to cellular companies operating under Band A and Band B.  The new rules allow companies to provide wireless telecommunications services under PCS authorizations.  The PCS authorizations allow new entrants in the Brazilian telecommunications market to compete with existing telecommunications service providers.
 
According to rules issued by Anatel, renewal of a concession to provide cellular services, as well as permission from Anatel to transfer control of cellular companies, are conditioned on agreement by such cellular service provider to operate under the PCS rules.  TIM Sul, TIM Nordeste Telecomunicações and TIM Maxitel converted their cellular concessions into PCS authorizations in December 2002, and later transferred them to TIM Sul, TIM Nordeste Telecomunicações and TIM Maxitel, which are now TIM Celular and TIM Nordeste subject to obligations under the PCS regulations.  See “—Authorizations and Concessions.”
 
In connection with the PCS authorization auctions in 2001 and 2002, Anatel divided the Brazilian territory into three separate regions, each of which is equal to the regions applicable to the public regime fixed-line telephone service providers.  PCS services may only be provided under Bands C, D and E licenses which initially 1800 MHz band (after words encompass also the 900 MHz band) and were auctioned by Anatel in 2001 and 2002.  TIM acquired the D band in regions II and III and the E band in region I, filling the national coverage, considering the TIM Sul, TIM Nordeste and Maxitel coverage.
 
In December 2007, TIM Celular acquired new authorization for 1800 MHz in São Paulo and Rio de Janeiro States in order to improve its radio frequency capacity in theses regions.
 
In the same auction, Claro and Vivo acquired authorization to provide PCS services in regions where TIM provides services but where Claro and Vivo previously did not provide such services by using 1800 MHz and 1900 MHz bands, therefore now competing with TIM in these regions.  In the same auction, Oi received authorization to provide PCS services in the state of São Paulo by using 1800 MHz (band M in the whole state and band E in the state’s countryside).
 
Anatel has initiated administrative proceedings against TIM Celular for noncompliance with certain quality standards and noncompliance with the rules and the authorization terms. We have been fined by Anatel in some proceedings and are still discussing the penalty imposed in appeals before the Agency.  As a result of these proceedings, Anatel applied some fines that did not cause a material adverse effect on our business, financial condition and results of operations.  In the year ended December 31, 2011, the total amount of these fines was R$108 million. However, only R$3.4 million were classified as “probable loss” by our legal advisors.  We continue to do our best to fully comply with our obligations under the PCS regime or with future changes in the regulations to which we are subject.  See “—Obligations of Telecommunications Companies,” “Item 3. Key Information—D. Risk Factors—Risks Relating to our Business” and “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal Proceedings.”
 
According to the new PCS regulations, we are required to adjust our operating processes and agreements to such new rules, including our interconnection agreements, as well as agreements with our customers.  By April 2005, substantially all of our interconnection arrangements were covered by agreements that had been amended to reflect the PCS regulations.
 
In August 2007, Anatel issued Resolution No. 477 establishing new obligations regarding PCS, in particular in connection with users’ rights towards their mobile services providers.  The new resolution came into effect in February 2008.  The main PCS new regulatory obligations include the following:
 
 
·  
Creating at least one customer service department for each municipality division;
 
 
·  
Increasing prepaid card terms (from 90 days to at least 180 days);
 
 
·  
Reimbursing prepaid credits;
 
 
·  
Supplying a protocol number for each communication with a customer;
 
 
·  
Sending such protocol number by SMS;
 
 
·  
Cancelling service in every customer’s service channel of the Company;
 
 
·  
Cancelling service in 24 hours;
 
 
·  
Sending free prepaid card detailed report of service use;
 
 
·  
Changing rules for scheduled billing of postpaid customers;
 
 
·  
Ceasing to impose fines on customers based on breach of loyalty plans; and
 
 
·  
Taking measures to prevent SMS spamming.
 
Significant Market Power
 
In September 2011, a new competition framework was published by Anatel, the General Plan for Competition Goals ( Plano Geral de Metas de Competição , or “PGMC”), and the respective adoption will be the subject of a public hearing and public consultation.  The PGMC will set out clear criteria for designating operators with Significant Market Power, and the specific regulations they will have to follow in the wholesale access market.
 
Anatel proposed a broad reform of the fixed-wholesale market, introducing asymmetric regulatory measures, in line with the European experience, in order to assure a more transparent and non-discriminatory access to the incumbent’s networks.  It is expected that Anatel will publish the resolution in 2012.
 
Interconnection Regulation
 
Telecommunication operators must publish a public interconnection offer on both economic and technical conditions and are subject to the “General Interconnection Regulatory Framework” promulgated by Anatel in 2005.
 
The free negotiation process for interconnection charges has been extended and will proceed until a “cost based” reference interconnection value is set by Anatel.  Under a specific Resolution, Anatel developed a new model to determine reference costs for the use of mobile networks by providers who have Significant Market Power.  These values will be used in arbitration cases involving termination rates by Anatel.
 
In 2005, Anatel issued a ruling for “Accounting Separation and Cost Accounting,” introducing the obligation of presenting the Accounting Separation and Allocation Document ( Documento de Separação e Alocação de Contas – DSAC) by the license holders and groups holding Significant Market Power in the offering of fixed and/or mobile network interconnection and wholesale leased lines ( Exploração Industrial De Linha Dedicada – “EILD”).  Starting from 2006 (for fixed operators) and 2008 (for mobile operators related to the results of 2006 and 2007), operators (TIM included) are delivering the requested information to Anatel.
 
Anatel conducted a public consultation in March 2011 regarding a proposal to modify the regulation on leased lines, which is a service contract between a provider and a customer, whereby the provider agrees to deliver a symmetric telecommunications line connecting two or more locations in exchange for a monthly rent.  The proposed rule provides for more efficient wholesale service regulation, taking into account the operational needs of alternative market players.
 
In October 2011 Anatel reduced fixed to mobile rates, which was based on a decrease on the respective wholesale interconnection levels on termination.  Anatel proposed a reduction of the fixed to mobile rates of 18% in 2012, 12% in 2013 and 10% in 2014 based on nominal declines.
 
Rate Regulation
 
Under our PCS authorizations, we are allowed to set prices for our service plans, subject to approval by Anatel, provided that such amounts do not exceed a specified inflation adjusted cap.  Anatel currently uses the IST ( Índice de Serviços de Telecomunicações ), a general price inflation index developed by FGV, in evaluating prices and determining the relevant cap for prices charged in the telecommunications industry. Beginning in 2012, we expect Anatel to begin to assess prices in the telecommunications industry based on a model that takes into account the costs of a hypothetical company costs, along with other factors. We expect that the adjustment of our prices will follow the market trend, and that the adjustment will be below the annual inflation rate based on the IST.  If this new inflation adjustment mechanism, or any other mechanism chosen by the Brazilian government in the future, does not adequately reflect the true effect of inflation on our prices, our results of operations could be adversely affected.
 
Number Portability
 
In March 2007 Anatel issued a new regulation regarding number portability in Brazil for fixed telephony and PCS providers.  Portability is limited to migration between providers of the same telecommunications services.  For PCS providers, portability can take place when customer changes services provider within the same Registration Area as well as when customer changes the service plan of the same area.  Anatel finished the nationwide NP implementation schedule in March 2009.
 
Mobile Virtual Network Operators
 
In November, 2010, Anatel approved a resolution establishing the rules to permit the exploration of mobile services by means of a virtual network, based on commercial agreements between established operators and virtual operators.
 
We were the first mobile operator to negotiate a contract with a virtual operator and we are an industry leader in the discussions with Anatel to develop this service. The first and only contract to be submitted for Anatel’s approval in December 2010 was for an authorization license in partnership with us.  Our commercial partners have opted for
 
 
the authorization license, which carries the obligations and responsibilities for providing the service.  The contracts are negotiated on a case by case basis with the intention to build a specific solution for every new virtual operator.
 
Value-Added Services and Internet Regulation
 
Value-added services are not considered under Brazilian telecommunications regulations to be telecommunications services, but rather an activity that adds features to a telecommunications service.  Regulations require all telecommunications service providers to grant network access to any party interested in providing value-added services, on a non-discriminatory basis, unless technically impossible.  Telecommunications service providers also are allowed to render value-added services through their own networks.  Internet access is considered by Brazilian legislation to be a value-added service, and its providers are not considered to be telecommunications companies.  Current regulations allow us or any other interested party to offer Internet connection services through our network.
 
The Brazilian Congress is considering bill number 2,126/2011, known as the Legal Framework for the Use of the Internet ( Marco Civil da Internet ), that would establish warranties, principles, rights and duties related to Internet use and its provision. The project aims to develop regulations related to this service with a general framework. Among key issues addressed in the legislation are: net neutrality, responsibility for damages caused by content generated or published by third parties, content storage and conections. This law is also intended to develop guidelines for how the government can or should act to provide and monitor Internet service.
 
Frequencies and Spectrum Background
 
We have a license to operate PCS services in the 800 MHz, 900 MHz, 1.8 GHz and 1.9/2.1 GHz frequency ranges, which allows us to provide mobile communications services with 2G and 3G technologies throughout Brazil.
 
In December 2010 Anatel auctioned an empty 3G band of radio spectrum consisting of (10+10)MHz in 2.1GHz in the whole country (the “H Band” Auction), and other left over frequencies in the 900MHz and 1800MHz bands that had not been assigned in previous auctions.
 
 
·  
Of the 12 available lots in the H Band, 10 were awarded to Nextel, a new entrant in the GSM market, which has traditionally offered trunking services in Brazil.  Current operators were prevented from participating due to spectrum caps.  OI and CTBC managed to win the remaining 2 lots where they had cap availability.
 
 
·  
The new entrant will be benefited with spectrum and infrastructure sharing, specifically in locations with less than 30,000 inhabitants, subjected to commercial agreements.
 
 
·  
TIM won individual block of frequencies in 5 service areas, strengthening its presence in the North, Santa Catarina, Minas Gerais and Parana, biding a total of R$81.8 million, which will be paid proportionately to the remaining years in the existing authorization licenses (remaining years/15).
 
 
·  
VIVO won blocks in 900MHz and due to available cap, managed to win lots of 1700/1800MHz in all regions, completing a national coverage of (10+10)MHz in this band.
 
 
·  
Claro won blocks of spectrum in the 1700/1800 MHz band.
 
In August 2010, Anatel approved a resolution for the destination of the 2.5 GHz spectrum to mobile services after 2013.  Today the 2.5GHz band is assigned to multipoint distribution service (“MMDS”) TV services and the respective cleaning for destination to other services will be the responsibility of the new owner.  Only four national blocks of FDD will be available, two of (20+20) MHz and two of (10+10) MHz. The 2.5GHz spectrum auction will be held in June 2012 and brings indirect obligations to the 450MHz band, even if this second band is not bought directly. The mentioned (20+20) MHz bands will require urban coverage obligations in 2.5GHz and rural coverage obligations. We believe the technology available for the 450MHz band is not economically viable. Two other bands will be available: a (10+10) MHz FDD band and a 35 MHz TDD band only where the MMDS companies renounce their rights.
 
Brazil has not yet identified the Digital Dividend (the amount of spectrum that will be freed up in the switchover from analogue to digital terrestrial TV), but only briefly and publicly stated that this radiofrequency will be available to broadcasters after 2016.  Since this band is complimentary to the 2.5GHz, the dynamics of the 2.5GHz Band deployment  may be highly impacted by the outcome of the Digital Dividend discussions. Anatel has stated its commitment to complete its analysis of the destination of the 700MHz spectrum by the end of 2012.
 
In October 2010, Anatel started auction No. 002/2010-PVCP/SPV for sub band H (band of 1.9/2.1 GHz - 3G) and the leftovers of 1.8 GHz (2G) bands. Current PCS players with operation in the band of 1.9/2.1 GHz, were not eligible for the bidding of sub band H, as a result of limitations set out by Anatel, related to the limits for detention of radiofrequencies. The current contractor’s inability to participate in the bidding process for  sub band H, allowed Nextel to acquire nationwide 3G coverage and 2G presence in Region I of PGA, with a total investment of R$1,421.3 million.
 
In November 2010, Anatel published the radiofrequency efficiency regulation, establishing metrics for efficiency measurement, excluding broadcasters of the obligation.  The non-compliance includes in the extreme, expiration of the radiofrequency license without compensation. This regulation have been in place since November 2011, though Anatel has not yet established the parameters for evaluation, even though it is expected that all operators are currently in compliance.
 
In December 2011, Anatel started auction No. 001/2011-PVCP/SPV, pursuant to which 16 blocks in the 1,800 MHz band were sold to Claro, Oi, CTBC and TIM, who acquired the biggest amount of MHz with the lesser premium.
 
As a result of our participation in the auction, we will expand our 2G coverage and increase our presence in the northern and midwestern regions of Brazil, including the states of Paraná, Espirito Santo, Rio Grande do Sul, Santa Catarina and Minas Gerais, by making an investment of R$65 million at the December 2010 auction and an expected investment of R$80.7 million at the December 2011 auction.
 
MTR and Wholesale Market
 
The interconnection of telecommunication operators is mandatory, allowing the users of different services to make calls from one network to another. In the case of PCS, Anatel has established that, whenever its network is used to originate or to receive calls, the operators will receive the Value of Use of PCS Network (VU-M), also known as mobile termination rate, of free agreement between the parties.
 
Anatel urged us to adopt a single VU-M by region of the PCS License General Plan ( Plano Geral de Autorizações ), or PGA, which began on November 1, 2010, of free agreement between the related parties.
 
In October 2011, Anatel approved Resolution No. 576/2011, which reduced rates of land line to mobile calls by 18% in February 2012, 12% in 2013 and 10% in 2014 on the Telecommunications Services Index - IST.  This negative readjustment of VC-1 rates is followed by new negotiations for VU-M rates, which might be followed by an arbitration process with Anatel, which established that the full nominal reduction of the VC-1 will be forwarded to the VU-M.
 
In December 2010, Anatel has also approved a public hearing that considered alterations of the Industrial Exploration of Dedicated Lines ( Exploração Industrial de Linha Dedicada ), or EILD, which established mechanisms for the operation of transmissions circuits to increase transparency between operators and concessionaires.
 
Anatel is currently reviewing discussions submitted as part of a public hearing addressing the wholesale market and improvements, which will be set out in the General Plan of Competition Goals ( Plano Geral de Metas de Competição ), or PGMC.  The PGMC will set out asymmetry standards, particularly within the EILD market of infrastructure of transmission, as a way to promote competition in the retail market and isonomy in the wholesale market, improving the model of regulation supported by the definition of Significant Market Power ( Poder de Mercado Significativo ), or PMS in the markets considered relevant.
 
Costs Model
 
The implementation of a costs model by Anatel has been in development since March 2005, when the Separation and Allocation of Accounts Document ( Documento de Separação e Alocação de Contas ), or DSAC was approved, for pricing of STFC and PCS interconnection, as well as wholesale market inputs, in particular with regards to dedicated lines (EILD) and unbundling.
 
In August 2011, a consortium headed by Advisia Consultants was hired to develop the optimized modeling of costs, which will be the basis for all the models the agency will use, in particular when establishing rates and prices for telecommunications services.
 
The implementation of the costs model was one of the short term goals set by the PGR, with expectation of conclusion in 2013, however, its technical complexity indicates that it will only be effective in 2014.
 
Migration of the Mobile Networks with AnalogTechnology
 
In February 2011, Anatel approved Resolution No. 562/11, which modified a provision of the regulation on conditions of use of radiofrequencies, determining that, after a period of 360 days from the publication, the use of analog technology in radiofrequencies sub bands of 800 MHz would no longer be allowed.
 
In relation to the use of such radiofrequencies, we no longer have any subscriber of analog technology (AMPS).  However, our analog networks are still used by STFC concessionaires to provide services to subscribers in rural areas of the country, a service called RuralCel.
 
The implementation of the RuralCel service was carried out by the companies in the Telebrás system, prior to the privatization process in 1998.  Once the privatization of these companies was completed, SMC operators are required to keep sharing such infrastructure (mobile networks with analog technology) with STFC concessionaires with rural subscribers.  There is a dispute with STFC concessionaires on the value for the availability of the RuralCel support network.
 
Anatel decided to postpone shutting down this service indefinitely and as a result, we continue to interact with the regulating agency to get a definite decision on the shutdown of our analog mobile networks.
 
Regulation of Quality
 
In October 2011, Anatel published PCS and SCM quality management regulations to establish quality parameters which will have to be met by the mobile telephone and internet connection operators in up to 12 months.  Among such quality parameters, most notable are the ones relating to the quality of the networks, both mobile and fixed, creating obligations of minimum and average speeds in numbers, higher that those currently used by operators, which will demand in the short term, investments so that such obligations are met.
 
As a response to the need to better quantify the financial impacts, Grupo Oi has presented cancellation request along with a revision request to Anatel for the presentation of technical surveys of the economic that which motivated such regulations.
 
The aforementioned request was submitted for a public hearing by Anatel, which resulted in a series of differing opinions regarding quality measures by the different operations that are currently being considered by Anatel.
 
Consolidation of TIM and Intelig STFC Licenses
 
With the merger of Intelig with and into TIM we were required to eliminate the existing overlapping license, in order to abide by regulations.  We were given 18 months to implement this elimination, beginning on the date of closing of the transaction.  This term was extended for an additional 12 months, and now expires on June 30, 2012.
 
On December 30, 2011 we filed petitions with Anatel to authorize the consolidation of our STFC license terms in the local mode under Intelig and STFC LDN and LDI under TIM.  On June 30, 2012 we will return CSP 23 to
 
 
Anatel, keeping the operation of STFC LDN and LDI bound to CSP 41 under STFC LDN and STFC LDI of TIM, whereas Intelig shall keep the STFC local license.
 
Inclusion of ninth digit in 011 area code numbers
 
In December 2010, Anatel published Resolution No. 553/2010, determining the inclusion of one more digit for numbers in the 011 area code region, which includes the city of São Paulo and neighboring cities.  Anatel’s decision to add one more digit to mobile phone numbers in the 011 area code was intended to increase the availability of numbers in the metropolitan area of São Paulo from 37 million to 90 million, as it is expected that availability of mobile numbers would end by 2013 at the current rate of subscription growth.  The beginning of the implementation of the ninth digit in area code 011 is expected for July 29, 2012.  The change will require users to add the digit 9 to the beginning of existing mobile numbers.
 
This measure will require residents of the 011 area code region to carry out possible adjustments to private equipment and systems such as, for example, PABX equipment and phone lists, in addition to technical adjustments carried out by telecommunication companies.  Technical, Communications and Regulatory work groups have been created by representatives of all PCS and STFC operators, in order to prepare for the implementation of the ninth digit in a synchronized way for all the operators, with standardized communication to avoid adjustment difficulties for users.
 
Following the July 29, 2012 deadline, 8-digit calls will still be completed for a 90-day period, to allow networks and users to adapt.  Gradually there will be interceptions and users will receive messages with guidance on how to dial.  After this transition period, calls dialed with 8 digits will no longer be completed.
 
Anatel Administrative Proceedings
 
Under the terms of the its PCS authorization, TIM Celular implemented mobile personal telecommunications coverage for the assigned area, as did Intelig and TIM Fiber in accordance with their STFC and SCM authorizations, respectlly.Under such term of authorization, TIM Celular is required to operate in accordance with the quality standards established by Anatel.  If it fails to meet the minimum quality standards required, TIM Celular, Intelig and TIM Fiber are subject to Obligation Non-Compliance Determination Procedures (“PADO”) and applicable penalties.  Anatel has brought administrative proceedings against TIM Celular for (1) noncompliance with certain quality service indicators; and (2) default of certain other obligations assumed under the Terms of Authorization and pertinent regulations.  In its defense before Anatel, TIM Celular attributed the lack of compliance to items beyond its control and not related to its activities and actions.  We cannot predict the outcome of these proceedings at this time, but have accrued the amount in our balance sheet as a provision for all those cases in which we estimate our loss to be probable.
 
C. 
Organizational  Structure
 
Substantially all assets held by TIM Participações consist of the shares of its wholly-owned subsidiaries TIM Celular (headquarters located in the State of São Paulo), and Intelig (headquarters located in the State of Rio de Janeiro).
 
The following chart illustrates our current ownership structure:
 
 
D. 
Property, Plants and Equipment
 
Our principal properties consist of transmission equipment, switching equipment, which connect calls to and from customers, and radio base stations, which comprise certain signal transmission and reception equipment covering a defined area.  At our radio base stations we have also installed antennas and certain equipment to connect these antennas with our switching equipment.  As of December 31, 2011, we had 187 mobile switches, 11,336 radio base stations, and approximately 23,396 kilometers in fiber optic cable networks.  We generally lease or buy the sites where our mobile telecommunications network equipment is installed. On December 31, 2011, we owned approximately 201,752 square meters and leased approximately 1,231,486 square meters of real property, all of which were available for installation of our equipment. We also lease approximately 158,777 square meters and owns approximately 70,201 square meters of office space. There are no encumbrances that may affect our utilization of our property or equipment.  We plan to invest up to R$9.0 billion in capital expenditures, according to our strategic plan for the years 2011 through 2013.
 
Item 4A.  Unresolved Staff Comments
 
None.
 
Item 5.  Operating and Financial Review and Prospects
 
Our consolidated financial statements are prepared in accordance with IFRS as issued by the IASB.  Our consolidated financial statements included herein as of and for the years ended December 31, 2011, 2010 and 2009 have been audited by PricewaterhouseCoopers Auditores Independentes.  The report of PricewaterhouseCoopers Auditores Independentes on the consolidated financial statements appears elsewhere in this annual report.
 
Our first financial statements prepared in accordance with IFRS were those as of and for the year ended December 31, 2010, which contain comparative amounts related to year ended December 31, 2009, also prepared under IFRS.  These financial statements were filed with the CVM and made publicly available in Brazil.
 
Our summary financial data prepared in accordance with IFRS is not comparable with our summary financial data prepared in accordance Brazilian GAAP and presented in previous annual reports on Form 20-F.
 
The following discussion of the Company’s financial condition and operating results should be read in conjunction with the Company’s audited consolidated financial statements as of December 31, 2011, 2010 and 2009 included in this annual report that have been prepared in accordance with IFRS, issued by IASB as well as with the information presented under “Item 3. Key Information—A. Selected Financial Data.”
 
Factors Affecting the Comparability of our Results of Operations
 
Merger of TIM Nordeste S.A. into TIM Celular
 
On October 30, 2009, our Board of Directors approved the corporate reorganization of our subsidiaries, whereby TIM Nordeste S.A. would be merged into TIM Celular.  On December 17, 2009 Anatel granted approval of this proposal through Decision No. 7,477, and on December 31, 2009, the shareholders of TIM Nordeste S.A. and of TIM Celular S.A. approved the reorganization at their respective Extraordinary General Meetings.
 
The purpose of this reorganization was to optimize our organizational structure by further consolidating and rationalizing our businesses and operations by leveraging tax and financial synergies and cutting costs associated with maintaining separate legal entities.  There was no impact on our financial statements prior to 2009.
 
Acquisition of Holdco/Intelig
 
At a meeting of our Board of Directors on April 16, 2009, we executed a Merger Agreement with Holdco, a subsidiary of JVCO, pursuant to which through a merger of Holdco into us, we would acquire indirect control of Intelig.  Anatel approved the merger on August 11, 2009 in Decision No. 4634, and decided to eliminate the overlapping geographic licenses held by TIM Celular and STFC within 18 months.
 
On December 30, 2009, our shareholders approved the merger of Holdco into TIM Participações.  As a result of this operation, we issued 127,288,023 shares (43,356,672 common and 83,931,352 preferred) for a book value of R$516.7 million to JVCO.  The acquisition date fair value of the consideration transferred totaled R$739.7 million. Holdco’s assets and liabilities acquired were, respectively, R$517.1 million and R$0.4 million as of November 30, 2009.
 
The results of Intelig’s operations were not included in the 2009 consolidated financial statements since the acquisition date was December 30, therefore only the balance sheet was consolidated.  Intelig is a provider of long distance and fixed line telecommunication services in Brazil.  As a result of the acquisition, we began expanding our long distance and fixed line services in Brazil.
 
The table below includes the fair value of the identified assets acquired and liabilities assumed on the date of acquisition.
 
Assets
 
R$ (thousands)
 
Cash and cash equivalents
    132,816  
Accounts receivable
    126,353  
Taxes recoverable
    23,074  
Court deposits
    33,453  
Property, plant and equipment
    780,845  
Intangible assets
    135,850  
Other assets
    25,114  
Total identifiable assets purchased
    1,257,505  
         
Liabilities
    (342,431 )
Loans
    (118,402 )
Contingencies
    (140,107 )
Long-term taxes and contributions
    (101,311 )
Other liabilities
    (25,540 )
Total liabilities assumed
    (727,791 )
         
Net identifiable assets acquired
    529,714  

As result of the adjustment to fair value of the identified assets acquired and liabilities assumed from Intelig upon the acquisition of the company, the fair value of the net assets purchased totaled R$529.7 million Thus, we concluded that the amount of R$734.0 million, paid upon the acquisition of Intelig on December 30, 2009, exceeded the fair value of the net assets by R$210.0 million.  This surplus was recorded as goodwill and is based on expectations of future profitability of Intelig, supported by the projections prepared by us together with our financial advisers.
 
If such transaction had occurred as of January 1, 2009, the net revenue and net income for the period ended December 31, 2009, considering the combination of TIM Participações and its subsidiaries with Intelig, would have been R$13,747.0 million and R$801.2 million, respectively.
 
Public offering of common shares
 
In September 2011, we publicly offered 200,258,368 newly issued common shares at an offering price of R$8.60 per share.  We received net proceeds of approximately R$1.7 billion in the offering, which were used to develop and expand our network infrastructure.  Our controlling shareholder acquired approximately 63% of our common shares issued in the offering.
 
Acquisition of AES Atimus
 
On July 8, 2011, our wholly-owned subsidiary TIM Celular entered into an agreement with Companhia Brasiliana de Energia and AES Elpa S.A. (the AES Group in Brazil) for the purchase of all of AES Elpa S.A.’s equity interests in Eletropaulo Telecomunicações Ltda. and 98.3% of the interest of AES Communications Rio de Janeiro S.A. (the “AES Atimus Acquisition”).  We completed the acquisition on October 31, 2011, after all conditions precedent to the contract were completed and certain regulatory approvals were obtained.  We paid a total of R$1,074,179 and R$447,471, respectively, for each of Eletropaulo Telecomunicações Ltda. and AES Communications Rio de Janeiro S.A.  In connection with the acquisition, Eletropaulo Telecomunicações Ltda. changed its corporate name to TIM Fiber SP Ltda., and AES Communications Rio de Janeiro S.A. changed its corporate name to TIM Fiber RJ S.A., and we call the business, collectively, TIM Fiber.
 
The AES Atimus Acquisition will allow us to expand our operations in the high-speed data communications market, allowing us to offer new products to our customers, as well as providing a reduction in infrastructure rental cost, and helping us obtain significant synergies related to the fiber optic network.
 
Our financial statements for the year ended December 31, 2011, included net revenues of R$22,594 and a loss of R$19,406 relating to the businesses acquired in the AES Atimus Acquisition for the period from November 1, 2011 to December 31, 2011.
 
In the year ended December 31, 2011, we incurred R$15 million in costs attributable to the AES Atimus Acquisition, which are recorded under general and administrative expenses.
 
The table below summarizes the amount paid to acquire control of the companies in the AES Atimus Acquisition, as well as the amounts provisionally established as identified assets and liabilities assumed at the acquisition date, as well as the fair value of the acquisition of non-controlling interest at the acquisition date:
 
 
61
 
     
Provisional Amounts
 
     
Eletropaulo
Telecomunicações
Ltda.
     
AES
Communications
Rio de Janeiro S.A.
 
   
(thousands of reais )
 
Cash and cash equivalents
    1,074,179       447,471  
Fair value of non controlling interest acquired
               
                 
Total Consideration
    1,074,179       445,409  
                 
Amounts recorded, identified assets and liabilities assumed
               
Cash and cash equivalents
    15,477       3,496  
Financial assets valued at fair value through income
    1,170          
Accounts receivable
    19,868       18,156  
Tax credits
    22,064       18,227  
Court deposits
    501       63  
Other assets
    374       334  
PP&E
    164,198       120,639  
Intangible
    9,196       2,941  
Loans and financing
    (67,619 )     (22,024 )
Suppliers
    (6,779 )     (6,063 )
Labor obligations
    (5,514 )     (3,391 )
Tax obligations
    (21,671 )     (18,336 )
Other liabilities
    (5,973 )     (1,933 )
Contingencies
    (11 )     (472 )
                 
Total of identified assets net
    125,281       111,637  
                 
Goodwill
    948,898       343,772  
 
 
On November 27, 2011, as provided for in the acquisition agreement, our subsidiary TIM Celular made an extension of the tender offer to non-controlling shareholders at the same price per share paid to the former controlling shareholders of businesses that now constitute TIM Fiber.  As a result, for purposes of calculating the balances involved in the business combination, we consider the acquisition of 100% of AES Communications Rio de Janeiro S.A. and an additional financial liability of R$7,938 recorded to reflect the tender offer to non-controlling shareholders.
 
Because the AES Atimus Acquisition was concluded toward the latter part of the year, based on information currently available, it is not possible to determine with reasonable certainty the existence of any additional assets, liabilities and contingent liabilities at fair value that should be recorded as part of the business combination, so this evaluation process will be completed during 2012 and any adjustments to the financial statements of businesses acquired and to our consolidated financial statements will be recorded retroactively, as required by IFRS 3.  The deadline for completing these assessments and also for possible identification and valuation of new assets and liabilities that may be allocated in the process of the business combination, is October 31, 2012.
 
Since this is a complex evaluation, we focused our efforts on identifying the main factors for completing the AES Atimus Acquisition and, as mentioned above, the main factors were the possibility of increasing product offerings in the corporate segment and the launch of residential broadband service, which we believe represents an opportunity for us to obtain a return on assets purchased in excess of the return currently earned by these businesses, and therefore are not allocated to any specific assets and liabilities, thus being recorded as goodwill.  Based on management’s assessment, the value of the purchase price premium is substantially composed of synergies, cost reductions and expected future profitability.
 
In relation to goodwill registered, even though the process of accounting for business combinations and the determination of goodwill have not yet been completed, TIM Celular made a general provisional analysis of these values at December 31, 2011, based the business plan that supported the acquisition and concluded that there is no need to recognize an impairment loss.
 
 
Critical Accounting Policies
 
Critical accounting policies are those that are important to the presentation of our financial condition and results of operations and require management’s most subjective, complex judgments, often requiring management to make estimates about the effect of matters that are inherently uncertain. As the number of variables and assumptions affecting the possible future resolution of the uncertainties increases, those judgments become more complex.  We base our estimates and assumptions on historical experience, industry trends or other factors that we believe to be reasonable under the circumstances. Actual results may vary from what we anticipate, and different assumptions or estimates about the future could change our reported financial results.  In order to provide an understanding about how our management has estimated the potential impact of certain uncertainties, including the variables and assumptions underlying the estimates, we have identified the critical accounting policies discussed below.  We describe our significant accounting policies, including the ones discussed below, in note 5 to our consolidated financial statements.
 
Depreciation and Impairment of Long-Lived Assets
 
Property, plant and equipment are stated at cost of acquisition or construction.  Depreciation is calculated using the straight-line method based on the estimated useful lives of the underlying assets.  See note 5(a) to our consolidated financial statements.  We currently depreciate automatic switching, transmission and other equipment based on an estimated useful life of seven years.
 
We review our long-lived assets, such as goodwill, for impairment whenever events or circumstances indicate the carrying value of an asset may not be recoverable from estimated future cash flows expected to result from its use and eventual disposition. At least annually, the Company applies the recoverability test on the recorded goodwill.  The calculations were performed based on the discounted cash flow using as parameters the assumptions included in the Company’s 10 years Industrial Plan, growth rate compatible with our market conditions and a discount rate of 10% per year.  The results of such tests indicated no need for an accounting provision.
 
The fair value of the cash generating units, as of the latest impairment testing date, is substantially in excess of their carrying value.
 
However, asset impairment evaluations are, by nature, highly subjective.  If our projections are not met, we may have to record impairment charges not previously recognized.  In analyzing potential impairments, we use projections based on our view of growth rates for our business, anticipated future economic, regulatory and political conditions and changes in technology.  Such projections are subject to change, including as a result of technological developments that may render long-lived assets obsolete sooner than anticipated.  See note 3.i to our consolidated financial statements.
 
Allowance for Doubtful Accounts
 
We maintain an allowance for doubtful accounts for estimated losses resulting from the failure of our customers to make required payments.  We revise our estimated percentage of losses on a regular basis, taking into account our most recent experience with non-payments (i.e. average percentage of receivables historically written-off, economic conditions and the length of time the receivables are past due).  The provision for doubtful accounts for 2011 was based on the following estimates of percentages of receivables, classified by the number of days such receivables are overdue, that it projected to be uncollectible.  These estimates were based on historical experience of write-offs and future expectations of conditions that might impact the collectability of accounts.  The amount of the loss, if any, that we actually experience with respect to these accounts may differ from the amount of the allowance maintained in connection with them.
 
Days overdue
 
Percentage estimated
to be uncollectible
Current*
 
2.75% - 3.5%
Receivables overdue 1 to 90 days*
 
5.5% - 7%
Receivables overdue 91 to 120 days
 
50%
Receivables overdue 121 to 150 days
 
56%
Receivables overdue 151 to 180 days
 
90%
Receivables overdue more than 180 days
 
100%
*
Percentage varies based on area and customer composition.
 
 
Deferred Income Tax and Social Contribution
 
We compute and pay income taxes based on results of operations under IFRS.
 
We regularly review deferred tax assets for recoverability.  If, based on historical taxable income, projected future taxable income and expected timing of reversals we determine that it is more likely than not that the deferred tax assets will not be realized, we establish a valuation allowance.  When performing such reviews, we are required to make significant estimates and assumptions about future taxable income.
 
In order to determine future taxable income, we need to estimate future taxable revenues and deductible expenses, which are subject to different external and internal factors such as economic conditions, industry trends, interest rates, shifts in our business strategy and changes in the type of services we offer.  The use of different assumptions and estimates could significantly change our financial statements. A change in assumptions and estimates with respect to our expected future taxable income could result in the recognition of a valuation allowance on deferred income tax assets, which would decrease our results of operations and shareholders’ equity.
 
If we operate at a loss or are unable to generate sufficient future taxable income, if there is a material change in the actual effective tax rates, if the time period within which the underlying temporary differences become taxable or deductible, or if there is any change in our future projections, we could be required to establish a valuation allowance against all or a significant portion of our deferred tax assets, resulting in a substantial increase in our effective tax rate and a material adverse impact on our operating results.
 
The taxable income projections used in determining the recoverability of our deferred tax assets as of December 31, 2009 were derived from our 2010-2012 Industrial Plan. At that time, our Industrial Plan forecasted our income for the following three fiscal years, with assumptions reflecting conditions we expected to exist and the course of actions we expect to take.  Based on the three-year projections included in the Industrial Plan, we projected income out for a further seven years (i.e. to 2019). However, we did not extend the Industrial Plan projections beyond the basic three years for the valuation allowance of our deferred tax assets because we believe that the uncertainties described below made any extension of our projections difficult to support at the more likely-than-not level, required for projections in this context.  We limited our projections to three years in determining the amount of the valuation allowance for deferred tax assets at December 31, 2009.
 
The principal uncertainties underlying our decision to limit the projections to three years at December 31, 2009 were:
 
 
·  
TIM Celular had a history of losses.
 
 
·  
at the end of 2009, Brazil was expecting a presidential election in 2010, generating uncertainties in relation to longer future projections and taxation.
 
 
·  
at the end of 2009, the economy was still recovering from the worldwide financial crises, generating a strong level of uncertainties in longer term future projections.  In addition, we believed there was significant uncertainty regarding the Brazilian economy, including with respect to domestic inflation and commodities prices.
 
 
·  
in 2009, compared to 2008, the subsidiary TIM Celular did not experience growth in revenues and had a modest growth in profitability.  Further, as described before in this Form, the Company lost approximately five hundred thousand clients from its average post-paid customer during 2009 when compared to 2008, and had a deterioration in its brand awareness and customers satisfaction. As a result, substantial efforts were made to turn around the Company (including the subsidiary TIM Celular) starting in the second half
 
of 2009, including: (1) a substantial change in management (e.g. CEO, COO, CTO); (2) re-launching of the strategy and positioning of TIM in the market; (3) new and innovative services and products (“ Infinity ” and “ Liberty ”).
 
In addition to the above uncertainties, we also considered the inherent subjectivity of the positive evidence underlying our projections of future taxable income, such as the expectation that new management and a new business plan at TIM Celular would lead to a turnaround at that business.  In evaluating the negative and positive evidence in assessing the likelihood of predicable earnings after 2012, we believed that the negative evidence outweighed the positive evidence.  As a result, of all of the foregoing, we believed that the valuation allowance as at December 31, 2009 was necessary because our projections showed that the deferred tax assets were not recoverable to the extent of the allowance.
 
By the end of 2010, TIM Celular had clear evidence of the success of the strategy implemented during 2009. Accordingly, our actual 2010 results were significantly better than those we considered in our projections prepared in the end of 2009.  The main positive factors that lead TIM Celular to better results were:
 
 
·  
2010 final customer base of 51 million, showing an additional 4.6 million in new customers when compared to the projected customer base.  Revenues were higher by approximately R$200 million in comparison to projected revenues;
 
 
·  
efficiency plans effectiveness.  During 2010, our costs and expenses were lower by approximately R$250 million in comparison to the projected amounts, partially due to cost saving programs and partially due to synergies from Tim Nordeste merging process;
 
 
·  
success of the new products (“ Infinity ” and “ Liberty ”) launched during 2009;
 
 
·  
progressive exit from offering handset subsidies;
 
 
·  
significant reduction of handsets classified as property, plant and equipment (handsets owned by the Company and provided free of charge to corporate customers) with consequent reduction in depreciation (actual depreciation amount in 2010 was lower by R$300 million in relation to projected depreciation);
 
 
·  
increase in cash generation, resulting in reduced indebtedness and lower net financial expenses (financial expenses were approximately R$100 million lower than the expected in the projections).
 
Considering the reduction in the uncertainties we had at the end of 2009, we updated our business plan for years 2011-2013 and subsequent projections and we believe future income generation will be higher than we expected in the end of 2009.  Based on the expected taxable income to be generated in future years and the growing stability of the economy after the uncertainty in 2009, at the end of 2010 we released in its entirety the valuation allowance for tax loss carryforwards related to our subsidiary TIM Celular that was recorded at December 31, 2009.
 
Asset Retirement Obligations
 
Our subsidiaries are contractually obligated to dismantle their cellular towers from various sites they lease.  We must record as asset retirement obligations the present value of the estimated costs to be incurred for dismantling and removing cellular towers and equipment from leased sites.  The offset to this provision is recorded as property, plant and equipment, and the depreciation is calculated based on the useful lives of the corresponding assets.
 
Contingent Liabilities
 
The accrual for a contingency involves considerable judgment to be performed by management. A contingency is “an existing condition, situation, or set of circumstances involving uncertainty as to possible gain or loss to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur.”
 
We are subject to various claims, including regulatory, legal and labor proceedings covering a wide range of matters that arise in the ordinary course of business.  We adopted the policy of analyzing each proceeding and making a judgment as to whether a loss is probable, possible or remote.  We account for accruals when we
 
 
determine that losses are probable and can be reasonably estimated.  Our judgment is always based on the opinion of our external legal advisors. Accrual balances may be adjusted to account for changes in circumstances relating to ongoing matters and we may establish additional accruals for new matters.  While we believe that the current level of accruals is adequate, changes in the future could impact these determinations.
 
Revenue Recognition and Customer Incentive Programs
 
Revenues are recorded when services are rendered. As a result of our billing cycle cut-off times, we are required to make estimates for services revenue earned but not yet billed.  These estimates, which are based primarily upon unbilled minutes of use, could differ from our actual calculation.  See note 4(u) to our consolidated financial statements.
 
Political, Economic, Regulatory and Competitive Factors
 
The following discussion should be read in conjunction with “Item 4. Information on the Company.” As set forth in greater detail below, our financial condition and results of operations are significantly affected by Brazilian telecommunications regulation, including the regulation of rates.  See “Item 4. Information on the Company—B. Business Overview—Regulation of the Brazilian Telecommunications Industry—Rate Regulation.” Our financial condition and results of operations have also been, and are expected to continue to be, affected by the political and economic environment in Brazil.  See “Item 3. Key Information—D. Risk Factors—Risks Relating to Brazil.” In particular, our financial performance will be affected by:
 
 
·  
government policy and changes in the regulatory environment in Brazil;
 
 
·  
an increase in the number of competitors in the telecommunications industry that could affect our market share;
 
 
·  
increased competition in our principal markets that could affect the prices we charge for our services;
 
 
·  
our ability to strengthen our competitive position in the Brazilian mobile telecommunications market;
 
 
·  
our ability to develop and introduce new and innovative technologies that are received favorably by the market, and to provide value-added services to encourage the use of our network;
 
 
·  
the introduction of transformative technologies that could cause a significant decrease in revenues for all mobile telephone carriers;
 
 
·  
our ability to integrate acquired businesses and implement operational efficiency;
 
 
·  
our ability to operate efficiently and to refinance our debt as it comes due, particularly in consideration of uncertainties in credit and capital markets;
 
 
·  
our ability to attract and retain qualified personnel;
 
 
·  
our ability to integrate companies and assets that we acquire; and
 
 
·  
the effect of exchange rate fluctuations.
 
Overview
 
In 2011, the recovery of the global economy stalled due to the fiscal crises internationally, primarily in Europe and the United States. After excessive government spending to stimulate economic growth following the 2008 recession, many developed countries exhausted their public resources and as a result, economic growth decelerated.  Unlike in 2010 when the 2008 and 2009 international financial and economic crisis did not have a significant impact on economic growth in Brazil, in 2011, economic growth in Brazil also decelerated, reaching just 2.7% annual growth.  Nevertheless, the domestic market remains strong and consumption is on pace with recent growth, which is also affecting inflation.
 
 
The Brazilian consumer price index, the IPCA, increased 6.5% in 2011, the highest increase since 2004, and in excess of the Central Bank’s inflation target of 4.5%, though just within the upper limit of the 2% margin considered acceptable by the government.  Despite inflationary pressure, the Central Bank has begun implementing an easing of monetary policy on the premise that the slowdown in global economic growth will help ease inflation.
 
Monetary policy from the Central Bank passed through two distinct phases during 2011. At the beginning of the year, when inflation was greater as a consequence of concerns for a slowdown in economic growth, the Central Bank maintained the restrictive monetary policies it had initiated in 2010, increasing the basic interest rate from 10.75% per annum to 12.50% per annum.  From August onward, however, with the decline in financial and economic conditions globally, particularly with sovereign credit downgrades in Europe and the United States, the Central Bank began to concern itself more with increasing domestic output and the Central Bank began implementing an easing of monetary policy, reducing the basic interest rate by 1.5 percentage points to finish 2011 at 11.00% per annum.
 
Insofar as domestic demand is concerned, economists expect that consumption will continue to expand due to a record-low unemployment rate, wage increases, availability of consumer credit and the ongoing economic recovery.  The balance of fixed assets is also expected to grow based on the growth in industrial output.
 
The Brazilian current account closed the year with a deficit of U.S.$52.6 billion or 2.12% of the GDP, an increase in the deficit from 2010 when the deficit reached U.S.$47.3 billion.  The 2011 deficit was the highest recorded since the Central Bank began recording this metric in 1947.  The main reason for the result was in the services sector, mainly an incraese in remittance of profits offshore.  On the other hand, direct external investments totaled U.S.$66.7 billion, counterbalancing the capital outflow of the current account.
 
Foreign exchange rates were also marked by two periods this year.  In the first half of the year, the strong flow of foreign currency put pressure on the value of the U.S. dollar with the real /U.S. dollar exchange rate reaching its lowest level since 1999. However, from August onward, the worsening of the global fiscal crisis led investors to take shelter in the security of the U.S. dollar, causing it to appreciate against the real .  By December 31, 2011, the U.S. dollar had appreciated 12.6% versus the real , reaching an exchange rate of R$1.88 per U.S. dollar.
 
Driven by the increase of 37.4% in direct external investment, the 2011 balance of payments registered a surplus of U.S.$58.6 billions.  The number represents a 19.4% increase as compared to the surplus of U.S.$49.1 billions registered in 2010.
 
After the expansion of government expenditures and decrease in government surplus in 2010, which was influenced by the electoral year, the government surplus increased.  In 2011, the accumulated surplus reached R$93.5 billion, as compared to R$78.8 billion accumulated in 2010, an increase of 18.7% . As a share of GDP, government expenditures rose from 2.15% in 2010 to 2.28% in 2011.
 
The Brazilian mobile market reached 242.2 million lines nationwide at the end of December 2011, corresponding to a penetration ratio of 123.4% (compared to 104.7% in 2010) and an annual growth rate of 19.4% (compared to 16.7% in 2010).  Brazil is the fifth largest mobile telephony market in the world, and telephony is currently the most common means of communication in Brazilian households among all social classes. According to Anatel, mobile market net adds reached 13.1 million in 2011 which represents a 31.7% upturn from 2010.  Pre-paid subscribers cotinue to represent the greatest part of total subscriber base, reaching 81.8% by the end of 2011.
 
Our subscriber base ended 2011 with 64.1 million clients, a 25.6% increase from 2010, corresponding to a market share of 26.5%, while the service revenues share, our primary focus, reached 89.7% in 2011.  The pre-paid segment reached 54.8 million (a 25.8% increase from 2010) while the post-paid segment stood at 9.3 million users in the year (a 24.4% increase from 2010). With regard to client mix, post-paid clients accounted for 14.5% of the total subscriber base, compared to 14.6% from 2010, largely impacted by the increase of the pre-paid base.  In 2011, we added 13.1 million customers, up from 9.9 million in 2010.  The increase reflects our success with the “ Infinity ” and “ Liberty ” plans.  Our ARPU (average revenue per user) registered R$21.4 in 2011.  On a yearly basis, ARPU dropped 9.8% which is partially attributed to an increase in the pre-paid segment (where the market growth is concentrated), and a lower incoming MOU.
 
 
ARPU is a key performance indicator which is calculated by the ratio between total net service revenue per average customer base per month.  In 2011, our average customer base, calculated as the simple mean of monthly averages, increased 25.4% to 56.7 million, compared to 45.2 million customers in 2010.
 
The following table shows the total average number of customers during 2011, 2010 and 2009.
 
   
Year ended December 31,
 
   
2011
   
2010
   
2009
 
      (in thousands of users)  
Average number of customers using post-paid plans(1)
    8,173       6,916       6,285  
Average number of customers using pre-paid plans(1)
    47,990       37,895       31,709  
Total number of customers(1)
    56,163       44,811       37,994  
(1)
Average numbers are based on the number of customers at the end of each month during the relevant year.
 
A. 
Operating Results
 
The following table shows certain components of our statement of operations for each year in the three-year period ended December 31, 2011, as well as the percentage change from year to year.
 
   
Year ended December 31,
   
Percentage change
 
   
2011
   
2010
   
2009
      2011 – 2010       2010 - 2009  
Net Operating Revenues
    17,085,977       14,457,450       13,158,134       18.2 %     9.9 %
Cost of services and goods
    (8,561,433 )     (7,305,767 )     (6,672,369 )     17.2 %     9.5 %
Gross profit
    8,524,544       7,151,683       6,485,765       19.2 %     10.3 %
Operating expenses:
                                       
Selling expenses
    (4,845,712 )     (4,494,608 )     (4,436,751 )     7.8 %     1.3 %
General and administrative expenses
    (963,394 )     (1,008,694 )     (1,033,438 )     (4.5 )%     (2.4 )%
Other operating expenses
    (647,996 )     (448,247 )     (462,114 )     44.6 %     (3.0 )%
Total operating expenses
    (6,457,102 )     (5,951,549 )     (5,932,303 )     8.5 %     0.3 %
Operating income before financial results
    2,067,442       1,200,134       553,462       72.3 %     116.8 %
Net financial income
    (238,858 )     (245,457 )     (245,115 )     (2.7 )%     0.1 %
Operating income before interest
    1,828,584       954,677       308,347       91.5 %     209.6 %
Income and social contribution tax benefit
    (547,356 )     1,257,038       33,026       (143.5 )%     3706.3 %
Net income
    1,281,228       2,211,715       341,373       (42.1 )%     547.9 %

Results of Operations for the Year Ended December 31, 2011 Compared to the Year Ended December 31, 2010
 
Operating revenues
 
Our operating revenues consisted of:
 
 
·  
monthly subscription charges;
 
 
·  
usage charges, which include roaming charges;
 
 
·  
interconnection charges;
 
 
·  
long distance charges;
 
 
·  
value-added services;
 
 
·  
other service revenues; and
 
 
·  
proceeds from the sale of handsets and accessories.
 
 
The composition of our operating revenues by category of service is presented in note 26 to our consolidated financial statements and discussed below.  We do not determine net operating revenues or allocate cost by category of service.
 
The following table shows certain components of our operating revenues, as well as the percentage change of each component from the prior year, for each of 2011 and 2010:
 
Statement of Operations Data: Operating Revenues
 
Year ended December 31,
   
Percentage change
 
   
2011
   
2010
      2011 - 2010  
   
(in million of reais )
         
Monthly subscription charges and usage charges
    10,264.7       8,912.0       15.2 %
Fixed services
    1,525.4       1,281.2       19.1 %
Interconnection charges
    3,849.4       3,679.4       4.6 %
Long distance charges
    3,181.2       2,374.3       34.0 %
Value added services
    3,166.4       2,241.5       41.3 %
Other service revenues
    229.83       272.9       (15.8 )%
Gross operating revenues from services
    22,217.1       18,761.4       18.4 %
Value added and other taxes relating to services
    (4,861.3 )     (4,143.6 )     17.3 %
Discounts on services
    (2,002.5 )     (1,046.2 )     91.4 %
Net operating revenues from services
    15,353.2       13,571.6       13.1 %
Sales of cellular handsets and accessories
    2,540.5       1,557.9       63.1 %
Value added and other taxes on handset sales
    (524.0 )     (332.2 )     57.7 %
Discounts on handset sales
    (283.7 )     (339.8 )     (16.5 )%

Our gross service revenue for the year ended December 31, 2011 was R$22,217 million, representing a 18.4% increase from R$18,761 million in the year ended December 31, 2010, mainly due to the growth in our customer base and consistently solid revenues from value added services.  The gross handset revenue for the year ended December 31, 2011 was R$2,541 million, a 63.1% growth over R$1,557.9 for the year ended December 31, 2010, resulting from a greater mix of products in handset sales and growth in sales volume.  Gross revenues for the year ended December 31, 2011 totaled R$24.8 billion, a 21.8% increase from the year ended December 31, 2010.
 
Net operating revenues increased 18.2% to R$17,086 million in the year ended December 31, 2011 from R$14,457.5 million in the year ended December 31, 2010.
 
Monthly subscription charges and usage charges
 
Revenue from monthly subscription charges and usage charges was R$10,264.7 million in the year ended December 31, 2011, a 15.2% increase from R$8,912.0 million in the year ended December 31, 2010, due primarily to subscriber growth of 25.6%, which resulted in significantly higher outgoing voice traffic.
 
The total average monthly MOU for 2011 and 2010 were as follows:
 
   
Year ended December 31,
 
   
2011
   
2010
 
Average incoming MOU
    13       16  
Average outgoing MOU
    115       100  
Average total MOU
    129       116  

Fixed Services
 
Revenue from fixed services was R$1,525.4 million in the year ended December 31, 2011, a 19.1% increase from R$1,281.2 million in December 31, 2010, mainly due to improvements in the Intelig business, which underwent a rebranding project and launched a new line of corporate offerings.
 
Interconnection charges
 
Interconnection revenues consist of amounts paid to us by other mobile and fixed line providers for completion of calls on our network of calls originating on their networks.  Our interconnection revenues were R$3,849.4 million in the year ended December 31, 2011, a 4.6% increase from R$3,679.4 in 2010.  Though there was subscriber growth in the business, this increase was mainly attributable to the contribution of the Infinity Torpedo offer, which provides customers unlimited SMS texting to any mobile operator, resulting in an increase in the number of SMS messages sent and received on our network, and Infinity Mais, an offer that charges customers R$0.50 cents per call to a fixed number, resulting in an increase in traffic from fixed lines towards mobile phones.  Interconnection as a percentage of total gross revenues of services stood at 18.6% in the year ended December, 2010.
 
Long distance charges
 
Revenues from long distance charges increased 34.0% to R$3,181.2 million in the year ended December 31, 2011 from R$2,374.3 million in the year ended December 31, 2010 reflecting post-paid traffic following post-paid growth in the customer base.  In addition, long distance revenues were positively impacted by traffic migration from Intelig’s CSP 23 to TIM’s CSP 41.
 
Value-added services
 
Value-added service revenues increased 41.3% to R$3,166.4 million in the year ended December 31, 2011 from R$2,241.5 million the year ended December 31, 2010, principally due to an increase in smartphone and webphone penetration among our customer base, using both voice and data services, and an expansion of products and services.
 
Value-added services include short messaging services (SMS), multimedia message services (MMS), data transmission, downloads (wallpaper and ringtones), television access, voicemail and chat.  SMS revenues represent a significant portion of our total value-added service revenues.  Data transmission, supported by our 3G network, is also a key component to our value-added service revenues, and we have focused on improving our position in this area through expanding partnerships, enhancing our smartphone portfolio, including through the addition of the iPhone 3GS and iPhone 4, and promoting our mobile broadband service through TIM web broadband.
 
Other service revenues
 
Revenues from other services decreased 15.8% to R$229.8 million in the year ended December 31, 2011 from R$272.9 million in the year ended December 31, 2010. This was mainly due to the decrease in contract cancellation fees as less customers are cancelling the service.
 
Sales of mobile handsets
 
Sales of mobile handsets increased 63.1% to R$2,540.5 million in the year ended December 31, 2011 from R$1,557.9 million registered in the year ended December 31, 2010.  This was mainly attributable to an increased mix in handset sales, with over 60% of total sales comprised of smartphones or webphones as compared to approximately 30% in 2010.
 
Value-added and other taxes relating to services
 
The principal tax on telecommunications services is ICMS tax, which is imposed at rates between 25% and 35%.  ICMS is also the principal tax on sales of handsets, which is imposed at a rate between 7% and 17%.  See “Item 4. Information on the Company—B. Business Overview—Taxes on Telecommunications Goods and Services.” Two federal social contribution taxes, PIS and COFINS, are imposed at combined rates of 3.65% on gross revenues operating relating to telecommunications services and at combined rates of 9.25% on mobile telephone handset sales.
 
Our value-added and other taxes relating to services and handset sales was R$5,385.3 million in the year ended December 31, 2011 compared to R$4,475.8 million in the year ended December 31, 2010, an increase of 20.3%.
 
Discounts on services and handset sales increased 64.9% to R$2,286.2 million in the year ended December 31, 2011 compared to R$1,386 million in the year ended December 31, 2010. This was mainly attributed to discounts offered on voice plans.
 
Costs of services and goods
 
Costs of services and goods increased by 17.2% to R$8,561.4 million in the year ended December 31, 2011 from R$7,305.8 in the year ended December 31, 2010, mainly due to a significant increase in handset sales and, as a result, the cost of handsets and accessories sold.  The following table shows the components of costs of services and goods for each of the periods indicated.
 
Statement of Operations Data: Costs of services and goods
 
Year ended December 31,
   
Percentage change
 
   
2011
   
2010
      2011 - 2010  
   
(in million of reais )
         
Depreciation and amortization
    (1,715.2 )     (1,994.2 )     (14.0 )%
Interconnection expenses
    (4,133.0 )     (3,603.0 )     14.7 %
Circuit leasing and related expenses
    (234.9 )     (242.9 )     (3.3 )%
Materials and services
    (324.1 )     (337.0 )     (3.8 )%
Personnel
    (40.3 )     (58.4 )     (31.0 )%
FISTEL tax and other
    (51.5 )     (44.2 )     16.4 %
Total cost of services
    (6,498.9 )     (6,279.7 )     3.5 %
Cost of handsets and accessories sold
    (2,062.6 )     (1,026.1 )     101.0 %
Total cost of services and goods
    (8,561.4 )     (7,305.8 )     17.2 %

Depreciation and amortization
 
Depreciation and amortization expenses decreased 14.0% to R$1,715.2 million in the year ended December 31, 2011 from R$1,994.2 million in the year ended December 31, 2010, mainly due to the decrease in capitalization of handsets as a result of our policy to no longer subsidize handset sales.
 
Interconnection expenses
 
Interconnection expenses consist of the amount paid to fixed-line and other mobile service providers for termination of our outgoing calls on their networks.  Interconnection costs increased 14.7% to R$4,133.0 million in the year ended December 31, 2011 from R$3,603.0 million in the year ended December 31, 2010, mainly due to the increase in outgoing minutes as our subscriber base increased significantly, and Infinity Torpedo, which stimulates SMS usage on a pay-per-day basis for pre-paid customers.
 
Circuit leasing and related expenses
 
Circuit leasing and related expenses represent lease payments to fixed carriers for the use of circuits, interconnecting our network and transporting our customer traffic through third-parties fixed infrastructure.  Circuit leasing and related expenses decreased 3.3% in the year ended December 31, 2011 to R$234.9 million from R$242.9 million in the year ended December 31, 2010, mainly due to the acquisition of TIM Fiber which allowed us to decrease our rental expenses of fiber optic networks.
 
Materials and services
 
Materials and services costs were R$324.1 million in the year ended December 31, 2011, decreasing 3.8% from R$337.0 million incurred in the year ended December 31, 2010, mainly due to a decrease in maintenance costs as a result of cost control measures implemented during the period.
 
Personnel
 
Personnel costs decreased 31.0% to R$40.3 million in the year ended December 31, 2011 from R$58.4 million in the year ended December 31, 2010.  The decrease was due principally to the allocation of certain employees to certain infrastructure projects for which the related costs (including personnel expenses) were capitalized.  During
 
2011, there has been a 16.4% increase in our number of employees, from 9,081 in the year ended December 31, 2010 to 10,562.
 
FISTEL tax and other
 
FISTEL tax and other costs increased 16.4% to R$51.5 million in the year ended December 31, 2011 from R$44.2 million in the year ended December 31, 2010, due to the 25.6% increase in our customer base.
 
Costs of handsets and accessories sold
 
The cost of handsets and accessories sold in 2011 was $2,062.6 million, representing a 101.0% increase from R$1,026.1 million in the year ended December 31, 2010.  This growth is attributable to a 147.0% increase in the number of handsets sold in 2011 as compared to 2010.
 
Gross profit margins
 
The following table shows our gross profits, as well as the percentage change, for each of the periods indicated:
 
Statement of Operations Data: Gross profit
 
Year ended December 31,
   
Percentage change
 
   
2011
   
2010
      2011 - 2010  
   
(in million of reais )
         
Net operating revenues from services
    15,353.2       13,571.6       13.1 %
Cost of services
    (6,498.9 )     (6,279.7 )     3.5 %
Gross profit from services
    8,854.3       7,291.9       21.4 %
Net operating revenues from sales of cellular handsets and accessories
    1,732.7       885.8       95.6 %
Cost of goods
    (2,062.6 )     (1,026.1 )     101.0 %
Gross loss from sales of cellular handsets and accessories
    (329.8 )     (140.3 )     135.1 %
Gross profit
    8,524.5       7,151.7       19.2 %

 
Our gross profit margin from services (gross profit as a percentage of net service revenues) increased from 53.7% in the year ended December 31, 2010 to 57.7% in the year ended December 31, 2011.
 
Our negative gross margin for sales of mobile handsets and accessories decreased from negative 15.8% in the year ended December 31, 2010 to negative 19.0% in the year ended December 31, 2011.  This decrease is mainly attributable to a subsidy offered for SIM cards, the impact of foreign exchange rates on our inventories (the cost and balance of which are denominated in U.S. dollars) and the change in the mix of handset sales to smartphones and webphones.
 
Our overall gross profit margin increased slightly, from 49.5% in the year ended December 31, 2010 to 49.9% in December 31, 2011.  This resulted primarily from decreased amortization costs as a result of our policy not to subsidize handset sales which decreased the depreciation of capitalized handsets.
 
Operating expenses
 
The following table shows our operating expenses, as well as the percentage change from year to year of each component, for the years ended December 31, 2011 and 2010:
 
Statement of Operations Data: Operating expenses
 
Year ended December 31,
   
Percentage change
 
   
2011
   
2010
      2011 - 2010  
   
(in million of reais )
         
Selling expenses
    4,845.7       4,494.6       7.8 %
General and administrative expenses
    963.4       1,008.7       (4.5 %)
Other operating expenses, net
    648.0       448.2       44.6 %
Total operating expenses
    (6,457.1 )     (5,951.5 )     8.5 %

Our total operating expenses increased 8.5% to R$6,457.1 million in the year ended December 31, 2011 from R$5,951.5 million in December 31, 2010, mainly due to the factors described below.
 
Selling expenses
 
Selling expenses increased 7.8%, to R$4,845.7 million in the year ended December 31, 2011 from R$4,494.6 million in the year ended December 31, 2010, mainly due to a significant increase in handset sales offset in part by a decrease in the allowance for doubtful accounts from R$310.5 million in the year ended December 31, 2010 to R$231.5 million in the year ended December 31, 2011, as a result of our “go-to-market” approach based on a zero subsidy policy for handset sales and better customer credit scoring.
 
General and administrative expenses
 
General and administrative expenses decreased 4.5% to R$963.4 million in the year ended December 31, 2011 from R$1,008.7 million in the year ended December 31, 2010. As a result of the decrease in depreciation and amortization along the period amid the end of the subsidy policy on handsets.
 
Other operating expenses, net
 
Other net operating expenses increased 44.6% to R$648.0 million in the year ended December 31, 2011 from R$448.2 million in the year ended December 31, 2010.  This decrease was mainly due to a reassessment in certain tax positions adopted by the Company in relation to FUST and FUNTTEL. The effect of this reassessment amounted to approximately R$70 million.
 
Net financial expense
 
We had net financial expense of R$238.9 million in the year ended December 31, 2011, from a net financial expense of R$245.5 million in the year ended December 31, 2010.  The variation is due to an increase in interest on cash and equivalents and a decrease in the cost of debt.
 
Income and social contribution taxes
 
Income and social contribution taxes are calculated based on the separate income of each subsidiary, adjusted by the additions and exclusions permitted in the year ended December 31, 2011 under tax law.  We recorded income and social contribution tax of R$$547.4 million in the year ended December 31, 2011, compared to a positive R$1,257.0 million in the year ended December 31, 2010.  The increase of income and social contribution tax is largely due to a tax credit from a loss carry forward realized in the year ended December 31, 2010 that was not repeated in 2011.
 
Net income
 
Our net income in the year ended December 31, 2011 was R$1,281.2 million, representing an decrease of R$930.5 million or 42.1% from a net income of R$2,211.7 million in the year ended December 31, 2010
 
Results of Operations for the Year Ended December 31, 2010 Compared to the Year Ended December 31, 2009
 
Operating revenues
 
The following table shows certain components of our operating revenues, as well as the percentage change of each component from the prior year, for each of 2010 and 2009:
 
Statement of Operations Data: Operating Revenues
 
Year ended December 31,
   
Percentage change
 
   
2010
   
2009
      2010 - 2009  
   
(in million of reais )
         
Monthly subscription charges and usage charges
    8,912.0       8,068.2       10.5 %
Fixed services
    1,281.2       89.9       1325.1 %
Interconnection charges
    3,679.4       4,042.6       (9.0 )%
Long distance charges
    2,374.3       1,943.1       22.2 %
Value added services
    2,241.5       1,907.2       17.5 %
Other service revenues
    272.9       306.0       (10.8 )%
Gross operating revenues from services
    18,761.4       16,357.0       14.7 %
Value added and other taxes relating to services
    (4,143.6 )     (3,615.4 )     14.6 %
Discounts on services
    (1,046.2 )     (542.6 )     92.8 %
Net operating revenues from services
    13,571.6       12,199.0       11.3 %
Sales of cellular handsets and accessories
    1,557.9       1,717.7       (9.3 )%
Value added and other taxes on handset sales
    (332.2 )     (301.1 )     10.3 %
Discounts on handset sales
    (339.8 )     (457.4 )     (25.7 )%

 
Our gross service revenue for the year ended December 31, 2010 was R$18,761.4 million, representing a 14.7% increase from R$16,357.0 million in the year ended December 31, 2009, mainly due to the acquisition of Intelig, which significantly boosted our fixed services revenues in 2010, as well as organic growth.  This increase primarily reflected a strong increase in our long distance charges (22.2% up from the year ended December 31, 2009, due to the Intelig acquisition), fixed service charges (1,325.1% up from the year ended December 31, 2009, due to the Intelig acquisition), and value added services (17.5% up from the year ended December 31, 2009). All of these increases reflect a significant increase in our client base to over 50 million customers.  The gross handset revenue for the year ended December 31, 2010 was R$1,557.9 million, a 9.3% decrease over R$1,717.7 for the year ended December 31, 2009, resulting from a client acquisition approach focused mainly on discounted services, rather than discounted handsets.  Gross revenues for the year ended December 31, 2010 totaled R$20,319.3 billion, a 12.4% increase from the year ended December 31, 2009.
 
Net operating revenues increased 9.9% to R$14,457.5 million in the year ended December 31, 2010 from R$13,158.1 million in the year ended December 31, 2009, due primarily to the acquisition of Intelig, as well as organic growth.  This organic growth was primarily due to the expansion in the number customers, reflecting better results in several revenue lines, such as fixed services, long distance charges and value added services.
 
Monthly subscription charges and usage charges
 
Revenue from monthly subscription charges and usage charges was R$8,912.0 million in the year ended December 31, 2010, a 10.5% increase from R$8,068.2 million in the year ended December 31, 2009, due primarily to the increase in the proportion of post-paid subscribers.
 
The total average monthly MOU for 2010 and 2009 were as follows:
 
   
Year ended December 31,
 
   
2010
   
2009
 
Average incoming MOU
    16       21  
Average outgoing MOU
    100       62  
Average total MOU
    116       83  

Fixed Services
 
Revenue from fixed services was R$1,281.2 million in the year ended December 31, 2010, an increase from R$89.9 million in December 31, 2009, mainly due to the acquisition of Intelig.
 
Interconnection charges
 
Interconnection revenues consist of amounts paid to us by other mobile and fixed line providers for completion of calls on our network of calls originating on their networks.  Our interconnection revenues were R$3,679.4 in the year ended December 31, 2010, a 9.0% decrease from R$4,042.6 in 2009.  Despite subscriber growth, this decrease was mainly attributable to a significant volume of in-network calls stimulated by our new subscription plans and a trend of reduced fixed to mobile traffic.  Interconnection as a percentage of total gross revenues of services stood at 19.6% in the year ended December 31, 2010 compared to 24.7% in the year ended December, 2009.
 
Long distance charges
 
Revenues from long distance charges increased 22.2% to R$2,374.3 million in the year ended December 31, 2010 from R$1,943.1 million in the year ended December 31, 2009.  This increase was a result of our efforts to facilitate the use of our long distance service through lower cost service packages such as Liberty and Infinity.
 
Value-added services
 
Value-added service revenues increased 17.5% to R$2,241.5 million in the year ended December 31, 2010 from R$1,907.2 million the year ended December 31, 2009, principally due to an increase in our customer base, both in voice and data, and an expansion of products and services.
 
Other service revenues
 
Revenues from other services decreased 10.8% to R$272.9 million in the year ended December 31, 2010 from R$306.0 million in the year ended December 31, 2009, principally reflecting revenues from other services consist mainly of site sharing and co-billing services, which occur when a customer is billed by his own operator on behalf of another long distance company for services provided by such carrier and contractual penalties.
 
Sales of mobile handsets
 
Sales of mobile handsets decreased 9.3% to R$1,557.9 million in the year ended December 31, 2010 from R$1,717.7 million registered in the year ended December 31, 2009.  This was mainly attributable to our strategy of SIM-only sales.
 
Value-added and other taxes relating to services
 
The principal tax on telecommunications services is ICMS tax, which is imposed at rates between 25% and 35%.  ICMS is also the principal tax on sales of handsets, which is imposed at a rate between 7% and 17%.  See “Item 4. Information on the Company—B. Business Overview—Taxes on Telecommunications Goods and Services.” Two federal social contribution taxes, PIS and COFINS, are imposed at combined rates of 3.65% on gross revenues operating relating to telecommunications services and at combined rates of 9.25% on mobile telephone handset sales.
 
Our value-added and other taxes relating to services and handset sales was R$4,143.6 million in the year ended December 31, 2010 compared to R$3,615.4 million in the year ended December 31, 2009, an increase of 14.6% partly due to the acquisition of Intelig.
 
Discounts on services and handset sales increased 38.6% to R$1,386 million in the year ended December 31, 2010 compared to R$1,000 million in the year ended December 31, 2009.  This increase was primarily due to the acquisition of Intelig and an effort to acquire and maintain clients based on innovation and premium services, rather than discounts.
 
Costs of services and goods
 
Costs of services and goods increased by 9.5% to R$7,305.8 in the year ended December 31, 2010 from R$6,672.4 in the year ended December 31, 2009, mainly due to the acquisition of Intelig, as well as organic growth.  Cost of handsets and accessories sold increased 10.9% in the year ended December 31, 2010 due largely to
 
campaigns to stimulate purchases of the TIM Chip alone, and the appreciation of the Brazilian real .  The following table shows the components of costs of services and goods for each of the periods indicated, as well as the percentage changes.
 
Statement of Operations Data: Costs of services and goods
 
Year ended December 31,
   
Percentage change
 
   
2010
   
2009
      2010 – 2009  
   
(in million of reais )
         
Depreciation and amortization
    (1,994.2 )     (1,816.0 )     9.8 %
Interconnection expenses
    (3,603.0 )     (3,351.8 )     7.5 %
Circuit leasing and related expenses
    (242.9 )     (166.0 )     46.3 %
Materials and services
    (337.0 )     (315.6 )     6.8 %
Personnel
    (58.4 )     (60.8 )     (3.9 )%
FISTEL tax and other
    (44.2 )     (37.0 )     19.5 %
Total cost of services
    (6,279.7 )     (5,747.2 )     9.3 %
Cost of handsets and accessories sold
    (1,026.1 )     (925.2 )     10.9 %
Total cost of services and goods
    (7,305.8 )     (6,672.4 )     9.5 %

Depreciation and amortization
 
Depreciation and amortization expenses increased 9.8% to R$1,994.2 million in the year ended December 31, 2010 from R$1,816.0 million in the year ended December 31, 2009, mainly due to the acquisition of Intelig.  The increase in depreciation expenses was due largely to efforts by the Company to expand and improve its network and information technology infrastructure.
 
Interconnection expenses
 
Interconnection costs increased 7.5% to R$3,603 million in the year ended December 31, 2010 from R$3,351.8 million in the year ended December 31, 2009, mainly due to the acquisition of Intelig.
 
Circuit leasing and related expenses
 
Circuit leasing and related expenses represent lease payments to fixed carriers for the use of circuits, interconnecting our network and transporting our customer traffic through third-parties fixed infrastructure.  Circuit leasing and related expenses increased 46.3% in the year ended December 31, 2010 to R$242.9 million from R$166.0 million in the year ended December 31, 2009, mainly due to the acquisition of Intelig.
 
Materials and services
 
Materials and services costs were R$337 million in the year ended December 31, 2010, up 6.8% from R$315.6 million incurred in the year ended December 31, 2009, mainly due to the acquisition of Intelig.
 
Personnel
 
Personnel costs decreased 3.9% to R$58.4 million in the year ended December 31, 2010 from R$60.8 million in the year ended December 31, 2009.  The decrease was due principally to corporate restructuring, implementing a new administrative and commercial structure that led to headcount adjustment.  During 2010, there was a 1.6% decrease in our number of employees, from 9,231 in the year ended December 31, 2009 to 9,081 in the year ended December 2010.
 
FISTEL tax and other
 
FISTEL tax and other costs increased 19.8% to R$44.2 million in the year ended December 31, 2010 from R$37.0 million in the year ended December 31, 2009, due to larger client base during 2010.
 
Costs of handsets and accessories sold
 
The cost of handsets and accessories sold in 2010 was R$1,026.1 million, representing a 10.9% of increase from R$925.2 million in the year ended December 31, 2009.  This increase partially attributable to the effects of our campaigns to stimulate the purchase of the TIM chip alone, and the appreciation of the real as most of our handset portfolio is imported.
 
Gross profit margins
 
The following table shows our gross profits, as well as the percentage change, from 2009 to 2010:
 
Statement of Operations Data: Gross profit
 
Year ended December 31,
   
Percentage change
 
   
2010
   
2009
      2010 - 2009  
   
(in million of reais )
         
Net operating revenues from services
    13,571.6       12,199.0       11.3 %
Cost of services
    (6,279.7 )     (5,747.2 )     9.3 %
Gross profit from services
    7,291.9       6,451.8       13.0 %
Net operating revenues from sales of cellular handsets and accessories
    885.8       959.2       (7.6 )%
Cost of goods
    (1,026.1 )     (925.2 )     10.9 %
Gross loss from sales of cellular handsets and accessories
    (140.3 )     34.0       (512.8 )%
Gross profit
    7,151.7       6,485.8       10.3 %

Our gross profit margin from services (gross profit as a percentage of net service revenues) increased from 52.9% in the year ended December 31, 2009 to 53.7% in the year ended December 31, 2010.  The increase was mainly due to a decrease of 15.3% in interconnection expenses during the period while registering significant outgoing traffic increase
 
Our negative gross margin for sales of mobile handsets and accessories decreased from positive 3.5% in the year ended December 31, 2009 to negative 15.8% in the year ended December 31, 2010.  We changed our subsidy policy, and launched the “ TIM Chip Avulso ” offer, pursuant to which customers can choose between purchasing a discounted handset up-front, or paying discounted monthly fees for stand alone TIM chip purchases.  This campaign resulted in 50% of our fourth quarter handset sales being subsidy-free.
 
We continue to aim to offer a complete and exclusive handset portfolio, which also supports VAS usage.
 
Our overall gross profit margin increased, from 49.3% in the year ended December 31, 2009 to 49.5% in December 31, 2010.  This resulted primarily from an increase in gross profit margin on services, despite negative gross margin for handset sales.
 
Operating expenses
 
The following table shows our operating expenses, as well as the percentage change from year to year of each component, for the years ended December 31, 2010 and 2009:
 
Statement of Operations Data: Operating expenses
 
Year ended December 31,
   
Percentage change
 
   
2010
   
2009
      2010 - 2009  
   
(in million of reais )
         
Selling expenses
    4,494.6       4,436.8       1.3 %
General and administrative expenses
    1,008.7       1,033.4       (2.4 )%
Other operating expenses, net
    448.2       462.1       (3.0 )%
Total operating expenses
    5,951.5       5,932.3       0.3 %

Our total operating expenses increased 0.3% to R$5,951.5 million in the year ended December 31, 2010 from R$5,932.3 million in December 31, 2009, mainly due to the acquisition of Intelig.
 
Selling expenses
 
Selling expenses increased 1.3% registering R$4,494.6 million in the year ended December 31, 2010 from R$4,436.8 million in the year ended December 31, 2009, mainly due to the acquisition of Intelig,
 
The allowance for doubtful accounts decreased from R$422.2 million in the year ended December 31, 2009 to R$310.5 million in the year ended December 31, 2010, as a result of rational go-to-market approach based on naked SIM-Card sales (which are sales of stand-alone SIM cards) and better customer credit scoring.
 
General and administrative expenses
 
General and administrative expenses decreased 2.4% to R$1,008.7 million in the year ended December 31, 2010 from R$1,033.4 million in the year ended December 31, 2009.  This decrease was primarily attributable to lower maintenance and personnel costs for the year ended December 31, 2010.
 
Other operating expenses, net
 
Other net operating expenses decreased 3.0% to R$448.2 million in the year ended December 31, 2010 from R$462.1 million in the year ended December 31, 2009.  This decrease was primarily due to a decrease of expense contingency.
 
Net financial expense
 
TIM registered a net financial expense of R$245.5 million in the year ended December 31, 2010, from a net financial expense of R$245.1 million in the year ended December 31, 2009 stable in a year over year comparison.
 
Income and social contribution taxes
 
Income and social contribution taxes are calculated based on the separate income of each subsidiary, adjusted by the additions and exclusions permitted in the year ended December 31, 2010 under tax law.  We recorded income and social contribution tax of R$1,257.0 million in the year ended December 31, 2010, compared to R$33.0 million in the year ended December 31, 2009.  The positive impact is largely related to the release in its entirety of the valuation allowance for tax loss carryforwards related to our subsidiary TIM Celular in the end of 2010, reflecting a better judgment for utilization of such tax credit following expected improvements on earnings.
 
Net income
 
With the impact of the tax credit, our net income in the year ended December 31, 2010 was R$2,211.7 million, compared to net income of R$341.4 million in the year ended December 31, 2009, due primarily to the acquisition of Intelig.
 
B. 
Liquidity and Capital Resources
 
We expect to finance our capital expenditures and other liquidity requirements for 2012 and 2013 with operating revenue, renewals of maturing indebtedness and new financing to be obtained from financial institutions.
 
In 2011, TIM Celular disbursed new loans totaling R$743 million from (1) BNDES, for an amount of R$370 million; (2) Bank of America, for an amount of R$200 million equivalent to U.S.$120 million; and (3) JPMorgan, for an amount of approximately R$173 million equivalent to U.S.$100 million.  TIM Celular also extended the maturity of the credit agreement with Santander in the total amount of R$350 million for an additional eighteen months, which was scheduled to mature in part in April 2011 and in part in June 2011.
 
In October 2011, TIM Celular purchased 100% of Eletropaulo Comunicações Ltda. (now denominated TIM Fiber SP Ltda.) and 98.26% of AES Communications Rio de Janeiro S/A. (now denominated TIM Fiber RJ S/A).  These companies had outstanding indebtedness with Itaú in the amount of R$90 million.
 
In December 2011, TIM Celular signed a new finance contract with European Investment Bank for €100 million.  We expect funds from this loan to be disbursed in 2012.
 
TIM Celular has an outstanding facility in the amount of R$147 million to be disbursed from BNDES. We expect funds from this loan to be disbursed in 2012.
 
The terms of our long term debt contain cross-default clauses, restrictions on our ability to merge with another entity and restrictions on our ability to prematurely redeem or repay such debt.  We are currently not, and do not expect to be, in breach of any material covenant of our debt instruments that would be construed as events of default under their terms.
 
In 2012, we plan to complete our financing needs through our current long-term facilities and partial renewal of short-term debt.
 
Sources of Funds
 
Cash from operations
 
Our cash flows from operating activities were R$4,129 million in the year ended December 31, 2011 compared to R$3,972 million in the year ended December 31, 2010. In the year 2011, the Infinity and Liberty Plans consolidated their position as market leaders within the plans which use the unlimited calls concept. Separately analyzing the adjusted results, this contributes to generate R$5,060 million positive cash flows.
 
On the other hand, we had variations in our operational assets and liabilities which decrease our cash from operation. The main variations of assets and liabilities were:
 
 
·  
Increase of accounts receivable in the amount of R$783 million;
 
 
·  
Increase in recoverable taxes in the amount of R$377 million; and
 
 
·  
Increase in accounts payable to suppliers in the amount of R$574 million.
 
Another item that had a relevant impact in the cash flow from operations was the contingency area. We have paid R$186 million in judicial deposits and R$172 million to settle contingencies.
 
Financial Contracts
 
We and our subsidiaries are parties to the financial contracts described below.  With respect to loans denominated in currencies other than reais , we enter into currency swaps to hedge against exchange rate fluctuations.
 
 
·  
Credit Agreement, dated as of June 28, 2004, among TIM Nordeste (incorporated by TIM Celular), as borrower, and Banco do Nordeste do Brasil S.A., as lender, in the principal amount of R$20 million.  The amount outstanding as of December 31, 2011, including accrued interest, was R$1.7 million.  The agreement, which matures on June 28, 2012, bears interest in the rate of 10.0% per annum.  In connection with this agreement, Banco Bradesco S.A. issued a letter of guarantee, subject to the payment of fees corresponding to 1% per annum of the principal amount.  The guarantee agreement executed by TIM Celular and Banco Bradesco S.A. provides for the issuance of a R$30 million promissory note by TIM Celular with TIM Participações as the guarantor of such promissory note.
 
 
·  
Credit Agreement, dated as of April 29, 2005, among TIM Nordeste (incorporated by TIM Celular), as borrower, and Banco do Nordeste do Brasil S.A., as lender, in the principal amount of approximately R$85.3 million.  The amount outstanding as of December 31, 2011, including accrued interest, was R$19 million.  The agreement, which matures on April 29, 2013, and bears interest at a rate of 10.0% per annum.  In connection with this agreement, Banco Bradesco S.A. issued a letter of guarantee, subject to the payment of fees corresponding to 1% per annum of the principal amount.  The guarantee agreement executed by TIM Celular and Banco Bradesco S.A. provides for the issuance of a R$128.0 million promissory note by TIM Celular with TIM Participações as the guarantor of such promissory note.
 
 
·  
Credit Agreement, dated as of June 28, 2004, among TIM Nordeste (incorporated by TIM Celular), as borrower, and Banco do Nordeste do Brasil S.A., as lender, in the principal amount of R$99.9 million.  The amount outstanding as of December 31, 2011, including accrued interest, was R$8.3 million.  The agreement, which matures on June 28, 2012, bears interest in the rate of 10.0% per annum.  In connection with this agreement, Banco Bradesco S.A. issued a letter of guarantee, subject to the payment of fees corresponding to 1% per annum of the principal amount.  The guarantee agreement executed by TIM Celular and Banco Bradesco S.A. provides for the issuance of a R$149.8 million promissory note by TIM Celular with TIM Participações as the guarantor of such promissory note.
 
 
 
·  
Credit Agreement, dated as of January 28, 2008, among TIM Nordeste (incorporated by TIM Celular), as borrower, and Banco do Nordeste do Brasil S.A., as lender, in the principal amount of R$67.0 million.  The amount outstanding as of December 31, 2011, including accrued interest, was R$44.8 million.  The agreement, which matures on January 31, 2016, bears interest in the rate of 10.0% per annum.  In connection with this agreement, Banco Votorantim S.A. issued a letter of guarantee, subject to the payment of fees corresponding to 0.575% per annum of the integral principal amount offered in the Credit Agreement.  The guarantee agreement executed by TIM Celular and Banco Votorantim S.A. provides for the issuance of a R$87.1 million promissory note by TIM Celular.  TIM Participações is not the guarantor in this promissory note.
 
 
·  
Credit Agreement, dated as of August 10, 2005, among BNDES, as lender, TIM Celular, as borrower, and TIM Brasil as guarantor, in the principal amount of R$1.3 billion.  The agreement, which matures on August 15, 2013, bears the average interest fixed rate of 4.2% plus the TJLP, which was 6% per annum on December 31, 2011.  On December 31, 2011, the outstanding amount under this credit agreement, including accrued interest, was R$364.7 million.
 
 
·  
Credit Agreement, dated as of October 6, 2009, among BNDES, as lender, TIM Celular and TIM Nordeste (incorporated by TIM Celular), as borrowers, and TIM Participações as guarantor, in the principal amount of R$400 million.  The agreement, which matures on October 15, 2012, bears interest at a fixed rate of 4.82% plus the TJLP, which was 6% per annum on December 31, 2010.  On December 31, 2011, the outstanding amount under this credit agreement, including accrued interest, was R$185.1 million.
 
 
·  
Credit Agreement, dated as of November 19, 2008, among BNDES, as lender, TIM Celular, as borrower, and TIM Participações as guarantor, in the principal amount of R$592.9 million.  The agreement, which matures on July 15, 2017, bears the average interest fixed rate of 2.17% plus the TJLP and the interest rate of 2.62% plus the IPCA which was 7.61% per annum on December 31, 2011.  On December 31, 2011, the outstanding amount under this credit agreement, including accrued interest, was R$610.3 million.
 
 
·  
Credit Agreement, dated as of November 19, 2008, among BNDES, as lender, TIM Nordeste (incorporated by TIM Celular), as borrower, and TIM Participações as guarantor, in the principal amount of R$202 million.  The agreement, which matures on July 15, 2017, bears the average interest at a fixed rate of 2.03% plus the TJLP and the interest rate of 2.62% plus IPCA which was 7.61% per annum on December 31, 2011.  On December 31, 2011, the outstanding amount under this credit agreement, including accrued interest, was R$202.8 million.
 
 
·  
Credit Agreement, dated as of November 19, 2008 and amended on June 29, 2010, among BNDES, as lender, TIM Celular, as borrower, and TIM Participações as guarantor, in the principal amount of R$716.9 million, which R$570 million was already disbursed.  The agreement, which matures on July 15, 2018 bears interest at (1) a fixed rate of 3.62% plus the TJLP or (2) fixed interest rate of 4.5% per annum.  On December 31 2011, the outstanding amount under this credit agreement, including accrued interest, was R$544 million.
 
 
·  
Credit Agreement, dated as of April 18, 2008, among Santander as lender, and TIM Celular, as borrower, in the principal amount of R$150.0 million.  The agreement, which matured in April 2011, was amended to have its maturity postponed to September 2012 and bears interest at a variable rate of 108% of the CDI interest rate instead of 100%.  On December 31, 2011, the outstanding amount under this credit agreement, including accrued interest, was R$164 million.  No guarantees were issued under this loan.
 
 
·  
Credit Agreement, dated as of May 5, 2008, among Santander as lender, and TIM Celular, as borrower, in the principal amount of R$50.0 million.  The agreement, which matured on April 25, 2011, was amended to have its maturity postponed to October 2012 and bears interest at a variable rate of 108% of the CDI interest rate instead of 109,6%.  On December 31, 2011, the outstanding amount under this credit agreement, including accrued interest, was R$54.3 million.  No guarantees were issued under this loan.
 
 
·  
Several facility agreements contracted under CMN Resolution No. 2,770 (Foreign currency denominated debt already swapped into local floating interest rate denominated currency).  The outstanding amount as of
 
 
December 31, 2010 was R$159.3 million, including accrued interest.  The last tranche of which matured on June 2011 was amended to have its new maturity postponed to December 2012, bear an average cost of 108% of the CDI.  No guarantees were issued under these loans.
 
 
·  
Finance Contract, dated as of June 3, 2008, between European Investment Bank, as lender, TIM Celular S.A. and TIM Nordeste (incorporated by TIM Celular) S.A., as borrowers and TIM Participações as guarantor, in the total principal amount of €200 million fully disbursed, and fully swapped into local currency, between September 2009 and June 2010.  The total outstanding amount as of December 31, 2011 converted from euros was R$532.1 million, including accrued interest.  The drawings, the last of which matures on June 2017, bear an average cost of 95.32% of the CDI after hedging.  The Guarantee was provided by BBVA Milan Branch and BES Portugal for the principal amount of €200 million.
 
 
·  
Facility Agreement, dated as of November 28, 2008, between BNP Paribas, as lender, and TIM Celular S.A., borrower and TIM Participações as guarantor, in the total principal amount of U.S.$143.6 million fully disbursed and swapped on January 15, 2009.  The total outstanding amount as of December 31, 2011 converted from U.S. dollars was R$267.8 million, including accrued interest.  The agreement matures on December 2017 and bears an average cost of 95.01% of the CDI after hedging.
 
 
·  
Finance Contract, dated as of September 5, 2011, between JPMorgan Chase Bank National Association, as lender, TIM Celular S.A., as borrower, in the total principal amount of U.S.$100 million.  The total outstanding amount as of December 31, 2011 converted from U.S. dollars was R$187.2 million, including accrued interest.  The agreement matures in September 2013 and bears an average cost of 92.00% of the CDI after hedging.  No guarantees were issued under this loan.
 
 
·  
Finance Contract, dated as of September 6, 2011, between Bank of America, N.A., as lender, TIM Celular S.A., as borrower, in the total principal amount of U.S.$119.8 million.  The total outstanding amount as of December 31, 2011 converted from U.S. dollars was R$223.4 million, including accrued interest.  The agreement matures on September 20, 2013 and has an average cost of 92.50% of the CDI after hedging.  No guarantees were issued under this loan.
 
 
·  
Finance Contract, dated as of December 29, 2011, between European Investment Bank, as lender, TIM Celular S.A, as borrower and a first tier bank as guarantor, in the total principal amount of €100 million to be disbursed in up four tranches in a minimum amount of €25 million each.  As of December 31, 2011, the funds from this loan had not yet been disbursed.
 
 
·  
Loan Agreement dated as of September 20 2011, between Tim Celular and Bank of America, pursuant to CMN Resolution No. 4,131 in the principal amount of U.S.$119.8 million.  The outstanding amount as of December 31, 2011, converted from U.S. dollars was R$187.2 million, including accrued interest.  The agreement matures in September 2013 and bears an average cost of 92.50% of the CDI after hedging.  No guarantees were issued under this loan.
 
 
·  
Credit Agreement, dated as of August 22, 2011, between Itaú as lender, and Eletropaulo Comunicações Ltda. (now denominated TIM Fiber SP Ltda.) acquired by TIM Celular in October 2011, as borrower, in the principal amount of R$40.0 million.  The agreement, which matures on August 18, 2014, bears interest at a variable rate of 1.5% over the CDI.  On December 31, 2011, the outstanding amount under this credit agreement, including accrued interest, was R$40.9 million.  No guarantees were issued under this loan.
 
 
·  
Credit Agreement, dated as of September 22, 2011, between Itaú as lender, and Eletropaulo Comunicações Ltda. (now denominated TIM Fiber SP Ltda.) acquired by TIM Celular in October 2011, as borrower, in the principal amount of R$28.0 million.  The agreement, which matures on September 15, 2014, bears interest at a variable rate of 1.5% over the CDI.  On December 31, 2011, the outstanding amount under this credit agreement, including accrued interest, was R$28.3 million.  No guarantees were issued under this loan.
 
 
·  
Credit Agreement, dated as of August 22, 2011, between Itaú as lender, and AES Communications Rio de Janeiro S.A. (now denominated TIM Fiber RJ S/A) acquired by TIM Celular in October 2011, as borrower,
 
 
in the principal amount of R$22.0 million.  The agreement, which matures in August 2014, bears interest at a variable rate of 1.5% over the CDI.  On December 31, 2011, the outstanding amount under this credit agreement, including accrued interest, was R$22.5 million.  No guarantees were issued under this loan.
 
See notes 20 and 41 in our consolidated financial statements for a further description of such financing agreements.
 
Uses of Funds
 
Principal uses of funds during the three-year period ended December 31, 2011, were capital expenditures, payment of dividends to our shareholders, and loan repayments.
 
Investments in Fixed Assets
 
Our capital expenditures in 2011, 2010 and 2009, related primarily to:
 
 
·  
acquiring and developing our fiber optic network;
 
 
·  
deployment of our third generation (3G) network;
 
 
·  
implementation and maintenance of our GSM and TDMA networks;
 
 
·  
purchases of equipment relating to our migration to PCS operations;
 
 
·  
expanding network capacity, geographic coverage and digitalization;
 
 
·  
developing new operational systems to meet customers’ demands and information technology systems; and
 
 
·  
free handsets provided to corporate customers ( comodato ).
 
The following table contains a breakdown of our investments in fixed assets for the years ended December 31, 2011, 2010 and 2009:
 
Capital Expenditures Categories
 
Year ended December 31,
 
   
2011
   
2010
   
2009
 
   
(in millions of reais )
 
Network
    2,081.7       1,701.0       1,319.4  
Information technology
    570.5       607.1       499.9  
Handsets provided to corporate customers ( comodato )  
    201.3       182.8       351.9  
Handsets provided to consumer customers (subsidies)
    8.3       290.3       483.4  
Other
    140.7       54.4       47.6  
Total capital expenditures
    3,002.4       2,835.7       2,702.1  

Our Board of Directors has approved our budget for capital expenditures from 2011 to 2013 in the total amount of R$9.0 billion and R$2.9 billion in 2011 for expenditures relating to our subsidiaries.  Most of the capital expenditures we budgeted for 2011 to 2013 relate to the expansion of the capacity and quality of our 3G technology and development of technology infrastructure.  See “Item 4. Information on the Company—A. History and Development of the Company—Capital Expenditures.”
 
Dividends
 
Our Dividends are calculated in accordance with our bylaws and Brazilian corporate law.  Pursuant to our bylaws, we must distribute an amount equivalent to 25% of adjusted net income as minimum dividend each year ended December 31, provided that there are funds available for distribution.
 
For the purposes of the Brazilian corporate law and in accordance with our bylaws, “adjusted net income” is the amount equal to the net profit adjusted to reflect allocations to or from: (1) the legal reserve, and (2) a contingency reserve for probable losses, if applicable.
 
The following table contains a breakdown of the dividends and interest on shareholders’ equity actually paid (net of income taxes) by us to our shareholders during the years ended December 31, 2011, 2010 and 2009:
 
 
Dividend Distribution (1)
 
Year ended December 31,
 
   
2011
   
2010
   
2009
 
   
(in millions of reais )
 
Dividends
    496.6       201.2       168.1  
Interest on shareholders’ equity
    –       –       –  
Total distributions
    496.6       201.2       168.1  

On April 11, 2012 our shareholders approved the distribution of R$304.291.584,06 as dividends in accordance of the minimum required on Brazilian Law, with respect to our 2011 results. On April 11, 2011 our shareholders approved the distribution of R$496.6 as dividends in accordance of the minimum required on Brazilian Law, with respect to our 2010 results.  On April 27, 2010 our shareholders approved the distribution of R$204.1 million as dividends to our shareholders with respect to our 2009 results.  On April 2, 2009 our shareholders approved the distribution of R$171.1 million as dividends to our shareholders with respect to our 2008 results.
 
C. 
Research and Development
 
We do not independently develop new telecommunications hardware and depend upon the manufacturers of telecommunications products for the development of new hardware. Accordingly, we do not expect to incur material research and development expenses in the future.
 
D. 
Trend Information
 
Customer Base and Market Share
 
In the year ended December 31, 2011, our subscriber base increased 25.6% to 64.1 million clients.  This represented a market share of 26.5%, while our service revenues share, our primary focus, reached 27% in the year ended December 31, 2011, compared to 25% in the year ended December 31, 2010.  The pre-paid segment reached 54.8 million users in the year ended December 31, 2011, an increase of 25.8% from the year ended December 31, 2010.  The number of post-paid users was 9.3 million in the year ended December 31, 2011, a 24.4% increase from the year ended December 31, 2010.
 
Although no assurances can be given as to the size of our subscriber base and market share in the future, we intend to focus on maintaining and improving our strong position in the mobile and fixed telecommunications market in Brazil in terms of number of subscribers and our high quality customer composition.  To do so we intend to utilize sophisticated strategies and our customer segmentation approach, which we believe has contributed to an increased subscriber base and to retain our current customers and attract new customers.  In 2012, we plan to improve and maintain subscriber growth by promoting our innovative Infinity and Liberty plans.
 
Change of Mix Between Postpaid and Prepaid Customers
 
With respect to the composition of our clients, our post-paid customers accounted for 14.5% of our total subscriber base in the year ended December 31, 2011, compared to 14.7% from a year ago, largely due to the significant growth in our pre-paid subscriber base.
 
Average Revenue Per User (ARPU) Per Month
 
TIM’s ARPU registered R$20.9 in the year ended December 31, 2011, a decrease of 9.2% when compared to R$23.0 presented in the year ended December 31, 2010.  The trend is partially attributed to an increase of 90 basis points in the pre-paid segment and a minor incoming revenue contribution.
 
 
Revenues from value-added services had an important role in offsetting ARPU’s downward trend of the market as a whole.  In 2011 we registered a value-added service revenue growth of 41.3% and accounted for 14.3% of total gross service revenue (compared to 11.9% registered in 2010).  We anticipate that revenues from value-added services will continue to increase and become a larger component of our total service revenues, particularly based on the availability of our 3G offers (such as our mobile broadband solution). As the provision of value added services has a relatively low marginal cost, we anticipate that value added services will contribute to the growth of our operating margins.
 
Competitive Environment
 
Brazil has a competitive scenario that is almost unique in the world.  The competition in the country’s mobile telephony sector has become more intense due to recent mergers and acquisitions.  This market has been growing at a rapid pace compared not only to the telecom industry but also to other sectors of the economy.  Brazil is one of the few markets with four nationwide competitors, each with a market share between 20% and 30%, which TIM believes, acts as the driver of growth and for the development of differentiated and quality services at fair and competitive prices.
 
In 2011, despite the competitive environment, our gross acquisition cost (per gross addition) was R$34 for the year ended December 31, 2011, compared to R$73 in the year ended December 31, 2010.  The decrease of 53.4% reflects our different approach regarding handset asubsidies and sales commissions.  Our chip-only strategy sharply reduced the expenses related to handset subsidies and the restructuring of our sales commission policy and the adoption of new alternative sales channels decreased commission expenses.
 
In addition to competition from other traditional mobile telecommunications service providers, the level of competition from fixed-line service providers has increased, and we expect will continue to increase, as fixed-line service providers attempt to attract subscribers away from mobile service based on price and package offers that bundle multiple applications such as voice services (mobile and fixed-line), broadband and other services.  Technological changes in the telecommunications field, such as the development of third generation, and number portability are expected to introduce additional sources of competition.  It is also expected that Anatel will auction licenses to provide mobile telecommunications services over additional bandwidth frequencies to accommodate these emerging technologies.
 
The year 2011 continued to be marked by both the government’s programs to encourage digital inclusion and the development of convergent services, recently inaccessible to the majority of the population.
 
The Brazilian mobile telephony market is the fifth largest in the world and reached a penetration level of 123.87 telephone lines for every 100 inhabitants in 2011, making mobile telephony the most widely used form of communication in Brazilian homes across all social classes.  The prepaid segment of the mobile telecommunications market increased 18.6% in 2011 to 198.2 million accesses, which represents 81.8% of the total market.  The postpaid segment grew the most in 2011, reaching 44.1 million lines, an increase of 22.9%.  The key growth drivers in both sectors were the favorable economic scenario in Brazil, with increased availability of credit, better income distribution (with part of population migrating from the D and E class to C class), and competition in Brazil’s mobile telephony market.
 
According to data published by Telco’s website, the fixed telephony sector showed a slight growth of 2.3% compared to last year, ending the period with 43.0 million lines, representing a penetration level of approximately 22.2 lines for each 100 inhabitants.  The sector also went through important mergers and acquisitions in 2011, in particular, the acquisition of TIM Fiber by us (the former AES Atimus).
 
Network Investment
 
In order to support the sector’s high growth rates, substantial investments are required in technology and infrastructure, both for expansion and for improving the quality of services provided. As a provider of a service that is fundamental for the company’s social and economic development, TIM reiterates its commitment to invest in and work for universal access to telecommunications.
 
We maintain our investments in expanding our GSM network, reaching coverage of 94.4% of the country’s urban population, serving almost 3,300 cities.  GSM coverage counts with 100% of GPRS and around 80% of EDGE.  Our 3G services (launched in the second quarter of 2008) are already in the main cities in Brazil.  We will, however, continue to invest in selectively expanding our coverage of the Brazilian population, focusing on the quality of coverage we provide in major metropolitan areas by increasing our coverage in buildings, tunnels and major roads and on increasing capacity across our network to ensure it remains capable of absorbing high call volume in high usage areas.  GSM is viewed as good pathway to more advanced technologies, and we expect relatively limited further investment will be required to make our current network capable of supporting emerging technologies such as 3G, 3.5G and High Speed Downlink Packet Access, or HSDPA.
 
E. 
Off-Balance Sheet Arrangements
 
We do not have any off-balance sheet arrangements.
 
F. 
Tabular Disclosure of Contractual Obligations
 
The following table shows our contractual obligations and commercial commitments as of December 31, 2011:
 
   
Payments due by Period (in millions of reais )
 
   
Total
   
Less than 1 year
   
1-3 years
   
4-5 years
   
More than 5 years
 
Total debt (post hedge)
    3,706       1,111       1,489       1,050       55  
Operating leases(1)
    –       –       –       –       –  
Total(2)
    3,706       1,111       1,489       1,050       55  
(1)
The information regarding payments due by period under our operating leases reflects future payments due that are non-cancelable without payment of a penalty.
 
(2)
Other than as set forth herein, we have no capital lease obligations, unconditional purchase obligations, commercial commitments (i.e., lines of credit, standby letters of credit, standby repurchase obligations or other commercial commitments) or other long-term obligations.  Interest is not included in long-term debt since it is subject to variable interest.
 
In 2011, we expect to have approximately R$2.9 billion in capital expenditures relating to our subsidiaries.  Most of the planned 2011 capital expenditures relate to extending TIM’s infrastructure capacity and coverage, ensuring high quality levels and supporting the market strategies and updating and developing TIM’s systems and technological platforms.  See “Item 4. Information on the Company—A. History and Development of the Company—Capital Expenditures.”
 
Contingent Pension Liabilities
 
Until December 1999, we participated in a multi-employer defined benefit plan (the “ Telebrás Pension Plan ”) that covered the employees of the Telebrás System who retired before the Breakup as well as those who continued working for the operating companies after the Breakup.  We are contingently liable, jointly and severally with the other New Holding Companies, for the unfunded obligations of the Telebrás Pension Plan with respect to all such employees who retired before January 30, 2000.  In December 1999, we changed to a defined benefit plan (the “PBS Plan”) that covers only those former employees of Telebrás who continued to be employed by us after December 1999.  We are also contingently liable for the unfunded obligations of the PBS Plan with respect to our employees participating in this plan.  See note 38 to our consolidated financial statements.
 
In November 2002, we created a separate defined contribution plan (the “ TIMPREV Pension Plan ”).  Migration to this plan was optional for employees linked to the PBS Plan.  Migration to the TIMPREV Pension Plan extinguishes the migrating participant’s rights under the PBS Plan.  We are also contingently liable for the unfounded obligations of the TIMPREV Pension Plan with respect to our employees participating in this plan.  See note 41 to our consolidated financial statements.
 
SISTEL and TIMPREV

The Company, TIM Nordeste merged into TIM Celular and TIM Celular have sponsored a private defined benefit pension plan for a group of TELEBRÁS system’s former employees, which is managed by FundaçãoSistel de Seguridade Social – SISTEL, as a consequence of the legal provisions applicable to the privatization process of these companies in July 1998.

Given that in 1999 and 2000 the sponsors of the pension plans managed by SISTEL had already negotiated conditions for the creation of individual pension plans for each sponsoring company and the maintenance of joint liability only in relation to the participants already assisted on January 31, 2000, the Company and its subsidiaries, like other companies created as a result of the former TELEBRÁS system, created in 2002 a defined contribution pension plan meeting the most modern social security standards adopted by private companies, and enabling migration to this plan of the employee groups linked to SISTEL.

On November 13, 2002, the Brazilian Secretariat for Supplementary Pension Plans, through official ruling CGAJ/SPC No. 1917, approved the statutes of the new pension plan(hereafter “the Statutes of the TIMPREV Benefits Plan”) as a defined contribution plan, which provide for new conditions for granting and maintaining benefits, as well as the rights and obligations of the Plan Managing Entity, the sponsoring companies, participants and the beneficiaries thereof. 

Under this new plan, the sponsor’s regular contribution will correspond to 100% of a participant’s basic contribution, and TIMPREV’s managing entity will ensure the benefits listed below, under the terms and conditions agreed upon, with no obligation to grant any other benefits, even if the government-sponsored social security entity starts granting them:

·            Normal retirement pension
·            Early retirement pension
·            Disability pension
·            Deferred proportional benefit
·            Death benefit

However, as not all of the Company’s and its subsidiaries’ employees have migrated to TIMPREV, the pension and health care plans deriving from the TELEBRÁS system briefly listed below remain in force:

PBS: defined benefits plan of SISTEL, which includes active employees who participated in the plans sponsored by the companies of the former TELEBRÁS system

PBS Assistidos: a multi-sponsored pension plan for inactive employees

Convênio de Administração: for managing pension payments to retirees and pensioners of the predecessors of the subsidiary companies

PAMEC/Apólice de Ativos: health care plan for pensioners of the predecessors of the subsidiary companies

As happened with TRCA, the Company, until December 31, 2010, had understood that it was responsible for liabilities of the PAMA participants (health care plan) who are related to the Company and its subsidiaries. Based on a new understanding of internal and external lawyers, the Company changed its position. As a result, the liabilities previously recorded were written off.

In accordance with the rules established by NPC-26 issued by the Institute of Independent Auditors of Brazil – IBRACON, and approved by CVM Resolution No. 371, the plans having a surplus are not recorded by the Company, as it is impossible to recover these amounts. Furthermore, the amounts of contributions will not be reduced for future sponsors.

On January 29, 2007 and April 9, 2007, through the Brazilian Secretariat for Supplementary Pension Plans- SPC, the Ministry of Social Security approved the transfer of the management of the PBS–Tele CelularSul, TIM PrevSul, PBT–TIM, Convênio de Administração, PBS–TelenordesteCelular and TIM PrevNordeste benefit plans (according to SPC/DETEC/CGAT Communications Nos. 169, 167, 168, 912, 171 and 170, respectively) from SISTEL to HSBC – Fundo de Pensão.

The PBS Assistido plan continues to be managed by SISTEL. The only exception is Plano PAMEC, which was extinguished, with the Company remaining responsible for coverage of the respective benefit, which is now called PAMEC/Apólice de Ativos.

In view of the approval of the proposed migration by the Board of Directors in January 2006, and the approvals by the Ministry of Social Security, the transfer of the above mentioned funds from SISTEL to HSBC – Fundo de Pensão came into effect in April 2007.

In 2011, contributions to pension plans and other post-employment benefits amounted to R$303 (R$151 in the same period of 2010). See note 42 to our consolidated financial statements.
 
 
Item 6.  Directors, Senior Management and Employees
 
A. 
Directors and Senior Management
 
Board of Directors
 
We are administered by a Board of Directors ( Conselho de Administração ) and a Board of Executive Officers ( Diretoria ), which are overseen by a Board of Auditors/Audit Committee ( Conselho Fiscal/Comite de Auditoria ) referred to as our Statutory Audit Committee.  The Board of Directors is comprised of five to nineteen members, serving for a two year term each with the possibility of re-election.
 
Our directors’ duties and responsibilities are set forth by Brazilian law, our bylaws ( Estatuto Social) and our Disclosure Policy ( Política de Divulgação de Informaçõe s), as determined by CVM Instruction 358. All decisions taken by our Board of Directors are registered in the books of the Board of Directors’ meetings.  The Board of Directors holds regular meetings once every quarter of the fiscal year and also holds special meetings whenever discretionarily called by the Chairman, by two Directors or by the Chief Executive Officer.  The chairman of the Board of Directors may also invite to the Board of Directors’ meetings, at his discretion, any of our key employees, in order to discuss any relevant corporate matter.  Our Board of Directors does not have an independent directors’ committee.  In 2008, the Board of Directors has implemented two special advisory committees: the Compensation Committee ( Comitê de Remuneração) and the Internal Control and Corporate Governance Committee (Comitê do Controle Interno e da Governança Corporativa) , both composed by at least one independent director.
 
Management is required to comply with, and has agreed to comply with, the Manual of Securities Trade and Information Use and Disclosure Policy, the Code of Ethics, issued by the Company, “ Regulamento para Observância dos Atos Anatel nº 68.276, de 31 de outubro de 2007, e nº 3.804, de 07 de julho de 2009 ,” and “ Regulamento para a observância do Acordo de 28 de abril de 2010 celebrado com o Conselho Administrativo de Defesa Econômica (CADE) .”
 
The following are the current effective members of the Board of Directors and their respective titles, whose terms of office will be valid until the Annual Shareholders’ Meeting to be held in 2013:
 
Name
 
Title
 
Date of Birth
 
Date Appointed
Manoel Horácio Francisco da Silva
 
Chairman
 
July 16, 1945
 
April 11, 2011
Gabriele Galateri di Genola e Suniglia
 
Director
 
January 11, 1947
 
April 11, 2011
Stefano de Angelis
 
Director
 
August 22, 1967
 
April 11, 2011
Andrea Mangoni
 
Director
 
June 5, 1963
 
April 11, 2011
Maílson Ferreira da Nóbrega
 
Director
 
May 14, 1942
 
April 11, 2011
Adhemar Gabriel Bahadian
 
Director
 
October 22, 1940
 
April 11, 2011
Carmelo Furci
 
Director
 
March 12, 1953
 
April 11, 2011
Oscar Cicchetti
 
Director
 
June 17, 1951
 
July 20, 2011

In addition, it shall be recorded that Messrs. Francisco da Silva, Nóbrega and Bahadian are the members of the Board of Directors qualified as independent directors according to Brazilian independence standards.  They are scheduled to be re-elected or replaced at the Annual Shareholders’ Meeting to be held in 2013.  Set forth below are brief biographical descriptions of the members of the Board of Directors.
 
Manoel Horácio Francisco da Silva .  Mr. Francisco da Silva holds a degree in Business Administration from Pontifícia Universidade Católica (PUC) of São Paulo and also completed the Advanced Management Program in the Harvard Business School. He was the Chief Executive Officer of Banco Fator from 2002 to 2011 and has been Chairman of the Board of Director of Banco Fator since August, 2011.  Mr. Francisco da Silva was the Chief Executive Officer of Telemar and also managed the area of paper and cellulose from Cia. Vale do Rio Doce. He worked in the Group Ericsson do Brasil for 23 years, where he reached the position of Chief Executive Officer in many companies of the Group. He was also the Chief Executive Officer of Ficap and of Sharp Equipamentos Eletrônicos. He also performed as the Superintendent Officer of the Companhia Siderúrgica Nacional, being responsible for the restructuring process of the Cia. Vale do Rio Doce. He has held a position in the Board of
 
 
Directors of many companies, such as Sadia, Bahia Sul, Group Ericson, Docenave and Telemar.  In 1989, he was appointed as the major financial professional of the year by the Instituto Brasileiro de Executivos de Finanças (IBEF)
 
Gabriele Galateri di Genola .  Mr. Galateri di Genola was appointed Chairman of Telecom Italia on December 3, 2007 and confirmed in the office on April 15, 2008 until April 11, 2011, when he was reappointed as member of the Board of Directors of Telecom Italia After earning his MBA at the Columbia University Business School, Mr. Galateri di Genola began his career in 1971 at the Headquarters of the Banco di Roma, where he started as Head of the Financial Analysis Office before being appointed to manage the International Loans Office.  From 1974 to 1976 he worked as Financial Director of the Saint Gobain Group in Italy.  In 1977, he joined FIAT S.p.A., where he moved from Head of North, Central and South American Operations at the International Finance Office to Head of International Finance and, ultimately, Director of Finance.  Mr. Galateri di Genola became CEO of Ifil S.p.A. in 1986.  In 1993, he took on the positions of CEO and General Manager of IFI, which he retained until 2002.  In June 2002, he was appointed CEO of FIAT S.p.A. He is Chairman of the Board of Directors of Tim Brasil Serviços e Participaçoes SA, a non-executive Board Member of TIM Participações S.A., Banca CRS S.p.A., Banca CARIGE, and Italmobiliare S.p.A. He is a member of the General Council and of the Executive Board of Assolombarda. He is also Confindustria’s Chairman Representative for telecommunications and broadband development.  Since April 8 2011 he has been the Chairman of Assicurazioni Generali S.p.A.
 
Stefano de Angelis .  Mr. De Angelis is currently responsible for Administration and Control in Telecom Italia SpA. He is also member of the Board of Directors of Matrix S.p.A., Pathnet S.p.A., Telecontact Center S.p.A. and Telenergia S.r.l (Telecom Italia Group Companies). He was the Chief Financial and Investor Relations Officer of TIM Participações S.A. between 2006 and 2007. He has also served as Chief Administration, Finance and Control Officer of the TIM Companies in Brazil since July 2004 and then responsible for the Planning and Control Department at Telecom Italia, since 2008.  Between 2002 and 2004, he was responsible for the planning and controlling operations of Telecom Italia Mobile S.p.A. in Italy.  Mr. De Angelis also worked in the Consodata Group Ltd, H.M.C. S.p.A., Stet S.p.A. and at Fiat Geva. S.p.A.  Mr. De Angelis was a member of the Board of Directors of Stream S.p.A. between April 2000 and June 2000, TV Internazionale S.p.A. (“La 7”) between June 2001 and December 2002, MTV Italia S.r.l. between April 2002 and December 2002, Officer of TVI Montecarlo S.A.M. between April 2002 and November 2002, Chief Executive Officer of Globo Communication S.A.M. between April 2002 and November 2002, and Chief Executive Officer and Officer of Consodata Group Ltd between October 2002 and January 2003.  Mr. De Angelis holds a degree in Economics and Business Administration from Università degli Studi di Rome and also a MBA from Scuola di Amministrazione Aziendale dell’ Università di Torino, in Italy.
 
Andrea Mangoni .  Mr. Mangoni graduated from the University of Rome in 1988 with a thesis on valuation and private financing of investments in public infrastructures.  Presently, he is Responsible for Administration, Finance and Control & International Development in Telecom Italia.  Mr. Mangoni joined the Telecom Italia Group on July 1, 2009, as Chairman of Telecom Italia Sparkle (from July 2009 to July 2010) and as Director of International Business at Telecom Italia S.p.A.  From 1996 to March 2009 he worked in Acea, where he was appointed Chief
 
Executive Officer in November 2003; from March 2003 to November 2003 he was General Manager of Acea; from June 2001 to February 2003 was Chief Financial Officer, responsible of strategies, finance, budget, economic planning and control, investor relations of Acea; in 2002 he was appointed common representative of the Joint Venture among Acea, Electrabel and Energia Italiana which brought to the acquisition of Interpower, the third generation company sold by Enel; from January 2000 to May 2001 he was Strategic Planning Director of Acea; from January 1998 to December 1999 he worked as manager of the Finance Department of Acea and he was responsible of strategic planning; from 1996 to 1997 he was President Assistant, responsible for the transformation process of Acea from municipal company into share capital company.  Mr. Mangoni worked for InterAmerican Development Bank (IDB).
 
Maílson Ferreira da Nóbrega .  Mr. Nóbrega holds a degree in Economics from Centro Universitário de Brasília (CEUB).  From 1988 to 1990, he held the position of Brazil’s Minister of Finance, after building an extensive career at Banco do Brasil and in the public sector, in which the following positions stand out: Chief Economist and Chief of Project Analysis Department at Banco do Brasil; Coordination Chief of Economic Affairs of the Ministry of Industry and Commerce, and Secretary General of the Ministry of Finance. He performed as the Deputy Managing Director of the European Brazilian Bank - EUROBRAZ, in London. As a minister, he became a member of the Board of the International Monetary Fund and the World Bank.  Mr. Nóbrega is currently a member of the Fernand Braudel Institute of World Economics, member of the Board of Directors of a several companies in Brazil and abroad, partner at Tendências Consultoria Integrada and columnist of Veja weekly magazine.  Mr. Nóbrega was also a member of our Statutory Audit Committee between 2004 and 2005 and he has been a member of our Board of Directors since April 2007. He wrote four books, the last one was his auto biography.
 
Adhemar Gabriel Bahadian.   Mr. Bahadian was a Brazilian Ambassador in Rome from 2006 to 2009 and a Deputy-Chairman of the trade negotiations related to the Free Trade Area of Americas (FTAA) from 2003 to 2005.  Mr. Bahadian holds a degree in Law from the Pontifícia Universidade Católica do Rio de Janeiro (PUC-RJ) and a master’s degree from Instituto Rio Branco.
 
Carmelo Furci .  Mr. Furci is currently the president of the Italian insurer Generali in Brazil. The board of the company indicated Carmelo Furci for the presidency. Generali operates branches in Brazil in life, automobile and other risks present in eight states. Since October 5 th , 2011 he is partner of Furci Consulting LTDA., focused on doing business in Brazil and has been Chairman of the Board of Directors of Generali BrasilSeguros S.A. since October 5 th , 2011.  In 2010, he became the Chief Executive Officer of the Ongoing Group, responsible for publishing economic diaries.  In August 6 th , 2008, he was appointed to the Board of Directors of TIM Participações S.A. and as Chairman of TIM Brasil Serviços e Participações S.A..  In June 14 th , 2008, he was appointed as Vice President of Telecom Italia Group in Latin America. After earning his first degree in 1978, he worked as a consultant in Vector - Center for Social and Economic Studies in Amsterdam and Santiago.  In 1982, he earned his Doctorate of Philosophy in Economics and Government at the London School of Economics (LSE), part of London University. After three years working as a NATO Senior Fellow in Political Science, he spent two years, 1983 and 1984, at the London School of Economics (LSE), where he became an Honorary Fellow in Latin American Studies.  In 1984, he taught international relations at American University of Rome (AUR).  Mr. Furci worked at Enimont as Supervisor of International Relations from 1985 to 1989.  In the following year, 1999, he joined the World Bank as head of the department of Foreign Affairs for Europe and the Vatican State.  From 1994 to 1997, he worked as Manager of Strategies for International Affairs.  In 1998 he joined the Telecom Italia Group and held several positions, starting as Chairman of the Board of Directors and Chief Executive Officer of Telecom Italia do Brasil and head of Economic and Public Affairs of Telecom Italia Latin America.  In 2002, after return to Italy, he joined the Division of Financial Management and Control, where he became responsible for relations with international financial organizations, to which position he was reelected in 2006.  From December 2007 to May 2008, he was appointed as Coordinator of the Director Committee for Telefónica Group relations.  Mr. Furci held the positions of director of Telecom Italia Group companies, namely: Solpart, Brazil Telecom, ETECSA Cuba, Entel Bolivia and Entel Chile. He was also the Chairman of Tele Nordeste Celular and Tele Celular Centro Sul in Brazil. He is a member of the OECD task force in China, and wrote several books about Latin America.]
 
Oscar Cicchetti.   Mr. Cicchetti has acted as the Head of Strategy at Telecom Italia S.p.A. since April 15, 2011. He is also Chairman of Matrix and Member of the Board of Directors of Telecom Italia Foundation.  Mr. Cicchetti started work in SIP in 1979.  From 1979 to 1984, he was in charge of Network and Plant Management for the geographical area of Ascoli Piceno and then became Market Manager for the Ancona and Perugia areas.  From 1987 to 1993, he was Head of Organization and Process in the Personnel Department.  In 1993, he joined a task force of the IRI
 
 
Group to work in the Azienda di Stato dei Servizi Telefonici (State Telephone Services Board, later called Iritel), participating in the privatization process of the State-owned company and its subsequent integration in the Telecom Italia Group.  In 1994 he joined Telecom Italia and in 1997 he was the Staff Manager for the General Manager and then for the Managing Director of the Group.  From 1997 to 2000 he occupied various positions in the top management of the Telecom Italia Group: first as Assistant Central Director and Manager of the International Business Unit and then Head of Strategic Planning and Head of the Network Division.  From 2001 to 2002, he was a freelance consultant for various corporations, such as Wind and Morgan Stanley Private Equity.  In 2003, together with a group of investors, including TLCom and Merloni Group, he acquired Netscalibur S.p.A., a company specialized in data services business. As Managing Director, he handled the company turnaround and its sale to the Infracom Group in 2006.  In 2007, he was appointed Managing Director of Infracom Network Application S.p.A. and stayed in this position until January 2008, when he returned to Telecom Italia Group.  In Telecom Italia, he held the position of Head of Business Strategies & International Development and then he was appointed Head of Domestic Market Operations.  In November 2009, he became Head of Technology & Operations.
 
We do not have contracts with our directors providing benefits upon termination of their appointments.
 
Board of Executive Officers
 
Pursuant our bylaws, amendment in the Extraordinary Shareholders’ Meeting held on June 22, 2011, our Board of Executive Officers (the members of which we also refer to as our statutory officers) is comprised of at least two and no more than nine members, who may or may not be shareholders.  The title of the members of our Board of Executive Officers shall be as follows: (1) Chief Executive Officer, (2) Chief Financial Officer, (3) Investor Relations Officer, (4) Purchasing & Supply Chain Officer, (5) Chief Operations Officer, (6) Chief Marketing Officer, (7) Regulatory Affairs Officer, (8) Wholesale Officer and (9) Legal Officer.  Each member of our Board of Executive Officers, who serve two-year terms of office (with re-election permitted) may be elected or dismissed by our Board of Directors at any time and with no cause.
 
The following are the current members of the Board of Executive Officers and their respective titles, whose terms of office will remain valid until the first Board of Directors’ Meeting to be held after the Annual Shareholders’ Meeting that was held in April 2012:
 
Name
 
Title
 
Date of Birth
 
Date Appointed
Claudio Zezza
 
Chief Financial Officer
 
May 22, 1963
 
May 3, 2010
Rogério Tostes Lima
 
Investors Relations Officer
 
February 13, 1971
 
October 31, 2011
Daniel Junqueira Pinto Hermeto
 
Purchase & Supply Chain Officer
 
April 27, 1971
 
May 3, 2010
Lorenzo Federico Zanotti Lindner
 
Chief Operations Officer
 
August 10, 1973
 
May 3, 2010
Roge Sole Rafols
 
Chief Marketing Officer
 
April 10, 1974
 
August 2, 2011
Mario Girasole
 
Regulatory Affairs Officer
 
June 8, 1968
 
December 13, 2010
Antonino Ruggiero
 
Wholesale Officer
 
November 29, 1965
 
December 13, 2010
Jaques Horn
 
Legal Officer
 
March 15, 1964
 
November 28, 2011

Set forth below are brief biographical descriptions of our executive officers.
 
Claudio Zezza .  Mr. Zezza is an Italian citizen and holds a degree in Economics and Trade from the University of Rome, with specialization in Finance, Financial Statements and Economics.  Currently, he is Chief Financial of the Company.  In 2009, Mr. Zezza joined Telecom Italia and in 1998 he started working in the area of International Businesses.  In 2000, he became responsible for the International Operational Management.  In 2004, he became responsible for the Planning and Control Department.  In 2005, he was responsible for the International Business Performance area.  In 2007, before coming to Brazil, he became responsible for the International Control in Administration, Finance and Control.
 
Rogério Tostes Lima .  Mr. Lima holds a degree in Business Administration and received an Executive MBA from Ohio University and also from Fundação Getulio Vargas (FGV). He has been Investor Relation Director of the
 
 
Company since 2008.  Mr. Lima has followed telecommunication scenario in Brazil since Telebras privatization process in 1998, when he joined a team responsible to evaluate/split Telebras system and prepare it for the privatization process. After that, he worked in a management team responsible to manage BCP/BSE operations in São Paulo and Northeast for Banco Safra, where he ended-up working as sell-side analyst.  More recently, he was sell-side analyst for Banco Santander for three years.
 
Daniel Junqueira Pinto Hermeto .  Mr. Hermeto holds a degree in Electrical Engineering from the Escola Federal de Engenharia de Itajubá concluded in 1994. He attended a post-graduate program in Business Administration at Fundação Getulio Vargas – São Paulo in 2002 and also holds a MBA in Executive Management from the Fundação Instituto de Administração – São Paulo concluded in 2007.  Mr. Hermeto began his career in 1995 as a Product and Sales Engineer at Siemens in São Paulo.  In 1997, he was promoted to the role of Senior Engineer, performing his duties in Munich.  From 1998 to 2008, he worked for Motorola as Manager of Purchasing and Senior Purchaser from 1998 to 2002, Senior Manager of MP&L from 2003 to 2004, Chief Officer of Manufacturing Operations in 2005 and Chief Officer of Purchasing, Planning and Logistics from 2006 to 2008. Between February, 2008 and November, 2009, Mr. Hermeto worked as the Chief Officer of Purchasing and Logistics in Claro, reporting directly to the Chief Executive Officer, and was responsible for the areas of Purchasing, Sourcing, Logistics and Inventory Management throughout the country.
 
Lorenzo Federico Zanotti Lindner .  Mr. Lindner holds a degree in Economics from the Universidade do Estado do Rio de Janeiro (UERJ) and a Master degree in Administration from the Instituto Coppead de Administração da Universidade Federal do Rio de Janeiro (Coppead-UFRJ) .  Mr. Lindner began his career in 1999 as a consultant in Booz-Allen & Hamilton. He joined TIM in 2002, where he worked until 2008, and was responsible for several offices, including Budgeting & Control, Commercial Planning and CRM (Marketing).  In the middle of 2008, he joined the consultancy Bain & Company, where he worked until the beginning of 2009, when he returned to TIM as the Strategy & Business Monitoring Officer.
 
Roge Sole Rafols.   Mr. Rafols is a Spanish citizen. He holds a degree in Business Bachelor and Master in Business Administration from Escuela Superior de Administración y Dirección de Empresas – ESADE concluded in 1997 and attended the MBA Exchange Program in University of California in 1996. He also attended Post Graduation Program in Management of Audiovisual Companies in Universitat Pompeu Fabra, Instituto Desarrolo Continuo (IDEC) – Barcelona in 2000 and Advanced Management Program in IESE Business School, Universidad de Navarra in 2006.  From 1996 to 2001 Mr. Rafols worked for Dimondcluster (ex Cluster Consulting and current Oliver Wyman) as consultant of strategy, marketing and technology in telecommunications and internet fields.  From 2001 to 2008 he worked for Vivo Participações S/A holding the position of Head of the Department of Business Data and Value Added Services (VAS), between July, 2002 and March, 2006, and Head of the Department of High Value Marketing, between April, 2006 and May, 2008.  In 2008, Mr. Rafols jointed TIM holding the position of Senior Manager Executive from January, 2009 to April, 2009, Leader of the Marketing’s Department of Consumer Offering, from May, 2009 to October, 2009, Head of the Department of Marketing Consumer, from November, 2009 to August, 2011 and, currently, Chief Marketing Officer.
 
Mario Girasole .  Mr. Girasole is an Italian citizen with Laurea Magistralis in Economics from University LUISS (Rome). He also has an L.L.M. in International Business Law (London), post graduate in Competition Policy, in International Commerce and Modern Economic History, and executive education at London Business School (Finance) and Harvard (School of Government). He joined TIM in 1997, for the regulatory and pricing area, in Rome.  Previously, he was responsible for economic analysis in antitrust in law firms.  From 2000 to 2003, he headed, in Brussels, the TIM Group relations with the institutions of the European Union, and was appointed to the position of Deputy-Chairman of the European Mobile Sector (GSM Europe).  In 2004, he became Chief of Public and Economics Affairs at Telecom Italia America Latina. During this period, he worked also as Director of Entel Bolivia and Alternate Director of TIM Participações S.A.  Mr. Girasole has been the Regulatory Affairs Officer of Company since January 2009. He is also member of the Board of Directors and the Board of Officers of national and international entities, including Febratel, Accel/Telebrasil, GSM Latin America, Department of Infrastructure and the House of FIESP Italo-Brazilian Trade.
 
Antonino Ruggiero .  Mr. Ruggiero is an Italian citizen, graduated at the Instituto Tecnico Industriale Electronic Napoli - Italy. He worked in Technical Support Engineer of Ericsson (Mobile Network Area) and BT Italia (Long Distance Operator Area).  From 1994 to 1997, he worked as Manager of Network Operations at Vodafone.  From
 
 
1997 to 2000, he became Chief Technology Officer of Entel PCS in Chile.  From 2000 to 2005, he became Chief Technology Officer of Ária Ilethisim, in Turkey.  From 2006 to 2008, he worked as Chief Technology Officer at TIM Celular S.A.. He has hold the position of Wholesale Officer of TIM Celular S.A. and TIM Participações S.A since 2009 and Chief Executive Officer of Intelig Telecomunicações Ltda. since 2010.
 
Jaques Horn .  Mr. Horn graduates at Law (LLB) at Candido Mendes University, with specialization at Harvard and the Academy of International and American Law. He has been Legal Officer of TIM since July 2010. He worked at Tetra Pak, also as Legal Director, being responsible for Central and South America, and Caribbean, from 2007 to 2010. He also worked at Shell, as Corporate Manager at the holding company and Legal Director at the Subsidiary companies.  Mr. Horn worked as Legal Counsel at Companhia Atlantic Petroleo (ARCO Petroleum Co.) from 1992 to 1994, as a Lawyer at Franco, Bhering, Barbosa & Novaes Law Firm for one year, and Tax Senior Consultant at Arthur Andersen for four years.
 
There are no family relationships among any of our directors and executive officers.
 
Statutory Audit Committee
 
The Statutory Audit Committee’s composition for 2012 consisted of four members, three of which were elected by our controlling shareholder and one by the minority shareholders.
 
The following are the current members of our Statutory Audit Committee:
 
Name
 
Date of Birth
 
Date Appointed
Alberto Emmanuel Carvalho Whitaker
 
October 10, 1940
 
April 11, 2012
Oswaldo Orsolin (*)
 
May 30, 1943
 
April 11, 2012
Carlos Alberto Caser
 
December 8, 1960
 
April 11, 2012
Samuel de Paula Matos
 
March 22, 1948
 
April 11, 2012
(*)
Audit committee financial expert.
 
Under Brazilian corporate law, our bylaws and the Internal Rules of the Statutory Audit Committee, the Statutory Audit Committee’s general duties and responsibilities include monitoring the actions of management and verifying its compliance with legal duties and appropriate statutes; providing opinions regarding management’s annual report, business plans and budgets; and performing reviews of, and opinions regarding our financial statements. All members serve independently from the company in their capacities on the Statutory Audit Committee.
 
Since our April 23, 2004 Shareholders’ Meeting, we have elected members of the Statutory Audit Committee who are independent from the Company and its affiliates. At a Shareholders’ Meeting held on May 6, 2004, we adopted internal regulations of our Statutory Audit Committee in order for it to serve also as an alternative structure to an audit committee in accordance with Rule 10A-3 under Section 301 of the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley.  Such internal regulations were updated on the Shareholders’ Meeting held on March 16, 2006 and later at the Statutory Audit Committee meeting held on June 24, 2009.  See “Item 16D. Exemptions from the Listing Standards for Audit Committees.”
 
Other Committees
 
We have other non-statutory committees including a Compensation Committee and Internal Control and Corporate Governance Committee.
 
Compensation Committee
 
The Compensation Committee was established by the Board of Directors on September 30, 2008 to: (1) prepare proposals for our Board of Directors regarding allotment of the overall annual remuneration approved by General Shareholders’ Meeting; (2) provide our Board of Directors with proposals concerning the remuneration of our executive officers; (3) evaluate the compensation criteria of Company’s executive officers; (4) monitor the
 
 
performance of the decisions taken by management and the Company’s policies relating to senior executive compensation.
 
The members of our compensation committee are appointed and dismissed by our Board of Directors.  The compensation committee consists of three members, all of whom are effective members of our Board of Directors.  The following are the current members of our Compensation Committee:
 
Name
 
Date of Birth
 
Date Appointed
Gabriele Galateri di Genola e Suniglia
 
January 11,1947
 
February 23, 2010
Manoel Horácio Francisco da Silva
 
July 16, 1945
 
November 27, 2009
Oscar Cicchetti
 
June 17, 1951
 
August 02, 2011

Internal Control and Corporate Governance Committee
 
The Internal Control and Corporate Governance Committee was established by the Board of Directors on September 30, 2008 to: (1) assist the Board of Directors in performing their duties related to the Company’s internal control system; (2) monitor the performance and periodic updating of the corporate governance rules; (3) recommend procedures to better supervise the management of the executive officers; (4) evaluate the plan of action drawn up by the head of the area of compliance and review his or her periodic report; (5) provide recommendations on the appointment and dismissal of the Company’s independent auditors; (6) monitor the effectiveness of Company’s related parties transactional policy; and (7) analyze other matters related to the internal control of the Company, as delegated by the Board of Directors.
 
The following are the current members of the Internal Control and Corporate Governance Committee:
 
Name
 
Date of Birth
 
Date Appointed
Maílson Ferreira da Nóbrega
 
May 14, 1942
 
May 05, 2009
Manoel Horácio Francisco da Silva
 
July 16, 1945
 
May 05, 2009
Andrea Mangoni
 
June 5, 1963
 
December 12, 2010
 
    Legal Investigation
 
On April 20, 2012, our controlling shareholder, Telecom Italia, was notified by the Milan Public Prosecutor of the conclusion of a preliminary investigation under the Italian Code of Criminal Procedure in which three previous executives of Telecom Italia (including our former chief executive officer, Mr. Luca Luciani) were charged with obstruction of supervisory activity. The charges relate to (1) the alleged unlawful renewal of prepaid SIM cards after their normal termination date from 2006 to 2008, in the amount of 223,000 lines or 0.19% of Market Share in 2006; 2,742,000 lines or 1.88% of Market Share in 2007; and, 2,345,000 lines or 1.64% of Market Share in 2008, and (2) around one million SIM cards which allegedly were not refilled in 12 months after their activation (184,000 lines in 2005; 445,000 lines in 2006; 335,000 lines in 2007; and 78,000 lines in 2008). Telecom Italia and TIM Participa ç õ es are in the process of reviewing the documentation relating to the investigation received from the Milan Public Prosecutor. Information regarding this investigation and that our former chief executive officer was a possible subject of such investigation has been previously disclosed by the Company.
 
Resignation of Chief Executive Officer
 
On May 4, 2012, Mr. Luca Luciani resigned from his position as our chief executive officer and renounced all duties held in companies of the Telecom Italia Group.  On May 14, 2012, Mr. Andrea Mangoni, already a member of our Board of Directors, was nominated as our interim chief executive officer, subject to certain administrative approvals by the competent Brazilian authorities; Mr. Mangoni will be appointed and he will assume the role of interim chief executive officer upon the receipt of such approvals.  In the meantime, on May 14, 2012 our Board of Directors acknowledged Mr. Claudio Zezza as acting principal executive officer.
 
B. 
Compensation
 
At the year ended on December 31, 2011, we approved the aggregate amount of approximately R$18.0 million as compensation to our directors and statutory officers during 2012. The statutory officers’and directors’ compensation is composed of fixed remuneration, benefits, bonuses, short term incentives and participation in long term incentive plans.
 
Accordingly, we did not set aside or accrue any amounts to provide pension, retirement or similar benefits to our officers and directors during 2011. The aggregate compensation to our statutory officers in the year ended December 31, 2011, including fixed remuneration, benefits, bonuses, short term incentive and long term incentive plans, was approximately R$10.5 million.
 
Our statutory officers and other managers of the company are eligible to receive a short term incentive (Management by Objectives or “MBO”) bonuses. The general criteria for the MBO bonus are approved by our Board of Directors and provide that eligible statutory officers and other managers may receive an amount calculated based on the organizational roles and certain pre-established performance targets.
 
Some key officers are also eligible to participate in a long term incentive plan (stock option plans) for which compensation is based on performance targets for our share price. The general criteria for the stock option plans are approved by our Board of Directors and provide that eligible participants may buy our shares at a discount or at a readjusted price, applied over the base exercise price, based on ongoing relative performance.
 
For the year ended on December 31, 2011, each member of our Board of Directors received R$168,000 and each member of our Statutory Audit Committee received annual compensation of R$150,000, paid pro rata according to each member’s time of service on such body.
 
 
C. 
Board practices
 
See “Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management” and “Item 6. Directors, Senior Management and Employees—B. Compensation.”
 
D. 
Our Employees
 
On December 31, 2011, we had 10,562 full-time employees.  The following tables show a breakdown of our employees as of December 31, 2011, 2010 and 2009.
 
   
As of December 31,
 
   
2011(1)
   
2010
   
2009(2)
 
Network
    1,183       980       1,011  
Sales and marketing
    3,186       3,020       2,888  
Information technology
    551       447       459  
Customer care
    4,340       4,703       4,320  
Support and other
    1,302       988       1,133  
Total number of employees
    10,562       10,138       9,811  
(1)
Includes 296 new employees from TIM Fiber.
 
(2)
Includes 580 new employees from the merger with Intelig.
 
All employees are represented by state labor unions associated with the Federação Nacional dos Trabalhadores em Telecomunicações (“Fenattel”)and the Federação Interestadual dos Trabalhadores em Telecomunicações (“Fittel”) or the Sindicato dos Engenheiros do Estado do Paraná e Nordeste .  We negotiate a new collective labor agreement every year with the local unions.  Management considers our relations with our work force to be satisfactory.  We have not experienced a work stoppage that had a material effect on our operations.
 
Employee Benefit Plans
 
The Company and its subsidiaries have defined benefit and defined contribution plans in place. In general, defined benefit plans establish a specific retirement benefit amount that an employee will receive upon retirement, usually dependent on one or more factors such as age, length of service and remuneration.

The liability recognized in the balance sheet with respect to defined benefit pension plans is the present value of the defined benefit liability as at the balance sheet date, less the fair value of plan assets, and past service cost adjustments are not recognized. The defined benefit obligation is calculated annually by independent actuaries, using the projected unit credit method. The present value of defined benefit obligation is determined by discounting estimated future cash outflows, using interest rates consistent with market yields, which are denominated in the currency in which benefits will be paid and which have maturities close to those of the respective pension plan liabilities.
 
The actuarial gains and losses resulting from adjustments based on experience and changes in actuarial assumptions, which exceed a corridor of 10% of the value of plan assets, or 10% of the value of plan liabilities, are charged or credited to the statements of income over the expected remaining period of service of the employees.

Past service costs are recognized immediately in income, unless the changes to the pension plan are conditional upon employees remaining in employment for a specific time period (the period in which the right is acquired). In this case, past service costs are amortized using the straight-line method over the period during which the right was acquired.

With respect to defined contribution plans, the Company makes contributions to pension insurance plans public or private on a mandatory, contractual or voluntary. The Company has no further obligation for payment after the contribution is made. The contributions are recognized as employee benefit expense when due.

Stock Options

The company operates share-based compensation plans, settled in shares, under which the entity receives services from certain employees in exchange for equity instruments (options) granted. The fair value of the employee’s service is recognized as an expense against capital reserves, and is determined with reference to the fair value of the options granted. The latter excludes the effect of any conditions on the acquisition of non-market rights based on the service and on performance (for example, profitability, sales growth targets and remaining in the job for a specific period of time). The conditions for acquiring non-market rights are included in the assumptions regarding the quantity of vesting options. The total amount of the expense is recognized during the vesting period (the period during which the specific vesting conditions must be met). On the balance sheet date, the entity reviews its estimates of the quantity of vesting options based on the acquisition conditions for non-market rights, and recognizes the impact of the revised initial estimates, as the case may be, on the income statement, with a corresponding adjustment to the capital reserves.

The amounts paid to the employees, net of any directly attributable transaction costs, are credited to equity and to the goodwill reserve, if applicable, when the options are exercised.

Social contribution taxes payable in connection with the granting of stock options are considered an integral part of what is being granted, and are charged as a transaction settled in cash.
 
Defined Contribution Plan
 
During 2002, TIM created a new defined contribution pension plan (“ TIMPREV ”), which allowed employees to migrate from the former pension plan.  TIMPREV was approved by the Secretary of Complementary Pension on November 13, 2002 in Notification 1,917 CGAJ/SPC.  TIMPREV sets forth new guidelines for the granting and maintenance of benefits and outlines new rights and obligations for Sistel, the plan administrator; sponsors; participants and their respective beneficiaries.
 
Migration from the PBS Plan to TIMPREV is optional.  In order to encourage migration to TIMPREV, we offered bonuses to those employees migrating before January 29, 2003. As of December 31, 2004, more than 90% of the participants in our private plan had migrated to TIMPREV.  Upon electing to migrate to TIMPREV, a participant extinguishes all rights to benefits under the PBS Plan.
 
During 2008, the Company made its best effort to encourage migration of the remaining participants of the defined benefit plans to TIMPREV.  Even though employees agreed with the migration proposed, legal complications not allow this change prevented the migration at that time.  The situation was resolved in 2009 and a new cycle of migration encouragement for TIMPREV was offered.  On this occasion more participants migrated to TIMPREV plans, one of the plans (PBT) was closed.
 
As more employees participate in TIMPREV, we anticipate that the sponsor’s risk to eventual actuarial deficit will decrease, consistent with the characteristics of typical defined contribution plans.  Under the rules of defined contribution plans, the sponsor normally contributes 100% of the basic contribution of the participant.  In accordance with the terms and conditions of the approved rules, the administrator of TIMPREV will ensure the benefits listed below:
 
 
·  
a regular retirement pension;
 
 
·  
an anticipated retirement pension;
 
 
·  
a disability pension;
 
 
·  
a deferred proportional benefit; and
 
 
·  
a death pension.
 
However, the administrator will not assume responsibility for granting any other benefit, even if social security officially grants it to its beneficiaries.
 
In accordance with Brazilian law, our employees also receive payments based on our financial performance.  The amount of the payment is determined by negotiation between us and the unions representing our employees.
 
On January 31, 2006, our Board of Directors approved a proposal of migration of pension plans sponsored by us, TIM Sul, TIM Participações and TIM Nordeste Telecomunicações at Sistel to a multi-employer plan administered by HSBC Pension Fund.  Such migration was approved by Secretary of Complementary Pension during the first quarter of 2007.  Pursuant to this authorization, the HSBC Pension Fund began to administer TIMPREV in April 2007.
 
On August 7, 2006, the board of directors of TIM Participações approved the adoption of a supplementary defined contribution plan managed by Itaú Vida e Previdência S.A. for the Company and its subsidiaries. All employees not yet entitled to pension plans sponsored by the Company and its subsidiaries are eligible to enroll in this supplementary defined contribution plan.
 
Due to the incorporation of Intelig by us in 2010, the pension plan of this company was taken over by TIM.  The Intelig pension plan is a closed defined contribution plan, managed by HSBC Pension Fund and it’s not offered to our employees anymore, since we have started a process with the Secretary of Complementary Pension to change the plan rules, in order to close the plan to new members.  For new Intelig employees or those transferred from
 
 
Intelig to TIM, we now offer the supplementary defined contribution plan managed by Itaú Vida e Previdência S.A, since Intelig also became a sponsor of this plan.
 
Due to the incorporation of AES Atimus in 2011 (renamed as TIM Fiber), we assumed responsibility for this company’s pension plan.  The TIM Fiber pension plan is a closed defined benefit plan, managed by the CESP Foundation.  This plan is closed to new employees; those wishing to enroll in a benefits plan, have the option to join the defined contribution plan established by TIM Fiber and managed by Itaú Vida e Previdência S.A.
 
E. 
Share Ownership
 
As of December 31, 2011, our directors and executive officers, owned, in the aggregate, 15,266 common shares, which represented less than 0.001% of our common shares outstanding.
 
Item 7.  Major Shareholders and Related Party Transactions
 
A. 
Major Shareholders
 
The following table sets forth ownership information with respect to all shareholders that, to our knowledge, own 5% of the common shares or more as of December 31, 2011.  The common shares held by TIM Brasil Serviços e Participações S.A. have the same voting rights as the common shares held by other holders.
 
 
Name of owner
 
Common Shares Owned
   
Percentage of Outstanding Common Shares
 
TIM Brasil Serviços e Participações S.A.(1)
    1,611,969,946       66.68 %
All our officers and directors as a group*
    15,266       0.00 %
Total
    1,611,985,212       66.68 %
*
Represents less than 1%.
 
TIM Brasil Serviços e Participações S.A. is a Brazilian subsidiary of a group controlled by Telecom Italia.  See “Item 4. Information on the Company—C. Organizational Structure.”
 
As of December 31, 2011, there were 76,668,672 common shares represented by ADSs. As of such date, the number of common shares represented by ADSs represented 3.2% of our total capital.
 
Our controlling shareholder, TIM Brasil, is a wholly-owned Brazilian subsidiary of Telecom Italia International N.V., which in turn is a wholly-owned Dutch subsidiary of Telecom Italia.  Telecom Italia is a corporation organized under the laws of the Republic of Italy.  Telecom Italia S.p.A. and its subsidiaries (the “Telecom Italia Group”) operate mainly in Europe, the Mediterranean Basin and South America.  The Telecom Italia Group is engaged principally in the communications sector and, particularly, the fixed and mobile national and international telecommunications sector, the television sector and the office products sector.  Telecom Italia is one of three mobile operators licensed to provide services using GSM 900 technology in Italy and one of three operators licensed to provide services using GSM 1800 (formerly DCS 1800) technology in Italy.  It is also one of four operators holding a UMTS license and providing third-generation telephony services in Italy.
 
On December 31, 2011 the Telecom Italia Group had approximately 14.7 million physical accesses (consumer and business) in Italy, a decrease of  0.7 million compared to December 31, 2010. The wholesale customer portfolio in Italy reached approximately 7.1 million accesses for telephone services at December 31, 2011, an increase of approximately 0.3 million compared to December 31, 2010.  The broadband portfolio in Italy reached 9.1 million accesses at December 31, 2011 (consisting of approximately 7.1 million retail accesses and 2.0 million wholesale accesses), stable compared to December 31, 2010 (a market share of 53%).  In addition, the Telecom Italia Group had approximately 32.2 million mobile telephone lines at December 31, 2011 in Italy, an increase of 1.2 million mobile telephone lines compared to December 31, 2010.
 
Shareholders’ Agreement
 
On April 16, 2009, we entered into a shareholders’ agreement with TIM Brasil Serviços e Participações S.A., or “TIM Brasil,” JVCO Participações Ltda., or “JVCO,” and Docas Investimentos S.A., which was amended on November 30, 2009 and further amended on June 22, 2011.
 
The shareholders’ agreement automatically terminates on the tenth anniversary of the date of our merger with Intelig, which was December 30, 2009, unless any of the following early termination conditions occurs: (1) any of the parties is subject to bankruptcy or judicial or non-judicial corporate reorganization ( recuperação judicial or recuperação extra-judicial ), (2) breach of the terms and conditions set forth in the shareholders’ agreement and the breach is not cured within 10 days after receipt of written notice from the non-breaching party, or (3) a change in control of JVCO.
 
Under the shareholders’ agreement, JVCO may nominate an individual with the requisite experience and qualifications as a member of our Board of Directors, as well as such member’s alternate, which would be elected by TIM Brasil.  Under the agreement, JVCO must refrain from exercising its voting rights with any affiliate or any third party to appoint any additional members to our Board of Directors or our audit committee.  The members nominated by JVCO must meet the requirements set forth in our bylaws and the applicable laws and regulations.  JVCO may at any time, but no more than once, replace the member appointed by it during such director’s term.
 
During the first two years of the shareholders’ agreement, JVCO may not, in whole or in part, transfer its interest in us to third parties without our prior consent (except for transfer of all shares of owned by JVCO to an affiliate of JVCO).  After such time, transfers of our shares by JVCO are subject to a right of first refusal granted to TIM Brasil, as well as certain other restrictions.  Such restrictions will be effective for five years after the rescission of the shareholders’ agreement.
 
The shareholders’ agreement does not contain any provisions related to the voting rights of members of our Board of Directors.
 
B. 
Related Party Transactions
 
As of December 31, 2011, we did not owe to our affiliates any amounts arising out of outstanding inter-company loans.  We had inter-company receivables and payables in amounts of R$37.6 million and R$73.8 million, respectively on December 31, 2011.  See note 38 to our consolidated financial statements.
 
Guarantees of Obligations of our Subsidiaries
 
We are a guarantor of a promissory note issued by TIM Celular in the amount of R$1.7 million as of December 2011.  This promissory note was issued pursuant to a guarantee agreement between Banco Bradesco S.A. and TIM Celular, in which Banco Bradesco S.A. issued a letter of guarantee for the Credit Agreement, dated as of June 28, 2004, between TIM Celular, as borrower, and Banco do Nordeste do Brasil S.A., as lender, in the principal amount of R$20 million .
 
We are a guarantor of a promissory note issued by TIM Celular in the amount of R$8.3 million as of December 31, 2011.  This promissory note was issued pursuant to a guarantee agreement between Banco Bradesco S.A. and TIM Celular, in which Banco Bradesco S.A. issued a letter of guarantee for the Credit Agreement, dated as of June 28, 2004, between TIM Celular, as borrower, and Banco do Nordeste do Brasil S.A., as lender, in the principal amount of R$99.9 million.
 
We are a guarantor of a promissory note issued by TIM Celular in the amount of R$18.9 million as of December 31, 2011.  This promissory note was issued pursuant to a guarantee agreement between Banco Bradesco S.A. and TIM Celular, in which Banco Bradesco S.A. issued a letter of guarantee for the Credit Agreement, dated as of April 27, 2005, between TIM Celular, as borrower, and Banco do Nordeste do Brasil S.A., as lender, in the principal amount of R$85 million.
 
We are the guarantor of a promissory note issued by TIM Celular in the amount of R$45.6 million as of December 31, 2011.  This promissory note was issued pursuant to a guarantee agreement between Banco Votorantim S.A. and TIM Celular, in which Banco Votorantim S.A. issued a letter of guarantee for the Credit Agreement, dated as of February 14, 2008, between TIM Celular, as borrower, and Banco do Nordeste do Brasil S.A., as lender, in the principal amount of R$67 million.
 
We are guarantor for TIM Celular’s Finance Contract with European Investment Bank in the principal amount of €200 million as of December 31, 2011.  BBVA Milan Branch and BES Portugal, issued, respectively, a bank guarantee in the principal amount of €147.4 million and €72.6 million, for the Finance Contract, dated as of June 3, 2008, between TIM Celular, as borrower, and European Investment Bank, as lender.
 
We are guarantor in favor of BNDES, in the amounts of R$1,940.9 million under the Credit Agreement dated as of August 10, 2005, of TIM Celular; under the Credit Agreement dated as of November 19, 2008, of TIM Celular, under the Credit Agreement dated as of October 6, 2008 of TIM Celular and under the Credit Agreement dated as of October 6, 2008, of TIM Nordeste (incorporated by TIM Celular).
 
For more information on our guarantees of bbligations of our subsidiaries, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Financial Contracts.”
 
Agreement between Telecom Italia S.p.A. and TIM Participações and our Subsidiaries
 
Our shareholders at the meeting held on April 11, 2012 approved an extension for an additional 12 month period until January, 2013 of the Cooperation and Support Agreement, originally signed in May 3, 2007 with Telecom Italia.  The purpose of this agreement is to enable us to benefit from Telecom Italia’s internationally recognized expertise, built throughout years of operation in more mature and developed markets.  The cooperation and support activities to be performed by the parties will be focused in adding value to our operations through:
 
 
·  
Benefiting from Telecom Italia’s experience and industrial capacity as one of the major players in the European market;
 
 
·  
Applying the systems/services/processes/best practices that were largely used in the Italian market and may be easily customized for the Brazilian market through limited investments and mitigated implementation risks; or
 
 
·  
An increase in efficacy and efficiency by adopting in-house solutions that have been widely tested and used.
 
The extended term of the agreement provides for a total price cap of €8.0 million.  The price cap represents the maximum consideration to be paid by TIM Participações operating companies for all the services and support rendered by Telecom Italia during 2012 under the agreement.
 
C. 
Interests of experts and counsel.
 
Not applicable.
 
Item 8.  Financial Information
 
A. 
Consolidated Statements and Other Financial Information
 
See “Item 18. Financial Statements.”
 
Legal Proceedings
 
We are subject to various claims, including regulatory, legal and labor proceedings covering a wide range of matters that arise in the ordinary course of business.  We adopted a policy of analyzing each such proceeding and making a judgment as to whether a loss is probable, possible or remote.  We make accruals for legal proceedings that we are party to when we determine that losses are probable and can be reasonably estimated.  Our judgment is
 
 
always based on the opinion of our legal advisers. Accrual balances are adjusted to account for changes in circumstances for ongoing matters and the establishment of additional accruals for new matters.  While we believe that the current level of accruals is adequate, changes in the future could impact these determinations.
 
Anatel Administrative Proceedings
 
Under the terms of the its PCS authorization, TIM Celular implemented mobile personal telecommunications cover for the assigned area.  Under such term of authorization, TIM Celular is required to operate in accordance with the quality standards established by Anatel.  If it fails to meet the minimum quality standards required, TIM Celular is subject to Obligation Non-Compliance Determination Procedures (“PADO”) and applicable penalties.  Anatel has brought administrative proceedings against TIM Celular for (1) noncompliance with certain quality service indicators; and (2) default of certain other obligations assumed under the Terms of Authorization and pertinent regulations.  In its defense before Anatel, TIM Celular attributed the lack of compliance to items beyond its control and not related to its activities and actions.  We cannot predict the outcome of these proceedings at this time, but have accrued the amount in our balance sheet as a provision for all those cases in which we estimate our loss to be probable.
 
Class Actions
 
Our subsidiaries are subject to a number of class action claims where the risk of loss is regarded as probable. These claims are summarized as follows: (1) a lawsuit against TIM Celular in the State of Pernambuco, challenging our policy of exchanging defective handsets, which is alleged to be contrary the manufacturer’s warranty, (2) a lawsuit against TIM Celular in Natal in the State of Rio Grande do Norte challenging that state’s network quality, (3) a lawsuit against TIM Celular in the State of Pará, challenging the service quality of the São Felix do Xingu and Marabá networks, (4) lawsuits against TIM Celular in the State of Maranhão, challenging the quality of the services and networks in the following municipalities: Balsas, Grajaú, Coelho Neto, Vitorino Freire and Lago da Pedra,(5) lawsuits against TIM Celular in the State of Ceará, challenging service quality of the networks in Fortaleza, Iguatu, Monsenhor Tabosa, Icó and Icapuí, (6) lawsuits against TIM Celular in the State of Piauí, challenging the service quality of the network in that state, (7) lawsuits against TIM Celular in the State of Rondônia, challenging the quality of the network and services in the municipalities of Machadinho do Oeste and Vale do Anari, (8) lawsuits against TIM Celular in the State of Amazonas, challenging the quality of the network and services in that state, including in Manaus, Tabatinga and Humaitá, (9) lawsuits against TIM Celular in the State of Mato Grosso, challenging the quality of the network and services in Novo São Joaquim, Campinópolis and Nova Xavantina, (10) a lawsuit filed against TIM Celular in the State of Pernambuco, specifically in the municipality of Araripina, (11) a lawsuit filed against TIM Celular, challenging the long-distance charges levied on calls made in the municipality of Bertioga in the State of São Paulo and in the surrounding region, and (12) a lawsuit against TIM Celular in the State of Rio de Janeiro, challenging the sending of SMS messages without prior consumer consent.
 
 
Other Actions and Proceedings
 
TIM Celular is a defendant, together with other telecommunications companies, in a lawsuit brought by GVT in the Fourth Lower Federal Court of the Federal District. The lawsuit seeks to void the contractual clause which provides for the VU-M amount used by the defendants in their interconnection arrangements.  The plaintiff alleges such amount to be illegal and abusive, and is requesting a refund of all excess amounts allegedly charged since July 2004. The judge granted an injunction ordering the provisional payment of VU-M at an amount of R$0.2899 per minute, and ordered that GVT make court deposits equal to the amount of the difference between this amount and the amount indicated by the defendants. The injunction was confirmed by the First Regional Appellate Court. TIM contested this decision by means of a special appeal which was partially upheld, which obligated GVT to pay TIM the amount fixed by Anatel in the arbitration process at the agency to which GVT and VIVO are parties. In September 30, 2011, the judge in this case confirmed the request to suspend GVT’s claim until the Anatel’s work to determine the VU-M reference amounts is concluded.
 
In addition to this claim, GVT has also filed a representation before the SDE (Secretariat of Economic Law), which agreed to file an administrative proceeding against the Company and other mobile telephone operators, on the grounds of an alleged infringement of economic principles, which was judged in March 2010.
 
The SDE ruled against the alleged practice of price fixing and forwarded the proceeding to CADE for judgment, also voting for the dismissal of the cartel claim for common price fixing. The CADE has not yet issued its judgment.
 
TIM Celular is a defendant in a lawsuit for damages filed by the service provider Glória Souza & Cia Ltda. before the Ninth Lower Court of the municipality of Belém, in the State of Pará, where it is claiming the sum of R$6,119 thousand. This company provided TIM with outsourced labor in Northern Brazil. After term terminated its contract with the company, it brought a lawsuit claiming punitive damages, alleging losses as a result of claims for severance claims brought by its employees. TIM’s defense and the reply from Gloria Souza & Cia have been submitted. A reconciliation hearing was held without result. There has still been no decision from the lower court.
 
A legal action for collection was filed against TIM Celular by Mattos & Calumby Lisboa Advogados Associados, which is in progress at the Twenty-Ninth Lower Court of the Judicial District of Rio de Janeiro. The plaintiff asserts that it is owed money as a result of a contract for the provision of legal services that was entered into with TIM. The proof of the expert investigation was upheld and the opinion was ratified by the judge. TIM filed an appeal, challenging the decision of the expert investigation, and the court recently ordered that a new expert investigation be carried out. The case records are currently in the expert examination phase.
 
A lawsuit was brought against TIM Celular by Integração Consultoria E Serviços Telemáticos Ltda. (a pre-paid calling plan recharge distributor), with the Second Lower Court of the Judicial District of Florianópolis in the State of Santa Catarina, for the sum of R$4,000 thousand, which aims to suspend the enforceability of credits already executed by TIM, preliminarily claiming non-inclusion in lists of bad debtors, as well as damages incurred as a result of contract termination. The injunction was granted by the court. TIM filed an execution action against the aforementioned company with the Fourth Lower Court of Florianópolis, for the sum of R$3,957 thousand. An appeal was filed against the execution, requesting a suspended sentence, by the Integration Consultancy ( Integração Consultoria ), which was rejected by the judge. This led to the filing of an interlocutory appeal, with the suspended sentence having been granted. TIM has made a declaration to the effect that the assets listed by the debtor are insufficient to secure the execution. The execution against TIM is currently suspended due to the fact that an interlocutory appeal has been filed, the staying effect of which has been granted, and the court’s judgment remains pending.
 
MCS was TIM’s largest commercial partner in São Paulo (with approximately 40 stores). This commercial partnership had been in operation since 2003, and the agreement expired in January 2010. The contract was terminated on account of disagreements between the parties in respect of compensation amounts, systems operation, and the creation and determination of targets, among other matters. MCS alleged default by TIM and sought recovery for alleged losses. MCS has claimed that its financial health has been negatively affected by the changes in TIM’s remuneration policy.  Prior to the end of the agreement, MCS filed a lawsuit for termination of the contract, claiming payment of R$8,120 thousand. TIM filed a restraining action, in order to prevent MCS from transferring TIM stores to its competitors.  In March 2010 the restraining action was ruled valid and it was determined that MCS should abstain from transferring the stores which were previously TIM stores for a period of twelve months, starting from January 2, 2010 (when the contract ended). The restraining action is still in progress and is currently in the expert investigation phase.
 
SECIT has brought an action for damages against TIM, alleging that TIM was in breach of contract. This company had been hired by TIM to undertake infrastructure work for the installation of ERBs in Area 4 in Minas Gerais. TIM presented its defense and the case is in the initial phase, currently under expert investigation. Thus there has been no decision by the lower court. The amount allocated to the case was R$9,758 thousand.
 
In December 2010, TIM Celular filed an action against Anatel with the Fifteenth Federal Court of the Federal District requesting interlocutory relief for the purpose of acknowledgement and annulment of PADO No. 53500.025648/2005 and of Act No. 62.985/07. The PADO applied by Anatel prevented the company from participating in the public bid for the “H” Band. Interlocutory relief was not granted by the judge, which enabled TIM to make a court deposit of R$3,595 thousand in order to suspend the debt and enable the company to participate in the bidding process. The judge ruled for the suspension of the charge until a decision is reached. TIM has already filed a reply and petition, submitting evidence that the court deposit has been supplemented. The case is currently in the evidentiary phase, and there has been no decision by the lower court.
 
 
Labor Claims
 
A significant percentage of the existing labor claims against us relate to our organizational restructuring processes, in particular due to the closure of our call centers in Fortaleza, Salvador and Belo Horizonte, which resulted in the termination of approximately 800 employees, including in-house staff and outsourced personnel.
 
There was a public civil action filed by the Labor Public Prosecutor’s Office of the Third Region, in the State of Minas Gerais, which alleged irregular outsourcing practices and demanded collective punitive damages. A judgment was rendered and published on April 16, 2008, in which the acting judge ruled the Labor Public Prosecutors’ Office claims as partially valid, recognizing irregular outsourcing and granting collective punitive damages. An appeal was filed but was dismissed on July 13, 2009. Prior to filing the aforementioned appeal, TIM Celular filed a writ of mandamus to prevent the prompt implementation of enforcement the judgment at the lower court. In view of the appeal filed, the writ of mandamus lost its purpose.  In order to obtain staying effects for its appeal, TIM Celular filed an unspecified writ of prevention, which was dismissed without prejudice. In order to reverse the decision of the Regional Labor Court of the Third Region, TIM Celular filed an appeal against abusive acts by the judge with the Superior Labor Court, and obtained a favorable decision, which reversed the appellate court’s decision. A motion for clarification was filed, but dismissed. On September 16, 2009, a motion to review was filed, which is pending judgment by the Higher Labor Court.
 
As a result of the above mentioned public civil action in Minas Gerais, the Labor Public Prosecutor’s Office of the Federal District filed another claim, alleging irregular outsourcing practices and demanding collective punitive damages. The action was found to be without merit, ruling that as a result of the General Telecommunications Law, all outsourcing in the telecommunications sector is legal. The Labor Public Prosecutor’s Office filed an ordinary appeal with the Regional Labor Court of the Tenth Region in March 2010, but the ruling of the lower court was upheld. Thereafter, the Labor Public Prosecutor’s Office filed for a review, which is pending a hearing by the by the Higher Labor Court.
 
A group of actions have been filed in the state of Paraná, involving claims for damages in connection with contractual provisions set forth in employees’ work cards. According to an internal rule, TELEPAR had undertaken to supplement the retirement benefits of employees hired prior to 1982. Prior to its privatization, TELEPAR had proposed to implement this benefit by means of the payment of a certain amount in cash. However, some of the company’s former employees have questioned this transaction, and in some cases have obtained favorable decisions.
 
There is a series of labor claims, particularly in São Paulo, brought by former Gazeta Mercantil employees who have filed claims requesting the inclusion of Holdco or TIM Participações as defendants, claiming damages from Holdco and TIM Participações. Plaintiffs who have filed the claims were employees of Gazeta Mercantil, without any employment ties to Holdco or TIM Participações. However, prior to the merger with TIM Participações, Holdco belonged to the Docas economic group, of which Gazeta Mercantil is part.
 
Social Security Claims
 
In São Paulo TIM Celular received a debit assessment notice referring to alleged irregularity in the payment of social security contributions in connection with the payment of profit-sharing amounting to R$2,388 thousand. TIM Celular filed its administrative defense, but on September 16, 2009, a decision was rendered which upheld the assessment notice. An administrative appeal was filed on October 5, 2009, the judgment of which is still pending.
 
In May 2006, TIM Celular was issued a tax assessment notice for social security contributions that were allegedly due in connection with the following: (1) hiring bonuses (2) non-adjusted bonuses (3) payments to self-employed persons, and (4) sales incentives. TIM Celular filed an administrative defense but the tax assessment was upheld.  TIM Celular filed an appeal with the Ministry of Finance’s Taxpayers’ Council, which is now pending judgment.
 
Intelig in Rio de Janeiro received notifications for the release of tax debt regarding alleged irregularities in the payment of social security contributions levied in connection with the following: (1) profit sharing, (2) retention of 11% on service agreements, (3) failure to deduct and pay management fees, and (4) failure to properly fill out the GFIP.  An administrative defense was presented, with an unfavorable outcome. Intelig filed an appeal with the Taxpayers’ Commission of the Ministry of Finance, which is currently pending judgment.  Based on the final decision in the administrative proceedings with respect the assessment for 11% withholding on service agreements, a legal action was filed to reverse the assessment.
 
Tax Claims
 
IR and CSLL
 
On October 30, 2006, TIM Celular received tax assessment notices which initially amounted to R$331,171 thousand. In March 2007, the Federal Revenue Secretariat in Recife in the State of Pernambuco, notified the TIM Celular by means of a tax information report, which informed the company that part of the amount in connection with income and social contribution taxes and a separate fine, which totaled R$73,027 thousand had been excluded from the original assessment notice. Thus the final amount of the infraction notice was set at R$258,144 thousand.
 
These tax assessment notices are part of the same administrative proceeding, and include demands in connection with the alleged failure to pay income and social contribution taxes, together with a separate unrelated fine for various reasons.  Most of these relate to the amortization of goodwill resulting from the privatization auction of the Telebrás System and related tax deductions. Under Law No. 9532/97, Article 7, the proceeds of goodwill amortization can be included in the actual profit of a subsidiary created as a result of a merger, spin-off or consolidation, whereby one company has a stake in the other, with said stake being acquired based on the future profitability of the investee. We understand this was a normal market transaction and was executed in accordance with CVM Instruction No. 319/99.
 
The above-mentioned tax information report did indeed lead to a portion of the infractions contained in the assessment notice, which discussed the timely adaptation of the deductibility of the goodwill to 159 specific federal tax offsetting proceedings amounting to R$85,771 thousand, which arose from offsetting involving this recognition. In September 2009 and April 2011, a decision was rendered partially favorable to TIM Celular with respect to certain of the offsetting proceedings, reducing the credit offset by the TIM Celular. At present, TIM Celular continues to challenge the remainder of the offsetting proceedings, certain of which are in administrative proceedings totaling R$67,404 thousand and certain of which are in judicial proceedings totaling R$9,193 thousand.
 
In December 2010, TIM Celular received an infraction notice served by the Federal Revenue Department in the State of São Paulo in the amount of R$ 164,102 thousand involving (1) the alleged non-payment of income and social contribution taxes of the amount related to the amortization of the goodwill from the acquisition of shares of Tele Nordeste Celular Participações, (2) the exclusion of the amortized goodwill, (3) the deduction of corporate income tax by way of fiscal incentives for the reduction of tax and alleged additional amounts not eligible for rebate on account of the alleged failure to formalize with the Federal Revenue Service the incentive granted by the Sudene. This tax assessment notice was immediately challenged by TIM Celular and a decision in the administrative proceeding is pending.
 
 
In March 2011, TIM Celular, as successor to TIM Nordeste received a tax assessment notice filed by the Federal Revenue Department of the State of Pernambuco, amounting to R$1,265,346 thousand concerning income and social contribution taxes referring to: (1) the deduction of goodwill amortization expenses, (2) the exclusion of the reversal of the goodwill from the former BITEL, (3) the improper offsetting of tax losses and negative bases by disregarding the incorporation of TIM Nordeste Telecomunicações by Maxitel, (4) improper use of the Sudene income tax reduction tax benefit in 2006, for alleged failure to formalize the benefit with the Federal Revenue Department,(5) the deduction of WHT without proof of payment, (6) the deduction of accruals without proof of payment,(7) a one-off penalty for underpayment of estimates, (8) a regulatory penalty for omitting information and failure to produce digital files, and (9) a supplementary entry to the administrative proceedings mentioned in the above paragraph. This notice was immediately contested by the TIM Celular, and a decision in the administrative proceeding is pending.
 
IRRF
 
In December 2006, the subsidiary Intelig received a notification from the Federal Revenue Department amounting to R$49,652 thousand, arising from the alleged failure to pay IRF and CIDE on remittances abroad by way of remuneration for outbound traffic. This notification was successfully challenged in an administrative proceeding in view of the final favorable decision on a related writ of mandamus.
 
In May 2010, TIM Celular received three tax assessment notices from the Federal Revenue Department in São Paulo, amounting to R$50,026 thousand, of which the amount of R$1,029 thousand was provisioned for in November 2011, involving: (1) failure to pay IRRF on earnings of overseas residents remitted as international roaming and payments to unidentified beneficiaries, (2) failure to pay CIDE on payment of royalties on remittances abroad, as well as on remittances concerning international roaming, and (3) reductions on fiscal losses (IRPJ/CSLL) referring to the deduction of unproven expenses by way of technical services. These assessments were immediately challenged by TIM Celular and a decision in the administrative proceeding is pending.
 
ICMS
 
TIM Celular received assessment notices from the tax authorities in the State of Santa Catarina in 2003 and 2004, mainly relating to disputes regarding the levying of ICMS on telecommunications services provided by us and allegedly not paid, as well as in connection with the sale of phone sets.  As a result of various favorable decisions in relation to the administrative proceedings the amount that is now being disputed is R$41,066 thousand (the original tax assessment was for the sum of R$95,449 thousand). TIM Celular is currently challenging these assessments at both the administrative as well as judicial levels. Based on the opinions of our internal and external counsel, management concluded that the processes still in progress may result in a possible loss for TIM Celular.
 
Over the past few years, the subsidiary TIM Celular has received tax assessment notices drawn up by the tax authorities of various Brazilian states in relation to the payment of ICMS regarding operating aspects with respect to our services, as well as the sale of goods. Some grounds or reasons for these tax assessments according to the allegations of the respective authorities include: (1) discussion regarding the requirement to pay the difference between the intrastate and interstate ICMS rate on the purchase of property, plant and equipment items for use and consumption and the determination of the ICMS basis of calculation for acquisition of goods intended for sale, (2) recording of the taxed services (according to the understanding of the tax authorities) as not taxed by the subsidiary in the Transfer Register, (3) alleged underpayment due to usage of the incorrect rate and the entry of telecommunications services as not taxed, (4) alleged failure to make payment due to differences between the amount actually paid and the amount declared, and (5) payment of tax outside of the terms established by the state legislation, among others. The aforementioned assessments are being challenged at both the administrative as well as the judicial level. The aggregate amount involved in those cases being disputed where the amount is in excess of R$14,000 thousand totals R$315,552 thousand.
 
 
 
TIM Celular received tax assessment notices for ICMS from the tax authorities in the States of Rio de Janeiro for allegedly defaulting on payment of the tax on international roaming services provided, and in Bahia for failing to pay the additional contribution regarding the “ Fundo de Combate à Pobreza e às Desigualdades Sociais ” (Fund for Fighting Poverty and Social Inequalities) allegedly due on the provision of services to pre-paid customers. The aforementioned assessments are being challenged at the administrative and judicial levels and total R$110,535 thousand.
 
TIM Celular received tax assessment notices drawn up by the tax authorities of the States of Bahia and São Paulo for the sums of R$16,406 thousand and R$46,923 thousand, respectively, in connection with the failure to proportionally reverse ICMS credits on shipment of exempt and non-taxed goods. The aforementioned assessments are being challenged at the administrative level and total of R$63,329 thousand.
 
TIM Celular received assessment notices from the tax authorities of the State of São Paulo and the State of Minas Gerais for the sums of R$329,471 thousand and R$24,771 thousand, respectively, for allegedly having failed to include conditional discounts offered to clients in the ICMS basis of calculation. TIM Celular intends to challenge the aforementioned collection with the higher court.
 
In 2008, 2009 and 2010, TIM Celular received tax assessment notices in the aggregate amount of R$77,760 thousand from the tax authorities of the States of Ceará, Pernambuco and Paraná in connection with a debit arising from taking ICMS credit on the purchase of electric energy. The aforementioned assessments are being challenged at the administrative level.
 
TIM Celular received assessment notices  from the tax authorities of the States of Paraná and Paraíba, in the respective amounts of R$24,047 thousand and R$28,668 thousand involving the alleged failure to pay ICMS on telecommunication services provided to pre-paid customers on outgoing telephone card operations. These assessments are being challenged at the administrative level.
 
In November 2010 and December 2011, TIM Celular received three assessment notices from the tax authorities of the States of São Paulo, Rio Grande do Sul and Paraná for a total amount of R$83,782 thousand involving the reversal of ICMS tax credits with respect to the acquisition of permanent assets allegedly without proof of origin of these entries in the CIAP (Control of ICMS Credits on Permanent Assets) Book. These assessments are being challenged at the administrative level.
 
In May 2011, TIM Celular received a tax assessment notice from the State of São Paulo in the amount of R$367,860 thousand involving (1) a penalty for alleged non-compliance with an ancillary obligation by not presenting the 60i register of the SINTEGRA file for 2007 and 2008, and (2) the alleged failure to pay ICMS on discounts deemed by the tax inspector to be conditional. This assessment is being challenged at the administrative level.
 
In July and October 2011, TIM Celular received tax assessment notices from the tax authorities of the State of São Paulo in the amount of R$216,472 thousand involving (1) the alleged failure to pay ICMS tax from having failed to include in the calculation tax on communication services referring to installments taxed as “non-taxable/exempt”, and (2) the alleged failure to pay ICMS tax for having included on tax receipts the negative base by way of financial credits granted to customers involving the services contested, leading to the reversal of debits without complying with the legislation. TIM Celular is challenging these assessments at the administrative level.
 
In December 2011, TIM Celular received two tax assessment notices from the State of Paraná, amounting to R$100,462 thousand and involving improper crediting of ICMS tax for the periods from May 2010 to August 2011, and from September 2011 to November 2011. TIM Celular is challenging these assessments at the administrative level.
 
In December 2011, Intelig filed a legal action against the tax assessment notice from the State of São Paulo, in the amount of R$ 20,285 thousand, involving the alleged improper appropriation of ICMS tax credits referring to the reversal of debits declared in the ancillary obligations of the state.  Intelig is challenging this assessment at the administrative level.
 
 
ISS
 
On December 20, 2007, TIM Celular received an assessment notice from the municipality of Rio de Janeiro for R$94,359 thousand for allegedly failing to pay ISS on the following services: technical programming, administrative services on plan cancellation, telephone directory assistance services, provision of data and information and network infrastructure sharing. The aforementioned assessments are being challenged at the administrative level.
 
Telecommunications Services Universalization Fund (“FUST”)
 
On December 15, 2005, Anatel issued Abstract No. 07 aimed, among other things, at charging FUST contributions on interconnection revenue earned by telecommunications service providers, from the date upon which Law No. 9998 came into force.  Based on the enacting legislation (including the provision in the sole paragraph of Article 6 of Law No. 9998), we believe the abovementioned revenue is not subject to the FUST charges. Management has taken the necessary measures to protect our interest and a writ of mandamus was filed to protect our interests in connection with the non-payment of FUST on interconnection revenue. Anatel’s intention to charge FUST on this revenue has been suspended, due to a judicial decision in our favor. A decision on the writ of mandamus by the appellate court is pending.
 
Since October 2006, Anatel has issued a number of assessment notices against TIM Celular, in connection with FUST charges that are allegedly due on interconnection revenue for the years from 2001 to 2009, together with a fine for arrears, on account of Abstract No. 07/05. The assessments for this period add up to a total of R$529,823 thousand.
 
Intelig has received a number of assessment notices from Anatel, which add up to a total amount of R$59,902 thousand, in connection with FUST charges that are allegedly due on interconnection revenue for the periods from January to December of 2001 to 2007. The aforementioned assessments are being challenged at administrative level.
 
Telecommunications Technological Development Fund (“FUNTTEL”)
 
The Ministry of Communications filed assessment notices against TIM Celular amounting to R$213,212 thousand, in connection with FUNTTEL amounts due on interconnection revenue for the years from 2001 to 2007, as well as a fine for arrears. We believe that the above mentioned revenues are not subject to FUNTTEL. A writ of mandamus was filed to safeguard our interests in relation to the non-payment of FUNTTEL on interconnection revenue, on the same grounds as those used for the FUST process. The intention to charge FUNTTEL on interconnection revenue is under suspension, due to a favorable ruling obtained in relation to the writ of mandamus that was filed by TIM Celular.
 
Intelig has received a number of assessment notices from the Ministry of Communications, which add up to a total amount of R$19,474 thousand in connection with FUNTTEL charges that are allegedly due on interconnection revenue for the periods from January to December 2002, March to December 2003, April to December 2004 and January to November 2005, respectively. The aforementioned assessments are being challenged at the administrative level.
 
Dividend Policy
 
Under our bylaws, we are required to distribute an aggregate amount equal to at least 25% of our adjusted net income to our shareholders, either as dividends or as tax-deductible interest on shareholders’ equity.  We may also make additional distributions to the extent of available distributable profits and reserves.  Our subsidiary TIM Celular is also subject to mandatory distribution requirements and, to the extent of distributable profits and reserves, is accordingly required to pay dividends to us. All of the aforementioned distributions may be made as dividends or as tax-deductible interest on shareholders’ equity.
 
Brazilian corporations may make payments to shareholders characterized as interest on shareholders’ equity ( juros sobre capital próprio ) as an alternative form of making dividend distributions to the shareholders.  The rate of interest may not be higher than the Federal Government’s long-term interest rate as determined by BNDES from time to time.  Dividends are not subject to withholding income tax when paid.  On the other hand, interest on shareholders’ equity paid to shareholders is deductible from the corporation’s net income for tax purposes, but the distributions are subject to withholding tax.
 
For the purposes of Brazilian corporate law, and in accordance with our bylaws, adjusted net income is an amount equal to net profit adjusted to reflect allocations to and from:
 
 
·  
the legal reserve; and
 
 
·  
contingency reserves.
 
We are required to maintain a legal reserve, to which we must allocate 5% of net income for each fiscal year until the amount for such reserve equals 20% of our capital. However, we are not required to make any allocations to our legal reserve in respect of any fiscal year in which our legal reserve, together with our other capital reserves, exceeds 30% of our capital.  Losses, if any, may be charged against the legal reserve.
 
Brazilian corporate law also provides for two discretionary allocations of net income that are subject to approval by the shareholders at the annual meeting.  First, a percentage of net income may be allocated to a contingency reserve for anticipated losses that are deemed probable in future years. Any amount so allocated in a prior year must be either reversed in the fiscal year in which the loss was anticipated if such loss does not in fact occur, or written off in the event that the anticipated loss occurs.  Second, if the mandatory distributable amount exceeds the sum of realized net income in a given year, such excess may be allocated to unrealized revenue reserve.  Under Brazilian corporate law, realized net income is defined as the amount of net income that exceeds the net positive result of equity adjustments and profits or revenues from operations with financial results after the end of the next succeeding fiscal year.
 
Under Brazilian corporate law, any company may, as a term in its bylaws, create a discretionary reserve that authorizes the allocation of a percentage of a company’s net income to the discretionary reserve and must also indicate the purpose, criteria for allocation and a maximum amount of the reserve.  The company’s bylaws authorize the allocation of the net income balance not allocated to the payment of the mandatory minimum dividend to a supplementary reserve for the expansion of corporate business, not to exceed 80% of the capital.
 
We may also allocate a portion of our net income for discretionary appropriations for plant expansion and other capital investment projects, the amount of which would be based on a capital budget previously presented by our management and approved by shareholders.  Under Brazilian corporate law, capital budgets covering more than one year must be reviewed at each annual shareholders’ meeting. After completion of the relevant capital projects, we may retain the appropriation until the shareholders vote to transfer all or a portion of the reserve to capital realized.
 
The amounts available for distribution may be further increased by a decrease in the contingency reserve for anticipated losses anticipated in prior years but not realized.  The amounts available for distribution are determined on the basis of financial statements prepared in accordance with Brazilian GAAP.
 
The legal reserve is subject to approval by the shareholders voting at the annual meeting and may be transferred to capital but is not available for the payment of dividends in subsequent years.  Our calculation of net income and allocations to reserves for any fiscal year are determined on the basis of financial statements prepared in accordance with CVM rules and Brazilian GAAP.
 
Under Brazilian corporate law, a company is permitted to suspend the mandatory dividend in respect of common shares not entitled to a fixed or minimum dividend if:
 
 
·  
its management (board of directors and board of executive officers) and Statutory Audit Committee report to the shareholders’ meeting that the distribution would be incompatible with the financial circumstances of that company; and the shareholders ratify this conclusion at the shareholders’ meeting.
 
In this case,
 
 
·  
the management must forward to CVM within five days of the shareholders’ meeting an explanation justifying the information transmitted at the meeting; and
 
 
·  
the profits which were not distributed are to be recorded as a special reserve and, if not absorbed by losses in subsequent fiscal years, are to be paid as dividends as soon as the financial situation permits.
 
For the purposes of Brazilian corporate law, the net income after income tax and social contribution for such fiscal year, net of any accumulated losses from prior fiscal years and any amounts allocated to warrants and employees’ and management’s participation in a company’s profits, shall be distributed as dividends.
 
Payment of Dividends
 
We are required by law and by our bylaws to hold an annual shareholders’ meeting by April 30 of each year, at which, among other things, an annual dividend may be declared by decision of our shareholders on the recommendation of our executive officers, as approved by our Board of Directors.  The payment of annual dividends is based on the financial statements prepared for the fiscal year ending December 31.  Under Brazilian corporate law, dividends are required to be paid within 60 days following the date the dividend is declared to shareholders of record on such declaration date, unless a shareholders’ resolution sets forth another date of payment, which in any event shall occur prior to the end of the fiscal year in which such dividend was declared.
 
A shareholder has a three-year period from the dividend payment date to claim dividends in respect of its shares, after which we have no liability for such payment.  Because our shares are issued in book-entry form, dividends with respect to any share are credited to the account holding such share.  We are not required to adjust the amount of paid-in capital for inflation. Annual dividends may be paid to shareholders on a pro rata basis according to the date when the subscription price is paid to us.
 
B. 
Significant Changes
 
None.
 
 
Item 9.  The Offer and Listing
 
A. 
Offer and Listing Details
 
Our common shares are listed on the Novo Mercado segment of the São Paulo Stock Exchange ( BM&FBOVESPA S.A. - Bolsa de Valores Mercadorias e Futuros ), or the BM&FBOVESPA, under the symbol “TIMP3” and our ADSs are listed on the New York Stock Exchange, or the NYSE, under the symbol “TSU.” The table below sets forth, for the indicated periods, the high and low closing prices of the ADSs on the NYSE, in U.S. dollars, and the common shares on the BM&FBOVESPA, in reais .  On September 13, 2011, the last reported sales price of our common shares on the BM&FBOVESPA was R$8.91 and the last reported sales price of our ADSs on the NYSE was U.S.$26.45.
 
At an extraordinary shareholders meeting held on June 22, 2011 our shareholders approved, among other things: (1) the conversion of all of our preferred shares into common shares, at a ratio of 0.8406 common shares for each preferred share; (2) our adherence to the Novo Mercado rules and the transfer of trading of the shares issued by us to the Novo Mercado , and (3) amendments to our bylaws.
 
In order to join the Novo Mercado , we entered into a Novo Mercado Participation Agreement with the  BM&FBOVESPA.  Through this agreement, which became effective on July 27, 2011, we are required to adhere to heightened requirements relating to corporate governance and the disclosure of information to the market. Additionally, as of such date, our shares started trading on the Novo Mercado segment of the BM&FBOVESPA.  Pursuant to the Novo Mercado Regulations, we are not permitted to issue preferred shares, participation bonuses or any kind of shares with restricted voting rights.
 
Prior to August 2, 2011 we had common shares and preferred shares listed on the BM&FBOVESPA under the symbols “TCSL3” and “TCSL4,” respectively.  Our ADSs listed on the NYSE each represented 10 preferred shares.  As part of our migration to the Novo Mercado listing segment of the BM&FBOVESPA, our preferred shares ceased to trade on August 2, 2011.  On August 4, 2011, our ADSs representing preferred shares ceased to trade on the NYSE.  From August 3, 2011, we only had common shares traded on the Novo Mercado listing segment of BM&FBOVESPA, by using the code “TIMP3” and as from August 5, 2011, our ADSs representing five common shares instead of ten preferred shares commenced trading on the NYSE.
 
   
NYSE
   
BM&FBOVESPA
   
BM&FBOVESPA
 
   
HIGH
   
LOW
   
HIGH
   
LOW
   
HIGH
   
LOW
 
   
(in U.S.$ per ADS)
   
(in reais per
preferred share)
   
(in reais per common share)
 
Year ended
                                   
December 31, 2007
    46.40       29.54       8.10       5.80       12.47       8.30  
December 31, 2008
    43.80       11.44       7.33       2.42       9.83       4.49  
December 31, 2009
    30.13       11.99       5.20       2.64       7.95       4.93  
December 31, 2010
    35.07       23.58       5.90       4.27       8.03       5.78  
December 31, 2011
    31.30       20.01       N/A       N/A       9.80       6.81  
                                                 
Year ended December 31, 2010
                                               
First quarter
    30.43       24.68       5.39       4.71       7.80       6.66  
Second quarter
    28.69       23.58       5.08       4.27       7.35       5.78  
Third quarter
    32.99       26.25       5.57       4.68       8.03       6.82  
Fourth quarter
    35.07       30.90       5.90       5.23       7.34       6.68  
                                                 
Year ended December 31, 2011
                                               
First quarter
    26.01       20.02       7.12       5.63       8.60       6.84  
Second quarter
    29.87       25.98       7.81       6.88       9.00       8.10  
Third quarter
    31.30       23.08       N/A       N/A       9.80       7.60  
Fourth quarter
    37.31       22.14       N/A       N/A       9.60       8.20  
 
 
   
NYSE
   
BM&FBOVESPA
   
BM&FBOVESPA
 
   
HIGH
   
LOW
   
HIGH
   
LOW
   
HIGH
   
LOW
 
   
(in U.S.$ per ADS)
   
(in reais per
preferred share)
   
(in reais per common share)
 
                                                 
Year ended December 31, 2012
                                               
First quarter
 
32.47
   
25.80
      N/A       N/A    
11.66
   
9.33
 
                                                 
Month ended
                                               
November 30, 2011
    26.56       22.14       N/A       N/A       9.10       8.21  
December 31, 2011
    26.05       23.70       N/A       N/A       9.60       8.51  
January 31, 2012
    28.85       25.80       N/A       N/A       9.90       9.40  
February 29, 2012
    30.71       27.62       N/A       N/A       10.44       9.33  
March 31, 2012
 
32.47
   
28.72
      N/A       N/A    
11.66
   
9.97
 
April 30, 2012
 
32.99
   
29.66
      N/A       N/A    
11.95
   
11.00
 
May 31,  2012 (through May 11)  
29.67
   
26.83
      N/A       N/A    
11.34
   
10.45
 
 
B. 
Plan of Distribution
 
Not applicable.
 
C. 
Markets
 
Trading on the Brazilian Stock Exchanges
 
The BM&FBOVESPA is the only Brazilian Stock Exchange on which equity and debt securities issued by Brazilian companies are traded.
 
Trading on the BM&FBOVESPA is conducted every business day, from 10:00 a.m. to 5:00 p.m., or from 11:00 a.m. to 6:00 p.m. during daylight saving time in Brazil, on an electronic trading system called “Megabolsa.” Trading is also conducted between 5:45 p.m. and 7:00 p.m., or between 6:45 p.m. and 7:30 p.m. during daylight saving time in Brazil.  The “after-market” trading is the scheduled after the close of principal trading sessions, when investors may send purchase and sell orders and make trades through the home broker system.  This after-market trading is subject to regulatory limits on price volatility of securities traded by investors operating on the Internet.
 
When shareholders trade shares or units on BM&FBOVESPA, the trade is settled in three business days after the trade date, without adjustments to the purchase price.  The seller is ordinarily required to deliver the shares or units to the exchange on the second business day following the trade date.  Delivery of and payment for shares or units are made through the facilities of Central Depositária BM&FBOVESPA , BM&FBOVESPA’s clearing house.
 
In order to maintain control over the fluctuation of BM&FBOVESPA index, BM&FBOVESPA has adopted a “circuit breaker” system pursuant to which trading sessions may be suspended for a period of 30 minutes or one hour whenever BM&FBOVESPA index falls below 10% or 15%, respectively, in relation to the closing index levels of the previous trading session.  The BM&FBOVESPA also implemented a 15% limit, up or down, on price fluctuations in shares traded on the spot market.  The minimum and maximum price is based on a reference price for each asset, which will be the previous session’s closing quote, when considering the asset at the beginning of the day before the first trade, or the price of the day’s first trade.  The asset’s reference price will be altered during the session if there is an auction sparked by the intraday limit being breached.  In this case the reference price will become whatever results from the auction.
 
Although the Brazilian equity market is Latin America’s largest in terms of market capitalization, it is smaller and less liquid than the major U.S. and European securities markets.  Moreover, BM&FBOVESPA is less liquid than the New York Stock Exchange and other major exchanges in the world. 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 trading by the public, the remainder being held by small groups of controlling persons, governmental entities or one principal shareholder.  Trading on Brazilian stock exchanges by non-residents of Brazil is subject to registration procedures.
 
Trading on Brazilian stock exchanges by a holder not deemed to be domiciled in Brazil, for Brazilian tax and regulatory purposes (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 CMN 2,689.  Resolution CMN 2,689 requires that securities held by non-Brazilian holders be maintained in the custody of, or in deposit accounts with, financial institutions and be registered with a clearinghouse duly authorized by the Central Bank and the CVM.  In addition, Resolution CMN 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 CMN 2,689 to other non-Brazilian holders through a private transaction.  See “Item 10. Additional Information—E. Taxation—Brazilian Tax Considerations” for a description of certain tax benefits extended to non-Brazilian holders who qualify under Resolution CMN 2,689.
 
Differentiated Levels of Corporate Governance and the Novo Mercado
 
In order to increase the transparency of the Brazilian capital markets and protect minority shareholders’ rights, BM&FBOVESPA has implemented certain new initiatives, including:
 
 
·  
a classification system referred to as “Differentiated Levels of Corporate Governance” applicable to the companies already listed in BM&FBOVESPA; and
 
 
·  
a new separate listing segment for qualifying issuers referred to as the Novo Mercado .
 
The Differentiated Levels of Corporate Governance, Level 1 and Level 2, are applicable to listed companies that voluntarily comply with special disclosure and corporate governance practices established by the BM&FBOVESPA.  The companies may be classified into two different levels, depending on their degree of adherence to the BM&FBOVESPA’s practices of disclosure and corporate governance.
 
To become a Level 1 company, an issuer must voluntarily satisfy, in addition to the obligations imposed by Brazilian law, the following requirements:
 
 
·  
ensure that shares amounting to at least 25% of its capital are outstanding and available for trading in the market;
 
 
·  
adopt procedures that favor the dispersion of shares into the market whenever making a public offering;
 
 
·  
comply with minimum quarterly disclosure standards;
 
 
·  
follow stricter disclosure policies with respect to transactions with controlling shareholders, directors and officers involving the issuer’s securities;
 
 
·  
submit any existing shareholders’ agreements and stock option plans to the BM&FBOVESPA; and
 
 
·  
make a schedule of corporate events available to the shareholders.
 
We are currently considering complying with these requirements for Level 1 of Corporate Governance.
 
To become a Level 2 company, an issuer must, in addition to satisfying the Level 1 criteria and the obligations imposed by Brazilian law, satisfy the following requirements:
 
 
·  
require all directors to serve unstaggered one-year terms;
 
 
·  
prepare and publish annual financial statements in English and in accordance with U.S. GAAP or IFRS;
 
 
·  
create tag-along rights for minority shareholders, ensuring holders of common shares of the right to sell on the same terms as a controlling shareholder, and ensuring preferred shareholders a price equal to at least 80% of that received by the selling controlling shareholder;
 
 
 
·  
grant preferred shareholders the right to vote in certain cases, including, without limitation, the transformation, spin-off or merger of the company, and approval of agreements with related parties;
 
 
·  
make a tender offer for all outstanding shares, for a price equal to fair market value, in the event of delisting from Level 2 qualification; and
 
 
·  
agree to submit any disputes between the company and its investors exclusively to the BM&FBOVESPA’s Market Arbitration Chamber.
 
The Novo Mercado is a separate listing segment for the trading of shares issued by companies that voluntarily adopt certain additional corporate governance practices and disclosure requirements which are more demanding than those required by the current law in Brazil.  Companies may qualify to have their shares traded in the Novo Mercado , if, in addition to complying with the Level 2 corporate governance practices referred to above, their capital stock consists only of voting common shares.
 
On May 20, 2011 the Board of Directors of TIM Participações recommended to the Extraordinary General Shareholders’ Meeting of the Company its migration to the Novo Mercado listing segment of BM&FBOVESPA, which took place on June 22, 2011.  With this migration TIM moves to the highest level of corporate governance.  Only 26% of Brazilian listed companies are in the Novo Mercado and TIM will be the only telecommunications company stock among them.
 
BM&FBOVESPA Market Administration Panel
 
Pursuant to Law No. 9,307/96, a Market Arbitration Panel (the “Panel”) has been established by the BM&FBOVESPA.  The Panel was established to settle certain types of disputes, including disputes relating to corporate governance, securities issues, financial regulatory issues and other capital market matters, with respect to BM&FBOVESPA listed companies that have undertaken to voluntarily comply with Level 2 and Novo Mercado levels of corporate governance and disclosure.  The Panel will provide a forum for dispute resolution involving, among others, the BM&FBOVESPA, the applicable listed company and the shareholders, directors and management of the applicable listed company.
 
Regulation of Brazilian Securities Markets
 
The Brazilian securities markets are principally governed by Law No. 6,385, of December 7, 1976, and Brazilian corporate law, each as amended and supplemented, and by regulations issued by the CVM, which has authority over stock exchanges and the securities markets in general; the National Monetary Council; and the Central Bank, which has, among other powers, licensing authority over brokerage firms and regulates foreign investment and foreign exchange transactions.
 
These laws and regulations, among others, provide for licensing and oversight of brokerage firms, governance of the Brazilian stock exchanges, disclosure requirements applicable to issuers of traded securities, restrictions on price manipulation and protection of minority shareholders.  They also provide for restrictions on insider trading. Accordingly, any trades or transfers of our equity securities by our officers and directors, our controlling shareholders or any of the officers and directors of our controlling shareholders must comply with the regulations issued by the CVM.
 
Under Brazilian corporate law, a corporation is either publicly held ( companhia aberta ), as we are, or closely held ( companhia fechada ). All publicly held companies are registered with the CVM and are subject to reporting requirements.  We have the option to ask that trading in securities on BM&FBOVESPA be suspended in anticipation of a material announcement.  Trading may also be suspended on the initiative of BM&FBOVESPA or the CVM, based on or due to, among other reasons, a belief that a company has provided inadequate information regarding a material event or has provided inadequate responses to inquiries by the CVM or BM&FBOVESPA.
 
The Brazilian over-the-counter market consists of direct trades between individuals in which a financial institution registered with the CVM serves as intermediary.  No special application, other than registration with the CVM, is necessary for securities of a public company to be traded in this market.  The CVM requires that it be given notice of all trades carried out in the Brazilian over-the-counter market by the respective intermediaries.
 
Trading on BM&FBOVESPA by non-residents of Brazil is subject to limitations under Brazilian foreign investment and tax legislation.  The Brazilian custodian for our preferred shares on behalf of the Depositary for the ADSs, has obtained registration from the Central Bank to remit U.S. dollars abroad for payments of dividends, any other cash distributions, or upon the disposition of the shares and sales proceeds thereto.  In the event that a holder of ADSs exchanges preferred shares for ADSs, the holder will be entitled to continue to rely on the custodian’s registration for five business days after the exchange.  Thereafter, the holder may not be able to obtain and remit U.S. dollars abroad upon the disposition of our preferred shares or upon distributions relating to our preferred shares, unless the holder obtains a new registration.  See “Item 10. Additional Information—B. Memorandum and Articles of Association.”
 
Brazilian regulations also require that any person or group of persons representing the same interest that has directly or indirectly acquired an interest corresponding to 5% of a type or class of shares of a publicly traded company must provide such publicly traded company with information on such acquisition and its purpose, and such company must transmit this information to the CVM.  If this acquisition causes a change in the corporate control or in the administrative structure of the company, as well as when such acquisition triggers the obligation of making a public offering in accordance with CVM Instruction 358/03, then the acquiring entity shall disclose this information to the applicable stock exchanges and the appropriate Brazilian newspapers.  Regulations also require disclosure of any subsequent increase or decrease of five percent or more in ownership of common shares, including warrants and debentures convertible into common shares in the same terms above.
 
D. 
Selling Shareholders
 
Not applicable.
 
E. 
Dilution
 
Not applicable.
 
F. 
Expenses of the issue
 
Not applicable.
 
Item 10.  Additional Information
 
A. 
Share Capital
 
Not applicable.
 
B. 
Memorandum and Articles of Association
 
The following summarizes certain material provisions of TIM’s bylaws and the Brazilian corporate law, the main bodies of regulation governing us.  Copies of TIM’s bylaws have been filed as exhibits to this annual report on Form 20-F.  Except as described in this section, TIM’s bylaws do not contain provisions addressing the duties, authority or liabilities of the directors and senior management, which are instead established by Brazilian corporate law.
 
Registration
 
TIM’s bylaws have been registered with the Public Registry of the state of Rio de Janeiro under company number (NIRE) 33.3.0027696-3.
 
Corporate Purpose
 
Article 2 of our bylaws provides that our corporate purpose is to: (1) control the companies that offer telecommunications services, including mobile personal telephone services and others, in their respective authorization and/or concession areas; (2) promote, through its controlled or affiliated companies, the expansion and
 
 
implementation of mobile telephone services in their respective concession and/or authorization areas; (3) promote, perform or give guidance in relation to the borrowing of funds from internal and external sources to be invested by the Company or by its controlled companies; (4) promote and incentive study and research activities for the development of the mobile telephone services industry; (5) provide specialized technical mobile telecommunications services through controlled or affiliated companies; (6) promote, incentive and coordinate, through controlled or affiliated companies, the education and training of the staff required by the mobile telephone services industry; (7) perform or promote the import of goods and services for the controlled or affiliated companies; (8) engage in any other activities related or akin to its purpose; and (9) hold interest in the corporate capital of other companies.
 
Company Management
 
According to our bylaws, our Board of Directors is comprised of at least five and at most nineteen permanent members.  The following is a description of some of the provisions of our bylaws concerning the Board of Directors:
 
 
·  
the Board of Directors has the power to approve loans and financing as well as other transactions giving rise to indebtedness, for an amount exceeding R$300 million, as set forth in Article 22, Item XVI;
 
 
·  
the Board of Directors has the power to allocate the total budget for management remuneration approved by the shareholders’ meeting among the directors and the executive officers, as necessary; and
 
 
·  
the Board of Directors has the power to authorize the Company, as well as its controlled companies and affiliates, to enter into, amend or terminate shareholders’ agreements.
 
There are no provisions in the bylaws with respect to:
 
 
·  
a director’s power to vote compensation to him or herself in the absence of an independent quorum;
 
 
·  
borrowing powers exercisable by the directors;
 
 
·  
age limits for retirement of directors;
 
 
·  
required shareholding for director qualification; or
 
 
·  
disclosure of share ownership.
 
The executive officers are the Company’s representative and executive body, and each one of them shall act within his/her respective scope of authority.  Following is a description of some of the provisions of our bylaws concerning the board of executive officers:
 
 
·  
the power to authorize the participation of the Company or its companies controlled in any joint venture, partnership, consortium or any similar structure;
 
 
·  
the power to ratify, within the limits set forth in the bylaws, the purchase of materials and equipment and the execution of property, construction work and service agreements; and
 
 
·  
the power to approve the contracting by the Company or by its controlled companies of loans, financing, or any other transactions implying indebtedness to the Company or its controlled companies, whose individual value is greater than R$30.0 million, provided that certain provisions of the bylaws are observed
 
Rights Relating to our Shares
 
Dividend Rights
 
Under our bylaws, we are required to distribute an aggregate amount equal to at least 25% of our adjusted net income to our shareholders, either as dividends or as tax-deductible interest on shareholders’ equity.  We may also make additional distributions to the extent of available distributable profits and reserves.  Our subsidiary TIM Celular is also subject to mandatory distribution requirements and, to the extent of distributable profits and reserves,
 
 
is accordingly required to pay dividends to us. All of the aforementioned distributions may be made as dividends or as tax-deductible interest on shareholders’ equity.
 
Brazilian corporations may make payments to shareholders characterized as interest on shareholders’ equity (juros sobre capital próprio) as an alternative form of making dividend distributions to the shareholders.  The rate of interest may not be higher than the Federal Government’s long-term interest rate as determined by BNDES from time to time.  Dividends are not subject to withholding income tax when paid.  On the other hand, interest on shareholders’ equity paid to shareholders is deductible from the corporation’s net income for tax purposes, but the distributions are subject to withholding tax.
 
For the purposes of Brazilian corporate law, and in accordance with our bylaws, adjusted net income is an amount equal to net profit adjusted to reflect allocations to and from:
 
 
·  
the legal reserve; and
 
 
·  
contingency reserves.
 
We are required to maintain a legal reserve, to which we must allocate 5% of net income for each fiscal year until the amount for such reserve equals 20% of our capital. However, we are not required to make any allocations to our legal reserve in respect of any fiscal year in which our legal reserve, together with our other capital reserves, exceeds 30% of our capital.  Losses, if any, may be charged against the legal reserve.
 
Brazilian corporate law also provides for two discretionary allocations of net income that are subject to approval by the shareholders at the annual meeting.  First, a percentage of net income may be allocated to a contingency reserve for anticipated losses that are deemed probable in future years. Any amount so allocated in a prior year must be either reversed in the fiscal year in which the loss was anticipated if such loss does not in fact occur, or written off in the event that the anticipated loss occurs.  Second, if the mandatory distributable amount exceeds the sum of realized net income in a given year, such excess may be allocated to unrealized revenue reserve.  Under Brazilian corporate law, realized net income is defined as the amount of net income that exceeds the net positive result of equity adjustments and profits or revenues from operations with financial results after the end of the next succeeding fiscal year.
 
Under Brazilian corporate law, any company may, as a term in its bylaws, create a discretionary reserve that authorizes the allocation of a percentage of a company’s net income to the discretionary reserve and must also indicate the purpose, criteria for allocation and a maximum amount of the reserve.  The company’s bylaws authorize the allocation of the net income balance not allocated to the payment of the mandatory minimum dividend to a supplementary reserve for the expansion of corporate business, not to exceed 80% of the capital.
 
We may also allocate a portion of our net income for discretionary appropriations for plant expansion and other capital investment projects, the amount of which would be based on a capital budget previously presented by our management and approved by shareholders.  Under Brazilian corporate law, capital budgets covering more than one year must be reviewed at each annual shareholders’ meeting. After completion of the relevant capital projects, we may retain the appropriation until the shareholders vote to transfer all or a portion of the reserve to capital realized.
 
The amounts available for distribution may be further increased by a decrease in the contingency reserve for anticipated losses anticipated in prior years but not realized.  The amounts available for distribution are determined on the basis of financial statements prepared in accordance with Brazilian GAAP.
 
The legal reserve is subject to approval by the shareholders voting at the annual meeting and may be transferred to capital but is not available for the payment of dividends in subsequent years.  Our calculation of net income and allocations to reserves for any fiscal year are determined on the basis of financial statements prepared in accordance with CVM rules and Brazilian GAAP.
 
Under Brazilian corporate law, a company is permitted to suspend the mandatory dividend in respect of common shares not entitled to a fixed or minimum dividend if:
 
 
·  
its management (board of directors and board of executive officers) and Statutory Audit Committee report to the shareholders’ meeting that the distribution would be incompatible with the financial circumstances of that company; and
 
 
·  
the shareholders ratify this conclusion at the shareholders’ meeting.
 
In this case,
 
 
·  
the management must forward to CVM within five days of the shareholders’ meeting an explanation justifying the information transmitted at the meeting; and
 
 
·  
the profits which were not distributed are to be recorded as a special reserve and, if not absorbed by losses in subsequent fiscal years, are to be paid as dividends as soon as the financial situation permits.
 
For the purposes of Brazilian corporate law, the net income after income tax and social contribution for such fiscal year, net of any accumulated losses from prior fiscal years and any amounts allocated to warrants and employees’ and management’s participation in a company’s profits, shall be distributed as dividends.
 
Payment of Dividends
 
We are required by law and by our bylaws to hold an annual shareholders’ meeting by April 30 of each year, at which, among other things, an annual dividend may be declared by decision of our shareholders on the recommendation of our executive officers, as approved by our board of directors.  The payment of annual dividends is based on the financial statements prepared for the fiscal year ending December 31.  Under Brazilian corporate law, dividends are required to be paid within 60 days following the date the dividend is declared to shareholders of record on such declaration date, unless a shareholders’ resolution sets forth another date of payment, which in any event shall occur prior to the end of the fiscal year in which such dividend was declared.
 
A shareholder has a three-year period from the dividend payment date to claim dividends in respect of its shares, after which we have no liability for such payment.  Because our shares are issued in book-entry form, dividends with respect to any share are credited to the account holding such share.  We are not required to adjust the amount of paid-in capital for inflation. Annual dividends may be paid to shareholders on a pro rata basis according to the date when the subscription price is paid to us.
 
Voting Rights
 
Each common share entitles the holder to one vote at meetings of shareholders.
 
Meeting of Shareholders
 
According to Brazilian law, shareholders must be previously notified through a notice published in three Brazilian official gazettes in order for an annual or extraordinary shareholders’ meeting to be held.  The notification must occur at least 15 days prior to the meeting scheduled date.  If the meeting so noticed is not held for any reason on first notice, a second notification must be published at least eight days before the second meeting date.
 
On the first notice, meetings may be held only if shareholders holding at least one-fourth of voting shares are represented.  Extraordinary meetings for the amendment of the bylaws may be held on the first notice only if shareholders holding at least two thirds of the voting capital are represented.  On a second call, the meetings are held regardless of quorum.
 
Pursuant to our bylaws and Brazilian corporate law, shareholders at our annual shareholders’ meeting, which is required to be held within the first four months following the end of the fiscal year, will convene to:
 
 
·  
take the management accounts; examine, discuss and vote on the financial statements;
 
 
·  
decide on the uses to which the net income of the fiscal year should be put and on the distribution of dividends; and
 
 
 
·  
elect the members of the statutory audit committee and, when applicable, the members of the board of directors.
 
An extraordinary shareholders’ meeting shall be convened whenever the Company interests so require.  Pursuant to our bylaws and Brazilian corporate law, the following actions, among others, are exclusive powers of the shareholders’ meeting:
 
 
·  
to amend the bylaws;
 
 
·  
to decide on the appraisal of assets given by shareholders to pay up capital stock;
 
 
·  
to decide on the Company’s transformation, merger, take-over and split-up; its dissolution and liquidation; to appoint and remove liquidators and appreciate their accounts;
 
 
·  
to suspend the rights of shareholders not in compliance with their duties imposed by law, the bylaws or the Novo Mercado Listing Rules;
 
 
·  
to elect and remove, at any time, the board of directors and the statutory audit committee;
 
 
·  
to determine the global or individual remuneration of the board of directors, board of executive officers and the statutory audit committee;
 
 
·  
to annually take the accounts of the management and decide on the submitted financial statements;
 
 
·  
to decide where the Company shall file a civil liability law suit against the management for losses in the Company’s assets as provided by law;
 
 
·  
to resolve in compliance with all provisions of any law, the bylaws or the Novo Mercado rules about capital stock increase by means of subscription of new shares, and on the issuance of any other bonds or securities, whether in Brazil or abroad and whenever the limit of the authorized capital has been attained;
 
 
·  
to decide on the withdrawal from the register of publicly-held companies before the CVM;
 
 
·  
to decide on the delisting of the Company from the Novo Mercado listing segment;
 
 
·  
to choose a company to prepare an opinion concerning the appraisal of the Company’s shares in the event of cancellation or delisting; and
 
 
·  
to previously approve the execution of any agreements with a duration exceeding 12 months between the Company or its controlled companies, on the one hand, and the controlling shareholder or companies controlled, affiliated or under the same control or the controlling companies of the latter, or parties related to the Company, on the other hand except when those agreements are governed by uniform clauses
 
Preemptive Rights
 
Except in the case of a public offering of ordinary shares or convertible debentures, public subscription or a public tender offer (whereby such actions must be authorized by the board of directors in accordance with article 22, section 2 of the bylaws), each of our shareholders has a general preemptive right to subscribe shares in any capital increase, in proportion to its shareholding. A minimum period of 30 days following the publication of notice of the capital increase is allowed for the exercise of the right, and the right is transferable.
 
Preemptive rights to purchase shares may not be offered to U.S. holders of the ADSs unless a registration statement under the Securities Act is effective with respect to the shares underlying those rights or an exemption from the registration requirements of the Securities Act is available.  Consequently, if you are a holder of our ADSs who is a U.S. person or is located in the United States, you may be restricted in your ability to participate in the exercise of preemptive rights.
 
 
Right of Redemption
 
Subject to certain exceptions, the common shares are redeemable by shareholders exercising withdrawal rights in the event that shareholders representing over 50% of the voting shares adopt a resolution at a duly convened shareholders meeting to:
 
 
·  
reduce the mandatory distribution of dividends;
 
 
·  
change our corporate purpose;
 
 
·  
participate in a group of companies;
 
 
·  
transfer all of our shares to another company in order to make us a wholly-owned subsidiary of that company;
 
 
·  
split up, subject to the conditions set forth by Brazilian corporate law;
 
 
·  
change corporate form;
 
 
·  
approve the acquisition of another company, the price of which exceeds certain limits set forth in Brazilian corporate law; or
 
 
·  
merge or consolidate ourselves with another company.
 
The redemption right expires 30 days after publication of the minutes of the relevant shareholders’ meeting.  The shareholders would be entitled to reconsider any action giving rise to redemption rights within 10 days following the expiration of those rights if they determine that the redemption of shares of dissenting shareholders would jeopardize our financial stability.
 
Brazilian corporate law excludes dissenters’ rights in such cases for holders of shares that have a public float rate higher than 50% and that are “liquid.” Shares are defined as being “liquid” for these purposes if they are part of the BM&FBOVESPA Index or another stock exchange index (as defined by CVM).  For as long as our shares are part of any qualifying market index, the right of redemption shall not be extended to our shareholders with respect to decisions regarding our merger or consolidation with another company, or the participation in a group of companies as defined by Brazilian corporate law.  Currently, our common shares do not have a public float rate higher than 50%; accordingly dissenter’s withdrawal rights are applicable.
 
Unless otherwise provided in the bylaws, which is not the case with us, a shareholder exercising rights to redeem shares is entitled to receive the book value of such shares, determined on the basis of the last annual balance sheet approved by the shareholders.  If the shareholders’ meeting giving rise to redemption rights occurs more than 60 days after the date of the last annual balance sheet, a shareholder may demand that its shares be valued on the basis of a new balance sheet that is as of a date within 60 days of such shareholders’ meeting.
 
Form and Transfer
 
Our shares are maintained in book-entry form with a transfer agent, Banco Bradesco S.A., and the transfer of our shares is made in accordance with the applicable provision of the Brazilian corporate law, which provides that a transfer of shares is effected by an entry made by the transfer agent on its books, debiting the share account of the seller and crediting the share account of the purchaser, against presentation of a written order of the seller, or judicial authorization or order, in an appropriate document which remains in the possession of the transfer agent.  The preferred shares underlying our ADS are registered on the transfer agent’s records in the name of the Brazilian Depositary.
 
Transfers of shares by a foreign investor are made in the same way and executed by such investor’s local agent on the investor’s behalf except that, if the original investment was registered with the Central Bank under the Brazilian foreign investment in capital markets regulations, the foreign investor should also seek amendment, if necessary, though its local agent, of the certificate of registration to reflect the new ownership.
 
 
BM&FBOVESPA reports transactions carried out in its market to the Central Depositária BM&FBOVESPA , which is the exchange’s central clearing system. A holder of our shares may choose, at its discretion, to participate in this system. All shares elected to be put into the system will be deposited in custody with the relevant stock exchange, through a Brazilian institution duly authorized to operate by the Central Bank and CVM and having a clearing account with the relevant stock exchange.  The fact that such shares are subject to custody with the relevant stock exchange will be reflected in our register of shareholders.  Each participating shareholder will, in turn, be registered in our register of beneficial shareholders, as the case may be, maintained by the relevant stock exchange and will be treated in the same way as registered shareholders.
 
C. 
Material Contracts
 
See “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Sources of Funds—Financial Contracts” the summary of certain financing agreements to which we have been a party, other than contracts entered into in the ordinary course of business.
 
D. 
Exchange Controls
 
There are no restrictions on ownership of our common shares by individuals or legal entities domiciled outside Brazil. However, the right to convert dividend payments and proceeds from the sale of shares into foreign currency and to remit such amounts outside Brazil is subject to restrictions under foreign investment legislation which generally requires, among other things, that the relevant investments have been registered with the Central Bank.  Foreign investors may register their investment under Law No. 4,131 of September 3, 1962, or “Law No. 4,131,” or Resolution CMN 2,689.  Registration under Law No. 4,131 or under Resolution CMN 2,689 generally enables foreign investors to convert into foreign currency dividends, other distributions and sales proceeds received in connection with registered investments and to remit such amounts abroad.  Resolution CMN 2,689 affords favorable tax treatment to foreign investors who are not resident in a tax haven jurisdiction, which is defined under Brazilian tax laws as a country that does not impose taxes or where the maximum income tax rate is lower than 20% or that restricts the disclosure of shareholder composition or ownership of investments.
 
Under Resolution CMN 2,689, foreign investors may invest in almost all financial assets and engage in almost all transactions available in the Brazilian financial and capital markets, provided that certain requirements are fulfilled.  In accordance with Resolution CMN 2,689, foreign investors are individuals, corporations, mutual funds and collective investments domiciled or headquartered abroad.
 
Pursuant to Resolution CMN 2,689, foreign investors must:
 
 
·  
appoint at least one representative in Brazil with powers to perform actions relating to the foreign investment;
 
 
·  
complete the appropriate foreign investment registration form;
 
 
·  
obtain registration as a foreign investor with the CVM; and
 
 
·  
register the foreign investment with the Central Bank.
 
The securities and other financial assets held by the foreign investor pursuant to Resolution CMN 2,689 must be:
 
 
·  
registered or maintained in deposit accounts or under the custody of an entity duly licensed by the Central Bank or by the CVM; or
 
 
·  
registered in registration, clearing and custody systems authorized by the Central Bank or by the CVM.
 
In addition, securities trading by foreign investors pursuant to Resolution CMN 2,689 is restricted to transactions carried out on the stock exchanges or organized over-the-counter markets licensed by the CVM.
 
On January 26, 2000, the Central Bank enacted Circular No. 2,963, providing that beginning on March 31, 2000, all investments by a foreign investor under Resolution CMN 2,689 are subject to the electronic registration with the Central Bank.  Foreign investments registered under the Annex IV regulations were required to conform to the new registration rules by June 30, 2000.
 
Resolution No. 1,927 of the CMN provides for the issuance of depositary receipts in foreign markets in respect of shares of Brazilian issuers.  Our ADS program was approved under the Annex V regulations by the Central Bank and the Brazilian securities commission prior to the issuance of the ADSs. Accordingly, the proceeds from the sale of ADSs by ADR holders outside Brazil are free of Brazilian foreign investment controls and holders of the ADSs will be entitled to favorable tax treatment. According to Resolution CMN 2,689, foreign investments registered under Annex V Regulations may be converted into the new investment system and vice-versa, provided the conditions set forth by the Central Bank and the CVM are complied with.
 
Under current Brazilian legislation, the federal government may impose temporary restrictions on remittances of foreign capital abroad in the event of a serious imbalance or an anticipated serious imbalance of Brazil’s balance of payments.  For approximately six months in 1989 and early 1990, the federal government froze all dividend and capital repatriations that were owed to foreign equity investors, in order to conserve Brazil’s foreign currency reserves.  These amounts were subsequently released in accordance with federal government directives.  The imbalance in Brazil’s balance of payments increased during 1999, and there can be no assurance that such increases will not incur in the future or that the federal government will not impose similar restrictions on foreign repatriations in the future for similar or other reasons.
 
E. 
Taxation
 
The following summary contains a description of the principal Brazilian and U.S. federal income tax consequences of the ownership and disposition of the common shares or ADSs, but it does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to hold common shares or ADSs. The summary is based upon the tax laws of Brazil and regulations thereunder and on the federal income tax laws of the United States thereunder as of the date hereof, both of which are subject to change. Holders of common shares or ADSs should consult their tax advisers as to the tax consequences of the ownership and disposition of common shares or ADSs in their particular circumstances.
 
Although there is at present no income tax treaty between Brazil and the United States, the tax authorities of the two countries have had discussions that may culminate in such a treaty in the future. No assurance can be given, however, as to whether or when a treaty will enter into force or how it will affect the U.S. holders of common shares or ADSs.
 
Brazilian Tax Considerations
 
The following discussion summarizes the principal Brazilian tax consequences of the ownership and disposition of common shares or ADSs by a non-Brazilian holder. This discussion does not address all the Brazilian tax considerations that may be applicable to any particular non-Brazilian holder, and each non-Brazilian holder should consult its tax adviser about the Brazilian tax consequences of investing in common shares or ADSs.
 
Taxation of Dividends
 
Dividends paid by us in cash or in kind from profits of periods beginning on or after January 1, 1996 (1) to the Depositary in respect of common shares underlying ADSs or (2) to a non-Brazilian holder in respect of common shares will generally not be subject to Brazilian income tax withholding.
 
Taxation of Gains
 
According to Article 26 of Law No. 10,833 of December 29, 2003, which came into force on February 1, 2004, capital gains realized on the disposition of assets located in Brazil by non-Brazilian residents, whether or not to other non-residents and whether made outside or within Brazil, are subject to taxation in Brazil at a rate of 15%, or 25% if made by investors domiciled in a Low or Nil Tax Jurisdiction (see discussion below under “—Discussion on Low or Nil Tax Jurisdictions”). Although we believe that the ADSs will not fall within the definition of assets located in
 
 
Brazil for the purposes of Law No. 10,833, considering the general and unclear scope of Law 10,833 and the absence of any judicial guidance in respect thereof, we are unable to predict whether such interpretation will ultimately prevail in the Brazilian courts.
 
Gains realized by non-Brazilian holders on dispositions of common shares in Brazil or in transactions with Brazilian residents may be exempt from Brazilian income tax or taxed at a rate of 15% or 25%, depending on the circumstances.  Gains realized through transactions on Brazilian stock exchanges, if carried out in accordance with Resolution CMN 2,689, as described below, are exempt from Brazilian income tax or subject to income tax at a rate of 15% if the gain is realized by a Low or Nil Tax Jurisdiction Holder. Gains realized through transactions on Brazilian stock exchanges are otherwise subject to Brazilian income tax at a rate of 15% and also to Brazilian withholding tax at a rate of 0.005% (to offset the Brazilian income tax due on eventual capital gain). Gains realized through transactions with Brazilian residents or through transactions in Brazil not on the Brazilian stock exchanges are subject to tax at a rate of 15%, or 25% if made by investors resident in a Low or Nil Tax Jurisdiction. Non-Brazilian holders should consult their tax advisors on the applicable income tax rate.
 
Non-Brazilian holders of common shares registered under Resolution CMN 2,689 (which, pursuant to Resolution 1,927, includes ADSs) and which as of March 31, 2000 superseded the Annex IV Regulations, may be subject to favorable tax treatment than as described above if the investor has:
 
 
·  
appointed a representative in Brazil with power to take action relating to the investment in common shares;
 
 
·  
registered as a foreign investor with the CVM; and
 
 
·  
registered its investment in common shares with the Central Bank.
 
Under Resolution CMN 2,689, securities held by foreign investors must be maintained under the custody of, or in deposit accounts with, financial institutions duly authorized by the Central Bank and the CVM. In addition, securities trading is restricted under Resolution CMN 2,689 to transactions on Brazilian stock exchanges or qualified over-the-counter markets. The preferential treatment afforded under Resolution CMN 2,689 and afforded to investors in ADSs is not available to investors resident or domiciled in Low or Nil Tax Jurisdictions.
 
There can be no assurance that the current preferential treatment for non-Brazilian holders of common shares under Resolution CMN 2,689 will be maintained.
 
Gain on the disposition of common shares, subject to the tax treatment described above, is measured by the difference between the amounts in Brazilian currency realized on the sale or exchange and the acquisition cost of the shares sold, measured in Brazilian currency, without any correction for inflation. The acquisition cost of shares registered as an investment with the Central Bank is calculated on the basis of the foreign currency amount registered with the Central Bank.
 
There is a possibility that gains realized by a non-Brazilian holder upon the redemption of common shares will be treated as gains from the disposition of such common shares to a Brazilian resident occurring off of a stock exchange and will accordingly be subject to tax at a rate of 15%, or 25% if realized by an investor resident in a Low or Nil Tax Jurisdiction.
 
Any exercise of preemptive rights relating to common shares or ADSs should not be subject to Brazilian taxation. Gains on the sale or assignment of preemptive rights relating to common shares should be subject to the same tax treatment applicable to a sale or disposition of our common shares.
 
The deposit of common shares in exchange for the ADSs may be subject to Brazilian income tax if the amount previously registered with the Central Bank as a foreign investment in our common shares is lower than
 
 
·  
the average price per common share on the BM&FBOVESPA on the day of the deposit; or
 
 
·  
if no common shares were sold on that day, the average price per common share on the BM&FBOVESPA during the fifteen preceding trading sessions.
 
The difference between the amount previously registered and the average price of the common shares, calculated as set forth above, may be considered by the tax authorities as a capital gain subject to income tax. Unless the common shares were held in accordance with Resolution CMN 2,689, in which case the exchange would be tax-free, the capital gain will be subject to income tax at the following rates: (1) 15%, for gains realized through transactions that were conducted on Brazilian stock exchanges; or (2) 15%, or 25% if realized by investors resident in Low or Nil Tax Jurisdiction, for gains realized through transactions in Brazil that were not conducted on the Brazilian stock exchanges.
 
The cancellation of ADSs in exchange for common shares is not subject to Brazilian income tax if the non-Brazilian holder qualifies under Resolution CMN 2,689, but is subject to the IOF/Exchange tax as described below. If such non-Brazilian holder does not qualify under Resolution CMN 2,689, it will be subject to the less favorable tax treatment described above in respect of exchanges of common shares.
 
There can be no assurance that the current favorable tax treatment of non-Brazilian holders of common stock under Resolution CMN 2,689 will continue in the future.
 
Discussion on Low or Nil Tax Jurisdictions
 
For purposes of Brazilian law, Low or Nil Tax Jurisdictions are countries and jurisdictions that do not tax income or that have a maximum income tax rate lower than 20%. Since 1998, the Brazilian Internal Revenue Service has issued acts expressly listing the countries/jurisdictions that are to be considered low tax jurisdictions for Brazilian tax purposes. Currently, the tax authorities have deemed approximately 65 countries to be low tax jurisdictions pursuant to Normative Instruction 1,037/2010, article 1. These countries include the Bahamas, the British Virgin Islands, the Cayman Islands, Hong Kong and Singapore.
 
Under Brazilian tax legislation, holders domiciled in low or nil tax jurisdictions are: (1) subject to a higher rate of withholding tax on income and capital gains; (2) not entitled to exemptions for investments in the Brazilian capital markets; (3) subject to automatic application of transfer pricing rules in transactions with Brazilian legal entities that are resident in Brazil; and (4) subject to thin capitalization rules on debt with legal entities that are resident in Brazil.
 
On June 24, 2008, Law No. 11,727/08 introduced the concept of “privileged tax regime,” which is a tax regime that (1) does not tax income or taxes it at a maximum rate lower than 20%; (2) grants tax benefits to non-resident entities or individuals (a) without the requirement to carry out a substantial economic activity in the country or dependency or (b) contingent to the non-exercise of a substantial economic activity in the country or dependency; (3) does not tax or that taxes the income generated abroad at a maximum rate lower than 20%; or (4) does not provide access to information related to shareholding composition, ownership of assets and rights or economic transactions carried out. According to article 2 of Normative Instruction 1,037/2010, LLCs incorporated in the United States, among others, are listed as privileged tax regimes by the tax authorities.
 
In principle, the best interpretation of Law No. 11,727/08 is that the new concept of privileged tax regime should be solely applied for purposes of transfer pricing rules in export and import transactions. However, due to the recent enactment of this Law, we are unable to ascertain whether or not the privileged tax regime concept will be extended to the concept of Low or Nil Tax Jurisdiction. The provisions of Law No. 11,727/08 that refer to the privileged tax regime came into effect on January 1, 2009. Although we are of the opinion that the concept of privileged tax regime should not affect the tax treatment of a non-resident shareholder described above, we cannot assure you whether subsequent legislation or interpretations by the Brazilian tax authorities regarding the definition of privileged tax regime will extend such concept to the tax treatment of a non-resident shareholder described above.
 
Prospective purchasers should therefore consult with their tax advisors regarding the consequences of the implementation of Law No. 11,727/08, Normative Instruction No. 1,037/2010 and of any related Brazilian tax laws or regulations concerning Low or Nil Tax Jurisdictions and privileged tax regimes.
 
Distributions of Interest on Capital
 
A Brazilian corporation may make payments to its shareholders characterized as interest on the corporation’s capital as an alternative form of making dividend distributions. See “Item 8A. Financial Information—Consolidated Statements and Other Financial Information—Dividend Policy.” The rate of interest may not be higher than the TJLP, as determined by the Central Bank from time to time. The total amount distributed as interest on capital may not exceed, for tax purposes, the greater of:
 
 
·  
50% of net income for the year in respect of which the payment is made, after the deduction of social contribution or net profits and before (1) making any deduction for corporate income taxes paid and (2) taking such distribution into account; or
 
 
·  
50% of retained earnings for the year prior to the year in respect of which the payment is made.
 
Payments of interest on capital are decided by the shareholders on the basis of recommendations by our Board of Directors.
 
Distributions of interest on capital paid to Brazilian and non-Brazilian holders of common shares, including payments to the Depositary in respect of common shares underlying ADSs, are deductible by us for Brazilian tax purposes up to the limit mentioned above. Such payments are subject to Brazilian income tax withholding at the rate of 15%, except for payments to beneficiaries who are exempt from tax in Brazil, which are free of Brazilian tax, and except for payments to beneficiaries domiciled in Low or Nil Tax Jurisdictions, whose payments are subject to withholding at a 25% rate.
 
No assurance can be given that our Board of Directors will not recommend that future distributions of profits be made as interest on capital instead of as dividends.
 
Other Brazilian Taxes
 
There are no Brazilian inheritance, gift or succession taxes applicable to the ownership, transfer or disposition of the common shares or ADSs by a non-Brazilian holder except for gift and inheritance taxes levied by some states in Brazil on gifts made or inheritances bestowed by individuals or entities not resident or domiciled in Brazil or in the relevant state to individuals or entities that are resident or domiciled within such state in Brazil. There is no Brazilian stamp, issue, registration or similar taxes or duties payable by holders of common shares or ADSs.
 
Tax on Foreign Exchange and Financial Transactions
 
Tax on foreign exchange transactions, or the “IOF/Exchange Tax”
 
Brazilian law imposes the IOF/Exchange Tax on the conversion of reais into foreign currency and on the conversion of foreign currency into reais . The Brazilian government increased the tax rate related to foreign investments in the Brazilian financial and capital markets to 6.0%, except for investments made pursuant to Resolution CMN 2,689, which are exempted according to Decree No. 7,457/2011, which modified the IOF/Exchange Tax rate from 2.0% to zero.
 
The outflow of funds from Brazil related to investments carried out pursuant to Resolution CMN 2,689, including for dividend payments and return of capital, remains subject to the 0% rate. In any case, the Brazilian Government is permitted to increase the rate at any time up to 25%. However, any increase in rates may only apply to future foreign exchange transactions.
 
Tax on transactions involving bonds and securities, or the “IOF/Bonds Tax”
 
Brazilian law imposes the IOF/Bonds Tax on transactions involving bonds and securities, including those carried out on a Brazilian stock exchange. The rate of IOF/Bonds Tax applicable to transactions involving the deposit of common shares in exchange for ADSs is currently 1.5%. The rate is applied to the product of the number of common shares received and the closing price for those shares on the date prior to the transfer, or if such closing price is not available, the last available closing price for such shares.
 
U.S. Federal Income Tax Considerations
 
The following are the material U.S. federal income tax consequences to a U.S. Holder described below of owning and disposing of common shares or ADSs, but it does not purport to be a comprehensive description of all tax considerations that may be relevant to a particular person’s decision to hold or dispose of such securities. The discussion applies only to a U.S. Holder that holds common shares or ADSs as capital assets for U.S. federal income tax purposes and it does not describe all tax consequences that may be relevant to U.S. Holders subject to special rules, such as:
 
 
·  
certain financial institutions;
 
 
·  
insurance companies;
 
 
·  
dealers or traders in securities or foreign currencies who use a mark-to-market method of tax accounting;
 
 
·  
persons holding common shares or ADSs as part of a hedge, “straddle,” wash sale, conversion transaction, integrated transaction or similar transaction or persons entering into a constructive sale with respect to the common shares or ADSs;
 
 
·  
persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar;
 
 
·  
partnerships or other entities classified as partnerships for U.S. federal income tax purposes;
 
 
·  
persons liable for the alternative minimum tax;
 
 
·  
tax-exempt entities, including “individual retirement accounts” or “Roth IRAs”;
 
 
·  
persons who acquired our common stock or ADSs pursuant to the exercise of an employee stock option or otherwise as compensation;
 
 
·  
persons holding shares in connection with a trade or business conducted outside of the United States; or
 
 
·  
persons holding common shares or ADSs that own or are deemed to own ten percent or more of our voting stock.
 
If an entity that is classified as a partnership for U.S. federal income tax purposes holds common shares or ADSs, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. Partnerships holding common shares or ADSs and partners in such partnerships should consult their tax advisers as to the particular U.S. federal income tax consequences of holding and disposing of the common shares or ADSs.
 
This discussion is based on the Internal Revenue Code of 1986, as amended, or the “Code,” administrative pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, all as of the date hereof. These laws are subject to change, possibly with retroactive effect. It is also based in part on representations by the Depositary and assumes that each obligation under the Deposit Agreement and any related agreement will be performed in accordance with its terms.
 
A “U.S. Holder” is a holder who, for U.S. federal tax purposes, is a beneficial owner of common shares or ADSs that is:
 
 
·  
a citizen or individual resident of the United States;
 
 
·  
a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state therein or the District of Columbia; or
 
 
·  
an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.
 
 
In general, a U.S. Holder that owns ADSs will be treated as the owner of the underlying common shares represented by those ADSs for U.S. federal income tax purposes. Accordingly, no gain or loss will be recognized if a U.S. Holder exchanges ADSs for the underlying common shares represented by those ADSs.
 
The U.S. Treasury has expressed concerns that parties to whom American depositary shares are released before delivery of shares to the depositary, or intermediaries in the chain of ownership between U.S. holders and the issuer of the security underlying the American depositary shares, may be taking actions that are inconsistent with the claiming of foreign tax credits by U.S. holders of American depositary shares. Such actions would also be inconsistent with the claiming of the reduced rate of tax applicable to dividends received by certain non-corporate U.S. Holders. Accordingly, the creditability of Brazilian taxes and the availability of the reduced tax rate for dividends received by certain non-corporate U.S. Holders, each described below, could be affected by actions taken by such parties or intermediaries.
 
U.S. Holders should consult their tax advisers concerning the U.S. federal, state, local and foreign tax consequences of owning and disposing of common shares or ADSs in their particular circumstances.
 
This discussion assumes that the Company is not, and will not become, a passive foreign investment company, as described below.
 
Taxation of Distributions
 
Distributions paid on common shares or ADSs, including distributions of interest on capital, will generally be treated as dividends to the extent paid out of the Company’s current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Because the Company does not maintain calculations of its earnings and profits under U.S. federal income tax principles, it is expected that distributions generally will be reported to U.S. Holders as dividends. Subject to applicable limitations and the discussion above regarding concerns expressed by the U.S. Treasury, dividends paid by qualified foreign corporations to certain non-corporate U.S. Holders in taxable years beginning before January 1, 2013 are taxable at favorable rates, up to a maximum rate of 15%. A foreign corporation is treated as a qualified foreign corporation with respect to dividends paid on stock that is readily tradable on a securities market in the United States, such as the New York Stock Exchange where our ADSs are traded. U.S. Holders should consult their tax advisers to determine whether a favorable rate will apply to dividends they receive and whether they are subject to any special rules that limit their ability to be taxed at a favorable rate.
 
The amount of a dividend will include any amounts withheld by the Company in respect of Brazilian taxes on the distribution. The amount of the dividend will be treated as foreign-source dividend income to U.S. Holders and will not be eligible for the dividends-received deduction generally allowed to U.S. corporations under the Code. Dividends will be included in a U.S. Holder’s income on the date of the U.S. Holder’s or, in the case of ADSs, the Depositary’s receipt of the dividend. The amount of any dividend income paid in reais will be the U.S. dollar amount calculated by reference to the exchange rate in effect on the date of such receipt regardless of whether the payment is in fact converted into U.S. dollars. If the dividend is converted into U.S. dollars on the date of receipt, a U.S. Holder generally should not be required to recognize foreign currency gain or loss in respect of the dividend income. A U.S. Holder may have foreign currency gain or loss if the dividend is converted into U.S. dollars after the date of its receipt.
 
Sale or Other Disposition of Common Shares or ADSs
 
For U.S. federal income tax purposes, gain or loss realized on the sale or other disposition of common shares or ADSs will be capital gain or loss, and will be long-term capital gain or loss if the U.S. Holder held the common shares or ADSs for more than one year. The amount of the gain or loss will equal the difference between the U.S. Holder’s tax basis in the common shares or ADSs disposed of and the amount realized on the disposition, in each case as determined in U.S. dollars. Such gain or loss will generally be U.S.-source gain or loss for foreign tax credit purposes. If a Brazilian tax is withheld on the sale or other disposition of common shares or ADSs, a U.S. Holder’s amount realized will include the gross amount of the proceeds of such sale or other disposition before deduction of the Brazilian tax. See “—Brazilian Tax Considerations – Taxation of Gains” for a description of when a disposition may be subject to taxation by Brazil.
 
Foreign Tax Credits in Respect of Brazilian Taxes
 
Subject to applicable limitations that may vary depending upon a U.S. Holder’s circumstances and subject to the discussion above regarding concerns expressed by the U.S. Treasury, Brazilian income taxes withheld from dividends on common shares or ADSs generally will be creditable against a U.S. Holder’s U.S. federal income tax liability.
 
A U.S. Holder will be entitled to use foreign tax credits to offset only the portion of its U.S. tax liability that is attributable to foreign-source income. This limitation on foreign taxes eligible for credit is calculated separately with regard to specific classes of income. Because a U.S. Holder’s gains from the sale or exchange of common shares or ADSs will generally be treated as U.S.-source income, this limitation may preclude a U.S. Holder from claiming a credit for all or a portion of the Brazilian taxes imposed on any such gains. U.S. Holders should consult their tax advisers as to whether these Brazilian taxes may be creditable against the U.S. Holder’s U.S. federal income tax liability on foreign-source income from other sources. Instead of claiming a credit, a U.S. Holder may elect to deduct such Brazilian taxes in computing its taxable income, subject to generally applicable limitations under U.S. law. An election to deduct foreign taxes instead of claiming foreign tax credits must apply to all taxes paid or accrued in the taxable year to foreign countries and possessions of the United States.
 
The Brazilian IOF/Bond Tax and the IOF/Exchange Tax imposed on the deposit of common shares in exchange for ADSs and the cancellation of ADSs in exchange for common shares (as discussed above under “—Brazilian Tax Considerations”) will not be treated as creditable foreign tax for U.S. federal income tax purposes. U.S. Holders should consult their tax advisers regarding the tax treatment of these taxes for U.S. federal income tax purposes.
 
The rules governing foreign tax credits are complex and, therefore, U.S. Holders should consult their tax advisers regarding the availability of foreign tax credits in their particular circumstances.
 
Passive Foreign Investment Company Rules
 
The Company believes that it was not a “passive foreign investment company,” or “PFIC,” for U.S. federal income tax purposes for its 2011 taxable year. However, since PFIC status depends upon the composition of a company’s income and assets and the market value of its assets from time to time, there can be no assurance that the Company will not be a PFIC for any taxable year.
 
If the Company were a PFIC for any taxable year during which a U.S. Holder held common shares or ADSs, gain recognized by such U.S. Holder on a sale or other disposition (including certain pledges) of the common shares or ADSs would be allocated ratably over the U.S. Holder’s holding period for the common shares or ADSs. The amounts allocated to the taxable year of the sale or other disposition and to any year before the Company became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for individuals or corporations, as appropriate, for such taxable year, and an interest charge would be imposed on the resulting tax liability for such taxable year. Similar rules would apply to any distribution received by a U.S. Holder on its common shares or ADSs to the extent in excess of 125% of the average of the annual distributions on common shares or ADSs received by a U.S. Holder during the preceding three years or such U.S. Holder’s holding period, whichever is shorter. Certain elections (such as a mark-to-market election) may be available that would result in alternative treatment under the PFIC rules. U.S. Holders should consult their tax advisers to determine whether the Company is a PFIC for any given taxable year and the tax consequences to them of holding shares in a PFIC.
 
If the Company were a PFIC for any taxable year during which a U.S. Holder held common shares or ADSs, such U.S. Holder may be required to file an informational report with the Internal Revenue Service, or the “IRS,” containing such information as may be required under applicable law.
 
Information Reporting and Backup Withholding
 
Payments of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries generally are subject to information reporting and may be subject to backup withholding
 
unless (1) the U.S. Holder is an exempt recipient or (2) in the case of backup withholding, the U.S. Holder provides a correct taxpayer identification number and certifies that it is not subject to backup withholding.
 
The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the U.S. Holder’s U.S. federal income tax liability and may entitle the U.S. Holder to a refund, provided that the required information is timely furnished to the IRS.
 
Certain U.S. Holders who are individuals may be required to report information relating to their ownership of an interest in certain foreign financial assets, including stock of a non-U.S. person, subject to exceptions (including an exception for stock held through a U.S. financial institution).  Other U.S. Holders may be subject to similar rules in the future.  U.S. Holders should consult their tax advisers regarding their reporting obligations with respect to the common shares or ADSs.
 
U.S. HOLDERS OF OUR COMMON SHARES OR ADSs SHOULD CONSULT THEIR OWN TAX ADVISERS AS TO THE BRAZILIAN, U.S. FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF OUR COMMON SHARES OR ADSs BASED UPON THEIR PARTICULAR CIRCUMSTANCES.
 
F. 
Dividends and Paying Agents
 
Not applicable.
 
G. 
Statement by Experts
 
Not applicable.
 
H. 
Documents on Display
 
Statements contained in this annual report as to the contents of any contract or other document referred to are not necessarily complete, and each of these statements is qualified in all respects by reference to the full text of such contract or other document filed as an exhibit hereto. Anyone may read and copy this report, including the exhibits hereto, at the Securities and Exchange Commission’s public reference room in Washington, D.C.  Information on the operation of the public reference room is available by calling 1-800-SEC-0330.
 
We are subject to the information and periodic reporting requirements of the Exchange Act and, in accordance therewith, will file periodic reports and other information with the SEC.  These periodic reports and other information will be available for inspection and copying at the regional offices, public reference facilities of the SEC referred to above. As a foreign private issuer, we are exempt from certain provisions of the Exchange Act prescribing the furnishing and content of proxy statements and periodic reports and from Section 16 of the Exchange Act relating to short swing profits reporting and liability.
 
We will furnish to J.P. Morgan Chase N.A., as Depositary, copies of all reports we are required to file with the SEC under the Exchange Act, including our annual reports in English, containing a brief description of our operations and our audited annual consolidated financial statements, which will be prepared in accordance with the Brazilian corporate law accounting method and include a reconciliation to U.S. GAAP.  In addition, we are required under the Deposit Agreement to furnish the Depositary with copies of English translations to the extent required under the rules of the SEC of all notices of preferred shareholders’ meetings and other reports and communications that are generally made available to holders of preferred shares.  Under certain circumstances, the Depositary will arrange for the mailing to all ADR holders, at our expense, of these notices, reports and communications.
 
I. 
Subsidiary information.
 
Not applicable.
 
Item 11.  Quantitative and Qualitative Disclosures About Market Risk
 
We are exposed to market risk from changes in both foreign currency exchange and interest rates.  We are exposed to foreign exchange rate risk mainly because certain costs of ours are denominated in currencies (primarily U.S. dollars) other than those in which we earn revenues (primarily reais ).  Similarly, we are subject to market risk deriving from changes in interest rates, which may affect the cost of our financing.  Prior to 1999, we did not use derivative instruments, such as foreign exchange forward contracts, foreign currency options, interest rate swaps and forward rate agreements, to manage these market risks.  In 1999 (April 1999 for TND), we began entering into hedging agreements covering payments of principal on our foreign exchange denominated indebtedness.  We also have entered into arrangements to hedge market risk deriving from changes in interest rates for some of our debt obligations.  We do not hold or issue derivative or other financial instruments for trading purposes.
 
Interest Rate Risk
 
On December 31, 2011, our outstanding debt accrued interest at the CDI, FIXED, TJLP and IPCA totaled R$3,705 million.  On the same date, we had cash and cash equivalents, in the amount of R$3,635 million and R$26 million in Long-term instruments accruing interest at the CDI rate.
 
Over one year period, before accounting for tax expenses, a hypothetical, instantaneous and unfavorable change of 100 basis points in interest rates applicable to our financial assets and liabilities on December 31, 2011 would have resulted in a variation of R$37 million in our interest expenses from financial contracts and a variation of R$32,7 million in our revenues from financial investments (assuming that this hypothetical 100 basis point movement in interest rates uniformly applied to each “homogenous category” of our financial assets and liabilities and that such movement in interest rates was sustained over the full one-year period).  For purposes of this interest rate risk sensitivity analysis, financial assets and liabilities denominated in the same currency (e.g., U.S. dollars) are grouped in separate homogenous categories.  This interest rate risk sensitivity analysis may therefore overstate the impact of interest rate fluctuations to us, as unfavorable movements of all interest rates are unlikely to occur consistently among different homogenous categories.
 
Exchange Rate Risk
 
As of December 31, 2011, we did not have any outstanding unhedged financial loans denominated in foreign currency and were thus not exposed to exchange rate risk based on our loans.  We enter in to hedging agreements to hedge our borrowings denominated in foreign currency and thus have limited our exchange rate exposure regarding such borrowings.  Our foreign-exchange hedging agreements protect us from devaluations of the real but expose us to potential losses in the event the foreign currencies decline in value against the real .  However, any such decline in the value of foreign currencies would reduce our costs in reais in terms of planned capital expenditures as discussed below.
 
Our revenues are earned almost entirely in real , and we have no material foreign currency-denominated assets.  We acquire our equipment and handsets from global suppliers, the prices of which are primarily denominated in U.S. dollars.  Thus, we are exposed to foreign exchange risk arising from our need to make substantial dollar-denominated expenditures, particularly for imported components, equipment and handsets, that we have limited capacity to hedge.  Furthermore, depreciation of the real against the U.S. dollar could create additional inflationary pressures in Brazil by increasing the price of imported products which may result in the adoption of deflationary government policies.
 
Item 12.  Description of Securities Other than Equity Securities
 
Description of American Depositary Receipts in Respect of Preferred Shares
 
Our depositary is J.P. Morgan, with its corporate trust office at which the ADRs will be administered is located at 1 Chase Manhattan Plaza, Floor 58, New York, NY, 10005-1401, United States.
 
Each ADS represents five common shares, deposited with the custodian and registered in the name of the depositary.
 
Charges of Depositary
 
The depositary may charge U.S$5.00 per 100 ADSs (or portion thereof) from each person to whom ADRs are issued against deposits of preferred shares, including deposits in respect of distributions of additional preferred shares, rights and other distributions, as well as from each person surrendering ADSs for withdrawal.
 
In addition, the following fees and charges will be incurred by ADR holders, any party depositing or withdrawing preferred shares or any party surrendering ADRs or to whom ADRs are issued (including, without limitation, issuance pursuant to a stock dividend or stock split declared by TIM Participações or an exchange of stock regarding the ADRs or deposited securities or a distribution of ADRs pursuant to the deposit agreement), whichever is applicable:
 
Depositary Actions:
 
Description of Fees Incurred by ADR Holders per Payment:
Depositing or substituting the underlying shares
 
U.S.$5.00 per 100 ADSs (or portion thereof)
     
Selling or exercising rights
 
U.S.$5.00 per 100 ADSs for all distributions of securities or the net cash proceeds from the sale thereof
     
Withdrawal of an underlying security
 
U.S.$5.00 per 100 ADSs or portion thereof plus a U.S.$20.00 fee
     
Receiving or distributing dividends
 
U.S.$0.02 or less per ADS (or portion thereof)
     
Transferring, splitting, grouping receipts
 
U.S.$1.50 per ADR or ADSs for transfers made, to the extent not prohibited by the rules of any stock exchange or interdealer quotation system upon which the ADSs are traded
     
   
As necessary, transfer or registration fees, if any, in connection with the deposit or withdrawal of deposited securities
     
General depositary services
 
As necessary, expenses incurred by the depositary in connection with the conversion of reais into U.S. dollars
     
   
As necessary, cable, telex and facsimile transmission and delivery charges incurred at the request of persons depositing or delivering preferred shares, ADRs or any deposited securities
     
   
As necessary, any fees and expenses incurred by the depositary in connection with the delivery of deposited securities or otherwise in connection with the depositary’s or its custodian’s compliance with applicable laws, rules or regulations.

Ongoing Reimbursements by the Depositary
 
J.P. Morgan, as depositary, has agreed to reimburse certain reasonable Company’s expenses related to the establishment and maintenance of the ADR program.  Such reimbursable expenses include legal fees, investor relations servicing, investor related presentations, broker reimbursements, ADR- related advertising and public relations in those jurisdictions in which the ADRs may be listed or otherwise quoted for trading, accountants´ fees in relation to this Form 20-F fillings with the SEC and other bona fide Program-related third party expenses.
 
During the year ended December 31, 2011, we received from our depositary U.S.$ 1,499,428.57 as reimbursement of expenses related to annual stock exchange listing fees, standard maintenance costs of ADRs, underwriting and legal fees and investor relations activities.  See also “Item 10.E. Additional Information – Taxation.”
 
 
PART II
 
Item 13.  Defaults, Dividend Arrearages and Delinquencies
 
None.
 
Item 14.  Material Modifications to the Rights of Security Holders and Use of Proceeds
 
At an extraordinary shareholders meeting held on June 22, 2011 our shareholders approved, among other things: (1) the conversion of all of our preferred shares into common shares, at a ratio of 0.8406 common shares for each preferred share; (2) our adherence to the Novo Mercado rules and the transfer of trading of the shares issued by us to the Novo Mercado , and (3) amendments to our bylaws.
 
In order to join the Novo Mercado , we entered into a Novo Mercado Participation Agreement with the  BM&FBOVESPA.  Through this agreement, which became effective on July 27, 2011, we are required to adhere to heightened requirements relating to corporate governance and the disclosure of information to the market. Additionally, as of such date, our shares started trading on the Novo Mercado segment of the BM&FBOVESPA.  Pursuant to the Novo Mercado Regulations, we are not permitted to issue preferred shares, participation bonuses or any kind of shares with restricted voting rights.
 
Prior to August 2, 2011 we had common shares and preferred shares listed on the BM&FBOVESPA under the symbols “TCSL3” and “TCSL4,” respectively.  Our ADSs listed on the NYSE each represented 10 preferred shares.  As part of our migration to the Novo Mercado listing segment of the BM&FBOVESPA, our preferred shares ceased to trade on August 2, 2011.  On August 4, 2011, our ADSs representing preferred shares ceased to trade on the NYSE.  From August 3, 2011, we only had common shares traded on the Novo Mercado listing segment of BM&FBOVESPA, by using the code “TIMP3” and as from August 5, 2011, our ADSs representing five common shares instead of ten preferred shares commenced trading on the NYSE.
 
Item 15.  Controls and Procedures
 
(a) Disclosure Controls and Procedures
 
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2011.  Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures are effective in ensuring that all material information required to be filed in this annual report has been made known to them in a timely fashion.  Our disclosure controls and procedures are effective in ensuring that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms and are effective in ensuring that information to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, to allow timely decisions regarding required disclosure.
 
(b) Management’s Annual Report on Internal Control over Financial Reporting
 
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act).  Our internal control system was designed to provide reasonable assurance as to the integrity and reliability of the published financial statements. All internal control systems, no matter how well designed, have inherent limitations and can provide only reasonable assurance that the objectives of the control system are met.
 
Management evaluated the internal control over financial reporting under the supervision of our Chief Executive Officer, or CEO and Chief Financial Officer, or CFO as of December 31, 2011.  Management evaluated the effectiveness of our internal control over financial reporting based on the criteria set out in the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) framework.  Our management concluded that as of December 31, 2011, our internal control over financial reporting was adequate and effective, based on those criteria.
 
 
Our independent registered public accounting firm, PricewaterhouseCoopers Auditores Independentes, has issued an audit report on the effectiveness of our internal controls over financial reporting as of December 31, 2011.  The report on the audit of our internal control over financial reporting is included below.
 
(c) Audit Report of the Registered Public Accounting Firm
 
PricewaterhouseCoopers Auditores Independentes, the independent registered public accounting firm that has audited our consolidated financial statements, has issued an audit report on the effectiveness of our internal controls over financial reporting as of December 31, 2011.  The audit report appears as follows:
 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Stockholders
TIM Participações S.A.
 
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of cash flows and of changes in stockholders’ equity present fairly, in all material respects, the financial position of TIM Participações S.A. and its subsidiaries (the “Company”) at December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2011 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on internal control over financial reporting. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
 
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
/s/ PricewaterhouseCoopers
PricewaterhouseCoopers
Auditores Independentes

Rio de Janeiro, Brazil
May 14, 2012
 
(d) Changes in Internal Control over Financial Reporting
 
A number of processes and systems are currently being changed in order to unify the operations of the various entities making up TIM Participações. An action plan is being implemented in order to comply with the best practices within the industry.  However, these changes will not significantly affect these controls subsequent to the date of evaluation and do not constitute corrective action with regard to material weaknesses as a result of the evaluation.  There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period covered by this annual report that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.
 
Item 16.  [Reserved]
 
Item 16A.  Audit Committee Financial Expert
 
Our Statutory Audit Committee, which functions as an audit committee, shall be comprised of three to five effective members and an equal number of alternates, who may or may not be shareholders, elected by the General Shareholders’ Meeting. This year we have four members, three elected by our controlling shareholder and one by the minority shareholders. Our Statutory Audit Committee has determined that one of its members, Mr. Oswaldo Orsolin, an independent members of our Statutory Audit Committee under Brazilian rules, is an “audit committee financial expert,” as such term is defined by the SEC.
 
Item 16B.  Code of Ethics
 
We have adopted a Code of Conduct and Transparency that applies to our Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer and persons performing similar functions, as well as to our other Directors, Executive Officers, controlling shareholders and members of our Statutory Audit Committee in accordance with CVM rules satisfying the requirements of Brazilian Law. Our Code of Conduct and Transparency is filed as an exhibit to this annual report and is available on our website at http://www.tim.com.br/ ir . The Code of Conduct and Transparency is also available free of charge upon request. Such request may be made by mail, telephone or fax at the address set forth in the second paragraph of “Item 4.A. Information on the Company—History  and Development of the Company—Basic Information.” The Code of Conduct and Transparency was updated on the Board of Directors’ Meeting held on May 3, 2010.
 
 
Our Code of Conduct and Transparency does not address all of the principles set forth by the Securities and Exchange Commission in Section 406 of the Sarbanes-Oxley Act.  However, pursuant to company policy and section 156 of Brazilian corporate law No. 6.404 an officer is prohibited from taking part in any corporate transaction in which he has an interest that conflicts with the interests of the company.  This disqualification must be disclosed to the board.  Moreover, an officer may only contract with the company under reasonable and fair conditions, identical to those that prevail in the market or under which the company would contract with third parties. Any contract entered into or performed in violation of this article is voidable and requires the offending officer to disgorge any benefits he received from such violation.
 
In November 2006, a communication channel was created to address “complaints” related to breaking and/or suspicion of breaking the Control Model of the Company.  The Control Model is a document based on the Code of Ethics, General Principles of Internal Control and Principles of Behavior with the Public Administration.  This channel is accessible via email or letter addressed to the Internal Audit department.
 
During the same period, a committee formed by the members of the Internal Auditing, Human Resources and Security Committee was created to analyze reported complaints and take the necessary actions.
 
Item 16C.  Principal Accountant Fees and Services
 
Audit and Non-Audit Fees
 
The following table sets forth the fees billed to us by our independent auditors, PricewaterhouseCoopers Auditores Independentes and Ernst Young, during the years ended December 31, 2011 and 2010:
 
   
Year ended December 31,
 
   
2011
   
2010
 
   
(in thousands of reais )
 
                 
Audit fees
 
2,584
      2,127  
Audit–related fees
 
873
      281  
Tax fees
 
–
      –  
All other fees
 
–
      –  
Total fees
 
3,457
      2,408  

Audit fees in the above table are the aggregate fees billed PricewaterhouseCoopers Auditores Independentes in connection with the audit of our annual financial statements and limited reviews of our quarterly financial information for statutory purposes and the assessment required under Section 404 of the Sarbanes Oxley Act.
 
In 2011, our external auditors provided audit services other than in connection with the audit of our financial statements. These services included (1) assurance on the sustainability report, (2) assurance on the carbon inventory report, (3) due diligence, (4) issuance of a comfort letter in connection with our equity offering, (5) previously agreed procedures, which represented 35% of total fees for auditing our financial statements.
 
Audit Committee Pre-Approval Policies and Procedures
 
The general authority to pre-approve the engagement of our independent auditors to render non-audit services is under the purview of our Statutory Audit Committee. Accordingly, the Statutory Audit Committee has established pre-approval procedures to control the provision of all audit and non-audit services by our independent auditors (the “Pre­Approval Policy”).  Under the Pre-Approval Policy, the engagement of our independent auditors to provide audit and non-audit services must be pre- approved by the Statutory Audit Committee, either in the form of a special approval or through the inclusion of the services in question in a list adopted by the Statutory Audit Committee of pre-approved services.  The Pre-Approval Policy is detailed as to the particular services to be provided. Additionally, the Pre- Approval Policy affirms that the Statutory Audit Committee’s responsibilities under the Securities Exchange Act of 1934 are not delegated to management. All non-audit services provided by the Group’s principal auditing firm in 2009 were approved by the audit committee, and all such non-audit services to be provided in the future will also require approval from the audit committee.
 
Item 16D.  Exemptions from the Listing Standards for Audit Committees
 
Brazilian corporate law requires that we have a statutory Board of Auditors (referred to as our Statutory Audit Committee or Conselho Fiscal ).  Our Statutory Audit Committee meets the requirements of the general exemption set forth in Exchange Act Rule 10A-3(c)(3).  See “Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management—Board of Auditors/Audit Committee.” Our Statutory Audit Committee is primarily charged with certain advisory, oversight and review functions with respect to the company’s financial statements, management acts and certain proposals to be submitted to shareholders’ meetings, such as proposals made by management regarding investment plans, capital expenditures budget, dividends distribution and corporate restructuring involving the company.  However, the Statutory Audit Committee, as required by Brazilian corporate law, has only an advisory role and does not participate in the management of the company.  Indeed, decisions of the Statutory Audit Committee are not binding on the company under Brazilian corporate law.  Our Board of Directors, under Brazilian corporate law, is the only entity with the legal capacity to appoint and terminate any independent registered public accounting firm.
 
Since Brazilian corporate law does not specifically grant our Statutory Audit Committee the power to establish receipt, retention and complaint procedures regarding accounting, internal control and audit matters, or create policies for the confidential, anonymous treatment of employee concerns regarding accounting or auditing matters, we adopted a Statutory Audit Committee charter at a shareholders’ meeting held on May 6, 2004 and revised the charter at the shareholders’ meeting held on March 16, 2006 and later at the Statutory Audit Committee Meeting held on June 24, 2009, to clarify that the Statutory Audit Committee has certain powers and duties, which include among others the powers herein mentioned, and also further specified heightened qualification requirements for members of the Statutory Audit Committee.  On May 4, 2006, our Board of Directors approved the submission to the Shareholders’ Meeting of a proposal to amend our bylaws.  The proposal provides for the incorporation of the above-mentioned powers, duties and qualifications relating to the Statutory Audit Committee into the bylaws.  Said proposal was approved by the Shareholders’ meeting held on June 5, 2006.
 
We do not believe that our use of the Statutory Audit Committee in accordance with Brazilian corporate law, as opposed to the provisions set forth in Exchange Act Rule 10A-3(b), materially adversely affects the ability of the Statutory Audit Committee to act independently, satisfy the other applicable requirements of Exchange Act Rule 10A-3 or to fulfill its fiduciary and other obligations under Brazilian law.  It is presently contemplated that the Statutory Audit Committee will continue to be independent.  However, because the members of the Statutory Audit Committee will continue to be elected, and its budget will continue to be set, at the general shareholders’ meeting, we can make no assurance that the Statutory Audit Committee or its future members will continue to be independent from the Company or from our controlling shareholder in the future.
 
Item 16E.  Purchases of Equity Securities by the Issuer and Affiliated Purchasers
 
None.
 
Item 16F.  Change in Registrant’s Certifying Accountant
 
Not applicable.
 
Item 16G.  Corporate Governance
 
Principal Differences Between Brazilian and US. Corporate Governance Practices
 
The significant differences between our corporate governance practices and those of the New York Stock Exchange are as follows:
 
Independence of Directors and Independence Tests
 
Neither our Board of Directors nor our management tests the independence of directors before elections are made.  However, both Brazilian corporate law and the CVM establish rules for certain qualification requirements and restrictions, investiture, compensation, and duties and responsibilities of the companies’ executives and
 
 
directors.  We believe these rules provide adequate assurances that our directors are independent, and they permit us to have directors that would not otherwise pass the independence tests established by the NYSE.
 
Executive Sessions
 
According to Brazilian corporate law, up to one-third of the members of the Board of Directors can be elected for executive positions. The remaining non management directors are not expressly empowered to serve as a check on management and there is no requirement that those directors meet regularly without management.
 
Committees
 
Even though we are not required under applicable Brazilian corporate law to have special advisory committees of the Board of Directors, we have two such committees: the Internal Control and Corporate Governance Committee and the Compensation Committee, which were implemented on September 30, 2008.  Pursuant to our bylaws our directors are elected by our shareholders at a general shareholders’ meeting.  Compensation for our directors and executive officers is established by our shareholders.
 
Audit Committee and Additional Requirements
 
Because Brazilian corporate law does not specifically grant our Statutory Audit Committee the power to establish receipt, retention and complaint procedures regarding accounting, internal control and audit matters, or create policies for the confidential, anonymous treatment of employee concerns regarding accounting or auditing matters, we adopted a Statutory Audit Committee charter at the shareholders’ meeting held on May 6, 2004 and revised the charter at the shareholders’ meeting held on March 16, 2006 and later at the Statutory Audit Committee’s Meeting held on June 24, 2009, to clarify that the Statutory Audit Committee has certain powers and duties, which include the powers herein mentioned.
 
We do not believe that our use of the Statutory Audit Committee in accordance with Brazilian corporate law, as opposed to the provisions set forth in Exchange Act Rule 10A-3(b), materially adversely affects the ability of the Statutory Audit Committee to act independently, satisfy the other applicable requirements of Exchange Act Rule 10A-3 or fulfill its fiduciary and other obligations under Brazilian law.  It is presently contemplated that the Statutory Audit Committee will continue to be independent.  However, because the Statutory Audit Committee’s members will continue to be elected and its budget will continue to be set at the general shareholders’ meeting, we can make no assurances that the Statutory Audit Committee or its future members will continue to be independent from our controlling shareholder in the future.
 
Shareholder Approval of Equity Compensation  Plans
 
NYSE rules require that shareholders be given the opportunity to vote on all equity compensation plans and material revisions thereto, with limited exceptions.  Under the Brazilian corporate law, shareholders must approve all stock option plans.  In addition, any issuance of new shares that exceeds our authorized share capital is subject to shareholder approval.
 
Corporate Governance Guidelines
 
NYSE rules require that listed companies adopt and disclose corporate governance guidelines.  Since we have migrated to the BM&FBOVESPA’s Novo Mercado , we are subject to those rules on corporate governance, which include a disclosure policy, a policy on publicizing acts or relevant facts, which requires the public disclosure of all relevant information pursuant to guidelines set forth by the CVM, as well as an insider trading policy, a policy on securities transactions, which, among other things, establishes black-out periods and requires insiders to inform management of all transactions involving our securities.
 
Code of Business Conduct and Ethics
 
NYSE rules require that listed companies adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers. Applicable Brazilian law does not have a similar requirement.
 
Item 16H.  Mine Safety Disclosure
 
Not applicable.
 
 
PART III
 
Item 17.  Financial Statements
 
We have responded to Item 18.
 
Item 18.  Financial Statements
 
See our audited consolidated financial statements beginning at page F-1.
 
Item 19.  Exhibit Index
 
EXHIBIT INDEX
 
1.1*
Bylaws of TIM Participações S.A. approved at the Annual Shareholder’s Meeting held on April 11, 2012.
   
2.1
Deposit Agreement, dated as of June 24, 2002, among Tele Celular Sul Participações S.A., J.P. Morgan Chase Bank, as Depositary, and holders of American Depositary Receipts issued thereunder, which is incorporated by reference to our annual report filed on Form 20-F with the Securities and Exchange Commission on June 30, 2005.
   
4.1*
Credit Agreement, dated as of January 28, 2008, between TIM Nordeste (incorporated by TIM Celular), as borrower, and Banco do Nordeste do Brasil S.A., as lender. (English translation)
   
4.2*
Credit Agreement, dated as of April 18, 2008, as amended, between Santander as lender, and TIM Celular, as borrower. (English translation)
   
4.3*
Credit Agreement, dated as of May 5, 2008, as amended, between Santander as lender, and TIM Celular, as borrower. (English translation)
   
4.4*
Finance Contract, dated as of December 29, 2011, among European Investment Bank, as lender, TIM Celular S.A., as borrower.
   
4.5*
Loan Agreement dated as of September 5, 2011, between Tim Celular and JP Morgan, under Resolution CMN No. 4131.
 
 
4.6*
Loan Agreement dated as of September 6, 2011, between Tim Celular and Bank of America, under Resolution CMN No. 4131.
   
4.7*
Credit Agreement, dated as of August 22, 2011, between Itaú as lender, and Eletropaulo Comunicações Ltda. (now denominated TIM Fiber SP Ltda.) acquired by TIM Celular on October 2011, as borrower. (English translation)
   
4.8*
Credit Agreement, dated as of August 22, 2011, between Itaú as lender, and Eletropaulo Comunicações Ltda. (now denominated TIM Fiber SP Ltda.) acquired by TIM Celular on October 2011, as borrower. (English translation) 
   
4.9*
Credit Agreement, dated as of August 22, 2011, between Itaú as lender, and AES Communications Rio de Janeiro S/A. (now denominated TIM Fiber RJ S/A) acquired by TIM Celular on October 2011, as borrower. (English translation)
   
4.10*
Facility agreement with Santander dated August 31, 2009, as amended, contracted under Resolution CMN n. 2.770 (foreign currency denominated debt swapped into local floating interest rate denominated currency). (English translation)
   
4.11*
Term of Authorization for provision of PCS service dated March 12, 2001 (English translation).
   
4.12*
Term of Authorization for provision of PCS services dated February 26, 2010 authorization (English translation).
   
4.13*
Term of Authorization for provision of PCS services dated November 29, 2010 (English translation).
   
4.14*
Amendment No. 5 to Cooperation and Support Agreement with Telecom Italia dated April 24, 2012
   
4.15
Loan Agreement, dated as of October 6, 2009, between BNDES Bank, as lender, and TIM Celular S.A. as borrower and TIM Participações S.A., as intervening party, which is incorporated by reference to our annual report filed on Form 20-F with the Securities and Exchange Commission on June 30, 2010.
   
4.16
Guarantee and Indemnity Agreement, dated as of June 3, 2008, between European Investment Bank, as lender, TIM Celular S.A., as borrower, and TIM Participações S.A. as Guarantor, which is incorporated by reference to our annual report filed on Form 20-F with the Securities and Exchange Commission on June 26, 2009.
   
4.17
Guarantee and Indemnity Agreement, dated as of June 3, 2008, between European Investment Bank, as lender, TIM Nordeste S.A., as borrower, and TIM Participações S.A. as Guarantor, which is incorporated by reference to our annual report filed on Form 20-F with the Securities and Exchange Commission on June 26, 2009.
   
4.18
Finance Contract, dated as of June 3, 2008, between European Investment Bank, as lender, and TIM Nordeste S.A., as borrower, which is incorporated by reference to our annual report filed on Form 20-F with the Securities and Exchange Commission on June 26, 2009.
   
4.19
Addendum to the Loan Agreement dated as of November 19, 2008, between BNDES Bank, as lender, and TIM Nordeste S.A., as borrower, which is incorporated by reference to our annual report filed on Form 20-F with the Securities and Exchange Commission on June 26, 2009.
   
4.20
Loan Agreement, dated as of November 19, 2008, between BNDES Bank, as lender, and TIM Nordeste S.A. and TIM Celular S.A., as borrowers, which is incorporated by reference to our annual report filed on Form 20-F with the Securities and Exchange Commission on June 26, 2009.
 
 
4.21
Addendum to the Credit Agreement dated as of November 19, 2008, between BNDES Bank, as lender, and TIM Celular S.A., as borrower, which is incorporated by reference to our annual report filed on Form 20-F with the Securities and Exchange Commission on June 26, 2009.
   
4.22
Facility Agreement, dated as of November 28, 2008, between BNP Paribas, as lender, and TIM Celular S.A., as borrower, which is incorporated by reference to our annual report filed on Form 20-F with the Securities and Exchange Commission on June 26, 2009.
   
4.23
Second Amendment to the Cooperation and Support Agreement, dated as of April 22, 2009, between Telecom Itália S.p.A. and TIM Celular S.A., which is incorporated by reference to our annual report filed on Form 20-F with the Securities and Exchange Commission on June 26, 2009.
   
4.24
Credit Agreement dated as of June 28, 2004, as amended December 3, 2004, by and between Banco do Nordeste do Brasil S.A., as lender, and TIM Nordeste, as borrower, which is incorporated by reference to our annual report filed on Form 20-F with the Securities and Exchange Commission on June 30, 2005.
   
4.25
Guarantee Agreement dated as of June 24, 2004 among Banco Bradesco S.A., TIM Nordeste Telecomunicações and Tele Nordeste Celular Participações S.A. (English translation), which is incorporated by reference to our annual report filed on Form 20-F with the Securities and Exchange Commission on June 30, 2005.
   
4.26
Management Assistance Agreement, dated as of October 1, 2000, between Tele Nordeste Celular Participações S.A. and Telecom Italia Mobile S.p.A., which is incorporated by reference to the annual report of Tele Nordeste Celular Participações S.A. filed on Form 20-F with the Securities and Exchange Commission on July 2, 2001.
   
4.27
Interconnection Network Agreement relating to Local Services dated as of June 1, 2003 between TIM Sul and Brasil Telecom (English translation), which is incorporated by reference to our annual report filed on Form 20-F with the Securities and Exchange Commission on May 19, 2004.
   
4.28
Credit Agreement, dated as of April 29, 2005, among TIM Nordeste, as borrower, and Banco do Nordeste do Brasil S.A., as lender, which is incorporated by reference to our annual report filed on Form 20-F with the Securities and Exchange Commission on May 16, 2006.
   
4.29
Credit Agreement, dated as of August 10, 2005, among BNDES, as lender, TIM Celular, as borrower, and TIM Brasil, as guarantor, which is incorporated by reference to our annual report filed on Form 20-F with the Securities and Exchange Commission on May 16, 2006.
   
4.30
Authorization agreement for TIM Celular S.A. dated May 25, 2007 pursuant to which TIM is authorized to provide land line switched telephone services (STFC) in regions I, II and III, which is incorporated by reference to our annual report filed on Form 20-F with the Securities and Exchange Commission on June 3, 2008.
   
4.31
Term of Authorization for Use of Radiofrequencies, dated as of April 29, 2008, between Anatel (the National Telecommunications Agency) and TIM Nordeste S.A., which is incorporated by reference to our annual report filed on Form 20-F with the Securities and Exchange Commission on June 26, 2009.
   
4.32
Term of Authorization for Use of Radiofrequencies, dated as of April 29, 2008, between Anatel (the National Telecommunications Agency) and TIM Nordeste S.A., which is incorporated by reference to our annual report filed on Form 20-F with the Securities and Exchange Commission on June 26, 2009.
   
4.33
Term of Authorization for Use of Radiofrequencies, dated as of April 29, 2008, between Anatel (the National Telecommunications Agency) and TIM Nordeste S.A., which is incorporated by reference to our annual report filed on Form 20-F with the Securities and Exchange Commission on June 26, 2009.
 
4.34
Term of Authorization for Use of Radiofrequencies, dated as of April 29, 2008, between Anatel (the National Telecommunications Agency) and TIM Nordeste S.A., which is incorporated by reference to our annual report filed on Form 20-F with the Securities and Exchange Commission on June 26, 2009.
   
4.35
Term of Authorization for Use of Radiofrequencies, dated as of April 29, 2008, between Anatel (the National Telecommunications Agency) and TIM Nordeste S.A., which is incorporated by reference to our annual report filed on Form 20-F with the Securities and Exchange Commission on June 26, 2009.
   
4.36
Term of Authorization for Use of Radiofrequencies, dated as of April 29, 2008, between Anatel (the National Telecommunications Agency) and TIM Nordeste S.A., which is incorporated by reference to our annual report filed on Form 20-F with the Securities and Exchange Commission on June 26, 2009.
   
4.37
Term of Authorization for Use of Radiofrequencies, dated as of April 29, 2008, between Anatel (the National Telecommunications Agency) and TIM Nordeste S.A., which is incorporated by reference to our annual report filed on Form 20-F with the Securities and Exchange Commission on June 26, 2009.
   
4.38
Term of Authorization for Use of Radiofrequencies, dated as of April 29, 2008, between Anatel (the National Telecommunications Agency) and TIM Nordeste S.A., which is incorporated by reference to our annual report filed on Form 20-F with the Securities and Exchange Commission on June 26, 2009.
   
4.39
Term of Authorization for Use of Radiofrequencies, dated as of April 29, 2008, between Anatel (the National Telecommunications Agency) and TIM Celular S.A., which is incorporated by reference to our annual report filed on Form 20-F with the Securities and Exchange Commission on June 26, 2009.
   
4.40
Term of Authorization for Use of Radiofrequencies, dated as of April 29, 2008, between Anatel (the National Telecommunications Agency) and TIM Celular S.A., which is incorporated by reference to our annual report filed on Form 20-F with the Securities and Exchange Commission on June 26, 2009.
   
4.41
Term of Authorization for Use of Radiofrequencies, dated as of April 29, 2008, between Anatel (the National Telecommunications Agency) and TIM Celular S.A., which is incorporated by reference to our annual report filed on Form 20-F with the Securities and Exchange Commission on June 26, 2009.
   
4.42
Term of Authorization for Use of Radiofrequencies, dated as of April 29, 2008, between Anatel (the National Telecommunications Agency) and TIM Celular S.A., which is incorporated by reference to our annual report filed on Form 20-F with the Securities and Exchange Commission on June 26, 2009.
   
4.43
Term of Authorization for Use of Radiofrequencies, dated as of April 29, 2008, between Anatel (the National Telecommunications Agency) and TIM Celular S.A., which is incorporated by reference to our annual report filed on Form 20-F with the Securities and Exchange Commission on June 26, 2009.
   
4.44
Term of Authorization for Use of Radiofrequencies, dated as of April 29, 2008, between Anatel (the National Telecommunications Agency) and TIM Celular S.A., which is incorporated by reference to our annual report filed on Form 20-F with the Securities and Exchange Commission on June 26, 2009.
   
4.45
Term of Authorization for Use of Radiofrequencies, dated as of November 30, 2005, between Anatel (the National Telecommunications Agency) and Intelig Telecomunicações Ltda.
   
4.46
Term of Authorization for Use of Radiofrequencies, dated as of May 5, 2006, between Anatel (the National Telecommunications Agency) and Intelig Telecomunicações Ltda., which is incorporated by reference to our annual report filed on Form 20-F with the Securities and Exchange Commission on June 30, 2010.
   
4.47
Term of Authorization for Use of Radiofrequencies, dated as of April 2, 2007, between Anatel (the National Telecommunications Agency) and Intelig Telecomunicações Ltda., which is incorporated by reference to our annual report filed on Form 20-F with the Securities and Exchange Commission on June 30, 2010.
 
6.1
Statement regarding computation of per share earnings, which is incorporated by reference to note 37 to our consolidated financial statements included in this annual report.
   
8.1*
List of Significant Subsidiaries.
   
11.1
Code of Ethics (English translation), incorporated by reference to our annual report filed on Form 20-F with the Securities and Exchange Commission on June 30, 2010.
   
12.1*
Section 302 Certification of the Chief Financial Officer and acting principal  executive officer.
   
13.1*
Section 906 Certification of the Chief Financial Officer and acting principal  executive officer.
   
15.1*
Consent of PricewaterhouseCoopers Auditores Independentes.
*      Filed herewith.
 
Technical Glossary
 
The following explanations are not intended as technical definitions, but to assist the general reader to understand certain terms as used in this annual report.
 
Analog:   A mode of transmission or switching which is not digital, e.g. , the representation of voice, video or other modulated electrical audio signals which are not in digital form.
 
ARPU (Average Revenue Per User) :  A measure used in the mobile telecommunications industry to evaluate the revenue generated by customers.
 
Broadband services :  Services characterized by a transmission speed of 2Mbps or more. According to international standards, these services are interactive services, including video telephone/videoconferencing (both point to point and multipoint).
 
CDMA (Code Division Multiple Access) :  A standard of digital mobile telecommunications technology.
 
Channel :  One of a number of discrete frequency ranges utilized by a radio base station.
 
Digital :  A mode of representing a physical variable such as speech using digits 0 and 1 only.  The digits are transmitted in binary form as a series of pulses.  Digital networks allow for higher capacity and higher flexibility through the use of computer-related technology for the transmission and manipulation of telephone calls.  Digital systems offer lower noise interference and can incorporate encryption as a protection from external interference.
 
EDGE (Enhanced Data rates for Global Evolution) :  A technology that provides enhanced functionality and facilitates the use of advanced technology over mobile devices.
 
FDD (Frequency Division Duplex) :  A technology used in wireless communications where the uplink and the downlink use a different frequency.
 
GSM (Global System Mobile) :  A standard of digital mobile telecommunications technology.
 
Interconnection charge :  Amount paid per minute charged by network operators for the use of their network by other network operators. Also known as an “access charge.”
 
MMDS :  A multichannel multipoint distribution service.
 
Mobile service :  A mobile telecommunications service provided by means of a network of interconnected low powered radio base stations, each of which covers one small geographic cell within the total mobile telecommunications system service area.
 
Network :  An interconnected collection of elements.  In a telephone network, these consist of switches connected to each other and to customer equipment.  The transmission equipment may be based on fiber optic or metallic cable or point-to-point connections.
 
Penetration :  The measurement of the take-up of services. At any date, the penetration is calculated by dividing the number of customers by the population to which the service is available and multiplying the quotient by 100.
 
Roaming :  A function that enables customers to use their mobile telephone on networks of service providers other than the one with which they signed their initial contract.
 
Switch :  These are used to set up and route telephone calls either to the number called or to the next switch along the path.  They may also record information for billing and control purposes.
 
TDMA (Time Division Multiple Access) :  A standard of digital mobile telecommunications technology.
 
UMTS (Universal Mobile Telecommunications System) :  A third-generation mobile communication standard in which data travels at 2 Mbps over a broadband system.
 
 
Value-Added Services :  Value-added services provide additional functionality to the basic transmission services offered by a telecommunications network.
 
WAP (Wireless Application Protocol) :  A specification for a set of telecommunications protocols to standardize the way that wireless devices, such as mobile telephones and radio receivers, can be used to access the internet.
 
 
SIGNATURES
 
The registrant hereby certifies that it meets all of the requirements for filing Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
 
 
     
TIM PARTICIPAÇÕES S.A.
 
             
             
Dated:
May 14, 2012
  By:
/s/ Claudio Zezza
 
        Name:
Claudio Zezza
 
        Title: Chief Financial Officer and Company Representative  
 
 
 
 
 
 
141
 
 
 
 
 
 
TIM Participações S.A.
and subsidiaries
Consolidated financial statements in
December 31, 2011
and independent auditors' report
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
F-2
 
 
Public Accounting Firm
 
To the Board of Directors and Stockholders
TIM Participações S.A.

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of cash flows and of changes in stockholders’ equity present fairly, in all material respects, the financial position of TIM Participações S.A. and its subsidiaries (the “Company”) at December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2011 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board . Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on internal control over financial reporting. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
 
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


/s/ PricewaterhouseCoopers
PricewaterhouseCoopers
Auditores Independentes
 
Rio de Janeiro, Brazil
May 14, 2012
 
 
 
TIM Participações S.A. and subsidiaries

In thousands of reais
 
Assets
 
2011
   
2010
 
             
Current assets
           
Cash and cash equivalents (Note 6)
    3,262,855       2,376,232  
Financial   assets   valued   at   fair   value through   income (Note 7)
    1,872       18,177  
Trade accounts receivable (Note 8)
    3,285,782       2,660,618  
Inventory (Note 9)
    273,171       228,654  
Indirect taxes and contributions recoverable (Note 10)
    608,025       494,036  
Direct taxes and contributions recoverable (Note 11)
    616,235       361,929  
Prepaid expenses (Note 13)
    114,502       93,768  
Derivative transactions (Note 40)
    55,889       6,122  
Other assets (Note 15)
    68,795       98,591  
                 
      8,287,126       6,338,127  
                 
                 
Non-current assets
               
Financial   assets   valued   at   fair   value through   income (Note 7)
    25,873       13,692  
Trade accounts receivable (Note 8)
    59,712       36,812  
Indirect taxes and contributions recoverable (Note 10)
    376,479       188,111  
Direct taxes and contributions recoverable (Note 11)
    22,739       139,366  
Deferred income and social contribution taxes (Note 12)
    1,488,235       1,732,732  
Court deposits (Note 14)
    607,627       385,519  
Prepaid expenses (Note 13)
    92,874       102,413  
Derivative transactions (Note 40)
    65,315       16,746  
Other assets (Note 15)
    13,884       17,763  
                 
Property, plant and equipment (Note 16)
    6,624,081       5,863,723  
Intangible assets (Note 17)
    5,774,276       4,535,848  
                 
      15,151,095       13,032,725  
                 
                 
                 
                 
Total assets
    23,438,221       19,370,852  
 
 
The accompanying notes are an integral part of these financial statements.
 
 
 
TIM Participações S.A. and subsidiaries

Consolidated balance sheets as of December 31
In thousands of reais
 
Liabilities
 
2011
   
2010
 
             
Current liabilities
           
Suppliers (Note 18)
    3,709,301       3,103,469  
Loans and financing (Note 19)
    1,090,174       957,549  
Derivative transactions (Note 40)
    77,055       2,071  
Labor liabilities (Note 20)
    145,803       125,292  
Indirect taxes, fees and contributions payable (Note 21)
    705,669       544,375  
Direct taxes, fees and contributions payable (Note 22)
    454,124       265,328  
Dividends payable (Note 26)
    326,348       511,737  
Other liabilities (Note 23)
    287,156       181,268  
                 
      6,795,630       5,691,089  
                 
Non-current liabilities
               
Loans and financing (Note 19)
    2,570,409       2,277,121  
Derivative transactions (Note 40)
    89,078       164,482  
Indirect taxes, fees and contributions payable (Note 21)
    142,953       57,720  
Direct taxes, fees and contributions payable (Note 22)
    167,447       138,981  
Deferred income and social contribution taxes (Note 12)
    77,055       83,708  
Provision for contingencies (Note 24)
    229,521       249,057  
Actuarial liabilities (Note 41)
    318       9,166  
Provision for asset retirement obligation (Note 25)
    261,918       255,737  
Other liabilities (Note 23)
    147,155       142,982  
                 
      3,685,854       3,378,954  
                 
Shareholder's equity (Note 26)
               
Capital stock
    9,839,770       8,149,096  
Capital reserves
    384,489       396,129  
Profit reserves
    2,735,847       1,755,584  
Treasury shares
    (3,369 )        
                 
      12,956,737       10,300,809  
                 
Total liabilities and shareholders' equity
    23,438,221       19,370,852  
 
 
The accompanying notes are an integral part of these financial statements.
 
 
 
 
TIM Participações S.A. and subsidiaries

Years ended December 31
In thousands of reais
 
   
2011
   
2010
   
2009
 
                   
Net operating revenue (Note 28)
    17,085,977       14,457,450       13,158,134  
                         
Costs of services provided and goods sold (Note 29)
    (8,561,433 )     (7,305,767 )     (6,672,369 )
                         
Gross income
    8,524,544       7,151,683       6,485,765  
                         
Operating revenue (expenses)
                       
     Selling expenses (Note 30)
    (4,845,712 )     (4,494,608 )     (4,436,751 )
General and administrative expenses (Note 31)
    (963,394 )     (1,008,694 )     (1,033,438 )
Other revenue (expenses), net (Note 32)
    (647,996 )     (448,247 )     (462,114 )
                         
      (6,457,102 )     (5,951,549 )     (5,932,303 )
                         
Operating income
    2,067,442       1,200,134       553,462  
                         
Financial revenue (expenses)
                       
Financial revenue (Note 33)
    310,521       231,671       137,033  
Financial expenses (Note 34)
    (448,779 )     (380,501 )     (328,908 )
Exchange variations, net (Note 35)
    (100,600 )     (96,627 )     (53,240 )
                         
      (238,858 )     (245,457 )     (245,115 )
                         
Income before income and social contribution taxes
    1,828,584       954,677       308,347  
                         
Income and social contribution taxes (Note 36)
    (547,356 )     1,257,038       33,026  
                         
Net income for the year
    1,281,228       2,211,715       341,373  
                         
Profit per share attributable to the Company's
                       
shareholders during the year (thousands
                       
of reais per share)
                       
                         
Basic profit per share (Note 37)
    0.5660       0.8955       0.4048  
                         
Diluted profit per share (Note 37)
    0.5657       0.8955       0.4048  
 
The Company does not have transactions to be recorded as comprehensive income.
 
The accompanying notes are an integral part of these financial statements.
 
 
TIM Participações S.A. and subsidiaries

Years ended December 31
In thousands of reais
 
                     
Profit reserves
                   
                                           
   
Capital
   
Capital
   
Legal
   
Reserve for
   
Treasury
   
Accumulated
       
   
stock
   
reserves
   
reserve
   
expansion
   
shares
   
losses
   
Total
 
                                           
Balances as at December 31, 2009
    8,149,096       396,129       122,298       35,751             (125,914 )     8,577,360  
Dividends directly recorded against
                                                     
shareholders' equity (Note 26)
                            8,345                     8,345  
Net income for the year
                                          2,211,715       2,211,715  
Allocation of net income for the year
                                                     
Legal reserves (Note 26)
                    104,550                     (104,550 )        
Dividends (Note 26)
                                          (496,611 )     (496,611 )
Creation of reserves for expansion (Note 26)
                            1,484,640             (1,484,640 )        
                                                       
Balances as of December 31, 2010
    8,149,096       396,129       226,848       1,528,736                     10,300,809  
Dividends directly recorded against
                                                     
shareholders' equity (Note 26)
                            3,327                     3,327  
Treasury shares (Note 26)
                                    (3,369 )             (3,369 )
Increase in capital stock with transfer of reserves (Note 26)
    15,569       (15,569 )                                        
Increase in capital stock regarding public offering (Note 26)
    1,640,854                                               1,640,854  
Increase in capital stock with over-allotment of shares (Note 26)
    81,368                                               81,368  
Costs of issue of shares (Note 26)
    (47,117 )                                             (47,117 )
Stock options (Note 27)
            3,929                                       3,929  
Net income for the year
                                            1,281,228       1,281,228  
Allocation of net income for the year
                                                       
Legal reserves (Note 26)
                    64,061                       (64,061 )        
Dividends (Note 26)
                                            (304,292 )     (304,292 )
Creation of reserves for expansion (Note 26)
                            912,875               (912,875 )        
                                                         
Balance as at December 31, 2011
    9,839,770       384,489       290,909       2,444,938       (3,369 )             12,956,737  
 
 
The accompanying notes are an integral part of these financial statements.
 
 

TIM Participações S.A. and subsidiaries

Years ended December 31
In thousands of reais
 
   
2011
   
2010
   
2009
 
                   
Operating activities
                 
     Income before Income and social contribution taxes
    1,828,584       954,677       308,347  
Adjustments to reconcile income with net cash from operating activities:
                       
    Depreciation and amortization
    2,569,767       2,993,461       2,913,966  
Actuarial liabilities
    (8,848 )     1,639       1,102  
Residual value of permanent assets written-off
    20,904       27,212       40,603  
Interest on future asset retirement obligation
    (1,144 )     1,057          
Provision for contingencies
    175,653       32,457       (55,404 )
Monetary restatement of court deposits and contingencies
    (13,954 )     (10,515 )     (8,878 )
Interest, monetary and exchange variations on loans
    371,205       398,947       340,669  
Interest on financial investments
    (205,408 )     (145,537 )     (70,203 )
Allowance for doubtful accounts (Note 8)
    231,529       310,498       422,163  
Stock options (Note 27)
    3,928                  
Other financial adjustments
    88,159       7,869          
                         
      5,060,375       4,571,765       3,892,365  
                         
Decrease (increase) in operating assets
                       
Trade accounts receivable
    (782,853 )     (481,662 )     (145,148 )
Taxes and contributions recoverable
    (376,974 )     (33,017 )     (273,643 )
Inventory
    (39,379 )     177,781       142,080  
Prepaid expenses
    (11,083 )     (161,644 )     895  
Dividends received
                       
Court deposits
    (185,610 )     (149,947 )        
Other current and non-current assets
    33,400       (6,798 )     (92,936 )
                         
Increase (decrease) in operating liabilities
                       
Labor obligations
    11,606       17,428       (11,061 )
Suppliers
    573,532       (13,001 )     (579,043 )
Taxes, fees and contributions
    61,535       45,372       40,543  
Provision for contingencies
    (218,105 )     (105,444 )        
Other current and non-current liabilities
    2,999       111,499       (127,555 )
                         
Net cash from operating activities
    4,129,443       3,972,332       2,846,497  
                         
Investment activities
                       
Acquisition of TIM Fiber RJ and SP (Note 47)
    (1,529,588 )                
Financial   assets   valued   at   fair   value   through   income
    211,151       276,381       (59,457 )
Additions to property, plant and equipment, and intangibles
    (3,002,377 )     (2,835,761 )     (2,491,907 )
Asset retirement obligation
    7,325       15,045       62,567  
Cash from acquisition of TIM Fiber RJ and SP (Note 47)
    18,973                  
Cash from acquisition of Intelig
                    132,816  
                         
Net cash provided by (used in) investment activities
    (4,294,516 )     (2,544,335 )     (2,355,981 )
                         
Financing activities
                       
Capital increase (Note 26)
    1,722,222                  
Costs of issuance of shares (Note 26)
    (47,117 )                
Treasury shares (Note 26)
    (3,369 )                
New loans
    892,866       452,843       1,849,808  
Repayments of loans
    (939,119 )     (1,671,716 )     (1,290,771 )
Derivative transactions
    (87,433 )     (44,735 )        
Dividends paid
    (486,354 )     (201,181 )     (168,072 )
                         
Net cash from (used in) financing activities
    1,051,696       (1,464,789 )     390,965  
                         
Increase (decrease) in cash and cash equivalents
    886,623       (36,792 )     881,481  
                         
Cash and cash equivalents at the beginning of the year
    2,376,232       2,413,024       1,531,543  
                         
Cash and cash equivalents at the end of the year
    3,262,855       2,376,232       2,413,024  
 
The accompanying notes are an integral part of these financial statements.
 
 
 
 
TIM Participações S.A. and subsidiaries

as of December 31, 2011
In thousands of reais, unless otherwise stated

 
1
Operations

TIM Participações S.A. (or the "Company" or the "Group") is a publicly-held company with its headquarters in the city of Rio de Janeiro controlled by TIM Brasil Serviços e Participações S.A. ("TIM Brasil"). TIM Brasil is a company of the Telecom Itália Group and, as at December 31, 2011, owns 66.68% of the capital stock of TIM Participações (66.27% as at December 31, 2010).

The Company's shares are traded on BM&FBOVESPA (Brazilian Stock Exchange - São Paulo). Additionally, TIM Participações has American Depositary Receipts ("ADRs") traded on the New York Stock Exchange - USA. Consequently, the Company is subject to the rules of the Brazilian Securities Commission, Comissão de Valores Mobiliários ("CVM") and of the US Securities and Exchange Commission ("SEC"). In order to meet good market practice, TIM Participações has adopted the principle of simultaneous disclosure of its financial information in the two markets, in reais and in Portuguese and English.

The Company's main purpose is to control companies which offer telecommunications services, and the Company owns the entire share capital of TIM Celular S.A. ("TIM Celular") and of Intelig Telecomunicações Ltda. ("Intelig"). Both companies act as providers of Landline Telephone Services ("STFC") in the Local, Domestic Long Distance and International Long Distance markets and providers of Multimedia Communications Services ("SCM") in all Brazilian states. Additionally, TIM Celular also acts as a Personal Mobile Service ("SMP") provider in all Brazilian states.

The services provided by the subsidiaries are regulated by Agência Nacional de Telecomunicações  ("ANATEL"), Brazil's telecommunications regulatory agency.

(a)
Listing on the Novo Mercado Segment of BM&FBOVESPA
 
On June 22, 2011, the company's shareholders approved at an Extraordinary Shareholders' Meeting and at a Special Shareholders' Meeting of Preferred Shareholders the migration of TIM Participações to the listing segment known as Novo Mercado , or New Markets, of BM&FBOVESPA. On that same date, approval was also given to convert the company's total preferred shares into common shares, with a ratio of 0.8406 common shares for every preferred share.

In the case of shareholders who disagreed with the decision, a right of withdrawal period was granted, ending on July 26, 2011. Only one shareholder owning 84,300 preferred shares, representing 0.0052% of the preferred shares and 0.0034% of the company's total equity, exercised the right of withdrawal at that time. The amount of the reimbursement to this shareholder was calculated using the shareholders' equity value shown on the company's balance sheet as at December 31, 2010 (R$ 4,1628 per share).

August 2, 2011 was the last day for trading in the preferred shares whose trading code "TCSL4" was subsequently canceled. The new trading code for the ordinary shares of TIM Participações on the BM&FBOVESPA is now "TIMP3". August 4, 2011 was the last day for trading in the DRs representing the preferred shares issued by the company on the New York Stock Exchange. In this market TIM Participações currently only has ADRs representing the common shares.
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated

 
(b)
Capital increase through issue of new shares

As set out in Note 27, in October 2011, the Company completed a primary distribution of shares, through which TIM Participações raised funds amounting to R$ 1,722,222. The closing of the public offering did not cause material changes (greater than 5% of the total capital stock) to the shareholders' equity interest in the Group, when compared to their equity interests in the Company in the year ended December 31, 2010.

(c)
Acquisition of new investments

The wholly-owned subsidiary TIM Celular entered into an agreement with Companhia Brasiliana de Energia and AES Elpa S.A. (AES Group in Brazil) for the purchase of its equity interests in Eletropaulo Telecomunicações Ltda. (100%) and AES Communications Rio de Janeiro S.A. (98.3%). This agreement was signed on July 8, 2011. On October 31, 2011, after the fulfillment of contractual conditions precedent and other extra-contractual conditions (such as the approval of the acquisition by the regulatory agencies), the acquisition of the equity interests of Companhia Brasiliana de Energia and of AES Elpa S.A. was completed. The amounts disbursed totaled R$ 1,074,179 and R$ 447,471, respectively. Also during 2011, Eletropaulo Telecomunicações Ltda. changed its corporate name to TIM Fiber SP Ltda., and AES Communications Rio de Janeiro S.A. changed its corporate name to TIM Fiber RJ S.A.

Additionally, the contract required that TIM Celular, after completing the purchase of AES ELPA S.A.'s participation in the AES Communications Rio de Janeiro S.A., to extend the same offer to acquire shares owned by the minority shareholders of AES Communications S.A. Such offer to minority shareholders was held later in 2011 and continued until the day February 26, 2012.

This acquisition is aimed to TIM for the expansion of its operations in the communications services of high-speed data, enabling the Company to offer new products to its customers, as well as providing a reduction in rental cost of infrastructure, and obtain significant synergies related to the fiber optic network.
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated

 
2
Licenses

The Licenses entitling the Company to use a certain radio frequency band for providing SMP services are granted for a fixed period. They have the following expiration dates, with the possibility of renewal for further 15 years. In the case of renewal, every two years, must be paid to the Grantor the amount of 2% on net revenue from previous year for each locality served:

           
Expiration date
 
               
Terms of authorization
 
 
800 MHz,
900 MHz and 1,800 MHz
 
Additional radio frequencies
1,800 MHz
 
 
1,900 and 2,100 MHz (3G
)
               
1     Amapá, Roraima, Pará, Amazonas and Maranhão
 
March, 2016
 
April, 2023
 
April, 2023
 
2     Rio de Janeiro and Espírito Santo
 
March, 2016
     
April, 2023
 
3     Acre, Rondônia, Mato Grosso, Mato Grosso do Sul, Tocantins, Distrito Federal, Goiás, Rio Grande do Sul (except municipality of Pelotas and region) and municipalities of Londrina and Tamarana in Paraná
 
March, 2016
     
April, 2023
 
4     São Paulo
 
March, 2016
     
April, 2023
 
5     Paraná (except municipalities of Londrina and Tamarana)
 
September, 2022
 
April, 2023
 
April, 2023
 
6     Santa Catarina
 
September, 2023
 
April, 2023
 
April, 2023
 
7     Municipality and region of Pelotas in Rio Grande do Sul
 
April, 2024
     
April, 2023
 
8     Pernambuco
 
May, 2024
     
April, 2023
 
9     Ceará
 
November, 2023
     
April, 2023
 
10   Paraíba
 
December, 2023
     
April, 2023
 
11   Rio Grande do Norte
 
December, 2023
     
April, 2023
 
12   Alagoas
 
December, 2023
     
April, 2023
 
13   Piauí
 
March, 2024
     
April, 2023
 
14   Minas Gerais (except the municipalities of the sector 3 of PGO for 3G radio frequencies and spare radio frequencies)
 
April, 2013
 
April, 2023
 
April, 2023
 
15   Bahia and Sergipe
 
August, 2012
     
April, 2023
 
 
On May 30, 2011, two new terms were signed, formalizing the acquisition of the additional radio frequencies in the states of Minas Gerais, Paraná, Santa Catarina, Amapá, Roraima, Pará, Amazonas and Maranhão, as showed above.

The terms of the STFC and SCM licenses are indeterminate.
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated
 
 
3
Basis for the preparation and submission of the financial statements
 
The main accounting practices applied to the preparation of these consolidated financial statements are defined below. These practices were consistently applied in the years presented, unless otherwise indicated.

(a)
General preparation and disclosure criteria

The financial statements have been prepared in accordance with the International Financial Reporting Standards ("IFRS") as issued by International Accounting Standard Board ("IASB"). While avoiding discrepancies in relation to the application of IFRS, the Company has also adopted the accounting policies arising from Brazilian corporate law and the specific rules issued by the Brazilian Securities Commission ("CVM") and ANATEL.

Assets and liabilities are reported according to their degree of liquidity and enforceability. They are reported as current when they are likely to be realized or settled over the next twelve months. Otherwise, they are recorded as non-current. The only exception to this procedure involves deferred income and social contribution tax balances, assets and liabilities, which must always be recorded as non-current, in accordance with the provisions of IAS 1.

The preparation of financial statements requires the use of certain critical accounting estimates and the Company's management to exercise its judgment in applying the Group's accounting practices. Those areas involving a higher level of judgment and complexity, as well as where assumptions and estimates are significant to the financial statements, are disclosed in Note 5.

(b)
Financial statements approval

These financial statements were approved by the Board of Directors of the Company on February 15, 2012.
 
4
Summary of significant accounting policies

The accounting practices adopted in preparing these consolidated statements are the International Financial Reporting Standards (IFRS).

(a)
Functional currency and presentation currency

The presentation currency of the financial statements is the real (R$) which is also the functional currency of all companies that are consolidated in these financial statements.

Transactions in foreign currency are recognized at the exchange rate in force on the date of the transaction. Except for assets and liabilities registered at fair value, monetary items in foreign currency are converted into reais   at the exchange rate in force on the balance sheet date, as disclosed by the Brazilian Central Bank. Foreign exchange gains and losses linked to these items are registered in the income statement.

(b)
Consolidation procedures

Subsidiaries are any entities whose financial and operating policies can be conducted by the Group and in which there is usually a shareholding of more than half of the voting rights. The existence and effect of Subsidiaries are any entities whose financial and operating policies can be conducted by the Group and in which there is usually a shareholding of more than half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Company controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Company and are no longer consolidated from the date when that control ceases.
 
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated

 
The following entities are included in the consolidated financial statements:

       
Participation - %
 
               
Corporate name
 
Classification
 
2011
 
2010
 
               
TIM Celular S.A.
 
Direct control
 
100
 
100
 
Intelig Telecomunicações Ltda.
 
Direct control
 
100
 
100
 
TIM Fiber RJ S.A.
 
Indirect control
 
100
     
TIM Fiber SP Ltda.
 
Indirect control
 
100
     

We used purchase accounting to record the acquisition of subsidiaries by the Group. The acquisition cost is measured as the fair value of the assets offered, equity instruments (e.g. shares) issued and liabilities incurred or assumed by the acquirer on the date control exchanges. Identifiable assets acquired, contingencies and liabilities assumed in a business combination are initially measured at their fair value as at the acquisition date, irrespective of the proportion of any minority interest. The amount of the acquisition cost that exceeds the fair value of the Group's share of an identifiable net asset acquired is recorded as goodwill. If the acquisition cost is less than the fair value of net assets of the subsidiary acquired, the difference is recognized directly in the income statement as revenue.

As set forth in Note 1, the purchase offer made by the subsidiary TIM Celular to AES Elpa S.A. was extended to all minority shareholders of AES Communications Rio de Janeiro S.A. These shareholders must express their favorable or unfavorable opinion on selling their shares no later than February 26, 2012. This transaction is essentially a put option for the shares of the minority shareholders against the subsidiary TIM Celular. Based on this obligation of TIM Celular with the minority shareholders and the high probability of exercising the put option, the subsidiary booked, as a liability, the obligation to purchase the remaining shares in AES Communications Rio de Janeiro S.A., against the investment and intangible (goodwill) balances. Consequently, TIM Celular recognized in its accounting books the total control of the acquired company, thus eliminating the need to book the balances related to minority shares in AES Communications Rio de Janeiro S.A.

Transactions between Group companies, as well as balances, gains and losses unrealized in these transactions, are eliminated in consolidation. The accounting policies of subsidiaries have been adjusted to ensure consistency with the accounting policies adopted by TIM Participações. The base date of the financial information used in the consolidation is the same for all Group companies.
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated

 
(c)
Segment information

Operating segments are entity components that develop business activities from which revenue may be obtained and for which expenses may be incurred. Their operating results are regularly reviewed by the entity's primary operations manager in order to decide on the funds to be allocated to an individual segment and the assessment of its performance, and for which individual financial information is available.

The Company's chief operating decision maker, responsible for the allocation of funds and for the periodic evaluation of performance, is the Executive Board, which, along with the Board of Directors, is responsible for making strategic decisions for the Group and for its management.

The Group's strategy is to maximize the consolidated results of TIM Participações. This strategy includes optimizing the operations of each group company, in addition to taking advantage of the synergies generated among them. Notwithstanding the different activities, the decision makers see the Group as representing a single business segment, and do not take into account specific strategies intended for a particular service line. All decisions relating to strategic and financial planning, purchases, investments and use of funds are made on a consolidated bases. The aim is to maximize the consolidated result obtained by exploring the SMP, STFC and SCM licenses.

(d)
Cash and cash equivalents

Cash and cash equivalents include cash, bank cash deposits, other short-term high liquidity investments, with original maturities of up to three months following the investment date and with an immaterial risk of change in value.

(e)
Financial assets and liabilities

(e.1)
Financial assets

(e.1.1)
Classification

The Group classifies its financial assets into the following categories: (a) measured at fair value through income, (b) held to maturity, (c) loans and receivables, and (d) held for sale. On all of the dates shown in this quarterly information, only financial assets classified in categories one and three appear. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.
 
(i)
Financial assets measured at fair value through income
 
A financial asset is classified in this category if it was acquired primarily for sale in the short term. For this reason they are usually classified under current assets. However, where these assets are given as guarantees, or other restrictions exist on their short-term use, they may be classified as non-current assets. The derivatives held by the Company have also been categorized as held for trading. The Company does not use hedge accounting.

(ii)
Loans and receivables

Are non-derivative financial assets with fixed or determinable payments, and not quoted in an active market. In the quarterly information they are classified as "Trade accounts receivable" or "Other assets".
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated

 
(e.1.2)
Recognition and measurement

The regular purchases and sales of financial assets are recognized on the trading date - the date on which the Company undertakes to buy or sell the assets. Investments are initially recognized at fair value. The transaction costs incurred in the investments measured at fair value through income are charged to the income statement as expenses on the transaction date. After that date, the variations of their fair value are directly booked as income for the year, under the head of financial revenue and expenses. These assets are written off when the rights to receive the cash flow relating to the assets have expired, or when the Company has substantially transferred all of the risks and benefits of owning them.

The fair values of investments with publicly quoted prices are based on their purchase prices at each base reporting date. If the market for a financial asset is not active, the Company establishes the fair value by using valuation techniques. These techniques include the analysis of recent transactions with third parties, reference to other instruments that are substantially similar, analysis of discounted cash flow models and option pricing models, which make maximum use of information generated by the market and depend on the minimum possible information generated by Management.

The dividends from financial assets measured at fair value through income and of net equity instruments available for sale, such as shares, are recognized in the income statement under other revenue when the right of the Group to receive these dividends is established.

(e.1.3)
Offsetting financial instruments

Financial assets and liabilities are reported at their net amount when there is a legal right and an intention to offset them on settlement on a net basis, or to realize the asset and settle the liability concurrently.

(e.1.4)
Impairment of financial assets

At the end of each reporting period the company evaluates whether there is any objective evidence of the impairment of its financial assets. An asset or group of financial assets is impaired and losses are recognized only if there is objective evidence of impairment as a result of one or more events occurring after the initial recognition of the assets, and the event(s) of loss may impact on the future estimated cash flow from a financial asset or group of financial assets that can be reliably estimated.
 
The criteria which the Company uses to determine whether there is objective evidence of impairment include verification as to real situations involving:

●
relevant financial difficulties on the part of the issuer or borrower;

●
a breach of contract such as default or late payment of interest or principal;

●
the Company, for economic or legal reasons relating to the financial difficulties of the borrower, provides the latter with concessions that a lender would not normally consider;

●
it is likely that the borrower will declare bankruptcy or other financial reorganization that could generate losses for the lenders;
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated

 
●
the disappearance of an active market for that financial asset because of financial difficulties;

●
observable data indicating that there has been a measurable reduction in the estimated future cash flow from a portfolio of financial assets, although the decrease cannot be identified by an individual analysis of the individual financial assets in the portfolio. These data include:

 
(i)
adverse changes in the payment status of borrowers in the portfolios;
 
(ii)
national or local economic conditions that correlate with defaults on assets in the portfolio.

The amount of the impairment loss is measured by the difference between the book value of the assets and the new value, calculated allowing for any of the situations mentioned above. Where impairment losses are identified, they are recognized directly in the statement of income for the year. If in a subsequent period the value of the impairment loss decreases, and the decrease can be related objectively to an event occurring after the impairment being recognized (such as, for example, an improvement in the borrower's credit worthiness), the reversal of the impairment loss is also recognized in the consolidated income statement for the year.

(e.2)
Financial liabilities

The main financial liabilities recognized by the Company are: supplier accounts payable, unrealized losses on derivative transactions, and loans and financing. They are classified into the following categories according to the nature of the financial instruments contracted:

●     Financial liabilities measured at fair value through income - including financial liabilities usually negotiated before maturity, and derivatives. At each balance sheet date, these liabilities are measured at their fair values. Interest, monetary restatements, exchange rate variations and variations arising from measurement at fair value, if any, are recognized in the statement of income when incurred under the heading of financial revenue or expenses. On the dates when these financial statements were presented, this category was composed basically of derivative financial instruments.

●     Financial liabilities measured at amortized cost - mainly represent non-derivative financial liabilities that are not usually traded before maturity. On initial recognition, these liabilities are recorded at their fair value. After initial recognition, they are measured using the effective interest rate method. In this method, transaction costs impact on the initial liability value, influencing the determination of the effective interest rate. This rate accurately discounts all cash flow from the financial instrument. The appropriations of financial expenses, in accordance with the effective interest rate method, are recognized as income, under the heading of financial expenses. On the date of the presentation of these  financial statements, this category included mainly loans and financing and suppliers accounts payable of the Company.
 
(f)
Trade accounts receivable

Trade accounts receivable from users of telecommunications services, use of networks (interconnection) or selling handsets and accessories, are recorded at the prices charged at the times of the respective transactions. The balances of trade accounts receivable also include services provided and not billed for as at the balance sheet date. Trade accounts receivable are initially recognized at fair value and subsequently measured at amortized cost using the method of effective interest rate less the allowance for bad debt ("Allowance" or "Impairment").

The allowance for doubtful accounts is presented as a reduction of accounts receivable and is recognized based on the profile of the portfolio of subscribers, age of past due accounts, economical conjuncture and risks involved in each case in an amount deemed sufficient to deal with any losses on such credits.
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated

 
(g)
Inventory

Inventory is stated at the average acquisition cost. A provision is recognized to adjust the net realizable value for the cost of handsets and accessories when this amount is less than the average acquisition cost.

(h)
Direct and indirect taxes and contributions recoverable
 
These are booked at historical cost and, if applicable, adjusted in line with the legislation in force.

(i)
Prepaid expenses

These are stated at the actual amounts disbursed and not yet incurred. They are allocated to income as incurred.

(j)
Court deposits

They are booked as historical costs and, if applicable, adjusted as per the legislation in force.

(k)
Property, plant and equipment

Property, plant and equipment are stated at their acquisition or construction cost, less any accumulated depreciation and provision for impairment (if applicable). Depreciation is calculated using the straight line method, over terms that take into account the expected useful lives of assets and their residual value (Note 17). The estimated useful lives are reviewed annually. The Company recognizes its assets individually.

The estimated costs of disassembling towers and equipment in rented properties are capitalized and amortized over the useful lives of these assets. The Company recognizes the present value of these costs in property, plant and equipment, in exchange for the liability "Provision for asset retirement obligation". Interest incurred on updating the provision is classified as financial expenses. This obligation is recorded according to IFRIC 1.

Gains and losses on disposals are determined by comparing the amounts of these disposals with the carrying value at the time of the transaction and are recognized in "Other revenue/expenses, net" in the income statement.
 
As the Group does not build assets requiring long terms for completion, the Company does not capitalize interest on loans and financing.

(l)
Intangible assets

Intangible assets are measured at historic cost less accumulated amortization and provision for impairment (if applicable) and reflects: (i) the purchase of licenses and rights to use radio frequency bands, (ii) software in use and/or development and (iii) subsidies on the sale of handsets and mini modems. Intangible assets also include goodwill from the acquisition of companies.

Depreciation charges are calculated using the straight-line method over the useful lives of assets. The useful life estimates of intangible assets are reviewed regularly.
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated

 
(i)
Goodwill

Goodwill is represented by the positive difference between the amount paid or payable and the net fair value of the assets and liabilities of the acquired entity. If the purchaser identifies negative goodwill, it should be recorded as a gain in the income statement for the period, at the date of acquisition.
 
As set forth in IFRS 3, when the evaluation of the fair value of assets and liabilities identified when accounting for a business combination is incomplete on the date of presentation of the financial statements, the Company must recognize the provisional amounts of assets and liabilities still under analysis. In this case, the subsequent completion of the purchase accounting process may give rise to retrospective adjustment of the account balances of assets and liabilities as of the effective date of purchase of the acquired entity. These procedures may affect the goodwill value and the value of other assets. The International Accounting Standard establishes that all purchasing accounting processes must be completed within a year following the date of acquisition.

As provided in the accounting standards, the goodwill is not amortized, must be tested annually to identify probable impairment and is accounted for at its cost value less any losses. Goodwill is allocated to the Cash Generating Units ("CGUs") for the purpose of impairment testing. The allocation is made to the CGUs or groups of CGUs that benefit from the business combination from which the goodwill arose.

Gains and losses identified due to the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

(ii)
Software

The costs associated with maintaining software are recognized as expenses, as incurred. Identifiable and unique development costs that are directly attributable to the design and testing of software products, controlled by the Group, are recognized as intangible assets when the following criteria are met:

●
It is technically feasible to complete the software to make it available for use.

●
Management plans to complete the software and use it or sell it.

●
The software will generate demonstrably probable future economic benefits.

●
Appropriate technical, financial and other resources are available to conclude development and use or sell the software.
 
●
The expenditure attributable to the software during its development can be measured reliably.

Directly attributable costs, which are capitalized as part of the software product, include costs for employees directly allocated to its development.

Other development expenditure that does not meet these criteria is recognized as an expense as incurred.

As the Group does not build assets requiring long terms for completion, the Company does not capitalize interest on loans and financing.
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated

 
(iii)
Subsidies on the sale of handsets and mini modems
 
The Company offers a subsidy on the sale of handsets and mini modems to postpaid customers, formalized through contracts. Resources thus expended are recorded as intangible assets in accordance with IAS 3 and amortized over the minimum service agreement terms signed by clients (12 months). The contractual penalty for customers who cancel subscriptions or migrate to a pre-paid before the expiration of the contract is invariably higher than the subsidies made for the sale of handsets and mini modems.

(m)
Impairment of non-financial assets

Goodwill is tested for impairment annually. For other non-financial assets, impairment tests are carried out whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss is recognized for the amount by which the carrying value of the asset exceeds its recoverable value. The latter is the higher of the fair value of an asset less costs to sell and value in use. For the purposes of impairment assessment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (CGUs). The assets, except for goodwill, which have been impaired may be reversed where it can be shown that the reasons (or part of them) that gave rise to the provisions no longer obtain on the date of presentation of the financial statements.

(n)
Accruals

Accruals are recognized in the balance sheet when the Company has a legal or constructive obligation as a result of a past event that can be measured reliably, and it is probable that funds will be required to settle this obligation.

(o)
Suppliers accounts payable

Suppliers accounts payable to suppliers are obligations to pay for goods or services that were purchased in the normal course of business. They are initially recognized at fair value and subsequently measured at amortized cost using the effective interest rate method. Due to the short maturity terms of these obligations, in practical terms, they are usually recognized at their invoice values.

(p)
Benefits to employees

(i)
Profit sharing
 
The Group make a provision on a monthly basis for the estimated amount of employee profit sharing, against the income for the year. The provision calculation takes into account the targets disclosed to its employees and approved by the Board of Directors. These amounts are recorded as personnel expenses and allocated to the income accounts in accordance with the employee's original cost center.

(ii)
Pension plans and other post-employment benefits
 
The Group has defined benefit and defined contribution plans in place. In general, defined benefit plans establish a specific retirement benefit amount that an employee will receive upon retirement, usually dependent on one or more factors such as age, length of service and remuneration.
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated

 
The liability recognized in the balance sheet with respect to defined benefit pension plans is the present value of the defined benefit liability as at the balance sheet date, less the fair value of plan assets, and past service cost adjustments are not recognized. The defined benefit obligation is calculated annually by independent actuaries, using the projected unit credit method. The present value of defined benefit obligation is determined by discounting estimated future cash outflows, using interest rates consistent with market yields, which are denominated in the currency in which benefits will be paid and which have maturities close to those of the respective pension plan liabilities.

The actuarial gains and losses resulting from adjustments based on experience and changes in actuarial assumptions, which exceed a corridor of 10% of the value of plan assets, or 10% of the value of plan liabilities, are charged or credited to the statements of income over the expected remaining period of service of the employees.

Past service costs are recognized immediately in income, unless the changes to the pension plan are conditional upon employees remaining in employment for a specific time period (the period in which the right is acquired). In this case, past service costs are amortized using the straight-line method over the period during which the right was acquired.

With respect to defined contribution plans, the Company makes contributions to pension insurance plans public or private on a mandatory, contractual or voluntary. The Company has no further obligation for payment after the contribution is made. The contributions are recognized as employee benefit expense when due.

(iii)
Stock options

The company operates share-based compensation plans, settled in shares, under which the entity receives services from certain employees in exchange for equity instruments (options) granted. The fair value of the employee's service is recognized as an expense against capital reserves, and is determined with reference to the fair value of the options granted. The latter excludes the effect of any conditions on the acquisition of non-market rights based on the service and on performance (for example, profitability, sales growth targets and remaining in the job for a specific period of time). The conditions for acquiring non-market rights are included in the assumptions regarding the quantity of vesting options. The total amount of the expense is recognized during the vesting period (the period during which the specific vesting conditions must be met). On the balance sheet date, the entity reviews its estimates of the quantity of vesting options based on the acquisition conditions for non-market rights, and recognizes the impact of the revised initial estimates, as the case may be, on the income statement, with a corresponding adjustment to the capital reserves.
 
The amounts paid to the employees, net of any directly attributable transaction costs, are credited to the capital stock and to the goodwill reserve, if applicable, when the options are exercised.
 
Social contribution taxes payable in connection with the granting of stock options are considered an integral part of what is being granted, and are charged as a transaction settled in cash.

(q)
Income and social contribution taxes

Income taxes for the period include current and deferred income and social contribution taxes, and their variations are recognized in the income statement. Income and social contribution tax balances were not recognized in the comprehensive income statement. Income and social contribution tax balances, under the head of assets and liabilities, are reported at their net amounts when there is a right and an intention to offset them on settlement.
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated

 
(i)
Current balances

The current income and social contribution tax charges are calculated based on the tax laws enacted or substantially enacted as at the balance sheet date. Management periodically reviews the positions taken by the Company in the income tax statements where the applicable tax regulations give rise to interpretations or misleading circumstances.

(ii)
Deferred balances

Income and social contribution taxes are recognized on (a) accumulated tax losses and negative tax basis and on (b) temporary differences arising from differences between the tax bases of assets and liabilities and their carrying values in the consolidated financial statements. Deferred income tax is determined using tax rates (and tax laws), enacted or substantially enacted as at the balance sheet date. Subsequent changes in tax rates or in tax legislation may change the amounts of deferred tax balances, both assets and liabilities.

Deferred income and social contribution tax credits are recognized only in the event of a profit track record and/or when the annual forecast prepared by the Company (examined by the Fiscal Council and approved by Management) indicates the likelihood of future realization of those tax credits.

Deferred income tax credits and debits are shown at their net amounts when there is a right and intention to offset them when current income taxes are ascertained, generally in relation to the same legal entity and tax authority. Thus, deferred tax credits and debits, in different entities, are generally booked separately and not at their net amounts.

(r)
Provision for contingencies

This is made based on an analysis by the Company's internal and external legal consultants and by Management, to an amount deemed sufficient to cover losses and risks considered probable. Situations where losses are considered possible are subject to disclosure, but for those where losses have been considered remote losses are not disclosed.

(s)
Shareholders' equity

The principal items affecting the company's shareholders' equity abide by the following accounting practices:

(i)
Capital stock
 
Recorded at the amount actually raised from shareholders, net of the costs directly underlying the funding process.
 
When a Group company purchases equity stock in the Company, with the scope to hold this as cash or cash equivalents, the amount paid, including any additional directly attributable costs, is deducted from the company's shareholders' equity until the shares are canceled or re-issued. When these shares are subsequently re-issued, any amount received net of directly attributable transaction costs is booked to shareholders' equity.

(ii)
Reserves

These are created and used pursuant to the provisions of Brazilian Company Law and the Company's bylaws.
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated

 
(iii)
Distribution of dividends

The distribution of the minimum mandatory dividends, calculated pursuant to the bylaws, is stated as a liability at the end of each year. Provision for any other amount to be distributed as interim dividends or payment of dividends over and above the mandatory minimum, among others, is only made on the date when the additional distribution is approved by a Shareholders' Meeting.

(t)
Revenue recognition

As a rule, revenue is only recognized to the extent that it is probable that the economic benefits from the transactions will flow to the Company and that their values can be measured reliably.

(i)
Revenue from services rendered

The principal service revenue is derived from monthly subscribers, the provision of separate voice services, SMS services, data, etc. and user packages combining these services, roaming charges and interconnection revenue. The balances are recognized as they are used, net of sales tax and discounts granted on services. This revenue is only booked when the amounts of the services rendered can be estimated reliably. Balances are recognized monthly via invoicing and billable revenue between the billing date and the end of the month (unbilled) is identified, processed and recognized in the month in which the service was rendered. Calculations of unbilled balances from the previous month are reversed and unbilled items are recalculated for each current month.

Interconnection and roaming traffic revenue are recorded separately without offsetting the amounts owed to other telecoms operators. The minutes not used by customers in the prepaid service system are recorded as deferred revenue and allocated to income when these services are actually used by customers.

(ii)
Revenue from product sales

Revenue from product sales (telephones, mini-modems and other equipment) are recognized when the significant risks and benefits of ownership of these products are transferred to the buyer.

(u)
Lease

Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. The payments for operating leases (net of any incentives received from the lessor) are recognized in the income statement on a straight-line basis, during the term of the lease.
 
(v)
New pronouncements, changes and IFRS interpretations that are not yet in force
 
The following new standards, amendments changes and interpretations of standards were issued by the IASB but are not effective for the year 2011. The early adoption of these standards, although encouraged by the IASB, was not allowed in Brazil, by the Accounting Pronouncements Committee ("CPC").

●
IAS 19 - "Employee Benefits" as amended in June 2011. The main impacts of changes are: (i) elimination of the corridor approach, (ii) recognition of actuarial gains and losses in other comprehensive income as they occur, (iii) immediate recognition of past service costs in the results, and (iv) replacement of the cost of participation and expected returns on plan assets for an amount of net equity, calculated by applying the discount rate to the asset (liability) of the defined benefit net. Management is assessing the full impact of these changes on the Group. The standard is applicable from 1st January 2013.
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated

 
●
IFRS 9 - "Financial Instruments", addresses the classification, measurement and recognition of financial assets and liabilities. IFRS 9 was issued in November 2009 and October 2010 and replaces the parts of IAS 39 relating to the classification and measurement of financial instruments. IFRS 9 requires the classification of financial assets into two categories: measured at fair value and measured at amortized cost. The determination is made at initial recognition. The basis of classification depends on the entity's business model and the characteristics of the contractual cash flow of the financial instruments. With regard to financial liabilities, the rule maintains most of the requirements established by IAS 39. The main change is that in cases where the fair value method is adopted for financial liabilities, the portion of change in fair value due to the credit risk of the entity itself is recorded in other comprehensive income and not in the income statement, except when these result in an accounting discrepancy. The Group is assessing the full impact of IFRS 9. The standard is applicable from 1st January 2013.

●
IFRS 10 - "Consolidated Financial Statements" is based on existing principles, identifying the concept of control as a major factor in determining whether an entity should or should not be included in the consolidated financial statements of the parent. The standard provides additional guidance for determining control. The Group is assessing the full impact of IFRS 10. The standard is applicable from 1st January 2013.

●
IFRS 11 - "Joint Arrangements," issued in May 2011. The standard provides a more realistic approach to joint arrangements by focusing on the rights and obligations of the agreement rather than its legal form. There are two types of agreements: (i) joint operations - which occur when an operator has rights to the assets and contractual obligations, and thus keeps a record of its share in the assets, liabilities, revenues and expenses, and (ii) shared control - which occurs when an operator has rights to the net assets of the contract and accounts for this investment using the equity method. The method of proportional consolidation will no longer be allowed for the accounting for collective control. The standard is applicable from January 1 st , 2013.

●
IFRS 12 - "Disclosure of Interests in Other Entities" issued in May 2011, deals with the disclosure requirements for all forms of participation in other entities, including joint agreements, associations, contributions for specific purposes and other unregistered holdings to be accounted for. The Group is assessing the full impact of IFRS 12. The standard is applicable from 1st January 2013.

●
IFRS 13 - "Fair Value Measurement", issued in May 2011. The objective of IFRS 13 is to improve the consistency and reduce the complexity of the measurement at fair value, providing a more precise definition and a single source of fair value measurement and disclosure requirements for their use in IFRS. The requirements, which are well aligned between IFRS and US GAAP, does not expand the use of fair value accounting, but provide guidance on how to apply it when its use is already required or permitted by either IFRS or US GAAP. The Group is still evaluating the full impact of IFRS 13. The standard is applicable from 1st January 2013.
 
No other IFRS or IFRIC interpretations which have not yet entered into force could have a significant impact on the Group.


5
Critical accounting estimates

Accounting estimates and decisions are continuously evaluated, and they are based on our historical experience and factors such as whether expectations regarding future events are deemed to be reasonable considering the circumstances.
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated

 
The Company's future estimates are based on assumptions. By definition, the accounting estimates resulting from these assumptions rarely reflect the actual outcome. Below are the estimates and assumptions which carry significant risks and are likely to result in relevant adjustments to the book values of assets and liabilities for the following fiscal year:

(a)
Impairment of non-financial assets
 
Losses from impairment occur when the book values of assets or CGU exceed their recoverable value, which is considered to be the fair value less selling costs, or the value in use, whichever is greater. The calculation of the fair value less selling costs is based on the information available from sale transactions involving similar assets or market prices less the additional costs incurred to dispose of these assets. The value in use is based on the discounted cash flow model. Cash flow derives from the budget for a period equivalent to the useful life of the underlying asset, and does not include any reorganization activity to which the company has committed, or any material future investments aimed at improving the asset base of the CGU being tested.

The recoverable value changes in accordance with the discount rates used in the discounted cash flow method, as well as with expected cash receivables and the growth rates of revenue and expenses used for extrapolation purposes.

As of December 31, 2011 and 2010, the main non-financial assets for which specific analysis were performed are fixed assets and intangibles, including goodwill.

(b)
Provision for asset retirement obligation

The estimated costs of dismantling towers and equipment in rented buildings are capitalized and amortized over the useful life of these assets. The Company recognizes, by estimating the present value of these costs and their amortization period. These estimates involve both the assessment of which would be the costs of demobilization and the use of the discount rate to determine the present value of such costs. This estimate is sensitive to different economic conditions that can not be confirmed when the effective demobilization of assets.

(c)
Income and social contribution taxes (current and deferred)
 
Income and social contribution taxes (current and deferred) are calculated in accordance with prudent interpretations of the regulations currently in force. This process normally includes complex estimates in order to define the taxable income and temporary differences that are deductible or taxable. Deferred tax credits on fiscal losses, the negative basis for social contribution, and temporary differences are particularly recognized according to the expected availability and possible use of an actual taxable profit in the future. Together, the recoverability of the deferred income tax on tax losses, the negative base for social contribution, and temporary differences take into account estimates of future taxable income and are based on conservative tax assumptions.

(d)
Provision for doubtful accounts
 
The provision for doubtful accounts is shown as a reduction from accounts receivable and is recorded based on the customer portfolio profile, the aging of past due accounts, the economic scenario and the risks involved in each case. The provision amount is considered sufficient to cover any losses on receivables.
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated

 
(e)
Provision for contingencies

Contingencies are analyzed by the Company's management and (internal and external) legal advisors. The Company's reviews take into account factors such as the hierarchy of laws, the available case law, recent court decisions and their relevance in the legislation. Such reviews involve management using their own judgment.

(f)
Fair value of financial instruments

The Company has adopted the change in IFRS 7 for financial instruments measured at fair value in the balance sheet, which requires the disclosure of measurements in accordance with the following hierarchy:

●
Prices quoted (not adjusted) on active markets for identical assets and liabilities (Level 1).

●
Information, other than the prices quoted, included in level 1 and adopted by the market for a given asset or liability in a direct (that is, as prices) or indirect (deriving from prices) manner (Level 2).

●
Assets or liabilities insertions that are not based on market data (that is, non-observable insertions) (Level 3).

(g)
Business combination

The Company uses the purchase accounting method to record the acquisition of subsidiaries by the Group. The cost of acquisition is measured as the fair value of assets offered, equity instruments (e.g. shares) issued and liabilities incurred or assumed by the purchaser on the date of exchange control. On the other hand, the identifiable assets acquired, liabilities assumed and contingencies are also measured at their fair value. Thus, the determination of the fair value of these components of a business combination involves management judgment. Specifically for the year ended December 31, 2011, the Company made the acquisition of companies Eletropaulo Telecomunica ç õ es  Ltda. and AES Communications Rio de Janeiro S.A. and carried out a mapping exercise and preliminary valuation of identifiable assets acquired and liabilities assumed of contingencies and therefore are subject to further revision in the existing rules for this type of transaction.


6
Cash and cash equivalents

   
2011
   
2010
 
             
Cash and banks
    110,231       104,024  
Financial investments
               
CDB
    3,152,624       2,272,208  
                 
      3,262,855       2,376,232  

Bank Deposit Certificates ("CDBs") are registered securities issued by banks and sold to the public as a means of fundraising, and can be traded at any time during the contracted period.

 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


7
Financial assets valued at fair value through income

   
2011
   
2010
 
 
           
CDB
    27,745       31,561  
Federal public securities
            308  
 
               
 
    27,745       31,869  
 
               
Current portion
    (1,872 )     (18,177 )
 
               
Non-current portion
    25,873       13,692  

The average return on the company's consolidated investments was 101.21% of the Interbank Deposit Certificate ("CDI") variation.

These investments are redeemable at any time, with no significant loss of recorded earnings, except in the case of long-term investments earmarked in connection to ongoing legal action.


8
Trade accounts receivable

   
2011
   
2010
 
 
           
Billed services
    999,908       909,430  
Unbilled services
    662,880       624,962  
Network use
    779,227       596,166  
Sale of goods
    1,221,680       935,105  
Other accounts receivable
    2,554       810  
                 
      3,666,249       3,066,473  
                 
Provision for doubtful accounts
    (320,755 )     (369,043 )
                 
      3,345,494       2,697,430  
                 
Current portion
    (3,285,782 )     (2,660,618 )
                 
Long-term portion
    59,712       36,812  

The accounting value and fair value of trade account receivable are the same as of December 31, 2011 and 2010.

Part of the accounts receivable was presented as collateral for loans (see Note 19).
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


The variation in the provision for doubtful accounts is as follows:

          (Twelve months )  
 
           
   
2011
   
2010
 
 
           
Initial balance
    369,043       408,606  
 
               
Provision recording
    231,529       310,498  
Provision write-offs
    (279,817 )     (350,061 )
 
               
Final balance
    320,755       369,043  

The aging of accounts receivable is recorded as follows:

   
2011
   
2010
 
 
           
To become due
    2,744,953       2,149,609  
Overdue for up to 30 days
    177,429       160,621  
Overdue for up to 60 days
    71,127       58,678  
Overdue for up to 90 days
    267,285       343,810  
Overdue for more than 90 days
    405,455       353,755  
 
               
      3,666,249       3,066,473  


9
Inventory

   
2011
   
2010
 
 
           
Cellphone sets
    239,220       205,381  
Accessories and pre-paid cards
    10,967       12,887  
TIM chips
    38,875       21,516  
 
               
      289,062       239,784  
 
               
Provision for adjustment to realization amount
    (15,891 )     (11,130 )
 
               
      273,171       228,654  

 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


10
Indirect taxes and contributions recoverable

   
2011
   
2010
 
 
           
ICMS
    978,826       679,350  
Other
    5,678       2,797  
                 
      984,504       682,147  
                 
Current portion
    (608,025 )     (494,036 )
                 
Non-current portion
    376,479       188,111  

The non-current portion basically refers to ICMS (VAT) on acquisitions of the subsidiaries' property, plant and equipment.


11
Direct taxes and contributions recoverable

   
2011
   
2010
 
 
           
Income and social contribution taxes
    357,355       262,647  
PIS/COFINS
    261,583       211,255  
Other
    20,036       27,393  
                 
      638,974       501,295  
                 
Current portion
    (616,235 )     (361,929 )
                 
Non-current portion
    22,739       139,366  

Contingent fiscal credits

The holding TIM Participações S.A. and TIM Celular have filed suits against Law n o 9.718/98, regarding the unconstitutional nature of Article 3 thereof, specifically in regard to the expansion of the basis for the calculation of taxes set out therein. Briefly, the argument prevents the collection of PIS and COFINS on revenue other than that arising from the Company's sales.

It is important to point out that the Higher Courts have already rendered undisputable decisions in favor of taxpayers concerning this matter. The proceedings, including those where a favorable interim ruling has been rendered, given that there is no ergo omnes effect or general repercussions on this matter, depend on a final and unappeallable decision from a higher court in order for the corresponding asset to be recorded in the books and for it to be used. Management, however, believes that a favorable ruling for the company and its subsidiary is probable, however, no asset was recorded in the financial statements since it refers to a contingent asset. The amounts involved are R$ 19,959 and R$ 46,535 respectively, monetarily restated.

 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


12
Deferred income and social contribution taxes

Deferred income and social contribution taxes are calculated using the current rates for each tax, which are 25% for income tax and 9% for social contribution tax. It also consider the tax incentives presented in Note 36.

The amounts recorded in the books are as follow:

         
Consolidated
 
             
   
2011
   
2010
 
 
           
Tax losses
    1,514,183       1,669,112  
Negative social contribution basis
    558,845       600,852  
                 
Temporary differences
               
Provision for doubtful debts
    107,893       126,003  
Derivative transactions
    15,276       48,853  
Provision for contingencies
    77,886       84,679  
Accelerated depreciation of TDMA equipment
    264       11,419  
Adjustment to present value - 3G licensing
    22,718       24,660  
Deferred income tax on CPC adjustments
    172,784       193,674  
FISTEL Provision – Law 11.652
    42,680       19,069  
Business combination - Intelig
    (75,015 )     (83,708 )
Provision for employee profit sharing
    12,607       12,791  
Taxes with suspended chargeability
    12,872          
Other
    29,988       5,640  
                 
      2,492,981       2,713,044  
                 
Provision for devaluation of tax credits
    (1,081,801 )     (1,064,020 )
                 
      1,411,180       1,649,024  
                 
Portion of deferred tax assets
    1,488,235       1,732,732  
                 
Portion of deferred tax liabilities
    (77,055 )     (83,708 )

(a)
TIM Celular

TIM Celular, based on projected future taxable earnings, constitutes deferred income and social contribution tax credits on its total tax losses, negative social contribution basis, and temporary differences.
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated

Based on these projections, the subsidiary shows the following expected credit recoveries:

Year
 
Amount recovering
 
 
     
2012
 
378,827
 
2013
 
310,598
 
2014
 
388,975
 
2015
 
286,051
 
2016 and beyond
120,299
 
 
     
   
1,484,750
 

The estimates for the recovery of tax credits were calculated taking into account the financial and business assumptions available at the close of 2011. As mentioned in Note 5, given the uncertainties inherent in the estimation process, these forecasts may not materialize in the future.

(b)
Intelig

Based on estimates of future taxable income and taking into account the history of tax losses and negative social contribution base, Intelig believes that it currently does not have the minimum requisites for recording deferred income and social contribution taxes. Therefore, the subsidiary has maintained the provision for these tax credits. In 2011, the provision amounted to R$ 1,012,082 (R$ 923,907 as at December 31, 2010), of which R$ 884,312 refers to tax losses and negative basis of social contribution and R$ 127,770 refers to temporary differences.

(c)
TIM Fiber RJ S.A. e TIM Fiber SP Ltda.

The indirect subsidiaries TIM Fiber S.A. (Rio de Janeiro) and TIM Fiber Ltda. (São Paulo) have no tax losses and negative basis of social contribution accumulated, and based on their expectations of future taxable income, recorded deferred income tax and social contribution on temporary differences amounting of R$ 43 and R$ 3,442, respectively

(d)
TIM Participações S.A. - Holding

Being a holding company has no activities that normally can offset the tax losses, negative basis of social contribution and accumulated temporary differences. On December 31, 2011, the provision for losses on such deferred tax assets amounted to R$ 69,132.

 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


13
Prepaid expenses

          (reclassified)  
   
2011
   
2010
 
 
           
Rentals and insurance
    44,778       26,930  
Advertising not released
    86,686       80,293  
Network swaps
    72,592       87,421  
Other
    3,320       1,537  
                 
      207,376       196,181  
                 
Current portion
    (114,502 )     (93,768 )
                 
Non-current portion
    92,874       102,413  

On April 1, 2010, the subsidiary Intelig and GVT entered into a reciprocal transfer of costly fiber optic infrastructure (network swap) in order to expand their respective areas. Considering the economic substance of the transaction, the value was recorded in the account of prepaid expenses (current and noncurrent) in counterpart to the category of other liabilities (current and noncurrent). On December 31, 2011, the short-term balance was R$ 8,742 (R$ 8,742 on December 31, 2010) and the long-term balance was R$ 63,850 (R$ 78,679 on December 31, 2010). Both amounts are appropriated to income in the same proportion, over a period of ten years.


14
Court deposits

   
2011
   
2010
 
 
           
Civil
    153,253       112,175  
Labor
    153,653       103,092  
Tax (*)
    300,616       170,148  
Regulatory
    105       104  
 
               
      607,627       385,519  

(*)
In April 2008, Federal Law n o 11652 was published relating to the payment of the contribution for the Development of the Public Radio Service for EBC ( Empresa Brasil de Comunicação ). It is the understanding of the company that this Law is unconstitutional since the contribution instituted lacks the necessary characteristics for the valid creation of any taxes in accordance with the Federal Constitution. An injunction was filed in court to protect the interests of TIM Celular. In March 2010 and March 2011 court deposits were made related to the contribution for 2010 and 2011.These amount to R$ 56,086 and R$ 69,445 respectively, totaling R$ 125,531. A provision was recorded for this amount under "Indirect taxes and contributions payable" under Long-Term Liabilities, considering that it is related to a legal obligation. The writ of security is pending a decision from the lower court and, in the opinion of the Company's internal and external legal counsel, the risk of loss is possible.

 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


15
Other assets

   
2011
   
2010
 
 
           
Advances to suppliers
    26,956       61,403  
Advance to employees
    5,044       4,879  
Fiscal incentives
    6,554       13,533  
Other rights
    44,125       36,539  
                 
      82,679       116,354  
                 
Current portion
    (68,795 )     (98,591 )
Non-current portion     13,884       17,763  
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


16
Plant, property and equipment

(a)
Variations in property, plant and equipment

   
Balance as of December 31, 2010
   
Assets arising from acquired entities
   
Additions
   
Write-offs
   
Transfers
   
Balance as of December 31, 2011
 
                                     
Cost of property, plant and equipment, gross
                                   
Commutation/transmission equipment
    9,428,829       168,131                   1,275,756       10,872,716  
Fiber optic cables
    466,438       117,013                   4,543       587,994  
Loaned handsets
    1,326,068                     (232,737 )     397,170       1,490,501  
Infrastructure
    2,211,729       110,943             (63,488 )     514,278       2,773,462  
Computer assets
    1,156,631       9,828             (4,121 )     94,197       1,256,535  
General use assets
    457,828       12,249             (554 )     (43,997 )     425,526  
Land
    38,175                             2,324       40,499  
Construction work in progress
    1,078,304       9,854       1,788,231               (2,244,271 )     632,118  
                                                 
Total property, plant and equipment, gross
    16,164,002       428,018       1,788,231       (300,900 )             18,079,351  
                                                 
Accumulated depreciation
                                               
Commutation/transmission equipment
    (6,619,862 )             (886,952 )     362,012       (60 )     (7,144,862 )
Fiber optic cables
    (30,934 )     (36,642 )     (32,341 )                     (99,917 )
Loaned handsets
    (1,112,108 )             (207,886 )     23,537               (1,296,457 )
Infrastructure
    (1,282,715 )     (97,048 )     (169,610 )     327       (19,993 )     (1,569,039 )
Computer assets
    (1,029,609 )     (4,465 )     (62,673 )     778               (1,095,969 )
General use assets
    (225,051 )     (7,595 )     (36,739 )     307       20,053       (249,025 )
                                                 
Total accumulated depreciation
    (10,300,279 )     (145,750 )     (1,396,201 )     386,961               (11,455,269 )
                                                 
Total property, plant and equipment, net
                                               
Commutation/transmission equipment
    2,808,967       168,131       (886,952 )     362,012       1,275,696       3,727,854  
Fiber optic cables
    435,504       80,371       (32,341 )             4,543       488,077  
Loaned handsets
    213,960               (207,886 )     (209,200 )     397,170       194,044  
Infrastructure
    929,014       13,895       (169,610 )     (63,161 )     494,285       1,204,423  
Computer assets
    127,022       5,363       (62,673 )     (3,343 )     94,197       160,566  
General use assets
    232,777       4,654       (36,739 )     (247 )     (23,944 )     176,501  
Land
    38,175                               2,324       40,499  
Construction work in progress
    1,078,304       9,853       1,788,231               (2,244,271 )     632,117  
                                                 
Total property, plant and equipment, net
    5,863,723       282,267       392,030       86,061               6,624,081  
 
   
Balance as of December 31, 2009
   
Additions
   
Write-offs
   
Transfers
   
Balance as of December 31, 2010
 
                               
Cost of property, plant and equipment, gross
                             
Commutation/transmission equipment
    8,538,467             (2,545 )     892,907       9,428,829  
Fiber optic cables
    463,384                     3,054       466,438  
Loaned handsets
    1,212,042             (72,687 )     186,713       1,326,068  
Infrastructure
    2,049,973             (39 )     161,795       2,211,729  
Computer assets
    1,106,637                     49,994       1,156,631  
General use assets
    432,980             (1,862 )     26,710       457,828  
Land
    37,622                     553       38,175  
Construction work in progress
    654,045       1,745,985               (1,321,726 )     1,078,304  
                                         
Total property, plant and equipment, gross
    14,495,150       1,745,985       (77,133 )             16,164,002  
                                         
Accumulated depreciation
                                       
Commutation/transmission equipment
    (5,763,613 )     (858,360 )     2,111               (6,619,862 )
Fiber optic cables
            (30,934 )                     (30,934 )
Loaned handsets
    (865,764 )     (291,786 )     45,442               (1,112,108 )
Infrastructure
    (1,137,850 )     (150,734 )     5,869               (1,282,715 )
Computer assets
    (950,838 )     (79,676 )     905               (1,029,609 )
General use assets
    (183,313 )     (37,164 )     (4,574 )             (225,051 )
                                         
Total accumulated depreciation
    (8,901,378 )     (1,448,654 )     49,753               (10,300,279 )
                                         
Total property, plant and equipment, net
                                       
Commutation/transmission equipment
    2,774,854       (858,360 )     (434 )     892,907       2,808,967  
Fiber optic cables
    463,384       (30,934 )             3,054       435,504  
Loaned handsets
    346,278       (291,786 )     (27,245 )     186,713       213,960  
Infrastructure
    912,123       (150,734 )     5,830       161,795       929,014  
Computer assets
    155,799       (79,676 )     905       49,994       127,022  
General use assets
    249,667       (37,164 )     (6,436 )     26,710       232,777  
Land
    37,622                       553       38,175  
Construction work in progress
    654,045       1,745,985               (1,321,726 )     1,078,304  
                                         
Total property, plant and equipment, net
    5,593,772       297,331       (27,380 )             5,863,723  
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated

(b)
Depreciation rates

   
Average annual
rate - %
 
       
Commutation/transmission equipment
 
8 to 14.29
 
Fiber optic cables
 
4 to 10
 
Loaned handsets
    50  
Infrastructure
 
4 to 10
 
Computer assets
    20  
General use assets
 
4 to 10
 

During 2011, pursuant to IAS 27, the Group assessed the useful lives applied to its property, plant and equipment, concluding that there was no significant change or alteration to the circumstances in which the estimates had been based that would justify changes to the useful lives currently in use.

 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


17
Intangible assets

The authorization amounts for SMP operation rights and radio frequency licensing, as well as software, goodwill and other items, were recorded as follow:

(a)
Variations in intangible assets

   
Balance as of December 31, 2010
   
Intangibles arising from acquired entities
   
Additions
   
Write-downs
   
Transfers
   
Balance as of December 31, 2011
 
 
                                   
Cost of intangible assets, gross
                                   
Software rights
    6,861,798       21,529             (39 )     1,052,481       7,935,769  
Concession licenses
    4,266,301                             65,029       4,331,330  
Subsidies on sales of handsets and mini modems
    1,811,580                             8,256       1,819,836  
Goods and facilities in progress
    69,773               1,214,147       (106,503 )     (1,125,766 )     51,651  
Goodwill
    367,571               1,292,671                       1,660,242  
Other assets
    33,181       12,190                               45,371  
 
                                               
Intangible assets
    13,410,204       33,719       2,506,818       (106,542 )             15,844,199  
 
                                               
Accumulated amortization
                                               
Software rights
    (4,870,255 )     (13,607 )     (790,717 )     (420 )             (5,674,999 )
Concession licenses
    (2,246,144 )             (305,891 )                     (2,552,035 )
Subsidies on sales of handsets and mini modems
    (1,749,030 )     (7,975 )     (70,807 )                     (1,819,837 )
Other assets
    (8,927 )             (6,150 )                     (23,052 )
 
                                               
Total accumulated amortization
    (8,874,356 )     (21,582 )     (1,173,565 )     (420 )             (10,069,923 )
 
                                               
Intangible assets, net
                                               
Software rights
    1,991,543       7,922       (790,717 )     (459 )     1,052,481       2,260,770  
Concession licenses
    2,020,157               (305,891 )             65,029       1,779,295  
Subsidies on sales of handsets and mini modems
    62,550               (70,807 )             8,256       (1 )
Goods and facilities in progress
    69,773               1,214,147       (106,503 )     (1,125,766 )     51,651  
Goodwill
    367,571               1,292,670                       1,660,241  
Other assets
    24,254       4,215       (6,149 )                     22,320  
 
                                               
Total intangible, net
    4,535,848       12,137       1,333,253       (106,962 )             5,774,276  

 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


   
Balance as of December 31, 2009
   
Additions
   
Transfers
   
Write-downs
   
Balance as of December 31, 2010
 
 
                             
Cost of intangible assets, gross
                             
Software rights
    6,115,624             746,174             6,861,798  
Concession licenses
    4,266,301                           4,266,301  
Subsidies on sales of handsets and mini modems
    1,521,244             290,336             1,811,580  
Goods and facilities in progress
    16,508       1,089,775       (1,036,510 )           69,773  
Goodwill
    367,571                             367,571  
Other assets
    33,181                             33,181  
 
                                     
Total intangible
    12,320,429       1,089,775                     13,410,204  
 
                                     
Accumulated amortization
                                     
Software rights
    (4,075,570 )     (794,858 )             173       (4,870,255 )
Concession licenses
    (1,943,627 )     (302,517 )                     (2,246,144 )
Subsidies on sales of handsets and mini modems
    (1,307,664 )     (441,366 )                     (1,749,030 )
Other assets
    (2,856 )     (6,066 )             (5 )     (8,927 )
 
                                       
Total accumulated amortization
    (7,329,717 )     (1,544,807 )             168       (8,874,356 )
 
                                       
Intangible assets, net
                                       
Software rights
    2,040,054       (794,858 )     746,174       173       1,991,543  
Concession licenses
    2,322,674       (302,517 )                     2,020,157  
Subsidies on sales of handsets and mini modems
    213,580       (441,366 )     290,336               62,550  
Goods and facilities in progress
    16,508       1,089,775       (1,036,510 )             69,773  
Goodwill
    367,571                               367,571  
Other assets
    30,325       (6,066 )             (5 )     24,254  
 
                                       
Intangible assets, net
    4,990,712       (455,032 )             168       4,535,848  

(b)
Amortization rates

   
Average annual
rate - %
 
       
Software rights
    20  
Concession licenses
 
5 to 20
 
Other assets
    20  

Subsidies on the sale of handsets and mini modems are amortized over 12 months.

(c)
Goodwill recorded in previous years

In the year ended December 31, 2009, as a result of the assessment of fair value of identifiable assets acquired and liabilities assumed in the date of Intelig acquisition, the net assets acquired at fair value totaled R$ 529,714. Thus, the purchase price paid for Intelig in the amount of R$ 739,729 at December 30, 2009 was higher than the fair value of net assets acquired in the amount of R$ 210,015. Said excess amount was allocated as goodwill and is represented/motivated by the expectation of future profitability of the Company, based on projections prepared by the Company in conjunction with investment banks.
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


In 2005 the Company acquired all the shares from minority shareholders in TIM Sul and TIM Nordeste Telecomunicações with shares issued by TIM Participações S.A., converting those enterprises into full subsidiaries. This transaction was recorded at that time by the book value of these shares in the financial statements, not recording goodwill from the difference between the market value of shares traded. For purposes of the first adoption of IFRS in 2010, the Company chose to apply the exemption permitted by IFRS 1, and recorded goodwill of R$ 157,556, which was established at the time when preparing IFRS financial statements reported to the parent company in 2005.

Impairment testing on intangible assets with indefinite useful lives.

Once a year the Company tests the recoverability of goodwill recorded in the expectation of future profitability. These calculations were made based on discounted cash flow, the parameters of which were the assumptions contained in the company's ten-year industrial plan, and applied growth rates compatible with the market in which the company operates and a discount rate of 10% p.a. The results of these tests revealed no need for additional accounting provisions.


18
Suppliers

   
2011
   
2010
 
 
           
Local currency
           
Suppliers of materials and services
    3,168,538       2,673,885  
Interconnection (i)
    337,603       210,307  
Roaming (ii)
    147       240  
Co-billing (iii)
    75,836       91,870  
                 
      3,582,124       2,976,302  
                 
Foreign currency
               
Suppliers of materials and services
    56,679       71,994  
Interconnection (i)
    1,416          
Roaming (ii)
    69,082       55,173  
                 
      127,177       127,167  
                 
Current portion
    3,709,301       3,103,469  

(i)
This refers to the use of the networks of other landline and mobile telephone operators, with calls being initiated from the TIM network and ending in the networks of other operators.

(ii)
This refers to calls made by customers outside of their registration area, who are therefore considered visitors to the other network.

(iii)
This refers to calls made by a customer who chooses another long-distance operator.
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


19
Loans and financing

Description
 
Currency
 
Charges  - %
Maturity date
Guarantees
 
2011
   
2010
 
                         
BNDES
 
URTJLP
 
URTJLP + 1.72
to 4.8 p.a.
October 2011 to
July 2018
Guarantee from TIM Participações and receivables of TIM Celular
    1,575,385       1,787,897  
BNDES
 
UMIPCA
 
UMIPCA + 2.62 p.a.
July 2017
Guarantee from TIM Participações and receivables of TIM Celular
    191,937       163,339  
BNDES (PSI)
  R$  
4.5 p.a.
July 2018
Guarantee from TIM Participações and receivables of TIM Celular
    139,591       70,098  
BNB
  R$  
10 p.a.
June 2012 to
January 2016
Bank surety and surety of TIM Participações
    73,735       118,250  
Santander (CCB)
  R$  
108 of the CDI
September 2012 and
October 2012
      218,363       204,957  
Santander (Resolution 2770)
  R$  
108 of the CDI
December 2012
      159,354       165,901  
Banco BNP Paribas
 
US$
 
LIBOR 6M + 2.53 p.a.
December 2017
Surety of TIM Participações
    267,774       244,891  
European Investment Bank (EIB)
 
US$
 
LIBOR 6M + 57
to 0.67 p.a.
September 2016 to
June 2017
Bank surety and surety of TIM Participações
    532,124       479,337  
Bank of America (Res. 4131)
 
US$
 
LIBOR 3M + 1.25 p.a.
September 2013
      223,382          
JP Morgan (Res. 4131)
 
US$
 
1.56 p.a.
September 2013
      187,196          
Itaú (CCB)
  R$  
CDI + 1.50
August 2014 to
September 2014
      91,742          
                               
Total                   3,660,583       3,234,670  
                               
Current
                  (1,090,174 )     (957,549 )
                               
Non-current
                  2,570,409       2,277,121  
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


The foreign currency loan taken out with Banco BNP Paribas, with a guarantee provided by the SACE group has restrictive clauses under which that company has to comply with certain financial indices effective for syndicated loans calculated on a half-yearly basis. The subsidiary TIM Celular is in compliance with all of the required financial indices.

The facilities that TIM Celular has taken from BNDES (Banco Nacional de Desenvolvimento), for the purpose of expanding the mobile telephone network, also has restrictive clauses under which the company has to comply with certain financial indices that are calculated on a half-yearly basis. The subsidiary has complied with all the required financial indices.

In 2011, BNDES-linked funds were released amounting to approximately R$ 370 million, of which (i) R$ 154 million at the rate of TJLP + 3.62% p.a., was disbursed in May, (ii) R$ 80 million, costing 4.5% p.a., was disbursed in June under the Sustained Investment Program ("PSI"), and (iii) R$ 136 million, at a cost of TJLP + 3.62% p.a., was disbursed in November.

The amount of R$ 80 million, released in July 2011 and concerning the funding line PSI (Investment Support Program), teem its resources for the acquisition of machinery and equipment on projects to expand the network capacity. This program has BNDES subsidized interest rates (4.5%) compared to lines of credit available and even when compared to the rates offered by the BNDES, in other transactions with similar goals and deadlines. Thus, this operation falls within the scope of IAS 20 - "Grants and Government Assistance". Therefore, using the effective interest method defined by IAS 39 - "Financial Instruments: Recognition and Measurement" were made the following considerations: We performed a comparison between (i) the total amount of debt calculated based on rates set by contract and (ii) the total amount of debt calculated based on average rates charged by the market (fair value). Based on this comparison, the subsidy granted by BNDES adjusted to fair value resulted in approximately R$ 18 million, this amount being recorded in the group "Revenue Anticipated Grants Government LP", and will be deferred over the life of the asset being financed and appropriate the group of "Other Revenue Grant." In the year ended December 31, 2011 the amount recognized as expense in the caption above amounts to R$ 4,331 (2010 - R$ 1,084).

In March 2011, the subsidiary TIM Celular renewed facilities of R$ 350 million for a further 18 months, involving (i) Bank Credit Note ("CCB") transactions expected to mature in April 2011, amounting to R$ 200 million, and (ii) an agreement for the forward lending of Funds in reais raised overseas (Res. 2770), maturing in June 2011 and amounting to R$ 150 million, both with Banco Santander Brasil S.A., at a cost of 108% of the CDI rate.

In September 2011, the subsidiary TIM Celular raised R$ 373 million 4131 foreign currency loans with (i) JP Morgan providing R$ 173 million and Bank of America Merrill Lynch ("BofA") providing R$ 200 million, both maturing in September 2013. Simultaneously with the disbursement, swap transactions were closed in order to fully protect these transactions against exchange rate exposure.

In October 2011, the subsidiary TIM Celular concluded the purchase of the companies AES Communications Rio de Janeiro S.A. and Eletropaulo Telecomunicações Ltd., now referred to as TIM Fiber RJ and TIM Fiber SP, respectively. These companies have a debt to Itaú Unibanco totaling R$ 90 million, maturing between August and September 2014. The agreements contain restrictive clauses covering compliance with certain financial ratios, calculated semi-annually. The companies have been complying with all ratios required.

In December 2011, the subsidiary TIM Celular entered into a new credit facility with the European Investment Bank, for up to € 100 million.
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


The subsidiary TIM Celular has swap transactions to fully hedge itself against any devaluation of the real currency vis-à-vis the US dollar and partially against changes in the fair value of its loans, which were pegged to fixed interest rates and the TJLP (long-term interest rate).

The long-term portions of loans and financing as of December 31, 2011 mature as follow:

Year of reimbursement
     
       
2013
 
864,166
 
2014
 
339,523
 
2015
 
281,129
 
2016
 
723,042
 
2017 onwards
 
362,549
 
       
   
2,570,409
 

Fair value of loans and financings

In Brazil, there is no established market for long-term debt with the characteristics of the BNB and BNDES financing. The institutions consider, in addition to the returns of long-term debt, the social benefits of each project linked to its funding. For purposes of our analysis of fair value, given the absence of similar market and the need for adherence of projects to government interests, usually considered to be the fair value of the loan that is recorded in account balances.

Another operation that has employed highly specific characteristics is obtained the loan from BNP. In this operation, we have as a guarantor company SACE, Italian insurer, which also has responsibilities for the development institution. Given the characteristics of the operation, we believe that fair value is equal to the value recorded on the balance of the Company.

With respect to funding operations with banks Santander, Bank of America and JP Morgan, it is considered that they were held recently. Given the short time between the date of capture and closing the fiscal year, current market conditions do not indicate the existence of factors that may lead to a fair value of the transactions differ from that recorded on the books.

Following the evaluation criterion that considers the characteristics of similar operations, the Company identified differences between fair value and book value of fund raising from banks BEI and Itaú Bank. Both have fair values ​​ less than the carrying amounts respectively in R$ 26,702 and R$ 91.


20
Labor obligations

   
2011
   
2010
 
 
           
Payroll taxes
    38,200       31,522  
Salaries and provisions payable
    95,718       85,337  
Employees' withholding
    11,885       8,433  
                 
      145,803       125,292  

 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


21
Indirect taxes, fees and contributions payable

   
2011
   
2010
 
 
           
ICMS
    489,734       419,294  
ANATEL taxes and fees
    295,431       128,870  
ISS
    52,534       46,539  
Other
    10,923       7,392  
                 
      848,622       602,095  
                 
Current portion
    (705,669 )     (544,375 )
                 
Non-current portion
    142,953       57,720  

Management periodically evaluates the interpretations of tax laws by attending to the publication of new laws, the existence of new case law and other factors that may lead to changes in positions previously assumed. As part of this evaluation, the Company concluded that there currently exists the reasons for the change in their tax positions in relation to Fust and Funttel on certain services. Thus, the Company recorded an additional provision of R$ 88,023 on these taxes.


22
Direct taxes, fees and contributions payable

   
2011
   
2010
 
 
           
Income and social contribution taxes
    486,612       289,659  
PIS/COFINS
    121,671       100,779  
Other
    13,288       13,871  
 
               
      621,571       404,309  
 
               
Current portion
    (454,124 )     (265,328 )
 
               
Non-current portion
    167,447       138,981  

In November 2009, the company joined the Fiscal Recovery Program introduced by Law n o 11.941/09 and Provisional Measure n o 470/2009, with the aim of equalizing and regularizing tax liabilities using a special payment system involving installment payments of its tax and social security obligations. In June 2011, the subsidiary opted to include debits not appearing in the assessment in the REFIS ( Programa de Recuperação Fiscal - Tax Recovery Program) program which provides for an amnesty from penalties and interest under the installment payment system for debits under the responsibility of the Federal Revenue Department.

The general conditions of this installment program can be summarized as follow:

(a)
The (historical) principal amount is payable over 180 months. Interest and penalties will be paid using the tax losses accumulated by the subsidiary, benefiting from the 60% reduction in interest and 25% in the penalty.
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


(b)
The range of installment debits:

   
Restated principal amount
   
 
Penalty
   
 
Interest
 
 
                 
Income and social contribution taxes
    27,637       16,996       31,931  
PIS and COFINS taxes
    32,243       7,035       16,163  
 
                       
      59,880       24,001       48,094  

The debits to be paid in installments comprise primarily the following court actions:

●
Income and social contribution taxes: (i) failure to pay corporate income tax over the monthly estimated base concerning the year 2002, amounting to R$ 39,636; (ii) the setting-off of income and social contribution taxes against non-ratified PIS and COFINS tax credits totaling R$ 36,898.

●
PIS and COFINS taxes: setting-off of PIS and COFINS taxes using non ratified PIS and COFINS credits amounting to R$ 55,441.

(c)
The gains corresponding to the reduction of past due and official penalties involving income and social contribution taxes previously booked to liabilities, amounting to R$ 28,455 was recorded under the items "Income and social contribution tax expenses" (R$ 6,224) and "Financial expenses" (R$ 22,231).

(d)
The amount of the fiscal losses used to settle the debits totaled R$ 45,671 as at December 31, 2011.  As a result of having joined the REFIS Program, the company is obligated to pay the installments, with delays limited to three months, in addition to withdrawing court actions and waiving any legal allegations on which these actions are based, under pain of the immediate termination of the installment program and the consequent loss of the benefits previously mentioned.
 


23
Other liabilities

   
2011
   
2010
 
 
           
Pre-paid services to be provided (i)
    256,778       161,566  
Combination of shares (ii)
    23,281       20,347  
Government subventions (iii)
    37,094       22,772  
Network swap (iv)
    93,136       102,581  
Other liabilities
    24,022       16,984  
                 
      434,311       324,250  
                 
Current portion
    (287,156 )     (181,268 )
                 
Long-term portion
    147,155       142,982  

(i)
Refers to minutes not used by customers for the services of the prepaid plans that are appropriate to the profit and loss when the effective use of these services by customers.
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


(ii)
On May 30, 2007, the Extraordinary Shareholders' Meeting of the Company approved the combination of all the shares issued by the Company in the proportion of one thousand (1,000) existing shares to each one (1) share of the related type. From June 1, 2007 to July 2, 2007, shareholders adjusted their equity holdings in batches with multiples of one thousand (1,000) shares, per type, through private negotiation, on the OTC market or on the São Paulo Stock Exchange (BOVESPA) at their free and sole discretion. Thus, the record of the debt corresponds to the amount to be paid to shareholders arising from breaches of the Group.
 
On September 18, 2007 auction was held on the Stock Exchange of São Paulo-BOVESPA for sale of 2,285,736 shares (1,185,651 common shares under the code TCSL3 and 1,100,085 preferred shares under the code TCSL4), corresponding to fractions resulting in this group. The values calculated in the sale are available to holders of these fractions at any time.

Additionally, in the balance of 2011, also are recorded values related treasury shares described in Note 26 (c).

(iii)
In August 2010, funds began to be released under the credit facility from the BNDES Investment Sustainment Program - ("BNDES PSI"), whereby up to December 2011, the amount disbursed totaled R$ 172,000. This transaction is classified within the scope of IAS 20 - "Government Subventions and Assistance". The subvention granted by BNDES, adjusted to its present value, resulted in R$ 41,053 and is being amortized according to the useful life of the asset being financed and appropriated to "Other operational expenses, net" (Note 32).

(iv)
Refers mainly to sale contracts and reciprocal costly infrastructure of fiber optics.


24
Provision for contingencies

The companies of the Group are parties to administrative and legal proceedings (civil, labor, tax and regulatory) which arise in the normal course of their business, and have set up provisions whenever Management, based on the opinion of its legal advisors, concludes that there is a significant risk of loss.

The provision for contingencies is composed as follows:

   
2011
   
2010
 
 
           
Civil
    42,482       40,531  
Labor
    56,083       53,162  
Tax
    126,530       145,099  
Regulatory
    4,426       10,265  
                 
      229,521       249,057  
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


The changes in the provision for contingencies can be summed up as follows:

   
December
31, 2010
   
Balance company acquired
   
Additions net of reversals
   
 
Payment
   
Monetary adjustment(*)
   
December
 31, 2011
 
                                     
Civil (a)
    40,531             136,663       (135,207 )     495       42,482  
Labor (b)
    53,162       462       3,208       (903 )     154       56,083  
Tax (c)
    145,099       75       21,220       (27,137 )     (12,727 )     126,530  
Regulatory (d)
    10,265               3,321       (8,493 )     (667 )     4,426  
                                                 
      249,057       537       164,412       (171,740 )     (12,745 )     229,521  

(*) Monetary restatement of the tax contingencies includes the reversal of monetary restatement totaling R$ 22,231 for income and social contribution tax processes included in the REFIS in June 2011.

(a)
Civil provisions

The Group is subject to various legal and administrative proceedings filed against them by consumers, suppliers, service providers and consumer protection agencies, in connection with a number of issues that arise in the regular course of business. Management analyzes each legal or administrative proceeding with the aim of reaching a conclusion in relation to any particular contingency, classifying it as representing a probable, possible or remote risk. This assessment made by management is based upon the opinion of internal and external lawyers . This assessment is regularly reviewed, and can be changed over the course of the proceedings, in light of new facts or events, such as changes in case law.

(a.1)
Consumer lawsuits

The subsidiaries are parties to roughly 66,533 lawsuits (as against 69,890 as at December 31, 2010), which are claims filed by consumers in the judicial and administrative spheres, and involve TIM Celular, INTELIG, TIM Fiber RJ and TIM Fiber SP. The aforementioned lawsuits relate to the relationships between the subsidiaries and their clients, with the highlight, where TIM Celular S.A. is concerned, going to alleged undue collections, contract cancellations, service quality, deficiencies and failures in equipment delivery, and unjustified inclusion in credit report services. For the subject matters underlying the cases against INTELIG, those worthy of note relate to improper charging and unjustified inclusion in bad debtors' lists. As at December 31, 2011, cases where the chances of loss are probable stood at R$ 25,335 (2010 - R$ 24,109), and full provision has been made for these.

(a.2)
Class action lawsuits

There are four main class action lawsuits against subsidiaries where the risk of loss is regarded as being probable: (i) a lawsuit against TIM Celular in the State of Bahia with the aim of obtaining a ban on charging long-distance rates for calls originating and received between the towns of Petrolina, in the State of Pernambuco, and Juazeiro, in the State of Bahia, due to the existence of "state border areas"; and (ii) a lawsuit against TIM Celular in the State of Rio de Janeiro, involving the impossibility of charging a contract termination penalty in the case of theft or robbery of handsets; (iii) a lawsuit filed by the municipal consumer protection agency of Chapecó, Santa Catarina against INTELIG, which questions non-compliance with Article 61 of ANATEL Resolution 85 (retroactive charging); and (iv) a lawsuit filed by the Public Prosecutor's Office in Uberlândia questioning non-compliance with Article 61 of ANATEL Resolution 85 (retroactive charging).
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


Due to the fact that these lawsuits entail positive and negative obligations, and taking into account the impossibility of accurately quantifying possible losses at the current stage of the legal proceedings, no provision has been made by Management regarding the above described contingencies.

(b)
Labor provisions

These refer both to claims filed by former employees, in relation to matters such as salary differences, wage parity, payments of variable compensation/commission, additional legal payments, overtime and other provisions that were established during the period prior to privatization, as well as by former employees of service providers who, in accordance with the labor legislation in force, have filed claims against the Company and/or its subsidiaries on the grounds that they are responsible for labor related obligations that were not met by the contracted service provider companies.

Out of the 8,156 labor claims as at December 31, 2011 (6,172 as at December 31, 2010) filed against the Group, 83% relate to service providers, with the great majority of these claims being concentrated on certain companies, which for the most part are located in the cities of São Paulo, Belo Horizonte, Rio de Janeiro, Curitiba and Recife.

In relation to third party claims, a number of these relate to specific projects involving the revision of service provider contracts, which in 2006 led to the termination of some of these contracts, with the subsequent winding up of these companies and the laying-off of employees. Another significant percentage of the contingencies that exist relate to the organizational restructuring processes, in particular the closure of the Client Relationship Centers (call centers) in Fortaleza, Salvador and Belo Horizonte, which resulted in the termination of some 800 employees, including in-house staff as well as outsourced personnel.

Any assessment of the chances of loss in relation to these actions and the contingent amounts is subject to revision at periodic intervals, taking into account the legal decisions made during the course of the aforementioned processes, on account of regulatory changes or changes in the case law guidelines and precedents issued by Superior Courts. As at December 31, 2011, cases where the chances of loss are probable stood at R$ 21,081 (2010 - R$ 20,117), and full provision has been made.

Adjustments to the labor provision are based, for the most part, on the concentration of efforts aimed at intensifying the standardization process in relation to the classification of the risks of labor-related claims involving the Group, taking into account the fact that the management of labor litigation makes use of numerous methods of procedural analysis and the evaluation of the existing risks.

(c)
Tax provisions

(c.1)
IR and CSLL

In 2005, TIM Celular was notified by the Minas Gerais office of the Federal Revenue Department for the sum of R$ 126,933, in connection with: (i) the taxation of monetary variations on swap transactions and exchange variations on outstanding loans; (ii) a separate fine for failure to pay social contribution tax on net income on an estimated monthly basis for the year 2002 and part of 2001; (iii) alleged failure to pay corporate income tax on an estimated monthly basis for the year 2002; and (iv) remittance of interest overseas (IRRF - withholding income tax) - a voluntary disclosure that does not entail payment of arrears charges.
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


The subsidiary is currently challenging these assessments with the tax authorities. Based on the opinions of both the company's own lawyers as well as of law firms that provide the company with legal advice, Management concluded that the probable loss to be incurred in relation to these processes would amount to R$ 32,750, and set up a provision in 2005 for this amount, under the heading "Provision for income and social contribution taxes".

In September 2009, TIM Celular enrolled in the REFIS (Fiscal Recovery Program) which provided amnesty in relation to fines and interest charges along with the possibility of payment of federal tax debits by installment. TIM Celular opted to partially join the REFIS program regarding these fines, and paid the sum of R$ 4,884 in relation to the installment corresponding to the exclusion of exchange rate variations from net income on the CSLL (Social Contributions on Net Income) base. The amount of the provision that was set up under the heading "Provision for income and social contribution taxes" in connection with CSLL was R$ 8,547, while the amount of R$ 3,663, which corresponds to the difference between the amount of the provision and the amount that was actually paid, was reversed in favor of the subsidiary.

In June 2011, the subsidiary opted to be included into the REFIS for the amount of R$ 24,203,relating to the failure to pay corporate income tax on the estimated monthly basis for the year 2002, and where management considers a loss to be probable.

In addition, the subsidiary won the assessment notice that disputed the remittance of interest abroad (WHT at source) - a spontaneous indictment without payment of past due charges, amounting to of R$ 19,120.

The subsidiary continues to challenge these assessment notices before the tax authorities. At present the total amount assessed comes to a restated figure of R$ 166,482, with the total remaining amount classified as a possible loss to the subsidiary.

(d)
Regulatory provisions

Due to an alleged failure to comply with some of the provisions set out in the RSMP (Personal Mobile Service Regulations) and STFC (Switched Landline Telephone Service Regulations) and the quality targets defined under the General Quality Targets Plan (PGMQ) for SMP (PGMQ-SMP) and STFC (PGMQ-STFC), ANATEL filed some Procedures for the Determination of Non-Compliance of Obligations ("PADO") involving the subsidiaries.

The subsidiaries have exerted their best efforts and presented all arguments at all administrative levels to avoid sanctions. These arguments, which are mostly of a technical and legal nature, may help significantly reduce the initial monetary penalty (fine) charged or lead to the definitive dismissal of the PADO, without any fines being applied to the company. The provision made by the company reflects this assessment.
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


(e)
Contingencies involving possible losses

Civil, labor, tax and regulatory actions have been filed against the Group involving risks of loss that are classified as possible by management and the Group's legal advisors. No provision has been made for these contingencies, and no materially adverse effects are expected on the financial statements as shown below:

   
2011
   
2010
 
 
           
Civil
    441,586       364,550  
Labor
    312,178       262,330  
Tax
    5,669,726       2,397,408  
Regulatory
    146,901       79,803  
 
               
      6,570,391       3,104,091  

The main actions where the risk of loss is classified as possible are described below:

(e.1)
Civil contingencies

(e.1.1)
Class actions

There are several class actions against subsidiaries where the risk of loss is regarded as probable. They are summarized as follow: (i) a lawsuit against TIM Celular in the State of Pernambuco, challenging the company's policy of exchanging defective handsets, which is allegedly in disagreement with the manufacturer's warranty terms; (ii) a lawsuit against TIM Celular in the State of Rio Grande do Norte (Natal) questioning the quality of the services provided and the network in that state; (iii) a lawsuit against TIM Celular in the State of Pará, challenging the quality of the service provided by the network in São Felix do Xingu and Marabá; (iv) lawsuits against TIM Celular in the State of Maranhão, challenging the quality of the service provided by the network in the following municipalities: Balsas, Grajaú, Coelho Neto, Vitorino Freire and Lago da Pedra; (v) lawsuits against TIM Celular in the State of Ceará, challenging the quality of the services provided and the network in Fortaleza, Iguatu, MonsenhorTabosa, Icó and Icapuí; (vi) lawsuits against TIM Celular in the State of Piauí, challenging the quality of the services provided and the network in that state; (vii) lawsuits against TIM Celular in the State of Rondônia, challenging the quality of the services provided and of the network in the municipality of Machadinho do Oeste and Vale do Anari; (viii) lawsuits against TIM Celular in the State of Amazonas, challenging the quality of the services provided and of the network in that state, like in Manaus, Tabatinga and Humaitá; (ix) lawsuits against TIM Celular in the State of Mato Grosso, challenging the quality of the services provided and of the network in Novo São Joaquim, Campinópolis and Nova Xavantina; (x) a lawsuit filed against TIM Celular in the State of Pernambuco, specifically in the municipality of Araripina; (xi) a lawsuit filed against TIM Celular, challenging the long-distance charges levied on calls made in the municipality of Bertioga - State of São Paulo and in the surrounding region; and (xi) a lawsuit against TIM Celular in the State of Rio de Janeiro, challenging the sending of an SMS without the consumer's prior consent.
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


(e.1.2)
Other actions and proceedings

TIM Celular is a defendant, together with other telecommunications companies, in a lawsuit brought by GVT in the 4 th Lower Federal Court of the Federal District. The lawsuit is aimed at declaring null and void the contractual clause which provides for the VU-M amount used by the defendants as interconnection, which is deemed by the plaintiff to be illegal and abusive, and requiring the refunding of all excess amounts allegedly charged since July 2004. The judge granted an injunction determining the provisional payment of VU-M at an amount of R$ 0.2899 per minute, and ordered that GVT make court deposits equal to the amount of the difference between this amount and the amount indicated by the defendants. The injunction was confirmed by the 1 st Regional Appellate Court. TIM contested this decision by means of a special appeal which was partially upheld, obligating GVT to pay TIM the amount fixed by ANATEL in the arbitration process at the agency to which GVT and VIVO are parties. In September 30, 2011, the judge in this case confirmed the request for a suspension of the act formulated by GVT until the work by ANATEL ascertaining the VU-M reference amounts is concluded.

In addition to the lawsuit, GVT has also filed a representation before the Secretariat of Economic Law (SDE), which agreed to file an Administrative Proceeding against the Company and other mobile telephone operators, on the grounds of an alleged infringement of economic principles, which was judged in March 2010.

The SDE ruled against the alleged practice of Price Squeezing and forwarded the proceeding to Conselho Administrativo de Defesa Econômica - Administrative Council for Economic Defense (CADE) for judgment, also voting for the dismissal of the claim for common price fixing ("cartel"). The CADE has not yet handed down its judgment.

TIM Celular is a defendant in a lawsuit for damages filed by the service provider Glória Souza & Cia .  Ltda. before the 9 th Lower Court of the municipality of Belém, in the State of Pará, where it is claiming the sum of R$ 6,119. This company provided TIM with outsourced labor in Northern Brazil.

Given TIM's decision to terminate the contract, the other party, disagreeing, brought a lawsuit claiming moral damages, alleging losses as a result of claims for severance payments brought by its employees. TIM's defense and the reply from Glória Souza & Cia have been submitted. A reconciliation hearing was held, to no avail. There has still been no decision from the lower court.

A legal action for collection was filed against TIM Celular by Mattos & Calumby Lisboa Advogados Associados, which is in progress at the 29 th Lower Court of the Judicial District of Rio de Janeiro. The plaintiff asserts that it is owed money as a result of the contractual relationship that was entered into with TIM (Contract for the Provision of Professional Legal Services). The proof of the expert investigation was upheld and the opinion was ratified by the judge. TIM filed an appeal, challenging the decision of the expert investigation, and the court recently ruled that a new expert investigation be carried out. The case records are currently in the expert examination phase.

A lawsuit has been brought against TIM Celular by the company Integração Consultoria e Serviços Telemáticos Ltda. (recharge distributor), with the 2 nd Lower Court of the Judicial District of Florianópolis, State of Santa Catarina, for the sum of R$ 4,000 which aims to suspend the enforceability of credits already executed by TIM, preliminarily claiming non-inclusion in lists of bad debtors, as well as damages incurred as a result of contract termination. The injunction was granted by the court. It should be stressed that TIM filed an execution action against the aforementioned company with the 4 th  Lower Court of Florianópolis, for the sum of R$ 3,957. An appeal was filed against the execution, requesting a suspended sentence, by Integração Consultoria, which was rejected by the judge. This led to the filing of an interlocutory appeal, with the suspended sentence having been granted. TIM has made a declaration to the effect that the assets listed by the execution debtor are insufficient to secure the execution. The execution against TIM is currently suspended due to the fact that an Interlocutory Appeal has been filed, whose staying effect has been granted, and judgment is still pending from the court.
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


MCS was TIM's largest commercial partner in São Paulo (with approximately 40 stores). This commercial partnership had been in operation since 2003, and the agreement expired in January 2010. The contract was terminated on account of disagreements between the parties in relation to compensation amounts, the operation of the system, and the creation and determination of targets, along with other questions. MCS sought to blame TIM for its default and losses. It believes that its financial health has been negatively affected by the changes in TIM's remuneration policy . Even before the end of the agreement, MCS filed a lawsuit for termination of the contract, claiming payment of R$ 8,120. TIM filed a Restraining Action, in order to prevent MCS from transferring TIM stores to its competitors.

In March 2010 the Restraining Action was ruled valid and it was determined that MCS should abstain from transferring the stores which were previously TIM stores for a period of twelve (12) months, starting from January 2, 2010 (when the contract ended). The restraining action is still in progress and is currently in the expert investigation phase.

SECIT proposed an action for damages against TIM, alleging that TIM was in breach of contract. This company had been hired by TIM to undertake infrastructure work for the installation of ERBs in Area 4 (Minas Gerais). TIM presented its defense and the case is in the initial phase, currently under expert investigation phase. Thus there has been no decision by the lower court. The amount allocated to the case was R$ 9,758.

In December 2010, TIM Celular S . A . filed an action against ANATEL with the 15 th Federal Court of the Federal District requesting interlocutory relief for the purpose of acknowledgement and annulment of PADO n o 53500.025648/2005 and of Act n o 62.985/07. The PADO applied by ANATEL prevented the company from participating in the public bid for the "H" Band. Interlocutory relief was not granted by the judge, which enabled TIM to make a court deposit of R$ 3,595 in order to suspend the debt and enable the company to participate in the bidding process. The judge ruled for the suspension of the charge until a decision is reached. TIM has already filed a reply and petition, submitting evidence that the court deposit has been supplemented. The case is currently in the evidence specification phase, and there has been no decision by the lower court.

(e.2)
Labor contingencies

(e.2.1)
Labor claims

A significant percentage of the existing contingencies relate to organizational restructuring processes, with a highlight being the closure of the Client Relationship Centers (call centers) in Fortaleza, Salvador and Belo Horizonte, which resulted in the termination of some 800 employees, including in-house staff and outsourced personnel.

Case records 01102-2006-024-03-00-0 refer to a public civil action filed by the Labor Public Prosecutor's Office of the 3 rd Region, in the State of Minas Gerais, which alleged irregular outsourcing practices and contained a formal request for collective moral damages. A judgment was rendered and published on April 16, 2008, in which the first degree acting judge ruled the Labor Public Prosecutors' Office claims as partially valid, recognizing irregular outsourcing and collective moral damages. An appeal was filed against this decision, and was dismissed on July 13, 2009. Prior to filing the aforementioned appeal, TIM Celular filed a writ of security to prevent the prompt implementation of the coercive acts imposed by the sentence. In view of the appeal filed, the writ of mandamus lost its purpose.

In order to obtain staying effects for its appeal, TIM Celular filed an unspecified writ of prevention, which was dismissed without prejudice. In order to reverse the decision of the Regional Labor Court of the 3 rd Region, TIM Celular filed an appeal against abusive acts by the Judge with the Superior Labor Court, and obtained a favorable decision, which reversed the Court of Appeal's decision. A motion for clarification was filed, but dismissed. On September 16, 2009, a motion to review was filed, which is pending judgment by the TST (Higher Labor Court).
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


As a result of the above mentioned Public Civil Action in Minas Gerais, the Labor Public Prosecutor's Office of the Federal District filed case number 1218-2009-007-10-00-8 (Public Civil Action), alleging irregular outsourcing practices and a formal request for collective moral damages. The action was ruled groundless, establishing that, as a result of the General Telecommunications Law, all outsourcing in the telecommunications sector is legal. The Labor Public Prosecutor's Office filed an Ordinary Appeal in March 2010, the decision of the 1 st instance being maintained, namely that the intention of the Labor Public Prosecutor's Office is without foundation. Dissatisfied with the decision, the Labor Public Prosecutor's Office filed for a review, which is still waiting to be heard by the TST.

A group of actions have been filed in the state of Paraná, involving claims for damages in connection with contractual provisions stamped in the employees' work cards. According to an internal rule, TELEPAR undertook to supplement the retirement benefits of employees hired prior to 1982. Prior to privatization, TELEPAR had proposed to implement this benefit by means of the payment of a certain amount in cash. However, some of the company's former employees have questioned this transaction, and in some cases have obtained favorable decisions.

It should also be pointed out that there is a group of labor claims, particularly in São Paulo, from former Gazeta Mercantil employees who have filed claims requesting the inclusion of Holdco or TIM Participações as defendants, with later payment of damages. We point out that the plaintiffs were employees of the company Gazeta Mercantil, without any employment ties with Holdco or TIM Participações. It should be stressed that prior to the merger with TIM Participações, Holdco belonged to the Docas economic group, of which Gazeta Mercantil is part.

(e.2.2)
Social security

In São Paulo TIM Celular received a Debit Assessment Notice referring to alleged irregularity in the payment of social security contributions in connection with the payment of profit-sharing amounting of R$ 2,388.The subsidiary filed its administrative defense, but on September 16, 2009, a decision was rendered which upheld the assessment notice. On October 5, 2009, an administrative appeal was filed, the judgment of which is still pending.

In May 2006, TIM Celular was assessed under tax assessment notice n o 35611926-2 for social security contributions that were allegedly due in connection with the following: (i) hiring bonuses; (ii) non-adjusted bonuses; (iii) payments to self-employed persons; and (iv) sales incentives. The company filed an administrative defense but this did not reverse the tax assessment (decision - assessment). In an attempt to get this decision reversed, TIM Celular filed an appeal with the Ministry of Finance's Taxpayers' Council, which is now pending judgment.

Intelig in Rio de Janeiro received Notifications for the release of tax debt regarding alleged irregularities in the payment of social security contributions levied in the following cases: (i) profit sharing; (ii) retention of 11% on service agreements; (iii) failure to deduct and pay management fees; and (iv) failure to properly fill out the GFIP. An administrative defense was presented, with an unfavorable outcome (decision-notification) for undoing the entry. In order to have this decision changed, Intelig filed an appeal with the Taxpayers Commission of the Ministry of Finance, which is currently pending judgment.

On account of the final decision in the administrative sphere of the assessment involving discussion of the 11% withheld on service agreements, a legal action was filed to reverse the assessment.
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


(e.3)
Tax contingencies

(e.3.1)
IR and CSLL

On October 30, 2006, TIM Celular received tax assessment notices which initially amounted to R$ 331,171. In March 2007, the Federal Revenue Department in Recife, State of Pernambuco, notified the subsidiary by means of a Tax Information Report, which informed the company that part of the amount in connection with income and social contribution taxes and a separate fine, which totaled R$ 73,027 (principal and separate fine) had been excluded from the assessment notice. Thus the final amount of the infraction notice was set at R$ 258,144.

These tax assessment notices are part of the same administrative proceeding, and include demands in connection with the alleged failure to pay income and social contribution taxes, together with a separate unrelated fine for various reasons. Most of these relate to the amortization of goodwill resulting from the privatization auction of the Telebrás System and related tax deductions. Under Law n o 9532/97, article 7, the proceeds of goodwill amortization can be included in the actual profit of a subsidiary created as a result of a merger, spin-off or consolidation, whereby one company has a stake in the other, with said stake being acquired based on the future profitability of the investee. It should be stressed that this is a normal market transaction and is in accordance with CVM Instruction n o 319/99.

The Tax Information Report mentioned did indeed lead to a portion of the infractions contained in the assessment notice, which discussed the timely adaptation of the deductibility of the goodwill to 159 specific federal tax offsetting proceedings amounting to R$ 85,771, these arose from offsetting involving this recognition. In September 2009 and April 2011, a decision was rendered partially favorable to TIM Celular for some of the offsetting proceedings, reducing the credit offset by the subsidiary. At present, the subsidiary continues to challenge the remainder of the offsetting proceedings, part in the administrative sphere totaling R$ 67,404 and part in the judicial sphere totaling R$ 9,193.

In December 2010, TIM Celular received an infraction notice served by the Federal Revenue Department in the State of São Paulo in the amount of R$ 164,102 involving (i) the alleged non-addition to the income and social contribution taxes of the amount related to the amortization of the goodwill from the acquisition of shares of Tele Nordeste Celular Participações; (ii) the exclusion of the amortized goodwill; (iii) the deduction of corporate income tax by way of fiscal incentives for the reduction of tax and allegedly non-rebatable additional amounts on account of the alleged failure to formalize with the Federal Revenue Service the incentive granted by the Sudene. This tax assessment notice was immediately challenged by the subsidiary and a decision in the administrative sphere is now awaited.

In March 2011, TIM Celular, as successor to TIM Nordeste (the new name of Maxitel following the incorporation of TIM Nordeste Telecomunicações) received a tax assessment notice filed by the Federal Revenue Department of the State of Pernambuco, amounting to R$ 1,265,346 concerning income and social contribution taxes referring to: (i) the deduction of goodwill amortization expenses; (ii) the exclusion of the reversal of the goodwill from the former BITEL; (iii) the improper offsetting of tax losses and negative bases by disregarding the incorporation of TIM Nordeste Telecomunicações by Maxitel; (iv) improper use of the (Sudene) income tax reduction tax benefit in 2006, for alleged failure to formalize the benefit with the Federal Revenue Department; (v) the deduction of WHT without proof of payment; (vi) the deduction of accruals without proof of payment; (vii) a one-off penalty for underpayment of estimates; (viii) a regulatory penalty for omitting information and failure to produce digital files; and (ix) a supplementary entry to the administrative proceedings mentioned in the above paragraph. This notice was immediately contested by the subsidiary, and a decision in the administrative sphere is now awaited.
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


(e.3.2)
IRRF

In December 2006, the subsidiary Intelig received notification from the Federal Revenue Department amounting to R$ 49,652, arising from the alleged failure to pay IRF and CIDE on remittances abroad by way of remuneration for outbound traffic. This notification was successfully challenged in the administrative sphere in view of the final favorable decision on the writ of mandamus .

In May 2010, TIM Celular received three tax assessment notices from the Federal Revenue Department in São Paulo, amounting to R$ 50,026, of which the amount of R$ 1,029 was provided for in November 2011, involving: (i) failure to pay IRRF on earnings of overseas residents remitted as international roaming and payments to unidentified beneficiaries; (ii) failure to pay CIDE on payment of royalties on remittances abroad, as well as on remittances concerning international roaming; and (iii) reductions on fiscal losses (IRPJ/CSLL) referring to the deduction of unproven expenses by way of technical services. These assessments were immediately challenged by the subsidiary and are awaiting a decision in the administrative sphere.

(e.3.3)
ICMS

TIM Celular received assessment notices from the tax authorities of the State of Santa Catarina in 2003 and 2004, mainly relating to disputes regarding the levying of ICMS on telecommunications services provided by the Parent Company and allegedly not paid, as well as in connection with the sale of phone sets. As a result of various favorable decisions in relation to the administrative proceedings the amount that is now being disputed is R$ 41,066 (the original tax assessment was for the sum of R$ 95,449). The subsidiary is currently challenging these assessments with the tax authorities at both the administrative as well as judicial levels. Based on the opinions both of the company's own lawyers as well as of law firms that provide the company with legal advice, management concluded that the processes still in progress may result in a possible loss for the subsidiary.

Over the past few years, the subsidiary TIM Celular has received tax assessment notices drawn up by the tax authorities of various Brazilian States in relation to the payment of ICMS regarding operating aspects of the company's activity of provision of telecommunications services, as well as the sale of goods. Some grounds or reasons for these tax assessments according to the allegations of the inspection agents include: (i) discussion regarding the requirement to pay the difference between the intrastate and interstate ICMS rate on the purchase of property, plant and equipment items for use and consumption and the determination of the ICMS basis of calculation for acquisition of goods intended for sale; (ii) recording of the taxed services (according to the understanding of the tax authorities) as not taxed by the subsidiary in the Transfer Register Book; (iii) alleged underpayment due to usage of the incorrect rate and the entry of telecommunications services as not taxed; (iv) alleged failure to make payment due to differences between the amount actually paid and the amount declared; and (v) payment of tax outside of the terms established by the state legislation, among others. The aforementioned assessments are being challenged in due course at both the administrative as well as the judicial level. The sum involved in those cases under discussion where the amount is in excess of R$ 14,000, comes to a total of R$ 315,552.

The subsidiary TIM Celular received tax assessment notices for ICMS drawn up by the tax authorities in the States of Rio de Janeiro for allegedly defaulting on payment of the tax on international roaming services provided, and in Bahia for failing to pay the additional contribution regarding the Fundo de Combate à Pobreza e às Desigualdades Sociais (Fund for Fighting Poverty and Social Inequalities) allegedly due on the provision of services in the pre-paid modality. The aforementioned assessments are being challenged at the administrative and judicial levels and total R$ 110,535.
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


The subsidiary TIM Celular received tax assessment notices drawn up by the tax authorities of the States of Bahia and São Paulo for the sums of R$ 16,406 and R$ 46,923 respectively in connection with the failure to proportionally reverse ICMS credits on shipment of exempt and non-taxed goods. The aforementioned assessments are being challenged at the administrative level and total of R$ 63,329.

The subsidiary TIM Celular received assessment notices from the tax authorities of the State of São Paulo and the State of Minas Gerais for the sums of R$ 329,471 and R$ 24,771 respectively for allegedly having failed to include conditional discounts offered to clients in the ICMS basis of calculation. This subsidiary intends to challenge the aforementioned collection with the higher court.

In 2008, 2009 and 2010 the subsidiary TIM Celular received tax assessment notices for the total sum of R$ 77,760 drawn up by the tax authorities of the States of Ceará, Pernambuco and Paraná in connection with a debit arising from taking ICMS credit on the purchase of electric energy. The aforementioned assessments are being challenged at the administrative level.

TIM Celular received assessment notices from the tax authorities of the States of Paraná and Paraíba, in the respective amounts of R$ 24,047 and R$ 28,668 involving allege failure to pay ICMS levied on telecommunication services provided (pre-paid model) - outgoing telephone card operations. These assessments are being challenged in the administrative sphere.

In November 2010 and December 2011, TIM Celular received three assessment notices drawn up by the tax authorities of the States of São Paulo, Rio Grande do Sul and Paraná for a total amount of R$ 83,782 involving the reversal of ICMS tax credits regarding the acquisition of permanent assets allegedly without proof of origin of these entries in the Control of ICMS Credits on Permanent Assets (CIAP) Book. These assessments are being challenged at the administrative level.

In May 2011, TIM Celular received a tax assessment notice drawn up by the State of São Paulo in the amount of R$ 367,860 involving (i) a penalty for alleged non compliance with an ancillary obligation by not presenting the 60i register of the SINTEGRA file for 2007 and 2008, (ii) alleged failure to pay ICMS on discounts deemed by the tax inspector to be conditional. This assessment is being challenged by the subsidiary in the administrative sphere.

In July and October 2011, TIM Celular received tax assessment notices from the tax authorities of the State of São Paulo in the amount of R$ 216,472, involving (i) alleged failure to pay ICMS tax from having failed to include in the calculation tax on communication services referring to installments taxed as "non-taxable/exempt"; and (ii) alleged failure to pay ICMS tax for having included on tax receipts the negative base by way of financial credits granted to customers involving the services contested, leading to the reversal of debits without complying with the legislation. The subsidiary is challenging these assessments in the administrative sphere.

In December 2011, TIM Celular received two tax assessment notices from the State of Paraná, amounting to R$ 100,462 and involving improper crediting of ICMS tax for the periods from May 2010 to August 2011, and from September 2011 to November 2011. The subsidiary is challenging these assessments in the administrative sphere.

In December 2011, Intelig filed a legal action against the tax assessment notice drawn by the State of São Paulo, in the amount of R$ 20,285, involving the alleged improper appropriation of ICMS tax credits referring to the reversal of debits declared in the ancillary obligations of the State. The subsidiary is challenging this assessment in the administrative sphere.
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


(e.3.4)
ISS

On December 20, 2007, the subsidiary TIM Celular received an assessment notice from the municipality of Rio de Janeiro for an amount of R$ 94,359 for allegedly failing to pay ISSQN on the following services: technical programming, administrative services on plan cancellation, telephone directory assistance services, provision of data and information and network infrastructure sharing. The aforementioned assessments are being challenged by the subsidiary at the administrative level.

(e.3.5)
Telecommunications Services Universalization Fund ("FUST")
 
On December 15, 2005, ANATEL issued its Abstract n o 07 aimed, among other things, at charging FUST contributions on the interconnection revenue earned by the providers of telecommunications services, from the date upon which Law n o 9998 came into force. It is the continued understanding of the subsidiary company that based on the provisions contained in the pertinent legislation (including the provision in the sole paragraph of article 6 of Law n o 9998/00), the abovementioned revenue is not subject to the FUST charges. Management has taken the necessary measures to protect the interests of the subsidiary company. To that end, a writ of mandamus was filed to protect the interests of the subsidiary in connection with the non-payment of FUST on interconnection revenue. ANATEL's intention to charge FUST on this revenue has been suspended, due to the judicial decision in favor of the subsidiary company. The writ of mandamus is pending the decision from the Court of Appeal.

Since October 2006, ANATEL has issued a number of assessment notices against the subsidiary TIM Celular, in connection with FUST charges that are allegedly due on interconnection revenue for the years from 2001 to 2009, together with a fine for arrears, on account of Abstract n o 07/05. The assessments for this period add up to a total of R$ 529,823.

The subsidiary Intelig has received a number of assessment notices from ANATEL, which add up to a total amount of R$ 59,902 in connection with FUST charges that are allegedly due on interconnection revenue for the periods from January to December of 2001 to 2007, respectively. The aforementioned assessments are being challenged at administrative level.

(e.3.6)
Telecommunications Technological Development Fund ("FUNTTEL")
 
The Ministry of Communications drew up assessment notices against the subsidiary TIM Celular amounting to R$ 213,212, in connection with FUNTTEL amounts due on interconnection revenue for the years from 2001 to 2007, as well as a fine for arrears. It is the continued understanding of the Company that the above mentioned revenues are not subject to FUNTTEL. A writ of mandamus was filed to safeguard the Company's interests in relation to the non-payment of FUNTTEL on interconnection revenue, on the same grounds as those used for the FUST process. The intention to charge FUNTTEL on interconnection revenue is under suspension, due to a favorable ruling obtained in relation to the writ of mandamus that was filed by the subsidiary.

The subsidiary Intelig has received a number of assessment notices from the Ministry of Communications, which add up to a total amount of R$ 19,474 in connection with FUNTTEL charges that are allegedly due on interconnection revenue for the periods from January to December 2002, March to December 2003, April to December 2004 and January to November 2005, respectively. The aforementioned assessments are being challenged at the administrative level.
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


(e.4)
Regulatory proceedings

TIM Celular is authorized to provide SMP services in all Brazilian states for an indefinite period, and to use the associated Radio Frequencies ("RFs"), having obtained an extension from ANATEL of the authorizations for such radio-frequency usage, under the Instruments of Authorization, for a period of 15 years counting from the end of the original period of validity of these authorizations.

In February 2011, orders issued by ANATEL determined a charge of 2% of interconnection revenue concerning the extension of the rights of use of renewal of the RFs. These decisions have been challenged by administrative appeals filed by TIM, which understands that the regulatory obligation associated with this payment does not exist. Since these appeals presented on August 30, 2011 are still pending judgment on merits, the possibility of the debit being enforceable still exists.

By means of Orders from the Presidential Office issued in September 2011, ANATEL overruled the suspensive effect requested by TIM through an appeal. In the light of this fact, in November 2011 the company filed a writ of mandamus against ANATEL, which successfully suspended the enforceability of the debits associated with the charge of 2% on interconnection revenue regarding payment of the extensions of the right of use of the RFs.

Also in November 2011, ANATEL published Abstract n o 11/2011 by which the Governing Board of the Agency issued its opinion as to the applicability of interconnection revenues of STFC concession holders in calculating the charge (of 2% of revenue) arising from extending STFC Concession agreements. This understanding will probably apply in the case of the extension to the right of use of RFs.

Furthermore, in view of the extension of the authorization of the usage of the radio frequencies associated with SMP, the subject matter of the above mentioned Instruments of Authorization issued in accordance with the respective acts, the Company received demands from ANATEL for the payment of a new Facilities Inspection Fee ("TFI") for all its mobile stations in operation in the service-provision area, although these stations have already been licensed, for the sums shown in the table below.

   
Instrument of
         
Amount
 
State
 
authorization
 
Expiry date
 
Act
 
(in reais
)
                   
Paraná (excluding the
                 
municipalities of Londrina
                 
and Tamarana)
 
002/2006/PVCP/SPV
 
09.03.22
 
57.551 dated April 13, 2006
 
80,066
 
Santa Catarina
 
074/2008/PVCP/SPV
 
09.30.23
 
5.520 dated September 18, 2008
 
54,026
 
Municipality and region of
                 
Pelotas in Rio Grande do Sul
 
001/2009/PVCP/SPV
 
04.14.24
 
1.848 dated April 13, 2009
 
333
 
Ceará
 
089/2008/PVCP/SPV
 
11.28.23
 
7.385 dated November 27, 2008
 
41,728
 
Alagoas
 
045/2008/PVCP/SPV
 
12.15.23
 
7.383 dated November 27, 2008
 
20,038
 
Rio Grande do Norte
 
050/2008/PVCP/SPV
 
12.31.23
 
7.390 dated November 27, 2008
 
15,021
 
Paraíba
 
047/2008/PVCP/SPV
 
12.31.23
 
7.386 dated November 27, 2008
 
19,844
 
Piauí
 
049/2008/PVCP/SPV
 
03.27.24
 
7.389 dated November 27, 2008
 
13,497
 
Pernambuco
 
089/2008/PVCP/SPV
 
05.15.24
 
7.388 dated November 27, 2008
 
54,000
 

The demand for payment of TFI is a result of ANATEL's understanding of the due application of the provision of article 9, sub-section III, of the Regulations for the Collection of Revenues of the FISTEL Telecommunications Inspection Fund, which foresees the levying of TFI on the stations at such time as the license is renewed, which entails the issue of a new license. However, in the Company's understanding this does not appear to be the correct and reasonable interpretation of the provisions of the legislation applicable to the matter at hand, which is why the aforementioned charge was subject to challenge at the administrative level, following which a suspension was granted on the requirement to pay the charge until the definitive ruling of the challenge from ANATEL.
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


According to the Instruments of Authorization for the operation of Personal Mobile Services ("SMP"), TIM Celular agreed to the phased implementation of SMP coverage in relation to the respective regions, within the scope of the areas they were awarded, and has done so. In the event of failure to perform the obligations as set out under the Instruments of Authorization, or in the call notices for the auction of the 3G frequencies, the subsidiaries are subject to the filing of PADOs, and possible sanctions as a result.

Also in accordance with the aforementioned Terms of Authorization, the subsidiaries are required to operate in accordance with the quality standards established by ANATEL and comply with the obligations determined by the regulations. ANATEL has brought administrative proceedings against the subsidiaries for: (i) noncompliance/failure to meet with certain quality service indicators; (ii) default on certain obligations assumed under the Instruments of Authorization or call notices for the 3G frequencies; and (iii) non-compliance with obligations contemplated in the relevant regulations of the RSMP and RSTFC, and (iv) undertaking monitoring activities of a diverse regulatory nature.

The subsidiaries submitted to ANATEL administrative defenses and filed administrative appeals and requests for reconsideration, explaining that the alleged non-compliance was due to several factors, most of them involuntary and not related to the activities and actions performed by the companies, and which were insignificant given the universe of users to whom they provide services. The provision for regulatory contingencies shown in the balance sheet reflects the amount of losses expected, which are classified as "more probable" by management.


25
Provision for asset retirement obligations

The changes in the obligations deriving from future asset retirements are set forth below:

   
2011
   
2010
 
 
           
Opening balance
    255,737       239,635  
Additions recorded throughout the period, net of write-offs
    6,181       16,102  
 
               
Closing balance
    261,918       255,737  

Provision is based on the estimated costs to be incurred on disassembly of towers and equipment at leased sites, discounted to their present value at an average rate of 10% so as to reflect the best current estimates.

 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


26
Shareholders' equity

(a)
Capital stock

Upon resolution by the Board of Directors, without amending the bylaws, TIM Participações S.A. is authorized to increase its capital to up to 4,450,000,000 (four billion, four hundred and fifty million) common shares.

   
2011
   
2010
 
 
           
Number of common shares
    2,417,632,647       843,281,477  
Number of preferred shares
            1,632,453,583  
                 
      2,417,632,647       2,475,735,060  

As mentioned in Note 1, during the third quarter of 2011 the holding became part of the Novo Mercado segment of BM&FBOVESPA. Having migrated to this segment, TIM Participações S.A. no longer has preferred shares, the former preferred shares having been converted to common shares in the ratio of 0,8406 common shares for each preferred share.

On October 4, 2011, TIM Participações S.A. brought to a close the process for the primary public offering of 190,796,858 common shares. The offering was closed at a price of R$ 8,60 (eight reais and sixty cents) per share. As a result, TIM Participações raised R$ 1,640,854, which was registered by the company in October 2011 in the capital stock account.

Furthermore, the holding granted the option of the public distribution of an overallotment of 9,461,510 common shares to Morgan Stanley S.A. and Morgan Stanley & Co. LLC. The purpose of this mandate was exclusively to meet the excess demand detected in the public offering mentioned in the previous paragraph. The options were exercised in October 2011 at R$ 8,60 (eight reais and sixty cents) per share, resulting in a new increase in the Company's capital of R$ 81,368.

The costs directly linked to these funding processes, in the amount of R$ 47,117, were booked to an equity reduction account, pursuant to IAS 39.

The closure of the public offering brought no relevant alterations (in excess of 5% of the total capital stock) to the equity interests held by the Group's shareholders.

(b)
Capital reserves

The capital reserves are comprised of:

   
2011
   
2010
 
 
           
Special goodwill reserve
    380,560       396,129  
Capital reserve - stock option
    3,928          
 
               
      384,488       396,129  
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


Special goodwill reserve

The special goodwill reserve was generated in the following transactions:

(i)
Special reserve - tax benefit on restructuring

This reserve resulted from the corporate restructuring process carried out in 2000 and the outstanding amount as at December 31, 2010 was R$ 15,569. This balance, corresponding to part of the tax benefit obtained from the restructuring, was capitalized in May 2011 for the benefit of the controlling shareholder in accordance with CVM Instruction n o 319/99 by issuing 1,364,837 new preferred shares and 705,038 new common shares.

(ii)
Takeover of the former subsidiaries TIM Sul and TIM NE - acquisition of minority shares
 
In 2005 the Company acquired all shares held by the minority shareholders of TIM Sul and TIM Nordeste Telecomunicações. This acquisition took place by issuing new shares of TIM Participações S.A., converting those companies into full subsidiaries. At the time, this transaction was recorded at the book value of the shares, no goodwill being recorded arising from the difference between the market value and the shares negotiated.

When first adopting IFRS, the Company availed itself of the exemption that allows a subsidiary, when it adopts international accounting practices subsequent to its parent company having adopted IFRS, to consider the balances previously reported to the parent company for consolidation purposes. In the balance sheet of the transition to IFRS, the Company recorded the acquisition price based on the market value of the shares of TIM Participações at that time, recording goodwill amounting to R$ 157,556.

(iii)
Acquisition of the shares of Holdco - purchase of Intelig
 
On December 30, 2009, the Extraordinary General Meeting of TIM Participações S.A. approved the takeover by TIM Participações of Holdco, a company that held 100% of the equity of Intelig. As a result of this transaction, the Company issued 127,288,023 shares.

Based on the former BR GAAP, the acquisition was recorded at the net book value of the assets acquired on the base date of November 30, 2009.

When IFRS was first adopted, the acquisition was recorded on the base date of December 31, 2009, taking into account the market value of the common and preferred shares of TIM Participações on December 30, 2009, amounting to R$ 739,729. The difference between this amount and the book value recorded under the former BR GAAP (R$ 516,725) created goodwill against capital reserves of R$ 223,004.

Options to purchase shares

The balance expenditure of the Group with stock purchase options granted to employees is recorded against the capital reserve account.
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


(c)
Treasury shares

On July 26, 2011, the period ended for the holders of the holding's preferred stock to manifest their disagreement with the entry into the Novo Mercado segment of BM&FBOVESPA. Only one shareholder with 84,300 preferred shares exercised the right of withdrawal. In August 2011, his shares were acquired by the Company, based on the equity value per share as at December 31, 2010 and calculated to four decimal places (R$ 4.1628 per share).

Furthermore, as decided by the Special General Meeting dated June 22, 2011, only whole numbers of the Company's common shares were delivered to non-dissenting preferred shareholders. The fractions of common shares arising from the conversion were also paid in August 2011 at the same reimbursement price paid to dissenting shareholders. In all, the total of the fractions of common shares totaled 725,026 shares.

(d)
Profit reserves

(i)
Legal reserve

This refers to the 5% of net income set aside every year until the legal reserve equals 20% of capital. Also, the Company is authorized to stop supplementing the legal reserve when, together with the capital reserves, it exceeds 30% of capital stock. This reserve can be used only for capital increases or the offsetting of accumulated losses.

(ii)
Reserve for expansion

This reserve is set up based on paragraph 2, article 46 of the bylaws and article 194 of Law n o  6404/76, and is intended to fund investment and expansion projects, and is supported by the capital budget.

According to the Company's bylaws, the reserve for expansion may not exceed 80% of the capital stock. Once this limit is reached, it is incumbent on the shareholders' meeting to decide on the balance, either distributing this to shareholders or increasing the capital.

(e)
Dividends

Dividends are calculated in accordance with the bylaws and Brazilian Corporate Law.

As stipulated in its latest bylaws approved on June 22, 2011, the Company must distribute a mandatory dividend for each business year ended December 31, provided that funds are available for distribution, to an amount equivalent to 25% of the adjusted net income.

The dividends were calculated as follow:

   
2011
 
       
Net income for the year
    1,281,228  
(-) Creation of legal reserve
    (64,061 )
         
Adjusted net income
    1,217,167  
         
Dividends to be distributed
       
Minimum dividend calculated based on 25% of adjusted income
    304,292  
Dividends per share (amounts shown in reais)
    0.1259  
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


For the year ended December 31, 2010, TIM Participações S.A. had different methods of calculation to determine the minimum mandatory dividend. In that year, TIM had two classes of shares (ordinary and preferred) and performed the profit distribution based on the laws in force at that time. The calculation methodology that demonstrates the determination of the minimum dividend for the year 2010 can be found below:

   
2010
 
 
     
Capital stock - common shares
    2,775,734  
Capital stock - preferred shares
    5,373,362  
 
       
Capital stock
    8,149,096  
 
       
Dividends: 6% of capital stock for preferred shares pursuant to the bylaws
    322,402  
         
Shareholders' equity - common shares
    2,834,871  
Shareholders' equity - preferred shares
    5,487,843  
         
Total shareholders' equity (last social exercise approved -
       
December 31, 2009 (*)
    8,322,714  
         
Dividends: 3% of total shareholders' equity for preferred shares,
       
pursuant to Law n o  10.303/01
    164,635  
         
Net income for the year
    2,216,909  
(-) Loss offset (accumulated)
    (125,914 )
         
Income after loss offset (accumulated)
    2,090,995  
         
(-) Creation of legal reserve
    (104,550 )
         
Adjusted net income
    1,986,445  
         
Dividends to be distributed
       
Minimum dividend calculated based on 25% of adjusted income
    496,611  
Dividends to be distributed to common shareholders
    169,155  
Dividends to be distributed to preferred shareholders
    327,456  
         
      496,611  
         
Dividends per share (amounts shown in reais)
       
Common shares
    0.2006  
Preferred shares
    0.2006  

(*)
This time the Company was using accounting practices different from international accounting practices (it was before the convergence of Brazilian accounts practices to IFRS).

The proposed dividends in previous years and not claimed by shareholders were effectively reversed after the statutory period of limitations according to Brazilian legislation. The amount of R$ 3,327 (R$ 8,345 on December 31, 2010) was released to the reserve account for expansion.

 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


27
Stock options

On August 5, 2011, it was approved by the General Assembly of Shareholders of TIM Participaçõoes S.A. the long-term incentive plan granted to senior managers and those in key positions in the holding and its subsidiaries. The option to purchase shares was granted to directors and certain employees.

On the grant date (August 5, 2011) the price value of the exercise of options granted was calculated using the weighted average price of the shares of TIM Participações S.A. The calculation considered the average trading volume and trading price of TIM Participações' shares during the period of 30 days prior to the date July 20, 2011 (the date on which the Board of Directors approved the Company's benefit).

The exercise of options is conditional on the achievement of two performance goals simultaneously: (i) growth in the value of the common stock of TIM Participações S.A.; and (ii) performance of TIM Participações' stock price relative to a benchmark index, defined by the Directors of TIM and composed primarily of shares of other telecommunications, technology and media companies. The conditions of performance are measured in the three years period 2011-2013, with the measurement in July of each year.

The term of the options is six years, and a third of them can be exercised after the first half of 2012, another third to the end of the end of the first half of 2013 and the remainder after the first half of 2014. TIM Participações S.A. has no formal legal obligation to repurchase or settle the options in cash, or otherwise.

On August 5, 2011, the corresponding option holders were granted the right to purchase shares of 2,833,596. As mentioned in the preceding paragraph, on December 31, 2011, there are no options that can still be exercised.

Using the accounting cut-off principle, expenses linked to the plan long-term benefits has been accounted monthly and at the end of the fiscal year 2011 totaled R$ 3,929. Significant data included in the model were: the weighted average share price of R$ 8.31 as at the grant date, the exercise price of R$ 8.84 presented above, volatility of 51.73% p.a., an expected duration of the option corresponding to six years and an annual interest rate without risk of 11.94% p.a. The volatility was measured based on the quotations of common shares of TIM over a period of six years.

 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


28
Net operating revenue

   
2011
   
2010
   
2009
 
 
                 
Telecommunications service revenue - mobile
                 
    Subscription and use
    10,264,716       8,911,976       8,068,181  
Network use
    3,849,408       3,679,365       4,042,612  
Long distance
    3,181,214       2,374,341       1,943,121  
VAS - additional services
    3,166,437       2,241,530       1,907,188  
Others
    229,829       272,927       306,011  
 
                       
 
    20,691,604       17,480,139       16,267,113  
 
                       
Telecommunications service revenue - landline
    1,525,446       1,281,246       89,860  
 
                       
Telecommunications service revenue - mobile and landline
    22,217,050       18,761,385       16,356,973  
Goods sold
    2,540,516       1,557,910       1,717,663  
 
                       
Gross operating revenue
    24,757,566       20,319,295       18,074,636  
 
                       
Deductions from gross revenue
                       
Taxes
    (5,385,338 )     (4,475,829 )     (3,916,506 )
Discounts given
    (2,092,406 )     (1,264,090 )     (850,066 )
Returns and other
    (193,845 )     (121,926 )     (149,930 )
 
                       
      (7,671,589 )     (5,861,845 )     (4,916,502 )
 
                       
Total net revenue
    17,085,977       14,457,450       13,158,134  


29
Cost of services provided and goods sold

   
2011
   
2010
   
2009
 
 
                 
Personnel
    (40,348 )     (58,450 )     (60,846 )
Third party services
    (324,098 )     (337,021 )     (315,550 )
Interconnection
    (4,132,950 )     (3,602,984 )     (3,351,845 )
Depreciation and amortization
    (1,715,173 )     (1,994,184 )     (1,816,000 )
ANATEL fees
    (28,516 )     (27,209 )     (19,627 )
Rentals and insurance
    (234,857 )     (242,850 )     (165,966 )
Others
    (22,939 )     (16,978 )     (17,351 )
 
                       
Cost of services provided
    (6,498,881 )     (6,279,676 )     (5,747,185 )
 
                       
Cost of goods sold
    (2,062,552 )     (1,026,091 )     (925,184 )
 
                       
      (8,561,433 )     (7,305,767 )     (6,672,369 )
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


30
Selling expenses

   
2011
   
2010
   
2009
 
 
                 
Personnel
    (451,761 )     (389,773 )     (366,653 )
Third party services
    (2,287,061 )     (2,048,978 )     (2,112,772 )
Advertising and publicity
    (530,145 )     (537,221 )     (511,933 )
Loss and allowance for doubtful accounts
    (231,529 )     (310,497 )     (422,163 )
ANATEL fees
    (1,037,066 )     (817,891 )     (614,281 )
Depreciation and amortization
    (228,668 )     (311,173 )     (330,908 )
Rentals and insurance
    (38,442 )     (37,274 )     (38,180 )
Other
    (41,040 )     (41,801 )     (39,861 )
                         
      (4,845,712 )     (4,494,608 )     (4,436,571 )


31
General and administrative expenses

   
2011
   
2010
   
2009
 
 
                 
Personnel
    (140,719 )     (138,499 )     (135,726 )
Third party services
    (422,331 )     (411,664 )     (363,108 )
Depreciation and amortization
    (320,036 )     (385,586 )     (473,989 )
Rentals and insurance
    (58,804 )     (52,418 )     (36,787 )
Other
    (21,504 )     (20,527 )     (23,828 )
                         
      (963,394 )     (1,008,694 )     (1,033,438 )

 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


32
Other operating expenses, net

   
2011
   
2010
   
2009
 
 
                 
Revenues
                 
Subvention income, net
    3,683              
Fines on telecommunications services
    32,155       31,137       35,755  
Other operating revenue
    21,301       272       3,294  
                         
      57,139       31,409       39,049  
                         
Expenses
                       
FUST/FUNTEL
    (224,136 )     (114,986 )     (100,601 )
Taxes, fees and contributions
    (1,994 )     (8,537 )     (9,857 )
Provision for contingencies - reversal settlement
    (155,473 )     (31,153 )     (69,984 )
Other operating expenses
    (17,641 )     (22,463 )     (27,652 )
                         
      (399,244 )     (177,139 )     (208,094 )
                         
Amortization of concessions
    (305,891 )     (302,517 )     (293,069 )
                         
      (705,135 )     (479,656 )     (501,163 )
                         
Other operating expenses, net
    (647,996 )     (448,247 )     (462,114 )


33
Financial revenue

   
2011
   
2010
   
2009
 
 
                 
Interest on financial investments
    205,408       145,537       70,204  
Interest received from clients
    48,871       45,180       46,542  
Monetary adjustment
    57,251       37,680       14,476  
Other revenue
    (1,009 )     3,274       5,811  
 
                       
      310,521       231,671       137,033  

 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


34
Financial expenses

   
2011
   
2010
   
2009
 
 
                 
Interest on loans and financing
    (251,101 )     (296,508 )     (276,712 )
Interest paid to suppliers
    (13,802 )     (18,793 )     (11,006 )
Interest on taxes and fees
    (54,907 )     (14,741 )     (2,334 )
Monetary adjustment
    (32,291 )     (5,112 )     (323 )
Discounts given
    (66,347 )     (21,564 )     (17,816 )
Other expenses
    (30,331 )     (23,783 )     (20,717 )
 
                       
      (448,779 )     (380,501 )     (328,908 )


35
Exchange variations, net

   
2011
   
2010
   
2009
 
 
                 
Income
                 
Loans and financing
    116,258       154,972       399,029  
Suppliers
    10,903       12,926       26,282  
Swap
    403,530       290,010       260,228  
Other
    32,799       8,940       11,257  
 
                       
 
    563,490       466,848       696,796  
 
                       
Expenses
                       
Loans and financing
    (232,601 )     (145,588 )     (53,665 )
Suppliers
    (16,558 )     (10,409 )     (7,076 )
Swaps
    (392,210 )     (395,371 )     (665,713 )
Other
    (22,721 )     (12,107 )     (23,582 )
 
                       
      (664,090 )     (563,475 )     (750,036 )
 
                       
Exchange variations, net
    (100,600 )     (96,627 )     (53,240 )

 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


36
Income and social contribution taxes

   
2011
   
2010
   
2009
 
 
                 
Current tax
                 
Income tax for the period
    (334,375 )     (165,672 )     (128,602 )
Social contribution tax for the period
    (120,718 )     (61,643 )     (46,395 )
Tax incentive - ADENE
    142,039       36,663       88,851  
Others
    3,656                  
 
                       
      (309,398 )     (190,652 )     (86,146 )
 
                       
Deferred income tax
                       
Deferred income tax
    (185,355 )     1,064,076       51,016  
Deferred social contribution tax
    (52,603 )     383,614       18,366  
Deferred taxes on adjustments from adoption of IFRS
                    38,541  
                         
      (237,958 )     1,447,690       107,923  
                         
Provision for income and social contribution
tax contingencies
                    11,249  
                         
      (547,356 )     1,257,038       33,026  

TIM Celular, through Constitutive Reports 144/2003 and 232/2003, issued on March 31, 2003 by - Northeast Development Agency (ADENE), became the beneficiary of tax incentives which include: (a) a reduction of 75% of income tax and additional non-refundable taxes for a period of ten (10) years for the fiscal years 2002 through 2011, calculated on the basis of operating income resulting from the implementation of its installed capacity to provide digital cellular mobile telephony services and (b) a reduction of 37.5%, 25% and 12.5% of income tax and additional non-refundable taxes, for fiscal years 2003, 2004 to 2008 and 2009 to 2013, respectively, calculated on the operational income arising from its capacity to provide analogue mobile telephone services.

The reconciliation of income tax and social contribution expenses calculated at the applicable tax rates plus the amounts reflected in the income statement is set forth below:

   
2011
   
2010
   
2009
 
 
                 
Income before income tax and social contribution taxes
    1,828,584       954,677       308,347  
 
                       
Combined tax rate - %
    34       34       34  
 
                       
Income and social contribution taxes at the combined tax rate
    (621,719 )     (324,590 )     (104,838 )
 
                       
(Additions)/exclusions
                       
Unrecognized tax losses and temporary differences
    (31,667 )     103,406       (54,600 )
Recognized tax losses and temporary differences
            1,435,245       107,923  
Provision for income and social contribution tax contingencies
    3,656               11,249  
Effect of deferred income and social contribution taxes on REFIS
    (25,680 )                
Permanent additions
    (7,120 )     (6,414 )     (9,905 )
Tax incentive - ADENE
    142,039       36,663       88,851  
Other amounts
    (6,865 )     12,728       (5,654 )
 
                       
      74,363       1,581,628       137,864  
 
                       
Income and social contribution taxes charged to income
                       
for the period
    (547,356 )     1,257,038       33,026  
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


37
Earnings per share

(a)
Basic

Basic earnings per share are calculated by dividing the income attributable to the shareholders of the company by the weighted average number of common shares issued during the year.

   
2011
   
2010
   
2009
 
 
                 
Income attributable to the shareholders of the company
    1,281,228       2,216,909       341.373  
Weighted average number of common shares issued (thousands)
    2,263,662       2,475,735       843.281  
Basic earnings per share
    0.5660       0.8955       0.4048  

(b)
Diluted earnings

Diluted earnings per share are calculated by adjusting the weighted average number of common shares outstanding to assume conversion of all dilutive potential common shares. The Company has only stock option plan as potential common shares (see Note 27).

   
2011
   
2010
   
2009
 
 
                 
Income attributable to the shareholders of the company
    1,281,228       2,216,909       341.373  
Weighted average number of common shares issued (thousands)
    2,264,810       2,475,735       843.281  
Basic earnings per share
    0.5657       0.8955       0.4048  


38
Transactions with Telecom Italia Group

The consolidated balances of transactions with other companies of the Telecom Italia Group are as follow:

         
Assets
 
 
           
 
 
2011
   
2010
 
 
           
Telecom Personel Argentina (i)
    1,868       1,043  
Telecom Italia Sparkle (i)
    22,254       12,578  
Telecom Italia S.p.A. (ii)
    10,315       3,251  
Other
    3,141       1,102  
 
               
      37,578       17,974  
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


         
Liabilities
 
 
           
   
2011
   
2010
 
 
           
Telecom Italia S.p.A. (ii)
    31,879       21,643  
Telecom Personel Argentina (i)
    2,676       1,849  
Telecom Italia Sparkle (i)
    6,672       4,225  
Italtel (iii)
    22,257       15,361  
Other
    10,343       1,470  
 
               
      73,827       44,548  

               
Revenue
 
                   
   
2011
   
2010
   
2009
 
                   
Telecom Italia S.p.A. (ii)
    17,796       16,885       12,553  
Telecom Personel Argentina (i)
    3,840       5,135       4,283  
Telecom Italia Sparkle (i)
    33,883       26,988       14,765  
Other
    1,511       862       820  
                         
      57,030       49,870       32,421  

   
Cost/expense
 
 
                 
 
 
2011
   
2010
   
2009
 
 
                 
Telecom Italia S.p.A. (ii)
    15,629       12,045       19,543  
Telecom Italia Sparkle (i)
    20,865       16,871       25,065  
Telecom Personel Argentina (i)
    6,714       8,682       6,677  
Lan Group (iv)
    19,151       5,386          
Other
    1,572       3,626       1,243  
 
                       
      63,931       46,610       52,528  

(i)
These amounts refer to roaming, value-added services ("VAS") and network rentals.

(ii)
These amounts refers to international roaming, technical post-sales assistance and VAS.

(iii)
The amounts refers to the development and maintenance of software used in invoicing telecommunications services.

(iv)
The amounts refers to the lease of links and EILD and signaling services.
 
The balance sheet account balances are recorded in the following groups: "Trade accounts receivable", "Suppliers", and "Other current assets and liabilities".

Transactions with related parties are entered into on an arm's length basis.
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


39
Transactions with Telefónica Group

On April 28, 2007, AssicurazioniGenerali SpA, Intesa San Paolo S.p.A, Mediobanca S.p.A., Sintonia S.p.A. and Telefónica S.A., entered into an agreement to acquire the whole capital of Olímpia S.p.A., a company which, in turn, held approximately 18% of the voting capital of Telecom Italia S.p.A., the indirect parent company of TIM Participações. This acquisition was made through Telco S.p.A. ("Telco"). With the implementation of the transaction in October 2007, Telco came to hold 23.6% of the voting capital of Telecom Itália S.p.A., the indirect parent company of TIM Participações.

Through its Act n o 68.276/2007, published in the Federal Official Gazette of November 5, 2007, ANATEL approved the transaction and imposed certain restrictions to guarantee absolute segregation of businesses and operations performed by the Telefónica and TIM groups in Brazil. For the purposes of ANATEL's requirements, TIM Brasil and TIM Celular submitted to ANATEL the necessary measures to ensure this segregation de facto and ipso jure in Brazil, so that Telefónica's participation in Telco S.p.A. cannot be characterized as influencing the financial, operational and strategic decisions made by TIM's Brazilian operations. Therefore, TIM continues to operate in the Brazilian market on the same independent and autonomous basis as before.

The agreements between the operators of the TIM group controlled by TIM Participações and the operators of the Telefónica Group in Brazil, in force as at December 31, 2011, refer solely to telecommunications services covering interconnection, roaming, site-sharing and co-billing procedures, as well as contracts relating to CSP (operator code) at regular price and conditions, in accordance with the applicable legislation. As at December 31, 2011, the receivables and payables arising from these agreements amounted to R$ 163,913 and R$ 132,863 respectively (R$ 129,249 and R$ 92,649 as at December 31, 2010). The amounts charged to the statements of income by the Company (after approval of the transaction) represented operating revenue and expenses totaling R$ 1,385,371 and R$ 1,026,787 (R$ 1,282,522 and R$ 855,939 as at December 31, 2010) respectively.


40
Financial instruments and risk management

Through its subsidiaries, the Company performs non-speculative derivative transactions, to reduce the exchange and partly eliminate the interest risks involved. These transactions consist exclusively of swap contracts, and accordingly, no exotic or any other kind of derivative instruments are involved.

The Company's financial instruments are presented, through its subsidiaries, in compliance with IAS 32.

Accordingly, the major risk factors to which the Group is exposed are as follow:

(a)
Exchange variation risks

Exchange variation risks refer to the possibility of subsidiaries incurring losses on unfavorable exchange rate fluctuations, which would increase the outstanding balances of loans taken in the market along with the related financial charges. In order to eliminate this kind of risk, the subsidiaries enter into swap contracts with financial institutions.
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


As of December 31, 2011, the subsidiaries' financing indexed to foreign currency was fully hedged by swap contracts in terms of time and amount. Any gains or losses arising from these swap contracts are charged to earnings of the subsidiaries.

Besides the loans taken by the subsidiaries, which involve swap contracts, no other significant financial assets are indexed to foreign currencies.

(b)
Interest rate risks

Interest rate risks relate to:

●      the possibility of variations in the fair value of financing obtained by TIM Celular at fixed interest rates, when these rates do not reflect the market's current conditions. In order to mitigate this type of risk, TIM Celular enters into swap contracts with financial institutions, and changes the fixed interest rates charged on the portion of the financing to a percentage of the CDI. Any gains or losses arising from these swap contracts are charged to the statements of income of the subsidiary TIM Celular;

●     the possibility of variations in the fair value of TJLP-indexed financing taken by the subsidiary TIM Celular, when these rates are not proportional to that of the Interbank Deposit Certificates (CDI). In order to mitigate this type of risk, the subsidiary TIM Celular enters into swap contracts with financial institutions, and changes the TJLP rate charged on the financing into a percentage of the CDI. Any gains or losses arising from these swap contracts are charged to the statement of income of the subsidiary TIM Celular;

●     the possibility of unfavorable changes in interest rates, which would result in higher financial expenses for the subsidiaries due to the indebtedness and the obligations assumed by the subsidiaries under the swap contracts indexed to floating interest rates (CDI percentages). However, as at December 31, 2011, the subsidiaries' financial funds were invested in Interbank Deposit Certificates ("CDIs"), and this considerably reduces such risk.

(c)
Credit risk inherent in the provision of services
 
This risk is related to the possibility of the subsidiaries incurring losses due to the difficulty of collecting amounts billed to customers. In order to mitigate this risk, the subsidiaries performed a credit analysis to assist management with risks related to collection problems, and monitored accounts receivable from subscribers, blocking the use of services by customers in the event that they defaulted on the payment of their bills. As of December 31, 2011 and 2010, no customers accounted for more than 10% of net receivables from services provided or of revenue from services rendered in the periods then ended.
 
(d)
Credit risk inherent in the sale of phone sets and prepaid telephone cards
 
The policy adopted by the subsidiaries on the sale of phone sets and the distribution of prepaid telephone cards is directly related to the credit risk levels accepted in the regular course of business. The choice of partners, the diversification of the accounts receivable portfolio, the monitoring of loan conditions, the positions and limits defined for orders placed by traders, and the adoption of guarantees are procedures adopted by the subsidiaries to minimize possible collection problems with their business partners. As at December 31, 2011 and 2010, no customers accounted for more than 10% of net receivables from the sale of goods or of revenue from the sale of goods in the periods then ended.
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


(e)
Financial credit risk

This risk relates to the possibility of the subsidiaries incurring losses due to the difficulty of realizing their short-term investments and swap contracts due to the bankruptcy of the counterparties. The subsidiaries minimize the risk associated with these financial instruments by operating only with sound financial institutions, and adopting policies that establish maximum risk concentration levels per institution.

(i)
Fair value of derivative financial instruments

The consolidated derivative financial instruments are as follow:

 
    2011       2010  
 
                                   
   
Assets
   
Liabilities
   
Net
   
Assets
   
Liabilities
   
Net
 
 
                                   
Derivative transactions
    121,204       (166,133 )     (44,929 )     22,868       (166,553 )     (143,685 )
 
                                               
Current portion
    55,889       (77,055 )     (21,166 )     6,122       (2,071 )     4,051  
 
                                               
Non-current portion
    65,315       (89,078 )     (23,763 )     16,746       (164,482 )     (147,736 )

The consolidated financial derivative instruments with long-term maturities as at December 31, 2011 have the following maturity schedules:

   
Assets
   
Liabilities
 
 
           
2013
    38,754       (26,201 )
2014
            (11,871 )
2015
            (4,770 )
2016
    20,676       (41,118 )
2017 onwards
    5,885       (5,118 )
 
               
      65,315       (89,078 )

Consolidated financial assets and liabilities measured at fair value:

   
2011
 
 
                 
   
Level 1
   
Level 2
   
Total
 
 
                 
Assets
                 
Financial assets at fair value through income
                 
Trading securities
    27,745             27,745  
Derivatives used for hedging purposes
            121,204       121,204  
 
                       
Total assets
    27,745       121,204       148,949  
 
                       
Liabilities
                       
Derivatives used for hedging purposes
            166,133       166,133  
                         
Total liabilities
            166,133       166,133  
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


   
2010
 
 
                 
   
Level 1
   
Level 2
   
Total
 
 
                 
Assets
                 
Financial assets at fair value through income
                 
Trading securities
    31,869             31,869  
Derivatives used for hedging purposes
            22,868       22,868  
 
                       
Total assets
    31,869       22,868       54,737  
 
                       
Liabilities
                       
Derivatives used for hedging purposes
            166,553       166,553  
 
                       
Total liabilities
            166,553       166,553  

The fair value of financial instruments traded on active markets is based on the quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm's length basis. These instruments are included in Level 1. The instruments included in Level 1 comprise, mainly, equity investments of Bank Deposit Certificates classified as trading securities.

The fair values of financial instruments that are not traded on an active market (for example, over-the-counter derivatives) are determined using valuation techniques. These valuation techniques maximize the use of observable market data where it is available and rely as little as possible on entity-specific estimates. If all significant inputs required to establish the fair value of an instrument are observable, the instrument is included in Level 2.

If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3.

Specific valuation techniques used to value financial instruments include:

●
quoted market prices of financial institutions or dealer quotes for similar instruments;

●
the fair value of interest rate swaps is calculated as the present value of the estimated future cash flow based on observable yield curves;

●
other techniques, such as discounted cash flow analysis, are used to determine the fair values of the remaining financial instruments.

The fair values of the derivative financial instruments of the subsidiaries were determined based on future cash flow (asset and liability positions), taking into account the contracted conditions and bringing those flows to present value by means of the discounted future interest rates disclosed in the market. The fair values were estimated at a specific time, based on information available and on the Company's own valuation methodologies.
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


(ii)
Financial instruments by category

The Company's financial instruments by category may be summarized as follows:

   
Loans and receivables
   
Financial assets valued   at fair   value through income
   
Total
 
 
                 
December 31, 2011
                 
Assets, as per balance sheet
                 
Derivatives
          121,204       121,204  
Trade accounts receivable and other assets,
                     
excluding advances
    3,345,494               3,345,494  
Financial   assets   valued   at   fair   value
through   income
            27,745       27,745  
Cash and cash equivalents
    3,262,855               3,262,855  
 
                       
      6,608,349       148,949       6,757,298  

   
Financial liabilities valued   at fair   value through income
   
Other financial liabilities
   
Total
 
 
                 
December 31, 2011
                 
Liabilities as per balance sheet
                 
Loans
          3,660,583       3,660,583  
Derivatives
    166,133               166,133  
Suppliers and other obligations, excluding
                       
legal obligations
            3,709,301       3,709,301  
 
                       
      166,133       7,369,884       7,536,017  

   
Loans and receivables
   
Financial assets valued   at fair   value through income
   
Total
 
 
                 
December 31, 2010
                 
Assets, as per balance sheet
                 
Derivatives
          22,868       22,868  
Trade accounts receivable and other assets,
                     
excluding advances
    2,697,430               2,697,430  
Financial   assets   valued   at   fair   value
through   income
            31,869       31,869  
Cash and cash equivalents
    2,376,232               2,376,232  
 
                       
      5,073,662       54,737       5,128,399  
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


   
Financial liabilities valued   at fair   value through income
   
Other financial liabilities
   
Total
 
 
                 
December 31, 2010
                 
Liabilities as per balance sheet
                 
Loans
          3,234,670       3,234,670  
Derivatives
    166,553               166,553  
Suppliers and other obligations, excluding
                       
legal obligations
            3,103,469       3,103,469  
 
                       
      166,553       6,338,139       6,504,692  

(iii)
Capital management

The Company's objectives in managing its capital are to safeguard the group's ongoing ability to provide returns to shareholders and benefits to other stakeholders, in addition to maintaining the ideal capital structure for reducing this cost.

In order to maintain or adjust its capital structure, the Company may review its dividend payment policy, return capital to the shareholders or issue new shares or sell assets to reduce its indebtedness, for example.

(iv)
The Company's hedging policy against financial risks - summary
 
The Company's policy stipulates the adoption of swap mechanisms against financial risks involved in financing taken in foreign or local currency, in order to control the exposure to risks related to exchange and interest rate variations.

The contracting of derivative financial instruments against exchange exposure should occur simultaneously with the debt contract originating the exposure. The level of risk coverage to be contracted for the exchange exposure is 100% in terms of the period and amount.

With regard to the exposure to risk factors in local currency arising from financing linked to fixed interest rates or TJLP, given that the yield on the subsidiaries' cash and cash equivalents is based on the CDI, the company's strategy is to change part of these risks into exposure to the CDI.

As at December 31, 2011 and December 31, 2010, no type of margin or guarantee applied to transactions with derivative instruments were entered into by the Group.

The criteria for selection of financial institutions rely on parameters that take into account the ratings provided by reputable ratings agencies, the shareholders' equity and the degree of concentration of operations and funds.
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated
 
The table below shows the derivative instrument transactions contracted by the subsidiaries and effective as at December 31, 2011 and December 31, 2010:

       
Counterparty
     
Total swap
     
Average swap rates
 
               
Total
 
(active leg
             
Currency
 
Swap type
 
Debt
 
Swap
 
debt
 
accrual
)
Coverage
 
Active leg
 
Active leg
 
 
                                 
R$
 
PRE X DI
 
BNB
 
Santander + Itaú
 
73,735
 
28,992
 
39%
 
10.96%
 
72,02% of CDI
 
R$
 
TJLP X DI
 
BNDES
 
Santander + Itaú
 
1,575,385
 
139,140
 
9%
 
TJLP + 4,2%
 
91,43% of CDI
 
USD
 
LIBOR X DI
 
BEI
 
Santander+ CITI + MS
 
532,124
 
532,124
 
100%
 
LIBOR 6M + 0,62%
 
95,42% of CDI
 
USD
 
LIBOR X DI
 
BNP
 
CITI + BES
 
267,774
 
267,768
 
100%
 
LIBOR 6M + 2,53%
 
95,01% of CDI
 
USD
 
LIBOR X DI
 
BOFA
 
BOFA
 
223,382
 
223,401
 
100%
 
(LIBOR 3M + 1,25%) x 1,18
 
92,00% of CDI
 
USD
 
PRE X DI
 
JP Morgan
 
JP Morgan
 
187.196
 
187.347
 
100%
 
1,84%
 
92,50% of CDI
 

       
Reference (national) amount
         
Fair value
 
 
                           
 
     
December
   
December
   
December
   
December
 
 
Object
Currency
 
2011
   
2010
   
2011
   
2010
 
 
                           
Fixed interest risk vs. CDI
 
BRL
    14,443       34,501              
Active position
Part of financing obtained
                      29,080       62,700  
Passive position
from BNB
                      (25,185 )     (55,415 )
 
                                   
Net balance
                        3,895       7,285  
 
                                   
TJLP risk vs. CDI
 
BRL
    137,631       230,665                  
Active position
Part of financing obtained
                      141,036       228,578  
Passive position
from BNDES
                      (137,287 )     (228,990 )
 
                                   
Net balance
                        3,749       (412 )
 
                                   
USD exchange risk vs. CDI
 
USD
    1,213,820       840,940                  
Active position
Full protection against exchange
                      1,160,165       673,770  
Passive position
variation risk of agreements entered
                      (1,212,738 )     (824,328 )
 
into with Banco JPM and BOFA,
                                 
Net balance
Bancos BNP Paribas e BEI
                      (52,573 )     (150,558 )
 
                                   
Total
        1,365,894       1,106,106       (44,929 )     (143,685 )

(v)
Sensitivity analysis table - effects of the variation in fair value of the swaps
 
For identifying possible distortions of the consolidated derivative instruments currently in force, a sensitivity analysis was carried out considering three different scenarios (probable, possible and remote) and the respective impact on the results attained, namely:

         
Probable
   
Possible
   
Remote
 
Description
 
2011
   
scenario
   
scenario
   
scenario
 
                         
Fixed-rate debt (partial amount)
    29,080       29,080       28,727       28,388  
Fair value of swaps receivable
    29,080       29,080       28,727       28,388  
Fair value of swaps payable
    (25,185 )     (25,185 )     (25,136 )     (25,010 )
                                 
Net swap exposure
    3,895       3,895       3,591       3,378  
                                 
TJLP-indexed debt (partial amount)
    141,036       141,036       138,529       136,136  
Fair value of swaps receivable
    141,036       141,036       138,529       136,136  
Fair value of swaps payable
    (137,287 )     (137,287 )     (137,218 )     (137,167 )
                                 
Net swap exposure
    3,749       3,749       1,311       (1,031 )
                                 
USD-indexed debit (BNP Paribas, BEI, JPM and BoFA)
    1,160,165       1,160,165       1,463,579       1,772,342  
Fair value of swap receivable
    1,160,165       1,160,165       1,463,579       1,772,342  
Fair value of swap payable
    (1,212,738 )     (1,212,738 )     (1,211,068 )     (1,207,365 )
                                 
Net swap exposure
    (52,573 )     (52,573 )     252,511       564,997  
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated

 
Because the subsidiaries own financial derivative instruments intended to safeguard their financial debt, the changes in the scenarios are accompanied by the respective hedging instruments, thus showing that the exposure effects arising from swaps are reflected in the debt. In connection with these transactions, the subsidiaries disclosed the fair value of debt and of the financial derivative instruments on separate lines (see above), so as to provide information on their net exposure in each of the three scenarios.

Note that all transactions with financial derivative instruments contracted by the subsidiaries are solely intended as hedges. Consequently, any increase or decrease in their respective market values will correspond to an inversely proportional change in the corresponding portion of the financial debt underlying the financial derivative instruments contracted by the subsidiaries.

Our sensitivity analyses referring to the derivative instruments in effect as of December 31, 2011 basically rely on assumptions relating to variations in the market interest rates including the TJLP and the variation of the US dollar underlying the swap contracts. These assumptions were chosen solely because of the characteristics of our derivative instruments, which are exposed only to interest rates and exchange rate variations.

Given the characteristics of the subsidiaries' financial derivative instruments, our assumptions basically took into consideration the effect of a reduction in the main indices (CDI and TJLP) and fluctuations in the US dollar used in swap transactions, with the following percentages and quotations as a result:

   
Probable
 
Possible
 
Remote
 
Risk variable
 
scenario
 
scenario
 
scenario
 
 
             
CDI - %
 
10,87
 
13,59
 
16,31
 
TJLP - %
 
6,00
 
7,50
 
9,00
 
USD
 
1,8634
 
2,3293
 
2,7951
 

(vi)
Gains and losses with derivatives in the period
 
   
2011
 
 
     
Fixed interest risk vs. CDI
    970  
TJLP risk vs. CDI
    4,570  
USD exchange risk vs. CDI
    5,780  
 
       
Net gains (losses)
    11,320  

 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


41
Pension plans and other post- employment benefits
 
   
2011
   
2010
 
 
           
Term of Atypical Contractual Relationship ("TRCA")
          4.362  
Plano de Assistênçia Médica ao Aposentado - Health Care Plan for
             
Retired Employees (PAMA)
          4,486  
PAMEC/active participants' policy
    318       318  
 
               
      318       9,166  

Supplementary pension plan

On August 7, 2006, the Company's Board of Directors approved the implementation by Itaú Vida e Previdência S.A. of PGBL and VGBL Supplementary Pension Plans for the Company, TIM Celular and TIM Nordeste, which was merged into TIM Celular . All employees not benefiting from pension plans sponsored by the Group were eligible for these supplementary plans.

Atypical contract term relationship

Until December 31, 2010, was understanding of the Company is sponsoring, for the succession process of partial division of Telecommunications of Parana S.A. - Telepar of supplementary retirement plans set up in 1970 by term and ratified the Collective Agreement Term Relationship Atypical contract. On December 31, 2010, the Company had a provision for four individuals to whom it was understood that the Company was responsible for honoring the liability of the plan.

Based on work of internal and external lawyers, the opinion of renowned industry experts and case law obtained for cases related to TRCA in other companies, the Company revised its position and now considers that it is not responsible for this plan. As a result of this new position were reversed balances liabilities recorded in 2010 (R$ 4,362).

SISTEL and TIMPREV

TIM Participações S.A., TIM Nordeste merged into TIM Celular and TIM Celular have sponsored a private defined benefit pension plan for a group of TELEBRÁS system's former employees, which is managed by Fundação Sistel de Seguridade Social - SISTEL, as a consequence of the legal provisions applicable to the privatization process of these companies in July 1998.

Given that in 1999 and 2000 the sponsors of the pension plans managed by SISTEL had already negotiated conditions for the creation of individual pension plans for each sponsoring company and the maintenance of joint liability only in relation to the participants already assisted on January 31, 2000, the Group, like other companies created as a result of the former TELEBRÁS system, created in 2002 a defined contribution pension plan meeting the most modern social security standards adopted by private companies, and enabling migration to this plan of the employee groups linked to SISTEL.

On November 13, 2002, the Brazilian Secretariat for Supplementary Pension Plans, through official ruling CGAJ/SPC n o 1917, approved the statutes of the new pension plan(hereafter "the Statutes of the TIMPREV Benefits Plan") as a defined contribution plan, which provide for new conditions for granting and maintaining benefits, as well as the rights and obligations of the Plan Managing Entity, the sponsoring companies, participants and the beneficiaries thereof.
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


Under this new plan, the sponsor's regular contribution will correspond to 100% of a participant's basic contribution, and TIMPREV's managing entity will ensure the benefits listed below, under the terms and conditions agreed upon, with no obligation to grant any other benefits, even if the government-sponsored social security entity starts granting them:

●
normal retirement pension;
●
early retirement pension;
●
disability pension;
●
deferred proportional benefit;
●
death benefit.

However, as not all of the Company's and its subsidiaries' employees have migrated to TIMPREV, the pension and health care plans deriving from the TELEBRÁS system briefly listed below remain in force:

●
PBS - defined benefits plan of SISTEL, which includes active employees who participated in the plans sponsored by the companies of the former TELEBRÁS system.

●
PBS Assistidos - a multi-sponsored pension plan for inactive employees.

●
Convênio de Administração - for managing pension payments to retirees and pensioners of the predecessors of the subsidiary companies.

●
PAMEC/Apólice de Ativos - health care plan for pensioners of the predecessors of the subsidiary companies.

As happened with TRCA, the Company, until December 31, 2010, had understood that it was responsible for liabilities of the PAMA participants (health care plan) who are related to the Group. Based on a new understanding of internal and external lawyers, the Company changed its position. As a result, the liabilities previously recorded in 2010 were written-off (R$4,486).

In accordance with the rules established by NPC-26 issued by the Institute of Independent Auditors of Brazil - IBRACON, and approved by CVM Resolution n o  371, the plans having a surplus are not recorded by the Company, as it is impossible to recover these amounts. Furthermore, the amounts of contributions will not be reduced for future sponsors.

On January 29, 2007 and April 9, 2007, through the Brazilian Secretariat for Supplementary Pension Plans (SPC), the Ministry of Social Security approved the transfer of the management of the PBS - Tele Celular Sul, TIM PrevSul, PBT-TIM, Convênio de Administração, PBS - Telenordeste Celular and TIM PrevNordeste benefit plans (according to SPC/DETEC/CGAT Communications n os  169, 167, 168, 912, 171 and 170, respectively) from SISTEL to HSBC - Fundo de Pensão.

The PBS Assistido plan continues to be managed by SISTEL. The only exception is Plano PAMEC, which was extinguished, with the Company remaining responsible for coverage of the respective benefit, which is now called PAMEC/Apólice de Ativos.

In view of the approval of the proposed migration by the Board of Directors in January 2006, and the approvals by the Ministry of Social Security, the transfer of the above mentioned funds from SISTEL to HSBC - Fundo de Pensão came into effect in April 2007.
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated

 
In 2011, contributions to pension plans and other post-employment benefits amounted to R$ 303 (R$ 151 in the same period of 2010).

Below are the actuarial positions of assets and liabilities regarding pension and healthcare plans as of December 31, 2011, pursuant to CPC standards for sponsored plans existing before the establishment of TIMPREV, which still includes active participants:

(a)
Effects as of the base date December 31

      Plans       Totals  
 
                                         
   
PBS
   
PBS Assistidos
   
Convênio de Administração
   
PAMEC/
Apólice de Ativos
   
Fiber
   
2011
   
2010
 
 
                                         
Reconciliation of assets and liabilities as at December 31, 2011
    ( *)     ( *)     ( *)                        
Present value of actuarial obligations
    23,925       6,280       155       318       6,519       37,202       39,478  
Fair value of plan assets
    (41,947 )     (10,328 )     (308 )             (6,959 )     (59,542 )     (52,313 )
 
                                                       
Present value of excess obligations at the fair value of assets
    (18,022 )     (4,048 )     (153 )     318       (440 )     (22,340 )     (12,835 )
 
                                                       
Net actuarial liabilities/(assets)
    (18,022 )     (4,048 )     (153 )     318       (440 )     (22,340 )     (12,835 )

(*)
The sponsor recognized no assets as it was impossible to reimburse this surplus. Additionally, the sponsor's contributions will not be reduced in the future.

(b)
Changes in net actuarial liabilities (assets)
 
      Plans  
 
                                         
   
PBS
   
PBS Assistidos
   
Convênio de Administração
   
PAMEC/
Apólice de Ativos
   
PAMA
   
TRCA
   
Fiber
 
 
                                         
Net actuarial liabilities (assets) as of December 31, 2010
    (17,980 )     (3,852 )     (169 )     318       4,486       4,362        
Expenses (revenue) recognized under income for the previous year
    (2,309 )     (489 )     (21 )     33                        
Sponsor contributions
                            (15 )                      
Recognized actuarial (gains) losses
    2,267       293       37       (18 )                     (195 )
Unrecognized actuarial (gains) losses
                                                    (245 )
Extinction of plans PAMA and TRCA
                                    (4,486 )     (4,362 )        
 
                                                       
Net actuarial liabilities (assets) as of December 31, 2011
    (18,022 )     (4,048 )     (153 )     318                       (440 )
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated

 
(c)
Loss (gain) breakdown

      Plans  
 
                                         
   
PBS
   
PBS Assistidos
   
Convênio de Administração
   
PAMEC/
Apólice de Ativos
   
PAMA
   
TRCA
   
Fiber
 
 
                                         
(Gains) losses from actuarial obligations
    707       471       27       (18 )     890       192       5,645  
(Gains) losses from plan assets
    1,559       (178 )     10                               (5,890 )
Losses from employee contributions
                                                       
Extinction of the plan
                                    (890 )     (192 )        
 
                                                       
(Gain) loss as of Dec. 31, 2011
    2,266       293       37       (18 )                     (245 )


(d)
Conciliation of the present value of obligations
 
      Plans  
 
                                         
   
PBS
   
PBS Assistidos
   
Convênio de Administração
   
PAMEC/
Apólice de Ativos
   
PAMA
   
TRCA
   
Fiber
 
 
                                         
Value of obligations as at December 31, 2010
    22,348       5,749       124       318       6,576       4,643        
Cost of current service
    12                                               239  
Interest on actuarial obligations
    2,262       589       13       33                       717  
Benefits paid during the year
    (1,404 )     (529 )     (9 )     (15 )                     (82 )
(Gains)/losses from obligations
    707       471       27       (18 )                     5,645  
Extinction of plans PAMA and TRCA
                                    (6,576 )     (4,643 )        
 
                                                       
Value of obligations as at December 31, 2011
    23,925       6,280       155       318                       6,519  

(e)
Conciliation of fair value of assets

      Plans  
 
                                   
   
PBS
   
PBS Assistidos
   
Convênio de Administração
   
PAMEC/
Apólice de Ativos
   
PAMA
   
Fiber
 
 
                                   
Fair value of assets as of December 31, 2010
    40,328       9,602       292             2,089        
Benefits paid in the year
    (1,404 )     (529 )     (9 )     (15 )             (82 )
Actual earnings from assets
    3,023       1,255       25       15               6,810  
Participants contributions
                                            126  
Sponsor contributions
                                            105  
Extinction of plans PAMA and TRCA
                                    (2,089 )        
 
                                               
Fair value of assets as of December 31, 2011
    41,947       10,328       308                       6,959  

(f)
Expenses estimated for 2012

      Plans  
 
                             
   
PBS
   
PBS Assistidos
   
Convênio de Administração
   
PAMEC/
Apólice de Ativos
   
Fiber
 
 
                             
Cost of current services (interest)
    13                          
Interest on actuarial obligations
    2,408       632       16       33       7,170  
Expected earnings from assets
    (4,684 )     (1,305 )     (35 )             920  
 
                                       
Total net (expenses) revenues to be recognized
    (2,263 )     (673 )     (19 )     33       8,090  
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated

 
Actuarial assumptions adopted in the calculations

The principal actuarial assumptions adopted in the calculations were as follow:

Nominal discount rate on actuarial obligation:
10.66% to 9.98 p.a.(1 0. 66% in 2010)
 
 
Nominal earnings estimated rate on plan assets:
PBS-A: 11.50% p.a (11.50% in 2010)
Convênio de Administração: 11,69% p.a (11.69% in 2010)
PAMEC: N/A
PBS: 11.69% p.a (9.88% in 2010)
 
 
Estimated nominal salary increase index:
6.69% p.a. (6.28% in 2010)
 
 
Estimated index of nominal increase in benefits:
4.40% p.a. (4.20% in 2010)
 
 
General biometric mortality table:
AT83 separated by gender
 
 
Biometric disability table:
Mercer Disability table
 
 
Expected turnover rate:
Null
 
 
Probability of entering retirement:
100% on first eligibility to a benefit through the plan
 
 
Estimated long-term inflation rate:
4.40% (4.20% in 2010)
 
 
Determination method:
Projected Unit Credit Method


42
Management's fees

The key management personnel include the Board of Directors and the statutory directors. The remuneration paid or payable to key management personnel, for their services is presented below:

   
2011
   
2010
   
2009
 
 
                 
Salaries and other short-term benefits
    9,750       4,203       7,569  
Payments based on shares
    1,476                  
 
                       
      11,226       4,203       7,569  


43
External auditor's fees

In 2011, our external auditors provided audit services other than auditing the financial statements. They were: (i) assurance of the sustainability report, (ii) the assurance report carbon inventory, (iii) due diligence; (iv) issue of comfort letter in issue of shares; (v) with procedures previously agreed, representing 35% of total fees for auditing the financial statements.

 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


44
Insurance

The Group maintains a policy of monitoring the risks inherent in their operations. Thus, as at December 31, 2011, the Group had insurance coverage against operating risks, third party liability, and health insurance, among others. The management of the Company considers the insurance coverage sufficient to cover eventual losses. The table below shows the main assets, liabilities or interests insured and their respective amounts:

Types
 
Amounts insured
 
   
Operating risks
 
R$ 21,314,436
Operating risks
 
R$ 130,688
Operating risks
 
R$ 156,534
General Third Party Liability - RCG
 
R$ 53,000
General Third Party Liability - RCG
 
R$ 10,000
 
   
Vehicles (Executive and Operational Fleets)
 
100% of the Fipe Reference Table. R$ 1,000 for civil liability - optional (Property Damages and Personal Injury) and R$ 100 for Moral Damages.
 
   
Vehicles (Executive and Operational Fleets)
 
110% of the Reference Fipe Table. R$ 1,000 for civil liability - optional (Property Damages and Personal Injury) and R$ 100 for Moral Damages.


45
Commitments

Rentals

The equipment and property rental agreements signed by the Group's companies have different maturity dates. Below is a list of minimum rental payments to be made under such agreements:

Year of payment
 
Amount
 
 
     
2012
 
330,367
 
2013
 
347,216
 
2014
 
363,882
 
2015
 
380,985
 
2016
 
398,890
 
 
     
   
1,821,340
 

 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated


46
Expenses by type

   
2011
   
2010
   
2009
 
 
                 
Expenses by type
                 
Cost of services provided and goods sold
    (8,561,433 )     (7,305,767 )     (6,672,369 )
Selling expenses
    (4,845,712 )     (4,494,608 )     (4,436,751 )
General and administrative expenses
    (963,394 )     (1,008,694 )     (1,033,438 )
Other operating revenue/expenses
    (647,996 )     (448,247 )     (462,114 )
 
                       
      (15,018,535 )     (13,257,316 )     (12,604,672 )
 
                       
Classified as
                       
Personnel
    (632,828 )     (586,722 )     (563,225 )
Advertising and publicity
    (530,145 )     (537,221 )     (511,933 )
Third party services
    (3,033,490 )     (2,797,663 )     (2,791,430 )
Interconnection
    (4,132,953 )     (3,602,984 )     (3,351,845 )
Cost of goods sold
    (2,062,552 )     (1,026,091 )     (925,184 )
Depreciation and amortization
    (2,569,768 )     (2,993,461 )     (2,913,966 )
Allowance for doubtful accounts
    (231,529 )     (310,497 )     (422,163 )
Taxes, fees and contributions
    (1,291,712 )     (968,623 )     (741,588 )
Other
    (533,558 )     (434,054 )     (383,338 )
 
                       
      (15,018,535 )     (13,257,316 )     (12,604,672 )

47
Business combinations

As mentioned in Note 1, at 31 October 2011, the wholly-owned subsidiary TIM Celular acquired by the Companhia Brasiliana de Energia and AES ELPA S.A. (Group companies AES Brazil), 100% of Eletropaulo Telecom Ltda. and 98.3% of AES Communications Rio de Janeiro S.A. disbursing, respectively, R$ 1,074,179 and R$ 447,471. As a result of this acquisition, the Company shall have a great opportunity to increase business through the development of services to corporate clients and the launching of residential broadband. Additionally, the Company foresees significant cost savings in interconnection.

The financial statements of TIM for the year ended December 31, 2011, included net revenues of R$ 22,594 and loss of R$ 19,406 relating to acquired companies for the period November 1, 2011 to December 31, 2011. Additionally, the table presents the following consolidated pro forma information (unaudited) assuming that the business combination occurred on January 1, 2011:

    Year ended December31, 2011 (unaudited)  
 
     
Net revenue
    17,223,561  
Net profit
    1,349,792  

The above amounts were determined after the application of accounting policies of the TIM Group.

In the year ended December 31, 2011, the Company incurred R$ 15,041 in costs attributable to this transaction, which are recorded in income for the year under general and administrative expenses.
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated

 
The table below summarizes the amount paid to acquire control of the companies mentioned above, as well as the amounts provisionally established of identified assets and liabilities assumed at the acquisition date, as well as the fair value of the acquisition of non-controlling interest at acquisition date:

   
Provisory amounts
 
 
           
   
Eletropaulo Telecomunicações Ltda.
   
AES Communications Rio de
Janeiro S.A.
 
 
           
As of October 31
           
Cash and cash equivalents
    1,074,179       447,471  
 
               
Fair value of non controlling interest acquired
            7,938  
 
               
Total consideration
    1,074,179       455,409  
 
               
                 
                 
Amounts recorded, identified assets and liabilities assumed
               
Cash and cash equivalents
    15,477       3,496  
Financial   assets   valued   at   fair   value through   income
    1,170          
Trade accounts receivable
    19,868       18,156  
Tax credits
    22,064       18,227  
Court deposits
    501       63  
Other assets
    374       334  
PP&E
    164,198       120,639  
Intangible
    9,196       2,941  
Loans and financing
    (67,619 )     (22,024 )
Suppliers
    (6,779 )     (6,063 )
Labor obligations
    (5,514 )     (3,391 )
Tax obligations
    (21,671 )     (18,336 )
Other liabilities
    (5,973 )     (1,933 )
Contingencies
    (11 )     (472 )
 
               
Total of identified assets net
    125,281       111,637  
 
               
Goodwill
    948,898       343,772  

In November 27, 2011, as stated in the contract of acquisition, the subsidiary TIM Celular provided for an extension of the tender offer to non-controlling shareholders at the same price per share paid to the former controlling shareholders. Thus, for purposes of calculating the balances involved in the business combination, the Company considers the acquisition of 100% of AES Communications Rio de Janeiro S.A. and an additional financial liability of R$ 7,938 recorded to honor his offer to the non-controlling shareholders.

As mentioned earlier, the acquisition of the companies was completed close to the year end and, based on information currently available, it is not possible to determine with reasonable certainty, as the existence of any additional assets, liabilities and contingent liabilities valued at its fair value that must be recorded as part of the business combination, so this evaluation process will be completed during the year 2012 and any adjustments to the financial statements of businesses acquired and consolidated financial statements of the Group will be recorded retroactively, as required by IFRS 3. The deadline for completing these assessments and also for possible identification and valuation of new assets and liabilities that may be allocated in the process of business combination is October 31, 2012.
 
 
 

TIM Participações S.A. and subsidiaries

Notes to the consolidated financial statements
as of December 31, 2011
In thousands of reais, unless otherwise stated

 
Since this is a complex evaluation, the Company focused its efforts on identifying the main factors that motivated the acquisition of such companies and, as mentioned above, the main factors were the possibility of increasing the corporate segment and the launch the residential broadband service, which, in essence, represent the ability of the Company to obtain a return on assets purchased in excess of the currently earned by companies and therefore are not allocated to any specific assets and liabilities, thus being recorded as goodwill. Thus, according to management, the values of the premiums are substantially composed of synergies, cost reductions and expected future profitability.

In relation to goodwill registered, despite the process of accounting for business combinations, goodwill and determination have not yet been completed, the TIM Celular made a general analysis of these values provisionally established in December 31, 2011 based the business plan that supported the acquisition and concluded that there is need to recognize impairment loss.


48
Supplementary disclosure of
consolidated cash flow

   
2011
   
2010
   
2009
 
 
                 
Interest paid
    225,180       296,533       254,420  
Income and social contribution taxes paid
    269,827       110,419       54,308  

49
Subsequent events

As described in the Note 1, after completing the purchase of AES ELPA SA's participation in the AES Communications Rio de Janeiro SA, the subsidiary TIM Celular was required to extend the same offer to acquire shares owned by the minority shareholders of AES Communications SA. The offer comprises the acquisition of 1,650,940 of TIM Fiber RJ’s shares (1.74% of total shares) by TIM Celular for R$4.79 per share. Such offer to minority shareholders was held later in 2011 and ended in February 26, 2012. At the end of the offer, TIM Celular acquired 1,349,867 shares from the minority shareholders, representing 81.4% of the total offer, in the amount of R$ 6,610.


*          *          *
 
 
F-85
 
Exhibit 1.1
 
BY-LAWS
TIM PARTICIPAÇÕES S.A.
CHAPTER I
THE COMPANY’S CHARACTERISTICS

Section 1 - TIM PARTICIPAÇÕES S.A. (the "Company") is a publicly-held company, governed by these By-laws and by the applicable legislation.

Section 2 - The purpose of the Company is to:
I. Control the companies which explores telecommunications services, including mobile personal telephone services and others, in their respective authorization and/or concession areas;
II. Promote, through its controlled or affiliated companies, the expansion and implementation of mobile telephone services in their respective concession and/or authorization areas;
III. Promote, perform or give guidance in relation to the borrowing of funds from internal and external sources to be invested by the Company or by its controlled companies;
IV. Promote and incentive study and research activities for the development of the mobile telephone services industry;
V. Provide specialized technical mobile telecommunications services through controlled or affiliated companies;
VI. Promote, incentive and coordinate, through controlled or affiliated companies, the education and training of the staff required by the mobile telephone services industry;
VII. Perform or promote the import of goods and services for the controlled or affiliated companies;
VIII. Engage in any other activities related or akin to its purpose; and
IX. Hold interest in the corporate capital of other companies.

Section 3 - The Company is headquartered and its forum is based in the city and State of Rio de Janeiro, at Avenida das Américas, No. 3,434, 1st Block 1, 7th floor – Part; upon resolution of its Board of Directors, the Company may open and close branches and offices anywhere in Brazil or abroad.
 
 
1
 

 
Section 4 - The duration term of the Company is indeterminate.

CHAPTER II
CAPITAL STOCK

Section 5 - The subscribed and fully-paid capital share is of nine billion, eight hundred and eighty-six million, eight hundred and eighty-six thousand, five hundred and ninety-three Reais and forty-six cents (R$ 9,886,886,593,46) divided into two billion, four hundred and seventeen million, six hundred and thirty-two thousand, six hundred and forty-seven (2,417,632,647) common shares, all nominative, book-entry and with no-par value.

Sole Paragraph – The Company shall not issue preferred shares.

Section 6 – Each common share corresponds to 1 (one) vote in the Shareholders' Meeting resolutions.

Section 7 - The Company is authorized to increase the capital stock upon resolution of the Board of Directors, irrespective of an amendment to these By-laws, up to a limit of four billion four hundred and fifty thousand million (4,450,000,000) common shares.

Paragraph One – Within the limits of the authorized capital set forth in the caput section of Section 7, the Company may grant stock options to its officers, employees or any individuals that render services to the Company or its controlled companies, as per the plan approved by the General Shareholders’ Meeting.

Paragraph Two – .Within the limits of the authorized capital set forth in the caput section of Section 7, the Board of Directors may decide on the issuance of debentures and convertible debentures.

Section 8 – The shares of Company shall be book entry shares and shall be kept in a deposit account, at a financial institution, on behalf of their holders, with no issuance of share
 
 
2
 
 
certificates. The depository institution may charge shareholders for the cost of transferring their shares, as provided in section 35, paragraph 3rd of Law No. 6,404/76.

CHAPTER III
SHAREHOLDERS’ MEETING

Section 9 – The Shareholders' Meeting is the ruling body of the Company, with authority to decide on all business concerning its corporate purpose and take the actions deemed convenient to the protection and development of the Company.

Section 10 – The following are exclusive powers of the Shareholders' Meeting:
I. to amend the By-laws;
II. To decide on the appraisal of assets given by shareholders to pay up capital stock;
III. To decide on the Company's transformation, merger, take-over and split-up; its dissolution and liquidation; to appoint and remove liquidators and appreciate their accounts;
IV. To suspend the rights of shareholders that do not comply with their duties imposed by law or by these By-laws or the Novo Mercado Listing Rules (the "Novo Mercado Rules")
published by BM&FBOVESPA S.A. – Brazilian Securities, Commodities and Futures Exchange ("BM&FBOVESPA");
V. To elect and remove, at any time, the members of the Board of Directors and the members of the Statutory Audit Committee;
VI. to determine the global or individual remuneration of the members of the Board of Directors, Board of Executive Officers and members of the Statutory Audit Committee;
VII. to annually take the accounts of the management and decide about the financial statements submitted by the management;
VIII. to decide whether the Company shall file a civil liability law suit against the management for losses in the Company’s assets, as provided in section 159 of Law No. 6,404/76;
IX. to resolve in compliance with all provisions set forth in any law, the By-laws or the Novo Mercado Rules about capital stock increase by means of subscription of new shares, and on the issuance of any other bonds or securities, whether in Brazil or abroad as provided in the paragraph 1 of section 7 and whenever the limit of the authorized capital has been attained;
 
 
3
 
 
X. decide on the cancellation of the Register of Publicly-Held Company before the Securities and Exchange Commission of Brazil ("CVM");
XI. decide on the delisting of the Company from the Novo Mercado listing segment ("Novo Mercado") of BM&FBOVESPA;
XII. choose a company specialized in corporate appraisals to prepare an opinion concerning the appraisal of the Company’s shares in the event of cancellation of Publicly-Held Company Register or delisting from the Novo Mercado as set forth in Article VIII of these By-laws, among the companies indicated in the triple list of companies established by the Board of Directors under Section 22,XXV, below; and,
XIII. to previously approve the execution of any agreements with a duration exceeding 12 (twelve) months between the Company or its controlled companies, on the one side, and the controlling shareholder or companies controlled, affiliated or under the same control or the controlling companies of the latter, or parties related to the Company, on the other side, except when those agreements are governed by uniform clauses.

Section 11 - The Shareholders' Meeting shall be convened by the Board of Directors, represented by its Chairman, and may also be convened as provided under the sole paragraph of section 123 of Law No. 6,404/76.

Section 12 - The Shareholders' Meeting shall be opened by the Company's Chief Executive Officer or by its expressly appointed proxy, with specific authority therefore, who shall then elect the presiding board, formed by a chairman and a secretary, chosen among the attending individuals.

Sole Paragraph – In order to prove the shareholder status, it will be observed the provision of section 126 of Law No. 6,404/76; holders of uncertified or deposited shares shall deposit with the Company's head-office, no later than two (2) working days before the shareholders' meeting, their identity document and respective proxy, when needed, and the receipt/statement issued by the depository institution, issued no later than five (5) working days before the shareholders' meeting.
 
 
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Section 13 - The Shareholders' Meeting proceedings and resolutions shall be recorded in minutes, signed by the presiding board and the shareholders attending the meeting that represent, at least, the majority required for passing resolutions.

Paragraph One - The minutes shall be recorded as a summary of the facts, including dissents and protests.

Paragraph Two - Except as otherwise decided by the Meeting, the minutes shall be published without the shareholders' signatures.

Section 14 - Annually, within the first four months following the end of the fiscal year, a annual Shareholders' Meeting shall be convened to:
I. take the management accounts; examine, discuss and vote the financial statements;
II. decide on the uses to which the net profits of the fiscal year should be put and on the distribution of dividends; and
III. elect the members of the Statutory Audit Committee and, when applicable, the members of the Board of Directors.

Section 15 - A Special Shareholders' Meeting shall be convened whenever the Company interests so require.

Section 16 . – The shareholders shall exercise their voting rights in the Company’s interests.

CHAPTER IV
COMPANY MANAGEMENT

SECTION I
GENERAL RULES

Section 20 - The Company shall be managed by the Board of Directors and by the Board of Executive Officers.
 
 
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Paragraph One - The Board of Directors, as a decision body, shall carry out the high management of the Company.

Paragraph Two - The Board of Executive Officers is the Company’s representative and executive body, and each one of its members shall act within his/her respective scope of authority, provided that the limits set forth in sections 10, 22 and 28 of these By-laws are observed.

Paragraph Three - The duties and powers vested by law on each management body cannot be assigned to another.

Paragraph Four – The positions of Chairman of the Board of Directors and Chief Executive Officer or main executive officer of the Company shall not be held by the same manager Cumulatively.

Paragraph Five – The members of the Board of Directors and of the Board of Executive Officers are released from providing a pledge as guarantee of their term of office.

Section 18 - Managers will take office by signing an instrument of appointment recorded in the Book of the Minutes of the Board of Directors or Executive Officers’ Meetings, as the case may be.

Sole Paragraph - The member of the Board of Directors or the member of the Board of Executive Officers shall take office only after the execution of Statement of Consent from Senior Managers under the Novo Mercado Rules and the compliance with any applicable legal requirements.

Section 19 – At the taking of office, the Company’s Managers shall sign, in addition to the instrument of appointment, a statement pursuant to which they shall adhere to the terms of the Company’s ethics code and the “Policy of Disclosure and Use of Information and of Securities Trading” Manual.
 
 
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Section 20 – In addition to the events of death, resignation, dismissing and other events provided for in the law, the position shall become vacant whenever the manager fails to sign the instrument of appointment or the Statement of Consent from Senior Managers within the thirty (30) days as of its election or is absent from exercising its duties for more than thirty (30) consecutive days or ninety (90) non-consecutive days during the term of office, everything with no just cause, at the discretion of the Board of Directors.

Paragraph One – The resignation from the position of manager shall be made upon written communication to the body integrated by the resigning member, and it shall become effective as of such moment to the Company and, to any third parties, after the filing of the document of resignation with the Board of Trade and its publication.

Paragraph Two – Should any position in the Board of Directors be vacant, the member that is no longer in office shall be replaced by an alternate elected by the General Shareholders’ Meeting specifically called for such purpose. The alternate elected by the General Shareholders’ Meeting shall remain in office for the remaining term of office of the replaced member and, after such term, a new member of the Board of Directors shall be elected as provided in this Article IV.

Paragraph Three – The members of the Board of Directors shall be replaced in the event of absence or impediment by a proxy duly appointed insofar as such proxy is a member of the Board of Directors.

Paragraph Four – In the event of vacancy of a position of Director, the other Directors shall appoint an alternate that shall remain in office until the General Shareholders’ Meeting is called for the purposes and under the terms of paragraph 2 of Section 20 hereof.

Section 21 – Managers shall serve a unified term of two (2) years, with reelection allowed.

Sole Paragraph – The terms of office of the Managers shall be extended until the instatement of their elected successors.
 
 
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SECTION II
BOARD OF DIRECTORS

Section 22 – In addition to the duties provided by law, the Board of Directors is responsible for:
I. approving and following up the Company's annual budget, as well as that of its controlled companies, in addition to the goals action plan and business strategy plan for the period covered by the budget;
II. deciding on the issuance of shares, convertible debentures and non-convertible debentures within the limits of the authorized capital stock as per Section 7 of the present Bylaws, and the Board of Directors may also exclude the preemptive rights or reduce the term for its exercise in the issuance of shares and convertible debentures which are placed for sale in the Stock Exchange or by public subscription or in a public tender offer for the acquisition of control under the terms set forth by law and the Novo Mercado Rules;
III. authorizing the issue of commercial papers for public offering;
IV. deciding, when so empowered by the Shareholders' Meeting, on the conditions for the issue of debentures, the maturity date and conditions, amortization or redemption, the date and conditions for interest payment, profit sharing and refund premium, if any, and the form of subscription or placement, as well as the other types of debentures;
V. authorizing the purchase of shares issued by the Company, for the purposes of cancellation or holding them in treasury and subsequent sale;
VI. deciding on the approval of a program of depository receipts issued by the Company;
VII. approving the purchase or sale, in hole or partially, by the Company of its interest in capital stock of other companies, including of companies under its control;
VIII. authorizing the exchange of shares and other securities, as well as the waiver of preemptive rights to the subscription of shares, debentures convertible into shares or subscription bonus issued by the controlled companies;
IX. authorizing the creation of subsidiary companies;
X. authorizing the Company, as well as its controlled companies and affiliates, to enter into, amend or terminate shareholders’ agreements;
 
 
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XI. previously approving any continuous rendering agreements, with a term equal to or below 12 (twelve) months, of an amount equal to or greater than R$5,000,000.00 (five million Reais) per year, between the Company or its controlled companies, on one side, and the controlling shareholder or controlled companies, affiliated, under common control or holding companies of the latter, or companies in any way related to the Company or its controlled companies on the other side;
XII. authorizing the granting of secured or personal guaranty by the Company in favor of third parties, controlled companies included, over the amount of R$ 30,000,000.00 (thirty million Reais);
XIII. authorizing the sale or encumbrance of the Company’s real estate properties, or those of the companies controlled thereby, whose book value is greater than R$100,000,000.00 (one hundred million Reais);
XIV. authorizing the sale or encumbrance of any assets integrating the Company’s permanent assets, or those of the companies controlled thereby, whose book value is greater than R$ 30,000,000.00 (thirty million Reais);
XV. authorizing the purchase by the Company, or by its controlled companies, of assets whose individual value is greater R$ 300,000,000.00 (three hundred million Reais);
XVI. approving the contracting by the Company or its controlled companies of loans, financing or other transactions implying indebtedness to the Company or its controlled companies, whose individual value is higher than R$ 300,000,000.00 (three hundred million Reais);
XVII. by virtue of the commitment of the Company and its controlled companies with sustainable development, authorizing the performance of non-profit acts, for the benefit of employees or the community, whenever the value involved is greater than R$ 1,000,000.00 (one million Reais) and deliberate on the Company’s Sustainability Policy, and such power of decision may be granted to one of its specialized committees eventually existing, so long as composed of, at least, one Independent Director, provided that the granting of guaranties to employees in the case of interstate and/or intercity transfers does not depend on previous approval by the Board of Directors;
XVIII. approving the Company's supplementary pension plan and that of its controlled companies;
 
 
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XIX. electing and dismissing, at any time, the Executive Officers, including the Chief Executive Officer, determining their specific titles, duties and scopes of authority in compliance with the provisions of these By-laws, and also approving the assignment of new duties to Executive Officers and any amendment to the composition and the duties of the Executive Officers;
XX. dividing the total global remuneration amount established by the Shareholders' Meeting among the Directors and Executive Officers of the Company, as the case may be;
XXI. approving any Executive Officers' proposal concerning the Company's internal regulations with the respective organizational chart, including the scope of authority and specific duties of its Executive Officers;
XXII. establishing the guidelines for Company proxies' vote in the Shareholders' Meetings of its controlled or affiliated companies, as far as the matters approved by the Board of Directors are concerned;
XXIII. appointing the Company's representatives in the management of the companies in which it holds capital interest;
XXXIV. electing and dismissing or replacing the (i) independent auditors, after the Statutory Audit Committee report, if instated, has been issued and (ii) independent real property appraisers
XXV. defining the triple list of companies expert in the economic appraisal of companies to prepare an appraisal of the Company’s shares in the event of cancellation of Publicly-Held Company Register or delisting from the Novo Mercado as set forth in these By-laws.
XXVI. rendering an prior and grounded opinion for or against any tender offer for the acquisition of shares issued by the Company to be disclosed until fifteen (15) days prior to the publication of the tender offer call notice that shall address, at least, (i) the convenience and opportunity of the tender offer regarding the interest of the overall shareholders and the liquidity of the securities they hold; (ii) the repercussions of the tender offer on the Company’s interests; (iii) the strategic plans disclosed by the offeror with regard to the Company; (iv) other points the Board of Directors consider pertinent, as well as the information required by the applicable rules set forth by CVM
XXVII. performing any other activity assigned to it by the Shareholders' Meeting; and
XXVIII. deciding the cases not provided for herein and performing other duties not assigned to another body by law or by these By-laws.
 
 
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Section 23 - The Board of Directors is comprised of at least five (5) and at most nineteen (19) permanent members.

Paragraph One – At least twenty percent (20%) of the members of the Board of Directors shall be Independent Directors, as per the definition of the Novo Mercado Rules, and shall also be considered independent the Director(s) elected as provided in paragraphs 4 and 5 of article 141 and in article 239 of Law 6,404/76.

Paragraph Two – Whenever the membership percentage results in a fraction, as a result of the compliance with the percentage set forth in the above paragraph, the number will be rounded under the Novo Mercado Rules.

Paragraph Three - The qualification as Independent Directors shall be expressly recorded in the Minutes of the General Shareholders’ Meeting that elects them.

Section 24 - The Directors shall be elected and dismissible by the Shareholders' Meeting, and the Board of Directors shall appoint, among them, its Chairman.

Paragraph One - A Director shall have a spotless reputation; and except as waived by the Shareholders' Meeting, the following may not be elected: (I) those who hold positions in companies that might be considered competitors to the Company; or (II) those who have or represent conflicting interest with that of the Company. Directors shall not be entitled to exercise voting rights or have access to information or take part in Board of Directors’ Meetings in case the supervening impediments specified in this Paragraph One arise.

Paragraph Two - Pursuant to Section 115, paragraph 1 of Law No. 6,404/76, the right to vote for the election of the Directors shall not be exercised in the circumstances where there is a conflict of interest with that of the Company.
 
 
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Section 25 - The Board of Directors shall meet regularly every quarter and whenever called for a special meeting by its Chairman, by any 2 (two) Directors or by the Company’s Chief Executive Officer.

Paragraph One – The call notices shall be sent by mail, fax or e-mail, delivered at least 7 (seven) days in advance, except in the cases of evident urgency, at the sole discretion of the Chairman of the Board. The call notice shall specify the agenda.

Paragraph Two – The members of the Board are authorized to participate through video and/or audio conferences, everything with no prejudice to the effectiveness of the decisions made. Votes by letter, fax or e-mail are allowed as well, as long as they are received by the Chairman of the Board of Directors or the alternate thereto until the time of the respective meeting.

Paragraph Three – The Chairman of the Board of Directors may invite to attend the meetings of the body any other members of the Board of Executive Officers, other Company’s high ranked employees, as well as any third parties that may contribute with opinions or recommendations related to the matters to be decided on by the Board of Directors. The individuals invited to attend the meetings of the Board shall not be entitled to vote.

Section 26 - The Board of Directors decisions shall be passed by majority of votes, with the presence of the majority of the Directors; and in the event of draw, the Chairman shall be entitled to the deciding vote.

Sole Paragraph – In any case, the Board of Directors meetings shall be recorded in minutes, which shall be signed by all that attended such meeting.

SECTION III
BOARD OF EXECUTIVE OFFICERS

Section 27 - The Board of Executive Officers, who may or may not be shareholders themselves, shall be comprised of a minimum of two (2) and a maximum of nine (9)
 
 
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members. All Executive Officers shall be elected by the Board of Directors, which may dismiss them at any time. Among the Executive Officers, one shall be entitled as Chief Executive Officer and the others shall be entitled as established by the Board of Directors.

Paragraph One - In the case of a vacant Executive Officer position, the Board of Directors shall elect a new Executive Officer or an alternate to fill it in for the unexpired term of mandate.

Paragraph Two - In the absence or temporary incapacity of any Officer, an alternate shall be appointed by the Chief Executive Officer or, in the event of his/her incapacity, by majority decision of the Executive Officers.

Section 28 – Pursuant to the provisions of section 143, paragraph 2nd of Law No. 6,404/76, it is incumbent upon the Board of Executive Officers, acting as a decision body:
I. – approve the proposals, plans and projects to be submitted to the Board of Directors and/or the Shareholders’ Meeting;
II – previously approve the execution of any agreements between the Company or its controlled companies, on one side, and the controlling shareholder or controlled companies, affiliates, companies subject to common control or controlling companies of the latter, or companies that otherwise are parties related to the Company or its controlled companies, on the other side, provided that the provisions of sections 10 and 22 hereof are observed;
III – authorize the participation of the Company or its controlled companies in any joint venture, partnership, consortium or any similar structure;
IV – authorize the sale or encumbrance of any Company’s real estate properties, or those of its controlled companies, provided that the provisions of item XIII of section 22 of these By-laws are observed;
V - authorize the sale or encumbrance of any assets integrating the Company’s permanent assets, or those of its controlled companies, up to the value of R$ 30,000,000.00 (thirty million Reais), provided that the provisions of item XIV of section 22 of these By-laws are observed, as well as the as well as the offer of guarantees for third parties liabilities, within the limits set forth in item XII section 22 hereof
 
 
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VI – ratify, within the limits set forth in item XV of section 22, the purchase of materials and equipment and the execution of property, construction work and services agreements;
VII – approve the contracting by the Company or by its controlled companies of loans, financing, or any other transactions implying indebtedness to the Company or its controlled companies, whose individual value is greater than R$30,000,000.00 (thirty million Reais), provided that the provisions of item XVI of section 22 of these By-laws are observed;
VIII – authorize the settlement in administrative or judicial proceedings, lawsuits or litigation related to the Company or its controlled companies, whenever the amount involved is greater than R$5,000,000.00 (five million Reais);
IX – by virtue of the Company’s social responsibilities and those of its controlled companies, authorize the performance of non-profit acts to the benefit of employees or the community, provided that the provisions of item XVII of section 22 of the By-laws are observed;
X – approve the execution of collective agreements by the Company or its controlled companies;
XI – establish the internal policy of authorizations of the Company and of its controlled companies;
XII – authorize the appointment of proxies for the practice of the acts listed in this Section 28.

Section 29 – The Board of Executive Officers shall meet whenever convened by the Chief Executive Officer or by 2 (two) members of the Board of Executive Officers.

Paragraph One - The call notices shall be sent by mail, fax or e-mail, delivered at least 2 (two) days in advance, except in the cases of evident urgency, at the sole discretion of the Chief Executive Officer. The call notice shall specify the agenda.

Paragraph Two – The officers are authorized to participate through video and/or audio conferences, everything with no prejudice to the effectiveness of the decisions made. Votes by letter, fax or e-mail are allowed as well, as long as they are received by the Chief Executive Officer or the alternate thereto until the time of the meeting.
 
 
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Paragraph Three – The decisions of the Board of Executive Officers shall be made by majority of votes of the Executive Officers, and the Chief Executive Officer shall be entitled to the deciding vote in the event of draw.

Paragraph Four – In any event, the meetings of the Board of Executive Officers shall be recorded in minutes, which shall be signed by the attending officers.

Section 30 - The Chief Executive Officer, acting severally, is vested with full powers to practice any and every act and sign any and every document on behalf of the Company, provided that the limits set forth by Sections 10, 22 and 28 of these By-laws and under the law are observed.

Paragraph One – The Board of Directors is responsible for determining the scope of authority of each one of the other Executive Officers, as well as the value up to which they are authorized to perform acts and sign documents on behalf of the Company, provided that the limits set forth in Sections 10, 22 and 28 of these By-laws and under the law are observed.

Paragraph Two – Without prejudice of the provision of paragraph one of this section, any of the Executive Officers may act severally in matters the value of which does not exceed R$100,000.00 (one hundred thousand Reais), as well as to represent the Company before third parties, including federal, state and local government agencies.

Section 31 – Provided that the limits set forth in sections Sections 10, 22 and 28 and 32 of these By-laws and under the law are observed, the Company shall be represented and shall be validly bound by the act or signature of: (I) any Executive Officer, acting severally, or (II) 2 (two) attorneys acting jointly. The Company may also be represented by a single attorney, acting severally, as long as the respective power of attorney has been signed by 2 (two) Executive Officers, one of them necessarily being the Chief Executive Officer.

Sole Paragraph - The powers of attorney granted by the Company shall be always signed by one Executive Officer, within the scope of authority of such Officer. The powers of attorney
 
 
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shall specify the powers granted and, except for those for judicial purposes, shall be valid for a maximum of 1 (one) year. The granting of powers of attorney “ad negotia” is prohibited.

Section 32 – The Board of Executive Officers shall manage the Company strictly complying with the provisions of these By-laws and the applicable legislation, and the members thereof are not allowed to jointly or severally practice any act strange to the Company’s corporate
purposes.

CHAPTER V
STATUTORY AUDIT COMMITTEE

Section 33 - The Statutory Audit Committee is the body responsible for the surveillance of the Company’s management acts and information to shareholders, and shall be operated permanently.

Sole Paragraph – In addition to its ordinary duties, the Statutory Audit Committee also performs the function of Company’s Audit Committee.

Section 34 - The Statutory Audit Committee shall be comprised of 3 (three) to 5 (five) permanent members and each one shall have an alternate, shareholders or not, elected by the Shareholders’ Meeting.

Paragraph One The members of the Statutory Audit Committee shall be independent, and for such, they shall comply with the following requirements: I – not be or not have been in the past 3 (three) years an employee or manager of the Company or any company controlled thereby or under the common control therewith; II – not receive any remuneration, either directly or indirectly, from the Company or from a company controlled thereby or under the common control therewith, except for the remuneration as member of the Statutory Audit Committee. Individuals who are not qualified as independent, as provided for in this paragraph 1, may not be elected for the Statutory Audit Committee;
 
 
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Paragraph Two – The members of the Statutory Audit Committee shall take office upon the execution of the instrument of instatement in office.

Paragraph Three – The members of the Statutory Audit Committee shall take office only after the execution of Statement of Consent from Statutory Audit Committee Members under provisions of the Novo Mercado Rules and the compliance with any applicable legal requirements.

Paragraph Four - The term of office of Statutory Audit Committee members shall end at the first Annual Shareholders' Meeting following the respective election, reelection being allowed. The members of the Statutory Audit Committee shall remain in office until their successors are installed.

Paragraph Five - The members of the Statutory Audit Committee, in their first meeting, shall elect their Chairman, charged with effecting that organ's decisions.

Paragraph Six - The Statutory Audit Committee may request the Company to appoint qualified staff to provide it clerical and technical support.

Paragraph Seven - Upon their installation, the members of the Statutory Audit Committee shall sign, in addition to the instrument of taking of office, a statement whereby they shall abide by the rules of such agency’s internal regulation, the Company’s ethics code and the “Policy of Disclosure and Use of Information and of Securities Trading” Manual, as well as a statement certifying that they are not under any hindrance, as provided for in the internal regulation of the Statutory Audit Committee.

Section 35 – In addition to the duties provided for at law, the Statutory Audit Committee shall, as the Company’s Audit Committee:
I. advise the Board of Directors on the contracting of or the termination of the agreement with the Company’s independent auditors;
II. previously approve the services to be rendered by the independent auditors, whether such services are audit services or not, as well as the respective fees to be paid by the Company,
 
 
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everything as provided for in the respective procedure as approved by the Statutory Audit Committee;
III. analyze the annual working plan of the Company’s independent auditors, discuss the outcome of their activities, works and revisions made, as well as assess their performance and independence;
IV. issue opinions and judgments and supervise the activities of the Company’s independent auditors, including, to the extent allowed by the law, assist in the settlement of any possible discrepancies between the management and the independent auditors as far as the submission of financial statements and information is concerned;
V. review the work plan of internal auditors, discuss the outcome of their activities, works and revisions made;
VI. analyze the efficacy of the Company’s internal control systems and risk management, in order to monitor the compliance with the provisions related to the submission of financial statements and information, among other things;
VII. carry out the duties provided for in the internal regulation of the Statutory Audit Committee related to receiving, processing and handling anonymous denunciations pertaining to any accounting, internal accounting control or audit matters (“reporting channel”).

Section 36 - The Statutory Audit Committee shall meet regularly every quarter, and specially whenever needed.

Paragraph One - The meetings shall be convened by the Chairman of the Statutory Audit Committee or by 2 (two) of its members or by the Company’s Chief Executive Officer, and they shall be established upon the attendance of the majority of its members.

Paragraph Two - The Committee resolutions shall be passed by majority vote, the majority of its members being present and the dissenting member of the Statutory Audit Committee shall state his dissenting opinion on the meeting minutes and shall inform it to the managing organs and the Shareholders’ Meeting.

Section 37- The members of the Statutory Audit Committee shall be replaced in their absence or incapacity by their respective alternates.
 
 
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Section 38 - In addition to the events of death, resignation, removal and others provided by law, a position shall become vacant when the member of the Statutory Audit Committee fails to appear at 2 (two) consecutive meetings or 3 (three) non-consecutive meetings in a fiscal year.

Paragraph One - In the event a position in the Committee becomes vacant, the replacement shall be effected as provided under section 37 hereof.

Paragraph Two - If a position in the Statutory Audit Committee becomes vacant and there is no alternate to be called to serve for the remaining term of office, a Shareholders' Meeting shall be convened to elect the alternate.

Section 39 - The remuneration of the members of the Statutory Audit Committee shall be determined by the Annual Shareholders' Meeting electing them, and for each acting member it shall not be less than one tenth of the average remuneration paid to each Executive Officer, not counting profit sharing.

Sole Paragraph - The acting alternate shall be entitled to the member's remuneration for the replacement period, counted month by month, on which case the permanent member shall not receive the monthly remuneration.

Section 40 – As suggested by the Statutory Audit Committee, the Company’s Shareholders’ Meeting shall set aside, on an annual basis, a reasonable amount to pay the expenses incurred by the Statutory Audit Committee, which shall be incurred pursuant to the budget approved by the majority of its members.

Paragraph One – The Company’s management shall take the actions required for the Company to bear all costs and expenses as approved by the Statutory Audit Committee, provided that the limit established by the Company’s Shareholders’ Meeting is observed.
 
 
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Paragraph Two – The Statutory Audit Committee, upon decision of the majority of its members, may hire external consultants, including independent auditors and lawyers, to assist it in complying with its duties and assignments, provided that the annual budgetary limit determined by the Shareholders’ Meeting is observed, as provided in the head paragraph hereof.

CHAPTER VI
FISCAL YEAR AND FINANCIAL STATEMENTS

Section 41 - The fiscal year shall last one year, starting on January 1st (first) of each year and ending on the last day of the month of December.

Section 42 - The Management shall submit to the Annual Shareholders' Meeting, together with the financial statements, a proposal for employee profit sharing and for the destination of the net income of the year.

Paragraph One - The net income shall have the following destination:
I. 5% (five percent) for the legal reserve, up to 20% (twenty percent) of the paid-up capital;
II. 25% (twenty-five percent) of the net income, restated pursuant to items II and III of section 202 of Law No. 6,404/76 shall be distributed as mandatory minimum dividend to all shareholders.

Paragraph Two - The net income balance not allocated to the payment of the mandatory minimum dividend shall be allocated to a supplementary reserve for the expansion of corporate business, and shall not exceed 80% (eighty percent) of the capital stock. Once that limit is reached, the Shareholders' Meeting shall decide on the destination of the balance, either distribution to shareholders or capitalization.

Paragraph Three - The management may pay or credit interest on capital as provided under paragraph 7, section 9 of Law No. 9,249/95 and applicable laws and regulations, which can be deducted from the mandatory dividends under section 202 of Law No. 6,404/76.
 
 
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Paragraph Four - Dividends not claimed within a period of 3 (three) years shall revert to the Company.

CHAPTER VII
LIQUIDATION

Section 48 - The Company shall be liquidated in the cases provided by law, or upon decision of the Shareholders' Meeting, which shall determine the method of liquidation, elect the liquidator and install the Statutory Audit Committee for the liquidation period, electing its members and determining their respective remuneration.

ARTICLE VIII
DISPOSAL OF THE EQUITY CONTROL, CANCELLATION OF THE PUBLICLY-HELD
COMPANY REGISTER AND DELISTING FROM THE NOVO MERCADO

Section 44 – For the purposes of the present By-laws, the terms hereunder, whether in the singular or in the plural, shall have the following meanings:
“Controlling Shareholder” means the shareholder(s) or Group of Shareholders that hold Controlling Power over the Company.
“Selling Controlling Shareholder” means the Controlling Shareholder that disposes of its Controlling Interest in the Company.
“Free Float” means all the shares issued by the Company, except for the shares held by the Controlling Shareholder, by persons bound to the Controlling Shareholder, and treasury shares.
“Senior Manager”, when in the singular, means the executive officers and members of Board of Directors of the Company individually, and when in the plural, the executive officers and
members of the Board of Directors as a whole.
“Disposal of Company’s Control” means the transfer of the Controlling Shares to a third party for consideration.
“Controlling Power” means the effective power used to direct the Company’s activities and to establish the guidelines for the operation of its management bodies, directly or indirectly, in
 
 
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fact or under the law, regardless of the equity interest that is held. An individual or Group of Shareholders are presumed hold the control of the Company if they hold enough shares to ensure an absolute majority of votes accorded to the shareholders present to the Company’s last 3 (three) general shareholders’ meetings, even if they do not hold the number of shares that actually provide them with an absolute majority of the voting stock.
“Statement of Consent from Controlling Shareholders” means the instrument whereby the new Controlling Shareholders, or the shareholder(s) joining the Company’s controlling group, accept personal liability for complying with the Novo Mercado Agreement, these Listing Rules, the Arbitration Clause, Sanctions and Arbitration Rules, according to the model included in Exhibit B of the Novo Mercado Rules.
“Economic Value” means the value of the Company and its shares as determined by a specialized company upon the use of reputable methodology or with grounds on any other criteria to be established by CVM.

Section 45 – The Disposal of the Company’s Control, whether by means of a single transaction or successive transactions, shall be carried out under a condition precedent or subsequent that the Buyer undertakes to make a public tender offer to acquire all shares held by the other Company’s shareholders, and this public tender offer must comply with terms and conditions set forth in the statutory laws in force and the Novo Mercado Rules, so as to warrant that shareholders shall be given the same treatment as the Selling Controlling Shareholder.

Sole Paragraph – The public tender offer established herein shall also be required: (i) whenever there is an assignment for consideration of subscription rights for shares and other securities, or rights related to securities convertible into shares that results in Disposal of Company’s Control; or (ii) in the event of disposal of the controlling interest by a company that holds the Company’s Control, in which case, the Selling Controlling Shareholder shall inform BOVESPA of the value assigned to the Company in such transaction and provide documents that support the valuation.

Article 46 – The individual that acquires the Company’s Control through a private share purchase agreement entered into with the Controlling Shareholder, regardless of the number of
 
 
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shares involved, shall: (i) make the public tender offer referred to in section 45 above; and, (ii) pay, as provided herein, an amount equivalent to the difference between the public tender offer price and the value paid for a share contingently acquired in a stock exchange in the 6 (six) months before the date of Disposal of Control, duly adjusted until payment date. Such amount shall be distributed among all the shareholders that have sold their Company’s shares on the floor of the Stock Exchange where the Buyer made the acquisitions, proportionally to the daily net selling balance of each share, and BM&FBOVESPA S.A. shall operate the distribution in accordance with its rules.

Section 47 – The Company shall not the register any transfer of shares to the Buyer or to whoever holds the Controlling Power, until they execute the Statement of Consent from Controlling Shareholders set forth in the Novo Mercado Rules.

Section 48 - No shareholders’ agreements that provides for the exercise of Controlling Power shall be filed in the Company’s headquarters unless the parties to the agreement execute a Statement of Consent from Controlling Shareholders set forth in the Novo Mercado Rules.

Section 49 – In the public tender offer to be made by the Controlling Shareholder or the Company for the cancellation of its register as a publicly-held company, the minimum offer price shall correspond to the Economic Value determined in the appraisal report prepared under Section 49(1) and (2), in compliance with all applicable legal rules and regulations.

Paragraph One – The appraisal report mentioned in the head section of this Section 49 shall be prepared by a specialized institution or company with proven experience and independent from the Company’s decision-making powers, its Managers and/or the Controlling Shareholder, in addition to meeting the requirements of article 8(1) of Law 6404/76, and including the liability set out in article 8(6) of same law.

Paragraph Two - The General Shareholders’ Meeting shall be solely incumbent on choosing the specialized institution or company that shall determine the Company’s Economic Value from a triple list submitted by the Board of Directors, and the resolution shall be adopted by majority of votes of the shareholders representing Free Float present to such meeting that, if
 
 
23
 
 
convened in the first call, shall a quorum of shareholders representing at least twenty percent (20%) of total Free Float or, if convened in second call, may have a quorum composed of any number of shareholders representing Free Float, not counting blank votes.

Section 50 – In the event the Company’s delisting from the Novo Mercado is decided so that the securities it issues may be registered for trade outside the Novo Mercado, or by reason of corporate reorganization, whereby the company resulting from such reorganization does not qualify for trading its securities in the Novo Mercado within a term of one hundred and twenty (120) days as of the date of the General Shareholders’ Meeting that approved such transaction, the Controlling Shareholder shall make a public tender offer to acquire the other shareholders’ shares, at least for the Economic Value to be assessed in the appraisal report prepared under Section 49(1) and (2), and in compliance with all applicable rules and regulations.

Section 51 - In the event there is no Controlling Shareholder, and the Company’s delisting from the Novo Mercado is decided so that the securities it issues may be registered for trade outside the Novo Mercado, or by reason of corporate reorganization, whereby the company resulting from such reorganization does not qualify for trading its securities in the Novo Mercado within a term of one hundred and twenty (120) days as of the date of the General Shareholders’ Meeting that approved such transaction, such delisting shall be conditioned to a public tender offer being made to acquire the Company’s shares under same conditions provided in Section 50 above.

Paragraph One – Such General Shareholders’ Meeting shall determine the individual(s) responsible for the making the public tender offer for the acquisition of shares, which shall be present at the General Shareholders’ Meeting and shall expressly undertake such obligation.

Paragraph Two – If the General Shareholders’ Meeting fails to determine the individuals responsible for making the public tender offer, in the event of a corporate reorganization transaction, whereby the company resulting from such reorganization does not qualify for trading its securities in the Novo Mercado, the shareholders that voted in favor of the corporate reorganization shall make such tender offer.
 
 
24
 

 
Section 52 – The Company’s delisting from the Novo Mercado due to its non-compliance with the liabilities set forth in the Novo Mercado Rules is conditioned to a public tender offer being made for the acquisition of shares, at least, for the Economic Value to be assessed in the appraisal report prepared under Section 49 hereof, and in compliance with all applicable rules and regulations.

Paragraph One – The Controlling Shareholder shall make a public tender offer for the acquisition of shares as provided in the head section hereof.

Paragraph Two - In the event there is no Controlling Shareholder, and the Company’s delisting from the Novo Mercado results from a deliberation of the General Shareholders’ Meeting, the shareholders that voted in favour of such deliberation that implied the non-compliance shall make the public tender offer for the acquisition of shares provided in the head section hereof.

Paragraph Three - In the event there is no Controlling Shareholder, and the Company’s delisting from the Novo Mercado referred in the head section hereof occurs by reason of an administrative act of fact, Company’s Senior Managers shall call a General Shareholders’ Meeting which agenda shall be the deliberation on how to cure the non-compliance with the liabilities set forth in the Novo Mercado Rules or, if required, deliberate on the Company’s delisting form the Novo Mercado.

Paragraph Four – Should the General Shareholders’ Meeting mentioned in Paragraph Three above decides for the Company’s delisting from the Novo Mercado, such General Shareholders' Meeting shall determine the individual(s) responsible for the making the public tender offer for the acquisition of shares, which shall be present at the General Shareholders’ Meeting and shall expressly undertake such obligation.

ARTICLE IX
ARBITRATION
 
 
25
 
 

 
Section 53 - The Company, its shareholders, Senior Managers and Statutory Audit Committee members shall refer to arbitration before the Market Arbitration Panel any disputes or controversies that may arise among them, in particular with relation to or origin on the enforcement, validity, effectiveness, construction, violation, and related effects, of the provisions set forth in the Corporation law, Company’s By-laws, rules enacted by the National Monetary Council, the Central Bank of Brazil and Securities and Exchange Commission of Brazil, as well as in any other applicable rules to the functioning of the overall capital markets, in addition to the rules set forth in the Novo Mercado Listing Rules, the Arbitration Rules, the Sanctions Rules and the Novo Mercado Agreement.

CHAPTER VIII
TEMPORARY PROVISIONS

Section 54 – Upon the listing of the Company in the Novo Mercado:
IV. The Company, its shareholders, Senior Managers and Statutory Audit Committee, as instated, shall be subject to the provisions of the Novo Mercado Rules;
V. The capitalized terms in the present By-laws that have not been defined herein shall have the meaning attributed to them in the Novo Mercado Rules;
VI. The provisions of the Novo Mercado Rules shall supersede statutory provisions, in case of harm to the rights of addressees of the public tender offers provided for herein.

Section 55 - The approval by the Company, through its representatives, of the merger, split-up, takeover or dissolution of its controlled companies shall be preceded by an economic-financial analysis by an internationally acknowledged independent company, that shall confirm equitable treatment is being provided to all companies involved, the shareholders of which shall be granted ample access to the report on that analysis.

Section 56 – These By-laws shall be interpreted in good faith. The Shareholders and the Company shall act in their relationship with the strictest good faith, both subjectively and objectively.
 


*****************************
 
 
 
 
 
26
 
 
Exhibit 4.1
 
 
 
PRIVATE LOAN ORIGINATION AGREEMENT, No. 182.2007.4743.847, WHICH IS ENTERED INTO BY AND BETWEEN BANCO DO NORDESTE DO BRASIL, S.A., AND TIM NORDESTE S/A, AS FOLLOWS:
 

CLAUSE FIRST – CONTRACTING PARTIES – Banco do Nordeste do Brasil S.A., a mixed-economy company, with domicile in Fortaleza (CE), at Avenida Paranjana, 5,700, Passaré, registered in the CNPJ/MF under no. 07.237.373/0182-58, hereinafter called BNB, herein represented by the managers of its Fortaleza Bezerra de Menezes Branch, in this city, signing and identified at the bottom, and the company TIM NORDESTE S/A, with domicile in the city of Jabatão dos Guararapes (PE), at Avenida Ayrton Senna da Silva, 1633, Piedade, registered in the CNPJ/MF 01.009.686/0001-44, hereinafter called BORROWER, herein represented by its director signing and identified at the bottom, and in the capacity as INTERVENING GUARANTOR, TIM PARTICIPAÇÕES S.A., with domicile at Avenida das Américas, 3434, Block 01, 7 th Floor, Barra da Tijuca, Rico de Janeiro, registered in the CNPJ/MF under no. 02.558.115/0001-21, herein represented by its director signing and identified at the bottom, have mutually agreed to contract with each other as follows:

CLAUSE SECOND – AMOUNT, PURPOSE AND SOURCE OF FUNDS – BNB opens, for BORROWER, a loan to be disbursed in national currency in the amount of R$ 67,000,000.00 (Sixty-Seven Million Reais ), to be provided with funds from the Constitutional Financing Fund of the Northeast (FNE), which loan is granted for investment pursuant to the project described [in the] Annex – Budget (Project) and in accordance with the DISBURSEMENT clause.

CLAUSE THIRD – OWN FUNDS :  BORROWER undertakes to contribute, from its own funds, the amount of R$ 30,681,316.39 (thirty million six hundred and eighty-one thousand three hundred and sixteen reais and thirty-nine centavos), proportionally and concomitantly with the amount of the releases made by BNB, pursuant to the disbursement schedule, defined in CLAUSE FOURTH – DISBURSEMENT in this credit instrument and in the Annex – Budget.

PARAGRAPH FIRST – The first release against the loan hereby granted shall only be made by BNB after physical and financial proof of the investment of BORROWER’s own funds, related to that release.

PARAGRAPH SECOND – Any upward revisions of the budgets stipulated or the amounts effectively spent on the plan shall be covered by BORROWER’s own funds.

CLAUSE FOURTH – DISBURSEMENT – In current currency, in installments, at the times defined in the Annex – Budget.

CLAUSE FIFTH – PRE-DISBURSEMENT – The disbursement of any installment of the loan shall only occur after having satisfactorily met the following conditions:

a)           proof of effective receipt by BORROWER of the consumables and/or raw materials and/or machines and/or tractors and/or vehicles and/or equipment financed, if any;

b)           proof of recordation of this instrument in the competent registry office(s);

c)           physical, financial, and accounting proof by BORROWER, from the second installment disbursed, inclusive, of the correct investment of the funds previously disbursed, as well as the investment of its matching funds, if any, within the limits contractually established with the BNB;

d)           prior submission by BORROWER of the following certificates:  Joint Certificate of No Debts related to Federal Taxes and the Asset Tax of the Union, issued jointly, in a single document, by the Department of Federal Revenue of Brazil (RFB) and by the Office of the Prosecutor General of the National Treasury (PGFN), Certificate of No Debts
 
 
[initials]
[stamp:]
LEGAL
   
[initials]
   
TIM
 
Page 1 of 13
 
Continuation of PRIVATE AGREEMENT No. 182.2007.4743.847, entered into by Banco do Nordeste do Brasil S.A. and TIM NORDESTE S/A, on January 28, 2008, in the amount of R$ 67,000,000.00 (Sixty-Seven Million Reais ).
 
 
related to Social Security Contributions and Third-Party Contributions (CND), issued only by the Department of Federal Revenue of Brazil (RFB), and a Certificate of Compliance with FGTS (CRF), issued by Caixa Econômica Federal;

e)           validation, by BNB, of the Banks chosen by the BORROWER to grant the bank bond for the transaction;

f)           prior to the release of the first installment, establishment and presentation, by borrower, of a bank bond letter, in favor of BNB, issue pursuant to CLAUSE NINETEENTH – BANK BOND;

g)           prior to the release of the last installment, the amendments to the credit instruments and bank bond letters related to the BORROWER’s financing “in existence,” with BNB, contracted at the time by TIM NORDESTE TELECOMUNICAÇÕES S.A. and by MAXITEL S.A., in order to effect the changes necessary in those instruments as a result of the incorporation of those companies by the BORROWER, shall be formalized;

h)           A copy of the Minutes of the Meeting of the Board of Directors of TIM PARTICIPAÇÕES S.A., meeting the legal formalities, containing the approval of the contracting by TIME NORDESTE S.A., of the proposed financing, pursuant to Article 25 of the Corporate Bylaws of TIM PARTICIPAÇÕES S.A. and Article 4, of BORROWER’s Corporate Authorizations Policy, shall be released prior to the release of the first installment of the loan.

i)           absolute compliance with the registration in CADIN of the other companies of the Economic Group.

CLAUSE SIXTH – DISBURSEMENT FOR THE ACQUISITION OF GOODS AND/OR THE PERFORMANCE OF SERVICES – The disbursement of the loan installments corresponding to acquisitions and/or services financed shall be made through direct payment to the vendor of the goods or provider of the services, against delivery of the first copy of the respective tax invoices, or equivalent document, with receipt of a release or, as the case may be, a settled trade note, where BNB may, at its discretion, make disbursements directly to the BORROWER when there is no express determination otherwise contained in the law or rules of the Central Bank of Brazil.

CLAUSE SEVENTH – FINANCE CHARGES :  INTEREST owed at the effective rate of 11.5% p.a. (eleven point five percent per annum), where the amount of the interest is calculated and capitalized monthly and due quarterly on the 28 th (twenty-eighth) day of each month, during the grace period set at 24 (Twenty-Four) months running between January 28, 2008 and January 28, 2010, and monthly during the amortization period starting from February 28, 2010, together with the principal amounts due, and on the due date and upon settlement of the debt, on the average daily debit balance during the calculation period.

PARAGRAPH FIRST – If the interest rate herein set is eliminated or its use is prohibited, BNB is hereafter authorized to use other legal forms of compensation, it being established, hereafter, that if there is an official parameter replacing the interest rate, such shall prevail from the time the aforementioned rate is applied, notwithstanding the date of the decision, becomes legally impossible.

PARAGRAPH SECOND – When the date stipulated for calculating the finance charges does not exist in the calculation month, the calculation shall be made on the next business day.

PARAGRAPH THIRD – For the purposes of capitalizing the finance charges, including default charges, by business day, municipal and state holidays shall be deemed business days.
 
 
[initials]
[stamp:]
LEGAL
   
[initials]
   
TIM
 
Page 2 of 13
 
Continuation of PRIVATE AGREEMENT No. 182.2007.4743.847, entered into by Banco do Nordeste do Brasil S.A. and TIM NORDESTE S/A, on January 28, 2008, in the amount of R$ 67,000,000.00 (Sixty-Seven Million Reais ).
 
CLAUSE EIGHTH – REVISION OF THE INTEREST RATE APPLIED TO FNE FUNDS – It is hereafter agreed and contracted between BNB and BORROWER that the effective interest rate indicated in CLAUSE SEVENTH – FINANCE CHARGES, with respect to FNE funds, may be revised, without the need to formalize an addendum, under the terms of paragraphs 3 rd and 4 th , of Art. 1, of Law No. 10.177, of 01/12/2001, published in the Official Register of the Union on 01/15/2001.  The new interest rate percentage, obtained from the revision cited in this clause, shall be reported by BNB to the BORROWER in writing.

CLAUSE NINTH – PERFORMANCE BONUS ON FNE CHARGES :  On the charges levied on FNE funds, stipulated in CLAUSE SEVENTH – FINANCE CHARGES, a performance bonus of 15% (fifteen percent) shall be applied to the sub-loan in the amount of R$ 63,643,290.09 (sixty-three million six hundred and forty-three thousand two hundred and ninety reais and nine centavos), and of 25% (twenty-five percent) to the sub-loan in the amount of R$ 3,356,709.91 (three million three hundred and fifty-six thousand seven hundred and nine reais and ninety-on cents), provided that the interest or principal and interest payments are made by the respective due dates stipulated in this loan agreement.

CLAUSE TENTH – EQUIVALENT FINANCE CHARGES LEVIED ON FNE FUNDS – The finance charges levied on the FNE funds, agreed in this instrument, are equivalent to finance charges on a monthly basis, to wit, interest at the effective rate of 0.9112% p.m. (zero point nine one one two percent per month).

CLAUSE ELEVENTH – TAXES AND FEES :  This loan transaction is not subject to the collection of the tax on credit, foreign exchange, and insurance operations or instruments and securities (IOF), and the following are the bank fees paid by the BORROWER as a function of undertaking this transaction:  Technical, Economic and Financial Analysis and Study Fee on Projects – R$ 670,000.00 (Six Hundred and Seventy Thousand Reais ); Transaction Origination Fee – R$ 335,000.00 (Three Hundred and Thirty-Five Thousand Reais ).

CLAUSE TWELFTH – METHOD OF PAYMENT :  The principal of the debt shall be reimbursed pursuant to the payment scheme indicated below, BORROWER undertaking to pay, with the last installment, all of the financial obligations that might remain:

02/28/2010, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
03/28/2010, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
04/28/2010, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
05/28/2010, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
06/28/2010, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
07/28/2010, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
08/28/2010, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
09/28/2010, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
10/28/2010, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
11/28/2010, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
12/28/2010, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
01/28/2011, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
 
 
[initials]
[stamp:]
LEGAL
   
[initials]
   
TIM
 
Page 3 of 13
 
Continuation of PRIVATE AGREEMENT No. 182.2007.4743.847, entered into by Banco do Nordeste do Brasil S.A. and TIM NORDESTE S/A, on January 28, 2008, in the amount of R$ 67,000,000.00 (Sixty-Seven Million Reais ).
 
02/28/2011, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
03/28/2011, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
04/28/2011, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
05/28/2011, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
06/28/2011, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
07/28/2011, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
08/28/2011, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
09/28/2011, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
10/28/2011, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
11/28/2011, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
12/28/2011, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
01/28/2012, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);

02/28/2012, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
03/28/2012, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
04/28/2012, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
05/28/2012, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
06/28/2012, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
07/28/2012, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
08/28/2012, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
09/28/2012, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
10/28/2012, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
11/28/2012, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
12/28/2012, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
01/28/2013, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);

02/28/2013, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
03/28/2013, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
04/28/2013, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
05/28/2013, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
 
 
[initials]
[stamp:]
LEGAL
   
[initials]
   
TIM
 
Page 4 of 13
 
Continuation of PRIVATE AGREEMENT No. 182.2007.4743.847, entered into by Banco do Nordeste do Brasil S.A. and TIM NORDESTE S/A, on January 28, 2008, in the amount of R$ 67,000,000.00 (Sixty-Seven Million Reais ).
 
06/28/2013, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
07/28/2013, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
08/28/2013, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
09/28/2013, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
10/28/2013, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
11/28/2013, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
12/28/2013, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
01/28/2014, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);

02/28/2014, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
03/28/2014, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
04/28/2014, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
05/28/2014, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
06/28/2014, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
07/28/2014, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
08/28/2014, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
09/28/2014, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
10/28/2014, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
11/28/2014, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
12/28/2014, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
01/28/2015, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);

02/28/2015, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
03/28/2015, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
04/28/2015, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
05/28/2015, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
06/28/2015, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
07/28/2015, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
08/28/2015, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
09/28/2015, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
10/28/2015, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five
 
 
[initials]
[stamp:]
LEGAL
   
[initials]
   
TIM
 
Page 5 of 13
 
Continuation of PRIVATE AGREEMENT No. 182.2007.4743.847, entered into by Banco do Nordeste do Brasil S.A. and TIM NORDESTE S/A, on January 28, 2008, in the amount of R$ 67,000,000.00 (Sixty-Seven Million Reais ).
 
Reais and Fifty-Five Centavos);
11/28/2015, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
12/28/2015, R$ 930,555.55 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-Five Centavos);
01/28/2016, R$ 930,555.51 (Nine Hundred and Thirty Thousand Five Hundred and Fifty-Five Reais and Fifty-One Centavos).

CLAUSE THIRTEENTH – AUTHORIZATION FOR DEBIT – If the reimbursement of the loans utilized does not occur on the due dates, BNB is authorized to debit the corresponding amounts in any deposit account that BORROWER maintains at BNB, provided that, at the time, it has sufficient funds for that purpose, and BORROWER further undertakes to pay, together with the last installment, all liabilities arising from this credit instrument, if any remain.

CLAUSE FOURTEENTH – ACCELERATED PAYMENT :  In case of accelerated amortization, payment, or settlement, pursuant to the conditions established by BNP, and the sources of funds, the debt shall be compensated based on the charges stipulated in this credit instrument to a situation of normality, calculated pro rata tempore and computed from the date the funds are released or the date those charges are booked, through the date of effective payment.

CLAUSE FIFTEENTH – FORBEARANCE :  Forbearance by BNB in relation to the nonperformance of or noncompliance with any obligation herein assumed by the BORROWER in no way shall affect the conditions stipulated in this loan agreement, nor shall it bind BNB insofar as future payments or defaults.

CLAUSE SEVENTEENTH – DEFAULT CHARGES :  In case of late payment of any financial obligations stipulated in this loan agreement (principal and/or accessory charges), failure to invest the loan for the purposes agreed, any other irregularity that is deemed intentional or unjustifiable, and/or default on any other obligation derived herefrom, the charges agreed in CLAUSE SEVENTH – FINANCE CHARGES shall be levied, increased by arrears interest of 12% p.a. (twelve percent per annum), calculated in addition.

PARAGRAPH FIRST – The Default Charges shall be levied on the debit balance, from follow dates and under the following conditions:

a)           from the due date(s) of the installment(s), in case of late payment:  levied only on the installments in arrears;

b)           from the date(s) of the release(s), in the case of amounts not invested:  levied on the portions not invested or diverted;

c)           from the date(s) that BNB proves other irregularities:  levied on the portion(s) deemed improper;

d)           from the date(s) on which BNB declares accelerated maturity of the obligation:  levied on the total debit balance of the transaction, less the amount not invested, whose collection shall occur pursuant to line “b”, above.

PARAGRAPH SECOND – Beyond the default charges, in case of judicial collection of the loan, a fine corresponding to 10% (ten percent) of the principal amounts and accessory charges debited, shall be owed.
 
 
[initials]
[stamp:]
LEGAL
   
[initials]
   
TIM
 
Page 6 of 13
 
Continuation of PRIVATE AGREEMENT No. 182.2007.4743.847, entered into by Banco do Nordeste do Brasil S.A. and TIM NORDESTE S/A, on January 28, 2008, in the amount of R$ 67,000,000.00 (Sixty-Seven Million Reais ).
 
CLAUSE EIGHTEENTH – INTERVENING GUARANTOR :  The intervening guarantor, identified and signing below, assumes for itself and its successors, with respect to BNB, the capacity as guarantor and principal payor of the BORROWER, expressly waiving the rights in Articles 366, 826, 827, 835, 837, and 838 of the Brazilian Civil Code (Law No. 10.406 of 01/10/2002), assuming joint and several liability for the performance of all of the obligations assumed by the BORROWER, herein.

CLAUSE NINTH – BANK BOND – Furthermore, for security and to guarantee payment of this debt, BORROWER undertakes to submit, prior to the disbursement of the first installment of the loan hereby originated, a bank bond letter, offered by a first-tier Bank, in favor of and under the terms expressly accepted by BNB, which now forms an integral part of this instrument, in an amount equivalent to 100% (one hundred percent) of the debit balance of the financing owed, including the contractual charges stipulated for the financing, having as a reference value, on the date of the contract, the sum of R$ 67,000,000.00 (sixty-seven million reais ), kept through the effective liquidation of the operation or, alternative, for a minimum period of 02 (two) years, with the obligation to renew the bond at least 60 (sixty) days prior to its expiration date, under the same coverage bases, under penalty, if the bond is not renewed within the period stipulated, of declaring the accelerated maturity of the financing transaction, as stipulated in item “g” of CLAUSE TWENTY-NINTH – ACCELERATED MATURITY.

PARAGRAPH FIRST :  Whenever requested and authorized by the BORROWER, BNB may confirm the payments made by the BORROWER to the guarantor Bank, as well as the amount of the BORROWER’s debit balance, related to this instrument.

CLAUSE TWENTIETH – AUDITING – BORROWER undertakes to grant to BNB, the Central Bank of Brazil and/or the representatives of the source(s) of the funds, the broadest ability to audit the investment of the amounts disbursed on account of this financing, showing their legal representatives such evidence as is requested of them, granting them access to any and all offices in the properties and facilities own by it and related to the loan, to verify the status of the guaranties and prove the performance of such services as BORROWER undertook as a result of the loan.

CLAUSE TWENTY-FIRST – BUSINESS AND TECHNICAL CONSULTING :  BORROWER hereby represents that it has the technical capacity, size, and organizational and administrative structure that allow it to prepare and the manage properly the implementation of the project subject to this financing, and it is therefore exempted by BNB from having to hire a company or professional to provide it with business and technical advice.

CLAUSE TWENTY-SECOND – ALLOCATION OF THE PAYMENT – Any amounts received to be credited to the BORROWER shall be allocated to the payment of the items listed below, necessarily in the following order, as they are stipulated contractually:  fine, arrears interest, compensatory interest, maintenance fee, other accessory charges debited, principal past due and coming due.

CLAUSE TWENTY-THIRD – MANDATORY INSURANCE – For the assets subject to financing, BORROWER agrees to take at, at its own expense, through the final payment of the financing, applicable insurance usually take out in the company’s business sector, pursuant to current law, undertaking to deliver the respective policies or certificates proving the insurance taken out, issued by the insurer, to BNB, immediately.  In case of nonperformance with respect to the timely contracting or renewal of the insurance, BNB shall notify the BORROWER for it to take out or renew the insurance within 30 (thirty) days.  If it does not do so, BNB is authorized to do so directly, debiting all of the premiums and expenses in the LINKED ACCOUNT of the financing for immediate payment.  In no case may any liability be attributed to BNB for any possible losses by the BORROWER as a result of an omission or an irregularity in the coverage of the risks.
 
 
[initials]
[stamp:]
LEGAL
   
[initials]
   
TIM
 
Page 7 of 13
 
Continuation of PRIVATE AGREEMENT No. 182.2007.4743.847, entered into by Banco do Nordeste do Brasil S.A. and TIM NORDESTE S/A, on January 28, 2008, in the amount of R$ 67,000,000.00 (Sixty-Seven Million Reais ).
 
CLAUSE TWENTY-FOURTH – SPECIAL OBLIGATIONS – BORROWER undertakes to:

a)           perform, insofar as applicable and through the final settlement of the debt derived from this instrument, the “GENERAL PROVISIONS APPLICABLE TO CREDIT INSTRUMENTS AT BANCO DO NORDESTE DO BRASIL S.A.,” recorded on microfilm, under no. 329,993, on 11/13/2001, in the 2 nd Registry of Instruments and Documents, of the County of Fortaleza (CE), Morais Correia Registry Office, a copy of which is hereby delivered to the BORROWER which, after taking cognizance of the entire content thereof, states that it accepts it as an integral and inseparable copy of this Instrument for all legal purposes and effects;

b)           use all of the loan within a period of up to 24 (twenty-four) months , computed from the date this Agreement is signed, without prejudice to the power of BNB, before or after the end of this period, under the scope of such guaranties as are established in this instrument, to extend such period, up express authorization by letter, notwithstanding any other formality or recordation;

c)           maintain its obligations with environmental bodies and the National Telecommunications Agency (ANATEL) properly during the effective period of this Instrument;

d)           send to BNB, when requested, an Audit Report, Balance Sheet, and Statement of Results, with an opinion from outside auditors;

e)           advise BNB of any divestiture, merger, incorporation operation involving the BORROWER, or any other act that implies modifications, an alteration or transfer of control of the capital of the BORROWER, under the terms of Law No. 6,404/76;

f)           not to foster within any corporate resolution, statute, or articles of incorporation of the BORROWER, any precept that might lead to:

i)           restrictions on the BORROWER’s ability to grow or its technological development; or
ii)          restrictions on access by the BORROWER into new markets; or
iii)         restrictions on or harm to the ability to pay the financial obligations under the transactions entered into with BNB;

g)           take all steps necessary to ensure that the objective of this transaction is met;

h)           contribute the funds necessary to perform the project stipulated in CLAUSE THIRD – OWN FUNDS, as well as to maintain them during the entire effective period of this Instrument;

i)           not to assign the guaranties under this transaction, even subordinately, to transactions with other creditors, or to encumber them with respect thereto, except upon prior express authorization from BNB;

j)           notify BNB immediately of any act or event that might negatively affect achievement of the purpose of the financing, pursuant to CLAUSE SECOND – AMOUNT, PURPOSE AND SOURCE OF FUNDS, as well as, and particularly, with respect to the effectiveness of the guaranties agreed.

CLAUSE TWENTY-FIFTH – OTHER OBLIGATIONS :  BORROWER further undertakes to meet the obligations stipulated below:

a)           to recognize as evidence of its debts such checks, receipts, and payment orders as it signs or issues, as well as extracts, reports, or notices of entries that BNB might issue to it as a result of the debits made in the loan or financing
 
 
[initials]
[stamp:]
LEGAL
   
[initials]
   
TIM
 
Page 8 of 13
 
Continuation of PRIVATE AGREEMENT No. 182.2007.4743.847, entered into by Banco do Nordeste do Brasil S.A. and TIM NORDESTE S/A, on January 28, 2008, in the amount of R$ 67,000,000.00 (Sixty-Seven Million Reais ).
 
account;

b)           to pay with the last installment all liabilities arising from this credit instrument, if any remain;

c)           to pay, pursuant to current law, such taxes as are levied on the loan hereby granted and/or on this credit instrument, that are the responsibility of the BORROWER, which shall be applied and charged by BNB;

d)           to pay all expenses that BNB incurs to safeguard, regularize, and keep its credit right, which may be debited to the free transaction account kept by the BORROWER at BNB or in another suitable account, if the former is not available, or in the loan or financing account liked to this credit instrument, upon prior notice to the BORROWER, it being construed that, in any case, BORROWER shall immediately make the respective payment under penalty of incurring arrears for the amount owed;

e)           to comply strictly with the specific environmental law;

f)           to prove to BNB the correct investment of all of the funds stipulated in the budget contained in this credit instrument or attached hereto, as well as full performance of the financed venture;

g)           to prepare and installed the plaque indicating the financial participation of BNB in the venture, pursuant to such specifications as it shall provide to it, keeping it in a suitable site, easily noticed and in a good state of upkeep, during the effective period of this credit instrument;

h)           to stress the financial collaboration of BNB whenever it advertises or publicizes the project covered by this instrument;

i)           to record in the long-term liabilities on its balance sheets and trial balances, when obligated to do so, the amount used of the financing granted, under the “Banco do Nordeste do Brasil S.A.” account, indicating thereafter the source of the funds.

j)           to deliver to BNB, annually, the opinions and reports produced by the independent specialized external auditor;

k)           to participate in the plan, through the contribution of its own funds, in the minimum amount of R$ 30,681,316.39 (thirty million six hundred and eighty-one thousand three hundred and sixteen reais and thirty-nine centavos), in accordance with the investment program;

l)           to present to the federal, state, and municipal environmental bodies such environmental license as may be demanded by them in relation to this project, notifying BNB thereof.

CLAUSE TWENTY-SIXTH – AUTHORIZATION FOR CURRENT ACCOUNT TRANSACTIONS – BORROWER irrevocably and irreversibly grants BNB a mandate with special powers of attorney, exclusively for the purposes of the provisions of CLAUSE THIRTEENTH – AUTHORIZATION FOR DEBIT, above, under the terms of Articles 684 and 685 of the Brazilian Civil Code, which shall be utilized to amortizing the financing pursuant to this AGREEMENT, in the contractually stipulated amounts and time frames.

CLAUSE TWENTY-SEVENTH – RENDING OF ACCOUNTS :  BORROWER authorizes BNB, irrevocably and irreversibly, to provide the competent federal bodies and entities, including those of the indirect government, as well as the National Government, any and all information nor data related to the loan covered by this instrument, such as the debit and principal balances, accessory charges, terms, assets pledged in guaranty and persons who are guarantors of real obligations or fiduciaries, and other clauses and conditions, pursuant
 
 
[initials]
[stamp:]
LEGAL
   
[initials]
   
TIM
 
Page 9 of 13
 
Continuation of PRIVATE AGREEMENT No. 182.2007.4743.847, entered into by Banco do Nordeste do Brasil S.A. and TIM NORDESTE S/A, on January 28, 2008, in the amount of R$ 67,000,000.00 (Sixty-Seven Million Reais ).
 
to government rules, control and rendering of accounts required by the Source of Funds.

CLAUSE TWENTY-EIGHTH – AUTHORIZATION :  BORROWER authorizes BNB, irreversibly and irrevocably, to: I) Provide the Central Bank of Brazil, for the purposes of establishing the SISBACEN Credit Risk Unit and/or the Credit Reporting System (SCR) of the aforementioned autarchy and under the terms of current law, all the information related to this financing; II) consult, at the SISBACEN Credit Risk Unit and/or the Credit Reporting System (SCR), all the financing appertaining to it, held at BNB or at any other financial institution.

CLAUSE TWENTY-NINTH – ACCELERATED MATURITY – Upon notification, within 30 (thirty) days for normalization, BNB may, of law, accelerate the maturity of all credit instruments entered into with the BORROWER, requiring immediate payment of debts past due and coming due, if BORROWER:

a)           fails to perform any obligation established in the credit instruments signed with BNB;

b)           exceeds the credit limit opened by BNB, without covering it immediately;

c)           experiences protests of debt due and certain, in an amount in excess of R$ 25,000,000.00 (twenty-five million reais ), except if the protest were made in error or in bad faith, duly provide, or it were not stopped within a maximum period of 60 (sixty) days;

d)           suspends its operations for more than 30 (thirty) days;

e)           were forbidden, by rules of the Central Bank of Brazil, from participating in credit operations, including as co-obligor.

f)           were to invest the funds derived from the financing granted by BNB improperly;

g)           were to fail to reinforce the guaranties on the loans immediately upon notification from BNB in that regard, including any renewals of the BANK BOND subject to CLAUSE NINETEENTH – BANK BOND under the terms provided, as well as if any event were to occur that would imply a reduction or devaluation of such guaranties;

h)           were sued in court which suit might affect the credit rights of BNB;

i)           contracts financing with another financial institution to cover the items stipulated in the budget contained in this credit instrument, or attached hereto, for financing by BNB;

j)           were to have its deposit account at BNB closed, or its name included on the Central Bank of Brazil’s List of Check Kiters;

k)           requests judicial and/or extrajudicial recovery, or were declared bankrupt, or had a request for liquidation or a writ of intervention made against it;

l)           fails to present to the federal, state, or municipal environmental bodies, such environmental licenses as may have been demanded by them in relation to this project;

m)           fails to notify BNB, expressly and in advance, of any change to be made in the Authorization Document or in the Concession Agreement signed with the
 
 
[initials]
[stamp:]
LEGAL
   
[initials]
   
TIM
 
Page 10 of 13
 
Continuation of PRIVATE AGREEMENT No. 182.2007.4743.847, entered into by Banco do Nordeste do Brasil S.A. and TIM NORDESTE S/A, on January 28, 2008, in the amount of R$ 67,000,000.00 (Sixty-Seven Million Reais ).
 
BORROWER, which might prejudice the achievement of the purpose of this transaction or the economic and financial equilibrium of the BORROWER.

CLAUSE THIRTIETH – OBLIGATIONS WITH THE NATIONAL TELECOMMUNICATIONS AGENCY – ANATEL – BORROWER undertakes to report the full tenor of this credit instrument, registered, to the NATIONAL TELECOMMUNICATIONS AGENCY – ANATEL – this in its capacity as the Autarchy responsible for regulating and supervising operations in the telecommunications sector.

CLAUSE THIRTY-FIRST – DISCLOSURE OF INFORMATION - BNB may disclose, in its internal and external communications vehicles, any and all information or data related to the loan covered by this instrument, such as the amount and objective of the financing and the items financed, for eh sole purpose of publicizing the actions performed by BNB, up express authorization from BORROWER.

CLAUSE THIRTY-SECOND – REPRESENTATION AND WARRANTY – BORROWER represents and warrants that the formalization of this instrument and the performance of its obligations do not constitute a violation of or default on any contract, agreement, or other instruments to which BORROWER is a party or by which it is bound.

CLAUSE THIRTY-THIRD – CERTIFICATES :  BORROWER submitted Certificate of No Debts related to Social Security Contributions and Third-Party Contributions (CND), issued by the Department of Federal Revenue of Brazil (RFB) No. 016942007-15002050, issued on 09/26/2007, valid through 03/24/2008; Certificate of Compliance with FGTS-CRF, issued by Caixa Econômica Federal, No. 2008010210382804232347, issued on 01/02/2008, valid until 01/31/2008; Joint Certificate of No Debts related to Federal Taxes and the Asset Tax of the Union, issued jointly, in a single document, by the Department of Federal Revenue of Brazil (RFB) and by the Office of the Prosecutor General of the National Treasury (PGFN), control code no. C667.3CD2.14C0.CB07, issued on 12/07/2007, valid until 06/04/2008.

CLAUSE THIRTY-FOURTH – ETHICS AND SOCIAL VALUES – BORROWER states that the provisions of the provisions of this instrument were negotiated in light of and in strict accord with its Code of Ethics available on the Internet at http://www.timpartri.com.br.

CLAUSE THIRTY-FIFTH – FORUM – The forum of the county where the branch of BNB that contracted the loan covered by this instrument is chosen for prosecution of any proceedings arising from the aforementioned instrument, BNB being granted the right to choose that of its registered address, the domicile of the BORROWER or of the intervening parties or, if any, the location of the pledged assets.

And, inasmuch as they are so agreed and contracted, they sign this instrument in 3 (three) copies of the same tenor, for one single effect, in the presence of two witnesses signing below.

FORTALEZA – CE, January 28, 2008.
 
 
[initials]
[stamp:]
LEGAL
   
[initials]
   
TIM
 
Page 11 of 13
 
Continuation of PRIVATE AGREEMENT No. 182.2007.4743.847, entered into by Banco do Nordeste do Brasil S.A. and TIM NORDESTE S/A, on January 28, 2008, in the amount of R$ 67,000,000.00 (Sixty-Seven Million Reais ).
 
BORROWER

for TIM NORDESTE S/A
CNPJ: 01.009.686/0001-44
AVENIDA AYRTON SENNA DA SILVA, 1633,
PIEDADE, JABOATAO DOS
GOARARAPES-PE POSTAL CODE 54.410-240

[signature]
_____________________________________
MARIO CESAR PEREIRA DE ARAUJO
CPF: 235.485.337-87
RG: 02.158.026-1 IFP-RJ 11/01/1985
BRAZILIAN, MARRIED,
AVENIDA DAS AMERICAS, 3434 BL 1 -
7 th FLOOR, BARRA DA TIJUCA, RIO DE
JANEIRO – RJ POSTAL CODE 22.640-102, ENGINEER,
DIRECTOR PRESIDENT

INTERVENING GUARANTOR

for TIM PARTICIPAÇÕES S.A.
CNPJ: 02.558.115-0001/21
AVENIDA DAS AMERICAS, 3434 BL 1
7 th FLOOR, BARRA DA TIJUCA, RIO DE
JANEIRO – RJ POSTAL CODE 22.640-102

[signature]
_____________________________________
MARIO CESAR PEREIRA DE ARAUJO
CPF: 235.485.337-87
RG: 02.158.026-1 IFP-RJ 11/01/1985
BRAZILIAN, MARRIED,
AVENIDA DAS AMERICAS, 3434 BL 1 -
7 th FLOOR, BARRA DA TIJUCA, RIO DE
JANEIRO – RJ POSTAL CODE 22.640-102, ENGINEER,
DIRECTOR PRESIDENT

FOR BANCO DO NORDESTE DO BRASIL
S.A.
[signature]
IVANILDO BERNARDO DE OLIVEIRA
BUSINESS MANAGER – GP BRANCH
 
 
[initials]
[stamp:]
LEGAL
   
[initials]
   
TIM
 
Page 12 of 13
 
Continuation of PRIVATE AGREEMENT No. 182.2007.4743.847, entered into by Banco do Nordeste do Brasil S.A. and TIM NORDESTE S/A, on January 28, 2008, in the amount of R$ 67,000,000.00 (Sixty-Seven Million Reais ).
 
[stamp:]   [illegible]
4 TH NOTARY OFFICE OF [cut off]
[illegible] Hamilton Barro [illegible] Registry Office
Rua de Assembléia [illegible]
I recognize by similarity the signature of MARIO CESAR PEREIRA DE ARAUJO
Code: [illegible]
Rio de Janeiro, March 28, 2008 [illegible]
In witness [initials] of the Truth                Service:               R$ 3.47
[signature]                                                  30% [illegible] R$ 1.03
[illegible] Authorized                                 Total:                  R$ 4.50
 
[stamp:]   GENERAL MAGISTRACY
OF JUSTICE
AUDIT STAMP
SIGNATURE RECOGNITION
UCD
IX710418
[bar code]
 
[illegible notary stamp]
 
[stamp:]
ALENCAR ARARIPE REGISTRY OFFICE
Av. Mister Hull, 4965(85)3235-3307
I recognize by similarity the signature of
IVANILDO BERNARDO DE OLIVEIRA.
So sworn. Antonio Bezerra, Fortaleza,
3/4/208 15:45
[signature]
Hon. Jaime de Alencar Araripe Jr.
Head
Jaime de Alencar Araipe Neto
Guilherme A. de Alencar Araripe
Deputies
Carmem Lucia de Sousa Gomes
Raimunda B. de Alcantara
Sonia M. M. Magalhaes Araujo
Clerks
ZZ-000.00 / R$
VALID ONLY WITH [cut off]
 
[stamp:]
Seal of Authenticity
SPECIAL FUND FOR
THE CIVIL REGISTRY
AP 450581
SIGNATURE RECOGNITION
02
COURT OF JUSTICE
 
 
 
 

[signature]
MARIO ALDO DE MELO
MANAGER OF GP BRANCH
 
 
[stamp:]  REGISTRY OFFICE    10th Notary Office – Moreira de Deus Registry Office
               Moreira de Deus           Rua Casimiro Montenogo 50 – Monte Castelo – Fortaleza / CE Phone [cut off]
                                                   Notary: Maria de Fâtima Botelho Moreira de Deus
 
I recognize by similarity the signature of
MARIO ALDO DE MELO
which compares with the specimen registered in this office.  So sworn.
FORTALEZA, 01-30-2008                   In witness [initials] of the truth.
CLAUDIVAN FARIAS DE PONTES – AUTHORIZED CLERK
 
[stamp:]
Seal of Authenticity
SPECIAL FUND FOR
THE CIVIL REGISTRY
[illegible]
SIGNATURE RECOGNITION
02
COURT OF JUSTICE
[illegible notary stamp]
WITNESSES
 
       
[signature]
AMANDA NATACHILA OLIVEIRA LIMA
CPF: 021.573.213-81
 
 
[stamp:]  REGISTRY OFFICE    10th Notary Office – Moreira de Deus Registry Office
               Moreira de Deus           Rua Casimiro Montenogo 50 – Monte Castelo – Fortaleza / CE Phone [cut off]
                                               Notary: Maria de Fâtima Botelho Moreira de Deus
 
I recognize by similarity the signature of
ANA KARLA PAULA FRANKLIN
which compares with the specimen registered in this office.  So sworn.
FORTALEZA, 01-30-2008                   In witness [initials] of the truth.
CLAUDIVAN FARIAS DE PONTES – AUTHORIZED CLERK
 
[stamp:]
Seal of Authenticity
SPECIAL FUND FOR
THE CIVIL REGISTRY
AP [illegible]
SIGNATURE RECOGNITION
02
COURT OF JUSTICE
[illegible notary stamp]
[signature]
ANA KARLA PAULA FRANKLIN
CPF: 615.947.333-68
 
[stamp:]  REGISTRY OFFICE    10th Notary Office – Moreira de Deus Registry Office
               Moreira de Deus           Rua Casimiro Montenogo 50 – Monte Castelo – Fortaleza / CE Phone [cut off]
                                               Notary: Maria de Fâtima Botelho Moreira de Deus
 
I recognize by similarity the signature of
AMANDA NATACHILA OLIVEIRA LIMA
which compares with the specimen registered in this office.  So sworn.
FORTALEZA, 01-30-2008                   In witness [initials] of the truth.
                   CLAUDIVAN FARIAS DE PONTES – AUTHORIZED CLERK
 
[stamp:]
Seal of Authenticity
SPECIAL FUND FOR
THE CIVIL REGISTRY
AP [illegible]
SIGNATURE RECOGNITION
02
COURT OF JUSTICE
[illegible notary stamp]

[stamp:]
Registry of Instruments and Documents
Recorded under no. [hw:] 23182 at Pg.
[hw:] 70 of Book [hw:] [illegible] 14
Registered under no. [hw:] 29858 at Pg.
[hw:] 61 of Book [hw:] [illegible] 92
Jaboatão, [hw:] April 23, 2008
[signature]
Hon. José [illegible] Silva
Official and Notary
Deputy
[stamp:]
Only valid with the seal of authenticity [illegible]
[illegible] – 1 st Office of Jaboatão dos [illegible]
 
[stamp:]
COURT OF JUSTICE
OF PERNAMBUCO
Notary or
Registry Act
ANOREG-PE
ABL063899
 
[stamp:]
EDUARDO MALTA REGISTRY OFFICE
Hon. José Eduardo Loya Malta
HEAD
Hon. José [illegible] – Pedro Malta Filho
Ricardo [illegible] de Silva
DEPUTIES
Maria de Fatima Silva Santana * Authorized Clerk
Rua [illegible] Lima da [illegible], 513 Ph.: [illegible]
JOBOATÃO                     PERNAMBUCO
 
 
 
[initials]
[stamp:]
LEGAL
   
[initials]
   
TIM
 
Page 13 of 13
 

 
 
 
 
[blank page]
 
 
 
 
 
 
 
 
Annex – Budget integral part of PRIVATE AGREEMENT No. 182.2007.4743.847, of January 28, 2008
 
BUDGET

Description of the Items in the
Venture
Qty. /
Units
Own Funds
Financed Funds
Total
Investment
   
Incurred
(month /
year)
Amount
(R$)
1 st Disburs.
(month /
year)
FNE (R$)
Total (R$)
01 BTS (Base Transceiver Station) – Alagoas (outside of the semiarid zone)
           
BTS (Base Transceiver Station) – Alagoas (outside of the semiarid zone)
1 unit
Jan / 08
305,958.88
Jan / 08
616,351.12
922,310.00
 
Feb / 08
305,958.88
Feb / 08
616,351.12
922,310.00
 
Mar / 08
305,961.89
Mar / 08
616,357.20
922,319.09
02 BTS (Base Transceiver Station) – Ceará (outside of the semiarid zone)
           
BTS (Base Transceiver Station) – Ceaerá (outside of the semiarid zone)
1 unit
Jan / 08
681,920.13
Jan / 08
1,102,354.87
1,784,275.00
 
Feb / 08
681,920.13
Feb / 08
1,102,354.87
1,784,275.00
 
Mar / 08
681,921.17
Mar / 08
1,102,356.57
1,784,277.74
03 BTS (Base Transceiver Station) – Paraíba (outside of the semiarid zone)
           
BTS (Base Transceiver Station) – Paráiba (outside of the semiarid zone)
1 unit
Jan / 08
253,598.17
Jan / 08
257,461.83
511,060.00
 
Feb / 08
253,598.17
Feb / 08
257,461.83
511,060.00
 
Mar / 08
253,600.04
Mar / 08
257,463.70
511,063.74
04 BTS (Base Transceiver Station) – Pernambuco (outside of the semiarid zone)
           
BTS (Base Transceiver Station) – Pernambuco (outside of the semiarid zone)
1 unit
Jan / 08
846,564.33
Jan / 08
1.125.518.67
2.097.083.00
 
Feb / 08
846,564.33
Feb / 08
1.125.518.67
2.097.083.00
 
Mar / 08
846,564.96
Mar / 08
1.125.519.63
2.097.084.59
05 BTS (Base Transceiver Station) – Piauí (outside of the semiarid zone)
           
BTS (Base Transceiver
1 unit
Jan / 08
237,263.11
Jan / 08
374,956.89
612,220.00
 
Feb / 08
237,263.11
Feb / 08
374,956.89
612,220.00
 
 
[stamp:]
EDUARDO MALTA REGISTRY OFFICE
Hon. José Eduardo Loya Malta
HEAD
Hon. José [illegible] – Pedro Malta Filho
Ricardo [illegible] de Silva
DEPUTIES
Maria de Fatima Silva Santana * Authorized Clerk
Rua [illegible] Lima da [illegible], 513 Ph.: [illegible]
JOBOATÃO
[initials]
 
 
Page 1 of 9
 
Annex – Budget integral part of PRIVATE AGREEMENT No. 182.2007.4743.847, of January 28, 2008
 
Station) – Piauí (outside of the semiarid zone)
 
Mar / 08
237,264.52
Mar / 08
374,959.12
612,223.64
06 BTS (Base Transceiver Station) – Rio G. do Norte (outside of the semiarid zone)
           
BTS (Base Transceiver Station) – Rio G. do Norte (outside of the semiarid zone)
1 unit
Jan / 08
830,474.91
Jan / 08
548,198.09
1,378,673.00
 
Feb / 08
830,474.91
Feb / 08
548,198.09
1,378,673.00
 
Mar / 08
830,475.49
Mar / 08
548,198.48
1,378,673.97
07 BTS (Base Transceiver Station) – Alagoas (semiarid zone)
           
BTS (Base Transceiver Station) – Alagoas (semiarid zone)
1 unit
-
0.00
Feb / 08
116,333.54
116,333.54
08 BTS (Base Transceiver Station) – Ceará (semiarid zone)
           
BTS (Base Transceiver Station) – Ceará (semiarid zone)
1 unit
-
0.00
Feb / 08
495,117.15
495,117.15
09 BTS (Base Transceiver Station) – Paraíba (semiarid zone)
           
BTS (Base Transceiver Station) – Paráiba (semiarid zone)
1 unit
-
0.00
Jan / 08
316,653.08
316,653.08
10 BTS (Base Transceiver Station) – Pernambuco (semiarid zone)
           
BTS (Base Transceiver Station) – Pernambuco (semiarid zone)
1 unit
-
0.00
Feb / 08
717,200.50
717,200.50
11 BTS (Base Transceiver Station) – Piauí (semiarid zone)
           

 
[stamp:]
EDUARDO MALTA REGISTRY OFFICE
Hon. José Eduardo Loya Malta
HEAD
Hon. José [illegible] – Pedro Malta Filho
Ricardo [illegible] de Silva
DEPUTIES
Maria de Fatima Silva Santana * Authorized Clerk
Rua [illegible] Lima da [illegible], 513 Ph.: [illegible]
JOBOATÃO
[initials]
 
 
Page 2 of 9
 
Annex – Budget integral part of PRIVATE AGREEMENT No. 182.2007.4743.847, of January 28, 2008
 
BTS (Base Transceiver Station) – Piauí (semiarid zone)
1 unit
-
0.00
Jan / 08
316,653.08
316,653.08
12 BTS (Base Transceiver Station) – Rio Grande do Norte (semiarid zone)
           
BTS (Base Transceiver Station) – Rio Grande do Norte semiarid zone)
1 unit
-
0.00
Jan / 08
431,090.00
431,090.00
 
-
0.00
Feb / 08
431,090.00
431,090.00
 
-
0.00
Mar / 08
431,094.35
431,094.35
13 BSC (Base Station Controller) – Alagoas (outside of the semiarid zone)
           
BSC (Base Station Controller) – Alagoas (outside of the semiarid zone)
1 unit
Jan / 08
57,608.63
Jan / 08
141,256.49
198,865.12
14 BSC (Base Station Controller) – Ceará (outside of the semiarid zone)
           
BSC (Base Station Controller) – Ceará (outside of the semiarid zone)
1 unit
Jan / 08
220,285.68
Jan / 08
540,141.00
760,426.68
15 BSC (Base Station Controller) – Paraíba (outside of the semiarid zone)
           
BSC (Base Station Controller) – Paraíba (outside of the semiarid zone)
1 unit
Jan / 08
20,860.22
Jan / 08
51,149.31
72,009.53
16 BTS (Base Station Controller) – Pernambuco (outside of the semiarid zone)
           
BSC (Base Station Controller) – Pernambuco (outside of the semiarid zone)
1 unit
-
869,060.81
Jan / 08
2,130,393.19
3,000,000.00
 
-
869,060.81
Feb / 08
2,130,393.19
3,000,000.00
 
-
934,011.22
Mar / 08
2,290,197.70
3,224,208.92
17 BTS (Base Station Controller) – Piauí (outside of the semiarid zone)
           
 
 
[stamp:]
EDUARDO MALTA REGISTRY OFFICE
Hon. José Eduardo Loya Malta
HEAD
Hon. José [illegible] – Pedro Malta Filho
Ricardo [illegible] de Silva
DEPUTIES
Maria de Fatima Silva Santana * Authorized Clerk
Rua [illegible] Lima da [illegible], 513 Ph.: [illegible]
JOBOATÃO
[initials]
 
 
Page 3 of 9
 
Annex – Budget integral part of PRIVATE AGREEMENT No. 182.2007.4743.847, of January 28, 2008
 
 
BSC (Base Station Controller) – Piauí (outside of the semiarid zone)
1 unit
Jan / 08
4,102.75
Jan / 08
10,059.94
14,162.69
18 BSC (Base Station Controller) – Rio G do Norte (outside of the semiarid zone)
           
BSC (Base Station Controller) – Rio G do Norte (outside of the semiarid zone)
1 unit
Jan / 08
22,775.64
Jan / 08
55,845.93
78,621.57
19 NGN (Next Generation Network) – Alagoas (outside of the semiarid zone)
           
NGN (Next Generation Network) – Alagoas (outside of the semiarid zone)
1 unit
Mar / 08
31,961.55
Mar / 08
78,369.81
110,331.36
20 NGN (Next Generation Network) – Ceaerá (outside of the semiarid zone)
           
NGN (Next Generation Network) – Ceará (outside of the semiarid zone)
1 unit
Jan / 08
160,470.73
Jan / 08
201,789.27
362,260.00
 
Feb / 08
160,470.73
Feb / 08
201,789.27
362,260.00
 
Mar / 08
160,469.54
Mar / 08
201,787.78
362,257.32
21 NGN (Next Generation Network) – Ceaerá (semiarid zone)
           
NGN (Next Generation Network) – Ceaerá (semiarid zone)
1 unit
-
0.00
Mar / 08
166,585.81
166,585.81
22 NGN (Next Generation Network) – Paraíba (outside of the semiarid zone)
           
NGN (Next Generation Network) – Paraíba (outside of the semiarid zone)
1 unit
Mar / 08
68,214.96
Mar / 08
167,263.24
235,478.20
23 NGN (Next Generation Network) – Pernambuco (outside of the semiarid zone)
           

 
[stamp:]
EDUARDO MALTA REGISTRY OFFICE
Hon. José Eduardo Loya Malta
HEAD
Hon. José [illegible] – Pedro Malta Filho
Ricardo [illegible] de Silva
DEPUTIES
Maria de Fatima Silva Santana * Authorized Clerk
Rua [illegible] Lima da [illegible], 513 Ph.: [illegible]
JOBOATÃO
[initials]
 
 
Page 4 of 9
 
Annex – Budget integral part of PRIVATE AGREEMENT No. 182.2007.4743.847, of January 28, 2008
 
NGN (Next Generation Network) – Pernambuco (outside of the semiarid zone)
1 unit
Jan / 08
274,631.02
Jan / 08
590,763.98
865.395.00
   
Feb / 08
274,631.02
Feb / 08
590,763.98
865.395.00
   
Mar / 08
274,631.49
Mar / 08
590,765.03
865.396.52
24 NGN (Next Generation Network) – Pernambuco (semiarid zone)
           
NGN (Next Generation Network) – Pernambuco (semiarid zone)
1 unit
-
0.00
Mar / 08
71,812.21
71,812.21
25 NGN (Next Generation Network) – Piauí (outside of the semiarid zone)
           
NGN (Next Generation Network) – Piauí (outside of the semiarid zone)
1 unit
Jan / 08
11,345.59
Jan / 08
27,819.41
39,165.00
 
Feb / 08
11,345.59
Feb / 08
27,819.41
39,165.00
 
Mar / 08
11,345.67
Mar / 08
27,819.62
39,165.29
26 NGN (Next Generation Network) – Rio G. do Norte (outside of the semiarid zone)
           
NGN (Next Generation Network) – Rio G. do Norte (outside of the semiarid zone)
1 unit
Jan / 08
33,408.72
Jan / 08
81,918.28
115,327.00
   
Feb / 08
33,408.72
Feb / 08
81,918.28
115,327.00
   
Mar / 08
33,409.54
Mar / 08
81,920.25
115,329.79
27 – MSC (Mobile Switching Center) – Alagoas (outside of the semiarid zone)
           
MSC (Mobile Switching Center) – Alagoas (outside of the semiarid zone)
1 unit
Mar / 08
1,585.62
Mar / 08
3,887.94
5,473.56
28 – MSC (Mobile Switching Center) – Ceará (outside of the semiarid zone)
           
MSC (Mobile Switching Center) – Ceará (outside of the semiarid zone)
1 unit
Jan / 08
766,227.75
Jan / 08
1,878,792.25
2,645,020.00
 
Feb / 08
766,227.75
Feb / 08
1,878,792.25
2,645,020.00
 
Mar / 08
766,228.05
Mar / 08
1,878,793.02
2,645,021.07

 
[stamp:]
EDUARDO MALTA REGISTRY OFFICE
Hon. José Eduardo Loya Malta
HEAD
Hon. José [illegible] – Pedro Malta Filho
Ricardo [illegible] de Silva
DEPUTIES
Maria de Fatima Silva Santana * Authorized Clerk
Rua [illegible] Lima da [illegible], 513 Ph.: [illegible]
JOBOATÃO
[initials]
 
 
Page 5 of 9
 
Annex – Budget integral part of PRIVATE AGREEMENT No. 182.2007.4743.847, of January 28, 2008
 
29 – MSC (Mobile Switching Center) – Pernambuco (outside of the semiarid zone)
           
MSC (Mobile Switching Center) – Pernambuco (outside of the semiarid zone)
1 unit
Jan / 08
2,527,927.00
Jan / 08
6,198,483.00
8,726,410.00
 
Feb / 08
2,527,927.00
Feb / 08
6,198,483.00
8,726,410.00
 
Mar / 08
2,527,928.68
Mar / 08
6,198,487.15
8,726,415.13
30 – MSC (Mobile Switching Center) – Piauí (outside of the semiarid zone)
           
MSC (Mobile Switching Center) – Piauí (outside of the semiarid zone)
1 unit
Jan / 08
151,994.39
Jan / 08
372,690.61
524,685.00
 
Feb / 08
151,994.39
Feb / 08
372,690.61
524,685.00
 
Mar / 08
151,995.60
Mar / 08
372,693.55
524,689.15
31 – MSC (Mobile Switching Center) – Rio G. do Norte (outside of the semiarid zone)
           
MSC (Mobile Switching Center) – Rio G. do Norte (outside of the semiarid zone)
1 unit
Jan / 08
146,691.38
Jan / 08
359,687.62
506,379.00
 
Feb / 08
146,691.38
Feb / 08
359,687.62
506,379.00
 
Mar / 08
146,691.77
Mar / 08
359,688.56
506,380.33
32 – VAS (Value Added Service) – Alagoas (outside of the semiarid zone)
           
VAS (Value Added Service) – Alagoas (outside of the semiarid zone)
1 unit
Jan / 08
228,142.08
Jan / 08
559,404.92
787,547.00
 
Feb / 08
228,142.08
Feb / 08
559,404.92
787,547.00
 
Mar / 08
228,142.17
Mar / 08
559,404.14
787,547.31
33 – VAS (Value Added Service) – Ceará (outside of the semiarid zone)
           
VAS (Value Added Service) – Ceará (outside of the semiarid zone)
1 unit
Jan / 08
245,580.94
Jan / 08
602,165.06
847,746.00
 
Feb / 08
245,580.94
Feb / 08
602,165.06
847,746.00
 
Mar / 08
245,581.56
Mar / 08
602,166.53
847,748.09
34 – VAS (Value Added Service) – Pernambuco (outside of the semiarid zone)
           
VAS (Value Added Service) – Pernambuco (outside of the semiarid zone)
1 unit
Jan / 08
579,497.57
Jan / 08
1,420,929.43
2,000,427.00
 
Feb / 08
579,497.57
Feb / 08
1,420,929.43
2,000,427.00
 
Mar / 08
579,497.64
Mar / 08
1,420,929.58
2,000,427.22
 
 
[stamp:]
EDUARDO MALTA REGISTRY OFFICE
Hon. José Eduardo Loya Malta
HEAD
Hon. José [illegible] – Pedro Malta Filho
Ricardo [illegible] de Silva
DEPUTIES
Maria de Fatima Silva Santana * Authorized Clerk
Rua [illegible] Lima da [illegible], 513 Ph.: [illegible]
JOBOATÃO
[initials]
 
 
Page 6 of 9
 
Annex – Budget integral part of PRIVATE AGREEMENT No. 182.2007.4743.847, of January 28, 2008
 
35 – HLR (Home Location Register) – Pernambuco (outside of the semiarid zone)
           
HLR (Home Location Register) – Pernambuco (outside of the semiarid zone)
1 unit
Jan / 08
119,138.10
Jan / 08
292,126.90
411,265.00
 
Feb / 08
119,138.10
Feb / 08
292,126.90
411,265.00
 
Mar / 08
119,137.71
Mar / 08
292,125.94
411,263.65
36 Management Tools – Alagoas (outside of the semiarid zone)
           
Management Tools – Alagoas (outside of the semiarid zone)
1 unit
Feb / 08
7,313.14
Feb / 08
17,931.84
25,244.98
37 Management Tools – Ceará (outside of the semiarid zone)
           
Management Tools – Ceará (outside of the semiarid zone)
1 unit
Mar / 08
187,207.60
Mar / 08
459,033.47
646,241.07
38 Management Tools – Paraíba (outside of the semiarid zone)
           
Management Tools – Paraíba (outside of the semiarid zone)
1 unit
Mar / 08
6,335.75
Mar / 08
15,535.28
21,871.03
39 – Management Tools) – Pernambuco (outside of the semiarid zone)
           
Management Tools – Pernambuco (outside of the semiarid zone)
1 unit
Jan / 08
687,745.77
Jan / 08
1,686,247.23
2,373,993.00
 
Feb / 08
687,745.77
Feb / 08
1,686,247.23
2,373,993.00
 
Mar / 08
687,746.07
Mar / 08
1,686,247.96
2,373,994.03
40 Management Tools – Piauí (outside of the semiarid zone)
           
Management Tools – Piauí (outside of the semiarid zone)
1 unit
Mar / 08
9,085.22
Mar / 08
22,276.99
31,362.21
41 Management Tools – Rio G. do Norte (outside of the semiarid zone)
           
Management Tools – Rio G. do Norte (outside of the semiarid zone)
1 unit
Mar / 08
40,405.20
Mar / 08
99,073.66
139,478.86
 
 
[stamp:]
EDUARDO MALTA REGISTRY OFFICE
Hon. José Eduardo Loya Malta
HEAD
Hon. José [illegible] – Pedro Malta Filho
Ricardo [illegible] de Silva
DEPUTIES
Maria de Fatima Silva Santana * Authorized Clerk
Rua [illegible] Lima da [illegible], 513 Ph.: [illegible]
JOBOATÃO 
[initials]
 
 
Page 7 of 9
 
Annex – Budget integral part of PRIVATE AGREEMENT No. 182.2007.4743.847, of January 28, 2008
 

43 Management Tools – Training – Pernambuco (outside of the semiarid zone)
           
Management Tools – Training – Pernambuco (outside of the semiarid zone)
1 unit
Mar / 08
65,686.89
Mar / 08
161,385.44
227,072.33
TOTAL
   
30,681,316.39
 
67,000,000.00
97,681,316.39
 
FORTALEZA – CE, January 28, 2008

BORROWER

for TIM NORDESTE S/A
CNPJ: 01.009.686/0001-44
AVENIDA AYRTON SENNA DA SILVA, 1633,
PIEDADE, JABOATAO DOS
GOARARAPES-PE POSTAL CODE 54.410-240

[signature]
__________________________________
MARIO CESAR PEREIRA DE ARAUJO
CPF: 235.485.337-87
RG: 2.158.026-1 IFP-RJ 11/01/1985
BRAZILIAN, MARRIED,
AVENIDA DAS AMERICAS, 3434 BL 1 -
7 th FLOOR, BARRA DA TIJUCA,
RIO DE JANEIRO – RJ POSTAL CODE 22.640-102,
ENGINEER,
DIRECTOR PRESIDENT

INTERVENING GUARANTOR

for TIM PARTICIPAÇÕES S.A.
CNPJ: 02.558.115-0001/21
AVENIDA DAS AMERICAS, 3434 BL 1
7 th FLOOR, BARRA DA TIJUCA,
 RIO DE JANEIRO – RJ POSTAL CODE 22.640-102

[signature]
MARIO CESAR PEREIRA DE ARAUJO
CPF: 235.485.337-87
RG: 2.158.026-1 IFP-RJ 11/01/1985
BRAZILIAN, MARRIED,
AVENIDA DAS AMERICAS, 3434 BL 1 -
7 th FLOOR, BARRA DA TIJUCA,
RIO DE JANEIRO – RJ POSTAL CODE 22.640-102,
ENGINEER,
DIRECTOR PRESIDENT
[stamp:]   [illegible]
4 TH NOTARY OFFICE OF RIO DE JANEIRO
Hamilton Barros Registry Office
Rua de Assembléia [illegible]
I recognize by similarity the signature of MARIO CESAR PEREIRA DE ARAUJO
Code: [illegible]
Rio de Janeiro, March 28, 2008 [illegible]
In witness [initials] of the Truth               Service:               R$ 3.47
[signature]                                                 30% [illegible] R$ 1.03
[illegible] Authorized                                Total:                  R$ 4.50
[stamp:]   GENERAL MAGISTRACY
OF JUSTICE
AUDIT STAMP
SIGNATURE RECOGNITION
HDP
IXY 10419
[bar code]
 
[illegible notary stamp]
 
 
[stamp:]
EDUARDO MALTA REGISTRY OFFICE
Hon. José Eduardo Loya Malta
HEAD
Hon. José [illegible] – Pedro Malta Filho
Ricardo [illegible] de Silva
DEPUTIES
Maria de Fatima Silva Santana * Authorized Clerk
Rua [illegible] Lima da [illegible], 513 Ph.: [illegible]
JOBOATÃO 
[initials]
 
 
Page 8 of 9
 
Annex – Budget integral part of PRIVATE AGREEMENT No. 182.2007.4743.847, of January 28, 2008
 
FOR BANCO DO NORDESTE DO BRASIL S.A.
[signature]
_____________________
IVANILDO BERNARDO DE OLIVEIRA
BUSINESS MANAGER – GP BRANCH
 
[stamp:] ß MOREIRA DE DEUS
 
[stamp:]  REGISTRY OFFICE    10th Notary Office – Moreira de Deus Registry Office
               Moreira de Deus           Rua Casimiro Montenogo 50 – Monte Castelo – Fortaleza / CE Phone [cut off]
                                               Notary: Maria de Fâtima Botelho Moreira de Deus
 
I recognize by similarity the signature of
         INVANALDO BERNARDO DE OLIVEIRA
            which compares with the specimen registered in this office.  So sworn.
FORTALEZA, 01-30-2008                                        In witness [initials] of the truth.
CLAUDIVAN FARIAS DE PONTES – AUTHORIZED CLERK
 
[stamp:]
Seal of Authenticity
SPECIAL FUND FOR
THE CIVIL REGISTRY
[illegible]
SIGNATURE RECOGNITION
02
COURT OF JUSTICE
[illegible notary stamp]
 
_____________________
MARIO ALDO DE MELO
MANAGER OF GP BRANCH
 
 
[stamp:]  REGISTRY OFFICE    10th Notary Office – Moreira de Deus Registry Office
               Moreira de Deus           Rua Casimiro Montenogo 50 – Monte Castelo – Fortaleza / CE Phone [cut off]
                                                   Notary: Maria de Fâtima Botelho Moreira de Deus
 
I recognize by similarity the signature of
MARIO ALDO DE MELO
which compares with the specimen registered in this office.  So sworn.
FORTALEZA, 01-30-2008                  In witness [initials] of the truth.
CLAUDIVAN FARIAS DE PONTES – AUTHORIZED CLERK
 
[stamp:]
Seal of Authenticity
SPECIAL FUND FOR
THE CIVIL REGISTRY
[illegible]
SIGNATURE RECOGNITION
02
COURT OF JUSTICE
[illegible notary stamp]
WITNESSES
 
       
[signature]
____________________
AMANDA NATACHILA OLIVEIRA LIMA
CPF: 021.573.213-81
 
 
[stamp:]  REGISTRY OFFICE    10th Notary Office – Moreira de Deus Registry Office
               Moreira de Deus           Rua Casimiro Montenogo 50 – Monte Castelo – Fortaleza / CE Phone [cut off]
                                                   Notary: Maria de Fâtima Botelho Moreira de Deus
 
I recognize by similarity the signature of
                    ANA KARLA PAULA FRANKLIN
which compares with the specimen registered in this office.  So sworn.
FORTALEZA, 01-30-2008                  In witness [initials] of the truth.
CLAUDIVAN FARIAS DE PONTES – AUTHORIZED CLERK
 
[stamp:]
Seal of Authenticity
SPECIAL FUND FOR
THE CIVIL REGISTRY
AP [illegible]
SIGNATURE RECOGNITION
02
COURT OF JUSTICE
[illegible notary stamp]
[signature]
_____________________
ANA KARLA PAULA FRANKLIN
CPF: 615.947.333-68
 
[stamp:]  REGISTRY OFFICE    10th Notary Office – Moreira de Deus Registry Office
               Moreira de Deus           Rua Casimiro Montenogo 50 – Monte Castelo – Fortaleza / CE Phone [cut off]
                                                   Notary: Maria de Fâtima Botelho Moreira de Deus
 
I recognize by similarity the signature of
                    AMANDA NATACHILA OLIVEIRA LIMA
which compares with the specimen registered in this office.  So sworn.
FORTALEZA, 01-30-2008                      In witness [initials] of the truth.
CLAUDIVAN FARIAS DE PONTES – AUTHORIZED CLERK
 
[stamp:]
Seal of Authenticity
SPECIAL FUND FOR
THE CIVIL REGISTRY
AP [illegible]
SIGNATURE RECOGNITION
02
COURT OF JUSTICE
[illegible notary stamp]
 
 
[stamp:]
EDUARDO MALTA REGISTRY OFFICE
Hon. José Eduardo Loya Malta
HEAD
Hon. José [illegible] – Pedro Malta Filho
Ricardo [illegible] de Silva
DEPUTIES
Maria de Fatima Silva Santana * Authorized Clerk
Rua [illegible] Lima da [illegible], 513 Ph.: [illegible]
JOBOATÃO PERNAMBUCO
[initials]
 

 
 
Page 9 of 9
 

 
 
 
 
 
[blank page]
 
 
 
 
 
 
 
 
 
 
 
GENERAL PROVISIONS APPLICABLE TO CREDIT INSTRUMENTS AT BANCO DO NORDESTE DO BRASIL S.A.
 
I – PRELIMINARY PROVISIONS
 
Art. 1 st   – These General Precepts apply to all credit instruments entered into during their effective period, by mere generic reference, except as follows:
 
a) if they are incompatible with the clauses of the credit instrument itself;
 
b) if they do not apply because they are not pertinent.
 
Art. 2 nd – They likewise apply to credit instruments[,] agreements, contracts, accords, regulations or programs that give rise to credit transactions, when the Bank is acting as a financial agent, settlor, agent, or mandatary.
 
Art. 3 rd – In case of conflict with these General Precepts, the rules of the credit instruments or those cited in Art. 2 nd shall prevail, in that order.
 
II – TERMS AND THEIR DEFINITIONS
 
Art. 4 th – The expressions utilized in these General Provisions and in the instruments to which they apply, listed below, have the contractual meanings indicated below, when not employed with the general acceptation:
 
1 BANK: Banco do Nordeste do Brasil S.A., with domicile and forum in Fortaleza (CE), registered in the National Registry of Legal Persons (CNPJ) under no. 07.237.373/0001-20.
 
2 ISSUER / BORROWER: a natural or legal person beneficiary of the loan granted through credit policies or contracts.
 
3 CREDIT INSTRUMENT: a specific instrument that formalizes the transactions entered into with the Bank, including, thereunder, credit policies and contracts, to which the other documents related thereto and these General Provisions are attached.
 
4 CREDIT TRANSACTION: genus that includes the Bank’s asset transactions, within its business / purpose, in any mode thereof.
 
5 INTERVENING PARTY: a natural or legal person who, under any title, in the capacity as third party, participates in the credit transaction and who, in such capacity, also signs the credit instrument.
 
6 ASSENTING PARTY:  a natural or legal person, other than the ISSUER / BORROWER, or a government entity, that assets, in whole or in part, to the credit transaction, or to the guaranty, and, in such capacity, also signs the credit instrument.
 
7 CONDITION PRECEDENT: a requirement of the credit instrument imposed upon the ISSUER / BORROWER, to use the credit, realize guaranties, or new credit transactions.
 
8 AVAILABILITY: a period in which the loan is available to the ISSUER / BORROWER, to be used after the conditions of the credit instruments are met and the budgetary execution by the Bank and/or the source of funds.
 
9 SOURCE OF FUNDS: a fund, agency, body, public company, mixed-economy company or an entity of any nature that in any manner makes funds available to the Bank for it to perform its credit operations.
 
10 BASE DATE: this is the day in each month corresponding to the due date of the credit transaction.
 
11 ANNIVERSARY DATE: this is the days of the subsequent months that are the same as the date the credit transaction was contracted on.
 
12 DISBURSEMENT: this means the act of making the funds available to the ISSUER / BORROWER and in his favor, which may occur on whole or in installments.
 
13 REIMBURSEMENT: this means the payment, by the ISSUER / BORROWER, of the obligations assumed, including principal, finance charges and other fees and expenses owed.
 
14 GRACE PERIOD: a period that precedes the start of the reimbursement period of the loan.
 
15 PRESET CHARGES: these re those set at the time the transaction is contracted and do not vary during the term of the credit instrument, unless there is a clause, in the credit instrument, that calls for the period re-agreement thereof.
 
16 POST-SET CHARGES: these are those defined at the time the credit transaction is contracted, whose rate is set in each calculation period, taking into account the change thereof during the effective period of the credit instrument.
 
17 DEL-CREDERE: compensation that the ISSUER / BORROWER undertakes to pay the Bank, as a function of the risk assumed by it with the sources supplying the funds disbursed by reason of the credit transaction.
 
18 PRO RATA TEMPORE : this corresponds to the proportion time elapsed.
 
19 PRINCIPAL: this corresponds to the amount of the loan disbursed.
 
20 ACCESSORY CHARGES: this corresponds to financial, legal, and contractual charges that are included in the principal of the debt or are required on specific dates.
 
21 FIXED LOAN: a credit transaction that does not allow the funds amortized by the ISSUER / BORROWER to be reused.
 
22 REVOLVING CREDIT: a credit transaction that allows the funds to be reused up to the limit granted.
 
23 EXCESS OVER LIMIT: amount taken out by the ISSUER / BORROWER beyond the limit of the loan, when granted as a revolving credit.
 
24 CALCULATION PERIOD: this is the period of time between two consecutive charge calculation dates.

 
 
 

25 SURETY: a natural or legal person who undertakes, with the Bank, to pay the loan transaction, when represented by a credit policy, becoming jointly liable for the debt with the ISSUER / BORROWER.
 
26 GUARANTOR: a natural or legal person who undertakes, with the Bank, to pay the loan transaction, when represented by a contract, becoming jointly liable for the debt with the ISSUER / BORROWER.
 
27 BONDED DEPOSITARY: a natural person who takes responsibility for custody of a chattel, offered to the Bank to guarantee the credit transaction, undertaking to return it with all the results and increases, when so requested of him, and who, in such capacity, also signs the credit instrument.
 
28 PURPOSE: the objective that the funds derived from the credit transaction is used for.
 
29 SWEETENER: a group of securities, represented by instruments or other credit paper, that the ISSUER / BORROWER delivers to the Bank in order to have sufficient assets to cover full payment of the credit transaction, including finance charges and other expenses related thereto.
 
30 BENEFICIARY PROPERTY: real property, in which the ISSUER / BORROWER undertakes to invest the funds derived from the credit transaction, when making the investments financed by the bank.
 
31 PROGRAM: lines of credit derived from the sources of funds with specific directives and rules of use.
 
32 PROAGRO: this is the Agriculture and Livestock Business Guaranty Program, created by law and managed by the Central Bank of Brazil, whose objective is to exempt rural producers from paying for financing, within the regulatory limits, in virtue of a complete or partial failure in agricultural or livestock production.
 
33 PERFORMANCE BONUS: a reduction granted in the amount owed by the ISSUER / BORROWER as a result of the credit transaction, if the respective payment were made without default.
 
34 REBATE: a percentage reduction in the amount of the finance charges and/or the principal amount owed by the ISSUER / BORROWER as a result of the credit transaction, applied if the respective payment were made without default.
 
35 BUSINESS AND TECHNICAL CONSULTANCY: technical assistance services, including the preparation of projects and plans and the provision of technical guidance.
 
II – PRINCIPAL PROVISION
 
Art. 5 th - DISBURSEMENT – The amount of the disbursements may not exceed the effective cost of the goods and services financed.
 
Art. 6 th – REIMBURSEMENT – If any due date falls on a nonbusiness day, the reimbursement of the installment shall be paid on the first business day after the established date.
 
 

Exhibit 4.2
 
[handwritten] 2807025/ 1480802

AMENDMENT TO BANK CREDIT BILL – WORKING CAPITAL NO. 87/293644.1

BANK CREDIT BILL NO.
87/293644.1
CLIENT BRANCH/ACCOUNT NUMBER
0403/0.704691 8
I. BANK
BANCO SANTANDER (BRASIL) SA , with registered office in SÃO PAULO/SP, at Avenida Presidente Juscelino Kubitschek, 2041 e 2235, Bloco A, Vila Olímpia, registered with the Taxpayers’ Registry of the Ministry of Finance under no. CNPJ/MF 90400888/0001-42
II. CLIENT
Corporate name
TIM CELULAR S.A.
CNPJ
04206050/0001-80
Address
AV. GIOVANNI GRONCHI, 7143
City/State
SÃO PAULO/SP
III. JOINT DEBTOR / ENDORSEMENT
Corporate Name/Name
INEFFECTIVE
CNPJ/MF or CPF/MF

1. The parties hereby agree that this document amended hereby was extended and the Final Term of this Bill is now 9/25/2012.
2. The parties also agree that the interest rate is now 108.00% ON CDI.
3. Additionally, the financial standards set forth before in section 5.2 are no longer required from the CLIENT from this date and, therefore, this section in the amended bill is consequently cancelled.
4. This agreement does not replace and is not a novation of the debt, and all other sections, conditions and guarantees in the amended Bill are ratified, which this document is inseparable part.
5. All other sections and conditions in the Instrument amended hereby remain unchanged and are hereby ratified, when not expressly amended by this Amendment.

SÃO PAULO, MARCH 3, 2011

[stamp] Signatures grant powers

[signature]
________________________________
TIM CELULAR S.A.
[stamp:]
Claudio Zezza
CFO and RI Director
 
[signature]
______________________________________
BANCO SANTANDER (BRASIL) SA
[signature]
TIM CELULAR S.A.
[stamp:]
Marco Chiarucci
Financial Manager
 
[stamp:] [initial]
TIM LEGAL DEPARTMENT
[signature]
[stamp:]
Rodrigo G. Galvão
TIM Finance and Treasury








[illegible]
1 of 2
Customer Service: 0800-707-2399 / Ombudsman: 0800-286-8787
 
 
 
 


JOINT DEBTOR(S) / ENDORSEMENT(S)
 
SPOUSE AUTHORIZATION
(required for endorsement guarantee):
 
 
____________________________________
INEFFECTIVE
 
 
____________________________________
Name: INEFFECTIVE
CPF:
Marriage regime:
 
 
____________________________________
INEFFECTIVE
 
 
____________________________________
Name: INEFFECTIVE
CPF:
Marriage regime:
 
 
____________________________________
INEFFECTIVE
 
 
____________________________________
Name: INEFFECTIVE
CPF:
Marriage regime:
 
 
____________________________________
INEFFECTIVE
 
 
____________________________________
Name: INEFFECTIVE
CPF:
Marriage regime:

WITNESSES:
1. [signature]
________________________________
Name:              [stamp:]
CPF/MF:          Cristiane Gonçalves Silva
                         RG. 44495829-0
 
2. [signature]\
____________________________________
Name:
CPF/MF                [stamp:]
                             Yara Cerqueira Assunção Neves
                             CPF 129751518-88
                             RG 20595368-1


[stamp:] [initial]
TIM LEGAL DEPARTMENT

 
G8729364410404201 Error! Indicator not defined
2 of 2
Customer Service: 0800-707-2399 / Ombudsman: 0800-286-8787
 
 
 
 

 
[watermark – Non-Negotiable]
[logo:] Banco Real ABN AMRO
872936441CCB
 
BANK CREDIT BILL
WORKING CAPITAL

The CLIENT qualified below issues this Bank Credit Bill to be governed by the terms set forth in the preamble and sections below.

BANK CREDIT BILL NO.
WORKING CAPITAL: 872936441
BRANCH CODE: 403
CLIENT ACCOUNT NUMBER                                                                      0704691
I. BANK
BANCO ABN AMRO REAL S/A, with registered office in São Paulo/SP, at Avenida Paulista 1374 – 3°andar, registered with the Taxpayers’ Registry of the Ministry of Finance under no. CNPJ/MF 33066408/0001-15
II. CLIENT
Corporate name
TIM CELULAR S.A.
CNPJ
004206050/0001-80
Address
AV. GIOVANNI GRONCHI, 7143
City
SÃO PAULO
State
SP
III. JOINT DEBTOR / ENDORSEMENT
1) Corporate Name/Name
 
CNPJ/MF or CPF/MF
Address
 
City
State
2) Corporate Name/Name
 
CNPJ/MF or CPF/MF
Address
 
City
State
3) Corporate Name/Name
 
CNPJ/MF or CPF/MF
Address
 
City
State
IV – SPECIFICATION OF CREDIT OPERATION
1. Amount of loan
R$ 150,000,000.00
2. Date of 1 st installment
10/15/2008
3. Installment amount
(for fixed installments)
ACCORDING TO ATTACHED PAYMENT SCHEDULE
4. Number of installments
6
5. Final payment
04/04/2011
6. Acquisition Fee
R$ 150.00 (paid cash)
7. IOF amount
R$ 2,820,000.00
(  ) financed
(X) cash
(  ) exempted
8. Effective Rate
0% month
0% year
9. Location of payment
RIO DE JANEIRO
10. Interest
(  ) Prefixed: interest equal to Effective Rate
(  ) Post-fixed: interest equal to Effective Rate + TR
(X) Floating rate: interest equal to Effective Rate + 110% CDI
11. Payment terms
(  ) Principal on final payment and monthly interest
(  ) Principal and interest on final payment
(  ) Principal and monthly interest in equal installments
(X) Principal according to attached schedule added with interest incurring on period
V. SPECIFICATION OF GUARANTEE
(  ) Secured transaction of assets described in the document attached , part of this Section
(  ) Conditional Assignment of credit rights or notes described in the document attached , part of this Section
(  ) Pledge of  assets and credit rights or notes described in the document attached , part of this Section
(  ) Mortgage on assets described in the attached mortgage agreement, part of this Section
(  ) Others
[initial]                                           F132624                                           [stamp] TIM Legal Department [initial] 1/7

 
 
 
 
 

 
[watermark – Non-Negotiable]
[logo:] Banco Real ABN AMRO
872936441CCB

PROMISE OF PAYMENT

1. CLIENT issues this Bill and promises to pay to BANK or to its order, the amount indicated in field 1 in table IV in the preamble, added with fess indicated in fields 6, 7, and 10 in table IV in the preamble, at the location and according to payment terms set forth in fields 9 and 11 in table IV in the preamble, at 04:00 pm (Brasilia time) on each payment date of interest or due date, respectively, and under other sections below, acknowledging this debt as net, payable, and enforceable on due dates set forth in this Bill.
1.1.   Amounts corresponding to the Acquisition Fee and IOF should be paid on the acquisition or with the loan installments, as indicated in field 7 in table IV in the preamble.

CREDIT OPERATION

2. This Bill represents the loan operation, to fund CLIENT’s productive activity in the amount indicated in field 1 in table IV in the preamble , by the BANK by means of credit realized, on this date, in CLIENT’s bank account indicated in the preamble.

INTEREST

3. Interest, capitalized daily, will incur on debt balances under the terms in current laws, equivalent to one of the following rates, as indicated in table IV in the preamble:
(a)
Prefixed: equal to Effective Rate in table IV;
(b)
Post-fixed: equal to Effective Rate in table IV, added with TR – Reference Fee variation in the incurrence period; and
(c)
Floating rate: equal to Effective Rate in table IV, added with floating rate corresponding to the percentage indicated in table IV in the preamble  of the CDI rate (average rate for receipt of funds in the Brazilian inter-financial market for operations outside group, named DI-Over, published daily by CETIP – Chamber of Custody and Settlement), accrued in the incurrence period.
3.1. In periods shorter than 30 (thirty) days the “pro rata” criterion (proportional to the number of days) should be used according to current rules.

TAXES AND FEES

4. Additionally to above mentioned interests, CLIENT shall pay:
a)   
Acquisition Fee , in the amount set forth in table IV in the preamble, published at the branches of the BANK or at the BANK website (www.bancoreal.com.br); and
b)   
IOF (Tax over Credit Operations ), in the amount set forth in table IV in the preamble
4.1. The CLIENT is responsible for all taxes, duties, charges and additional costs of any nature, incurring or that may incur over the loan represented in this Bill, including those arising out of changes to rates, calculation basis, or payment terms, being obliged to pay those amounts under the current laws, or reimburse them to the BANK, as the case may be.

EARLY PAYMENT

5. Additionally to circumstances set forth in the law, this Bill shall be automatically and early due, when the entire debt balance shall be immediately payable and enforceable, should the CLIENT and/or the JOINT DEBTORS:
a)  
fail to comply with any pecuniary or non-pecuniary obligation agreed upon hereunder or in the collateral agreements, if any, provided that (a) the pecuniary non-compliance is caused by an error of technical or administrative nature, (b) this amount is paid within five (5) days from the due date, and (c) the non-pecuniary non-compliance continues with no remedy for thirty (30) days from the date when the CLIENT is notified about the non-compliance;
b)  
provide any statement, representation or guarantee made or deemed to be made by the CLIENT under this Bill that is or is found to be incorrect or misleading in any relevant aspect when made or deemed to be made, unless the circumstances originating this false statements are (a) subject to be remedied (b) remedied within thirty days from the date when the CLIENT is notified about the non-compliance;
c)  
failure to comply with any obligation arising out of agreements signed with the BANK or third parties in amounts equal or above R$ 75,000,000.00 (seventy five million reais);
d)  
be subject to enforcement measures against credit notes and/or documents representing debts over R$ 15,000,000.00 (fifteen million reais) for which payment they are responsible, unless the CLIENT proves that the enforcement measure was adopted by error or in bad faith or, also, if the enforcement measure is cancelled within seventy two (72) hours after the BANK is informed.
 
 
  [initial]  F132624 [stamp:] TIM Legal Department [initial]   2/7
 
 
 
[watermark – Non-Negotiable]

[logo] Banco Real ABN AMRO
872936441CCB

e)  
are subject to any judicial or extrajudicial measure that, at BANK’s sole discretion, may affect their ability to comply with obligations agreed upon under this Bill or collateral agreements, if any;
f)  
file for, or any member of the Limited Group files, judicial or extrajudicial recovery, or file for or have bankruptcy procedures requested, including by any member of the Limited Group;
g)  
terminate their activities or are subject to corporate restructure or corporate control directly or indirectly assigned to third parties, without authorization from the BANK;
h)  
acquire companies that are not of the Telecommunications sector;
i)  
hold, or any member of the Limited Group hold, any license or concession that is revoked, cancelled or terminated, that is necessary for their business operations, except for long-distance telecommunication businesses;
j)  
are subject to enforcement measures or collateral enforcement measures against assets of the Limited Group, where the individual accounting value or market value of such assets, whatever higher, exceeds R$ 75,000,000.00 (seventy five million reais) and which is not deemed to be inapplicable or is suspended within thirty (30) days or a judicial measure is issued against the Limited Group under the terms of any bankruptcy, insolvency or  any similar law in effect on this date, or after, except, however, that this circumstance is not applicable to the CLIENT if the process is (i) incoherent or vexing, and is challenged in good faith by duly filed actions; and (ii) deemed to be inapplicable or suspended within sixty (60) days after valid notification of the enforcement measure or if a judicial measure is issued against the Limited Group, under the terms of any bankruptcy, insolvency or  any similar law in effect on this date, or after;
k)  
fail to make, or any member of the Limited Group fails to make, the payment on the due date of any amount due under the terms of an unappealable decision in amount equal or beyond R$ 75,000,000.00 (seventy five million reais);
l)  
sell, offer as collateral to third parties, or create any kind of lien or encumbrance on any of its assets or rights, without prior and express authorization by the BANK, except those related to long distance services;
m)  
are subject, or any member of the Restricted Group is subject, to condemnation, seizure, intervention or expropriation by any governmental authority of the total or significant portion of its assets or income, except for the license and assets related to the provision of long distance telecommunication services;
n)  
fail to maintain their assets, subject to insurance, duly insured against deterioration or perishing;
o)  
are subject to relevant changes to their economic financial status that, at BANK’s sole discretion, may compromise their ability to comply with obligations agreed upon under this Bill or collateral agreements, if any;
p)  
fail to grant to the BANK the same rights and privileges applicable to any other CLIENT’s creditor, present and future, with the same credit rating, thus being treated with equality under all aspects, and CLIENT, when needed, must execute all required documents, including amendments to this Bill, to ensure such equalitarian treatment to the BANK, except those arising   out of funding operations executed with BNDES or security credits.
5.1. BANK is not obliged to release the funds to the CLIENT should any of the above circumstances occur before such release.
For purposes of this Section:
“ Limited Group ” refers to the CLIENT, the JOINT DEBTOR, TIM Participações S.A. and TIM Nordeste S.A.
5.2. Also, in order to ensure that the CLIENT is under financial conditions to pay this debt, the CLIENT agrees upon compliance, during the term of this Bill, with the following financial standards, according to data in its consolidated financial statements for the period:
a)  maximum ratio between “Consolidated Net Debt” (as defined below) and “Consolidated EBITDA” (as defined below) to be calculated annually, starting in June 2008, is 2.0;
b) minimum Interest Cover Ratio of 2.25.

For purposes of this Section, the terms below shall have the following meanings:
“ Loans ” means, at any time, the principal balance, capital or value of any fixed premium or minimum to be paid as early payment or redemption of any debt, related to:
(i)
borrowed cash and debt balances with financial institutions;
(ii)
any amount raised by acceptance according to any credit facility;
(iii)
any amount raised under the terms of any purchase of notes or issuance of obligations, titles, debentures, loans for the purchase of shares or similar notes;

 
  [initial]  F132624 [stamp:] TIM Legal Department [initial]   3/7
 
 
 
[watermark – Non-Negotiable]

[logo:] Banco Real ABN AMRO
872936441CCB

(iv)
the amount of any liability related to any lease or rent and purchase agreement that, according to generally acceptable accounting principles, is deemed as financial lease or lease of property, plant, and equipment;
(v)
receivables sold or discounted (except receivables sold with no right of subrogation);
(vi)
any counter-indemnity obligation related to a guarantee, an indemnity, obligation, standby or document letter of credit or any other instrument issued by a bank or financial institution (except any related to commercial credit under regular course of business);
(vii)
any amounts raised by the issuance of redeemable shares, redeemable at holder’s discretion before August 26, 2005;
(viii)
any amounts of any liability related to an advancement agreement or deferred purchase agreement if one of the main reasons to execute such agreement is to raise funds;
(ix)
any amounts raised in any other transaction (including any forward sale or purchase agreement) with commercial effects as loan; and
(x)
(with no duplicity) any amounts of any liability related to any guarantee or indemnity related to any of the above mentioned items.
“Availability” means, at any time, cash denominated in reais or any other currency freely convertible into reais in the Brazilian inter-bank market and credited into an account on behalf of a member of the TB Group, with a good standing financial institution, where a member of the TB Group is the sole beneficiary, being entitled to have (i) the money reimbursed upon request, (ii) the money reimbursement not subject to the exemption of advanced payment of any debt by any member of the TB Group or any other person, or compliance with any other condition; (iii) no guarantee for such amount, except Permitted Liens guaranteeing Loans; and (iv) this amount free and immediately available to be used to amortization or pre-payment of Loans.
“ Applications in Availability ” means debt notes denominated in reais or any other currency freely convertible into reais in the Brazilian inter-bank market, provided that such debt notes are not convertible in any other security.
“Consolidated EBITDA” means, for any measuring period, consolidated profit of TB Group arising out of activities of such measuring period:
(i)
prior to deduction of any Consolidated Net Financial Debt;
(ii)
prior to consideration of any items classified as extraordinary or exceptional;
(iii)
prior to deduction of any amount of any profit of TB Group that is attributable to any company where the member of TB Group is entitled to minor shareholder’s voting;
(iv)
prior to deduction of any amount attributable to amortization of intangible assets or depreciation of tangible assets.
“Consolidated Net Debt” means at any time the total amount of all obligations of the TB Group, related to Loans, but:
(i)
including, in case of leases, only the then capitalized amount;
(ii)
excluding any obligation before any member of the TB Group;
(iii)
deducting the value of all Availabilities and Applications in Availabilities freely available held by any member of the TB Group at the time, ensuring that no amount is included or excluded more than once.
“Consolidated Net Financial Debt” means for any measuring period, the total amount of accrued interest, commission, fees, discounts, break costs, premiums and other financial payments related to Loans, whether paid, to be paid or capitalized by any member of the TB Group related to such measuring period:
(i)
excluding any obligation before any member of the TB Group;
(ii)
including interest if lease and rent and purchase payments to be paid by any member of the TB Group;
(iii)
including any commission, fee, discount and other payments accrued to be paid by any member of the TB Group under the terms of any interest rate hedge;
(iv)
deducting any commission, fee, discount and other payments due to any member of the TB Group under the terms of any interest rate hedge;
(v)
deducting any interest accrued due by any member of the TB Group on any deposit or bank account; and
(vi)
adding the amount of any dividend in cash or distribution paid or made by the CLIENT related to such measuring period.
“ Subsidiary ” means regarding any party (i) a corporation where more than 50% of outstanding voting shares are held directly or indirectly by one person and/or one or more Subsidiaries of such person, or (ii) any other person (except a corporation) where this person and/or one or more Subsidiaries of such person, directly or indirectly, holds powers to guide policies, management and affairs of such person.
“ Interest Cover Ratio ” means the ratio between (i) EBITDA less the depreciation and amortization in the updated financial statements and (ii) expenses with interest incurred in the same period as the EBITDA, including without limitation, expenses arising out of monetary variation.
“ TB Group ” means TIM Brasil Serviços e Participações SA and its Subsidiaries.

 
  [initial]  F132624 [stamp:] TIM Legal Department [initial]   4/7
 
 

[watermark – Non-Negotiable]
[logo] Banco Real
872936777CCB

5.3. CLIENT hereby agrees upon retaining a well-known audit company and informing the BANK, within 30 days from the execution of this Bill.
5.3.1. The audit service provision should include full analysis of CLIENT’s financial statements with quarterly balance sheets presented in sixty (60) days from the end of each quarter and annual audited balance sheet in ninety (90) days from the end of the fiscal year, as well as checking compliance with financial standards set forth in section 5.2 up to the termination of the operation represented by this Bill.
5.3.2. CLIENT hereby authorizes the BANK, by its representatives or agents, upon notice to the Beneficiary at least twenty four (24) hours in advance, at working time and days, free access to all its premises and accounting records for evaluation of the CLIENT’s economic-financial performance and checking compliance with obligations agreed upon in this Bill.

LATE PAYMENT CHARGES
6. Should there be any delay in the compliance with pecuniary obligations arising out of this Bill, from the date of default to the date of effective payment, due amounts will be subject to (a) 1% (one per cent) monthly interest rate, or pro rata, (b) interest per delay day, calculated according to the interest rate current on the date of payment, used by the Bank in credit operations, published on the BANK website (www.bancoreal.com.br - page Loans – item Interest Rate – Table Default and Fees), and (c) 2% (two per cent fine).

EARLY PAYMENT
7. Should the CLIENT request early payment, as a whole or in part, of this debt, the CLIENT should pay the principal to be amortized added with interest due by the end of the contractual term, discounted the percentage equivalent to the market rate expected for the remaining term at the time of payment.
7.1. The CLIENT agrees upon notifying the BANK, at least one (1) day in advance, should it intend to amortize or pay early the debt balance under this Bill.
 
AUTHORIZATION OF ACCOUNT DEBIT
8. The CLIENT and/or the JOINT DEBTORS authorize the BANK, irrevocably and irretrievably, to debit from their accounts while there are available funds, all the pecuniary obligations, principal and ancillary, arising out of this Bill, including installments due and unpaid, added with late payment charges agreed upon hereunder, where the CLIENT and/or the JOINT DEBTORS agree upon maintaining in their accounts funds sufficient and available to meet such debits.

GUARANTEES
9. In order to ensure compliance with obligations under this Bill the guarantees included in table V in the preamble are constituted in favor of the BANK, in separate documents, which shall be part of this Bill.

JOINT DEBTORS
10. JOINT DEBTORS, co-issuers of this Bill, hereby represent to be jointly responsible with the CLIENT for compliance with all pecuniary obligations, principal and ancillary, set forth in this Bill, and agree upon paying this debt, acknowledged as net, payable and enforceable, under the terms in section 1.

EXPENSES
11. CLIENT shall be responsible for expenses incurred by the BANK with the retention of professional services provided by lawyers and collecting agencies to receive its credits, up to appropriate legal limitations, and CLIENT is equally entitled, should the CLIENT has the need to ask for any amounts owed by the BANK.

WAIVER
12. Waiver by either party for the non-compliance with contractual obligations by the other party shall be deemed as liberality and shall not be deemed as novation, forgiveness or contractual amendment.

ASSIGNMENT PERMISSION
13. The BANK may assign or transfer, as a whole or in part, by any means set forth in the law, including upon issuance of Certificates of Bank Credit Bill, the rights, obligations, and guarantees in this Bill, and for that end, the BANK may provide the assignee with all documents related to the credit, provided that it is previously authorized by the CLIENT.

14. CLIENT may assign or transfer, as a whole or in part, by any means set forth in the law, the rights, obligations, and guarantees in this Bill for TIM Nordeste S/A (should it not be the CLIENT) or Tim Celular S/A (should it not be the CLIENT), upon prior notice top the BANK.

 
  [initial]  F132624 [stamp:] TIM Legal Department [initial]   5/7
 
 
 
[watermark – Non-Negotiable]
[logo:] Banco Real ABN AMRO
872936441CCB

CONSULTATION AND INFORMATION BEFORE THE CENTRAL BANK
15. CLIENT and/or JOINT DEBTORS authorize the BANK to consult and include asset and liability financial information as well as guarantees under its responsibility in the information systems of the Central Bank of Brazil.

SOCIAL ENVIRONMENTAL POLICY
16. CLIENT hereby represents that funds arising out of this Bill should not be destined to any purpose and/or project that may cause social damages and that do not strictly meet legal rules and regulations governing the National Environment Policy.

17. The Parties hereby acknowledge that the CLIENT, its directors, administrators, employees and eventual contractors are subject to compliance with and meeting “Tim’s Code of Ethics” which sets forth that all the business of the CLIENT, including this agreement, should be based upon respect to: (a) the environment, including regarding the disposal of batteries, emission of polluting agents, garbage recycling; (ii) safety and health rules in work sites; (iii) honesty  and transparency with its partners, suppliers, contractors, the market and governmental entities; (iv) interests of the society and the Parties, above individual interests of its employees, representatives, and service providers, who cannot obtain for themselves and other parties, information, opportunities, businesses, advantages, gifts or benefits using the CLIENT’s name and reputation or due to their activities. TIM’s Code of Ethics is available at the website of TIM Participações SA (http://www.timparti.com.br - Area: Corporate Governance, Code of Ethics) and filed at its office and in every one of its establishments, available for public consultations.

VENUE
18. The Parties choose the courts in the city of São Paulo or the domicile of the defendant, at the sole discretion of the Plaintiff of the claim, to solve any conflicts arising out of this Bill.

FINAL TERMS
19. Should any item or section in this Bill be deemed illegal, unenforceable or ineffective for any other reason, all other items and sections should remain in full force and effective. The BANK and the CLIENT hereby agree upon negotiating, as soon as possible, item or section, as the case may be, that replaces the illegal, unenforceable or ineffective item or section. This negotiation should consider the goal of the parties on the date of signature of this agreement as well as the context within which the illegal, unenforceable or ineffective item or section was included.

20. The effects of this Bill shall be retroactive to 04/18/2008.

This Bill is issued in two (2) counterparts, and only one counterpart is negotiable.

RIO DE JANEIRO, June 6, 2008

 
[circular stamp  [illegible] powers granted]
 
[signature]
____________________________
TIM CELULAR SA
[stamp :]
Gianandrea Castelli Rivolta
Finance Administration, and Control Director
[signature]
[stamp:]
Mario Cesar Pereira de Araújo
President
[signature]
_____________________________
[stamp:]
Banco ABN Amro Real SA
[stamp:]
Luiza Helena Grilo
CPF [illegible]
[signature]
[stamp]
José Carlos Lopes
Manager

JOINT DEBTORS:

         
1.       2.
 
 
Name
   
Name 
 
 

         
3.        
 
 
Name
       
 
 
  [initial]  F132624 [stamp:] TIM Legal Department [initial]   6/7
 
 

[logo:] Banco Real ABN AMRO
872936441CCB


ATTACHMENT TO BANK CREDIT BILL NO. 872936441

PAYMENT SCHEDULE


INTEREST INCURRING ON THE PERIOD SHOULD BE PAID WITH EACH INSTALLMENT OF PRINCIPAL

INSTALLMENT
DATE
INSTALLMENT AMOUNT + DUTIES
01
10/15/2008
R$ 1.00
02
04/13/2009
R$ 1.00
03
10/13/2009
R$ 1.00
04
04/08/2010
R$ 1.00
05
10/05/2010
R$ 1.00
06
04/04/2011
R$ 149,999,995.00

[initial]
































  [initial]  F132624 [stamp:] TIM Legal Department [initial]   7/7
 
 
 
[Blank Page]
Exhibit 4.3
 
[handwritten] 2807102 / 1480799

AMENDMENT TO BANK CREDIT BILL – WORKING CAPITAL NO. 87/293677.7

BANK CREDIT BILL NO.
87/293677.7
CLIENT BRANCH/ACCOUNT NUMBER
0403/0.704691 8
I. BANK
BANCO SANTANDER (BRASIL) SA , with registered office in SÃO PAULO/SP, at Avenida Presidente Juscelino Kubitschek, 2041 e 2235, Bloco A, Vila Olímpia, registered with the Taxpayers’ Registry of the Ministry of Finance under no. CNPJ/MF 90400888/0001-42
II. CLIENT
Corporate name
TIM CELULAR S.A.
CNPJ
04206050/0001-80
Address
AV. GIOVANNI GRONCHI, 7143
City/State
SÃO PAULO/SP
III. JOINT DEBTOR / ENDORSEMENT
Corporate Name/Name
INEFFECTIVE
CNPJ/MF or CPF/MF

1. The parties hereby agree that this document amended hereby was extended and the Final Term of this Bill is now 10/16/2012.
2. The parties also agree that the interest rate is now 108.00% ON CDI.
3. Additionally, the financial standards set forth before in section 5.2 are no longer required from the CLIENT from this date and, therefore, this section in the amended bill is consequently cancelled.
4. This agreement does not replace and is not a novation of the debt, and all other sections, conditions and guarantees in the amended Bill are ratified, which this document is inseparable part.
5. All other sections and conditions in the Instrument amended hereby remain unchanged and are hereby ratified, when not expressly amended by this Amendment.

SÃO PAULO, MARCH 3, 2011

[stamp:] Signatures grant powers

[signature]
_______________________________
[stamp:] TIM CELULAR S/A
Marco Chiarucci
Financial Manager
TIM CELULAR S.A.
[signature]
___________________________________
BANCO SANTANDER (BRASIL) SA
[signature]
[stamp:]
Rodrigo G. Galvão
Finances & Treasury
[stamp] [initial]
TIM LEGAL DEPARTMENT
[signature] [stamp:]
Claudio Zezza
CFO and RI Director

 
G87293677725042011
1 of 2
Customer Service: 0800-707-2399 / Ombudsman: 0800-286-8787
 
 
 
 

 
JOINT DEBTOR(S) / ENDORSEMENT(S)
 
SPOUSE AUTHORIZATION
(required for endorsement guarantee):
 
 
____________________________________
INEFFECTIVE
 
 
____________________________________
Name: INEFFECTIVE
CPF:
Marriage regime:
 
 
____________________________________
INEFFECTIVE
 
 
____________________________________
Name: INEFFECTIVE
CPF:
Marriage regime:
 
 
____________________________________
INEFFECTIVE
 
 
____________________________________
Name: INEFFECTIVE
CPF:
Marriage regime:
 
 
____________________________________
INEFFECTIVE
 
 
____________________________________
Name: INEFFECTIVE
CPF:
Marriage regime:

WITNESSES:
1. [signature]
_______________________________________
Name: [stamp:] Yara Cerqueira Assunção Neves
CPF 129751518-88
RG 20595368-1
CPF/MF:
2. [signature]
______________________________
Name:
CPF/MF
[stamp:]
Cristiane Gonçalves Silva
RG. 44495829-0


[stamp] [initial]
TIM LEGAL DEPARTMENT

 

G87293677725042011
2 of 2
Customer Service: 0800-707-2399 / Ombudsman: 0800-286-8787

 
 
 
 
[watermark – Non-Negotiable]
[logo:] Banco Real  ABN AMRO
872936777CCB
BANK CREDIT BILL
WORKING CAPITAL
The CLIENT qualified below issues this Bank Credit Bill to be governed by the terms set forth in the preamble and sections below.
BANK CREDIT BILL NO.
WORKING CAPITAL: 872936777
BRANCH CODE: 403
CLIENT ACCOUNT NUMBER                                    0704691
I. BANK
BANCO ABN AMRO REAL S/A , with registered office in São Paulo/SP, at Avenida Paulista 1374 – 3°andar, registered with the Taxpayers’ Registry of the Ministry of Finance under no. CNPJ/MF 33066408/0001-15
II. CLIENT
Corporate name
TIM CELULAR S.A.
CNPJ
004206050/0001-80
Address
AV. GIOVANNI GRONCHI, 7143
City
SÃO PAULO
State
SP
III. JOINT DEBTOR / ENDORSEMENT
1) Corporate Name/Name
 
CNPJ/MF or CPF/MF
Address
 
City
State
2) Corporate Name/Name
 
CNPJ/MF or CPF/MF
Address
 
City
State
3) Corporate Name/Name
 
CNPJ/MF or CPF/MF
Address
 
City
State
IV – SPECIFICATION OF CREDIT OPERATION
1. Amount of loan
R$ 50,000,000.00
2. Date of 1 st installment
11/4/2008
3. Installment amount
(for fixed installments)
ACCORDING TO ATTACHED PAYMENT SCHEDULE
4. Number of installments
6
5. Final payment
4/25/2011
6. Acquisition Fee
R$ 200.00 (paid cash)
7. IOF amount
R$ 938,249.99
(  ) financed
(X) cash
(  ) exempted
8. Effective Rate
0% month
0% year
9. Location of payment
RIO DE JANEIRO
10. Interest
(  ) Prefixed: interest equal to Effective Rate
(  ) Post-fixed: interest equal to Effective Rate + TR
(X) Floating rate: interest equal to Effective Rate + 109.6% CDI
11. Payment terms
(  ) Principal on final payment and monthly interest
(  ) Principal and interest on final payment
(  ) Principal and monthly interest in equal installments
(X ) Principal according to attached schedule added with interest incurring on period
V. SPECIFICATION OF GUARANTEE
(  ) Secured transaction of assets described in the document attached , part of this Section
(  ) Conditional Assignment of credit rights or notes described in the document attached , part of this Section
(  ) Pledge of  assets and credit rights or notes described in the document attached , part of this Section
(  ) Mortgage on assets described in the attached mortgage agreement, part of this Section
(  ) Others
 
 
[initial]                                           F132624 [stamp:] TIM Legal Department [initial]                       1/7
                                          
 
 
 
 
[watermark – Non-Negotiable]
[logo:] Banco Real ABN AMRO
872936777CCB

PROMISE OF PAYMENT

1. CLIENT issues this Bill and promises to pay to BANK or to its order, the amount indicated in field 1 in table IV in the preamble, added with fess indicated in fields 6, 7, and 10 in table IV in the preamble, at the location and according to payment terms set forth in fields 9 and 11 in table IV in the preamble, at 04:00 pm (Brasilia time) on each payment date of interest or due date, respectively, and under other sections below, acknowledging this debt as net, payable, and enforceable on due dates set forth in this Bill.

1.1.   Amounts corresponding to the Acquisition Fee and IOF should be paid on the acquisition or with the loan installments, as indicated in field 7 in table IV in the preamble.

CREDIT OPERATION

2. This Bill represents the loan operation, to fund CLIENT’s productive activity in the amount indicated in field 1 in table IV in the preamble , by the BANK by means of credit realized, on this date, in CLIENT’s bank account indicated in the preamble.

INTEREST

3. Interest, capitalized daily, will incur on debt balances under the terms in current laws, equivalent to one of the following rates, as indicated in table IV in the preamble:
(a)   
Prefixed : equal to Effective Rate in table IV;
(b)   
Post-fixed : equal to Effective Rate in table IV, added with TR – Reference Fee variation in the incurrence period; and
(c)   
Floating rate : equal to Effective Rate in table IV, added with floating rate corresponding to the percentage indicated in table IV in the preamble  of the CDI rate (average rate for receipt of funds in the Brazilian inter-financial market for operations outside group, named DI-Over, published daily by CETIP – Chamber of Custody and Settlement), accrued in the incurrence period.
3.1. In periods shorter than 30 (thirty) days the “pro rata” criterion (proportional to the number of days) should be used according to current rules.

TAXES AND FEES

4. Additionally to above mentioned interests, CLIENT shall pay:
a)   
Acquisition Fee , in the amount set forth in table IV in the preamble, published at the branches of the BANK or at the BANK website (www.bancoreal.com.br); and
b)   
IOF (Tax over Credit Operations) , in the amount set forth in table IV in the preamble
4.1. The CLIENT is responsible for all taxes, duties, charges and additional costs of any nature, incurring or that may incur over the loan represented in this Bill, including those arising out of changes to rates, calculation basis, or payment terms, being obliged to pay those amounts under the current laws, or reimburse them to the BANK, as the case may be.

EARLY PAYMENT

5. Additionally to circumstances set forth in the law, this Bill shall be automatically and early due, when the entire debt balance shall be immediately payable and enforceable, should the CLIENT and/or the JOINT DEBTORS:
a)  
fail to comply with any pecuniary or non-pecuniary obligation agreed upon hereunder or in the collateral agreements, if any, provided that: (a) the pecuniary non-compliance is caused by an error of technical or administrative nature, (b) this amount is paid within five (5) days from the due date, and (c) the non-pecuniary non-compliance continues with no remedy for thirty (30) days from the date when the CLIENT is notified about the non-compliance;
b)  
provide any statement, representation or guarantee made or deemed to be made by the CLIENT under this Bill that is or is found to be incorrect or misleading in any relevant aspect when made or deemed to be made, unless the circumstances originating this false statements are (a) subject to be remedied (b) remedied within thirty days from the date when the CLIENT is notified about the non-compliance;
c)  
failure to comply with any obligation arising out of agreements signed with the BANK or third parties in amounts equal or above R$ 75,000,000.00 (seventy five million reais);
d)  
be subject to enforcement measures against credit notes and/or documents representing debts over R$ 15,000,000.00 (fifteen million reais) for which payment they are responsible, unless the CLIENT proves that the enforcement measure was adopted by error or in bad faith or, also, if the enforcement measure is cancelled within seventy two (72) hours after the BANK is informed.
 
[initial]                                           F132624 [stamp:] TIM Legal Department [initial]                       2/7
 
 
 
 

 
[watermark – Non-Negotiable]
[logo] Banco Real ABN AMRO
872936777CCB

e)  
are subject to any judicial or extrajudicial measure that, at BANK’s sole discretion, may affect their ability to comply with obligations agreed upon under this Bill or collateral agreements, if any;
f)  
file for, or any member of the Limited Group files, judicial or extrajudicial recovery, or file for or have bankruptcy procedures requested, including by any member of the Limited Group;
g)  
terminate their activities or are subject to corporate restructure or corporate control directly or indirectly assigned to third parties, without authorization from the BANK;
h)  
acquire companies that are not of the Telecommunications sector;
i)  
hold, or any member of the Limited Group hold, any license or concession that is revoked, cancelled or terminated, that is necessary for their business operations, except for long-distance telecommunication businesses;
j)  
are subject to enforcement measures or collateral enforcement measures against assets of the Limited Group, where the individual accounting value or market value of such assets, whatever higher, exceeds R$ 75,000,000.00 (seventy five million reais) and which is not deemed to be inapplicable or is suspended within thirty (30) days or a judicial measure is issued against the Limited Group under the terms of any bankruptcy, insolvency or  any similar law in effect on this date, or after, except, however, that this circumstance is not applicable to the CLIENT if the process is (i) incoherent or vexing, and is challenged in good faith by duly filed actions; and (ii) deemed to be inapplicable or suspended within sixty (60) days after valid notification of the enforcement measure or if a judicial measure is issued against the Limited Group, under the terms of any bankruptcy, insolvency or  any similar law in effect on this date, or after;
k)  
fail to make, or any member of the Limited Group fails to make, the payment on the due date of any amount due under the terms of an unappealable decision in amount equal or beyond R$ 75,000,000.00 (seventy five million reais);
l)  
sell, offer as collateral to third parties, or create any kind of lien or encumbrance on any of its assets or rights, without prior and express authorization by the BANK, except those related to long distance services;
m)  
are subject, or any member of the Restricted Group is subject, to condemnation, seizure, intervention or expropriation by any governmental authority of the total or significant portion of its assets or income, except for the license and assets related to the provision of long distance telecommunication services;
n)  
fail to maintain their assets, subject to insurance, duly insured against deterioration or perishing;
o)  
are subject to relevant changes to their economic financial status that, at BANK’s sole discretion, may compromise their ability to comply with obligations agreed upon under this Bill or collateral agreements, if any;
p)  
fail to grant to the BANK the same rights and privileges applicable to any other CLIENT’s creditor, present and future, with the same credit rating, thus being treated with equality under all aspects, and CLIENT, when needed, must execute all required documents, including amendments to this Bill, to ensure such equalitarian treatment to the BANK, except those arising   out of funding operations executed with BNDES or security credits.

5.1. BANK is not obliged to release the funds to the CLIENT should any of the above circumstances occur before such release.
For purposes of this Section:
“ Limited Group ” refers to the CLIENT, the JOINT DEBTOR, TIM Participações S.A. and TIM Nordeste S.A.

5.2. Also, in order to ensure that the CLIENT is under financial conditions to pay this debt, the CLIENT agrees upon compliance, during the term of this Bill, with the following financial standards, according to data in its consolidated financial statements for the period:
a)  maximum ratio between “Consolidated Net Debt” (as defined below) and “Consolidated EBITDA” (as defined below) to be calculated annually, starting in June 2008, is 2.0;
b) minimum Interest Cover Ratio of 2.25.

For purposes of this Section, the terms below shall have the following meanings:
“ Loans ” means, at any time, the principal balance, capital or value of any fixed premium or minimum to be paid as early payment or redemption of any debt, related to:
(i)   borrowed cash and debt balances with financial institutions;
(ii)   any amount raised by acceptance according to any credit facility;
(iii)   any amount raised under the terms of any purchase of notes or issuance of obligations, titles, debentures, loans for the purchase of shares or similar notes;
 
 
[initial]                                           F132624 [stamp:] TIM Legal Department [initial]                       3/7
 
 
 
 

 
[watermark – Non-Negotiable]

[logo:] Banco Real ABN AMRO
872936777CCB

 
(iv)  
the amount of any liability related to any lease or rent and purchase agreement that, according to generally acceptable accounting principles, is deemed as financial lease or lease of property, plant, and equipment;
 
(v)  
receivables sold or discounted (except receivables sold with no right of subrogation);
 
(vi)  
any counter-indemnity obligation related to a guarantee, an indemnity, obligation, standby or document letter of credit or any other instrument issued by a bank or financial institution (except any related to commercial credit under regular course of business);
 
(vii)  
any amounts raised by the issuance of redeemable shares, redeemable at holder’s discretion before August 26, 2005;
 
(viii)  
any amounts of any liability related to an advancement agreement or deferred purchase agreement if one of the main reasons to execute such agreement is to raise funds;
 
(ix)  
any amounts raised in any other transaction (including any forward sale or purchase agreement) with commercial effects as loan; and
 
(x)  
(with no duplicity) any amounts of any liability related to any guarantee or indemnity related to any of the above mentioned items.

“Availability” means, at any time, cash denominated in reais or any other currency freely convertible into reais in the Brazilian inter-bank market and credited into an account on behalf of a member of the TB Group, with a good standing financial institution, where a member of the TB Group is the sole beneficiary, being entitled to have (i) the money reimbursed upon request, (ii) the money reimbursement not subject to the exemption of advanced payment of any debt by any member of the TB Group or any other person, or compliance with any other condition; (iii) no guarantee for such amount, except Permitted Liens guaranteeing Loans; and (iv) this amount free and immediately available to be used to amortization or pre-payment of Loans.

“ Applications in Availability ” means debt notes denominated in reais or any other currency freely convertible into reais in the Brazilian inter-bank market, provided that such debt notes are not convertible in any other security.

“ Consolidated EBITDA ” means, for any measuring period, consolidated profit of TB Group arising out of activities of such measuring period:
 
(i)  
prior to deduction of any Consolidated Net Financial Debt;
 
(ii)  
prior to consideration of any items classified as extraordinary or exceptional;
 
(iii)  
prior to deduction of any amount of any profit of TB Group that is attributable to any company where the member of TB Group is entitled to minor shareholder’s voting;
 
(iv)  
prior to deduction of any amount attributable to amortization of intangible assets or depreciation of tangible assets.
“ Consolidated Net Debt ” means at any time the total amount of all obligations of the TB Group, related to Loans, but:
 
(i)  
including, in case of leases, only the then capitalized amount;
 
(ii)  
excluding any obligation before any member of the TB Group;
 
(iii)  
deducting the value of all Availabilities and Applications in Availabilities freely available held by any member of the TB Group at the time, ensuring that no amount is included or excluded more than once.
“Consolidated Net Financial Debt ” means for any measuring period, the total amount of accrued interest, commission, fees, discounts, break costs, premiums and other financial payments related to Loans, whether paid, to be paid or capitalized by any member of the TB Group related to such measuring period:
 
(i)  
excluding any obligation before any member of the TB Group;
 
(ii)  
including interest if lease and rent and purchase payments to be paid by any member of the TB Group;
 
(iii)  
including any commission, fee, discount and other payments accrued to be paid by any member of the TB Group under the terms of any interest rate hedge;
 
(iv)  
deducting any commission, fee, discount and other payments due to any member of the TB Group under the terms of any interest rate hedge;
 
(v)  
deducting any interest accrued due by any member of the TB Group on any deposit or bank account; and
 
(vi)  
adding the amount of any dividend in cash or distribution paid or made by the CLIENT related to such measuring period.
“ Subsidiary ” means regarding any party (i) a corporation where more than 50% of outstanding voting shares are held directly or indirectly by one person and/or one or more Subsidiaries of such person, or (ii) any other person (except a corporation) where this person and/or one or more Subsidiaries of such person, directly or indirectly, holds powers to guide policies, management and affairs of such person.
“ Interest Cover Ratio ” means the ratio between (i) EBITDA less the depreciation and amortization in the updated financial statements and (ii) expenses with interest incurred in the same period as the EBITDA, including without limitation, expenses arising out of monetary variation.
“ TB Group ” means TIM Brasil Serviços e Participações SA and its Subsidiaries.
 
[initial]                                           F132624 [stamp:] TIM Legal Department [initial]                       4/7
 
 
 
 
 
[watermark – Non-Negotiable]

[logo:] Banco Real ABN AMRO
872936777CCB

5.3. CLIENT hereby agrees upon retaining a well-known audit company and informing the BANK, within 30 days from the execution of this Bill.
5.3.1. The audit service provision should include full analysis of CLIENT’s financial statements with quarterly balance sheets presented in sixty (60) days from the end of each quarter and annual audited balance sheet in ninety (90) days from the end of the fiscal year, as well as checking compliance with financial standards set forth in section 5.2 up to the termination of the operation represented by this Bill.

5.3.2. CLIENT hereby authorizes the BANK, by its representatives or agents, upon notice to the Beneficiary at least twenty four (24) hours in advance, at working time and days, free access to all its premises and accounting records for evaluation of the CLIENT’s economic-financial performance and checking compliance with obligations agreed upon in this Bill.

LATE PAYMENT CHARGES
6. Should there be any delay in the compliance with pecuniary obligations arising out of this Bill, from the date of default to the date of effective payment, due amounts will be subject to (a) 1% (one per cent) monthly interest rate, or pro rata, (b) interest per delay day, calculated according to the interest rate current on the date of payment, used by the Bank in credit operations, published on the BANK website (www.bancoreal.com.br - page Loans – item Interest Rate – Table Default and Fees), and (c) 2% (two per cent fine).

EARLY PAYMENT
7. Should the CLIENT request early payment, as a whole or in part, of this debt, the CLIENT should pay the principal to be amortized added with interest due by the end of the contractual term, discounted the percentage equivalent to the market rate expected for the remaining term at the time of payment.
7.1. The CLIENT agrees upon notifying the BANK, at least one (1) day in advance, should it intend to amortize or pay early the debt balance under this Bill.

AUTHORIZATION OF ACCOUNT DEBIT
8. The CLIENT and/or the JOINT DEBTORS authorize the BANK, irrevocably and irretrievably, to debit from their accounts while there are available funds, all the pecuniary obligations, principal and ancillary, arising out of this Bill, including installments due and unpaid, added with late payment charges agreed upon hereunder, where the CLIENT and/or the JOINT DEBTORS agree upon maintaining in their accounts funds sufficient and available to meet such debits.

GUARANTEES
9. In order to ensure compliance with obligations under this Bill the guarantees included in table V in the preamble are constituted in favor of the BANK, in separate documents, which shall be part of this Bill.

JOINT DEBTORS
10. JOINT DEBTORS, co-issuers of this Bill, hereby represent to be jointly responsible with the CLIENT for compliance with all pecuniary obligations, principal and ancillary, set forth in this Bill, and agree upon paying this debt, acknowledged as net, payable and enforceable, under the terms in section 1.

EXPENSES
11. CLIENT shall be responsible for expenses incurred by the BANK with the retention of professional services provided by lawyers and collecting agencies to receive its credits, up to appropriate legal limitations, and CLIENT is equally entitled, should the CLIENT has the need to ask for any amounts owed by the BANK.

WAIVER
12. Waiver by either party for the non-compliance with contractual obligations by the other party shall be deemed as liberality and shall not be deemed as novation, forgiveness or contractual amendment.

ASSIGNMENT PERMISSION
13. The BANK may assign or transfer, as a whole or in part, by any means set forth in the law, including upon issuance of Certificates of Bank Credit Bill, the rights, obligations, and guarantees in this Bill, and for that end, the BANK may provide the assignee with all documents related to the credit, provided that it is previously authorized by the CLIENT.

14. CLIENT may assign or transfer, as a whole or in part, by any means set forth in the law, the rights, obligations, and guarantees in this Bill for TIM Nordeste S/A (should it not be the CLIENT) or Tim Celular S/A (should it not be the CLIENT), upon prior notice top the BANK.
 
[initial]                                           F132624 [stamp:] TIM Legal Department [initial]                       5/7
 
 
 
 
 
[watermark – Non-Negotiable]

[logo] Banco Real ABN AMRO
872936777CCB


CONSULTATION AND INFORMATION BEFORE THE CENTRAL BANK
15. CLIENT and/or JOINT DEBTORS authorize the BANK to consult and include asset and liability financial information as well as guarantees under its responsibility in the information systems of the Central Bank of Brazil.

SOCIAL ENVIRONMENTAL POLICY
16. CLIENT hereby represents that funds arising out of this Bill should not be destined to any purpose and/or project that may cause social damages and that do not strictly meet legal rules and regulations governing the National Environment Policy.

17. The Parties hereby acknowledge that the CLIENT, its directors, administrators, employees and eventual contractors are subject to compliance with and meeting “Tim’s Code of Ethics” which sets forth that all the business of the CLIENT, including this agreement, should be based upon respect to: (a) the environment, including regarding the disposal of batteries, emission of polluting agents, garbage recycling; (ii) safety and health rules in work sites; (iii) honesty  and transparency with its partners, suppliers, contractors, the market and governmental entities; (iv) interests of the society and the Parties, above individual interests of its employees, representatives, and service providers, who cannot obtain for themselves and other parties, information, opportunities, businesses, advantages, gifts or benefits using the CLIENT’s name and reputation or due to their activities. TIM’s Code of Ethics is available at the website of TIM Participações SA (http://www.timparti.com.br - Area: Corporate Governance, Code of Ethics) and filed at its office and in every one of its establishments, available for public consultations.
 
VENUE
18. The Parties choose the courts in the city of São Paulo or the domicile of the defendant, at the sole discretion of the Plaintiff of the claim, to solve any conflicts arising out of this Bill.

FINAL TERMS
19. Should any item or section in this Bill be deemed illegal, unenforceable or ineffective for any other reason, all other items and sections should remain in full force and effective. The BANK and the CLIENT hereby agree upon negotiating, as soon as possible, item or section, as the case may be, that replaces the illegal, unenforceable or ineffective item or section. This negotiation should consider the goal of the parties on the date of signature of this agreement as well as the context within which the illegal, unenforceable or ineffective item or section was included.

20. The effects of this Bill shall be retroactive to 5/8/2008.

This Bill is issued in two (2) counterparts, and only one counterpart is negotiable.

RIO DE JANEIRO, June 6, 2008

 
[circular stamp  NDS DAMARES  [illegible] powers granted]
 
[signature]
_____________________________
Gianandrea Castelli Rivolta
TIM CELULAR SA
[stamp :]
Finance Administration, and Control Director
[signature]
[stamp:]
Mario Cesar Pereira de Araújo
President
[signature]
___________________________
[stamp:]
Banco ABN Amro Real SA
[stamp]
Luiza Helena Grilo
CPF [illegible]
[signature]
[stamp:]
José Carlos Lopes
Manager

JOINT DEBTORS:

 
1. __________________________________    2. __________________________________  
Name:        Name:  
       
3. __________________________________
     
Name:
     
 
 
[initial]                                           F132624 [stamp:] TIM Legal Department [initial]                       6/7
 
 
 
 
 
[logo:] Banco Real ABN AMRO
872936777CCB


ATTACHMENT TO BANK CREDIT BILL NO. 872936777

PAYMENT SCHEDULE


INTEREST INCURRING ON THE PERIOD SHOULD BE PAID WITH EACH INSTALLMENT OF PRINCIPAL

INSTALLMENT
DATE
INSTALLMENT AMOUNT + DUTIES
01
11/04/2008
R$ 1.00
02
05/04/2009
R$ 1.00
03
11/03/2009
R$ 1.00
04
05/03/2010
R$ 1.00
05
11/01/2010
R$ 1.00
06
04/25/2011
R$ 49,999,995.00

[initial]


 





[initial]                                           F132624 [stamp:] TIM Legal Department [initial]                       7/7
 
 
 
 
 
[Blank Page]
 
 
 
 
 
 

Exhibit 4.4

Fl N o 31670
Serapis N o 2010-0466


















TIM MOBILE BROADBAND NETWORK (Brazil)

(Own Resources- Guaranteed Facility)


Finance Contract


between the


European Investment Bank


and


Tim Celular S.A.


Luxembourg, 29 th December  2011
Rome, 29 th December  2011
 
 
 
 
INTERPRETATION AND DEFINITION
8
     
ARTICLE 1 CREDIT AND DISBURSEMENTS
15
     
1.01
AMOUNT OF CREDIT
15
1.02
DISBURSEMENT PROCEDURE
15
1.02A
TRANCHES
15
1.02B
DISBURSEMENT REQUEST
16
1.02C
DISBURSEMENT NOTICE
16
1.02D
Disbursement Procedure  for BRL-Linked Tranches
17
     
1.02E
DISBURSEMENT ACCOUNT
18
1.03
CURRENCY OF DISBURSEMENT
18
1.04
CONDITIONS  OF DISBURSEMENT
18
1.04A
FIRST TRANCHE
18
1.04B
ALL TRANCHES
19
1.05
DEFERMENT OF DISBURSEMENT
20
1.05A
GROUNDS FOR DEFERMENT
20
1.05B
DEFERMENT INDEMNITY
21
1.05C
SWAP INDEMNITY
21
1.05D
CANCELLATION OF A DISBURSEMENT DEFERRED BY 6 (SIX) MONTHS
21
1.06
CANCELLATION AND SUSPENSION
22
1.06A
BORROWER’S RIGHT TO CANCEL
22
1.06B
BANK’S RIGHT TO SUSPEND AND CANCEL
22
1.06C
INDEMNITY FOR SUSPENSION AND CANCELLATION OF TRANCHE
22
1.06C(1)
SUSPENSION
22
1.06C(2)
CANCELLATION
22
1.07
CANCELLATION AFTER EXPIRY OF THE CREDIT
23
1.08
SUMS DUE UNDER ARTICLE 1
23
     
ARTICLE 2 THE LOAN
  23
     
2.01
AMOUNT OF LOAN
23
2.02
CURRENCY OF REPAYMENT, INTEREST AND OTHER CHARGES
23
2.03
CONFIRMATION BY THE BANK
23
     
ARTICLE 3  INTEREST
24
     
3.01
RATE OF INTEREST
24
3.01A
FIXED RATE TRANCHES
24
3.01B
FLOATING RATE TRANCHES
24
3.02
INTEREST ON OVERDUE SUMS
24
3.03
MARKET DISRUPTION EVENT
25
     
ARTICLE 4 REPAYMENT
25
 
   
4.01
NORMAL REPAYMENT
25
4.01A
REPAYMENT BY INSTALMENTS
25
4.01B
SINGLE INSTALMENT
26
4.02
VOLUNTARY PREPAYMENT
26
4.02A
PREPAYMENT OPTION
26
4.02B
PREPAYMENT INDEMNITY
26
4.02B(1)
FIXED RATE TRANCHE
26
4.02B(2)
FLOATING RATE TRANCHE
26
4.02C
PREPAYMENT MECHANICS
26
4.02D
PREPAYMENT MECHANICS OF A BRL-LINKED TRANCHE
27
4.03
COMPULSORY PREPAYMENT
27
4.03A
GROUNDS FOR PREPAYMENT
27
4.03A(1)
PROJECT COST REDUCTION
27
4.03A(2)
PARI PASSU TO NON-EIB FINANCING
27
4.03A(3)
CHANGE OF CONTROL
28
4.03A(4)
CHANGE OF LAW
29
4.03A(5)
MODIFICATION/LOSS-OF-LICENCE EVENT
29
 
 
2
 
 
4.03A(6)
MERGER
30
4.03A(7)
ILLEGALITY
30
4.03A(8)
MATERIAL ADVERSE CHANGE
31
4.038
PREPAYMENT MECHANICS
31
4.03C
PREPAYMENT INDEMNITY
31
4.04
GENERAL
31
     
ARTICLE 5 PAYMENTS
31
     
5.01
DAY COUNT CONVENTION
31
5.02
TIME AND PLACE OF PAYMENT
32
5.03
SET-OFF
32
5.04
DISRUPTION TO PAYMENT SYSTEMS
32
5.05
EXCEPTIONAL PAYMENT BY MEANS OF SUBSTITUTE FINANCIAL ASSET
33
A.
DEFINITIONS
33
B.
PROCEDURES IN CASE OF POTENTIAL NTC EVENT OR NTC EVENT
34
C.
THE BANK’S DETERMINATION OF NTC EVENT
34
     
ARTICLE 6 BORROWER UNDERTAKINGS AND REPRESENTATION
35
     
6.01
USE OF LOAN AND AVAILABILITY Of OTHER FUNDS
35
6.03
INCREASED COST OF PROJECT
36
6.04
PROCUREMENT PROCEDURE
36
6.05
CONTINUING PROJECT UNDERTAKINGS
36
6.06
DISPOSAL OF ASSETS
37
6.07
COMPLIANCE WITH LAWS
37
6.08
CHANGE IN BUSINESS
37
6.09
GENERAL REPRESENTATIONS AND WARRANTIES
37
6.10
AUDITING OF FINANCIAL STATEMENTS
39
6.11
BORROWER’S DECLARATION
39
6.12
INTEGRITY COMMITMENT
39
     
ARTICLE 7 SECURITY
40
     
7.01
TIMP GUARANTEE
40
7.02
GUARANTEE AND INDEMNITY
40
7.03
OTHER COLLATERAL AND SUBSTITUTION OF GUARANTOR
41
7.038
GUARANTOR DEFAULT EVENT
41
7.04
NEGATIVE PLEDGE
42
7.05
PARI PASSU RANKING
42
     
ARTICLE 8 INFORMATION AND VISITS
43
     
8.01
INFORMATION CONCERNING THE PROJECT
43
8.02
INFORMATION CONCERNING THE BORROWER AND TIMP
43
8.03
VISITS BY THE BANK
44
8.04
INFORMATION ON ORIGINATING EVENTS
45
8.05
INVESTIGATIONS AND INFORMATION
45
     
ARTICLE 9 CHARGES AND EXPENSES
45
     
9.01
TAXES, DUTIES AND FEES
45
9.02
OTHER CHARGES
45
     
ARTICLE 10 EVENTS OF DEFAULT
46
     
10.01
RIGHT TO DEMAND REPAYMENT
46
10.01A
IMMEDIATE DEMAND
46
10.01B
DEMAND AFTER NOTICE TO REMEDY
47
10.02
OTHER RIGHTS AT LAW
47
10.03
INDEMNITY
47
10.03A
FIXED RATE TRANCHES
47
10.03B
FLOATING RATE TRANCHES
48
10.03C
GENERAL
48
10.04
NON-WAIVER
48
10.05
APPLICATION OF SUMS RECEIVED
48
 
 
3
 
 
ARTICLE 11 LAW AND JURISDICTION   48
     
11.01
GOVERNING LAW
48
11.02
JURISDICTION
48
11.03
AGENT OF SERVICE
49
11.04
EVIDENCE OF SUMS DUE
49
     
ARTICLE 12 FINAL CLAUSES
  49
     
12.01
NOTICES TO EITHER PARTY
49
12.02
FORM OF NOTICE
49
12.03
COMPLETE AGREEMENT
50
12.04
PARTIAL INVALIDITY
50
12.05
THIRD PARTY RIGHTS
50
12.06
COUNTERPARTS
50
12.07
RECITALS, SCHEDULES AND ANNEXES
50
12.08
PLACE OF PAYMENT
51
 
SCHEDULE A
52
   
PROJECT SPECIFICATION AND REPORTING
52
   
A.1 TECHNICAL DESCRIPTION (ARTICLE 6.02)
52
A.2 INFORMATION DUTIES UNDER ARTICLE 8.01(A)
52
   
APPENDIX A.2
53
   
PROJECT INFORMATION TO BE SENT TO THE BANK AND METHOD OF TRANSMISSION
53
 
 
SCHEDULE B
55
   
DEFINITIONS OF EURIBOR AND LIBOR
55
   
SCHEDULE C
57
   
C.1 FORM OF DISBURSEMENT REQUEST (ARTICLE 1.02B)
57
C.2 FORM OF CERTIFICATE FROM BORROWER (ARTICLE 1.04b)
59
   
SCHEDULE D
60
   
D.1 FORM OF DISBURSEMENT REQUEST(ARTICLE 1.02D)
60
   
SCHEDULE D
62
   
D.2 FORM OF DISBURSEMENT  NOTICE FOR BRL-LINKED TRANCHES (ARTICLE 1.02D)
  62
 
 
4
 
 
THIS CONTRACT  IS MADE BETWEEN:




 
The European Investment Bank having its seat at 100 blvd Konrad Adenauer, Luxembourg, L-2950 Luxembourg, represented by  Mr. Patrick Walsh, Director. and Mr. Richard Amor, Legal Counsel
 
 (the “Bank”)




of the first part, and



 
Tim Celular S.A., a company incorporated in Brazil, having its registered office at  Avenida Giovanni Gronchi , 7143  Vila   Andrade, São Paulo, SP (CEP 05724-006) represented by Mr. Francesco Mancini and Mr. Stefano D’Ovidio
 
(the “Borrower”)
 
 



of the second part.
 
5
 
 
WHEREAS:

(1)
The Borrower has stated that it is undertaking  an investment  programme  for the geographical coverage expansion and capacity increase of its GSM and UMTS mobile broadband networks in Brazil, as more particularly described in the technical description (the “Technical Description”) set out in Schedule A (the “Project”).

(2)
The Borrower is a company established in, and having its principal place of business in, Brazil and ultimately controlled by Telecom Italia SpA. At present, the Borrower provides cellular telecommunications services in Brazil, in seventeen (26) States and the in Federal District pursuant to licences granted by Agencia Nacional de Telecomunicações (“Anatel).

(3)
The total cost of the Project is estimated by the Bank to be approximately  EUR 1014 000 000 (one billion and fourteen million euros) and the Borrower has stated that it intends to finance the Project as follows:
 
 
Source
 
Amount (M EUR)
     
Own funds
 
761
     
Term financing provided by Banco Nacional de Desenvolvimento Economico   e  Social  - BNDES
 
153.0
     
Credit from the Bank
 
100
     
     
     
     
TOTAL
 
  1014.0


(4)
In order to complete the financing, the Borrower, pursuant to the Asia and Latin America (1/2/2007-3112/2013) Mandate IV and the framework agreement signed between the  Federative Republic of Brazil and the Bank on 19 th December 1994 and ratified by  Decreto Legislative N o 85 of 30 May and Decreto Legislative N o 1609 of 28 August, both 1995, the “Framework Agreement”) has requested from the Bank a loan to be made from the Bank’s own resources in an amount of EUR 200 000 000 (two hundred million euros).

(5)
Pursuant to the Framework Agreement, the Government of Brazil has acknowledged by letter dated 15 October 2010 that the financing granted under this finance contract (this “Contract”) falls within the scope of application of the Framework Agreement.

(6)
The Bank, being satisfied that the financing of the Project falls within the scope of its functions and conforms to the aims of the Framework Agreement and having regard to the matters recited above, has decided to give effect to the Borrower’s request by granting to the Borrower a credit in an amount of EUR 100 000 000 (one hundred million euros) under this Contract; for the avoidance of doubt it is noted that the Bank considered the Borrower’s request for a loan of EUR 200 000 000 (two hundred million euros) but taking into account the amount of project expenditure expected to be incurred during the availability period, the Parties agreed to a loan in the amount of EUR 100 000 000 (one hundred million euros).
 
 
6
 

 
(7)
The financial obligations of the Borrower hereunder are to be guaranteed by means of a guarantee and indemnity agreement  in respect of the Credit in form and substance satisfactory to the Bank (the “Guarantee” or the “Guarantee Agreement”) provided by a guarantor or guarantors acceptable to the Bank (each a “Guarantor”). Each Guarantor shall be a Qualifying Guarantor (as defined in Article 7.01).

(8)
TIM Participaçõoes S.A (“TIMP”), the Brazilian parent company of the Borrower, has agreed  to execute a guarantee  and indemnity  agreement, in form and substance satisfactory to the Bank, whereby it undertakes to further guarantee and indemnify the Bank for the financial obligations of the Borrower (the “TIMP Guarantee ).

(9)
According to Council/EP Decision 633/2009 on granting a Community guarantee to the Bank against all losses under loans and loan guarantees for projects  outside the Community, in the event of non-payment, the Community, by a guarantee, covers all payments not received by the Bank and due to it in relation to the Bank’s financing operations entered into with, inter alia, the Borrower (the “EC Guarantee”).

(10)
The Board of Directors of the Borrower has authorised the entry into this Contract and the undersigned has/have been duly authorised to execute this Contract on its behalf in the terms of Annex 1.

(11)
The Statute of the Bank provides that the Bank shall ensure that its funds are used as rationally as possible in the interests of the European Community; and, accordingly, the terms and conditions of the Bank’s loan operations must be consistent with relevant European  Community policies. In accordance  with  the  Recommendations of  the Financial Action Task Force, as established within the Organisation for Economic Cooperation and Development, the Bank gives special attention to its transactions and its business relations in those cases where it provides finance (a) for a project located in a country that does not sufficiently apply those recommendations or (b) for a borrower or beneficiary resident in any such country.

(12)
The Bank considers that access to information plays an essential role in the reduction of environmental and social risks, including human rights violations, linked to the projects it finances. The Bank has therefore established its Transparency policy, the purpose of which is to enhance the accountability of the EIB Group towards its stakeholders and the EU citizens in general, by giving access to the information that will enable them to understand its governance, strategy, policies, activities and practices.
 
 
7
 
 
NOW THEREFORE it is hereby agreed as follows:

INTERPRETATION AND DEFINITIONS
(a)
Interpretation
 
(i)
References in this Contract to Articles, Recitals, Schedules and Annexes are, save if explicitly stipulated otherwise, references respectively to articles of, and recitals, schedules and annexes to this Contract.
 
 
 (ii)
References in this Contract to a provision of law is a reference to that provision in full force and effect as amended from time to time or re-enacted.
 
 
 (iii)
References in this Contract to any other agreement or instrument is a reference to that other agreement or instrument in full force and effect as amended from time to time, novated, supplemented, extended or restated.
 
(b)
Definitions
 
 
In this Contract:
 
 
“Acceptance Deadline” for a notice means:
 
 
(a)
16h00 Luxembourg time on the day of delivery, if the notice is delivered by 14h00 Luxembourg time on a Business Day; or
 
 
(b)
11h00 Luxembourg time on the next following day which is a Business Day, if the notice is delivered after 14h00 Luxembourg time on any such day or is delivered on a day which is not a Business Day.
 
 
“Additional Prepayment Amount” means the greater of zero and the Swap Unwind Amount. “BLT Disbursement Request” has the meaning attributed to it in Article 1.02D1.
 
 
“Brazil” means the Federative Republic of Brazil.
 
 
“BRL-Linked Tranche” has the meaning attributed to it in Article 1.02D1.
 
 
“BRL Redeployment Rate” means the floating rate, expressed as three-month LIBOR USD plus a spread in effect on the Prepayment Date on the basis of which the Bank would make an offer to a borrower established in the country in which the Borrower is established for a USD loan having the same terms for the payment of interest and the same repayment profile to Maturity Date as the Prepayment Amount, less 15 basis points (0.15%).
 
 
“Business Day” means a day (other than a Saturday or Sunday) on which the Bank and commercial banks are open for general business in Luxembourg.
 
 
“Change-of-Control Event” has the meaning given to it in Article 4.03A(3).
 
 
“Change-of-law Event” has the meaning given to it in Article 4.03A(4).
 
 
“Contract has the meaning given to it in Recital (5).
 
 
“Credit” has the meaning given to it in Article 1.01.
 
 
“Credit Rating” means any of the following ratings as assigned by a Rating Agency in respect of any Guarantor:
 
 
(a)
the rating assigned to a Guarantor’s most recent unsecured and unsubordinated medium or long term debt;
 
 
(b)
the Long Term Issuer Credit Rating (or equivalent) defined as such by Standard and Poor’s Rating Group or its successor;
 
 
(c)
the Corporate Credit Rating (or equivalent) defined as such by Standard and Poor’s Rating Group or its successor;
 
 
8
 
 
 
(d)
the Long Term Issuer Default Rating (or equivalent) defined as such by Fitch Ratings Limited or its successor;
 
 
(e)
the Long Term Issuer Rating (or equivalent) defined as such by Moody’s Investor Services, Inc. or its successor; or
 
 
(f)
the long Term Foreign Currency Deposit Rating (or equivalent) defined as such by Moody’s Investor Services, Inc. or its successor;
 
 
in each of the cases (b) to (f) above the terms defined shall be deemed to refer to any equivalent term irrespective of the definition given to it) and excludes any rating qualified by the terms “National Scale”, “NSR”, “Local”, “Local Currency”, “Domestic” or “Domestic Currency”.
 
 
“Disbursement Notice” means a notice from the Bank to the Borrower pursuant to and in accordance with Article 1.02C.
 
 
“Disbursement Request” means a notice substantially in the form set out in Schedule C.1.
 
 
“Disruption Event” means either or both of:
 
 
(a)
a material disruption to those payment or communications systems or to those financial markets which are, in each case. required to operate in order for payments to be made in connection with this Contract; or
 
 
(b)
the occurrence of any other event which results in a disruption (of a technical or systems related nature) to the treasury or payments operations of either the Bank or the Borrower, preventing that party:
 
 
(i)
from performing its payment obligations under this Contract; or
 
 
(ii)
from communicating with other parties,
 
and which disruption (in either such case as per (a) or (b) above) is not caused by, and is beyond the control of. the party whose operations are disrupted.
 
“Eligible Swap Counterparty” means a dealer in swaps with whom the Bank has a valid swap master agreement in place (including such collateral agreements and credit support documents as may be required under the Bank’s credit policies) and with whom the Bank is prepared to transact.
 
“Environment” means the following, in so far as they affect human health and social well being:
 
 
(a)
fauna and flora;
 
 
(b)
soil, water, air, climate and the landscape; and
 
 
(c)
cultural heritage and the built environment,
 
and includes, without limitation. occupational and community health and safety matters and working conditions
 
“Environmental Approval» means any permit, licence, authorisation, consent or other approval required by Environmental Law.
 
“Environmental Claim” means any claim, proceeding, formal notice or investigation by any person in respect of any Environmental Law.
 
“Environmental Law” means:
 
 
(a) 
EU law, standards and principles as specified by the Bank before the date of this Contract;
 
 
(b) 
laws and regulations of Brazil; and
 
 
(c) 
applicable international treaties,
 
 
9
 
 
of which a principal objective is the preservation, protection or improvement of the Environment (including international guidelines regarding electromagnetic field radiation such as established by ICNIRP, International Commission on Non-Ionising Radiation Protection).
 
“EURIBOR” has the meaning given to it in Schedule B.
 
“Final Availability Date means the date falling 6 (six) months after the date of signature of this Contract.
 
“Fixed Rate” means an annual interest rate determined by the Bank in accordance with the applicable principles from time to time laid down by the governing bodies of the Bank for loans made at a fixed rate of interest, denominated in the currency of the Tranche and bearing equivalent terms for the repayment of capital and the payment of interest.
 
“Fixed Rate Tranche” means a Tranche on which Fixed Rate is applied.
 
“Floating Rate” means a fixed-spread floating interest rate, that is to say an annual interest rate equal to the Relevant Interbank Rate plus or minus the Spread, determined by the Bank for each successive Floating Rate Reference Period.
 
“Floating Rate Reference Period” means each period from one Payment Date to the next relevant Payment Date and the first Floating Rate Reference Period shall commence on the date of disbursement of the Tranche.
 
“Floating Rate Tranche” means a Tranche disbursed on which Floating Rate is applied.
 
“Funding Swap” means, in respect of a BRL-Linked Tranche, a notional swap transaction between the Bank and an Eligible Swap Counterparty under which:
 
 
(a)
the Bank would, on the effective date of the swap, pay an amount in USD (the “USD Initial Exchange Amount”) calculated by reference to the principal amount of the BRL­ Linked Tranche at an exchange rate determined by the Bank (the “Original Exchange Rate”);
 
 
(b)
the Bank would, on the effective date of the swap, receive an amount in BRL equal to the amount of the relevant BRL-Linked Tranche (the “BRL Initial Exchange Amount”);
 
 
(c)
the Bank would make periodic payments in BRL throughout the life of the swap equal to the aggregate of (A) a sum equal to, in the case of a BRL-Linked Tranche that is due to be repaid by instalments, the scheduled repayments of principal on such BRL-Linked Tranche as they fall due pursuant to Article 4.01 (“BRL Principal Instalments”) and (B) a sum calculated as a fixed rate (the “BRL Periodic Rate”) on the BRL Initial Exchange Amount (minus any BRL Principal Instalments already paid) equal to the total rate of interest charged under this Contract on the relevant BRL Tranche pursuant to Article 3.01A;
 
 
(d)
the Bank would receive periodic payments in USD throughout the life of the swap equal to the aggregate of (A) a sum equal to, in the case of a BRL-linked Tranche that is due to be repaid by instalments, the USD equivalents of the BRL Principal Instalments (“USD Principal Instalments”) calculated at the Original Exchange Rate and (B) a sum calculated as a certain floating rate (the “USD Periodic Rate”) on the USD Initial Exchange Amount (minus any USO Principal Instalments already paid);
 
 
(e)
the Bank would, on the termination date of the swap, pay an amount in BRL equal to the BRL Initial Exchange Amount minus any BRL Principal Instalments already paid (the “BRL Final Exchange Amount”); and
 
 
(f)
the Bank would, on the termination date of the swap, receive an amount in USD equal to the USD Initial Exchange Amount minus any USO Principal Instalments already paid (the “USD Final Exchange Amount”).
 
 
10
 
 
Notwithstanding the foregoing, the swap transaction between the Bank and an Eligible Swap Counterparty will not actually involve payments in BRL but only payments of USD amounts calculated by reference to BRL All the payments in the contract that are denominated in BRL (i.e. disbursements, capital and interest payment, BRL cash flows in the funding and unwinding swap) must be converted into USD between 2 (two) and 15 (fifteen) business days before the payment date. The BRL/USD exchange rate is the BRL PTAX fixing as provided in Reuters page: BRLPTAX =“BRL PTAX” means that the spot rate will be the Brazilian Real/U.S. Dollar offered rate for U.S. Dollars, expressed as the amount of Brazilian Reais per one U.S. Dollar reported by the Central Bank of Brazil.
 
“Group” means TIMP and its Subsidiaries.
 
“Guarantee” has the meaning given to it in Recital(7).
 
“Guarantee Agreement” has the meaning given to it in Recital (7).
 
“Guarantor” has the meaning given to it in Recital(7).
 
“Indemnifiable Prepayment Event” means a prepayment event under Article 4.03A other than paragraph 4.03A(2).
 
“LIBOR” has the meaning given to it in Schedule B.
 
“Licence” means the licences held by the Borrower for the operation of its mobile telecommunications networks operating in the 2 100 / 850 MHz UMTS and 900/1 800 MHz GSM standard in Brazil.
 
“Loan” means the aggregate amount of Tranches disbursed from time to time by the Bank under this Contract.
 
“Market Disruption Event” means in relation to a specific Notified Tranche:
 
 
 (a)
there are, in the reasonable opinion of the Bank, exceptional circumstances adversely affecting the Bank’s access to its sources of funding;
 
 
(b)
in the opinion of the Bank, funds are not available from its ordinary sources of funding to fund such Tranche in the relevant currency and/or for the relevant maturity and/or in relation to the reimbursement profile of such Tranche;
 
 
(c)
In relation to Tranche in respect of which interest is payable at Floating Rate:
 
 
(A)
the cost to the Bank of obtaining funds from its sources of funding, as determined by the Bank, for a period equal to the Floating Rate Reference Period of a Tranche (i.e. in the money market) would be in excess of the applicable Relevant Interbank Rate;
 
or
 
 
(B)
the Bank determines that adequate and fair means do not exist for ascertaining the applicable Relevant Interbank Rate for the relevant currency of such Tranche or it is not possible to determine the Relevant Interbank Rate in accordance with the definition contained in Schedule B.
 
“Material Adverse Change” means, any event or change of condition, which, has a material adverse effect on:
 
 
(a)
the ability of the Borrower or TIMP to perform its payment obligations under this Contract or the TIMP Guarantee;
 
 
(b)
the business or the financial condition of the Borrower, TIMP or the Group as a whole; or
 
 
(c)
the validity or enforceability of, or the effectiveness or ranking of, or the value of any security granted to the Bank, or the rights or remedies of the Bank under this Contract or the TIMP Guarantee.
 
 
11
 
 
“Maturity Date” means the last or sole repayment date of a Tranche specified pursuant to Article 4.01A(b)(iii) or Article 4.01B.
 
“Notified Tranche” means a Tranche in respect of which the Bank has issued a Disbursement Notice.
 
“Originating Event” has the meaning given in Article 4.02 of the Guarantee Agreement.
 
“Payment Date” means: the semi-annual dates specified in the Disbursement Notice until the Maturity Date, save that, in case any such date is not a Relevant Business Day, it means:
 
 
(a)
for a Fixed Rate Tranche, the following Relevant Business Day, without adjustment to the interest due under Article 3.01 except for those cases where repayment is made in a single instalment according to Article 4.01B, when the preceding Relevant Business Day shall apply instead to this single instalment and last interest payment and only in this case, with adjustment to the interest due under Article 3.01; and
 
 
(b)
for a Floating Rate Tranche, the next day, if any, of that calendar month that is a Relevant Business Day or, failing that, the nearest preceding day that is a Relevant Business Day, in all cases with corresponding adjustment to the interest due under Article 3.01.
 
“Prepayment Amount” means the amount of a Tranche to be prepaid by the Borrower in accordance with Article 4.02A.
 
“Prepayment Date” means the date, which shall be a Payment Date, on which the Borrower proposes to effect prepayment of a Prepayment Amount.
 
“Prepayment Notice” means a written notice from the Borrower specifying, amongst other things, the Prepayment Amount and the Prepayment Date in accordance with Article 4.02A.
 
“Pricing Date” means in relation to a BRL-linked Tranche the date (such date to be a Business Day and to fall within the period defined in the proviso below) upon which the matters set out in the relevant BLT Disbursement Request are agreed, such agreement (that shall be confirmed in writing between the Bank and the Borrower) to take place during the course of a recorded telephone conference call between the Bank and the Borrower, it being understood that:
 
 
(a)
the Borrower shall specify the proposed Pricing Date in the BLT Disbursement Request for the relevant BRL-Linked Tranche;
 
 
(b)
if the matters set out in the relevant BLT Disbursement Request are not agreed on the date specified by the Borrower in the BLT Disbursement Request as the Pricing Date, the Pricing Date shall instead be the date on which the relevant matters are agreed; and
 
 
(c)
the agreement reached on the Pricing Date shall also be recorded in writing by the Bank at a later date, no longer than 5 days from the telephone conference call,
 
provided always that the Pricing Date shall occur during the Availability Period, no later than 7 (seven) days and not earlier than 14 (fourteen) days prior to the Scheduled Disbursement Date and that, if the Pricing Date shall not have occurred during such period, the relevant BLT Disbursement Request shall, unless otherwise agreed by the Bank, be of no effect.
 
“Project” has the meaning given to it in Recital (1).
 
“Rating Agency” means any of (a) Standard and Poor’s Ratings Group, (b) Fitch Ratings Limited and (c) Moody’s Investors Services, Inc. or their respective successors.
 
 
12
 
 
“Redeployment Rate” means the Fixed Rate in effect on the day of the indemnity calculation for fixed-rate loans denominated in the same currency and which shall have the same terms for the payment of interest and the same repayment profile to the Maturity Date as the Tranche in respect of which a prepayment is proposed or requested to be made. For those cases where the period is shorter than 48 months (or 36 months in the absence of a repayment of principal during that period) the most closely corresponding money market rate equivalent will be used, that is the Relevant Interbank Rate minus 0.125% (12.5 basis points) for periods of up to 12 (twelve) months. For periods falling between 12 and 36/48 months as the case may be, the bid point on the swap rates as published by Intercapital in Reuters for the related currency and observed by the Bank at the time of calculation will apply.
 
“Relevant Business Day” means:
 
 
(a)
for EUR, a day which is a TARGET DAY; and
 
 
(b)
for any other currency, a day on which banks are open for general business in the principal domestic financial centre of the relevant currency.
 
“Relevant Interbank Rate” means:
 
 
(a)
EURIBOR for a Tranche denominated in EUR;
 
 
(b)
LIBOR for a Tranche denominated in USD; and
 
 
(c)
the market rate and its definition chosen by the Bank and separately communicated to the Borrower, for a Tranche denominated in any other currency.
 
“Scheduled Disbursement Date” means the date on which a Tranche is scheduled to be disbursed in accordance with Article 1.02C.
 
“Security Interest” means any mortgage, pledge, lien, charge, assignment in security, hypothecation or other security interest securing any obligation of any person or any other agreement or arrangement having a similar effect.
 
“Spread” means the fixed spread to the Relevant Interbank Rate (being either plus or minus) determined by the Bank and notified to the Borrower in the relevant Disbursement Notice.
 
“Swap Unwind Amount” means such amount as is notified by the Bank to the Borrower and agreed to be paid by the Borrower. If such notified amount is disputed, the Swap Unwind Amount shall be established by the Bank requesting three Eligible Swap Counterparties to quote a price for the Bank to enter into an Unwinding Swap and the Swap Unwind Amount shall be determined as follows: (i) it three quotations are provided, the Swap Unwind Amount shall be the arithmetic mean of the quotations received. , The Bank shall disclose to the Borrower the price quotations received from the Eligible Swap Counterparties but shall not be obliged to disclose the identity of such Eligible Swap Counterparties. If fewer than three quotations are obtained from Eligible Swap Counterparties, the Swap Unwind Amount shall be determined as the amount calculated by the Bank in good faith as constituting the costs and losses incurred (or, as the case may be, gains realised) by the Bank in connection with the unwinding of its hedging arrangements in relation to the relevant BRL-Linked Tranche.
 
“TARGET” means the Trans-European Automated Real-Time Gross Settlement Express Transfer payment system which utilises a single shared platform and which was launched on 19 November 2007.
 
“Technical Description”( has the meaning given to it in Recital(1).
 
“TIMP” has the meaning given to it in Recital(8).
 
“TIMP Guarantee” has the meaning given to it in Recital (8).
 
 
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“Tranche” means each disbursement made or to be made under this Contract.
 
“Unwinding Swap” means in respect of the relevant BRL-Linked Tranche a notional swap transaction with the same characteristics as the Funding Swap save that all payments made by the Bank in the Funding Swap will be made to the Bank in the Unwinding Swap and all payments made to the Bank in the Funding Swap will be made by the Bank in the Unwinding Swap, and save further that:
 
 
 (i)
the amount equivalent to the BRL Initial Exchange Amount and BRL Final Exchange Amount shall be the principal amount outstanding of the BRL-Linked Tranche to be prepaid;
 
 
 (ii)
the amount equivalent to the USD Initial Exchange Amount and USD Final Exchange Amount shall be the USD equivalent of the principal amount outstanding of the BRL­Linked Tranche to be prepaid, calculated at the Original Exchange Rate;
 
 
 (iii)
the rate equivalent to the BRL Periodic Rate shall be equal to the total rate of interest charged under this Contract on the relevant BRL-Linked Tranche pursuant to Article 3.01A;
 
 
 (iv)
the rate equivalent to the USD Periodic Rate shall be the BRL Redeployment Rate; and
 
 
(v)
the effective date of the Unwinding Swap will be the prepayment date of the relevant BRL-Linked Tranche if such date was a Payment Date with respect to the relevant BRL linked Tranche or, if it was not a Payment Date with respect to the relevant BRL-linked Tranche, the immediately preceding Payment Date with respect to the relevant BRL­Linked Tranche and the termination date of the Unwinding Swap will be the termination date of the relevant Funding Swap.
 
 
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ARTICLE 1
Credit and Disbursements
 
1.01 
Amount of Credit
 
By this Contract the Bank establishes in favour of the Borrower, and the Borrower accepts, the credit in an amount of EUR 100 000 000 (one hundred million euros) for the financing of the Project (the “Credit”).
 
1.02 
Disbursement procedure
 
1.02A 
Tranches
 
The Bank shall disburse the Credit in up to 4 (four)Tranches. The amount of each Tranche, if not being the undrawn balance of the Credit, shall be in a minimum amount of EUR 25 000 000 (twenty-five million euros).
 
1.02B 
Disbursement Request
 
 
 (a)
The Borrower may present to the Bank a Disbursement Request for the disbursement of a Tranche, to be received by the latest on or prior to 15 (fifteen) days before the Final Availability Date. The Disbursement Request shall be in the form set out in Schedule C and shall specify:
 
 
(i)
the amount and currency of the Tranche;
 
 
(ii)
the preferred disbursement date for the Tranche; such preferred disbursement date must be a Relevant Business Day falling at least 15 (fifteen) days after the date of the Disbursement Request and on or before the Final Availability Date, it being understood that the Bank may disburse the Tranche up to 4 (four) calendar months from the date of the Disbursement Request;
 
 
(iii)
whether the Tranche is a Fixed Rate Tranche or a Floating Rate Tranche, each pursuant to the relevant provisions of Article 3.01;
 
 
(iv)
the preferred terms for repayment of principal for the Tranche, chosen in accordance with Article 4.01;
 
 
(v)
the preferred first and last dates for repayment of principal for the Tranche; and
 
 
(vi)
the IBAN code (or appropriate format in line with local banking practice) and SWIFT BIC of the bank account to which disbursement of the Tranche should be made in accordance with Article 1.02E.
 
 
(b)
If the Bank, following a request by the Borrower, has provided the Borrower, before the submission of the Disbursement Request, with a non-binding fixed interest rate or spread quotation to be applicable to the Tranche, the Borrower may also at its discretion specify in the Disbursement Request such quotation, that is to say:
 
 
(i)
in the case of a Fixed Rate Tranche, the aforementioned fixed interest rate previously quoted by the Bank; or
 
 
(ii)
in the case of a Floating Rate Tranche, the aforementioned spread previously quoted by the Bank,
 
applicable to the Tranche until the Maturity Date.
 
 
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(b)
(bis) The Borrower may at its discretion specify in the Disbursement Request a maximum fixed interest rate or maximum spread applicable to the Tranche until the Maturity Date.
 
 
(c)
Each Disbursement Request shall be accompanied by evidence of the authority of the person or persons authorised to sign it and the specimen signature of such person or persons.
 
 
(d) 
Subject to Article 1.02C(b), each Disbursement Request is irrevocable.
 
1.02C 
Disbursement Notice
 
 
(a)
Not less than 10 (ten) days before the proposed Scheduled Disbursement Date of a Tranche the Bank shall, if the Disbursement Request conforms to this Article 1.02, deliver to the Borrower a Disbursement Notice which shall specify:
 
 
(i)
the currency, amount and EUR equivalent of the Tranche;
 
 
(ii)
the Scheduled Disbursement Date;
 
 
(iii)
the interest rate basis for the Tranche;
 
 
(iv)
the first interest Payment Date for the Tranche;
 
 
(v)
the terms for repayment of principal for the Tranche;
 
 
(vi)
the first and last dates for repayment of principal for the Tranche;
 
 
(vii)
the applicable Payment Dates for the Tranche; and
 
 
(viii)
for a Fixed Rate Tranche the Fixed Rate and for a Floating Rate Tranche the
 
Spread.
 
The Bank shall not issue a Disbursement Notice If the maximum fixed interest rate or the maximum spread indicated by the Borrower in the Disbursement Request pursuant to Article 1.028(b/bis) above cannot be made available by the Bank to the Borrower on the proposed date for disbursement indicated by the Borrower in the Disbursement Request, and shall inform the Borrower of such unavailability through its usual operational route.
 
 
(b)
If one or more of the elements specified in the Disbursement Notice does not reflect the corresponding element, if any, in the Disbursement Request, the Borrower may following receipt of the Disbursement Notice revoke the Disbursement Request by written notice to the Bank to be received no later than 12h00 Luxembourg time on the next Business Day and thereupon the Disbursement Request and the Disbursement Notice shall be of no effect. If the Borrower has not revoked in writing the Disbursement Request within such period, the Borrower will be deemed to have accepted all elements specified in the Disbursement Notice.
 
 
(c)
If the Borrower has presented to the Bank a Disbursement Request in which the Borrower has not specified the fixed interest rate or spread as set out in Article 1.02B(b), the Borrower will be deemed to have agreed in advance to the Fixed Rate or Spread as subsequently specified in the Disbursement Notice. If the Borrower has presented to the Bank a Disbursement Request in which the Borrower has specified the maximum fixed interest rate or maximum spread referred to in Article 1.02B(b)/(bis), the Borrower will be deemed to have agreed in advance to the Fixed Rate or Spread as subsequently specified in the Disbursement Notice, to the extent that such Fixed Rate or Spread are equal to or less than the maximum fixed interest rate or maximum spread that were specified by the Borrower in the Disbursement Request.
 
 
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1.02D 
Disbursement Procedure for BRL-Linked Tranches
 
1. 
BLT Disbursement Request
 
From time to time prior to the date falling thirty (30) days before the Final Availability Date and following satisfaction of all conditions to disbursement set out in Article 1.04A and 1.04B(a)(iii) and (iv), the Borrower may request disbursement of a Tranche in respect of which payments will be made in USD and be linked to the Brazilian Real (“BRL”) (such a Tranche being referred to as a “BRL-Linked Tranche”) by presenting to the Bank a duly completed and signed request (a “BLT Disbursement Request”), substantially in the form set out in Schedule D1.
 
Save where the evidence has been already supplied, the BLT Disbursement Request shall be accompanied by evidence of the authority of the signatory or signatories, together with their authenticated specimen signatures, and shall specify:
 
 
 (i)
the proposed Pricing Date, provided that no BLT Disbursement Request may propose a Pricing Date which is within 3 Business Days of any other proposed Pricing Date;
 
 
 (ii)
the requested BRL amount of the BRL-Linked Tranche (and the estimated equivalent USD amount);
 
 
 (iii)
the preferred Scheduled Disbursement Date for such BRL-Linked Tranche, which shall be a date falling not less than twenty (20) Business Days after the date of the BLT Disbursement Request;
 
 
 (iv)
the preferred principal repayment characteristics tor the BRL-Linked Tranche which may be on an amortizing or bullet basis provided that :
 
 
(a)
if the BLT Disbursement Request is for an amortizing BRL-Linked Tranche, the first repayment date shall fall no earlier than 4 (four) years after disbursement and the final repayment date shall fall no later than 10 (ten) years after disbursement; and
 
 
(b)
if the BLT Disbursement Request is for a bullet BRL-Linked Tranche, the repayment date shall fall no earlier than 3 (three) years and no later than 7 (seven) years after disbursement.
 
Any such BLT Disbursement Request must be accompanied by evidence of compliance with all then-applicable Central Bank registration requirements in respect of such BRL­ Linked Tranche.
 
2. 
The Bank’s Offer
 
Following receipt of a BLT Disbursement Request, the Bank shall make such efforts as it shall deem reasonable to obtain financing or hedge offers from such counterparts in the capital markets as it shall deem fit enabling it to offer a BRL-Linked Tranche to the Borrower on terms substantially compatible with the terms requested in such BLT Disbursement Request.
 
The Bank shall be under no obligation to disclose any details of the efforts used or the counterparts contacted in respect of the foregoing and the Borrower acknowledges that the Bank may not be able to obtain suitable offers and makes no commitment in that respect.
 
 
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If this should be the case, the Bank may inform the Borrower, prior to or on the proposed Pricing Date, that it is not able to offer a BRL-linked Tranche having characteristics that are substantially similar to those set out in the BLT Disbursement Request, in which case the relevant BLT Disbursement Request shall, unless otherwise agreed by the Bank, be of no effect;
 
3. 
Occurrence of a Pricing Date
 
If a Pricing Date occurs with respect to a BLT Disbursement Request, the Bank will (subject to Articles 1.05 and 1.06) disburse the relevant Tranche on the relevant BRL­ Linked Scheduled Disbursement Date for such BRL-Linked Tranche pursuant to a Disbursement Notice in the form of Schedule D.2.
 
1.02E 
Disbursement Account
 
Disbursement shall be made to the account of the Borrower as the Borrower shall notify in writing to the Bank not later than 15 (fifteen) days before the Scheduled Disbursement Date (with IBAN code or with the appropriate format in line with local banking practice).
 
Only one account may be specified for each Tranche.
 
1.03 
Currency of disbursement
 
Subject to availability, the Bank shall disburse each Tranche in EUR or USD ( and in the case of BRL-Linked Tranches disbursement will always be made in USD) according to the currency selected by the Borrower in the relevant Disbursement Notice.
 
For the calculation of the sums available to be disbursed in USD, and to determine their equivalent in EUR, the Bank shall apply the exchange rate published by the European Central Bank in Frankfurt, on or within 5 Business Days before delivery of the Disbursement Notice.
 
1.04 
Conditions of disbursement
 
1.04A 
First Tranche
 
The disbursement of the first Tranche under Article 1.02 is conditional upon receipt by the Bank in form and substance satisfactory to it, on or before the date falling 7 (seven) Business Days before the Scheduled Disbursement Date, of the following documents or evidence:
 
 
(i)
evidence that all action necessary to exempt from taxation in Brazil all payments of principal, interest and other sums due to the Bank hereunder and to permit the payment of all such sums gross without deduction of tax at source shall have been taken;
 
 
(ii)
an original copy of the Guarantee duly executed by the Guarantor in accordance with Article 7.02 as well as adequate documentary evidence of the authority of the signatories of the Guarantor;
 
 
(iii)
the TIMP Guarantee duly executed together with a legal opinion on due execution of the TIMP Guarantee by TIMP and on the validity and enforceability of TIMP’s obligations under the TIMP Guarantee;
 
 
(iv)
evidence (i) of the appointment by the Borrower, TIMP, and each Guarantor of its agent for service of process in the United Kingdom and (ii) of the acceptance by the latter of its appointment;
 
 
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(v)
evidence of the authority of the person or persons authorised to sign Disbursement Requests and the authenticated specimen signature of such person or persons in the form of Annex I and Annex II;
 
 
(vi)
legal opinions in the English language and in form and substance acceptable to the Bank from: (i) counsel to the Borrower regarding the due execution by, and, validity and enforceability as against the Borrower of this Contract (ii) counsel to the relevant Guarantor regarding the due execution by, and, validity and enforceability as against the Guarantor of the Guarantee; and (iii) counsel to TIMP regarding the due execution by, and, validity and enforceability as against TIMP of the TIMP Guarantee:
 
 
(vii)
evidence that (i) the Borrower has registered the terms and conditions of this Contract and the first Tranche to be disbursed under this Contract with the Central Bank of Brazil by means of the registration through the SISBACEN system named Registro de Operarações Financeiras (“ROF”) or any equivalent system applicable at the date of registration and that (ii) such ROF registration is valid and effective to allow the Borrower to receive the disbursement of the Tranche and, subsequently, to allow the Borrower to complement the ROF with the terms and conditions of the amortisation tables so as to enable the Borrower to comply in full with any of its payment obligations under or in connection with this Contract; and,
 
 
(viii)
evidence that insurances in accordance with the requirements of Article 6.05 are in place, in the form of certified true copies of the relevant insurances or insurance brokers letters.
 
1.04B 
All Tranches
 
The disbursement of each Tranche under Article 1.02, including the first, is conditional upon:
 
 
(a)
receipt by the Bank in form and substance satisfactory to it, on or before the date falling 7 (seven) Business Days before the Scheduled Disbursement Date for the proposed Tranche, of the following documents or evidence:
 
 
(i) 
a certificate from the Borrower in the form of Schedule C.2;
 
 
(ii)
a list of the contracts and invoices evidencing expenditure (net of taxes and duties payable in the Federative Republic of Brazil) already incurred or to be incurred within three (3) months from the Scheduled Disbursement Date by the Borrower in respect of items specified in the Technical Description as eligible for financing under the Credit, which contracts shall have been executed on terms reasonably satisfactory to the Bank having regard to the Bank’s Guide to Procurement (all such expenditure being herein referred to as “Qualifying Expenditure”) for a minimum aggregate value equal to or exceeding the amount of the Tranche to be disbursed by the Bank under this Contract; and, if requested by the Bank, certified true copies of invoices contracts and such other documents evidencing the said expenditure in the form of, inter alia, contracts and proof of payment;
 
 
(iii)
the Borrower has registered the terms and conditions of such further Tranche to be disbursed under this Contract with the Central Bank of Brazil by means of the registration through the ROF or any equivalent system applicable at the date of registration;
 
 
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(iv)
the ROF obtained by the Borrower pursuant to Article 1.04A(vii) is valid and effective to allow the Borrower to receive the disbursement of such further Tranche and, subsequently, to allow the Borrower to complement the ROF with the Schedule of Payments in the appropriate “Schedule of Payments” screen so as to enable the Borrower to comply in full with any of its payment obligations under or in connection with this Contract;
 
 
(v)
that the Borrower has complemented the ROF with the Schedule of Payments for all previous Tranches disbursed under this Contract; and,
 
 
(vii)
a copy of any other authorisation or other document, opinion or assurance which the Bank has notified the Borrower is necessary or desirable in connection with the entry into and performance of, and the transactions contemplated by, the Contract, the Guarantee and the TIMP Guarantee or the validity and enforceability of the same.
 
 
(b)
that on the date of the Disbursement Request and on the Scheduled Disbursement Date for the proposed Tranche:
 
 
(i)
the representations and warranties which are repeated pursuant to Article 6.09 are correct in an respects; and
 
 
 (ii)
no event or circumstance which constitutes or would with the passage of time or giving of notice under this Contract constitute:
 
 
(aa)
an event of default under Article 10.01, or
 
 
(bb)
a prepayment event under Article 4.03, or
 
 
(cc)
a Guarantor default event or an event as a result of which a Guarantor may become an Affected Guarantor, under Article 7.03,
 
has occurred and is continuing unremedied or unwaived or would result from the proposed Tranche.
 
 
(c)
on the date of the Disbursement Request and on the Scheduled Disbursement Date there is no event outstanding or prevailing which, with the lapse of time and the fulfilment of any other condition would constitute an Originating Event; and,
 
 
(d)
on the date of the Disbursement Request and on the Scheduled Disbursement Date, the Guarantor is a Qualifying Guarantor as defined in Article 7.02.
 
1.05 
Deferment of disbursement
 
1.05A 
Grounds for deferment
 
Upon the written request of the Borrower, the Bank shall defer the disbursement of any Notified Tranche in whole or in part to a date specified by the Borrower being a date falling not later than 6 (six) months from its Scheduled Disbursement Date. In such case, the Borrower shall pay the deferment indemnity as determined pursuant to Article 1.05B below.
 
Any request for deferment shall have effect in respect of a Tranche only if it is made at least 7 (seven) Business Days before its Scheduled Disbursement Date.
 
 
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If any of the conditions referred to in Article 1.04 is not fulfilled as at the specified date and at the Scheduled Disbursement Date, and the Bank is of the opinion that it will not be satisfied, disbursement will be deferred to a date agreed between the Bank and the Borrower falling not earlier than 7 (seven) Business Days following the fulfilment of all conditions of disbursement.
 
1.05B 
Deferment Indemnity
 
If the disbursement of any Notified Tranche is deferred, whether at the request of the Borrower or by reason of non-fulfilment of the conditions of disbursement, the Borrower shall, upon demand by the Bank, pay an indemnity on the amount of disbursement deferred. Such indemnity shall accrue from the Scheduled Disbursement Date to the actual disbursement date or, as the case may be, until the date of cancellation of the Notified Tranche in accordance with this Contract at a rate equal to R1 minus R2, where:
 
“R1” means the rate of interest that would have applied from time to time pursuant to Article 3.01 and the relevant Disbursement Notice, if the Tranche had been disbursed on the Scheduled Disbursement Date; and
 
“R2” means the Relevant Interbank Rate less 0.125% (12.5 basis points); provided that for the purpose of determining the Relevant Interbank Rate in relation to this Article 1.05, the relevant periods provided for in Schedule B shall be successive periods of 1 (one) month commencing on the Scheduled Disbursement Date.
 
Furthermore, the indemnity:
 
 
(a) 
shall be calculated using the day count convention applicable to R1;
 
 
(b) 
where R2 exceeds R1, shall be set at zero; and
 
 
(c) 
shall be payable in accordance with Article 1.08.
 
1.05C 
Swap Indemnity
 
If the disbursement of any BRL-Linked Tranche for which a Pricing Date has occurred is deferred, suspended, or cancelled, the Borrower shall, upon demand by the Bank, pay to the Bank the sum, as notified by the Bank to the Borrower, of the amounts calculated by cumulating:
 
 
(a)
such amount certified by the Bank as being the cost incurred by the Bank for deferring, cancelling or unwinding its hedging arrangements relating to such BRL­ Linked Tranche, such cost not to exceed the Additional Prepayment Amount (the Additional Prepayment Amount being a reference to payment due from the Borrower to the Bank and excluding any case where a payment might be due by the Bank under the unwinding process referred to in the definition of Unwinding Swap) in respect of the amount of the BRL-Linked Tranche the disbursement of which is deferred or suspended; and
 
 
 (b)
the properly incurred and documented legal and documentation expenses incurred by the Bank (if any) in connection with such deferment or suspension.
 
1.050 
Cancellation of a disbursement deferred by 6 (six) months
 
The Bank may, by notice in writing to the Borrower, cancel a disbursement which has been deferred under Article 1.05A by more than 6 (six) months in aggregate. The cancelled amount shall remain available for disbursement under Article 1.02.
 
 
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1.06 
Cancellation and suspension
 
1.06A 
Borrower’s right to cancel
 
The Borrower may at any time by notice in writing to the Bank cancel, in whole or in part and with immediate effect, the undisbursed portion of the Credit. However, the notice shall have no effect in respect of a Notified Tranche which has a Scheduled Disbursement Date falling within 7 (seven) Business Days of the date of the notice.
 
1.06B 
Bank’s right to suspend and cancel
 
The Bank may, by notice in writing to the Borrower, suspend and/or cancel the undisbursed portion of the Credit in whole or in part at any time and with immediate effect
 
 
 (i) 
upon the occurrence of an event or circumstance mentioned in Article 4.03A or 10.01; or
 
 
(ii) 
if a Material Adverse Change occurs.
 
 
 (iii)
if an event which, with the lapse of time and the giving of notice under this Contract would constitute an Originating Event is, in the reasonable opinion of the Bank, imminent or prevailing;
 
 
 (iv)
if the warranties and undertakings regarding Integrity (Article 6.12) and Investigations (Article 8.05) shall not have been performed;
 
Any suspension shall continue until the Bank ends the suspension or cancels the suspended amount.
 
1.06C 
Indemnity for suspension and cancellation of a Tranche
 
1.06C(1)
SUSPENSION
 
If the Bank suspends a Notified Tranche. whether upon an Indemnifiable Prepayment Event or an event mentioned in Article 10.01, the Borrower shall indemnify the Bank under Article 1.05B.
 
1.06C(2)
CANCELLATION
 
If pursuant to Article 1.06A, the Borrower cancels:
 
 
(a)
a Fixed Rate Tranche which is a Notified Tranche, it shall indemnify the Bank under Article 4.02B;
 
 
(b)
a Floating Rate Notified Tranche or any part of the Credit other than a Notified Tranche, no indemnity is payable.
 
If the Bank cancels a Fixed Rate Tranche which is a Notified Tranche upon an lndemnifiable Prepayment Event or pursuant to Article 1.050, the Borrower shall indemnify the Bank under Article 4.02B. If the Bank cancels a Notified Tranche upon an event mentioned in Article 10.01, the Borrower shall indemnify the Bank under Article 10.03. Save in these cases, no indemnity is payable upon cancellation of a Tranche by the Bank.
 
 
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An indemnity shall be calculated on the basis that the cancelled amount is deemed to have been disbursed and repaid on the Scheduled Disbursement Date or, to the extent that the disbursement of the Tranche is currently deferred or suspended, on the date of the cancellation notice.
 
1.07 
Cancellation after expiry of the Credit
 
Any time after the Final Availability Date, the Bank may by written notice to the Borrower and without liability arising on the part of either party, cancel such amount of the Credit in respect of which no Disbursement Request has been made in accordance with Article 1.02B.
 
1.08 
Sums due under Article 1
 
Sums due under Articles 1.05 and 1.06 shall be payable in EUR. They shall be payable within 15 (fifteen) days of the Borrower’s receipt of the Bank’s demand or within any longer period specified in the Bank’s demand.
 
 
ARTICLE 2
The Loan
 

 
2.01 
Amount of Loan
 
The Loan shall comprise the aggregate amount of Tranches disbursed by the Bank under the Credit, as confirmed by the Bank pursuant to Article 2.03.
 
2.02 
Currency of repayment, interest and other charges
 
Interest, repayments and other charges payable in respect of each Tranche shall be made by the Borrower in the currency in which the Tranche is disbursed with the exception of BRL-Linked Tranches in respect of which payments will be made in USD.
 
Any other payment shall be made in the currency specified by the Bank having regard to the currency of the expenditure to be reimbursed by means of that payment. 1
 
2.03
Confirmation by the Bank
 
Within 10 (ten) days after disbursement of each Tranche, the Bank shall deliver to the Borrower the amortisation table referred to in Article 4.01, if appropriate, showing the disbursement date, currency, the amount disbursed, the repayment terms and the interest rate of and for that Tranche.
 

1 For example, if we Incur legal expenses in local currency, we may request reimbursement in local currency.
 
 
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ARTICLE 3
Interest
 
3.01 
Rate of interest
 
Fixed Rates and Spreads are available for periods of not less than 4 (four) years or, in the absence of a repayment of principal during that period, not less than 3 (three) years.
 
3.01A 
Fixed Rate Tranches
 
The Borrower shall pay interest on the outstanding balance of each Fixed Rate Tranche at the Fixed Rate semi-annually in arrears on the relevant Payment Dates as specified in the Disbursement Notice, commencing on the first such Payment Date following the date on which the disbursement of the Tranche was made. If the period from the date on which disbursement was made to the first Payment Date is 30 (thirty) days or less then the payment of interest accrued during such period shall be postponed to the following Payment Date.
 
Interest shall be calculated on the basis of Article 5.01(a) at an annual rate that is the Fixed Rate.
 
Interest on the BRL-Linked Tranches shall accrue and be calculated only pursuant to this Article 3.01A
 
3.01B 
Floating Rate Tranches
 
The Borrower shall pay interest on the outstanding balance of each Floating Rate Tranche at the Floating Rate semi-annually in arrears on the relevant Payment Dates, as specified in the Disbursement Notice commencing on the first such Payment Date following the date of disbursement of the Tranche. If the period from the date of disbursement to the first Payment Date is 30 (thirty) days or less then the payment of interest accrued during such period shall be postponed to the following Payment Date.
 
The Bank shall notify the Floating Rate to the Borrower within 10 (ten) days following the commencement of each Floating Rate Reference Period.
 
If pursuant to Articles 1.05 and 1.06 disbursement of any Floating Rate Tranche takes place after the Scheduled Disbursement Date the Relevant Interbank Rate applicable to the first Floating Rate Reference Period shall apply as though the disbursement had been made on the Scheduled Disbursement Date.
 
Interest shall be calculated in respect of each Floating Rate Reference Period on the basis of Article 5.01(b).
 
3.02 
Interest on overdue sums
 
Without prejudice to Article 10 and by way of exception to Article 3.01, interest shall accrue on any overdue sum payable under the terms of this Contract from the due date to the date of payment at an annual rate equal to the Relevant Interbank Rate plus 2% (200 basis points) and shall be payable in accordance with the demand of the Bank. For the purpose of determining the Relevant Interbank Rate in relation to this Article 3.02, the relevant periods within the meaning of Schedule 8 shall be successive periods of one month commencing on the due date.
 
 
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However, interest on a Fixed Rate Tranche shall be charged at the annual rate that is the sum of the rate defined in Article 3.01A plus 0.25% (25 basis points) if that annual rate exceeds, for any given relevant period, the rate specified in the preceding paragraph.
 
If the overdue sum is in a currency other than the currency of the Loan, the following rate per annum shall apply, namely the relevant interbank rate that is generally retained by the Bank for transactions in that currency plus 2% (200 basis points), calculated in accordance with the market practice for such rate.
 
3.03 
Market Disruption Event
 
If at any time between the date of issuance by the Bank of a Disbursement Notice in respect of a Tranche, and the date falling two Business Days prior to the Scheduled Disbursement Date, a Market Disruption Event occurs, the Bank may notify to the Borrower that this clause has come into effect. In such case, the rate of interest applicable to such Notified Tranche until the Maturity Date, shall be the rate (expressed as a percentage rate per annum) which is determined by the Bank to be the all-inclusive cost to the Bank for the funding of the relevant Tranche based upon the then applicable internally generated Bank reference rate or an alternative rate determination method reasonably determined by the Bank.
 
The Borrower shall have the right to refuse in writing such disbursement within the deadline specified in the notification and shall bear charges incurred as a result, if any, in which case the Bank shall not effect the disbursement and the corresponding Credit shall remain available for disbursement under Article 1.02B. If the Borrower does not refuse the disbursement in time, the parties agree that the disbursement and the conditions thereof shall be fully binding for both parties.
 
In each case the Spread or Fixed Rate previously notified by the Bank in the Disbursement Notice shall be no longer applicable.
 
ARTICLE 4
Repayment
 
4.01 
Normal repayment
 
4.01A 
Repayment by instalments
 
 
(a)
The Borrower shall repay each Tranche by instalments on the Payment Dates specified in the relevant Disbursement Notice in accordance with the terms of the amortisation table delivered pursuant to Article 2.03.
 
 
(b)
Each amortisation table shall be drawn up on the basis that:
 
 
(i) 
repayment shall be made by equal, semi-annual instalments of principal;
 
 
(ii)
the first repayment date of each Tranche shall be a Payment Date falling not earlier than 60 days from the Scheduled Disbursement Date (or, in case of deferment, the actual disbursement date) and not later than the first Payment Date immediately following the second anniversary of the Scheduled Disbursement Date of the Tranche;
 
 
(iii)
the last repayment date of each Tranche shall be a Payment Date falling not earlier than 4 (four) years and not later than 12 (twelve) years from the Scheduled Disbursement Date; and,
 
 
(iv)
in respect of a BRL-Linked Tranche, the last repayment date shall be determined in accordance with Article 1.02D1(iv)(a).
 
 
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4.01B 
Single instalment
 
Alternatively, the Borrower may repay the Tranche in a single instalment on a Payment Date specified in the Disbursement Notice, being a date falling not less than 3 (three) years or more than 7 (seven) years from the Scheduled Disbursement Date.
 
4.02 
Voluntary prepayment
 
4.02A 
Prepayment option
 
Subject to Articles 4.02B, 4.02C and 4.04, the Borrower may prepay all or part of any Tranche, together with accrued interest and indemnities if any, upon giving a Prepayment Notice with at least 1 (one) month’s prior notice specifying the Prepayment Amount and the Prepayment Date.
 
Subject to Article 4.02C the Prepayment Notice shall be binding and irrevocable.
 
4.02B 
Prepayment indemnity
 
4.02B(1)
FIXED RATE TRANCHE
 
If the Borrower prepays a Fixed Rate Tranche, other than a BRL-Linked Tranche the Borrower shall pay to the Bank on the Prepayment Date an indemnity equal to the present value (as of the Prepayment Date) of the excess, if any, of:
 
 
(a)
the interest that would accrue thereafter on the Prepayment Amount over the period from the Prepayment Date to the Maturity Date, if it were not prepaid; over
 
 
(b)
the interest that would so accrue over that period, if it were calculated at the Redeployment Rate, less 0.15% (fifteen basis points).
 
The said present value shall be calculated at a discount rate equal to the Redeployment Rate, applied as of each relevant Payment Date.
 
With respect to BRL-linked Tranches, in respect of each prepayment Amount, the Borrower shall pay to the Bank on the prepayment Date an indemnity equal to the Additional Prepayment Amount.
 
4.02B(2)
FLOATING RATE TRANCHE
 
The Borrower may prepay a Floating Rate Tranche without indemnity on any relevant Payment Date.
 
4.02C 
Prepayment mechanics
 
The Bank shall notify the Borrower, not later than 15 (fifteen) days prior to the Prepayment Date, of the Prepayment Amount, of the accrued interest due thereon and of the indemnity payable under Article 4.02B or, as the case may be, that no indemnity is due.
 
Not later than the Acceptance Deadline, the Borrower shall notify the Bank either:
 
 
(a) 
that it confirms the Prepayment Notice on the terms specified by the Bank; or
 
 
(b) 
that it withdraws the Prepayment Notice.
 
If the Borrower gives the confirmation under paragraph (a) above, it shall effect the prepayment. If the Borrower withdraws the Prepayment Notice or fails to confirm it in due time, it may not effect the prepayment. Save as aforesaid, the Prepayment Notice shall be binding and irrevocable.
 
 
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The Borrower shall accompany the prepayment by the payment of accrued interest and indemnity, if any, due on the Prepayment Amount.
 
The Prepayment Amount shall be applied pro rata to each outstanding instalment.
 
4.020 
Prepayment Mechanics of a BRL-Linked Tranche
 
With respect to a prepayment of a BRL-Linked Tranche, the Bank shall notify the Borrower in writing, not later than 15 (fifteen) days prior to the Prepayment Date before 17:00 hours on the relevant day, of the Prepayment Amount, accrued interest thereon and the Additional Prepayment Amount (the Additional Prepayment Amount being a reference to payment due from the Borrower to the Bank and excluding any case where a payment might be due by the Bank under the unwinding process referred to in the definition of Unwinding Swap).
 
Not later than 30 (thirty) minutes after the time of receipt of such notice, the Borrower shall notify the Bank either:
 
 
(a) 
that it confirms the Prepayment Notice on the terms specified by the Bank; or
 
 
(b) 
that it withdraws the Prepayment Notice.
 
If the Borrower gives the confirmation under (a), it shall effect the prepayment by payment of the amounts referred to in the first paragraph above. If the Borrower withdraws the Prepayment Notice or fails to confirm it in due time, it may not effect the prepayment. Save as aforesaid, the Prepayment Notice shall be binding and irrevocable.
 
4.03 
Compulsory prepayment
 
4.03A 
Grounds for prepayment
 
4.03A(1)
PROJECT COST REDUCTION
 
If the total cost of the Project should be reduced from the figure stated in Recital (3) to a level at which the amount of the Credit exceeds 50% (fifty per cent) of such cost, the Bank may in proportion to the reduction forthwith, by notice to the Borrower, cancel the undisbursed portion of the Credit and/or demand prepayment of the Loan. The Borrower shall effect payment of the amount demanded on the date specified by the Bank, such date being a date falling not less than 30 (thirty) days from the date of the demand.
 
4.03A(2)
PARI PASSU TO Non-EIB Financing
 
If the Borrower (or any other member of the Group) voluntarily prepays (for the avoidance of doubt, prepayment shall include repurchase or cancellation where applicable) a part or the whole of any other Non-EIB Financing and:
 
-such prepayment is not made within a revolving credit facility (save for cancellation of the revolving credit facility);
 
-such prepayment is not made out of the proceeds of a loan having a term at least equal to the unexpired term of the Non-EIB Financing prepaid; and
 
-following such prepayment the aggregate of the outstanding Loan any other direct loans from the Bank to the Group constitutes more than fifteen percent (15%) of the aggregate outstanding Non-EIB Financing of the Group,
 
 
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the Bank may, by notice to the Borrower, cancel the undisbursed portion of the Credit and demand prepayment of the Loan. The proportion of the Loan that the Bank may require to be prepaid shall be the same as the proportion that the prepaid amount of the Non-EIB Financing bears to the aggregate outstanding amount of all Non-EIB Financing.
 
The Borrower shall effect payment of the amount demanded on the date specified by the Bank, such date being a date falling not less than 30 (thirty) days from the date of the demand.
 
For the purposes of this Article, “Non-EIB Financing” includes any loan, (save for the Loan and any other direct loans from the Bank to the Borrower or any member of the Group), credit bond or other form of financial indebtedness or any obligation for the payment or repayment of money originally granted to the Borrower or any member of the Group for a term of more than 5 (five) years
 
4.03A(3)
CHANGE OF CONTROL
 
The Borrower shall promptly inform the Bank if a Change-of-Control Event has occurred or is likely to occur in respect of itself or TIMP. At any time after the occurrence of a Change­of-Control Event, the Bank may, by notice to the Borrower, cancel the undisbursed portion of the Credit and demand prepayment of the Loan, together with accrued interest and all other amounts accrued or outstanding under this Contract.
 
In addition, if the Borrower has informed the Bank that a Change-of-Control Event is about to occur, or if the Bank has reasonable cause to believe that a Change-of-Control Event is about to occur, the Bank may request that the Borrower consult with it. Such consultation shall take place within 30 (thirty) days from the date of the Bank’s request. After the earlier of (a) the lapse of 30 (thirty) days from the date of such request for consultation, or (b) at any time thereafter, upon the occurrence of the anticipated Change-of-Control Event the Bank may, by notice to the Borrower, cancel the Credit and/or demand prepayment of the Loan, together with accrued interest and all other amounts accrued or outstanding under this Contract.
 
The Borrower shall effect payment of the amount demanded on the date specified by the Bank, such date being a date falling not less than 30 (thirty) days from the date of the demand.
 
For the purposes of this Article:
 
 
(a) 
a “Change-of Control Event” occurs if:
 
 
(i)
any person or group of persons acting in concert gains control of the Borrower or of the entity directly or ultimately controlling the Borrower; or
 
 
(ii)
Telecom ltalia SpA ceases to control directly or indirectly more than 50% (fifty per cent) of the issued share capital of the Borrower and TlMP.
 
 
(b)
“acting In concert” means acting together pursuant to an agreement or understanding (whether format or informal); and
 
 
(c)
“control” means (a) the ownership of more than fifty percent (50%) of the share capital or the voting rights of an entity; or (b) the power to appoint or remove the majority of members of the governing bodies of an entity.
 
 
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4.03A(4)
CHANGE OF LAW
 
The Borrower shall promptly inform the Bank if a Change-of-law Event has occurred or is likely to occur. In such case, or if the Bank has reasonable cause to believe that a Change­ of-Law Event has occurred or is about to occur, the Bank may request that the Borrower consult with it. Such consultation shall take place within 30 (thirty) days from the date of the Bank’s request. If, after the lapse of 30 (thirty) days from the date of such request for consultation the Bank is of the opinion that the effects of the Change-of-Law Event cannot be mitigated to its satisfaction, the Bank may by notice to the Borrower, cancel the undisbursed portion of the Credit and demand prepayment of the loan, together with accrued interest and all other amounts accrued or outstanding under this Contract.
 
The Borrower shall effect payment of the amount demanded on the date specified by the Bank, such date being a date falling not less than 30 (thirty) days from the date of the demand.
 
For the purposes of this Article “Change-of-Law Event” means the enactment, promulgation, execution or ratification of or any change in or amendment to any law, rule or regulation (or in the application or official interpretation of any law, rule or regulation) that occurs after the date of this Contract and which, in the opinion of the Bank, would materially impair the Borrower’s ability to perform its obligations under this Contract or any Guarantee or security provided in respect of this Contract.
 
4.03A(5)
MODIFICATION/LOSS-OF LICENCE EVENT
 
If the Borrower is informed, or has reasonable grounds to believe that a Modification/Loss­ of-Licence Event (as defined below) has occurred, or is likely to occur, the Borrower shall promptly inform the Bank. Upon receipt of such information, or, if earlier, in case a Modification/Loss-of-licence Event has occurred or is about to occur, the Bank may demand that the Borrower consult with it. Such consultation shall take place within 30 (thirty) days from the date of the Bank’s request.
 
If. after such consultation, or if otherwise, after the elapse of 30 (thirty) days from the date of request for such consultation from the Bank, the Bank is of the reasonable opinion that the Modification/loss-of-Licence Event is likely affect the Borrower’s ability to complete the Project, the Bank may by notice to the Borrower, forthwith suspend and/or cancel the Credit or demand prepayment of the Loan.
 
The Borrower may request in writing confirmation from the Bank as to whether it intends to demand such a consultation pursuant to this paragraph 5 and the Bank shall confirm in writing to the Borrower as soon as is reasonably practicable either that it does not consider that a Modification/Loss-of-Licence Event has occurred or that it considers that a Modification/Loss-of-Licence Event has occurred and accordingly that the above mentioned consultation process shall commence.
 
The Borrower shall effect payment of the amount demanded on the date specified by the Bank, such date being a date falling not less than 30 (thirty) days from the date of the demand.
 
 
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“Modification/Loss-of-Licence Event” means, with respect to the Borrower that the Licence is:
 
 
(a)
terminated, suspended or revoked or does not remain in full force and effect or otherwise expires; or,
 
 
(b) 
declared to be unlawful or contrary to regulation or substantially and adversely modified,
 
and in case of any such termination, suspension, revocation, repudiation, unlawfulness or substantial modification, the Licence has not been renewed, replaced or restored at the latest by the date falling 3 (three) months after the occurrence of the relevant event listed in paragraphs (a) to (b).
 
4.03A(6)
MERGER
 
The Borrower shall promptly notify the Bank in case a Merger Event occurs or is about to occur.
 
If the Borrower has informed the Bank that a Merger Event has occurred is about to occur, or if the Bank has reasonable grounds for believing that a Merger Event has occurred or is about to occur, the Bank may request consultations with the Borrower. Such consultations shall take place within 30 (thirty) days from the date of request by the Bank. After the date falling 30 (thirty) days after the date of request for consultations the Bank may, by notice to the Borrower, cancel the undisbursed portion of the Credit and request prepayment of the Loan, together with accrued interest thereon and any other sum due or accrued under this Contract.
 
The Borrower shall pay the requested amount on the date specified by the Bank, which shall not fall before 30 (thirty) days from the date of the Bank’s request
 
For the purposes of this Agreement, a “Merger Event” means any amalgamation, demerger, merger or corporate reconstruction regarding the Borrower or the Group, but excluding any such operation where the result of the aforementioned operation would be: (i) that the Borrower continues to exist as the same legal entity as at the date of this Contract; (ii) that the Borrower’s business remains that of operating the licences; and, (iii) that the operation concerned and the Group’s structure following the operation have been approved by Brazilian competent regulatory authorities.
 
4.03A(7)
ILLEGALITY
 
If:
 
 
(a)
it becomes unlawful in any applicable jurisdiction tor the Bank to perform any of its obligations as contemplated in this Contract or to fund or maintain the Loan; or
 
 
(b)
the Framework Agreement, the Mandate or the EU Guarantee is:
 
 
(i)
no longer valid or in full force and effect;
 
 
(ii)
in respect of the Framework Agreement, repudiated by the Host Government or not binding on the Host Government in any respect;
 
 
(iii)
in respect of the EU Guarantee, if the conditions for cover under the EU Guarantee are not fulfilled; or
 
 
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(iv)
not effective in accordance with its terms or is alleged by the Borrower to be ineffective in accordance with its terms
 
the Bank shall promptly notify the Borrower and the Bank may immediately (i) suspend or cancel the undisbursed portion of the Credit and/or (ii) demand prepayment of the Loan on the date indicated by the Bank in its notice to the Borrower, such date to be not earlier than 60 (sixty) days after the date of the notice unless otherwise agreed by the Parties.
 
4.03A(8)
MATERIAL ADVERSE CHANGE
 
If a Material Adverse Change occurs, as compared with the Borrower’s or TIMP’s condition at the date of this Contract the Bank may by notice to the Borrower, cancel the undisbursed portion of the Credit and/or demand prepayment of the Loan. The Borrower shall effect payment of the amount demanded on the date specified by the Bank, such date being a date falling not less than 30 (thirty) days from the date of the demand.
 
4.03B 
Prepayment mechanics
 
Any sum demanded by the Bank pursuant to Article 4.03A, together with any interest or other amounts accrued or outstanding under this Contract including, without limitation, any indemnity due under Article 4.03C, shall be paid on the date indicated by the Bank in its notice of demand and shall be applied in accordance with Article 10.05.
 
4.03C 
Prepayment Indemnity
 
In the case of an lndemnifiable Prepayment Event, the indemnity, if any, shall be determined in accordance with Article 4.02B.
 
If, moreover, pursuant to any provision of Article 4.03A the Borrower prepays a Tranche on a date other than a relevant Payment Date, the Borrower shall indemnify the Bank in such amount as the Bank shall certify is required to compensate it for receipt of funds otherwise than on a relevant Payment Date.
 
4.04 
General
 
A prepaid amount may not be reborrowed. This Article 4 shall not prejudice Article 10.
 
ARTICLE 5
Payments
 
5.01 
Day count convention
 
Any amount due by way of interest, indemnity or fee from the Borrower under this Contract, and calculated in respect of a fraction of a year, shall be determined on the following respective conventions:
 
 
31
 
 
 
(a)
for a Fixed Rate Tranche, a year of 360 (three hundred and sixty) days and a month of 30 (thirty) days; and
 
 
(b)
for a Floating Rate Tranche, a year of 360 (three hundred and sixty) days and the number of days elapsed.
 
5.02 
Time and place of payment
 
Unless otherwise specified, all sums other than sums of interest, indemnity and principal are payable within 15 (fifteen) days of the Borrower’s receipt of the Bank’s demand.
 
Each sum payable by the Borrower under this Contract shall be paid to the respective account notified by the Bank to the Borrower. The Bank shall indicate the account not less than 15 (fifteen) days before the due date for the first payment by the Borrower and shall notify any change of account not less than 15 (fifteen) days before the date of the first payment to which the change applies. This period of notice does not apply in the case of payment under Article 10.
 
A sum due from the Borrower shall be deemed paid when the Bank receives it.
 
5.03 
Set-off
 
The Bank may set off any matured obligation due from the Borrower under this Contract (to the extent beneficially owned by the Bank) against any obligation owed by the Bank to the Borrower regardless of the place of payment, booking branch or currency of either obligation. If the obligations are in different currencies, the Bank may convert either obligation at a market rate of exchange in its usual course of business for the purpose of the set-off.
 
5.04 
Disruption to Payment Systems
 
If either the Bank reasonably determines that a Disruption Event has occurred or the Bank is notified by the Borrower that a Disruption Event has occurred:
 
 
(a)
the Bank may, and shall if requested to do so by the Borrower, consult with the Borrower with a view to agreeing with the Borrower such changes to the operation or administration of the Contract as the Bank may deem necessary in the circumstances;
 
 
(b)
the Bank shall not be obliged to consult with the Borrower in relation to any changes mentioned in paragraph (a) if, in its opinion, it is not practicable to do so in the circumstances and, in any event, shall have no obligation to agree to such changes; and
 
 
(c)
the Bank shall not be liable for any damages, costs or losses whatsoever arising as a result of a Disruption Event or for taking or not taking any action pursuant to or in connection with this Article 5.04.
 
 
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5.05. 
Exceptional Payment by means of Substitute Financial Asset
 
A. 
Definitions
 
For the purposes of this Article 5.05, the following terms have the meanings respectively ascribed to them:
 
“SFA” means a substitute financial asset in the form of either:
 
 
(a) 
a deposit:
 
 
(i)
freely disposable by the Bank and made irrevocably in favour of the Bank with the Central Bank of Brazil, or with any other authority or legal entity for the time being entrusted with the relevant functions of a central bank in Brazil; or
 
 
(ii)
held on an account in the name of the Bank at such other credit institution licensed to exercise banking activities in Brazil, as the Bank shall promptly notify to the Borrower upon the latter’s request;
 
or, at the discretion of the Bank:
 
 
(b)
an instrument constituting a claim by the Bank on an acceptable credit institution in Brazil or any third country.
 
“Convertible SFA” means an SFA denominated in the currency of the Prevented Payment or other convertible currency acceptable to the Bank.
 
“Host Government” means an authority having at any relevant time effective control of all or part of the territory of Brazil or any political or territorial subdivision or public authority thereof or any other entity in or of Brazil on which regulatory, executive or judicial powers are conferred by the laws of Brazil.
 
“Local Currency SFA” means an SFA denominated in the currency of Brazil.
 
“Non-Transfer of Currency” and “NTC Event” means:
 
 
(a)
any action by the Host Government which prevents the Borrower from converting funds in local currency into the currency of any sum due under this Contract or into a freely convertible currency or into another currency deemed acceptable by the Bank or from transferring outside Brazil the local currency concerned or the currency into which the local currency has been converted, for the purpose of paying any sum due under this Contract; or
 
 
(b)
any failure by the Host Government to take action with a view to effecting or allowing such conversion or such transfer by or on behalf of the Borrower;
 
in circumstances where:
 
 
(i)
the Borrower is able freely and lawfully to avail itself within Brazil of the local currency or other currency into which the local currency has been converted; and
 
 
(ii)
the Borrower has without success for a period of 30 (thirty) days endeavoured by all reasonable means to complete the necessary legal formalities to effect the transfer or conversion.
 
“Potential NTC Event” means an event which with the lapse of time or the fulfilment of any condition would constitute a NTC Event.
 
“Prevented Payment” means a sum that the Borrower is due to pay to the Bank, other than a sum due under Article 4.02, but which it is prevented from paying by reason of a Potential NTC Event or an NTC Event.
 
 
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B. 
Procedures In case of Potential NTC Event or NTC Event
 
As soon as the Borrower becomes aware that any sum that it is due to pay to the Bank under this Contract is or will be a Prevented Payment, it shall so notify the Bank. Furthermore, the Borrower:
 
 
(a)
shall, within 5 (five) Business Days after the due date of the said sum (or such longer period as the Bank may agree), provide the Bank with evidence of the relevant Potential NTC Event or NTC Event and, if the Bank so requires from the Borrower after examining that evidence, shall within a like interval provide the further evidence so required; and
 
 
(b)
shall, within 5 (five) Business Days following receipt of notice by the Borrower to the effect that the Bank accepts that a Potential NTC Event or NTC Event has occurred and is continuing and that the sum in question is a Prevented Payment, create a Convertible SFA in the amount of the Prevented Payment or, if the Bank by such notice informs the Borrower that it is satisfied, having regard to any evidence supplied by the Borrower, that the laws and regulations in force in Brazil do not allow the creation of a Convertible SFA, a Local Currency SFA having a value equivalent to that of the Prevented Payment;
 
provided that the Bank shall endeavour to specify its further requirements, if any, envisaged in indent (a) above within 5 (five) Business Days following receipt of the evidence first furnished by the Borrower and endeavour to give the notice envisaged in indent (b) within a like interval after receiving the required evidence.
 
The required amount of the Local Currency SFA shall be determined by applying the exchange rate generally applicable to an authorised purchase of the currency of the Prevented Payment with the currency of the Local Currency SFA on either (i) the date of the establishment of the Local Currency SFA or, failing that, (ii) the most recent date on which such a rate was effectively available to the Borrower.
 
The creation of the SFA shall not constitute payment. The Bank may suspend disbursement pending receipt of further required evidence. It may, however, not exercise its right pursuant to Article 1.06B or 10.01A(a) on the sole ground of the Borrower’s failure to pay the Prevented Payment, unless it has given 3 (three) Business Days written notice to the Borrower, stating either (i) that the Bank is not satisfied, upon the basis of evidence furnished, that the payment in question is a Prevented Payment or (ii) that the SFA has not been duly created by or on behalf of the Borrower in form and amount acceptable to the Bank.
 
Furthermore, if events constituting a Potential NTC Event or NTC Event continue for a continuous period of 6 (six) months following the due date of a Prevented Payment, the Bank may by written notice to the Borrower cancel the undisbursed portion of the Credit. For cancellation on that ground, no commission shall be payable.
 
C. 
The Bank’s Determination of NTC Event
 
Having regard to the facts prevailing on the date (the “Event Date”) which is the later of (i) the date falling 15 (fifteen) days following the constitution of the SFA pursuant to Article 5.05A and B above and (ii) the date falling 30 (thirty) days from the due date of the Prevented Payment, the Bank shall within 5 (five) Business Days from the Event Date notify the Borrower as to whether or not the Bank is satisfied that:
 
 
34
 
 
 
(a)
the Borrower’s payment default was caused by the occurrence of a Potential NTC Event or an NTC Event; and
 
(b)           the following conditions are met, namely that:
 
 
(i)
he Borrower continues to suffer from the effects of a Potential NTC Event or an NTC Event in respect of the Prevented Payment and has done so continuously since the date of the Borrower’s payment default; and
 
 
(ii)
at all material times the Borrower has diligently endeavoured to make the payment by all legal means available to it.
 
If the Bank is satisfied on all such points, the said notice shall contain a statement to the effect that the SFA constitutes full and final discharge of the Borrower for the Prevented Payment.
 
If the Bank requires additional time to determine whether the abovementioned points are satisfied and whether or not to make such a demand, it may so notify the Borrower. If the Bank is not satisfied on all such points, it shall so notify the Borrower and may demand that the Borrower make the Prevented Payment.
 
The Borrower shall forthwith make the payment in full. Furthermore, if the Bank makes such a demand:
 
 
(i)
interest shall accrue on the Prevented Payment from its original due date to the actual date of payment at the rate applicable under Article 3.01;
 
 
(ii)
the Borrower shall compensate the Bank for any loss or expense incurred by it as a consequence of the Borrower’s initial payment default; and
 
 
(iii)
within 15 (fifteen) Business Days following the date of making of the Prevented Payment by the Borrower under this Article 5.05C, the Bank shall, to the extent possible, assign or transfer to the Borrower the SFA and all interest thereupon accrued, net of any loss or expense incurred by the Bank in connection therewith.

 
ARTICLE 6
Borrower undertakings and representations
 
The undertakings in this Article 6 remain in force from the date of this Contract for so long as any amount is outstanding under this Contract or the Credit is in force.
 
A.
Project undertakings
 
6.01 
Use of Loan and availability of other funds
 
The Borrower shall use all amounts borrowed by it under the Loan for the execution of the Project.
 
The Borrower shall ensure that it has available to it the other funds listed in Recital 3 and that such funds are expended, to the extent required, on the financing of the Project.
 
 
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6.02 
Completion of Project
 
The Borrower shall carry out the Project in accordance with the Technical Description as may be modified from time to time with the approval of the Bank, and complete it by the final date specified therein.
 
6.03 
Increased cost of Project
 
If the total cost of the Project exceeds the estimated figure set out in Recital (3), the Borrower shall obtain the finance to fund the excess cost without recourse to the Bank, so as to enable the Project to be completed in accordance with the Technical Description. The plans for funding the excess cost shall be communicated to the Bank without delay.
 
6.04 
Procurement procedure
 
The Borrower undertakes to purchase equipment, secure services and order works for the Project by open international tender or other acceptable procurement procedure complying, to the Bank’s satisfaction, with its policy as described in its Guide to Procurement in force at the date of this Contract.
 
6.05 
Continuing Project undertakings
 
The Borrower shall:
 
 
(a)
Maintenance: maintain, repair, overhaul and renew all property forming part of the Project as required to keep it in good working order;
 
 
(b)
Project assets: unless the Bank shall have given its prior consent in writing retain title to and possession of all or substantially all the assets comprising the Project and maintain the Project in substantially continuous operation in accordance with its original purpose; provided that the Bank may withhold its consent only where the proposed action would prejudice the Bank’s interests as lender to the Borrower and provided further that the Bank’s consent shall not be required in the event of replacement or renewal of such assets in line with technologically required evolutions;
 
 
(c)
Insurance: insure all works and property forming part of the Project with first class insurance companies in accordance with the most comprehensive relevant industry practice;
 
 
(d)
Rights and Permits: maintain in force all rights of way or use and all permits necessary for the execution and operation of the Project; and
 
 
(e)
Environment:
 
 
(i)
Implement and operate the Project in compliance with Environmental Law;
 
 
(ii)
obtain and maintain requisite Environmental Approvals for the Project; and
 
 
(iii) 
comply with any such Environmental Approvals.
 
 
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(f)
EU law:
 
execute and operate the Project in accordance with the relevant standards of EU law to !he extent implemented by the laws of Brazil or specified by the Bank prior to the date of this Contract.
 
B.
General undertakings
 
6.06 
Disposal of assets
 
 
(a)
Except as provided below, the Borrower shall not either in a single transaction or in a series of transactions whether related or not and whether voluntarily or involuntarily dispose of any part of its assets
 
 
(b)
Paragraph (a) above does not apply to any disposal of assets for fair market value and at arm’s length:
 
 
(i)
the aggregate book value of which, during the life of the Loan, does not exceed an amount equivalent to 15% (fifteen per cent) of the Group’s consolidated net tangible fixed assets as reflected in the latest audited consolidated financial statements of the Borrower prior to the signature of this Contract;
 
 
(ii)
made in the ordinary course of trading of the disposing entity;
 
 
(iii)
made in exchange tor other assets comparable or superior as to type, value and quality; or,
 
 
 
(iv)
made with the prior written consent of the Bank,
 
in each case other than assets forming part of the Project pursuant to Article 6.05(b) and all shares in subsidiaries holding assets forming part of the Project which may not be disposed of.
 
For the purposes of this Article, “dispose” and “disposal” includes any act effecting sale, transfer, lease or other disposal.
 
6.07 
Compliance with laws
 
The Borrower and TIMP under the Guarantee shall comply in all material respects with all laws and regulations to which it or the Project is subject.
 
6.08 
Change in business
 
The Borrower shall procure that no substantial change is made to the core business of the Borrower or the Group as a whole from that carried on at the date of this Contract.
 
6.09 
General Representations and Warranties
 
The Borrower represents and warrants to the Bank that:
 
 
(a)
it is duly incorporated and validly existing as a company “sociedade anonima” with limited liability under the laws of Brazil and it has power to carry on its business as it is now being conducted and to own its property and other assets;
 
 
(b)
it has the power to execute, deliver and perform its obligations under this Contract and all necessary corporate, shareholder and other action has been taken to authorise the execution, delivery and performance of the same by it;
 
 
(c)
this Contract constitutes its legally valid, binding and enforceable obligations;
 
 
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(d)
the execution and delivery of, the performance of its obligations under and compliance with the provisions of this Contract do not and will not:
 
 
(i)
contravene or conflict in any material respect with any existing applicable law, or regulation, or any judgement, decree or authorisation to which it is subject;
 
 
(ii)
contravene or conflict in any material respect with, or result in any material breach of any of the terms of, or constitute a material default under any other agreement or other instrument binding upon it which might reasonably be expected to have a material adverse effect on its ability to perform its obligations under this Contract;
 
 
(iii)
contravene or conflict with any provision of its statutes or by-laws;
 
 
(e)
the latest available consolidated audited accounts of the Borrower and TIMP have been prepared on a basis consistent with previous years and have been approved by its auditors as representing a true and fair view of the results of its operations for that year and accurately disclose or reserve against all the liabilities (actual or contingent) of the Borrower and TIMP;
 
 
(f)
there has been no Material Adverse Change since 23 March 2011;
 
 
(g)
no event or circumstance which constitutes an event of default under Article 10.01 has occurred and is continuing unremedied or unwaived;
 
 
(h)
no material litigation, arbitration, administrative proceedings or investigation is current or to the best of its knowledge is threatened or pending before any court, arbitral body or agency which has resulted or if adversely determined is reasonably likely to result in a Material Adverse Change, nor is there subsisting against it or any of its subsidiaries any unsatisfied judgement or award;
 
 
(i)
it has obtained all necessary material consents, authorisations, licences or approvals of governmental or public bodies or authorities in connection with this Contract and the Project and all such consents, authorisations, licences or approvals are in full force and effect and admissible in evidence;
 
 
(j)
at the date of this Contract, no Security Interest exists over its assets or over those of the Group save as reflected in the latest audited financial statements of the Borrower and TIMP prior to the date of the Contract;
 
 
(k)
its payment obligations under this Contract rank not less than pari passu in right of payment with all other present and future unsecured and unsubordinated obligations under any of its debt instruments except for obligations mandatorily preferred by law applying to companies generally; and
 
 
(l)
it is in compliance with Article 6.05(e) and to the best of its knowledge and belief (having made due and careful enquiry) no material Environmental Claim has been commenced or is threatened against it not previously disclosed to the Bank;
 
 
(m)
no loss of rating clause, financial covenants or cross-default provision concluded with any other lender of the Borrower are more restrictive than the ones contained in the Contract; and
 
 
(n)
to the best of its knowledge, there is no event outstanding, imminent or prevailing which, with the lapse of time and the fulfilment of any other condition would constitute an Originating Event.
 
The representations and warranties set out above shall survive the execution of this Contract and are, except paragraph (f) above, deemed repeated on each Scheduled Disbursement Date and on each Payment Date.
 
 
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6.10 
Auditing of Financial Statements
 
The Borrower undertakes, that it shall ensure that its accounting records fairly reflect, in accordance with IFRS, the operations relating to the financing and execution of the Project. The Borrower further undertakes that its annual financial statements (annual report, balance sheet and profit and loss account) shall be audited by PWC or otherwise by an independent internationally reputable auditor and that the Borrower will promptly notify the Bank upon any change of its auditors.
 
6.11 
Borrower’s Declaration
 
The Borrower declares that, to the best of its knowledge and belief, and after making due enquiry, no material funds invested in the Borrower’s share capital is of illicit origin and likewise declares that no material funds specified in Recital (3) is of illicit origin. It furthermore undertakes promptly to inform the Bank, if it should at any time acquire information of an illicit origin for any such fund.
 
The Borrower notes the policy of the Bank to pass information on its clients’ transactions to the competent authorities in circumstances where EU law would require regulated financial institutions to do so.
 
6.12 
Integrity Commitment
 
The Borrower warrants and undertakes that it has not committed, and no person to its present knowledge has committed, any of the following acts and that it will not commit, and no person, with its consent or prior knowledge, will commit any such act, that is to say:
 
 
(i)
the offering, giving, receiving or soliciting of any improper advantage to influence the action of a person holding a public office or function or a director or employee of a public authority or public enterprise or a director or official of a public international organisation in connection with any procurement process or in the execution of any contract in connection with those elements of the Project described in the Technical Description; or
 
 
(ii)
any act which improperly influences or aims improperly to influence the procurement process or the implementation of the Project to the detriment of the Borrower, including collusion between tenderers.
 
For this purpose, the knowledge of any member of the board of directors of the Borrower or the officer of the Borrower mentioned in Article 12.01 shall be deemed the knowledge of the Borrower.
 
The Borrower undertakes to inform the Bank if it should become aware of any fact or information suggestive of the commission of any such act.
 
The Borrower will institute, maintain and comply with internal procedures and controls in compliance with applicable national laws and best practices, for the purpose of ensuring that no transaction is entered with, or for the benefit of, any of the individuals or institutions named on updated lists of sanctioned persons promulgated by the United Nations Security Council or its committees pursuant to Security Council Resolutions 1267 (1999), 1373 (2001) (www.un.org/terrorism) and/or by the Council of the EU pursuant to its Common Positions 2001/931/CSFP and 2002/402/CSFP and their related or successor resolutions and/or implementing acts in connection with financing of terrorism matters.
 
 
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ARTICLE 7
Security
 
The undertakings in this Article 7 remain in force from the date of this Contract for so long as any amount is outstanding under this Contract or the Credit is in force.
 
7.01 
TIMP Guarantee
 
The obligations of the Bank under this Contract are conditional upon the prior execution and delivery to the Bank of the TIMP Guarantee in form and substance satisfactory to it, whereby TIMP unconditionally guarantees the due performance of the Borrowers financial obligations under this Contract. The Borrower hereby acknowledges and consents to the terms of the TIMP Guarantee.
 
7.02 
Guarantee and indemnity
 
The obligations of the Bank under this Contract are conditional upon the prior execution and delivery to the Bank of the Guarantee Agreement in form and substance satisfactory to it whereby the Guarantors unconditionally guarantees the due performance of the Borrower’s financial obligations under this Contract. Each Guarantor shall be a Qualifying Guarantor.
 
For the purposes of this Article, “Qualifying Guarantor” means a bank or other financial institution that satisfies one of the following conditions:
 
 
(a)
at the time of issue of the Guarantee, or, as the case may be, at the time it accedes to the Guarantee:
 
 
(i) 
each Credit Rating that it holds is not lower than:
 
 
 
1) A-, where the rating is assigned by Standard and Poor’s Rating Group or its successor;
 
 
2) A3, where the rating is assigned by Moody’s Investors Service, Inc. or its successor; and
 
 
3) A-, where the rating is assigned by Fitch Ratings Limited or its successor;
 
 and
 
 
(ii)
that such bank or other financial institution is in other respects acceptable to the Bank; or
 
 
(b)
is accepted by the Bank by notice in writing, with a copy to the Borrower, subject to the conditions the Bank may in its discretion deem appropriate, and to the acceptance of the terms of notice by the Guarantor and acknowledgement by the Borrower.
 
 
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7.03 
Other collateral and substitution of Guarantor
 

 
7.03A 
Loss of qualifying status
 
If, in respect of any Qualifying Guarantor:
 
 
(a)
any Credit Rating is lower than the respective Credit Rating specified in Article 7.02(a)(i);
 
 
(b)
all of the Credit Ratings of two or more Rating Agencies specified under Article 7.02(a)(i) cease to be published;
 
 
(c)
in the reasonable opinion of the Bank such Qualifying Guarantor has suffered a material adverse change since becoming a Qualifying Guarantor or has failed to comply with any condition specified in the Bank’s notice of acceptance delivered under Article 7.02(b); or
 
 
(d)
its obligations under the Guarantee cease to be valid, legal and enforceable obligations,
 
the Bank may at any time thereafter demand that the Borrower shall, within a period of time specified in the Bank’s notice, being at least 30 (thirty) days, either:
 
 
(a)
procure the replacement of the Qualifying Guarantor affected by any such event (the “Affected Guarantor”) by a Qualifying Guarantor; or
 
 
(b)
save in the case of paragraph (d) of this Article 7.03A procure that the Affected Guarantor provides security in favour of the Bank offering protection in manner, form and substance acceptable to the Bank; or
 
 
(c)
provides other security offering protection in manner, form and substance acceptable to the Bank.
 
If none of the foregoing actions is taken within the period specified by the Bank and to its satisfaction, the Borrower shall, upon demand by the Bank, immediately prepay to the Bank an amount equal to that Affected Guarantor’s Participation (as defined in the Guarantee Agreement) multiplied by the aggregate of (a) the amount of the Loan outstanding, (b) unpaid interest accrued to the date of prepayment on the amount prepaid, (c) the amount of an indemnity calculated in accordance with Article 4.02B and (d) any other sum then payable under this Contract in respect of the amount prepaid.
 
The non-exercise by the Bank of the right to demand substitution of the Affected Guarantor, the execution of other security shall not be deemed to be a waiver of any of the Bank’s rights or remedies under this Contract.
 
7.03B 
Guarantor default event
 
If an event of the nature described in any of Article 10.01A(c) to (j) inclusive occurs in respect of a Guarantor, the Borrower shall replace such Guarantor with a Qualifying Guarantor. If the Borrower fails to demonstrate to the Bank, promptly upon the latter’s request, that it has a reasonable prospect of replacing the Guarantor or if, in any case, the Borrower does not, following demand by the Bank, replace the Guarantor, within 30 (thirty) days of the date when the said event occurred, or provide other security offering protection in manner, form and substance acceptable to the Bank the Bank may require the Borrower to prepay immediately all or part of an amount equal to the Guarantor’s Participation (as defined in the Guarantee Agreement) multiplied by the aggregate of (a) the amount of the Loan outstanding, (b) unpaid interest accrued to the date of prepayment on the amount prepaid, (c) the amount of an indemnity calculated in accordance with Article 4.02B and (d) any other sum then payable under this Contract in respect of the amount prepaid.
 
 
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7.04 
Negative pledge
 
So long as the Loan is outstanding, if the Borrower or TIMP (having obtained the previous written consent of the Bank) grants to a third party any Security Interest on, or with respect to, any of its assets it shall, if so required by the Bank, provide equivalent Security Interest to the Bank for the performance of its obligations under this Contract or permit the Bank to share on a pari passu basis such Security Interest with such third party.
 
Nothing in the above paragraph shall apply to:
 
 
(i)
any Security Interest entered into prior to this Contract and disclosed in writing to the Bank in a disclosure letter to be delivered by the Borrower to the Bank prior to the date of this Contract;
 
 
(ii)
to any vendor’s lien or other encumbrance on land or other assets, where such encumbrance secures only the purchase price or any credit, having a term of not more than twelve months, obtained to finance it;
 
 
(iii)
any security, lien or other encumbrance arising by operation of law;
 
 
(iv)
any pledge over inventories created to secure any short-term credit;
 
 
(v)
any Security Interest granted to BNDES over assets the aggregate value of which does not exceed on a cumulative basis 40% (forty percent) of TIMP’s net tangible worth based on its most recent audited accounts; and,
 
 
(vi)
any Security Interest over or affecting any asset acquired by the Borrower after the date hereof and subject to which such asset is acquired, if:
 
 
(a)  such Security Interest was not created in contemplation of the acquisition of such asset by the Borrower; and,
 
 
(b)  the amount thereby secured has not been increased in contemplation of, or since the date of, the acquisition of such asset the Borrower.
 
For the purpose of this Article 7.04, the Borrower and TIMP declare that none of its property is subject to any encumbrance or any challenge to title, save as permitted above and save as disclosed in writing to the Bank.
 
7.05 
Pari Passu ranking
 
The Borrower shall ensure that its payment obligations under this Contract rank, and will rank, not less than pari passu in right of payment with all other present and future unsecured and unsubordinated obligations under any of its debt instruments except for obligations mandatorily preferred by law applying to companies generally.
 
 
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ARTICLE 8
Information and Visits

 
8.01 
Information concerning the Project
 
The Borrower shall:
 
 
(a) 
deliver to the Bank:
 
 
(i)
the information in content and in form, and at the times, specified in Schedule A.2 or otherwise as agreed from time to time by the parties to this Contract; and
 
 
(ii)
any such information or further document concerning the financing, procurement, implementation, operation and environmental matters of or for the Project as the Bank may reasonably require within a reasonable time;
 
 
 
(b)
submit for the approval of the Bank without delay any material change to the Project, also taking into account the disclosures made to the Bank in connection with the Project prior to the signing of this Contract, in respect of, inter alia, the cost, design, plans, timetable or to the expenditure programme or financing plan for the Project;
 
 
(c)
promptly inform the Bank of:
 
 
(i)
any action or protest initiated or any objection raised by any third party or any genuine complaint received by the Borrower or any Environmental Claim that is to its knowledge commenced, pending or threatened against it with regard to environmental or other matters affecting the Project; and
 
 
(ii)
any fact or event known to the Borrower, which may substantially prejudice or affect the conditions of execution or operation of the Project;
 
 
(iii)
any non-compliance by it with any applicable Environmental Law; and
 
 
(iv)
any suspension, revocation or modification of any Environmental Approval, and set out the action to be taken with respect to such matters.
 
 
(d)
provide to the Bank, if so requested:
 
 
(i)
a certificate of its insurers showing fulfilment of the requirements of Article 6.05(c);
 
 
(ii)
a list of policies in force covering the insured property forming part of the Project, together with confirmation of payment of the current premiums.
 
8.02 
Information concerning the Borrower and TIMP
 
The Borrower shall:
 
 
(a) 
deliver to the Bank:
 
 
(i)
as soon as they become available but in any event within 180 days after the end of each of its financial years, its consolidated and unconsolidated annual report, balance sheet, profit and loss account and auditors report for that financial year; and
 
 
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(ii)
as soon as they become publicly available but in any event within 120 days after the end of each of the relevant accounting periods, TIMP’s interim consolidated semi-annual report, balance sheet and profit and loss account of each of its financial years; and
 
 
(iii)
from time to time, such further information on its general financial situation as the Bank may reasonably require;
 
 
(b)
ensure that its accounting records fully reflect the operations relating to the financing, execution and operation of the Project; and
 
 
(c)
inform the Bank immediately of:
 
 
(i)
any material alteration to its statutes or shareholding structure after the date of this Contract;
 
 
(ii)
any fact which obliges it to prepay any financial indebtedness or any EU funding in advance of its scheduled maturity;
 
 
(iii)
any event or decision that constitutes or may result in the events described in Article 4.03A;
 
 
(iv)
any intention on its part to grant any security over any of its assets in favour of a third party, other than Security Interests permitted pursuant to the terms of Article 7.04;
 
 
(v)
any intention on its part to relinquish ownership of any material component of the Project;
 
 
(vi)
any fact or event that is reasonably likely to prevent the substantial fulfilment of any obligation of the Borrower under this Contract;
 
 
(vii)
any event listed in Article 10.01 having occurred or being threatened or anticipated; or
 
 
(viii)
any litigation, arbitration or administrative proceedings or investigation which is current, threatened or pending which might if adversely determined result in a Material Adverse Change.
 
8.03 
Visits by the Bank
 
The Borrower shall allow persons designated by the Bank to visit the sites, installations and works comprising the Project and to conduct such checks as they may wish, and shall provide them, or ensure that they are provided, with all necessary assistance for this purpose.
 
The Borrower shall allow persons designated by the Bank, as well as persons designated by other EU institutions or bodies when so required by the relevant mandatory provisions of EU law, to visit the sites, installations and works comprising the Project and to conduct such checks as they may wish, and shall provide them, or ensure that they are provided, with all necessary assistance for this purpose.
 
The Borrower acknowledges that the Bank may be obliged to divulge such information relating to the Borrower and the Project to any competent EU institution or body in accordance with the relevant mandatory provisions of EU law.
 
 
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8.04 
Information on Originating Events
 
The Borrower shall inform the Bank immediately of the occurrence of an Originating Event of which it is aware.
 
8.05 
Investigations and Information
 
The Borrower undertakes:
 
 
(i)
to take such action as the Bank shall reasonably request to investigate and/or terminate any alleged or suspected act of the nature described in Articles 6.12;
 
 
(ii)
to inform the Bank of the measures taken to seek damages from the persons responsible tor any loss resulting from any such act; and
 
 
(iii)
to facilitate any investigation that the Bank and any other persons designated by other European Community institutions or bodies may make concerning any such act.

 
ARTICLE 9
Charges and expenses
 
9.01 
Taxes, duties and fees
 
The Borrower shall pay all taxes, duties, fees and other impositions of whatsoever nature, including stamp duty and registration fees, arising out of the execution or implementation of this Contract or any related document and in the creation, perfection, registration or enforcement of any security for the Loan to the extent applicable.
 
The Borrower shall pay all principal, interest, indemnities and other amounts due under this Contract gross without deduction of any national or local impositions whatsoever; provided that, if the Borrower is obliged to make any such deduction, it will gross up the payment to the Bank so that after deduction, the net amount received by the Bank is equivalent to the sum due.
 
9.02 
Other charges
 
The Borrower shall bear all duly documented charges and expenses, including professional, banking or exchange charges incurred in connection with the preparation, execution, implementation and termination of this Contract or any related document, any amendment, supplement or waiver in respect of this Contract or any related document, and in the amendment, creation, management and realisation of any security for the Loan.
 
 
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ARTICLE 10
Events of default

 
10.01 
Right to demand repayment
 
The Borrower shall repay all or part of the Loan forthwith, together with accrued interest and all other accrued or outstanding amounts under this Contract, upon written demand being made by the Bank in accordance with the following provisions.
 
10.01A 
Immediate demand
 
The Bank may make such demand immediately:
 
 
(a)
if the Borrower fails on the due date to repay any part of the Loan, to pay interest thereon or to make any other payment to the Bank as provided in this Contract, unless (i) its failure to pay is caused by an administrative or technical error or a Disruption Event and (ii) payment is made within 3 Business Days of its due date;
 
 
(b)
if any information or document given to the Bank by or on behalf of the Borrower or TIMP or any representation or statement made or deemed to be made by the Borrower in application of this Contract is or proves to have been incorrect, incomplete or misleading in any material respect;
 
 
(c)
if, following any default of the Borrower or TIMP in relation to any loan, or any obligation arising out of any financial transaction, other than the Loan
 
 
(i)
the Borrower or TIMP is required or is capable of being required or will, following expiry of any applicable contractual grace period, be required or be capable of being required to prepay, discharge, close out or terminate ahead of maturity such other loan or obligation; or
 
 
(ii)
any financial commitment for such other loan or obligation is cancelled or suspended;
 
 
(iii)
AND such other loans or obligations or commitments falling under paragraphs (i) or (ii) above are in an aggregate principal amount in excess of the equivalent of EUR 25 000 000 (twenty-five million euros).
 
 
(d)
if the Borrower or TIMP is unable to pay its debts as they fall due, or suspends its debts, or makes or, without prior written notice to the Bank, seeks to make a composition with its creditors;
 
 
(e)
if any corporate action, legal proceedings or other procedure or step is taken in relation to or an order is made or an effective resolution is passed for the winding up of the Borrower or TIMP, or if the Borrower or TIMP takes steps towards a substantial reduction in its capital, is declared insolvent or ceases or resolves to cease to carry on the whole or any substantial part of its business or activities;
 
 
(f)
if an encumbrancer takes possession of, or a receiver, liquidator, administrator, administrative receiver or similar officer is appointed, whether by a court of competent jurisdiction or by any competent administrative authority or by any person, of or over, any part of the business or material assets of the Borrower or TIMP or any property forming part of the Project;
 
 
46
 
 
 
(g)
if the Borrower or TIMP defaults in the performance of any obligation in respect of any other loan granted by the Bank or financial instrument entered into with the Bank;
 
 
(h)
if any distress, execution, sequestration or other process is levied or enforced upon the property of the Borrower or any property forming part of the Project and is not discharged or stayed within 30 (thirty) days and is likely to materially impair the ability of the Borrower or TIMP to comply with its payment obligations under this contract or the TIMP Guarantee or to perform the Project;
 
 
(i)
if it is or becomes unlawful for the Borrower or TIMP to perform any of its obligations under this Contract or the TIMP Guarantee or this Contract, the TIMP Guarantee or the Guarantee Agreement is not effective in accordance with its terms or is alleged by the Borrower; TIMP or a Guarantor to be ineffective in accordance with its terms; or
 
 
(j)
if any Guarantee ceases to be valid and enforceable and an acceptable alternative Guarantee is not provided to the Bank or cash collateral or alternative security are not given, in each case, in accordance with the provisions of Articles 7.02 and 7.03.
 
10.01B 
Demand after notice to remedy
 
The Bank may also make such demand:
 
 
(a)
if the Borrower fails to comply with any obligation under this Contract not being an obligation mentioned in Article 10.01A or TIMP fails to comply with any obligation under the TIMP Guarantee; or
 
 
(b)
if any fact related to the Borrower or the Project stated in the Recitals materially alters and is not materially restored and if the alteration either prejudices the interests of the Bank as lender to the Borrower or adversely affects the implementation or operation of the Project,
 
unless the non-compliance or circumstance giving rise to the non-compliance is capable of remedy and is remedied within a reasonable period of time specified in a notice served by the Bank on the Borrower or TIMP.
 
10.02 
Other rights at law
 
Article 10.01 shall not restrict any other right of the Bank at law to require prepayment of the Loan.
 
10.03 
Indemnity
 
10.03A
Fixed Rate Tranches
 
In case of demand under Article 10.01 in respect of any Fixed Rate Tranche, the Borrower shall pay to the Bank the amount demanded together with a sum calculated in accordance with Article 4.02B on any amount that has become due and payable. Such sum shall accrue from the due date for payment specified in the Bank’s notice of demand and be calculated on the basis that prepayment is effected on the date so specified.
 
 
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10.03B
Floating Rate Tranches
 
In case of demand under Article 10.01 in respect of any Floating Rate Tranche, the Borrower shall pay to the Bank the amount demanded together with a sum equal to the present value of 0.15% (fifteen basis points) per annum calculated and accruing on the amount due to be prepaid in the same manner as interest would have been calculated and would have accrued, if that amount had remained outstanding according to the original amortisation schedule of the Tranche, until the Maturity Date.
 
The value shall be calculated at a discount rate equal to the Redeployment Rate applied as of each relevant Payment Date.
 
10.03C
General
 
Amounts due by the Borrower pursuant to this Article 10.03 shall be payable on the date of prepayment specified in the Bank’s demand.
 
10.04 
Non-Waiver
 
No failure or delay or single or partial exercise by the Bank in exercising any of its rights or remedies under this Contract shall be construed as a waiver of such right or remedy. The rights and remedies provided in this Contract are cumulative and not exclusive of any rights or remedies provided by law.
 
10.05 
Application of sums received
 
Sums received by the Bank following a demand under Article 10.01 shall be applied first in payment of expenses, interest and indemnities and secondly in reduction of the outstanding instalments in inverse order of maturity. The Bank may apply sums received between Tranches at its discretion.
 
 
ARTICLE 11
Law and Jurisdiction
 
11.01 
Governing Law
 
This Contract and any non-contractual obligations arising out of or in connection with it shall be governed by the laws of England.
 
11.02 
Jurisdiction
 
The parties hereby submit to the jurisdiction of the courts of England and Wales.
 
The parties to this Contract hereby waive any immunity from or right to object to the jurisdiction of these courts. A decision of the courts given pursuant to this Article shall be conclusive and binding on each party without restriction or reservation.
 
 
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11.03 
Agent of Service
 
The Borrower appoints Tl United Kingdom Limited, whose address is 100, New Bridge Street, EC4V 6JA London, United Kingdom to be its Agent for the purpose of accepting service on their behalf on any writ, notice, order, judgement or other legal process.
 
11.04 
Evidence of sums due
 
In any legal action arising out of this Contract the certificate of the Bank as to any amount or rate due to the Bank under this Contract shall in the absence of manifest error be prima facie evidence of such amount or rate.
 
ARTICLE 12
Final clauses
 
12.01 
Notices to either party
 
Notices and other communications given under this Contract addressed to either party to this Contract shall be made to the address or facsimile number as set out below, or to such other address or facsimile number as a party previously notifies to the other in writing:
 
 
-for THE BANK:   
100 boulevard Konrad Adenauer
L-2950 Luxembourg
Fax +352 437966599
Attention: Head of Division, Operations for Latin America
 
 
-for THE BORROWER    
Avenida das Americas, 3.434, Bloco 1, 7° andar
Barra da Tijuca, Rio de Janeiro, RJ Brasil
CEP:22.640-102
FAX: 55-21-4109-3943
Attention: Treasury Manager (Gerência de Tesouraria)
 
12.02 
Form of notice
 
Any notice or other communication given under this Contract must be in writing.
 
Notices and other communications, for which fixed periods are laid down in this Contract or which themselves fix periods binding on the addressee, may be made by hand delivery, registered letter or facsimile. Such notices and communications shall be deemed to have been received by the other party on the date of delivery in relation to a hand-delivered or registered letter or on receipt of transmission in relation to a facsimile.
 
Other notices and communications may be made by hand delivery, registered letter or facsimile or, to the extent agreed by the parties by written agreement, by email or other electronic communication.
 
 
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Without affecting the validity of any notice delivered by facsimile according to the paragraphs above, a copy of each notice delivered by facsimile shall also be sent by letter to the relevant party on the next following Business Day at the latest.
 
Notices issued by the Borrower pursuant to any provision of this Contract shall, where required by the Bank, be delivered to the Bank together with satisfactory evidence of the authority of the person or persons authorised to sign such notice on behalf of the Borrower and the authenticated specimen signature of such person or persons.
 
12.03 
Complete agreement
 
This Contract constitutes the complete agreement between the parties hereto. The mutual undertakings and representations contained in this Contract replace all prior undertakings and representations made by the parties in the course of the correspondence, discussions and negotiations leading to the conclusion of this Contract.
 
12.04 
Partial invalidity
 
If at any time any provision of this Contract is or becomes illegal, invalid or unenforceable in any respect under any law of any jurisdiction, neither the legality, validity or enforceability of the remaining provisions nor the legality, validity or enforceability of such provision under the law of any other jurisdiction will in any way be affected or impaired.
 
12.05 
Third party rights
 
A person who is not a party to this Contract has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce or to enjoy the benefit of any term of this Contract Notwithstanding any term of this Contract, the consent of any person who is not a party to this Contract is not required to rescind or vary this Contract at any time.
 
12.06 
Counterparts
 
This Contract may be executed in any number of counterparts and this has the same effect as if the signatures on the counterparts were on a single copy of the Contract
 
12.07 
Recitals, Schedules and Annexes
 
The Recitals and following Schedules form part of this Contract:
 
 
Schedule A 
Technical Description and Reporting
 
 
Schedule B 
Definition of EURIBOR and LIBOR
 
 
Schedule C 
Forms for Borrower
 
 
Schedule D 
Forms for BRL Linked Tranches
 
The following Annexes are attached hereto:
 
 
Annex I 
Resolution of Board of  Directors of Borrower and authorisation of signatory
 
 
50
 
 
12.08 
Place of Payment
 
For the purposes of Article 585 of Brazilian Law No. 5,869 of January 11, 1973 as amended (the Brazilian Civil Procedure Code) , Brazil may be the place of payment of the obligations under or resulting from the Contract, at the discretion of the parties hereto.
 
IN WITNESS WHEREOF the parties hereto have caused this Contract to be executed in tour (4) originals in the English language and have respectively caused R. Amor and the undersigned to initial each page of this Contract on their behalf
 
 
  Signed for and on behalf of      Signed for and on behalf of   
  EUROPEAN INVESTMENT BANK       TIM CELULAR S.A.  
           
 
 
       
  
P. Walsh                                R. Amor                                F. Mancini                                S. D’Ovidio
 

 

 
This 29 th day of December 2011, at Luxembourg
 
This 29 th day of December 2011, at Rome
 
 
51
 
 
12.08 
Place of Payment
 
For the purposes of Article 585 of Brazilian Law No. 5.869 of January 11, 1973 as amended (the Brazilian Civil Procedure Code), Brazil may be the place of payment of the obligations under or resulting from the Contract, at the discretion of the parties hereto.
 
IN WITNESS WHEREOF the parties hereto have caused this Contract to be executed in four (4) originals in the English language and have respectively caused R. Amor and the undersigned to initial each page of this Contract on their behalf
 
 
  Signed for and on behalf of      Signed for and on behalf of   
  EUROPEAN INVESTMENT BANK       TIM CELULAR S.A.  
           
 
 
       
  
P. Walsh                                R. Amor                                F. Mancini                                S. D’Ovidio
 

 
This 29 th   day of December 2011, At Luxembourg
 
This 29 th day of December 2011. at Rome
 
 
52
 
 
 
      AUTENTICA DI FIRMA
NOTAIO IN ROMA
Vin M Prestinan, 12
00195 ROMA
Tel. 06/32.23.633 – 32.23.406
Fax 32.23.528
 
  Oecciico io siioscritto, Doll. Mario LUPI, Molaio in Roma, con Uffinio alla Marcello Presinari n. 13, inscritto nel Colegio dei Distretti Notarili Rioniti di Roma, Velletri e Civitavecchia, che I Signori:
 
– MANCINI Avv. FRANCESCO, nato a Roma il venlotto novembre millenovocentocinquantadue, domiciliato per la carica in Ro ma, corso d’Italia n. 41;
 
– D’OVIDIO STEFANO, nato a Roma il tredici ottobre millenove- centosessantadue, domiciliato per la carica in Roma, Corso d’Italia n. 41;
 
nella loro qualita di rappresentanti della “ TIM CELULAR S.A. ”, con sede Avenida Giovanni Gronchi, 7143 Vila Andrade, San Paolo (Brasile) – CEP 05724-006, della cui identita per sonale, qualifica e poteri, io Notaio sono certo, previa e spressa e concorde rinuncia fatta, con il mio consenso, al j ‘assistenza dei testimoni, hanno apposto la propria firma in calce alla avantiestesa ed a margine degli altri rogli, all mia presenza in Roma, nel mio Ufticto ove supra.
Roma, ventinove dicembre duemilaundici 429.12.20111.
 
 
 
53
 
 
Schedule A
 

 
Project Specification and Reporting
A.1 Technical Description (Article 6.02)
A.2 Information Duties under Article 8.01(a)
 

 
Purpose, Location
 
The project relates to the geographical coverage expansion and capacity increase of the promoter’s 2G and 3G mobile broadband networks throughout the whole country. Currently covering 94% of the Brazilian urban population living in and around 3 100 cities via its 2G GSM network, the 2G component of the project relates mainly to the increase of capacity in already covered areas. Regarding the 3G mobile broadband network, the project relates to the roll-out of over 3 100 3G Node Bs to increase the number of cities covered from 300 to over 1 000.
 
Description
 

 
The project concerns the design; roll-out, commissioning and operation ofamobile telecommunications network operating in the 2 100 / 850 MHz UMTS and 900/1 800 MHz GSM standard in Brazil and is part of a continuous development programme of the promoter. The project foresees investment in network, infrastructure, information technology and complementary components of mobile telecommunications. The project will expand the geographical coverage and the quality of voice and data telecom services. The project’s main elements described below may be adapted in the course of its implementation according to market evolutions:
 
i.
Second Generation (2G) mobile: By the end of 2012, TIM will have nearly 12 000 Base Transceiver Stations, an increase of over 1 500 over the project period. The number of BSCs is planned to be increased by 50 to 270. The population coverage is planned to increase slightly from 94% to 95% of the urban population.
 
ii.
Third Generation (3G) Mobile: The number of Node Bs is planned to increase by about 3 100 to 8 500, while the RNCs are planned to increase by nearly 50% to close to 90 by 2012. The number of cities covered with 3G technology is planned to increase by over 850 to above 1 100, representing 73% of the urban population
 
Calendar
 
The project is planned to be implemented between beginning 2011 until end 2012.
 
Items eligible for EIB financing
 
The items that have been considered to be eligible for EIB’s financing are all of the imported items with the exception of the items related to the network facilities investments. Items already financed by BNDS are also not considered eligible. This amounts to a total of around EUR 327m.
 
 
54
 
 
APPENDIX A.2
 

 
PROJECT INFORMATION TO BE SENT TO THE BANK AND METHOD OF TRANSMISSION
 

 
1. Dispatch of information: designation of the person responsible
The information below has to be sent to the Bank under the responsibility of:
 
Company
TIM CELULAR SA
Contact person
Marco Chiarucci
Title
Head of Treasury
Function / Department
 
Address
Av. das Americas
3 434 Bloco 1 7 andar
Barra da Tijuca, Rio de Janeiro, Brazil
Phone
+55.21.400.94824
Fax
+55.21.400.93943
Email
mchiarucci@timbrasil.com.br
 
The above-mentioned contact person(s) is (are) the responsible contact(s) for the time being.
The Borrower shall inform the EIB immediately in case of any change.

 
2. Information on the project’s implementation
The Borrower shall deliver to the Bank the following information on project progress during implementation at the latest by the deadline indicated below.
 
Document/Information
 
Deadline
Frequency of reporting
Project Progress Report
 
-       A brief update on the technical description based on the documentation provided to the Bank during the due-diligence process explaining the reasons for significant changes vs. initial scope.
 
-       Update on the date of completion of each of the main project’s components, explaining reasons for any possible delay;
 
-       Update on the cost of the project, explaining reasons for any possible changes vs. initial budgeted cost.
 
-       A description of any major issue with impact on the environment;
 
-       Update on procurement procedures
 
-       Update on the project’s demand or usage and comments; (subscribers, ARPU, market share, penetration).
 
-       Any significant issue that has occurred and any significant risk that may affect the project’s operation;
 
-       Any legal action concerning the project that may be ongoing.
31.03.2012
1
     

 
55
 
 
3. Information on the end of works and first year of operation
 
The Borrower shall deliver to the Bank the following information on project completion and initial operation at the latest by the deadline indicated below.
 
Document/Information
 
Date of delivery to the Bank
Project Completion Report, including:
 
-           A brief description of the technical characteristics of the project based on the documentation provided to the Bank during the due-diligence process, as completed, explaining the reasons for any significant change;
 
-           The date of completion for each of the main project’s components, explaining reasons for any possible delay;
 
-           The final cost of the project, explaining reasons for any possible cost changes vs. initial budgeted cost;
 
-           The number of new jobs created by the project: both jobs during implementation and permanent new jobs created.
 
-           A description of any major issue with impact on the environment;
 
-           Update on procurement procedures);
 
-           Update on the project’s demand or usage and comments; (subscribers, ARPU, market share, penetration). Any significant issue that has occurred and any significant risk that ay affect the project’s operation;
 
-           Any legal action concerning the project that may be ongoing.
31.03.2014
   

Language of reports
English, Portuguese, Italian

 

 

 

 
I Language of reports               I English, Portuguese, Italian
 
 
56
 
 
Schedule B

 
Definitions of EURIBOR and LIBOR
A. 
EURIBOR
 
“EURIBOR” means:
 
(a)
in respect of a relevant period of less than one month, the rate of interest for deposits in EUR for a term of one month;
 
(b)
in respect of a relevant period of one or more whole months, the rate of interest for deposits in EUR for a term for the corresponding number of whole months; and
 
(c)
in respect of a relevant period of more than one month (but not whole months), the rate resulting from a linear interpolation by reference to two rates for deposits in EUR, one of which is applicable for a period of whole months next shorter and the other for a period of whole months next longer than the length of the relevant period,
 
(the period for which the rate is taken or from which the rates are interpolated being the “Representative Period”),
 
as published at 11h00 Brussels time or at a later time acceptable to the Bank on the day (the “Reset Date”) which falls 2 (two) Relevant Business Days prior to the first day of the relevant period, on Reuters page EURIBOR 01 or its successor page or, failing which, by any other means of publication chosen for this purpose by the Bank.
 
If such rate is not so published, the Bank shall request the principal euro-zone offices of four major banks in the euro-zone, selected by the Bank, to quote the rate at which EUR deposits in a comparable amount are offered by each of them as at approximately 11h00, Brussels time, on the Reset Date to prime banks in the euro­zone interbank market for a period equal to the Representative Period. If at least 2 (two) quotations are provided, the rate for that Reset Date will be the arithmetic mean of the quotations.
 
If fewer than 2 (two) quotations are provided as requested, the rate for that Reset Date will be the arithmetic mean of the rates quoted by major banks in the euro­zone, selected by the Bank, at approximately 11h00 Brussels time on the day which falls 2 (two) Relevant Business Days after the Reset Date, for loans in EUR in a comparable amount to leading European Banks for a period equal to the Representative Period.
 
B. 
LIBOR USD
 
“LIBOR” means, in respect of USD:
 
(a)
in respect of a relevant period of less than one month, the rate of interest for deposits in USD for a term of one month;
 
(b)
in respect of a relevant period of one or more whole months, the rate of interest for deposits in USD for a term for the corresponding number of whole months; and
 
(c)
in respect of a relevant period of more than one month (but not whole months), the rate resulting from a linear interpolation by reference to two rates for deposits in USD, one of which is applicable for a period of whole months next shorter and the other for a period of whole months next longer than the length of the relevant period,
 
(the period for which the rate is taken or from which the rates are interpolated being the “Representative Period”),
 
 
57
 
 
as set by the British Bankers Association and released by financial news providers at 11h00 London time or at a later time acceptable to the Bank on the day (the “Reset Date”) which falls 2 (two) London Business Days prior to the first day of the relevant period.
 
If such rate is not so released by any financial news provider acceptable to the Bank, the Bank shall request the principal London offices of 4 (four) major banks in the London interbank market selected by the Bank to quote the rate at which USD deposits in a comparable amount are offered by each of them at approximately 11h00 London time on the Reset Date, to prime banks in the London interbank market for a period equal to the Representative Period. If at least 2 (two) such quotations are provided, the rate will be the arithmetic mean of the quotations provided.
 
If fewer than 2 (two) quotations are provided as requested, the Bank shall request the principal New York City offices of 4 (four) major banks in the New York City interbank market, selected by the Bank, to quote the rate at which USO deposits in a comparable amount are offered by each of them at approximately 11h00 New York City time on the day falling 2 (two) New York Business Days after the Reset Date, to prime banks in the European market for a period equal to the Representative Period. If at least 2 (two) such quotations are provided, the rate will be the arithmetic mean of the quotations provided.
 
C. 
General
 
For the purposes of the foregoing definitions:
 
(a)
“London Business Day” means a day on which banks are open for normal business in London and “New York Business Day” means a day on which banks are open for normal business in New York.
 
(b)
All percentages resulting from any calculations referred to in this Schedule will be rounded, if necessary, to the nearest one hundred-thousandth of a percentage point, with halves being rounded up.
 
(c)
The Bank shall inform the Borrower without delay of the quotations received by the Bank.
 
(d)
If any of the foregoing provisions becomes inconsistent with provisions adopted under the aegis of EURIBOR FBE and EURIBOR ACI in respect of EURIBOR or of the British Bankers Association in respect of LIBOR, the Bank may by notice to the Borrower amend the provision to bring it into line with such other provisions.
 
 
58
 
 
Schedule C 2
 
C.1 Form of Disbursement Request (Article 1.028)
Disbursement Request
Brazil - TIM MOBILE BROADBAND NETWORK
 
 Date:
 
Please proceed with the following disbursement
 
   
Loan Name(*):
   
         
   
Signature Date(*):
 
Contract F1 number:
   
             
Currency & amount requested
 
Proposed disbursement date:
 
 Currency
 Amount
 
     
       
INTEREST
Int. rate basis (Art. 3.01)
   
 Reserved for the EIB
(contract currency)
 
Rate (% or Spread)
       
OR (please indicated only ONE)
  _____________________
 
 Total Credit Amount:
 
 
         
     
 Disbursed to date:
 
         
Payment Dates (Art. 5)
       
     
 Balance for disbursement
 
         
         
CAPITAL
     
 Current disbursement
 
         
 
 
 
 
Repayment methodology
(Art. 4.01)
       
 
 Equal instalments  □
 
 
 Single instalment  □
 
 Balance after disbursement:
 
     
     
 
 Disbursement deadline:
 
         
         
First repayment date
   
 Max. number of
 disbursements
 
         
Maturity Date:
   
 Minimum Tranche size:
 
           
       
 Total allocations to date:
 
           
       
 Conditions precedent:
Yes/No
Borrower’s account to be credited:
 
Acc. N o. …………………………………………………………………………………………...................................
 
2 To be provided on paper bearing the Borrower’s letterhead.
 
 
59
 
 
(please, provide IBAN format in case of disbursements in EUR, or appropriate format for the relevant currency)
 

 
Bank name, address:  ……………………………………………………………………
 
Please transmit Information relevant to:
 
Borrower’s authorised name(s) and signature(s):
 
 
60
 
C.2 Form of Certificate from Borrower (Article 1.048)
 

 
To: 
European Investment Bank
 
From: 
Tim Celular S.A.
 
Date:
 
 
Subject: Finance Contract between European Investment Bank and Tim Celular S.A. dated
 
 
• 
(the “Finance Contract”)
 
Fl number ............                 Serapis number .........
 

 

Dear Sirs,

 
Terms defined in the Finance Contract have the same meaning when used in this letter.
 
For the purposes of Article 1.04 of the Finance Contract we hereby certify to you as follows:
 
(a)
no event described in Article 4.03A has occurred and is continuing unremedied;
 
(b)
no security of the type prohibited under Article 7.04 has been created or is in existence;
 
(c)
there has been no material change to any aspect of the Project or in respect of which we are obliged to report under Article 8.01, save as previously communicated by us;
 
(d)
we have sufficient funds available to ensure the timely completion and implementation of the Project in accordance with Schedule A.1;
 
(e)
no event or circumstance which constitutes or would with the passage of time or giving of notice under the Finance Contract constitute an event of default under Article 10.01 has occurred and is continuing unremedied or unwaived;
 
(f)
no litigation, arbitration administrative proceedings or investigation is current or to our knowledge is threatened or pending g before any court, arbitral body or agency which has resulted or if adversely determined is reasonably likely to result in a Material Adverse Change, nor is there subsisting against us or any of our subsidiaries any unsatisfied judgement or award;
 
(g)
the representations and warranties to be made or repeated by us under Article 6.09 are true in all respects; and
 
(h)
no Material Adverse Change has occurred, as compared with our condition at the date of the Finance Contract.

 
Yours faithfully,
 

 
For and on behalf of Tim Celular S.A. Date:
 
 
61
 
 
SCHEDULED
 
Page 4 of 6
 

 

 
D.1. Form of Disbursement Request (Article 1. 02D)
 
Disbursement Request
 

 
 
 
 
TO: 
European Investment Bank
 
 FROM: 
Tim Celular S.A
 
 
[Date]
 
 
Subject: Brazil - TIM MOBILE BROADBAND Network
 

 
Finance Contract between European Investment Bank and Tim Celular S.A., dated [  ](the “Finance Contract”)
 

Dear Sirs,
 

 
Terms defined in the Finance Contract have the same meaning when used in this letter.
 
We hereby request that the procedure for disbursement of a Tranche of the Credit on a Brazilian Real-linked basis be initiated with the Pricing Date to occur on or about (date to be specified 7-14 days prior to the proposed Scheduled Disbursement Date and to be within the Availability Period and not within 3 Business Days of any other proposed Pricing Date].
 
The amount of the Tranche shall be [BRL [____] million].
 
We propose as Scheduled Disbursement Date for such Tranche [date to be specified not earlier than 20 Business Days from the date of the relevant Disbursement Request].
 
We propose that the first and the last repayment dates be...[for amortising tranches] / We propose that the repayment date be ...[for bullet tranches]
 
We understand and accept that at the Pricing Date the following matters will be agreed for such
 
Tranche:
 
1. 
the fixed interest rate for such Brazilian Real-linked Tranche;
 
2. 
Payment Oates;
 
3. 
the Scheduled Disbursement Date;
 
4. 
interest payment periodicity;
 
5. 
terms for repayment of principal; and
 
6.t
the first and last principal repayment dates.
 
We understand that the above matters will be agreed during the course of a telephone conference call between us and you and that such call will be recorded. The Disbursement Notice for such Tranche recording the agreement reached will be prepared and dispatched by you as soon as practicable after agreement is reached but for the avoidance of doubt in case of any inconsistency between the Disbursement Notice and the agreement concluded in the telephone conference call, the telephone conference call as evidenced by the recording thereof shall  prevail.
 
 
62
 
 
We further understand that disbursement is subject to (i) agreement of the above matters having occurred before the Final Availability Date and (ii) the Scheduled Disbursement Date for such disbursement being a date occurring on or before the Final availability Date.
 
Yours faithfully,
 
 
63
 
 
SCHEDULE D
 

 
D 2. Form of Disbursement Notice for BRL-Linked Tranches (Article 1.02D)
 
To: 
Tim Celular S.A.
 
From: 
European Investment Bank
 
Date:
 
 
Subject
 
 
Disbursement Notice for the Finance Contract between European Investment Bank and Tim Celular S.A dated [                ] (the “Finance Contract”) (FI number ............
Serapis number ...... ...)
 
 
Dear Sirs,
 
We refer to the Finance Contract. Terms defined in the Finance Contract have the same meaning when used in this letter.
 
Following the occurrence of a Pricing Date, in accordance with Article 1.02 of the Finance Contract, we confirm that you accepted a BRL-Linked Tranche on the following terms:
 
(a) 
Currency (BRL...., USD equivalent....EUR equivalent
 
(b) 
Scheduled Disbursement Date:
 
(c) 
Fixed Interest rate:
 
(d) 
Interest payment periodicity:
 
(e) 
Payment Dates:
 
(f) 
Terms for repayment of principal:
 
(g) 
The first and last principal repayment dates:
 
(h) 
FX Exchange Rate
 
Yours faithfully,
 
 
 

 
 
    EUROPEAN INVESTMENT BANK  
 
64
 
 
Exhibit 4.5
PROMISSORY NOTE
 
 
U.S. $100,000.000.00  September 05, 2011
 
 
FOR VALUE RECEIVED as a loan, the undersigned TIM CELULAR S.A., a corporation duly constituted and domiciled in the Federative Republic of Brazil and enrolled with the CNPJ under number 04.206.050/0001-80 (the “Borrower”), unconditionally promises to pay to the order of JPMORGAN CHASE BANK, NATIONAL ASSOCIATION (the “Bank”), at its branch office, 383 Madison Avenue, New York, New York 10179 (the “Branch Office”), the principal sum of ONE HUNDRED MILLION UNITED STATES DOLLARS (U.S. $100,000,000,00) on the Maturity Date (as defined below).
 
The Borrower promises to pay interest on the unpaid balance of the Loan (as defined below) from and including the date of the Loan to but excluding the date such Loan is due at a rate per annum for such period equal to 1,56% (One percent and Fifty Six) per annum (“Interest Rate”), subject to the provisions of Section 3(c) hereof. Accrued interest shall be payable on each Interest Payment Date, provided that interest payable at the Default Rate (as defined below) pursuant to Section 3(c) hereof shall he payable upon demand.
 
All payments hereunder shall be made in U.S. Dollars and in immediately available funds, without deduction, set-off or counterclaim. The Bank shall maintain on its books records setting forth the amounts of principal, interest and other sums paid or payable by the Borrower from time to time hereunder. In the event of any dispute, action or proceeding relating to this Note, such records shall be conclusive in the absence of manifest error.
 
1.            Certain Definitions .     As used herein, the following terms shall have the corresponding meanings
 
“ Banking Day ” means any day on which commercial banks are not authorized or required to close in New York City and which is also a day on which dealings in U.S. Dollar deposits are carried out in the London interbank market.
 
“ Borrower’s Economic Group ” means Tim Participacações S.A., Tim Celular S.A., Intelig Telecomunicações Ltda. and, after the acquisition by the Borrower, Eletropaulo Telecomunicações Ltda. and AES Communications Rio de Janeiro S.A.
 
“ Brazil ” shall mean The Federative Republic of Brazil.
 
“ Closing Date means the date hereof.
 
“ Commitment ” means U.S. $ 100,000,000.00
 
 
 
 
 
 
“ Default Rate ” means, in respect of any amount not paid when due, a rate per annum during the period commencing. on the due date until such amount is paid in full equal to a fixed rate of 1.00% p.y above the Interest Rate applicable to principal hereof.
 
“ Drawdown Date ” means the date on which the Bank makes the Loan to the Borrower.
 
“ EBITDA ” means earnings before amortization, depreciation, interest paid and received, results of equity investments results of non-operational income, income tax and social contribution.
 
“ Event of Default ” shall have the meaning set forth in Section 10 hereof.
 
“ Federal Funds Rate ” means, with respect to a Variable Rate loan (i) For the first day of the Loan, the rate per annum at which U.S; Dollar deposits with an overnight maturity and in a comparable principal amount to the Loan are offered by the Bank in the Federal funds market at approximately the time the Borrower requests the Loan on such day, and (ii) for each day thereafter that the Loan is outstanding, the rate per annum at which U.S. Dollar deposits with an overnight maturity and in a comparable principle amount to the Loan are offered by the Bank in the Federal funds market at approximately the time the Borrower notifies the Bank pursuant to Section 5(c) hereof of its election to continue the Loan; provided that if the Borrower fails to notify the Bank pursuant to Section 5(c) of its election to continue or repay the Loan, the Federal Funds Rate shall mean the rate per annum at which U.S. Dollar deposits with an overnight maturity and in a comparable amount are offered by the Bank in the Federal funds market at approximately 2:00 p.m. New York City time.
 
“ Indebtedness ” means, with respect to any Person, any amount payable by such Person pursuant to an agreement or instrument involving or evidencing money borrowed or received, the advance of credit, debt capital markets transactions (including bonds and debentures), a lease, a conditional sale or a transfer with recourse or with an obligation to repurchase, pursuant to a lease with substantially the same economic effect as any such agreement or instrument, or any such agreement, instrument or arrangement secured by any lien or other encumbrance upon any property owned by such Person, even though such Person has not assumed or become liable for the payment of any money under such agreement, instrument or arrangement, to which such Person is a party as debtor, borrower or guarantor.
 
“ Interest Payment Date ” for the Loan means (i) March 15, 2012, (ii) September 17, 2012, (iii) March 15, 2013, (iv) the Maturity Date of the Loan, and (v) the date of any prepayment or repayment of principal of the Loan.
 
“ Interest Period ” for the Loan means the period commencing on the Drawdown Date and ending on the Maturity Date.
 
“ LIBO Rate ” means, with respect to any Eurodollar Borrowing for any Interest Period, the rate appearing on Reuters BBA Libor Rates Page 3750 (or on any successor or substitute page of such page) providing rate quotations comparable to those currently provided on such page of
 
 
2
 
 
 
such page, as determined by the Bank from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Banking Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period.  In the event that such rate is not available at such time for any reason, then the “LIBO Rate” with respect to such Eurodollar Borrowing for such Interest Period shall be the rate (rounded upwards, if necessary, to the next 1/16 of 1%) at which dollar deposits of $5,000,000 and for a maturity comparable to such Interest Period are offered by the principal London office of the Bank in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Banking Days prior to the commencement of such Interest Period.
 
“ Loan ” shall have the meaning set forth in Section 2.
 
“ Maturity Date ” means the date 746 days from the Closing Date.
 
“ Net Worth ” means, for any Person, the patrimony (net worth) of such Person, as stated in its annual or quarterly audited financial statements disclosed.
 
“ Note ” means this Promissory Note.
 
“ Person ” moans any corporation, natural person, firm, joint venture, partnership, trust, unincorporated organization or government, or any political subdivision, department or agency of any government.
 
“ Prime Rate ” means the rate of interest per annum publicly announced from time to time by the Bank as its prime rate in effect at its branch office in New York City; any change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective.
 
“ Regulatory Change ” means any change after the date hereof in United States federal, state or foreign laws or regulations (including Regulation D (as defined in the definition of Reserve Requirement)) or the adoption or making .after such date of any interpretations, directives or requests applying to a class of banks including the Bank of or under any United States federal or state, or any foreign, laws or regulations, including Basel Ill advisory opinions, (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof.
 
“ Reserve Requirement ” means, with respect to any Interest Period, the average maximum rate at which reserves (including any marginal, supplemental or emergency reserves) are required to be maintained during the Interest Period under Regulation D of the Board of Governors of the Federal Reserve System as amended or supplemented from time to dine (“Regulation D”) by member banks of the Federal Reserve System in New York City with deposits exceeding one billion U.S. Dollars against “Eurocurrency Liabilities” (as such term is used in Regulation D).  Without limiting the effect of the foregoing, the Reserve Requirement shall reflect any other
 
 
3
 
 
reserves required to be maintained by such member banks by reason of any Regulatory Change against (i) any category of liabilities which includes deposits by reference to which the LIBO Rate is to be determined or (ii) any category of extensions of credit or other assets which includes the Loan evidenced by this Note.
 
“ Subsidiary ” means, with respect to the Borrower, at any time, any entity of which more than fifty percent (50%) of the outstanding voting stock or other equity interest entitled ordinarily to vote in the election of the directors or other governing body (however designated) of such entity is at the time beneficially owned or controlled directly or indirectly by the Borrower.
 
“ Total Net Debt ” means the sum of (a) all financial debt, including loans, advances on foreign exchange contracts, exchange acceptances, derivative, contracts of every order, including options, futures and forwards, and lease agreements; and (b) all obligations arising from the issuance of debt securities (whether issued domestically or abroad), including debentures, bonds, promissory notes or other securities representing debt minus cash position which includes marketable securities, cash and cash equivalent.
 
“ Variable Rate ” means, for any day, the higher of (i) Federal Funds Rate for such day plus 0.5% and (ii) the Prime Rate.
 
2.            The Loan .
 
(a)           The Bank agrees on the terms and conditions of this Note, to make one loan (the “Loan”) to the Borrower on the Drawdown Date in an aggregate principal amount up to but not exceeding the aggregate amount of the commitment.
 
(b)           The Borrower may borrow the Loan by giving the Bank notice by 12:00 noon, New York City time, at least three Banking Days prior to the date of such borrowing.
 
(c)           Amounts that are prepaid may not be reborrowed.
 
3.            Payments; Prepayments, Fees .
 
(a)            Place and Time of Payment .  All payments of principal of and interest on this Note and all other amounts payable hereunder shall be made by deposit to account no. 9008113381H2701, ABA: 021000021, Reference: Tim Celular $100MM Advised Line, of the Bank at the Branch Office not later than 12:00 p.m. (New York time) on the dates due, or to such other account as the Bank may designate in writing to the Borrower.
 
(b)            Payments to be made on Banking Days .  Whenever any payment hereunder shall be stated to be due on a day other than a Banking Day, such payment shall be made on the next succeeding Banking Day (unless such next succeeding Banking Day would fall in the succeeding calendar month, in which case such payment shall be made on the next preceding Banking Day), and any such extension or reduction of time shall in such case be reflected in the computation of payment of interest.
 
 
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(c)            Interest on Overdue Principal and Other Amounts .  In the event that any principal hereof, any interest hereon or any other amount payable by the Borrower hereunder is not paid when due (by reason of demand or otherwise) in accordance with the terms of this Note, the Borrower will pay, to the extent permitted by applicable law, interest on such past-due amount from the date such amount becomes due until the date the same is paid in full, at a rate per annum equal to the Default Rate in effect from time to time.
 
(d)            Voluntary Prepayments .  The Borrower may, upon five Banking Days’ notice to the Bank, prepay this Note on any Banking Day; provided , however , that (x) the minimum amount of any such prepayment shall be $5,000,000.00 or any larger multiple thereof and (y) such prepayment is made together with accrued interest and any break-funding amounts due pursuant to Section 5(b),
 
4.            Interest .  All computations of interest hereon shall be made on the basis of a year of 360 days for the actual number of days (including the first day but excluding the last day) occurring in the period for which interest is payable.
 
5.            Additional Costs, Etc.: Illegality
 
(a)           If as a result of any Regulatory Change, the Bank reasonably determines, with evidence supporting such determination, that the cost to the Bank of making or maintaining the Loan is increased, or any amount received or receivable by the Bank hereunder is reduced, or the Bank is required to make any payment in connection with any transaction contemplated hereby, then the Borrower shall pay to the Bank, upon the Bank’s written demand, such additional amount or amounts as the Bank reasonably determines will compensate the Bank for such increased cost, reduction or payment, provided that (A) before the Bank gives such written demand, the Bank agrees to use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to designate a different office (lending branch) if such designation would (I) avoid the need of the Bank for giving such written demand for compensation, (II) allow the Bank to make and maintain the Loan hereunder and (III) not, in the reasonable judgment of the Bank, be materially disadvantageous (economically or otherwise) to the Bank; and (B) if the Bank gives to the Borrower such written demand, the Bank will provide to the Borrower, together  with such written demand, information in connection to the circumstances giving rise to, and the amount of, such compensation and, where practicable, the details of the calculation of the amount of such compensation.  If any event of additional cost occurs, the Borrower will be able to prepay the Debt without any breakfunding cost within 60 days from the written demand of the Bank.
 
(b)           The Borrower shall pay to the Bank, upon the request of the Bank, such amount or amounts as shall be sufficient (in the reasonable opinion of the Bank) to compensate it for any loss, cost or expense which the Bank determines is attributable to any prepayment of any Loan, except for a prepayment made in accordance with item 5(a) above.
 
 
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(c)           Notwithstanding any other provision in this Note, in the event that it becomes unlawful for the Bank or its lending office to honor its obligation to make or maintain the Loan bearing interest at the LIBO Rate, then the Bank shall promptly notify the Borrower thereof and the Bank’s obligation to make or maintain the Loan bearing interest at the LIBO Rate shall be suspended until such time as the Bank may again make and maintain the Loan bearing such interest rate, and the interest rate on the Loan shall be automatically converted to the Variable Rate on the date specified by the Bank in such notice unless the Bank shall have received written notice from the Borrower of its decision to prepay the Loan and such notice is received by the Bank prior to 11:00 a.m., on the day of such prepayment.
 
6.            Taxes .
 
(a)            Payments Free and Clear . Any and all payments by the Borrower hereunder shall be made free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all interest, penalties or other liabilities with respect thereto, excluding taxes imposed on or measured by the net income or capital of the Bank by the jurisdiction (or any political subdivision of such jurisdiction) in which the Bank’s lending office is located or under which the Bank is organized (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter called “Taxes”). If the Borrower shall he required by law to deduct any Taxes from or in respect of any sum payable hereunder to the Bank, (x) the Borrower shall forthwith pay to the Bank such additional amount as may be necessary so that after making all required deductions for Taxes (including deductions applicable to additional amounts payable under this Section 6) the Bank receives an amount equal to the sum it would have received had no such deductions been made, (y) the Borrower shall make such deductions and (z) the Borrower shall pay the full amount deducted to the relevant taxing authority or other authority in accordance with applicable law.
 
(b)            Other Taxes .  In addition, the Borrower shall pay any present or future taxes, of whatsoever nature, and/or other excise or property taxes, charges or similar levies which arise in any jurisdiction from any payment made hereunder, including taxes, charges, excises or levies on any FX transactions related to such payment, or frorn the execution, delivery, registration or enforcement of or otherwise with respect to, this Note (all such taxes, charges, excises or levies being herein called “ Other Taxes ”).
 
(b)            Reimbursement of Taxes Paid by the Bank .  The Borrower will reimburse the Bank for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed on amounts payable under this Section 6) paid by the Bank or any liabilities  (including, without limitation, penalties, interest and expenses other than those attributable to the gross negligence of the Bank) arising therefrom or with respect thereto.  Reimbursement under this Section 6(c) for any Taxes, Other Taxes or liabilities shall be made within 30 days from the date the Bank makes written demand therefor, provided that the Bank previously delivers to the Borrower information and copies of the receipts relating to such costs, expenses and/or charges.
 
 
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(c)            Tax Certificates .  Within 30 days after the date of any payment of Taxes, the Borrower will furnish to the Bank the original or a certified copy of a receipt evidencing payment thereof.
 
7.            Conditions Precedent to the Loan .
 
In addition to having received a notice of borrowing as set forth in Section 2(b) hereto, the obligation of the Bank to make the Loan hereunder is subject to the condition precedent that the following conditions shall have been fulfilled to the satisfaction of the Bank and its counsel on or before the Drawdown Date:
 
(a)            Corporate Documents .  The Bank shall have received certified copies of the charter and by-laws (or equivalent documents) of the Borrower and of all corporate authority for the Borrower (including, without limitation, board of director resolutions, powers of attorney and evidence of the incumbency of officers) with respect to the execution, delivery and performance of  this Note and each other document to be delivered by the Borrower in connection herewith.
 
(b)            Documents Supporting the Loan .  The Bank shall have received this Note duly, executed by the Borrower.
 
(c)            Process Agent Acceptance .  The Bank shall have received an executed letter, in form and substance satisfactory to the Bank, from a process agent, located in New York State and acceptable to the Bank, acknowledging such agent’s acceptance of its appointment as agent for service of process with respect to the Borrower.
 
(d)            No Material Adverse Change .  There shall not have occurred any event which, in the opinion of the Bank, would involve a material adverse change in the economic or financial condition of the Borrower or in general Market conditions,
 
(e)            No Event of Default: Accuracy of Representations and Warranties .  On the Drawdown Date, both immediately prior to the snaking of the Loan and also after giving effect thereto and to the intended use thereof (x) no Event of Default or an event that with notice or lapse of time or both would become an Event of Default shall have occurred and be continuing; and (y) the representations and warranties made by the Borrower in Section 8 hereof shall be true and correct on and as of the Drawdown Date.
 
(f)            Government Approvals .  The Bank shall have received copy of the Financial Transaction Registration (ROF) issued by the Central Bank of Brazil.
 
(g)            Other Documents . The Bank shall have received such other documents as the Bank or its counsel may reasonably request.
 
8.            Representations and Warranties .  The Borrower represents and warrants to the Bank as follows:
 
 
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(a)            Incorporation and Existence .  The Borrower is a company duly organized, validly existing and in good standing under the laws of Brazil and has the power and authority to execute and deliver this Note, to incur the obligations to be incurred by it hereunder and to perform and observe the provisions hereof.
 
(b)            Corporate Power and Authority .  The Borrower has taken all necessary action to authorize the execution and delivery of this Note and all other documents to be executed and delivered by it in connection herewith and the performance of its obligations hereunder.
 
(c)            Legally Enforceable Note . This Note has been duly executed and delivered by the Borrower and constitutes a legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium and similar laws affecting creditors’ rights generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law).
 
(d)            Governmental Authorizations .  All governmental authorizations, including, without limitation, Financial Transaction Registration (ROF) issued by the Central Bank of Brazil,  and actions of any kind necessary for the due execution, delivery and performance of this Note by the Borrower or required for the validity or enforceability against the Borrower of this Note, have been obtained or performed and are valid and subsisting in full force and effect.
 
(e)            Consent and Approvals .  No consent or approval of, or notice to, any creditor of the Borrower is required by the terms of any agreement or instrument evidencing any Indebtedness of the Borrower for the execution or delivery of, or the performance of the obligations of the Borrower under, this Note, and such execution, delivery and performance will not result in any breach or violation of, or constitute a default under, the charter or by-laws of the Borrower or any agreement, instrument, judgment, order, statute, rule or regulation applicable to the Borrower or to any of its property.
 
(f)            Pari Passu Status .  The payment obligations of the Borrower under this Note rank at least pari passu with all of its other unsecured Indebtedness, whether now existing or hereafter outstanding, except for obligations accorded preference by mandatory provisions of law.
 
(g)            Absence of Litigation .  There arc no actions, proceedings (judicial or administrative) or claims pending or, to the knowledge of the Borrower, threatened, the adverse determination of which might have a material adverse effect on the financial condition of the Borrower or impair its ability to perform its obligations under, or affect the validity or enforceability of, this Note.
 
(h)            Waiver of Sovereign Immunity; Commercial Activity .  Neither the Borrower nor its property has any right of immunity on the grounds of sovereignty or otherwise from jurisdiction, attachment (before or after judgment) or execution in respect of any action or proceeding relating in any way to this Note that may be brought in the courts of Brazil.  The
 
 
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execution, delivery and performance of this Note by the Borrower constitute commercial transactions
 
(i)            Use of Proceeds .  The proceeds of the Loan shall be used for working on capital purposes and only to finance the Borrower’s operations outside the United States.
 
(j)            Financial Statements .  The audited financial statements and balance sheets most recently provided to the Bank by and of the Borrower, and the related statements of income and retained earnings of the Borrower for the fiscal year then ended fairly present the condition (financial or otherwise) of the Borrower as at such date and the business and results of the operations of the Borrower for the period ended on such date; and from the date of the above- referenced financial statements until the Closing Date, there has been no material adverse change in the business, operations or condition (financial or otherwise) of the Borrower and its subsidiaries taken as a whole.
 
(k)            Absence of Event Default .  No Event of Default exists or has occurred and is continuing and no Event of Default will occur as a result of the execution of this Note and disbursement of the Loan.
 
(l)            No Violation of Laws . The execution, delivery and performance by the Borrower of this Note does not and will not violate any provision of any law, regulation, order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to the Borrower.
 
(n)            Compliance with Laws . The Borrower is in compliance with all laws, including environmental laws.
 
9.            Covenants .  From the Closing Date, the Borrower covenants as follows:
 
(a)            Lines of Business .  The Borrower will at all times continue to engage in the same line of business engaged in by the Borrower on the date hereof and will not (i) engage to any substantial extent in any line or lines of business activity other than such current lines of business, and (ii) Change its corporate purpose ( objeto social ).
 
(b)            Limitation on Fundamental Changes .  The Borrower will not convey, sell, lease, transfer or otherwise dispose of, in one transaction or in a series of transactions, its property or create, assume or suffer or permit to exist any sale-lease back transactions, except in accordance with items I to V below and provided that such actions described in items I to V below do not, individually or in the aggregate, negatively impact 30% (thirty percent) or more of the Borrower’s gross revenues:
 
 
I.
sale of property in the ordinary course of its business;
 
 
II.
sale of property for fair market value;
 
 
III.
sale of obsolete or unused assets;
 
 
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IV.
sale of property within the Borrower’s Economic Group and in arm’s length basis; and
 
 
V.
any other sale, lease, transfer or disposal in an aggregate amount not exceeding 20% (twenty percent) of Borrower’s total assets (as stated in its most recent annual or quarterly financial statements disclosed).
 
(c)            Financial Information .  If the Bank shall so request, the Borrower shall deliver to the Bank (i) within 90 days following the end of each fiscal year of the Borrower, its annual audited financial statements; and (ii) within 90 days following the end of each fiscal Year of Tim Participações S.A., the annual audited consolidated financial statements of Tim Participações S.A.; (iii) within 45 days following the end of each fiscal quarter of Tim Participações S.A., the quarterly audited consolidated financial statements of Tim Participações S.A.; all in accordance with Brazilian GAAP or IFRS standards.
 
(d)            Corporate Existence, Approvals .  The Borrower shall maintain and keep in full force and effect its legal and corporate existence, rights (including without limitation all real and intellectual property rights), privileges, licenses, franchises and all approvals and consents required by third parties and/or any governmental authority for the incurrence of the Loan and conduct its business; as applicable.
 
(e)            Compliance .  The Borrower will do or cause to be done all things from time to time necessary to comply and, as applicable, cause each of its Subsidiaries to comply in all material respects with all applicable laws, rules, orders and regulations (including environmental laws).
 
(f)            Notice of Event of Default .  The Borrower will notify the Bank in writing as soon as it becomes aware of the occurrence of any event that results or may result in the nonperformance, by the Borrower of any obligation under this Note and/or any other instrument related hereto.
 
(g)            Insurance .  The Borrower will maintain its property duly insured with reputable insurance companies or associations in such amounts and covering such risks as are usually carried by companies engaged in similar businesses and owning similar properties in Brazil, and, upon the request of the Bank, promptly furnish to the Bank copies or other evidence of such insurance policies as may be in effect from time to time.
 
(h)            Transactions with Affiliates .  The Borrower will not enter, directly or indirectly, into any transaction with an affiliate, except (A) in the ordinary course of and pursuant to the reasonable requirements of its business and upon commercially reasonable terms that are no less favorable to it than those which might be obtained in a comparable arm’s-length transaction at the  time from a Person which is not such an affiliate, and (B) for intercompany loans which, in the aggregate, do not and will not result in the Borrower being in a materially weaker economic and financial condition. For purposes hereof, “materially weaker economic and financial condition” means the ratio of Total Net Debt to EBITDA of the Borrower exceeding 3.0x, based on its financial statements.
 
 
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(i)            Additional Information and Documents .  The Borrower will deliver to the Bank such other information and/or documentation respecting the Borrower or the Borrower’s business, properties or the condition or operations, financial or otherwise, of the Borrower, as the Bank may from time to time reasonably request.
 
(j)            Ranking .  The Borrower will take any and all actions necessary such that as payment obligations hereunder as of the date hereof shall rank at least pari passu in all respects with all other unsecured Indebtedness of the Borrower, whether now existing or hereafter outstanding,
 
(k)            Mergers Etc .  With the exception of any incorporation, merger, consolidation, division, transfer or reorganization occurring among companies within the Borrower’s Economic Group, the Borrower will not be incorporated, or merge or transfer all or substantially all its assets to another entity or as another entity if, by the time of such incorporation, merger, consolidation, division, transfer or reorganization, the resulting entity, survivor or transferee, after  such action, (1) does not assume all the obligations stipulated in this Note or any other document in connection herewith in which it is a party or to which its predecessor has been a party, by order of law or by means of an agreement reasonably satisfactory to the Bank; and/or (2) has a materially weaker economic and financial condition than the Borrower, as appropriate and if applicable, prior to such Merger, consolidation, division, transfer or reorganization. For purposes of item (2) of this Section, “materially weaker economic and financial condition” means  the resulting entity, survivor or transferee presents a ratio of the Total Net Debt to EBITDA exceeding 3.0x, based on its pro-forma consolidated financial statements.
 
(l)            Dividends .  The Borrower will not distribute or pay dividends, interest on own capital or any other profit participation established in contract or in corporate documentation, above the minimum amount determined by law or in corporate documentation in effect on the present date except if at the time of such distribution or payment there shall not exist, and shall not thereby arise, any Event of Default or event or condition which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.
 
(m)            Capital Expenditures, Investments, Loans and Advances .  In case of any Event of Default or event or condition which upon notice, lapse of time or both would, unless cured or waived, become an Event or Default the Borrower Will not, and will not permit any subsidiary to, make any capital expenditure, investment, loan or advance other than in the ordinary course of business consistent with past practices in relation to its existing business.
 
10.            Events of Default .  If any of the following events (“Events of Default”) shall occur and be continuing:
 
(a)           The Borrower fails to pay any principal, interest or other amount hereunder within two (2) calendar days from the date such amount becomes due and payable (whether at stated maturity or otherwise), provided that such two (2) calendar days cure period is only granted to the Borrower by the Bank if the Borrower delivers to the Bank, on the date immediately
 
 
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following such amount’s due date for payment, a notification signed, or an email sent, by the Chief Financial Officer of the Borrower or other legal representative of the Borrower declaring that the Borrower has sufficient cash, on that date; to honor its payment obligations due on such date, that the non-payment occurred due to an operational error not within the Borrower’s control for remedy and that the payment will be made on the immediately following day, and provided further that such two (2) calendar days cure period does not affect the Borrower’s obligation to pay overdue interest on any interest or other amount in accordance with Section 3(c) – Interest on Overdue Principal and Other Amounts hereof; or
 
(b)           The Borrower fails to perform or observe any covenant or agreement contained herein to be performed or observed by it or any representation or warranty of the Borrower in this Note or in any other document delivered in connection herewith proves to have been incorrect, incomplete or misleading in any material respect at the time it was made or repeated or deemed to  have been made or repeated; or
 
(c)           The Borrower shall (i) be in default, event of default or other similar condition or event (however described) under one or more agreements or instruments entered into between any of them (individually or collectively) and the Bank or its affiliates; or (2) be in default, event of default or other similar condition or event (however described) under one or more instruments or agreements reached between any of them (individually or collectively) and any party other than the Bank or its affiliates, which involve or may involve, in accordance with the provisions of the instruments, the early maturity of debt in an aggregate amount exceeding US$100,000,000.00  (one hundred million United States Dollars) (or its equivalent in other currencies).
 
(d)           The Borrower (i) is dissolved, (ii) commences a voluntary case in bankruptcy or any other action or proceeding for any other relief under any law affecting creditors’ rights that is similar to a bankruptcy, debt rehabilitation or reorganization proceeding, law or (iii) consents by answer or otherwise to the commencement against it of an involuntary case in bankruptcy or any other such action or proceeding, or a proceeding is commenced in an involuntary case in bankruptcy in respect of the Borrower or any material Subsidiary or any property of the Borrower or any such material Subsidiary; or
 
(e)           Any governmental authority or court takes any action that, in the reasonable opinion of the Bank, materially adversely affects the condition of the Borrower or its ability to perform its obligations under this Note; or
 
(f)           The aggregate amount of unsatisfied judgments, decrees or orders for the payment of money against the Borrower or any material Subsidiary exceeds US$ 100,000,000.00 (one hundred million United States Dollars) (or its equivalent in other currencies); or
 
(g)           A moratorium is enacted by Brazil or the central bank or any agency or political subdivision of Brazil affecting the Borrower’s right and obligation to effect payment under this Note or otherwise to perform its obligations hereunder; or
 
 
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(h)           The payment obligations of the Borrower under this Note cease to rank at least pari passu with all of its other unsecured Indebtedness, except for obligations accorded preference  by mandatory provisions of law; or
 
(i)           At any moment Telecom Italia S.p.A. ceases to be, in relation to the Borrower, the holder, directly or indirectly, of at least (i) 56% plus one of the shares representative of the voting capital stock of the Borrower; or (ii) portion of the capital stock of the Borrower assuring it to have the rights to elect the board of directors of the Borrower or manage and guide the operations and corporate activities of the Borrower. It shall not be considered an Event of Default under this Section if there, is a change in the shareholding control of the Borrower and the new direct or indirect controlling shareholder(s) is(are) (a) company(ies) with a minimum rating equivalent to or better than a rating classification by Moody’s of Bal or by S&P of BB+, provided that the Bank  does not have restrictions of any kind to such new direct or indirect controlling shareholder(s), in its reasonable discretion.
 
(j)           The Borrower suffers protest of bills ( Protesto ) in an individual or aggregate amount equal to or exceeding US100,000,000.00 (one hundred million United States Dollars) (or  its equivalent in other currencies) and such protest(s) is(are) not cancelled within 15 S ăo Paulo business days.
 
(k)           This Note shall, at any time and for any reason, cease to be in full force and effect or shall be declared to be null and void, or the validity or enforceability thereof shall be contested by the Borrower, or the Borrower shall deny that it has any or further liability or obligation hereunder or thereunder.
 
(l)           Any judicial proceeding is filed against the Borrower which may materially adversely affect is financial condition.
 
THEN, in any such case, if the Bank shall elect by notice to the Borrower, the unpaid principal amount of this Note, together with accrued interest, shall become forthwith due and payable; provided that in the case of an Event of Default under clause (d) above, the unpaid principal amount of this Note, together with accrued interest, shall immediately become due and payable without any notice or other action by the Bank.
 
 
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11.            Notices .  All notices, requests, demands or communications hereunder shall be in writing, delivered by personal delivery, fax, courier service or registered mail, return receipt requested, with a copy sent simultaneously by email (no evidence of receipt being necessary in this ease), and sent to the party concerned at its address as indicated below, or at such other address as may be specified by such party to the other by notice. The notices and communications  sent pursuant to this Section shall be effective and deemed to have been delivered on the date of receipt thereof, as shown in the return receipt.
 
If to the Borrower:
Tim Celular S/A
Av Giovani Gronchi, 7143
São Paulo - SP
Attn.: Rodrigo Galvão
Tel: 55 21 4009-3101
Fax:
If to the Bank:
JPMorgan Chase Bank, N.A.
1111 Fannin St. 10th Floor
Houston, TX 77002
Attn.: Sara Valerio
Tel: (713) 750-2495
Fax: (713) 750-2358
 
12.            Miscellaneous
 
(a)           The Borrower waives presentment, notice of dishonor, pretest and any other formality with respect to this Note.
 
(b)           This Note sets forth the entire agreement between the parties hereto, supersedes all prior communications and understandings of any nature and may not be amended, Supplemented or altered except in a writing signed by both parties hereto.
 
(c)           The Borrower agrees to reimburse the Bank in full on demand for all costs, expenses and charges (including fees and charges of external and in-house legal counsel for the Bank) in connection with the interpretation, performance or enforcement of this Note, whenever an Event of Default has occurred and such reasonable costs, expenses and/or charges were incurred by the Bank during the continuance of such Event of Default, provided that the Bank previously delivers to the Borrower information and/or the invoices relating to such costs, expenses and/or charges.
 
(d)           This Note shall be binding on the Borrower and its successors and assigns and shall inure to the benefit of the Bank and its successors and assigns, except that the Borrower may not delegate any obligations hereunder without the prior written consent of the Bank. The Bank may at any time, without consent from the Borrower, assign or otherwise transfer or sell participations in this Note or any of its rights with respect thereto to any third party, including, but not limited, to any Federal Reserve Bank or to any banks, financial institutions or any affiliates of the Bank (including, any entity (whether a corporation, partnership, trust or otherwise) that is engaged in making, purchasing, holding or otherwise investing in bank loans and similar extensions of credit in the ordinary course of its business and is administered or managed by the Rank or an affiliate of the Bank),
 
 
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(e)           The Bank agrees (on behalf of itself and each of its affiliates, directors, officers, employees and representatives) to use reasonable precautions to keep confidential, in accordance with sale and sound banking practices, any non-public information supplied to it by the Borrower pursuant to this Note which is identified by the Borrower as being confidential at the time the same is delivered to the Bank, provided that nothing herein shall limit the disclosure of any such information (A) to any subsidiaries or affiliates of the Bank, (B) to the extent required by statute, rule, regulation or judicial process, (C) to counsel for the Bank, (D) to bank examiners, auditors or  accountants, (E) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Note or the enforcement of rights hereunder, (F) to any actual or prospective assignee or participant, or ((i) to any actual or prospective counterparty (or its advisors)  to any swap or derivative transaction relating to the Borrower and its obligations; provided, further, that in no event shall the Bank be obligated or required to return any materials furnished by the Borrower.
 
(f)           Any suit, action or proceeding against the Borrower with respect to this Note or on any judgment entered by any court to respect thereof may be brought in the Supreme Court of the State of New York, County of New York or in the United States District Court for the Southern District of New York or in the courts of Brazil, as the Bank may elect in its sole discretion, and the Borrower submits to the nonexclusive jurisdiction of such courts for the purpose of any such suit, action or proceeding or judgment. The Borrower hereby waives any objection which it may now or hereafter have to the laying of the venue of any suit, action or proceeding arising out of or relating to this Note brought in such courts, and hereby further irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. The Borrower irrevocably appoints Telecom Italia Sparkle of North America, Inc., which currently maintains a New York City office situated at 745  Fifth Avenue, 27 th Floor, New York, New York 10151, U.S.A., as its agent to receive service of process or other legal summons for purposes of any such suit, action or proceeding, and agrees that the failure of such agent to give any notice of any such process or summons to the Borrower shall not impair or affect the validity of such service or of any judgment based thereon. So long as the Borrower has any obligation under this Note, it will maintain a duly appointed agent in New York City for the service of such process or summons,
 
(g)           The Borrower hereby waives any right the Borrower may have to jury trial.
 
(h)           This Note shall be governed by and interpreted and construed in accordance with the law of the State of New York, without regard to principles of conflicts of laws. For purposes solely of article 9 of Brazilian Decree-Law No. 4.657 dated September 4, 1942, the transactions contemplated hereby have been proposed to the Borrower by the Bank.
 
(i)           To the extent that the Borrower may now or hereafter be entitled, in any jurisdiction in which judicial proceedings may at any time be commenced with respect to this Note, to claim for itself or its revenues or properties any immunity from the jurisdiction of any court or from legal process (whether from service or notice, attachment prior to judgment, attachment in aid of execution of judgment, execution of judgment or otherwise), and to the extent that in any such jurisdiction there may be attributed to the Borrower any such immunity
 
 
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(whether or not claimed), the Borrower hereby irrevocably agrees not to claim, and hereby waives, such immunity in respect of its obligations under this Note.
 
(j)           Each reference in this Note to U.S. Dollars is of the essence. The obligation of the Borrower in respect of any amount due under the Note Shall, notwithstanding any Payment in any other currency (whether pursuant to a judgment or otherwise), be discharged only to the extent of the amount in U.S. Dollars that the Bank may, in accordance with normal banking procedures, purchase with the sum paid in such other currency (after any premium and costs of exchange) on the Banking Day immediately following the day on which the Bank receives such  payment. If the amount in U.S. Dollars that may he so purchased for any reasons falls short of the amount originally due, the Borrower shall pay such additional amounts, in U.S. Dollars, as may he necessary to compensate for such a shortfall. Any obligation of the Borrower not discharged by such payment shall be due as a separate and independent obligation and, until discharged as provided herein, shall continue in full force and effect.
 
(k)           The Borrower acknowledges that the Bank may have and may in the future have investment and commercial banking, trust and other relationships with other companies in respect of which the Borrower may have conflicting interests regarding the transactions described herein and otherwise. The Borrower acknowledges that the Bank may perform its functions in connection with such fiduciary or other relationships without regard to its relationship with the Borrower hereunder. The Bank will not use confidential information obtained from Borrower by virtue of the transactions contemplated by this Note or its other relationships with the Borrower in connection with the performance by the Bank of services for other companies, and the Bank will not furnish any such information to other companies. The Borrower also acknowledges that the Bank has no obligation to use in connection with the transactions contemplated by this Note, or to furnish to the Borrower, confidential information obtained from other companies.
 
(l)           Upon the occurrence and during the continuance of any Event of Default the Bank and each of its affiliates is hereby irrevocably and unconditionally authorized at any time and from time to time during the term of this Note and until all amounts due under this Note have been paid in full to the Bank, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other Indebtedness at any time owing by the Bank (or any other branch of JPMorgan Chase Bank, N.A., or any affiliate or Subsidiary thereof) to or for the credit or the account of the :Borrower against any and all of the obligations of the Borrower now or hereafter existing under the Note, irrespective of whether the Bank shall have made any demand under this Note and whether such obligations may be unmatured. The Bank agrees promptly to notify the Borrower after any such setoff and application; provided that the failure to give such notice shall not affect the validity of such setoff and application. The rights of the Bank under this Section are in addition to other rights and remedies (including, without limitation, other rights of setoff) which the Bank and its affiliates may have.
 
(m)           The Borrower hereby agrees to indemnify, protect, save and keep harmless the Bank, its officers, directors, shareholders, employees, affiliates, successors, assigns, agents and servants (each, an “Indemnified Party”) from and against, and to pay to the Bank promptly upon
 
 
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demand the amount of, any and all liabilities, obligations, losses, damages, penalties, claims, actions, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by or asserted against any indemnified Party in any way relating to or arising out of this Note or any action taken or omitted by such Indemnified Party under this Note, provided , however , that the Borrower shall not be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses of disbursements resulting from such Indemnified Party’s gross negligence or willful misconduct as found in a final, non-appealable. judgment by a court of competent jurisdiction.
 
 
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IN WITNESS WHEREOF. the Borrower has caused this Note to be duly executed by its duly authorized officer as of the day and year first above written.
 
 
  TIM CELULAR S/A  
     
     
  By:    
   
Name:
   
   
Title:
   

WITNESSES
 
/s/ Mariana P. Maislo
       
Name:  MARIANA P. MAISLO
   
Name:
 
Id.:B71.890.688-28
   
Id.:
 
         

 18
Exhibit 4.6
 
PROMISSORY NOTE
 
U.S.$119,817,876.63 (One Hundred Nineteen Million Eight Hundred Seventeen Thousand Eight Hundred Seventy Six United States Dollars And Sixty Three Cents)
 
São Paulo/SP
September 6, 2011
 
 
FOR VALUE RECEIVED as a loan, the undersigned TIM Celular S.A., a corporation duly constituted and domiciled in the Federative Republic of Brazil and emolled with the CNPJ under number 04.206.050/0001-80 with domicile at Av. Giovanni Gronchi 7143, São Paulo–SP, 05724-005 (the “Borrower”), unconditionally promises to pay to the order of BANK OF AMERICA, N.A. (the “Bank”), the principal sum of U.S.$119,817,876.63 (One Hundred Nineteen Million Eight Hundred Seventeen Thousand Eight Hundred Seventy Six United States Dollars And Sixty Three Cents) on the Maturity Date (as defined below).
 
The Borrower promises to pay interest on the unpaid balance of the Loan (as defined below) from and including the date of the Loan to but excluding the date such Loan is due at a rate per annum for such period equal to LIBOR Rate plus Margin, subject to the provisions of Section 3(c) hereof.  Accrued interest shall be payable on each Interest Period and the Maturity Date, provided that (a) interest payable at the Default Rate (as defined below) pursuant to Section 3(c) hereof shall be payable upon demand and (b) if the time for any payment is extended by operation of law or otherwise, interest shall continue to accrue for such extended period.
 
All payments hereunder shall be made in U.S. Dollars and in immediately available funds, without deduction, set-off or counterclaim.  The Bank shall maintain on its books records setting forth the amounts of principal, interest and other sums paid or payable by the Borrower from time to time hereunder.  In the event of any dispute, action or proceeding relating to this Note, such records shall be conclusive in the absence of manifest error.
 
1.            Certain Definitions .  As used herein, the following terms shall have the corresponding meanings.
 
“ Anti-Terrorism Laws ” means the Executive Order, the regulations administered by OFAC, the Bank Secrecy Act (31 U.S.C. §§ 5311 et seq.), the Money Laundering Control Act of 1986 (18 U.S.C. §§ 1956 et seq.), the United States of America Patriot Act and any similar law or regulation enacted in the United States, or any similar regulation or sanction enacted, administered or enforced by the United Nations Security Council, any institution of the European Union or any government authority, including(without limitation) regulations or sanctions relating to restrictive measures against Iran.
 
“ Banking Day ” means any day on which commercial banks are not authorized or required to close in New York City or São Paulo and which is also a day on which dealings in U.S. Dollar deposits are carried out in the London interbank market.
 
 
 
 
 
“ Borrower’s Economic Group ” means Tim Participações S.A., Intelig Telecomunicações Ltda., Tim Celular S.A, and after Acquisition Eletropaulo Telecomunlcações Ltda. and AES Communications Rio de Janeiro S.A.
 
“ Brazil ” shall mean The Federative Republic of Brazil.
 
“ Brazilian Note ” means the promissory note of the Borrower payable to the Bank governed by Brazilian Law, in the form of Exhibit A hereto.
 
“ Change of Control ” means at any moment Telecom Italia S.p.A. ceases to be, in relation to the Borrower, the holder, directly or indirectly, of at least (i) 50% plus one of the shares representative of the voting capital stock of the Borrower; or (ii) portion of the capital stock of the Borrower assuring it to have the rights to elect the board of directors of the Borrower or manage and guide the operations and corporate activities of the Borrower unless the new direct or indirect controlling shareholder(s) are(a) company(ies) with a minimum rating equivalent to or better than a rating classification by Moody’s of Bal or by S&P of BB+.
 
“ Commitment ” means US$119,817,876.63
 
“ Default Rate ” means, in respect of any amount not paid when due, a rate per annum during the period commencing on the due date until such amount is paid in full equal to a fixed rate of 1.00% p.y above the rate of interest applicable to principal hereof (including the Margin).
 
“ Designated Jurisdiction ” means any of Burma/Myanmar, Cuba, Iran, North Korea, Sudan or any other country or territory to the extent that such country or territory itself is the subject of any Sanction.
 
“ Designated Person ” means a person: (a) listed in the annex to, or otherwise subject to the provisions of, the Executive Order; (b) named as a “Specially Designated National and Blocked Person” on the most current list published by OFAC at its official website or any replacement website or other replacement official publication of such list; (c) publicly designated by the US Secretary of the Treasury to be owned or controlled by, or acting for or on behalf of, any person referred to in clause (a) or (b) above, or otherwise determined by the US Secretary of State to be subject to the terms of Section 1 of the Executive Order; (d) or entity publicly designated by the US Secretary of State to have committed, or to pose a significant risk of committing, acts of “terrorism” as defined in the Executive Order that threaten the security of US nationals or the national security, foreign policy, or economy of the United States; or (e) which otherwise is, by public designation of the United Nations Security Council or US or EU government authority, the subject of any Sanction.
 
“ Drawdown Date ” means September 20, 2011 or any other date on which the Bank makes the Loan to the Borrower.
 
“ EBITDA ” means earnings before amortization, depreciation, interest paid and received, results of equity investments, results of non-operational income, income tax and social contribution.
 
 
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“ Event of Default ” shall have the meaning set forth in Section 10 hereof.
 
“ Executive Order ” means US Executive Order No. 13224 on Blocking Property and Prohibiting Transactions with Persons who Commit, Threaten to Commit, or Support Terrorism, which came into effect on 24 September 2001, as amended.
 
“ Export-Control Laws ” means with respect to the Borrower, (i) any laws, statutes, decrees, regulations or ordinances of Brazil which regulates the export of goods (whether directly or indirectly) to or for the rendering of services in a certain country or countries and (ii) the US Export Administration Regulations.
 
“ Federal Funds Rate ” means, with respect to a Variable Rate Loan (i) for the first day of the Loan, the rate per annum at which U.S. Dollar deposits with an overnight maturity and in a comparable principal amount to the Loan are offered by the Bank in the Federal funds market at approximately the time the Borrower requests the Loan on such day, and (ii) for each day thereafter that the Loan is outstanding, the rate per annum at which U.S. Dollar deposits with an overnight maturity and in a comparable principle amount to the Loan are offered by the Bank in the Federal funds market at approximately the time the Borrower notifies the Bank pursuant to Section 5(b) hereof of its election to continue the Loan; provided that if the Borrower fails to notify the Bank pursuant to Section 5(b) of its election to continue or repay the Loan, the Federal Funds Rate shall mean the rate per annum at which U.S. Dollar deposits with an overnight maturity and in a comparable amount are offered by the Bank in the Federal funds market at approximately 2:00 p.m. New York City time.
 
“ Indebtedness ” means, with respect to any Person, any amount payable by such Person pursuant to an agreement or instrument involving or evidencing money borrowed or received, the advance of credit, debt capital markets transactions (including bonds and debentures), a lease, a conditional sale or a transfer with recourse or with an obligation to repurchase, pursuant to a lease with substantially the same economic effect as any such agreement or instrument, or any such agreement, instrument or arrangement secured by any lien or other encumbrance upon any property owned by such Person, even though such Person has not assumed or become liable for the payment of any money under such agreement, instrument or arrangement, to which such Person is a party as debtor, borrower or guarantor.
 
“ Interest Period ” for the Loan means each of the following interest payment dates: (i) December 20, 2011; (ii) March 20, 2012; (iii) June 20, 2012; (iv) September 20, 2012; (v) December 20, 2012; (vi) March 20, 2013; (vii) June 20, 2013; and (viii) September 20, 2013; provided that:
 
(x)           any Interest Period that would otherwise end on a day that is not a Banking Day shall be extended to the next succeeding Banking Day unless such Banking Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Banking Day; and
 
(y)           any Interest Period which begins on the last Banking Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such
 
 
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Interest Period) shall end on the last Banking Day of the calendar month at the end of such Interest Period.
 
“ LIBOR Rate ” means, with respect to any Eurodollar Borrowing for any Interest Period, the rate appearing on Reuters BBA Libor Rates Page 3750 (or on any successor or substitute page of such page) providing rate quotations comparable to those currently provided on such page of such page, as determined by the Bank from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Banking Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period.  In the event that such rate is not available at such time for any reason, then the “LIBOR Rate” with respect to such Eurodollar Borrowing for such Interest Period shall be the rate at which dollar deposits of $5,000,000 and for a maturity comparable to such Interest Period are offered by the principal London office of the Bank in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Banking Days prior to the commencement of such Interest Period.
 
“ Loan ” shall have the meaning set forth in Section 2.
 
“ Margin ” shall mean 1.25% per annum.
 
 “ Maturity Date ” means September 20, 2013.
 
“ Moody’s ” means Moody’s Investors Service, Inc. and its successors.
 
“ Net Worth ” means, for any Person, the patrimony (net worth) of such Person, as stated in its annual or quarterly audited financial statements disclosed.
 
“ Note ” means this Promissory Note.
 
“ OFAC ” means the Office of Foreign Assets Control of the United States Department of the Treasury.
 
“ Person ” means any corporation, natural person, firm, joint venture, partnership, trust, unincorporated organization or government, or any political subdivision, department or agency of any government.
 
“ Prime Rate ” means the rate of interest per annum publicly announced from time to time by the Bank as its prime rate in effect at its branch office in New York City; any change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective.
 
“ Regulatory Change ” means any change after the date hereof in United States federal, state or foreign laws or regulations (including Regulation D (as defined in the definition of Reserve Requirement)) or the adoption or making after such date of any interpretations, directives or requests applying to a class of banks including the Bank of or under any United States federal or state, or any foreign, laws or regulations, including Basel III advisory opinions, (whether or not having the force of
 
 
4
 
 
law) by any court or governmental or monetary authority charged with the interpretation or administration thereof.
 
“ Reserve Requirement ” means, with respect to any Interest Period, the average maximum rate at which reserves (including any marginal, supplemental or emergency reserves) are required to be maintained during the Interest Period under Regulation D of the Board of Governors of the Federal Reserve System as amended or supplemented from time to time (“Regulation D”) by member banks of the Federal Reserve System in New York City with deposits exceeding one billion U.S. Dollars against “Eurocurrency Liabilities” (as such term is used in Regulation D).  Without limiting the effect of the foregoing, the Reserve Requirement shall reflect any other reserves required to be maintained by such member banks by reason of any Regulatory Change against (i) any category of liabilities which includes deposits by reference to which the LIBO Rate is to be determined or (ii) any category of extensions of credit or other assets which includes the Loan evidenced by this Note.
 
“ Sanction ” means any international economic sanction administered or enforced by OFAC, the United Nations Security Council or the European Union.
 
“ Subsidiary ” means, with respect to the Borrower, at any time, any entity of which more than fifty percent (50%) of the outstanding voting stock or other equity interest entitled ordinarily to vote in the election of the directors or other governing body (however designated) of such entity is at the time beneficially owned or controlled directly or indirectly by the Borrower.
 
“ S&P ” means Standard & Poor’s Ratings Group, a division of McGraw Hill, Inc. and its successors.
 
“ Total Net Debt ” means the sum of (a) all financial debt, including loans, advances on foreign exchange contracts, exchange acceptances, derivative contracts of every order, including options, futures and forwards, and lease agreements; all obligations arising from the issuance of debt securities (whether issued domestically or abroad), including debentures, bonds, promissory notes or other securities representing debt minus (b) free and unencumbered cash position which includes marketable securities, cash and cash equivalents.
 
“ Variable Rate ” means, for any day, the higher of (i) Federal Funds Rate for such day plus 0.5% and (ii) the Prime Rate.
 
2.            The Loan .
 
(a)           The Bank agrees, on the terms and conditions of this Note, to make one loan (the “Loan”) to the Borrower on the Drawdown Date in an aggregate principal amount up to but not exceeding the aggregate amount of the Commitment.
 
(b)           The Borrower may borrow the Loan by giving the Bank notice by 11:00am, New York City time in a form reasonably requested by the Bank (the “ Notice of Borrowing ”), at least three Banking Days prior to Drawdown Date.  Upon receipt of the Notice of Borrowing, the Bank shall disburse the Loan in Dollars into the account designated by the Borrower in such Notice of Borrowing.
 
 
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(c)           Amounts that are prepaid or repaid may not be reborrowed.
 
3.            Payments; Prepayments; Fees .
 
(a)            Place and Time of Payment .  All payments of principal of and interest on this Note and all other amounts payable hereunder shall be made by deposit to account no 1233817137 Swift Code: BOFAUS3N/ABA 026009593, Account Name: Bank of America, Attn: International Loan Services of the Bank at the Branch Office not later than 12:00 p.m. (New York time) on the dates due, or to such other account as the Bank may designate in writing to the Borrower.
 
(b)            Payments to be made on Banking Days .  Whenever any payment hereunder shall be stated to be due on a day other than a Banking Day, such payment shall be made on the next succeeding Banking Day (unless such next succeeding Banking Day would fall in the succeeding calendar month, in which case such payment shall be made on the next preceding Banking Day), and any such extension or reduction of time shall in such case be reflected in the computation of payment of interest.
 
(c)            Interest on Overdue Principal and Other Amounts .  In the event that any principal hereof, any interest hereon or any other amount payable by the Borrower hereunder is not paid when due (by reason of demand or otherwise) in accordance with the terms of this Note, the Borrower will pay, to the extent permitted by applicable law, interest on such past-due amount from the date such amount becomes due until the date the same is paid in full, at a rate per annum equal to the Default Rate in effect from time to time.
 
(d)            Voluntary Prepayments .  The Borrower may, upon five Banking Days’ notice to the Bank, prepay this Note on any Banking Day; provided , however , that (x) the minimum amount of any such prepayment shall be $5,000,000.00 or any larger multiple thereof and (y) such prepayment is made together with accrued interest and any break-funding amounts due pursuant to Section 5(c).  For avoidance of doubt there will be no break-funding cost if the Prepayment occurs on a Interest Period.
 
4.            Interest .  All computations of interest hereon shall be made on the basis of a year of 360 days for the actual number of days (including the first day but excluding the last day) occurring in the period for which interest is payable.
 
5.            Additional Costs, Etc.; Illegality
 
(a) If as a result of any Regulatory Change the Bank reasonably determines, with evidence supporting such determination, that the cost to the Bank of making or maintaining the Loan is increased, or any amount received or receivable by the Bank hereunder is reduced, or the Bank is required to make any payment in connection with any transaction contemplated hereby, then the Borrower shall pay to the Bank, upon the Bank’s written demand, such additional amount or amounts as the Bank reasonably determines will compensate the Bank for such increased cost, reduction or payment, provided that (A) before the Bank gives such written demand, the Bank agrees to use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to designate
 
 
6
 
 
a different office (lending branch) if such designation would (i) avoid the need of the Bank for giving such written demand for compensation, (ii) allow the Bank to make and maintain the Loan hereunder and (iii) not, in the reasonable judgment of the Bank, be materially disadvantageous (economically or otherwise) to the Bank; and (B) if the Bank gives to the Borrower such written demand, the Bank will provide to the Borrower, together with such written demand, information in connection to the circumstances giving rise to, and the amount of, such compensation and, where practicable, the details of the calculation of the amount of such compensation.  If any event of additional cost occurs the borrower will be able to prepay the Loan without break-funding cost within 60 days from the written notice of the Bank.
 
(b)           Notwithstanding any other provision of this Note, if the adoption of or any change in any applicable law or regulation or in the interpretation or application thereof by any governmental authority (in each case, at any time on or after the date hereof) shall make it (or be asserted by it to be) unlawful for the Bank to honor its obligation to make or maintain its Loan hereunder (and, in the opinion of the Bank, the designation of a different applicable Bank office would either not avoid such unlawfulness or would be disadvantageous to the Bank), then the Bank shall promptly notify the Borrower, following which notice: (i) the Bank’s commitment (if still available) shall be suspended until such time as the Bank may again make and maintain its Loans or (ii) if such applicable law shall so mandate, the Bank’s Loans shall be prepaid by the Borrower, together with accrued and unpaid interest thereon and all other amounts payable to the Bank by the Borrower under the Loan Documents, on or before such date as shall be mandated by such applicable law; provided that if it is lawful for the Bank to maintain its Loan until the Maturity Date (and not otherwise deemed undesirable by the Bank in its sole discretion), then such payment shall be made on the Maturity Date.  Any such funds so prepaid may not be reborrowed.
 
(c)           The Borrower shall pay to the Bank, upon the request of the Bank, such amount or amounts as shall be sufficient (in the reasonable opinion of the Bank) to compensate it for any loss, cost or expense which the Bank determines is attributable to any prepayment of any Loan, provided that the Bank previously delivers to the Borrower information relating to such costs, expenses and/or charges.
 
6.            Taxes .
 
(a)            Payments Free and Clear .  Any and all payments by the Borrower hereunder shall be made free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all interest, penalties or other liabilities with respect thereto including but not limited to the taxes imposed by Brazilian tax authorities, such as the Imposto sobre Operações Financeiras (IOF) created pursuant to certain applicable laws (including Decrees 7,456/2011 and 7,457/2011), excluding taxes imposed on or measured by the net income or capital of the Bank by the jurisdiction (or any political subdivision of such jurisdiction) in which the Bank’s lending office is located or under which the Bank is organized (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter called “Taxes”).  If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder to the Bank, (x) the Borrower shall forthwith pay to the Bank such additional amount as may be necessary so that after making all required deductions for Taxes (including deductions applicable to
 
 
7
 
 
additional amounts payable under this Section 6) the Bank receives an amount equal to the sum it would have received had no such deductions been made, (y) the Borrower shall make such deductions and (z) the Borrower shall pay the full amount deducted to the relevant taxing authority or other authority in accordance with applicable law.
 
(b)            Payment of Stamp Taxes .  In addition, the Borrower shall pay any present or future stamp or documentary taxes or other excise or property taxes, charges or similar levies which arise in any jurisdiction from any payment made hereunder or from the execution, delivery, registration or enforcement of, or otherwise with respect to, this Note (all such taxes, charges or levies being herein called “ Other Taxes ”).
 
(c)            Reimbursement of Taxes Paid by the Bank .  The Borrower will reimburse the Bank for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed on amounts payable under this Section 6) paid by the Bank or any liabilities (including, without limitation, penalties, interest and expenses other than those attributable to the gross negligence of the Bank) arising therefrom or with respect thereto.  Reimbursement under this Section 6(c) for any Taxes, Other Taxes or liabilities shall be made within 30 days from the date the Bank makes written demand therefor.
 
(d)            Tax Certificates .  Within 30 days after the date of any payment of Taxes, the Borrower will furnish to the Bank the original or a certified copy of a receipt evidencing payment thereof.
 
7.            Conditions Precedent to the Loan .
 
In addition to having received a Notice of Borrowing as set forth in Section 2(b) hereto, the obligation of the Bank to make the Loan hereunder is subject to the condition precedent that all of the following conditions shall have been fulfilled to the satisfaction of the Bank and its counsel on or before the Drawdown Date:
 
(a)            Corporate Documents .  The Bank shall have received certified copies of the charter and by-laws (or equivalent documents) of the Borrower and of all corporate authority for the Borrower (including, without limitation, board of director resolutions, powers of attorney and evidence of the incumbency of officers) with respect to the execution, delivery and performance of this Note and each other document to be delivered by the Borrower in connection herewith.
 
(b)            Documents Supporting the Loan .  The Bank shall have received this Note duly executed by the Borrower.
 
(c)            Process Agent Acceptance .  The Borrower irrevocably appoints Telecom Italia Sparkle of North America, Inc. as its agent of process.  The Bank shall have received an executed letter, in form and substance satisfactory to the Bank, from Telecom ltalia Sparkle of North America, Inc acceptable to the Bank, acknowledging such agent’s acceptance of its appointment as agent for service of process with respect to the Borrower for a period of time ending no earlier than the date six months after the Maturity Date and that all of the fees payable to such process agent, if any, shall have been paid in full.
 
 
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(d)            No Material Adverse Change .  There shall not have occurred any event which, in the opinion of the Bank, would involve a material adverse change in the business, economic or financial condition of the Borrower or in general market conditions.
 
(e)            No Event of Default; Accuracy of Representations and Warranties .  On the Date of this agreement, (x) no Event of Default or event that with notice or lapse of time or both would become an Event of Default shall have occurred and be continuing; and (y) the representations and warranties made by the Borrower in Section 8 hereof shall be true and correct on and as of the Draw down Date.
 
(f)            Government Approvals .  The Bank shall have received the Financial Transaction Registration (ROF) issued by the Central Bank of Brazil.
 
(g)            Other Documents .  The Bank shall have received such other documents as the Bank or its counsel may reasonably request.
 
8.            Representations and Warranties .  The Borrower represents and warrants to the Bank as follows:
 
(a)            Incorporation and Existence .  The Borrower is a company duly organized, validly existing and in good standing under the laws of Brazil and has the power and authority to execute and deliver this Note, to incur the obligations to be incurred by it hereunder and to perform and observe the provisions hereof.
 
(b)            Corporate Power and Authority .  The Borrower has taken all necessary action to authorize the execution and delivery of this Note and all other documents to be executed and delivered by it in connection herewith and the performance of its obligations hereunder.
 
(c)            Legally Enforceable Note .  This Note has been duly executed and delivered by the Borrower and constitutes a legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium and similar laws affecting creditors’ rights generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law).
 
(d)            Governmental Authorizations .  All governmental authorizations, including, without limitation, Financial Transaction Registration (ROF) issued by the Central Bank of Brazil, and actions of any kind necessary for the due execution, delivery and performance of this Note by the Borrower or required for the validity or enforceability against the Borrower of this Note, have been obtained or performed and are valid and subsisting in full force and effect.
 
(e)            Consent and Approvals .  No consent or approval of, or notice to, any creditor of the Borrower is required by the terms of any agreement or instrument evidencing any Indebtedness of the Borrower for the execution or delivery of, or the performance of the obligations of the Borrower under, this Note, and such execution, delivery and performance will not result in any breach or violation of, or
 
 
9
 
 
constitute a default under, the charter or by-laws of the Borrower or any agreement, instrument, judgment, order, statute, rule or regulation applicable to the Borrower or to any of its property.
 
(f)            Pari Passu Status .  The payment obligations of the Borrower under this Note rank at least pari passu with all of its other senior unsecured Indebtedness, whether now existing or hereafter outstanding, except for obligations accorded preference by mandatory provisions of law.
 
(g)           Absence of Litigation .  There are no actions, proceedings (judicial or administrative) or claims pending or, to the knowledge of the Borrower, threatened, the adverse determination of which might have a material adverse effect on the financial condition of the Borrower or impair its ability to perform its obligations under, or affect the validity or enforceability of, this Note.
 
(h)           IBF Language .  The Borrower, a nonbank entity located outside the United States of America, understands that it is the policy of the Board of Governors of the Federal Reserve System of the United States that extensions of credit by international banking facilities, such as the Loan hereunder, may be used only to finance operations of the Borrower, or that of the Borrower’s affiliates, outside the United States. ·
 
(i)            Waiver of Sovereign Immunity; Commercial Activity .  Neither the Borrower nor its property has any right of immunity on the grounds of sovereignty or otherwise from jurisdiction, attachment (before or after judgment) or execution in respect of any action or proceeding relating in any way to this Note that may be brought in the courts of Brazil or New York and the Borrower hereby irrevocably waives any right to immunity.  The execution, delivery and performance of this Note by the Borrower constitute commercial transactions .
 
(j)            Use of Proceeds.   The proceeds of the Loan shall be used for working capital purposes and only to finance the Borrower’s operations outside the United States.
 
(k)           Absence of Event Default .  No Event of Default exists or has occurred and is continuing and no Event of Default will occur as a result of the execution of this Note and disbursement of the Loan.
 
(l)            No Violation of Laws .  The execution, delivery and performance by the Borrower of this Note does not and will not violate any provision of any law, regulation, order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to the Borrower.
 
(m)          Compliance with Laws .  The Borrower is in compliance with all laws, including environmental laws.
 
(n)            Margin Stock .  The Borrower will not use the proceeds of borrowings made hereunder, directly or indirectly, or immediately, incidentally or ultimately, for the purpose of purchasing or carrying any securities listed in a public exchange market or to extend credit to others for the purpose of purchasing or carrying equity securities or to refinance or refund indebtedness originally incurred for such purpose.
 
 
10
 
 
(o)            Operating Company .  The Borrower is an operating company and not a holding company.  The Borrower is not or does not hold itself out as being engaged primarily, or proposing to engage primarily, in the business of investing, reinvesting, or trading in securities.  The Borrower is not engaged or proposing to engage in the business of investing, reinvesting, owning, holding, or trading in securities nor does it own or propose to acquire investment securities having a value exceeding 40% of the value of such Borrower’s total assets (exclusive of government securities and cash items) on an unconsolidated basis.
 
(p)            Form of Documents .  This Note and the Brazilian Note attached hereto as Exhibit “A” are in proper legal form under the laws of Brazil for the enforcement thereof against the Borrower, under such laws.  Under the laws of Brazil, (A) the choice of the laws of the State of New York as set forth in the Note to which the Borrower is party governed by the law of the State of New York is a valid choice of law, and (B) the irrevocable submission to jurisdiction and consent to service of process and appointment of an agent for service of process by the Borrower, in each case, as set forth herein is legal, valid, binding and effective.
 
(q)            Anti-Terrorism .  Neither the Borrower nor any of its respective brokers or other agents:
 
(i)           to its knowledge is in violation of any Anti-Terrorism Law or Export-Control Law;
 
(ii)          to its knowledge is a Designated Person;
 
(iii)         to its knowledge deals in any property or interest in property blocked pursuant to any Anti-Terrorism Law or Export-Control Law; or
 
(iv)         to its knowledge is located, incorporated or ordinarily resident in a Designated Jurisdiction.
 
Anything to the contrary in this Section 8(q) notwithstanding, the Borrower and the Bank agree that the Borrower’s existing international roaming agreements entered into with companies located in Iran, Sudan and Cuba shall not be deemed to constitute a breach of any Anti-Terrorism Law or any Export-Control Law, but only to the extent that (x) each such agreement was entered into on arms’-length terms and conditions, (y) each such agreement was entered into by the Borrower in the ordinary course of its business, and (z) the Borrower did not enter into any such agreement with the intent to breach or evade any Anti-Terrorism Law or any Export-Control Law.
 
9.            Covenants .  From the date hereof, the Borrower covenants as follows:
 
(a)            Lines of Business .  The Borrower will at all times continue to engage in the same line of business engaged in by the Borrower on the date hereof, and will not (i) engage to any substantial extent in any line or lines of business activity other than such current lines of business including the Acquisition of Eletropaulo Telecomunicações Ltda. and AES Communications Rio de Janeiro S.A. which is hereby consented to by the Bank, or (ii) change its corporate purpose ( objeto social ).
 
 
11
 
 
(b)            Limitation on Fundamental Changes .  The Borrower will not convey, sell, lease, transfer or otherwise dispose of, in one transaction or in a series of transactions, its property, or create, assume or suffer or permit to exist any sale-lease back transactions except:
 
 
I.
in the ordinary course of its business;
 
 
II.
of obsolete or unused assets;
 
 
III.
within the Group in arm’s-length transaction; and
 
 
IV.
any other disposal for an aggregate consideration not exceeding 30% of Borrower’s total assets (as stated in its most recent annual or quarterly financial statements disclosed).
 
(c)            Financial Information .  The Borrower shall deliver, upon written request, to the Bank (i) within 90 days following the end of each fiscal year of the Borrower, its annual audited financial statements; and (ii) within 90 days following the end of each fiscal year of Tim Participações S.A., the annual audited consolidated financial statements of Tim Participações S.A.; (iii) within 45 days following the end of each fiscal quarter of Tim Participações S.A., the-quarterly audited consolidated financial statements of Tim Participações S.A.; all in accordance with Brazilian GAAP or IFRS standards.
 
(d)            Corporate Existence, Approvals .  The Borrower shall maintain and keep in full force and effect its legal and corporate existence, rights (including without limitation all real and intellectual property rights), privileges, licenses, franchises and all approvals and consents required by third parties and/or any governmental authority for the incurrence of the Loan and conduct of its business, as applicable.
 
(e)            Compliance .  The Borrower will do or cause to be done all things from time to time necessary to comply and, as applicable, cause each of its Subsidiaries to comply in all material respects with all applicable laws, rules, orders and regulations (including environmental laws).
 
(f)            Notice of Event of Default .  The Borrower will notify the Bank in writing as soon as it becomes aware of the occurrence of any event that results or may result in the nonperformance or default by the Borrower of any obligation under this Note and/or any other instrument related hereto.
 
(g)            Insurance .  The Borrower will maintain its property duly insured with reputable insurance companies or associations in such amounts and covering such risks as are usually carried by companies engaged in similar businesses and owning similar properties in Brazil, and, upon the request of the Bank, promptly furnish to the Bank copies or other evidence of such insurance policies as may be in effect from time to time.
 
(h)            Transactions with Affiliates .  The Borrower will not enter, directly or indirectly, into any transaction with an affiliate, except (A) in the ordinary course of and pursuant to the reasonable requirements of its business and upon commercially reasonable terms that are no less favorable to it than those which might be obtained in a comparable arm’s-length transaction at the time from a Person
 
 
12
 
 
which is not such an affiliate, and (B) for intercompany loans which, in the aggregate, do not and will not result in the Borrower being in a materially weaker economic and financial condition.  For purposes hereof, “materially weaker economic and financial condition” means the ratio of Total Net Debt to EBITDA of the Borrower exceeding 3.5x, based on its most recent financial statements.
 
(i)            Additional Information and Documents .  The Borrower will deliver to the Bank such other information and/or documentation respecting the Borrower or the Borrower’s business, properties or the condition or operations, financial or otherwise, of the Borrower, as the Bank may from time to time reasonably request.
 
(j)            Ranking .  The Borrower will take any and all actions necessary such that its payment obligations hereunder as of the date hereof shall rank at least pari passu in all respects with all other senior unsecured Indebtedness of the Borrower, whether now existing or hereafter outstanding.
 
(k)            Mergers Etc .  With the exception of any incorporation, merger, consolidation, division, transfer or reorganization occurring among companies within the Borrower’s Economic Group, the Borrower will not be incorporated, or merge or transfer all or substantially all its assets to another entity or as another entity if, by the time of such incorporation, merger, consolidation, division, transfer or reorganization, the resulting entity, survivor or transferee, after such action, (1) does not assume all the obligations stipulated in this Note or any other document in connection herewith in which it is a party or to which its predecessor has been a party, by order of law or by means of an agreement reasonably satisfactory to the Bank; and/or (2) has a materially weaker economic and financial condition than the Borrower, as appropriate and if applicable, prior to such merger, consolidation, division, transfer or reorganization.  For purposes of item (2) of this Section, “materially weaker economic and financial condition” means the resulting entity, survivor or transferee presents a ratio of the Total Net Debt to EBITDA exceeding 3.5x, based on its pro-forma consolidated financial statements.
 
(l)            Dividends .  The Borrower will not distribute or pay dividends, interest on own capital or any other profit participation established in contract or in corporate documentation, above the minimum amount determined by law or in corporate documentation in effect on any such date unless at the time of such distribution or payment there shall not exist, and shall not thereby arise or result from such distribution or payment, any Event of Default or other event or condition which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.
 
(m)            Capital Expenditures, Investments, Loans and Advances .  In case of any Event of Default or event or condition which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default the Borrower will not, and will not permit any subsidiary to, make any capital expenditure, investment, loan or advance other than in the ordinary course of business consistent with past practices in relation to its existing business.
 
(n)            Anti-Terrorism/Sanctions Covenants .
 
(i)           The Borrower shall not knowingly engage in any transaction that violates any of the applicable prohibitions set forth in any Anti-Terrorism Law or Export-Control Law.
 
 
13
 
 
(ii)           To the knowledge of the Borrower, (i) none of the funds or assets of the Borrower that are used to repay the Loan shall constitute property of, or shall be beneficially owned directly or indirectly by, any Designated Person and (ii) no Designated Person shall have any direct or indirect interest in the Borrower that would constitute a violation of any Anti-Terrorism Laws or Export-Control Laws.
 
(iii)           The Borrower shall not knowingly fund all or part of any payment under this Note out of proceeds derived from transactions that violate the applicable prohibitions set forth in any Anti-Terrorism Law or Export-Control Law.
 
(iv)           The Borrower shall not knowingly, directly or indirectly, use the proceeds of the Loan to lend, contribute or otherwise make available such proceeds to any Subsidiary, joint venture partner or other person to fund activities of or business with any Designated Person or any person or business located in a Designated Jurisdiction.
 
(v)           No US Subsidiary or any officer, director, employee or agent of the Borrower that is a US citizen, shall knowingly participate in or facilitate transactions or business planning involving any Designated Person or any Designated Jurisdiction.
 
Anything to the contrary in this Section 9(n) notwithstanding, the Borrower and the Bank agree that the Borrower’s existing international roaming agreements entered into with companies located in Iran, Sudan and Cuba shall not be deemed to constitute a breach of any Anti-Terrorism Law or any Export-Control Law, but only to the extent that (x) each such agreement was entered into on arms’-length terms and conditions, (y) each such agreement was entered into by the Borrower in the ordinary course of its business, and (z) the Borrower did not enter into any such agreement with the intent to breach or evade any Anti-Terrorism Law or any Export-Control Law.
 
(o)            Process Agent Acceptance .  The Borrower shall appoint an agent of process located in New York and acceptable to the Bank, if Telecom ltalia Sparkle of North America, Inc. for any reason, ceases to act as its agent of process.  The Bank shall have received an executed letter, in form and substance satisfactory to the Bank, acknowledging such agent’s acceptance of its appointment as agent for service of process with respect to the Borrower for a period of time ending no earlier than the date six months after the Maturity Date and that all of the fees payable to such process agent, if any, shall have been paid in full.  The appointment shall take place within 3 Business Days after ltalia Sparkle of North America, Inc. ceases to act as its an agent of process.
 
10.            Events of Default .  If any of the following ·events (“Events of Default”) shall occur and be continuing:
 
(a)           The Borrower fails to pay any principal and interest or any portion thereof within two (2) calendar days from the date such amount becomes due and payable (whether at stated maturity or otherwise), provided that such two (2) calendar days cure period is only granted to the Borrower by the Bank if the Borrower delivers to the Bank, on the date immediately following such amount’s due date for payment, a notification, by the legal representative of the Borrower declaring that the Borrower has
 
 
14
 
 
sufficient cash, on that date, to honor its payment obligations due on such date, that the non-payment occurred due to an operational error not within the Borrower’s control for remedy and that the payment will be made on the immediately following day, and provided further that such two (2) calendar days cure period does not affect the Borrower’s obligation to pay overdue interest on any interest or other amount in accordance with Section 3(c)-Interest on Overdue Principal and Other Amounts hereof; or
 
(b)           The Borrower fails to perform or observe any covenant or agreement contained herein to be performed or observed by it or any representation or warranty of the Borrower in this Note or in any other document delivered in connection herewith proves to have been incorrect, incomplete or misleading in any material respect at the time it was made or repeated or deemed to have been made or repeated; or
 
(c)           The Borrower shall (i) be in default, event of default or other similar condition or event (however described) under one or more agreements or instruments in respect of any Indebtedness entered into between the Borrower and the Bank or its affiliates; or (ii) be in default, event of default or other similar condition or event (however described) under one or more instruments or agreements in respect of any Indebtedness entered into between the Borrower and any party, other than the Bank or its affiliates, which default, event of default, other condition or event causes, involves or may cause or involve, in accordance with the provisions of such agreements or instruments, the early maturity or acceleration of Indebtedness in an aggregate amount exceeding US$100,000,000.00 (One hundred million United States Dollars) (or its equivalent in other currencies); or
 
(d)           The Borrower (i) is dissolved, (ii) commences a voluntary case in bankruptcy or any other action or proceeding for any other relief under any law affecting creditors’ rights that is similar to a bankruptcy, debt rehabilitation or reorganization proceeding, law or (iii) consents by answer or otherwise to the commencement against it of an involuntary case in bankruptcy or any other such action or proceeding, or a proceeding is commenced in an involuntary case in bankruptcy in respect of the Borrower or any material Subsidiary or any property of the Borrower or any such material Subsidiary; or
 
(e)           Any governmental authority or court takes any action that, in the reasonable opinion of the Bank, materially adversely affects the condition of the Borrower or its ability to perform its obligations under this Note; or
 
(f)           A moratorium is enacted by Brazil or the central bank or any agency or political subdivision of Brazil affecting the Borrower’s right and obligation to effect payment under this Note or otherwise to perform its obligations hereunder; or
 
(g)           The payment obligations of the Borrower under this Note cease to rank at least pari passu with all of its other senior unsecured Indebtedness, except for obligations accorded preference by mandatory provisions of law; or
 
(h)           The Borrower suffers protest of bills ( Protesto ) in an individual or aggregate amount equal to or exceeding US$100,000,000.00 (one hundred million United States Dollars) (or its
 
 
15
 
 
equivalent in other currencies), and such protest(s) is(are) not cancelled within 15 São Paulo business days; or
 
(i)           This Note shall, at any time and for any reason, cease to be in full force and effect or shall be declared to be null and void, or the validity or enforceability thereof shall be contested by the Borrower, or the Borrower shall deny that it has any or further liability or obligation hereunder or thereunder; or
 
(j)           Any judicial proceeding is filed against the Borrower which may materially adversely affect is financial condition; or
 
(k)           A Change of Control occurs;
 
THEN, in any such case, if the Bank shall elect by notice to the Borrower, the unpaid principal amount of this Note, together with accrued interest, shall become forthwith due and payable; provided that in the case of an Event of Default under clause (d) above, the unpaid principal amount of this Note, together with accrued interest, shall immediately become due and payable without any notice or other action by the Bank.
 
11.            Notices .  All notices, requests, demands or communications hereunder shall be in writing and shall be given to or made upon the respective parties hereto at the following addresses:
 
If to the Borrower:
Tim Celular S.A
If to the Bank:
Bank of America, N.A.
   
Av. Das Americas 3.434
7° andar , Bloco 1
Rio de Janeiro – RJ, 22640-102, Brasil
Attn.:Rodrigo Guimarães Galvão
(Gerệncia de Tesouraria)
Tel:55-021-4009-3100
Fax:55-021-4109-3943
One Independence Center
101 N Tryon St
Charlotte NC 28255-0001 – EUA
Attn.: Duane 0. Lathan
Telefone: + 1.980.387.2419
Fac-simile: + 1.704.602.3672
E-mail: duane.lathan@baml.com
   
 
With a copy to:
   
 
BANK OF AMERICA MERRILL LYNCH BANCO MULTIPLO S.A.
Avenida Brigadeiro Faria Lima, n° 3400, 18° andar
S ã o Paulo, SP -04538-132-Brasil
Att.: Cristiana Costa / Fernanda Herrera Castro
Telefone: +55 (11) 2188 4710/4486
Fac-simile: +55 (11) 2188 4512/ 4595
E-mail:                       cristiana.costa@baml.com
fernanda.castroherrera@baml.com
c/c: Departamento Jứridicio
Attn.: Andre Teixeira / Felipe Iglesias
Telefone: + 55 (11) 2188-4428 /+ 55 (11) 2188-4233
Fac-símile: +55 (11) 2188-4227
E-mail:                       andreaulus.teixeira@baml.com
felipe.iglesias@baml.com
 
 
16
 
 
12.            Miscellaneous .
 
(a)           The Borrower waives presentment, notice of dishonor, protest and any other formality with respect to this Note.
 
(b)           This Note sets forth the entire agreement between the parties hereto, supersedes all prior communications and understandings of any nature and may not be amended, supplemented or altered except in a writing signed by both parties hereto.
 
(c)           The Borrower agrees to reimburse the Bank in full on demand, whenever an Event of Default has occurred, for all reasonable costs, expenses and charges including reasonable attorneys’ fees incurred by the Bank during or as a result of such Event of Default, or incurred by the Bank in enforcing its rights and remedies under this Note or in accordance with applicable law provided that the Bank previously delivers to the Borrower information relating to such costs, expenses and/or charges.
 
(d)           This Note shall be binding on the Borrower and its successors and assigns and shall inure to the benefit of the Bank and its successors and assigns, except that the Borrower may not delegate any obligations hereunder without the prior written consent of the Bank.  The Bank may at any time, without consent from the Borrower, assign or otherwise transfer or sell participations in this Note or any of its rights with respect thereto to any third party, including, but not limited, to any Federal Reserve Bank or to any banks, financial institutions or any affiliates of the Bank (including, any entity (whether a corporation, partnership, trust or otherwise) that is engaged in making, purchasing, holding or otherwise investing in bank loans and similar extensions of credit in the ordinary course of its business and is administered or managed by the Bank or an affiliate of the Bank).
 
(e)           The Bank agrees (on behalf of itself and each of its affiliates, directors, officers, employees and representatives) to use reasonable precautions to keep confidential, in accordance with safe and sound banking practices, any non-public information supplied to it by the Borrower pursuant to this Note which is identified by the Borrower as being confidential at the time the same is delivered to the Bank, provided that nothing herein shall limit the disclosure of any such information (A) to any subsidiaries or affiliates of the Bank, (B) to the extent required by statute, rule, regulation or judicial process, (C) to counsel for the Bank, (D) to bank examiners, auditors or accountants, (E) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Note or the enforcement of rights hereunder, (F) to any actual or prospective assignee or participant, or (G) to any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to the Borrower and its obligations; provided, further, that in no event shall the Bank be obligated or required to return any materials furnished by the Borrower.
 
(f)           Any suit, action or proceeding against the Borrower with respect to this Note or on any judgment entered by any court in respect thereof may be brought in the Supreme Court of the State of New York, County of New York, or in the United States District Court for the Southern District of New York or in the courts of Brazil, as the Bank may elect in its sole discretion, and the Borrower submits to the nonexclusive jurisdiction of such courts for the purpose of any such suit, action or
 
 
17
 
 
proceeding or judgment.  The Borrower hereby waives any objection which it may now or hereafter have to the laying of the venue of any suit, action or proceeding arising out of or relating to this Note brought in such courts, and hereby further irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.  The Borrower irrevocably appoints Telecom Italia Sparkle of North America, Inc.745 Fifth Avenue 27th Floor New York, New York 10151 Tel: (212) 310-9000, as its agent to receive service of process or other legal summons for purposes of any such suit, action or proceeding, and agrees that the failure of such agent to give any notice of any such process or summons to the Borrower shall not impair or affect the validity of such service or of any judgment based thereon.  So long as the Borrower has any obligation under this Note, it will maintain a duly appointed agent in New York City for the service of such process or summons.
 
(g)           TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE BORROWER WAIVES ITS RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS NOTE AND THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
 
(h)           This Note shall be governed by and interpreted and construed in accordance with the law of the State of New York, without regard to principles of conflicts of laws.  For purposes solely of article 9 of Brazilian Decree-Law No. 4.657 dated September 4, 1942, the transactions contemplated hereby have been proposed to the Borrower by the Bank.  For any purposes hereof, including, but not limited to, the enforcement, collection and payment of the Loan in Brazil, in the Bank’s sole discretion, the parties hereto agree that (i) the Loan shall be deemed as an enforceable out-of-court debt instrument ( título executivo extra-judicial ), pursuant to Section 585, II, of the Brazilian Civil Procedure Code (Law 5,869/73); (ii) all amounts (including, without limitation, the principal, interests, expenses and taxes) owed by the Borrower herein shall be deemed as a net and certain debt ( dívída liquida e certa ) to the extent that the Bank is required to enforce, collect or defend them before any Brazilian Courts and authorities against the Borrower.  The Borrower further acknowledges and consents that any discussion or enforcement and collection of the Loan and related amounts in Brazil shall be made through an expedited enforcement claim ( ação de execução ) or any other means elected by the Bank, at its sole discretion; and (iii) in accordance with Section 585, § 2th, of the Brazilian Civil Procedure Code (Law 5,869/73), this Note complies with all the requirements of, and contains all the formalities of, the place where it has been executed.  The Borrower agrees that any evidence of payment of the principal amount due under this Note in the amount set forth herein, shall constitute valid and sufficient evidence of the validity and enforceability of this Note before any Brazilian Courts, as the case may be.  Finally, the Borrower agrees that the Bank shall be waived of any requirement to present any bonds or security, including, but not limited to, the one set forth in Article 835 of the Brazilian Civil Code or any other similar law, for the discussion or enforcement of this Note and/or the Loan before any Brazilian Courts, it being agreed that the Borrower hereby expressly waives any right to request the Bank to post any bond required to initiate or file lawsuits against the Borrower in any jurisdiction.
 
(i)           To the extent that the Borrower may now or hereafter be entitled, in any jurisdiction in which judicial proceedings may at any time be commenced with respect to this Note, to claim for itself or its revenues or properties any immunity from the jurisdiction of any court or from legal process
 
 
18
 
 
(whether from service or notice, attachment prior to judgment, attachment in aid of execution of judgment, execution of judgment or otherwise), and to the extent that in any such jurisdiction there may be attributed to the Borrower any such immunity (whether or not claimed), the Borrower hereby irrevocably agrees not to claim, and hereby waives, such immunity in respect of its obligations under this Note.
 
(j)           Each reference in this Note to U.S. Dollars is of the essence.  The obligation of the Borrower in respect of any amount due under the Note shall, notwithstanding any payment in any other currency (whether pursuant to a judgment or otherwise), be discharged only to the extent of the amount in U.S. Dollars that the Bank may, in accordance with normal banking procedures, purchase with the sum paid in such other currency (after any premium and costs of exchange) on the Banking Day immediately following the day on which the Bank receives such payment.  If the amount in U.S. Dollars that may be so purchased for any reasons falls short of the amount originally due, the Borrower shall pay such additional amounts, in U.S. Dollars, as may be necessary to compensate for such a shortfall.  Any obligation of the Borrower not discharged by such payment shall be due as a separate and independent obligation and, until discharged as provided herein, shall continue in full force and effect.
 
(k)           The Borrower acknowledges that the Bank may have and may in the future have investment and commercial banking, trust and other relationships with other companies in respect of which the Borrower may have conflicting interests regarding the transactions described herein and otherwise.  The Borrower acknowledges that the Bank may perform its functions in connection with such fiduciary or other relationships without regard to its relationship with the Borrower hereunder.  The Bank will not use confidential information obtained from Borrower by virtue of the transactions contemplated by this Note or its other relationships with the Borrower in connection with the performance by the Bank of services for other companies, and the Bank will not furnish any such information to other companies.  The Borrower also acknowledges that the Bank has no obligation to use in connection with the transactions contemplated by this Note, or to furnish to the Borrower, confidential information obtained from other companies.
 
(l)           The Borrower hereby agrees to indemnify, protect, save and keep harmless the Bank, its officers, directors, shareholders, employees, affiliates, successors, assigns, agents and servants (each, an “Indemnified Party”) from and against, and to pay to the Bank promptly upon demand the amount of, any and all liabilities, obligations, losses, damages, penalties, claims, actions, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by or asserted against any Indemnified Party in any way relating to or arising out of this Note or any action taken or omitted by such Indemnified Party under this Note, provided , however , that the Borrower shall not be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Indemnified Party’s gross negligence or willful misconduct as found in a final, non-appealable judgment by a court of competent jurisdiction.
 
(m)           All payments made under this Notes shall be made in Dollars (the “ Agreement Currency ”), and, if for any reason any payment made hereunder is made in a currency (the “ Other Currency ”) other than the applicable Agreement Currency, then to the extent that the payment actually received by the Bank, when converted into the applicable Agreement Currency at the Rate of
 
 
19
 
 
Exchange (as defined below) on the date of payment (or, if conversion on such date is not practicable, as soon thereafter as it is practicable for the Bank to purchase the applicable Agreement Currency) falls short of the amount due under the terms of this Note or any Loan Document, the Borrower shall, as a separate and independent obligation of the Borrower, indemnify the Bank and hold the Bank harmless from and against the amount of such shortfall.  As used in this Section, the term “ Rate of Exchange ” means the rate at which the Bank is able on the relevant date to purchase the applicable Agreement Currency with the Other Currency and shall include any premiums and costs of exchange payable in connection with the purchase of or conversion into, the applicable Agreement Currency.
 
(n)           The Bank hereby notifies the Borrower that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub.L. 107-56 (signed into law October 26, 2001)) (the “ Act ”), the Bank is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow the Bank to identify the Borrower in accordance with the Act.  The Borrower shall, promptly following a request by the Bank, provide all documentation and other information that the Bank requests in order to comply with its ongoing obligations under applicable “know your customer” and anti-money laundering rules and regulations, including the Act.
 
(o)           The agreements in this Section 12 shall survive the termination of the Commitment and the repayment, satisfaction or discharge of all the other obligations and liabilities of the Borrower under Note.
 
IN WITNESS WHEREOF, the Borrower has caused this Note to be duly executed by its duly authorized officer as of the day and year first above written.
 
TIM Celular S.A.
 
 
By:
 
Name:    Claudio Zezza
Title:      CFO e RI Director
Place and Date:  
 
 

WITNESSES:
 
TIM CELULAR S/A.
     
     
/s/ Rodrigo G. Galvão
 
/s/ Marco Chiarucci
Name:      Rodrigo G. Galvão
 
Name:      Maerco Chiarucci
Id.:           TIM – Finanças Tesouraria
 
Id.:           Gerente de Finanças
Place and Date:
September 6, 2011
 
Place and Date:
 

 
20
 
 
EXHIBIT A
 
FORM OF BRAZILIAN PROMISSORY NOTE
 
São Paulo, State of São Paulo, Brazil
 
U.S. $119,817,876.63 (One Hundred Nineteen Million Eight Hundred Seventeen Thousand Eight Hundred Seventy Six United States Dollars And Sixty Three Cents)
 
September 6, 2011
 
FOR VALUE RECEIVED, the undersigned, TIM Celular S.A., a company organized under the laws of Brazil (the “ Borrower ”), and enrolled with the CNPJ under number 04.206.050/0001-80 with domicile at Av. Giovanni Gronchi 7143, São Paulo-SP, 05724-005 hereby promises to pay to the order of BANK OF AMERICA, N.A. (the “ Bank ”) the principal sum of U.S. $119,817,876.63 (One Hundred Nineteen Million Eight Hundred Seventeen Thousand Eight Hundred Seventy Six United States Dollars And Sixty Three Cents) or, if less, the aggregate unpaid principal amount of the Loan made by the Bank to the Borrower pursuant to certain New York Promissory Note, dated as of even date herewith (such promissory note, as it may be amended, restated, extended, supplemented or otherwise modified from time to time, (being hereinafter called the “ NY Promissory Note ”), issued by the Borrower to the Bank, on September 6, 2011.  The Borrower further promises to pay interest on the unpaid principal amount of the Loan evidenced hereby from time to time at the rates, on the dates, and otherwise as provided in the NY Promissory Note.  The loan account records maintained by the Bank shall at all times be conclusive evidence, absent manifest error, as to the amount of the Loan and payments thereon; provided , however , that any failure to record the Loan or any payment thereon or any error in doing so shall not limit or otherwise affect the obligation of the Borrower to pay any amount owing with respect to the Loan.
This promissory note is the Brazilian Note referred to in, and is entitled to the benefits of, the NY Promissory Note, which NY Promissory Note, among other things, contains provisions for acceleration of the maturity of the Loan evidenced hereby upon the happening of certain stated events and also for prepayments on account of principal of the Loan prior to the maturity thereof upon the terms and conditions therein specified.
Unless otherwise defined herein, terms defined in the NY Promissory Note are used herein with their defined meanings therein.  This promissory note shall be governed by, and construed in accordance with, the laws of Brazil.  Payment under this Promissory Note shall be made in the city of São Paulo, State of São Paulo, Brazil.  The place of jurisdiction shall be São Paulo, State of São Paulo, Brazil.
 
 
 
Place and Date: São Paulo,
 
TIM CELULAR S.A., AS BORROWER
 
 
Brazil, September 6, 2011
         
      By:    
        Name: Claudio Zezza  
        Title: CFO e RI Director  
 
21
 
Exhibit 4.7

[handwritten:]TFB SP – R$40MM, duplicate, OK


BANK CREDIT BILL
(1 st Term of Amendment)


Through this instrument, the 1 st Term of Amendment (“Amendment”) to the BANK CREDIT BILL No. 100111080022600 issued on 08/22/2011 with disbursement on 08/25/2011, in the original value of R$ 40,000,000.00 (forty million reais)(henceforth referred to as the “Bond”, whether changed, rectified or ratified at any time), by the company ELETROPAULO TELECOMUNICAÇÕES LTDA, with headquarters at Av. Alfredo Egídio de Souza Aranha, 100 Bl. B 13, located in the Chacara Santo Antonio neighborhood, in the city of São Paulo, in the state of São Paulo, with registration in the Corporate Taxpayer Registry under No. 02.875.211/0001-01 (henceforth referred to simply as “ISSUER” ), requests from the BANCO ITAÚ BBA S.A ., a private financial institution with headquarters at Av. Brigadeiro Faria de Lima, 3400, 3 rd -8 th and 11 th and 12 th floors (partial), in the city of São Paulo, in the state of São Paulo, with registration in the Corporate Taxpayer Registry under No. 17.298.092/0001-30, (henceforth simply referred to as “CREDITOR” ), that the Bond be changed according to the following terms:

1.- Every term and expression here written in capital letters, but that are not here defined, shall have the same meaning as they have been given in the Bond. Every term and expression defined may be used either in the masculine or feminine forms, and both in the singular or plural forms.

2.- Due to the ISSUER ’s change of corporate name, the Parties decide to change Table I from the Bond’s Preface, which shall hereafter apply according to the following new wording:

Table I – BANK CREDIT BILL ISSUER
Corporate Name: TIM FIBER SP LTDA, new corporate name of ELETROPAULO TELECOMUNICAÇÕES LTDA
Finance Ministry’s Corporate Taxpayer Registry Number : 02.875.211/0001-01
Address : Av. Alfredo Egídio de Souza Aranha, 100 Bl. B 13
City: São Paulo                                      State: SP                             Zip Code: 04726-170
Email:                                                     Telephone:                        Fax:

3.- through the present amendment the parties decide to change the Bond’s interest rate and, consequently, also make changes in the section named Charges in Table II from the Bond’s Preface, which shall hereafter apply, in particular in regards to Charges, according to the following new wording

“CHARGES:

Interest

a) Interest Rate : 100 % (one hundred percent) of the compound Interbank Deposit Certificate with an annual flat rate of 0.900000 % (zero and nine hundred millionth percent), which is equivalent to the monthly rate of 0.074692 % (zero, and seventy four thousand six hundred and ninety two millionth percent).”



Instrument: 100111080022600
          Page 1 of 4
Authentication: (SIM-II): cd90be6f - da5b - 4d20 - 963d - cf43a3062c7b
 
IBBA_KG_CCB_Amend_TIM_ID30749
 
   
[Stamp:] TIM Legal Department
[initials]
 
 
 
 
 
4.- through this Amendment, the Parties decide to change the wording of paragraphs “c”, “g”, and “h” of clause 07 of the Bond, and to exclude paragraphs “h.1.” and “l”. Clause 07 of the Bond, therefore, shall hereafter apply according to the following new wording:

“ CLAUSE 07. Acceleration Case – The debt in this Bill shall be considered accelerated, and thus requiring immediate payment, through judicial or extrajudicial notification, if any of the events listed below come to take place. The parties acknowledge here that such events may be a direct cause of  an undue increase in the risk of the payment’s default by the ISSUER, and thus making the onus of granting a loan more onerous for the CREDITOR of this Bill:

a) if the ISSUER does not (i) make a payment for which it is liable under this Bill up to 3 (three) business days from the date in which these payments are due; or, (ii) make a payment for which it is liable under this Bill up to 30 (thirty) days of the receipt of the notification sent by the CREDITOR in this regard;

b) if any of the events set forth in articles 333 and 1.425 of the Civil Code (Law No. 10.406/02) occur;

c) if the ISSUER (i) declares bankruptcy; or (ii) has its bankruptcy requested and the request is not cancelled within the legal term; (iii) is dissolved or, still; (iv) suffers legitimate bond protest for whose payment it might be liable, whose individual or global value exceeds R$ 80,000,000.00 (eighty million reais), except in the event that (a) it is cancelled, halted, suspended, or declared invalid within 10 (ten) days from the date of the protest; or, (b) if it is made by mistake or in bad faith by third parties, as long as this fact can be duly evidenced by the ISSUER ;

d) if the ISSUER proposes an extrajudicial recovery plan to the CREDITOR or any other creditor or class of creditor, in spite of whether the referred plan was requested or granted by legal ratification;

e) if the ISSUER starts a lawsuit requesting judicial recovery, in spite of whether it is granted the recovery process or whether it is granted by relevant judge;

f) acceleration of any other contract, bill, or other debt instrument signed by the ISSUER to the CREDITOR whose individual or global value exceeds R$ 10,000,000.00 (ten million reais)

g) change or alteration of the ISSUER ’s corporate name such that it may change the ISSUER ’s current main activities or that adds to these activities new businesses that might have greater prevalence relative to the activities currently in development, except in the event of consolidation between companies from the same business group as the ISSUER that results in the change or alteration of the ISSUER ’s corporate name;


Instrument: 100111080022600
          Page 2 of 4
Authentication: (SIM-II): cd90be6f - da5b - 4d20 - 963d - cf43a3062c7b
 
IBBA_KG_CCB_Amend_TIM_ID30749
 
   
[Stamp:] TIM Legal Department
[initials]
 
 
 



h) if there is any change, transfer or, direct or indirect, surrender of the control of share/company, or in the event that the ISSUER suffers incorporation, merger or separation outside the same business group of the companies TIM BRASIL SERVIÇOS E PARTICIPAÇÕES S/A, TIM PARTICIPAÇÕES S/A, TIM CELULAR S/A, INTELIG TELECOMUNICAÇÕES LTDA., without the CREDITOR ’s previous approval; and,

i) if any non-compliance, falseness, inaccuracies, mistakes, or omissions attributable to the ISSUER are found in any document that was signed, rendered or delivered by the ISSUER in regards to this Bill.”

5.- through this instrument, the parties decide to change the wording of clause 8 of the Bond, which shall hereafter apply according to the following new wording:

“ CLAUSE 08. Late Payment – If the ISSUER does not duly comply with the liabilities listed in this Bill, including in the event of acceleration of this Bill, the ISSUER shall be served a notice of default, whether or not it receives a judicial and/or extra-judicial notification from the CREDITOR , so that the ISSUER shall be liable to pay for, during the default period and over all of the amounts owed due to this Bill:

a) the deferred payment interest calculated from the date of default to the date the payment is made, at the annual rate of 6 % (six percent) over the amount owed;

b) the regular arrears penalty, nondeductible and of a compensatory nature, at the flat rate of 1 % (one percent) over the owed and unpaid amount, after the grace period of 03 (three) business days, unless the payment was not made due to an operational problem which will need to be duly evidenced by the ISSUER .

First Paragraph -- The charges here set forth, indicated in items “a” and “b” above, will be calculated and capitalized until the final payment of the debt.”

6.- through this amendment, the parties decide to change the wording of clause 9 of the Bond, which shall hereafter apply according to the following new wording:

“ CLAUSE 09. Attorney Fees – In the event that the CREDITOR needs to collect any AMOUNT referent to this Bill, whether by proof of claim or by acting against the insolvent debtor, the ISSUER shall be liable to pay to the CREDITOR compensation for eventual expenses with attorneys’ hired by the CREDITOR , based on judicial feeds by decree proceedings and according to final and unappealable decision.”

7.- through this amendment, the parties decide to change the wording of clause 10 of the Bond, which shall hereafter apply according to the following new wording:

“ CLAUSE 10. Expenses – The ISSUER shall reimburse the CREDITOR for all expenses set forth in this Bill or any other general expenses that are reasonably incur or that might incur, directly or indirectly, from this Bill. These expenses shall be limited to the maximum amount of R$ 10,000.00 (ten thousand reais) and shall be reimbursed by the ISSUER in up to 30 (thirty) days from the receipt of the CREDITOR ’s respective receipts.”
 
Instrument: 100111080022600
          Page 3 of 4
Authentication: (SIM-II): cd90be6f - da5b - 4d20 - 963d - cf43a3062c7b
 
IBBA_KG_CCB_Amend_TIM_ID30749
 
   
[Stamp:] TIM Legal Department
[initials]
 
 
 
 

8.- The ISSUER acknowledges that, for all legal purposes, on this date, the outstanding  value corresponding to the liabilities taken under the issue of this Bond is in the amount of R$ 40,000,000.00 (forty million reais).

9.- The changes made in the Bond through this Amendment do not implicate in renewal, and all the liabilities, clauses, terms and conditions set forth in the Bond that were not explicitly changed in this amendment remain valid and applicable, in particular, the data in the Bond’s preface  and in its Attachment I are not altered. Every warranty made in the original Bond is here ratified.

10.- Following this Amendment, the ISSUER will make a cash payment to the CREDITOR , or on its behalf, at the location indicated in the Bond and on the Due Date (as well as all other  payment dates that have been explicitly agreed upon in the Bond, as modified, rectified and/or ratified at any time), the remainder of the debt, which is correct, net, and compulsory according to the terms of the Bond, plus the additional Charges, taxes, and expenses resulting from the Bond.

And, having so agreed, the parties sign this instruments in 2 (two) copies of equal format and content and with a single purpose.



São Paulo, February 2 nd , 2012




   [signature]
 
[signature]
    Rodrigo G. Galvão
TIM FIBER SP LTDA
Luiza Chaves
    TIM – Finance & Treasury
 
TIM CELULAR S.A .
   
Treasury Operations
     
     
IN AGREEMENT:
   

 
[signature]
[signature]
   
BANCO ITAÚ BBA SA
     
[illegible] Ramos de Sant Ana
 
Fernanda Souza de Almeida
ID Number 08156409-5
 
ID Number: 11374116-9
Individual Taxpayer Number:
 
Individual Taxpayers Number:
003[illegible]
 
084.488.317-48
     
WITNESSES:
   
     
1) [signature]
 
2) [signature]
Name: Daniel Fisman Nigri
 
    Name: Albertina da F. B. de Oliveira
Individual Taxpayers’ Number:
 
    Individual Taxpayers Number:
106.651.367-81
 
    895.067.907-87
ID Number: 020.675.100-9
   


  

Instrument: 100111080022600
          Page 4 of 4
Authentication: (SIM-II): cd90be6f - da5b - 4d20 - 963d - cf43a3062c7b
 
IBBA_KG_CCB_Amend_TIM_ID30749
 
   
[Stamp:] 1. Legal Department TIM
[initials]
2. Itaú BBA, Accommodated SP, RJ Branch
 
            
 
 




BANK CREDIT BILL
No. 100111080022600


I – PREFACE

Table I – BANK CREDIT BILL ISSUER
Corporate Name: ELETROPAULO TELECOMUNICAÇÕES LTDA
Finance Ministry’s Corporate Taxpayer Registry Number : 02.875.211/0001-01
Address : Av. Alfredo Egídio de Souza Aranha, 100 Bl. B 13
City: São Paulo                                        State: SP                              Zip Code: 04726-170
Email:                                                    Telephone:                          Fax:
Table II – BANK CREDIT BILL CHARACTERISTICS
Principal’s Amount:
$40,000,000.00 (forty million reais)
 
Loan’s Net Value
According to Request (defined below)
 
CHARGES:
Interests
a) Interest Rate : 100  % (one hundred percent) of the compound Interbank Deposit Certificate, with an annual flat rate of 1.50  % (um and fifty hundredth per cent), which is the equivalent to the monthly rate of 0.124149 % (zero and one hundred and twenty four millionth percent)
Structuring Commission
0.40  % (forty hundredth percent), flat, over the Principal’s Amount, due on the Disbursement Date.
Expenses :
Expenses with registry and Formalization of this Bill following the clause “Expenses.”
Date of Issue :
08/22/2011
Disbursement Date : 08/25/2011
Taxes:
a) Tax on Financial Operations – paid on the same date as the loan’s disbursement
  □   with Issuer’s resources
  ☒ with resources from the loan granted by this CCB
 
The provisions of the Clause “Tax Payment” applies to the new taxes and the eventual increases in the existing ones
Place of Payment :
SÃO PAULO
Bill’s Due Date :
In conformity with Attachment I, following Clauses “Promise of Payment” and “Acceleration”
Table III – ISSUER’S CHECKING ACCOUNT -- DEBIT
Bank
Itaú Unibanco S.A. – No. 341
Agency
912
Checking Account Number
09231-9
Table IV – CHECKING ACCOUNT FOR RELEASE
The ISSUERS checking accounts indicated in the respective Requests (defined below)

II -- CLAUSES

CLAUSE 01. The promise of payment – The ISSUER , qualified as in the Preface above (henceforth “ ISSUER ”), will pay at the Place of Payment (identified above) through this BANK CREDIT BILL No. 100111080022600



Instrument: 100111080022600
       Page 1 of 12
Authentication: (SIM-II): e5a43a1c - caa5 - 4eef - b01b - d89af4679c93
 
IBBA_KG_CCB_Grant_aes_ID68291
 
   
[Stamps:]   1. Legal Department TASC
 
2. NOT NEGOTIABLE
 
 
 
 
(“Bill”), issued according to the current legislation by BANCO ITAÚ BBA S/A (henceforth simply referred to as “ CREDITOR ”), a private financial institution with headquarters at Av. Brigadeiro Faria de Lima, 3400, 3 rd -8 th and 11 th and 12 th floors (partial), registered in the Corporate Taxpayer Registry under No. 17.298.092/0001-30, or on its behalf, in installments or in a single payment, on the dates identified above at times determined by this Bill, in the Preface and its Attachments (“ DUE DATE ”), the cash debt, correct, net, and compulsory, corresponding to the total amount determined under this Bill plus additional Charges, taxes, and expenses here agreed upon (under the label “ AMOUNT ”), following the provisions of the additional Clauses determined as follows:

CLAUSE 02. On the purpose and release of the loan – The purpose of this Bill is the granting of a loan to the ISSUER by the CREDITOR . The loan here granted will come into effect after the request for disbursement is sent to the CREDITOR by the ISSUER through Attachment II (the “Request”), or through another approved format that is not forbidden by the current norms.

First Paragraph – When it is indicated in the Preface that the Tax on Financial Operations will be paid with the resources from the loan granted by the CCB, the CREDITOR , will withhold taxes releasing to the ISSUER the loan’s net amount.

Second Paragraph –After sending the Request and deducting taxes and charges that are owed in advance, as it may apply, the Principal’s Amount mentioned in the Preface will be credited directly into the Checking Accounts for Clearance owned by the ISSUER ’s that is indicated in the Preface, unless indicated otherwise in writing. The loan will be made through transfer or by electronic check issued by the CREDITOR following the terms of the Request, or through another allowed format that is not forbidden by the currents norms.

Third Paragraph – If the terms of this Bill are followed and the ISSUER ’s instructions are met, the transfer made by the CREDITOR to the ISSUER , or through any other legal mean of transfer, will grant the use of the loan taken.

Fourth Paragraph – The Attachments and additional documents issued according to them are an integral part of this Bill.

Fifth Paragraph – Only in the occasions in which the Disbursement Date follows the Data of Issuance of this Bill, if there are any adverse and relevant changes in the political, financial, economic, national, or international situation as well as changes in currency exchange, interest, currency, currency exchange rates or interest, the CREDITOR shall, at its sole discretion, draft a new agreement regarding Interest Rates, which will only apply after the ISSUER is notified in advance.

If the ISSUER does not accept the changes proposed by the CREDITOR , the ISSUER shall rescind this Bill without any onus, including without being liable to pay for any commission or compensation.

CLAUSE 03. Regarding the charges and additional financial charges – The ISSUER will pay interest on the Principal’s amount as defined in the Preface. This interest will be capitalized, without prejudice to the payment of the other Charges and Taxes agreed upon on the Preface and on the additional Clauses of this Bill. Interest may be charge at either a pre-fixed or post-fixed rate.



Instrument: 100111080022600
Page 2 of 12
Authentication: (SIM-II): e5a43a1c - caa5 - 4eef - b01b - d89af4679c93
 
IBBA_KG_CCB_Grant_aes_ID68291
 
   
[Stamps:]     1. Legal Department TASC
 
  2. NOT NEGOTIABLE
 
 
 
 
 
 
First Paragraph – Every semester, starting from the Disbursement Date of this Bill, the CREDITOR shall, at its own discretion, have a new agreement regarding the Interest Rates indicated in the Preface, which will apply after a notification is sent at least15 (fifteen) days prior to the end of the referred period, following the instructions of the  “Communications” Clause, below. In the event that the ISSUER does not agree with the Interest Rate established by the CREDITOR , the ISSUER is irrevocably responsible for cancelling this Bill using the provisions of the Clause “Early Settlement,” on the date of the end of the respective semester. In the absence of a statement by the ISSUER , up to two days prior to the end of the respective semester, for all legal purposes, the change will be considered a tacit agreement on the New Interest Rate.

Second Paragraph – Interest will be capitalized daily, that is, calculated exponentially pro rata temporis , applying the Interest Rate determined in the Preface over the outstanding value of the Principal’s Amount starting from the Disbursement Date. The daily capitalization is defined as the result obtained from the accumulation, in the format of a compound capitalization, of the percentage of the daily average rate of the compound Interbank Deposit Certificate with the tax rate (both indicated in the preamble), given that (i) the percentage of the Interbank Deposit Certificate (“IDC”) will be calculated based on the annual average rate (considered one year as equal to 252 days) relative to the operations with the IDC, with a term equal to 1 (one) business day (over), investigated and published by the CETIP -- Securities Central Custody and Financial Liquidation Registry, rounding the daily factor to the eighth decimal house; and (ii) the flat rate, when defined, will also be calculated through a capitalized format, but based on a year of 360 (three hundred and sixty) days. When the IDC percentage is zero, the Interest will be considered pre-fixed.

Third Paragraph – Interest will be applied during the validity period of this Clause (i) including the Interest Rate referent to the Disbursement Date, or the data of the principal’s last installment payment; and (ii) excluding the Interest Rate referent to the respective due date. In cases of dissolution, no publication or impossibility, for any reason, of the IDC’s daily average rates used, a substitute rate will be used based on the variation of the Brazilian Central Bank’s Selic Rate published by the ANDIMA – National Association of Financial Market Institutions.

Fourth Paragraph – Considering the introduction to this Clause and its additional Paragraphs, next a mathematical formula can be found showing the calculation of the values owed when the Interests are applied:

DU
VP n = VP n +SD x{[ ∏ n [1+(((1 + CetipRate i / 100) 1/252 -1) x P/100)] x [(1 + a / 100) DCn/360 ]]-1}
i=1
where:
a = flat rate on base 360;










Instrument: 100111080022600
Page 3 of 12
Authentication: (SIM-II): e5a43a1c - caa5 - 4eef - b01b - d89af4679c93
 
IBBA_KG_CCB_Grant_aes_ID68291
 
   
[Stamps:    1. Legal Department TASC
 
2. NOT NEGOTIABLE]
 
 
 
 
 

DC n   = term in calendar days, from the Disbursement Date to the date of the last payment of the interest, whichever happens last until the respective due date;
DU n =term in business days, from the Disbursement Date or the date of the last payment of the interest, whichever happens last until the respective due date;
P = IDC’s percentage
CetipRate = Interbank Deposit Certificate (IDC) rate, Over, expressed on base 252;
VF n = value of each installment on their respective due date;
VP n = amortization value of the Nth principal installment;
n = installment number;
SD n = principal’s outstanding amount with no deduction of the amortized installment.

CLAUSE 04. Form of payment – The ISSUER will mandatorily pay the entire AMOUNT due at their respective DUE DATES through direct debit from the account mentioned in the Preface from Itaú Unibanco S.A. (with headquarters at Praça Alfredo Egydio de Souza Aranha, no. 100, Torre Itausa, in the City and State of São Paulo, registered at the Corporate Taxpayer Registry under No. 60.701.190/0001-04, henceforth referred to as “ ITAÚ UNIBANCO ”, which should have enough balance.

First Paragraph – In the event the ISSUER does not have a checking account at ITAÚ UNIBANCO the ISSUER irrevocably shall make payments on the DUE DATES through electronic check sent directly to the CREDITOR .

Second Paragraph – Any receipt of installment payment made outside the determined term will constitute mere grace, and in no way will affect the DUE DATE or the additional items and conditions of this Bill, and will not lead to the renewal or modification of what has been currently agreed, including the charges resulting from the delay.

Third Paragraph – In the event that any payment dates (of principal, Charges, Taxes, and additional financial charges) set forth in this Bill fall on a national, municipal, or bank holiday, the ISSUER shall make the payment on the next business day. In this event, Interest will apply on the date of the actual payment.

Fourth Paragraph – Early payment of this Bill can be made by the ISSUER , fully or partially, following the provision of the Clause “Early Settlement” of this Bill.

CLAUSE 05. The CREDITOR shall make available to the ISSUER monthly statements or spreadsheets that are considered integral part of this Bill. The statements and spreadsheets shall be sent by email to the ISSUER , following the terms of clause 17, every time this is requested.

Sole Paragraph: THE ISSUER ACKNOWLEDGES THAT THE ISSUER ’S CHECKING ACCOUNT STATEMENTS ABOVE MENTIONED AND THE SPREADSHEETS PRESENTED BY THE CREDITOR ARE PART OF THIS BILL AND THE VALUES THEREIN, IF FOUND IN CONFORMITY WITH THIS BILL, ARE CORRECT AND COMPULSORY. IF THE ISSUER DOES NOT AGREE WITH THE VALUES IN ANY STATEMENT OR SPREADSHEET, THE ISSUER MUST COMMUNICATE THIS TO THE CREDITOR IN WRITING. IF THE ISSUER FAILS TO COMPLAIN WITHIN 5 (FIVE) DAYS AFTER THE RECEIPT OF THE STATEMENTS AND/OR OF THE SPREADSHEET, THIS WILL CONSTITUTE DOCUMENTAL EVIDENCE OF THE LOAN’S USE, CERTAINTY AND LIQUIDITY.




Instrument: 100111080022600
Page 4 of 12
Authentication: (SIM-II): e5a43a1c - caa5 - 4eef - b01b - d89af4679c93
 
IBBA_KG_CCB_Grant_aes_ID68291
 
   
[Stamps:]    1. Legal Department TASC
 
 2. NOT NEGOTIABLE
 
 
 
 
CLAUSE 06. Location of Payment – In the event that due payments are not made by direct deposit on checking account, without prejudice to the applicable legal rules and regulations, payment of the owed values following this Bill, including the additional fees stipulated above, shall be made at the CREDITOR ’s address, or in any of its branches, directly to the CREDITOR or on its behalf.

CLAUSE 07. Acceleration Case – The debt in this Bill shall be considered accelerated, and thus requiring immediate payment, through judicial or extrajudicial notification, if any of the events listed below come to take place. The parties acknowledge here that these events can be seen as the direct cause of an undue increase in the risk of the payment’s default by the ISSUER, and thus making the onus of granting a loan more onerous for the CREDITOR of this Bill:

a) if the ISSUER does not (i) make a payment for which it is liable under this Bill up to 3 (three) business days from the date in which these payments are due; or, (ii) make a payment for which it is liable under this Bill up to 30 (thirty) days of the receipt of the notification sent by the CREDITOR in this regard;

b) if any of the events set forth in articles 333 and 1.425 of the Civil Code (Law No. 10.406/02) occur;

c) if the ISSUER (i) declares bankruptcy; or (ii) has its bankruptcy requested and the request is not cancelled within the legal term; (iii) is dissolved or, still; (iv) suffers legitimate bond protest for whose payment it might be liable, whose individual or global value exceeds R$ 20,000,000.00 (twenty million reais), except in the event that (a) within 5 (five) business days the ISSUER shows evidence that the protest was made by mistake or in bad faith by a third party; (b) if it is cancelled; or if, (c) the requirement is suspended by judicial decision;

d) if the ISSUER proposes an extrajudicial recovery plan to the CREDITOR or any other creditor or class of creditor, regardless of whether the referred plan was requested or granted by legal ratification;

e) if the ISSUER starts a lawsuit requesting judicial recovery, regardless of whether the request to start proceedings for recovery is granted if the actual recovery is granted by a relevant judge;

f) acceleration of any other contract, bill, or other debt instruments signed by the ISSUER to the CREDITOR whose individual or global value exceeds R$ 10,000,000.00 (ten million reais)

g) change or alteration of the ISSUER’s corporate name such that it may change the ISSUER ’s current main activities or that adds to these activities new businesses that might have greater  prevalence relative to the activities currently under development;

h) if there in any change, transfer or, direct or indirect, surrender of the control of the shares/company, or in the event that the ISSUER suffers incorporation, merger or separation outside the same business group of the companies without the CREDITOR ’s previous approval, except when the control of the share/company is transferred to another company whose rating is equal to or higher than (i) AA+, according to the parameters established by the  S&P or Fitch Agencies, and (ii) Aa1, according to the parameters established by the Moody’s Agency; or,






Instrument: 100111080022600
       Page 5 of 12
Authentication: (SIM-II): e5a43a1c - caa5 - 4eef - b01b - d89af4679c93
 
IBBA_KG_CCB_Grant_aes_ID68291
 
   
[Stamps:]   1. Legal Department TASC
 
2. NOT NEGOTIABLE
 
 
 
 

h.1.) In the event that the control of the shares/company is transferred to a company that does not have its ratings published by the rating agencies as stipulated in item “h” above, it will be at the CREDITOR’ sole discretion to decide whether there will be acceleration of the current bill.

k) if any non-compliance, falseness, inaccuracies, mistakes, or omissions attributable to the ISSUER are found in any document that was signed, rendered or delivered by the ISSUER in regards to this Bill; and,

l) in the event of the ISSUER’s failure to maintain this financial index to be verified annually during the validity of this Bill:

Net Debt/EBIDTA ≤ (less of equal to) 2.50 (two and fifty hundredths)

l.1) In order to determine the financial index above, which will be done annually starting from the Date of Emission of this Bill, the ISSUER’s accounting and financial statements will be checked at the end of every term, and the following definitions will be adopted:

Debt: sum of long- and short-term loans and financing, including bonds granted with recourse, endorsements and financial guarantees granted to benefit third parties, commercial/financial leasing, fixed income bonds/securities issued by the company that are not convertible from public or private issuance in the local or international markets, as well as liabilities resulting from financial tools – derivatives.

Liquid Debt: value of the debt minus the cash availabilities, financial investments, and assets resulting from financial tools -- derivatives.

EBIDTA: result relative to the 12 months preceding the verification date, before income taxes and social contribution, depreciation, and amortization, and before the financial and non-operational results, and equity.

CLAUSE 08. Late Payment – If the ISSUER does not duly comply with any of the requirements listed on this Bill, including in the event of acceleration of this Bill, the ISSUER will be served a notice of default, whether or not it receives a judicial and/or extra-judicial notification from the CREDITOR , so that the ISSUER is liable to pay for, during the default period and over all of the amounts owed due to this Bill:

a) the   Default Interest calculated day to day according to the Brazilian Central Bank’s Selic Rate, published by ANDIMA – National Association of Financial Market Institutions, in the period between the payment’s due date and the date of the actual payment, over the total value of the outstanding balance at the due date, plus a 1  % (one percent) annual percentage;








Instrument: 100111080022600
       Page 6 of 12
Authentication: (SIM-II): e5a43a1c - caa5 - 4eef - b01b - d89af4679c93
 
IBBA_KG_CCB_Grant_aes_ID68291
 
   
[Stamps:]    1. Legal Department TASC
 
 2. NOT NEGOTIABLE
 
 
 
 

b) the   Default interest rates at the monthly rate of 1.0  % (one percent), calculated day to day.

First Paragraph – The charges here set forth, indicated in items “a” and “b” above will be calculated and capitalized until the final payment of the debt.

Second Paragraph – In the event that it is impossible, for whatever reason, to use the rate set forth in item “a”, the Default Interest will be calculated based on the average interest rates applied in the previous 5 (five) years by major Brazilian banks based on the assets criteria, on the active operations in reais, in the period between the payment’s due date and the actual date in which the payment is made.

CLAUSE 09. Attorney’s Fees – In the event that the CREDITOR needs to collect any AMOUNT referent to this Bill, whether by proof of claim or by acting against the insolvent debtor, the ISSUER is liable to pay to the CREDITOR compensation for any eventual expenses with attorneys’ hired by the CREDITOR , based on judicial feeds by decree proceedings and according to final and unappealable decision.

CLAUSE 10. Expenses – The ISSUER is liable to pay for all the expenses and ordinary or extra-ordinary charges related to the collection of this Bill, including, but not exclusively, all notary charges. These expenses will be paid by the ISSUER , at the time of the debt, under the penalty of acceleration of this Bill.

CLAUSE 11. Tax payment – The ISSUER is aware and agrees that the CREDITOR will collect payments of any taxes, contributions and/or additional charges, except for income charges, that may incur over this Bill and/or that may incur in the future, resulting from the existence, increase, and/or creation of these same taxes, contributions and/or additional charges. To this effect, the ISSUER acknowledges that all and any amounts are a net amount, a correct and compulsory amount, that may be presented to it by the CREDITOR and that these values are pertinent to these taxes, contributions and/or additional charges, which shall be paid by the ISSUER on their due date, under penalty of the acceleration of this Bill and the execution of the guarantees herein.

Sole Paragraph – The Taxes on Financial Operations will be handled, collected, and paid in conformity with this Bill and following the current legislation. The ISSUER authorizes debit from the ISSUER ’s checking account indicated in Table III in the preface for the purpose of this payment.

CLAUSE 12. Early settlement – The ISSUER ’s term of liability resulting from this Bill was established taking into consideration the interests of both parties, so that an early payment by the ISSUER , including in the event that the early payment is made to the CREDITOR with resources from another financial institution, constitutes compliance with liabilities outside the term. The parties  pre-establish that, the outstanding debt at the time of the early payment will consist of the non-amortized principal’s amount plus: (i) the charges agreed upon in this Bill relative to the time elapsed up to the date of the early payment, and, (ii) the compensation that the parties here approve and agree upon, which will be a flat rate of 0.06  % over the value to be paid.



Instrument: 100111080022600
       Page 7 of 12
Authentication: (SIM-II): e5a43a1c - caa5 - 4eef - b01b - d89af4679c93
 
IBBA_KG_CCB_Grant_aes_ID68291
 
   
[Stamp:]     1. Legal Department TASC
 
2. NOT NEGOTIABLE
 
 
 
 
First Paragraph – Every semester from the Disbursement Date, the CREDITOR shall, at its sole discretion, set a new agreement regarding the above-mentioned compensation. This change will be notified in advance, at least 15 (fifteen) days prior to the end of the referred period.

Second Paragraph – The payment of the compensation set forth in Clause 12, shall not be applicable in the event of pre-payment made in the following dates:

I – the last day of the 6 (six) month term, from the Disbursement Date of this Bill;

II – the last day of the 12 (twelve) month term, from the Disbursement Date of this Bill;

III – the last day of the 18 (eighteen) month term, from the Disbursement Date of this Bill; or,

IV -- the last day of the 24 (twenty-four) month term, from the Disbursement Date of this Bill.

V -- the last day of the 30 (thirty) month term, from the Disbursement Date of this Bill

CLAUSE 13. Grace Period – The CREDITOR ’s forbearance in exercising any of its rights or authority that are conceded to it by the law or by this bill, or the eventual agreement in accepting late payments from the ISSUER shall not consist of renewal and shall not prevent the CREDITOR from exercising at any time the referred rights and authority.

CLAUSE 14:. The additional responsibilities of the ISSUER:

a) The ISSUER shall be responsible for informing the CREDITOR of any changes in address. For the effect of communication/information of any act or fact resulting from this Bill, the ISSUER will be automatically notified, without greater formalities, at the address that has been indicated in the Preface.

b) The ISSUER is responsible for the truth and accuracy of the data and information here provided or sent to the CREDITOR through the Request or other means.

c) The ISSUER commits to delivering to the CREDITOR , on a date determined by the CREDITOR , the documents that the CREDITOR requests to update those already provided, or that come to be requested by the current norms or due to determination or request by the relevant authorities.

CLAUSE 15. Environmental responsibility – The ISSUER states that it respects the environmental laws and that the resources resulting from this Bill shall not be used with the purpose of causing social damage and that they do not breach the rules and regulations of the National Environmental Policy.

First Paragraph: The ISSUER shall obtain all documents (expert reports, studies, reports, licenses, etc.) required by environmental laws and shall provide evidence of such and notify the CREDITOR , immediately, if there are unfavorable conditions of any kind.



Instrument: 100111080022600
       Page 8 of 12
Authentication: (SIM-II): e5a43a1c - caa5 - 4eef - b01b - d89af4679c93
 
IBBA_KG_CCB_Grant_aes_ID68291
 
   
[Stamp:]Legal Department TASC
 
 
 
 

Second Paragraph: The ISSUER shall deliver to the CREDITOR , if so requested, notarized copy of all the above documents, immediately informing the CREDITOR , in writing, about any irregularities or any event that the relevant authorities may consider a violation of any of the environmental protection laws or any requests for remediation of environmental damage.

Third Paragraph: The ISSUER , regardless of guilt, shall reimburse the CREDITOR for any amount that it may be forced to pay as a result of environmental damages that, in anyway, the authorities judge to result from this Bill and it will also compensate the CREDITOR for any loss or damage, including to its image, that the CREDITOR might experience as the result of the environmental damage.

CLAUSE 16. Loan Information System – The ISSUER authorizes the CREDITOR to, at any time, even after the end of this operation:

a) provide the Brazilian Central Bank with information that will be included in the Loan Information System. This information will concern the amount of debt paid and to be paid, including delayed payments and operations concluded with prejudice, as well as the value of the liabilities taken and the warranties given, and,

b)   to consult the Loan Information System about eventual information concerning the ISSUER .

Sole Paragraph: The purpose of the Loan Information System is to provide the Brazilian Central Bank with information regarding loan operations. Its purpose is to supervise credit risk and the exchange of information between financial institutions. The ISSUER is aware that the CREDITOR ’s search of the Loan Information System can only be done with prior authorization and it ratifies eventual searches that have been conducted previously for the purpose of this contract. The ISSUER may access, at any time, the Loan Information System’s data through the means made available by the Brazilian Central Bank and, in the event of dispute of the data provide to the Loan Information System by the CREDITOR , the ISSUER shall request the correction, exclusion, or registration of supplementary notes, including legal decisions, from the CREDITOR , in writing and substantiated.

CLAUSE 17. Communication – Any notice or communication from one Party to another in regards to this Bill shall be made in writing and may be delivered or sent by registered mail, fax, or electronically, in any of these case with proof of receipt, to the address and to the care of the legal representatives indicated below:


To the ISSUER :
To the CREDITOR :
C/O Mr. Luiz Eduardo Burger Ribeiro
C/O Middle Office Structured Operations
Address: Rua Lourenço Marques, No. 158
Address: Av. Brigadeiro Faria Lima, 340 -
3 rd Floor
11 th Floor, SP
Fax: 11 2195-2503
Fax: 11-3708-8857
Email: luiz.eduardo.ribeiro@aes.com
Email: IBBA-
 
MiddleEstruturadasOperacoes@itaubba.com.br

First paragraph : Any changes in the above information, except in what concerns the name of the people in the current positions indicated, shall be informed to the other party, previously and in writing, at least 5 (five) days in advance. In the event that the provision in this item is not followed, the communications sent to the above indicated locations and people will be considered valid and duly delivered.

Instrument: 100111080022600
       Page 9 of 12
Authentication: (SIM-II): e5a43a1c - caa5 - 4eef - b01b - d89af4679c93
 
IBBA_KG_CCB_Grant_aes_ID68291
 
   
[Stamp:]     1. Legal Department TASC
 
2. Not Negotiable
 
 
 
 

Second Paragraph : Any time that this Bill requires or allows any permission, approval, notification, or request from one or the other Party, the permission, approval, notification, or request shall be considered delivered and received: (i) on the date of the delivery, if delivered in person or by telegram; (ii) at the end of the first business day following the transmission (with a confirmation receipt) if sent by fax; (iii) at the end of the second business day after it was sent, if sent by courier service; and, (iv) at the end of the fifth business day after it was sent, if sent by regular mail, with pre-paid certified or registered, postage, in any of such cases, as long as it is sent to the people and addresses indicated in this Bill.

CLAUSE 18. Choice of jurisdiction – The capital of the state of São Paulo is chosen and the jurisdiction where the clarification of any doubts concerning this Bill and other guarantees shall be made, although the CREDITOR may choose the jurisdiction of the headquarters of the ISSUER, with the exclusion of any other, no matter how much more privileged it might be.

São Paulo, August 22 nd , 2011





ISSUER :
[signature]
[signature]
 
 
 
   
 
ELETROPAULO TELECOMUNICAÇÕES LTDA
   


IN AGREEMENT :

 
[signature]
 
[signature]
 
 
Alfredo Fernandes Pereira
 
Maisa Golçalves Vieira
 
 
Individual Taxpayers’ Registry:
 
ID Number: 12.854.[illegible]0-3
 
 
091.546.888-33
     
 
ID Number: 9.822.972-2
 
Individual Taxpayers’ Registry:
 
      064.676.168-47  
 
ITAÚ BANK BBA S/A
     


WITNESSES:

1)
[signature]
 2)
 [signature]
 
 
 
Katia Muniz de Carvalho
 
    Juliana Cristina Rocha
 
 
ID: 19.291.206-9
 
    Individual Taxpayers’ Registry: 287.547.488-01
 
 
Individual Taxpayers’ Registry:
 
    ID: 26.493.507-X
 
 
135.464.468-95
     


Instrument: 100111080022600
     Page 10 of 12
Authentication: (SIM-II): e5a43a1c - caa5 - 4eef - b01b - d89af4679c93
 
IBBA_KG_CCB_Grant_aes_ID68291
 
   
Stamps:
 
                 1. Legal Department TASC
 
                 2. Anhee Hong, Corporate Manager, USGAAP
 
                 3. Itaú BBA, PCAN Accommodated
 
                 4. Not Negotiable
 
 
 
 

ATTACHMENT 1
BANK CREDIT BILL – No. 100111080022600 SIGNED ON 08/22/2011
Payment Timeline for Principal and Interest


INSTALLMENT
AMOUNT R$
DUE DATE
01
0.00 + 100  % of IDC + 1.50   % annual exp.
02/22/2012
02
0.00 + 100  % of IDC + 1.50  % annual exp.
08/20/2012
03
0.00 + 100 % of IDC + 1.50 % annual exp.
02/18/2013
04
33.33 % of principal + 100 % of IDC + 1.50 % annual exp.
08/19/2013
05
33.33 % of principal + 100 % of IDC + 1.50 % annual exp.
02/17/2014
06
33.34 % of principal + 100 % of IDC + 1.50 % annual exp.
08/18/2014


 




Instrument: 100111080022600
       Page 11 of 12
Authentication: (SIM-II): e5a43a1c - caa5 - 4eef - b01b - d89af4679c93
 
IBBA_KG_CCB_Grant_aes_ID68291
 
   
[Stamp:]     1. Legal Department TASC
 
2. NOT NEGOTIABLE
 

 
 
 
 
ATTACHMENT 2
BANK CREDIT BILL – No. 100111080022600 SIGNED ON 08/22/2011

Request for Disbursement


São Paulo, August 22 nd , 2011

To Itaú Bank BBA S.A.

Re: BANK CREDIT BILL No. 100111080022600 SIGNED ON 08/22/2011 (“BILL”)

Dear Sirs,

All of the provisions, concepts, and Clauses of this Bill are applied to the loan here requested. Therefore, we confirm the closing of the loan agreed upon in the Bill and request the disbursement in the amount of R$ 40,000,000.00 (forty million reais) (the Loan’s Net Value being equal to R$ 39,249.400.00 (thirty nine million two hundred and forty nine thousand and four hundred reais) to be made on 08/25/2011 in the following checking accounts of our ownership:



I – Bank: 341 – Agency: 912
 Checking Account: 09231-9
 Amount: R$ 39,249,400.00 (thirty-nine million two hundred and forty-nine thousand and four hundred reais).

[signature]
[signature]
 
 
ELETROPAULO TELECOMUNICAÇÕES LTDA
 











Instrument: 100111080022600
Page 12 of 12
Authentication: (SIM-II): e5a43a1c - caa5 - 4eef - b01b - d89af4679c93
 
IBBA_KG_CCB_Grant_aes_ID68291
 
   
[Stamps:]
1. Legal Department TASC
 
2. Itaú – BBA, PCAN, Accommodated
 
3. NOT NEGOTIABLE

Exhibit 4.8
 
[handwritten:]TFB SP – R$28MM, duplicate, OK


BANK CREDIT BILL
(1 st Term of Amendment)

Through this instrument, the 1 st Term of Amendment to (“Amendment”) the BANK CREDIT BILL No. 100111080022700 issued on 08/22/2011 with disbursement on 09/27/2011, in the original value of R$ 28,000,000.00 (twenty eight million reais)(henceforth referred to as the “Bond”, whether changed, rectified or ratified at any time), by the company ELETROPAULO TELECOMUNICAÇÕES LTDA, with headquarters at Av. Alfredo Egídio de Souza Aranha, 100 Bl. B 13, located in the Chacara Santo Antonio neighborhood, in the city of São Paulo, in the state of São Paulo, with registration in the Corporate Taxpayer Registry under No. 02.875.211/0001-01 (henceforth referred to simply as “ISSUER” ), requests from the BANCO ITAÚ BBA S.A ., a private financial institution with headquarters at Av. Brigadeiro Faria de Lima, 3400, 3 rd -8 th and 11 th and 12 th floors (partial), in the city of São Paulo, in the state of São Paulo, with registration in the Corporate Taxpayer Registry under No. 17.298.092/0001-30, (henceforth simply referred to as “CREDITOR” ), that the Bond be changed according to the following terms:

1.- Every term and expression here written in capital letters, but that are not here defined, shall have the same meaning as they have been given in the Bond. Every term and expression defined may be used either in the masculine or feminine forms, and both in the singular or plural forms.

2.- Due to the ISSUER ’s change of corporate name, the Parties decide to change Table I from the Bond’s Preface, which shall hereafter apply according to the following new wording:

Table I – BANK CREDIT BILL ISSUER
Corporate Name: TIM FIBER SP LTDA, new corporate name of ELETROPAULO TELECOMUNICAÇÕES LTDA
Finance Ministry’s Corporate Taxpayer Registry Number : 02.875.211/0001-01
Address : Av. Alfredo Egídio de Souza Aranha, 100 Bl. B 13
City: São Paulo                                      State: SP                             Zip Code: 04726-170
Email:                                                   Telephone:                        Fax:

3.- through the present amendment the parties decide to change the Bond’s interest rate and, consequently, also make changes to the section named Charges in Table II from the Bond’s Preface, which shall hereafter apply, in particular in regards to Charges, according to the following new wording:

“CHARGES:

Interest

a) Interest Rate : 100 % (one hundred percent) of the compound Interbank Deposit Certificate with an annual flat rate of 0.900000 % (zero and nine hundred millionth percent), which is equivalent to the monthly rate of 0.074692 % (zero, and seventy four thousand six hundred and ninety two millionth percent).”

 
Instrument: 100111080022700  Page 1 of 4
Authentication: (SIM-II): d4534865 – 5052 – 4896 - 81a7 - 24567dfa5341
IBBA_KG_CCB_Amend_TIM_ID30749

[Stamp:] TIM Legal Department
 
 
 
 
 
4.- through this Amendment, the Parties decide to change the wording of paragraphs “c”, “g”, and “h” of clause 07 of the Bond, and to exclude paragraphs “h.1.” and “l”. Clause 07 of the Bond, therefore, shall hereafter apply according to the following new wording:

“ CLAUSE 07. Acceleration Case – The debt in this Bill shall be considered accelerated, and thus requiring immediate payment, through judicial or extrajudicial notification, if any of the events listed below come to take place. The parties acknowledge here that such events may be a direct cause of  an undue increase in the risk of the payment’s default by the ISSUER, and thus making the onus of granting a loan more onerous for the CREDITOR of this Bill:

a) if the ISSUER does not (i) make a payment for which it is liable under this Bill up to 3 (three) business days from the date in which these payments are due; or, (ii) make a payment for which it is liable under this Bill up to 30 (thirty) days of the receipt of the notification sent by the CREDITOR in this regard;

b) if any of the events set forth in articles 333 and 1.425 of the Civil Code (Law No. 10.406/2002) occur;

c) if the ISSUER (i) declares bankruptcy; or (ii) has its bankruptcy requested and the request is not cancelled within the legal term; (iii) is dissolved or, still; (iv) suffers legitimate bond protest for whose payment it might be liable for, whose individual or global value exceeds R$ 80,000,000.00 (eighty million reais), except in the event that (a) it is cancelled, halted, suspended, or declared invalid within 10 (ten) days from the date of the protest; or, (b) if it is made by mistake or in bad faith by third parties, as long as this fact can be duly evidenced by the ISSUER ;

d) if the ISSUER proposes an extrajudicial recovery plan to the CREDITOR or any other creditor or class of creditor, in spite of whether the referred plan was requested or granted by legal ratification;

e) if the ISSUER starts a lawsuit requesting judicial recovery, regardless of whether it is granted the recovery process or whether it is granted by relevant judge;

f) acceleration of any other contract, bill, or other debt instrument signed by the ISSUER to the CREDITOR whose individual or global value exceeds R$ 10,000,000.00 (ten million reais)

g) change or alteration of the ISSUER ’s corporate name such that it may change the ISSUER ’s current main activities or that adds to these activities new businesses that might have greater prevalence relative to the activities currently in development, except in the event of consolidation between companies from the same business group as the ISSUER that results in the change or alteration of the ISSUER’s corporate name;





Instrument: 100111080022700  Page 2 of 4
Authentication: (SIM-II): d4534865 – 5052 – 4896 - 81a7 - 24567dfa5341
IBBA_KG_CCB_Amend_TIM_ID30749
 
[Stamp:] TIM Legal Department
 
 
 
 
 
 
h) if there is any change, transfer or, direct or indirect, surrender of the control of shares/company, or in the event that the ISSUER suffers incorporation, merger or separation outside the same business group of the companies TIM BRASIL SERVIÇOS E PARTICIPAÇÕES S/A, TIM PARTICIPAÇÕES S/A, TIM CELULAR S/A, INTELIG TELECOMUNICAÇÕES LTDA., without the CREDITOR ’s previous approval; and,

i) if any non-compliance, falseness, inaccuracies, mistakes, or omissions attributable to the ISSUER are found in any document that was signed, rendered or delivered by the ISSUER in regards to this Bill.”

5.- through this instrument, the parties decide to change the wording of clause 8 of the Bond, which shall hereafter apply according to the following new wording:

“ CLAUSE 08. Late Payment – If the ISSUER does not duly comply with the liabilities listed in this Bill, including in the event of acceleration of this Bill, the ISSUER shall be served a notice of default, whether or not it receives a judicial and/or extra-judicial notification from the CREDITOR , so that the ISSUER shall be liable to pay for, during the default period and over all of the amounts owed due to this Bill:

a) the deferred payment interest calculated from the date of default to the date the payment is made, at the annual rate of 6 % (six percent) over the amount owed;

b) the regular arrears penalty, nondeductible and of a compensatory nature, at the flat rate of 1 % (one percent) over the owed and unpaid amount, after the grace period of 03 (three) business days, unless the payment was not made due to an operational problem which will need to be duly evidenced by the ISSUER .

First Paragraph -- The charges here set forth, indicated in items “a” and “b” above, will be calculated and capitalized until the final payment of the debt.”

6.- through this amendment, the parties decide to change the wording of clause 9 of the Bond, which shall hereafter apply according to the following new wording:

“ CLAUSE 09. Attorney Fees – In the event that the CREDITOR needs to collect any AMOUNT referent to this Bill, whether by proof of claim or by acting against the insolvent debtor, the ISSUER shall be liable to pay to the CREDITOR compensation for eventual expenses with attorneys’ hired by the CREDITOR , based on judicial feeds by decree proceedings and according to final and unappealable decision.”

7.- through this amendment, the parties decide to change the wording of clause 10 of the Bond, which shall hereafter apply according to the following new wording:

“ CLAUSE 10. Expenses – The ISSUER shall reimburse the CREDITOR for all expenses set forth in this Bill or any other general expenses that are reasonably incur or that might incur, directly or indirectly, from this Bill. These expenses shall be limited to the maximum amount of R$ 10,000.00 (ten thousand reais) and shall be reimbursed by the ISSUER in up to 30 (thirty) days from the receipt of the CREDITOR ’s respective receipts.”


Instrument: 100111080022700  Page 3 of 4
Authentication: (SIM-II): d4534865 – 5052 – 4896 - 81a7 - 24567dfa5341
IBBA_KG_CCB_Amend_TIM_ID30749

[Stamp: Legal Department TIM]
 
 
 
 
 
8.- The ISSUER acknowledges that, for all legal purposes, on this date, the outstanding  value corresponding to the liabilities taken under the issue of this Bond is in the amount of R$ 28,000,000.00 (twenty eight million reais).

9.- The changes made in the Bond through this Amendment do not implicate in renewal, and all the liabilities, clauses, terms and conditions set forth in the Bond that were not explicitly changed in this amendment remain valid and applicable, in particular, the data in the Bond’s preface  and in its Attachment I are not altered. Every warranty made in the original Bond is here ratified.

10.- Following this Amendment, the ISSUER will make a cash payment to the CREDITOR , or on its behalf, at the location indicated in the Bond and on the Due Date (as well as all other  payment dates that have been explicitly agreed upon in the Bond, as modified, rectified and/or ratified at any time), the remainder of the debt, which is correct, net, and compulsory according to the terms of the Bond, plus the additional Charges, taxes, and expenses resulting from the Bond.

And, having so agreed, the parties sign this instruments in 2 (two) copies of equal format and content and with a sole purpose.



São Paulo, February 2 nd , 2012

[illegible signature]     [illegible signature]  
Rodrigo G. Galvão
TIM FIBER SP LTDA
Luiza Chaves
 
TIM – Finance & Treasury   
   
TIM CELULAR S.A .
 
 
   
Treasury Operations
 
 
 
 
IN AGREEMENT:
[signature]
 
  [signature]     [signature]  
   
BANCO ITAÚ BBA SA
   
[illegible] Ramos de Sant Ana   Fernanda Souza de Almeida  
ID Number 08156409-5
  ID Number: 11374116-9  
Individual Taxpayer Number:   Individual Taxpayers Number:  
003[illegible]   084.488.317-48  
 
WITNESSES:
 
1) [signature]
   
 
 
2) [signature]
 
         
         
         
Name: Daniel Fisman Nigri
   
Name: Albertina da F. B. de Oliveira
 
Individual Taxpayers’ Number:
   
Individual Taxpayers Number:
 
106.651.367-81     895.067.907-87  
ID Number: 020.675.100-9
       
         
         
                                                                                                                                                                                                                                  
Instrument: 100111080022700  Page 4 of 4
Authentication: (SIM-II): d4534865 – 5052 – 4896 - 81a7 - 24567dfa5341
IBBA_KG_CCB_Amend_TIM_ID30749

[Stamps:]  1. Legal Department TIM
  2. Itaú BBA, Accommodated SP, RJ Branch
 
 
 
[Client’s Copy]

BANK CREDIT BILL
No. 100111080022700
I – PREFACE

Table I – BANK CREDIT BILL ISSUER
Corporate Name: ELETROPAULO TELECOMUNICAÇÕES LTDA
Finance Ministry’s Corporate Taxpayer Registry Number : 02.875.211/0001-01
Address : Av. Alfredo Egídio de Souza Aranha, 100 Bl. B 13
City: São Paulo                                       State:                                    Zip Code: 04726-170
Email:                                                      Telephone:                          Fax:
Principal’s Amount:
$28,000,000.00 (twenty eight million reais)
Loan’s Net Value
According to Request (defined below)
 
CHARGES:
Interests
a) Interest Rate : 100  % (one hundred percent) of the compound Interbank Deposit Certificate, with an annual flat rate of 1.50  % (um and fifty hundredth per cent), which is the equivalent to the monthly rate of 0.124149  % (zero and one hundred and twenty four millionth percent)
Structuring Commission
0.40  % (forty hundredth percent), flat, over the Principal’s Amount, due on the Disbursement Date.
Expenses :
Expenses with registry and Formalization of this Bill following the clause “Expenses.”
 
Date of Issue :
08/22/2011
 
 
Disbursement Date : 09/27/2011
 
 
Taxes:
a) Tax on Financial Operations – paid on the same date as the loan’s disbursement
 
  □  with Issuer’s resources
  ☒ with resources from the loan granted by this CCB
 
The provisions of the Clause “Tax Payment” applies to the new taxes and the eventual increases in the existing ones.
Place of Payment :
SÃO PAULO
 
 
Bill’s Due Date :
In conformity with Attachment I, following Clauses “Promise of Payment” and “Acceleration”
 
Table III – ISSUER’S CHECKING ACCOUNT -- DEBIT
Bank
Itaú Unibanco S.A. – No. 341
Agency
912
Checking Account Number
09231-9
Table IV – CHECKING ACCOUNT FOR RELEASE
The ISSUERS checking accounts indicated in the respective Requests (defined below)

II -- CLAUSES

CLAUSE 01. The promise of payment – The ISSUER , qualified as in the Preface above (henceforth “ ISSUER ”), will pay at the Place of Payment (identified above) through this BANK CREDIT BILL No. 100111080022700 (“Bill”), issued according to the current legislation by BANCO ITAÚ BBA S/A (henceforth simply referred to as “ CREDITOR ”), a private financial institution with headquarters at Av.

Instrument: 100111080022700  Page 1 of 12
Authentication: (SIM-II): 3f15a0c4 – b3fb – 4982 – beee – 3086f6539fad
IBBA_KG_CCB_Grant_Cancel/Disbursement_AES_ID44163_ID 68291
[Stamps:] 1. Legal Department TASC
   2. NOT NEGOTIABLE
 
 
 
 
 
Brigadeiro Faria de Lima, 3400, 3 rd -8 th and 11 th and 12 th floors (partial), registered in the Corporate Taxpayer Registry under No. 17.298.092/0001-30, or on its behalf, in installments or in a single payment, on the dates identified above at times determined by this Bill, in the Preface and its Attachments (“ DUE DATE ”), the cash debt, correct, net, and compulsory, corresponding to the total amount determined under this Bill plus additional Charges, taxes, and expenses here agreed upon (under the label “ AMOUNT ”), following the provisions of the additional Clauses determined as follows:

CLAUSE 02. On the purpose and release of the loan – The purpose of this Bill is the granting of a loan to the ISSUER by the CREDITOR . The loan here granted will come into effect after the request for disbursement is sent to the CREDITOR by the ISSUER through Attachment II (the “Request”), or through another approved format that is not forbidden by the current norms.

First Paragraph – The ISSUER shall, up to 35 days from the CREDITOR’s receipt of the Request, cancel the Request or change its amount to a lower amount, in which event it will pay to the CREDITOR , for the total or partial cancelation, a penalty in the value of 0.04 % (four hundredth percent) over the difference between the original value of the Request and the new value of the new disbursement, in the event of total or partial cancelation, or over the total value of the intended Request, in the event of total cancelation. The penalty here established shall be paid 5 (five) days from the total or partial cancelation of the Request.

Second Paragraph --   When it is indicated in the Preface that the Tax on Financial Operations will be paid with the resources from the loan granted by the CCB, the CREDITOR , will withhold taxes releasing to the ISSUER the loan’s net amount.

Third Paragraph – After sending the Request and deducting taxes and charges that are owed in advance, as it may apply, the Principal’s Amount mentioned in the Preface will be credited directly into the Checking Accounts for Clearance owned by the ISSUER ’s that is indicated in the Preface, unless indicated otherwise in writing. The loan will be made through transfer or by electronic check issued by the CREDITOR following the terms of the Request, or through another allowed format that is not forbidden by the currents norms.

 Fourth Paragraph – If the terms of this Bill are followed and the ISSUER ’s instructions are met, the transfer made by the CREDITOR to the ISSUER , or through any other legal mean of transfer, will grant the use of the loan taken.

Fifth Paragraph – The Attachments and additional documents issued according to them are an integral part of this Bill.

Sixth Paragraph – Only in the occasions in which the Disbursement Date follows the Data of Issuance of this Bill, if there are any adverse and relevant changes in the political, financial, economic, national, or international situation as well as changes in the currency exchange, interest, currency, currency exchange rates or interest, the CREDITOR shall, at its sole discretion, draft a new agreement regarding Interest Rates, which will only after the ISSUER is notified in advance.


 

Instrument: 100111080022700  Page 2 of 12
Authentication: (SIM-II): 3f15a0c4 – b3fb – 4982 – beee – 3086f6539fad
IBBA_KG_CCB_Grant_Cancel/Disbursement_AES_ID44163_ID 68291

[Stamps:] 1. Legal Department TASC
   2. NOT NEGOTIABLE
 
 
 
 
 
If the ISSUER does not accept the changes proposed by the CREDITOR , the ISSUER shall rescind this Bill without any onus, including without being liable to pay for any commission or compensation.

CLAUSE 03. Regarding the charges and additional financial charges – The ISSUER will pay interest on the Principal’s amount as defined in the Preface, This interest will be capitalized, without prejudice to the payment of the other Charges and Taxes agreed upon on the Preface and on the additional Clauses of this Bill. Interest may be charge at either a pre-fixed or post-fixed rate.

First Paragraph – Every semester, starting from the Disbursement Date of this Bill, the CREDITOR shall, at its own discretion, have a new agreement regarding the Interest Rates indicated in the Preface, which will apply after a notification is sent at least15 (fifteen) days prior to the end of the referred period, following the instructions of the  “Communications” Clause, below. In the event that the ISSUER does not agree with the Interest Rate established by the CREDITOR , the ISSUER is irrevocably responsible for cancelling this Bill using the provisions of the Clause “Early Settlement”, on the date of the end of the respective semester. In the absence of a statement by the ISSUER , up to two days prior to the end of the respective semester, for all legal purposes, the change will be considered a tacit agreement on the New Interest Rate.

Second Paragraph – Interest will be capitalized daily, that is, calculated exponentially pro rata temporis , applying the Interest Rate determined in the Preface over the outstanding value of the Principal’s Amount starting from the Disbursement Date. The daily capitalization is defined as the result obtained from the accumulation, in the format of a compound capitalization, of the percentage of the daily average rate of the compound Interbank Deposit Certificate with the tax rate (both indicated in the preamble), given that (i) the percentage of the Interbank Deposit Certificate (“IDC”) will be calculated based on the annual average rate (considered one year as equal to 252 days) relative to the operations with the IDC, with a term equal to 1 (one) business day (over), investigated and published by the CETIP -- Securities Central Custody and Financial Liquidation Registry, rounding the daily factor to the eighth decimal house; and (ii) the flat rate, when defined, will also be calculated through a capitalized format, but based on a year of 360 (three hundred and sixty) days. When the IDC percentage is zero, the Interest will be considered pre-fixed.

Third Paragraph – Interest will be applied during the validity period of this Clause (i) including the Interest Rate referent to the Disbursement Date, or the data of the principal’s last installment payment; and (ii) excluding the Interest Rate referent to the respective due date. In cases of dissolution, no publication or impossibility, for any reason, of the IDC’s daily average rates used, a substitute rate will be used based on the variation of the Brazilian Central Bank’s Selic Rate published by the ANDIMA – National Association of Financial Market Institutions.

Fourth Paragraph – Considering the introduction to this Clause and its additional Paragraphs, next a mathematical formula can be found showing the calculation of the values owed when the Interests are applied:




 
Instrument: 100111080022700  Page 3 of 12
Authentication: (SIM-II): 3f15a0c4 – b3fb – 4982 – beee – 3086f6539fad
IBBA_KG_CCB_Grant_Cancel/Disbursement_AES_ID44163_ID 68291

[Stamps:] 1. Legal Department TASC
   2. NOT NEGOTIABLE

 
 
 
DU
VP n = VP n +SD x{[ ∏ n [1+(((1 + CetipRate i /100) 1/252 -1) x P/100)] x [(1 + a/100) DCn/360 ]]-1}
i=1
where:
a = flat rate on base 360;
DC n   = term in calendar days, from the Disbursement Date to the date of the last payment of the interest, whichever happens last until the respective due date;
DU n =term in business days, from the Disbursement Date or the date of the last payment of the interest, whichever happens last until the respective due date;
P = IDC’s percentage
CetipRate = Interbank Deposit Certificate (IDC) rate, Over, expressed on base 252;
VF n = value of each installment on their respective due date;
VP n = amortization value of the Nth principal installment;
n = installment number;
SD n = principal’s outstanding amount with no deduction of the amortized installment.

CLAUSE 04. Form of payment – The ISSUER will mandatorily pay the entire AMOUNT   due at their respective DUE DATE through direct debit from the account mentioned in the Preface from Itaú Unibanco S.A. (headquartered at Praça Alfredo Egydio de Souza Aranha, no. 100, Torre Itausa, In the City and State of São Paulo, registered at the Corporate Taxpayer Registry under No. 60.701.190/0001-04, henceforth referred to as “ ITAÚ UNIBANCO ”), which should have enough balance.

First Paragraph – In the event the ISSUER does not have a checking account at ITAÚ UNIBANCO the ISSUER irrevocably shall make payments on the DUE DATES through electronic check sent directly to the CREDITOR .

Second Paragraph – Any receipt of installment payment made outside of the determined term will constitute mere grace, and in no way will affect the DUE DATE or the additional items and conditions of this Bill, and will not lead to the renewal or modification of what has been currently agreed, including the charges resulting from the delay.

Third Paragraph – In the event that any payment dates (of principal, Charges, Taxes, and additional financial charges) set forth in this Bill fall on a national, municipal, or bank holiday, the ISSUER shall make the payment on the next business day. In this event, Interest will apply on the date of the actual payment.

Fourth Paragraph – Early payment of this Bill can be made by the ISSUER , fully or partially, following the provision of the Clause “Early Settlement” of this Bill.

CLAUSE 05. The CREDITOR shall make available to the ISSUER monthly statements or spreadsheets that are considered integral part of this Bill. The statements and spreadsheets shall be sent by email to the ISSUER , following the terms of clause 17, every time this is requested.


Instrument: 100111080022700  Page 4 of 12
Authentication: (SIM-II): 3f15a0c4 – b3fb – 4982 – beee – 3086f6539fad
IBBA_KG_CCB_Grant_Cancel/Disbursement_AES_ID44163_ID 68291

[Stamps:] 1. Legal Department TASC
   2. NOT NEGOTIABLE
 
 
 
 

Sole Paragraph: THE ISSUER ACKNOWLEDGES THAT THE ISSUER ’S CHECKING ACCOUNT STATEMENTS ABOVE MENTIONED AND THE SPREADSHEETS PRESENTED BY THE CREDITOR ARE PART OF THIS BILL AND THE VALUES THEREIN, IF FOUND IN CONFORMITY WITH THIS BILL, ARE CORRECT AND COMPULSORY. IF THE ISSUER DOES NOT AGREE WITH THE VALUES IN ANY STATEMENT OR SPREADSHEET, THE ISSUER MUST COMMUNICATE THIS TO THE CREDITOR IN WRITING. IF THE ISSUER FAILS TO COMPLAIN WITHIN 5 (FIVE) DAYS AFTER THE RECEIPT OF THE STATEMENTS AND/OR OF THE SPREADSHEET, THIS WILL CONSTITUTE DOCUMENTAL EVIDENCE OF THE LOAN’S USE, CERTAINTY AND LIQUIDITY.

CLAUSE 06. Location of Payment – In the event that due payments are not made by direct deposit on checking account, without prejudice to the applicable legal rules and regulations, payment of the owed values following this Bill, including the additional fees stipulated above, shall be made at the CREDITOR ’s address, or in any of its branches, directly to the CREDITOR or on its behalf.

CLAUSE 07. Acceleration Case – The debt in this Bill shall be considered accelerated and thus requiring immediate payment, through judicial or extrajudicial notification, if any of the events listed below come to take place, and that the parties acknowledge here as direct reason for an undue increase in the risk of payment default by the ISSUER, and thus making the onus of granting a loan more onerous for the CREDITOR of this Bill:

a) if the ISSUER’S does not (i) make a payment for which it is liable under this Bill up to 3 (three) business days from the date in which these payments are due; or, (ii) make a payment for which it is liable under this Bill up to 30 (thirty) days of the receipt of the notification sent by the CREDITOR in this regard;

b) if any of the events set forth in articles 333 and 1.425 of the Civil Code (Law No. 10.406/02) occur;

c) if the ISSUER (i) declares bankruptcy; or (ii) has its bankruptcy requested and the request is not cancelled within the legal term; (iii) is dissolved or, still; (iv) suffers legitimate bond protest for whose payment it might be liable, whose individual or global value exceeds R$ 20,000,000.00 (twenty million reais), except in the event that (A) within 5 (five) business days the ISSUER shows evidence that the protest was made by mistake or in bad faith by a third party; (B) if it is cancelled; or (C) if the requirement is suspended by judicial decision;

d) if the ISSUER proposes an extrajudicial recovery plan to the CREDITOR or any other creditor or class of creditor, in spite of whether the referred plan was requested or granted by legal ratification;

e) if the ISSUER starts a lawsuit requesting judicial recovery, regardless of whether it is granted the recovery process or its concession by relevant judge;

f) acceleration of any other contract, bill, or other debt instruments signed by the ISSUER to the CREDITOR whose individual or global value exceeds R$ 10,000,000.00 (ten million reais)

g) change or alteration of the ISSUER’s corporate name such that it may change the ISSUER ’s current main activities or that adds to these activities new businesses that might have greater  prevalence relative to the activities currently under development;

Instrument: 100111080022700  Page 5 of 12
Authentication: (SIM-II): 3f15a0c4 – b3fb – 4982 – beee – 3086f6539fad
IBBA_KG_CCB_Grant_Cancel/Disbursement_AES_ID44163_ID 68291

[Stamps:] 1. Legal Department TASC
   2. NOT NEGOTIABLE
 
 
 
 

h) if there in any change, transfer or, direct or indirect, surrender of the control of the shares/company, or in the event that the ISSUER suffers incorporation, merger or separation outside the same business group of the companies without the CREDITOR ’s previous approval, except when the control of the share/company is transferred to another company whose rating is equal to or higher than (i) AA+, according to the parameters established by the  S&P or Fitch Agencies, and (ii) Aa1, according to the parameters established by the Moody’s Agency; or,

h.1.) In the event that the control of the shares/company is transferred to a company that does not have its ratings published by the rating agencies as stipulated in item “h” above, it will be at the CREDITOR’ sole discretion to decide whether there will be acceleration of the current bill.

k) if any non-compliance, falseness, inaccuracies, mistakes, or omissions attributable to the ISSUER are found in any document that was signed, rendered or delivered by the ISSUER in regards to this Bill; and,

l) in the event of the ISSUER ’s failure to maintain this financial index to be verified annually during the validity of this Bill:

Net Debt/EBIDTA ≤ (less of equal to) 2.50 (two and fifty hundredths)

l.1) In order to determine the financial index above, which will be done annually starting from the Date of Emission of this Bill, the ISSUER ’s accounting and financial statements will be checked at the end of every term, and the following definitions will be adopted:

Debt: sum of long- and short-term loans and financing, including bonds granted with recourse, endorsements and financial guarantees granted to benefit third parties, commercial/financial leasing, fixed income bonds/securities issued by the company that are not convertible from public or private issuance in the local or international markets, as well as liabilities resulting from financial tools – derivatives.

Liquid Debt: value of the debt minus the cash availabilities, financial investments, and assets resulting from financial tools  -- derivatives.

EBIDTA: result relative to the 12 months preceding the verification date, before income taxes and social contribution, depreciation, and amortization,  and before the financial and non-operational results , and equity.

CLAUSE 08. Late Payment – If the ISSUER does not duly comply with any of the requirements listed on this Bill, including in the event of acceleration of this Bill, the ISSUER will be served a notice of default, whether or not it receives a judicial and/or extra-judicial notification from the CREDITOR , so that the ISSUER is liable to pay for, during the default period and over all of the amounts owed due to this Bill:

a) Default Interest calculated day to day according to the Brazilian Central Bank’s Selic Rate, published by ANDIMA – National Association of Financial Market Institutions, in the period between the payment’s due date and the date of the actual payment, over the total value of the outstanding balance at the due date, plus a 1 % (one percent) annual percentage;





Instrument: 100111080022700  Page 6 of 12
Authentication: (SIM-II): 3f15a0c4 – b3fb – 4982 – beee – 3086f6539fad
IBBA_KG_CCB_Grant_Cancel/Disbursement_AES_ID44163_ID 68291

[Stamps:] 1. Legal Department TASC
   2. NOT NEGOTIABLE
 
 
 
 

b) Default interest rates at the monthly rate of 1.0 % (one percent), calculated day to day.

First Paragraph – The charges here set forth, indicated in items “a” and “b” above will be calculated and capitalized until the final payment of the debt.

Second Paragraph – In the event that it is impossible, for whatever reason, to use the rate set forth in item “a,” the Default Interest will be calculated based on the average interest rates applied in the previous 5 (five) years by major Brazilian banks based on the assets criteria, on the active operations in reais, in the period between the payment’s due date and the actual date in which the payment is made.

CLAUSE 09. Attorney’s Fees – In the event that the CREDITOR needs to collect any AMOUNT referent to this Bill, whether by proof of claim or by acting against the insolvent debtor, the ISSUER is liable to pay to the CREDITOR compensation for any eventual expenses with attorney’s hired by the CREDITOR , based on judicial feeds by decree proceedings and according to final and unappealable decision.

CLAUSE 10. Expenses – The ISSUER is liable to pay for all the expenses and ordinary or extra-ordinary charges related to the collection of this Bill, including, but not exclusively, all notary charges. These expenses will be paid by the ISSUER to the CREDITOR within 3 (three) business days after the receipt, by the ISSUER of the respective notice of debit, under the penalty of acceleration of this Bill.

CLAUSE 11. Tax payment – The ISSUER is aware and agrees that the CREDITOR will collect payments of any taxes, contributions and/or additional charges, except for income charges, that may incur over this Bill and/or that may incur in the future, resulting from the existence, increase, and/or creation of these same taxes, contributions and/or additional charges. To this effect, the ISSUER acknowledges that all and any amounts are a net amount, and a correct and compulsory amount, that shall be presented to it by the CREDITOR, and that these values are pertinent to these taxes, contributions and/or additional charges, which shall be paid by the ISSUER on their due date, under penalty of the acceleration of this Bill and the execution of the guarantees herein.

Sole Paragraph – The Taxes on Financial Operations will be handled, collected, and paid in conformity with this Bill and following the current legislation. The ISSUER authorizes debit from the ISSUER ’s checking account indicated in Table III in the preface for the purpose of this payment.

CLAUSE 12. Early settlement – The ISSUER ’s term of liability resulting from this Bill was established taking into consideration the interests of both parties, so that an early payment by the ISSUER , including in the event that the early payment is made to the CREDITOR with resources from another financial institution, constitutes compliance with liabilities outside the term. The parties  pre-establish that, the outstanding debt at the time of the early payment will consist of the non-amortized principal’s amount plus: (i) the charges agreed upon in this Bill relative to the time elapsed up to the date of the early payment; and, (ii) the compensation that the parties here approve and agree upon, which will be a flat rate of 0.06 % over the value to be paid.



Instrument: 100111080022700  Page 7 of 12
Authentication: (SIM-II): 3f15a0c4 – b3fb – 4982 – beee – 3086f6539fad
IBBA_KG_CCB_Grant_Cancel/Disbursement_AES_ID44163_ID 68291

[Stamps:] 1. Legal Department TASC
   2. NOT NEGOTIABLE
 
 
 
 
 
First Paragraph – Every semester from the Disbursement Date, the CREDITOR shall, at its sole discretion, set a new agreement regarding the above-mentioned compensation. This change will be notified in advance, at least 15 (fifteen) days prior to the end of the referred period.

Second Paragraph – The payment of the compensation set forth in Clause 12, shall not be applicable in the event of pre-payment made in the following dates:

I – the last day of the 6 (six) month term, from the Disbursement Date of this Bill;

II – the last day of the 12 (twelve) month term, from the Disbursement Date of this Bill;

III – the last day of the 18 (eighteen) month term, from the Disbursement Date of this Bill; or,

IV -- the last day of the 24 (twenty four) month term, from the Disbursement Date of this Bill.

V -- the last day of the 30 (thirty) month term, from the Disbursement Date of this Bill

CLAUSE 13. Grace Period – The CREDITOR ’s forbearance in exercising any of its rights or authority that are conceded to it by the law or by this bill, or the eventual agreement in accepting late payments from the ISSUER shall not consist of renewal and shall not prevent the CREDITOR from exercising at any time the referred rights and authority.

CLAUSE 14:. The additional responsibilities of the ISSUER:

a) The ISSUER shall be responsible for informing the CREDITOR of any changes in address. For the effect of communication/information of any act or fact resulting from this Bill, the ISSUER will be automatically notified, without greater formalities, at the address that has been indicated in the Preface.

b) The ISSUER is responsible for the truth and accuracy of the data and information here provided or sent to the CREDITOR through the Request or other means.

c) The ISSUER commits to delivering to the CREDITOR , on a date determined by the CREDITOR , the documents that the CREDITOR requests to update those already provided, or that come to be requested by the current norms or due to determination or request by the relevant authorities.

CLAUSE 15. Environmental responsibility – The ISSUER states that it respects the environmental laws and that the resources resulting from this Bill shall not be used with the purpose of causing social damage and that they do not breach the rules and regulations of the National Environmental Policy.

First Paragraph: The ISSUER shall obtain all documents (expert reports, studies, reports, licenses, etc.) required by environmental laws and shall provide evidence of such and notify the CREDITOR , immediately, if there are unfavorable conditions of any kind.








Instrument: 100111080022700  Page 8 of 12
Authentication: (SIM-II): 3f15a0c4 – b3fb – 4982 – beee – 3086f6539fad
IBBA_KG_CCB_Grant_Cancel/Disbursement_AES_ID44163_ID 68291

[Stamps:] 1. Legal Department TASC
   2. NOT NEGOTIABLE
 
 
 
 

Second Paragraph: The ISSUER shall deliver to the CREDITOR , if so requested, notarized copy of all the above documents, immediately informing the CREDITOR , in writing, about any irregularities or any event that the relevant authorities may consider a violation of any of the environmental protection laws or any requests for remediation of environmental damage.

Third Paragraph: The ISSUER , regardless of guilt, shall reimburse the CREDITOR for any amount that it may be forced to pay as a result of environmental damages that, in anyway, the authorities judge to result from this Bill and it will also compensate the CREDITOR for any loss or damage, including to its image, that the CREDITOR might experience as the result of the environmental damage.

CLAUSE 16. Loan Information System – The ISSUER authorizes the CREDITOR to, at any time, even after the end of this operation:

a) provide the Brazilian Central Bank with information that will be included in the Loan Information System. This information will concern the amount of debt paid and to be paid, including delayed payments and operations concluded with prejudice, as well as the value of the liabilities taken and the warranties given, and,

b)   to consult the Loan Information System about eventual information concerning the ISSUER .

Sole Paragraph: The purpose of the Loan Information System is to provide the Brazilian Central Bank with information regarding loan operations. Its purpose is to supervise credit risk and the exchange of information between financial institutions. The ISSUER is aware that the CREDITOR ’s search of the Loan Information System can only be done with prior authorization and it ratifies eventual searches that have been conducted previously for the purpose of this contract. The ISSUER may access, at any time, the Loan Information System’s data through the means made available by the Brazilian Central Bank and, in the event of dispute of the data provide to the Loan Information System  by the CREDITOR , the ISSUER shall request the correction, exclusion, or registration of supplementary notes, including legal decisions, from the CREDITOR , in writing and substantiated.

CLAUSE 17. Communication – Any notice or communication from one Party to another in regards to this Bill shall be made in writing and may be delivered or sent by registered mail, fax, or electronically, in any of these case with proof of receipt, to the address and to the care of the legal representatives indicated below:


 
To the ISSUER :
C/O Mr. Luiz Eduardo Burger Ribeiro
Address: Rua Lourenço Marques, No. 158
3 rd Floor
Fax: 11 2195-2503
luiz.eduardo.ribeiro@aes.com
To the CREDITOR :
C/O Middle Office Structured Operations
Address: Av. Brigadeiro Faria Lima, No. 3400 - 11 th Floor, Sao Paulo/SP
Fax: 11-3708-8857
Email: IBBA - MiddleEstruturadasOpçôes@itaubba.com.br
 
                                                                                                                                                                                                                                                                                            Email:                                                                            
Instrument: 100111080022700  Page 9 of 12
Authentication: (SIM-II): 3f15a0c4 – b3fb – 4982 – beee – 3086f6539fad
IBBA_KG_CCB_Grant_Cancel/Disbursement_AES_ID44163_ID 68291

[Stamps:] 1. Legal Department TASC
   2. NOT NEGOTIABLE
 
 
 
 

 
First paragraph : Any changes in the above information, except in what concerns the name of the people in the current positions indicated, shall be informed to the other party, previously and in writing, at least 5 (five) days in advance. In the event that the provision in this item is not followed, the communications sent to the above indicated locations and people will be considered valid and duly delivered.

Second Paragraph : Any time that this Bill requires or allows any permission, approval, notification, or request from one or the other Party, the permission, approval, notification, or request shall be considered delivered and received: (i) on the date of the delivery, if delivered in person or by telegram; (ii) at the end of the first business day following the transmission (with a confirmation receipt) if sent by fax; (iii) at the end of the second business day after it was sent, if sent by courier service; and, (iv) at the end of the fifth business day after it was sent, if sent by regular mail, with pre-paid certified or registered, postage, in any of such cases, as long as it is sent to the people and addresses indicated in this Bill.

CLAUSE 18. Choice of jurisdiction – The capital of the state of São Paulo is chosen and the jurisdiction where the clarification of any doubts concerning this Bill and other guarantees shall be made, although the CREDITOR may choose the jurisdiction of the headquarters of the ISSUER , with the exclusion of any other, no matter how much more privileged it might be.

São Paulo, August 22 nd , 2011

     
     
ISSUER :
[signature]                                           [signature]  
 
Rinaldo Pecchio Jr.
 
ELETROPAULO TELECOMUNICAÇÕES LTDA
     
 
 
       
IN AGREEMENT :
   
 
[signature]                                            [signature]  
  Alfredo Fernandes Pereira   Maisa Golçalves Vieira  
  Individual Taxpayers’ Registry:  ID: 12.854.6[illegible]0-3  
  091.546.888-33 Individual Taxpayers’ Registry:  
  ID: 9.822.972-2    064.676.168-47  
     
  ITAÚ BANK BBA S/A  
       
 
 
       
WITNESSES:
   
 
1) [signature]  2) [signature]  
  Juliana Cristina Rocha  Katia Muniz de Carvalho  
  Individual Taxpayers’ Registry:  ID Number: 19.291.206-9  
  287.547.488-01 Individual Taxpayers’ Registry:
  ID Number: 26.493.507-X 135.464.468-95  
     
  ITAÚ BANK BBA S/A  
       
                                                                                                                                                                                                                                                                          

 
Instrument: 100111080022700  Page 10 of 12
Authentication: (SIM-II): 3f15a0c4 – b3fb – 4982 – beee – 3086f6539fad
IBBA_KG_CCB_Grant_Cancel/Disbursement_AES_ID44163_ID 68291

[Stamps:]   1. Legal Department TASC
2. NOT NEGOTIABLE]
3. Renato Augusto Daher, USGAAP Brazil
4. Itaú BBA, PCAN Accommodated
 
 
 
 
 
 
 
ATTACHMENT 1
BANK CREDIT BILL – No. 100111080022700 SIGNED ON 08/22/2011
Payment Timeline for Principal and Interest


INSTALLMENT
AMOUNT R$
DUE DATE
01
0.00 + 100 % of IDC + 1.50  % annual exp.
03/19/2012
02
0.00 + 100 % of IDC + 1.50  % annual exp.
09/17/2012
03
0.00 + 100 % of IDC + 1.50  % annual exp.
03/18/2013
04
33.33 % of principal + 100 % of IDC + 1.50 % annual exp.
09/16/2013
05
33.33 % of principal + 100 % of IDC + 1.50 % annual exp.
03/17/2014
06
33.34 % of principal + 100 % of IDC + 1.50 % annual exp.
09/15/2014















Instrument: 100111080022700  Page 11 of 12
Authentication: (SIM-II): 3f15a0c4 – b3fb – 4982 – beee – 3086f6539fad
IBBA_KG_CCB_Grant_Cancel/Disbursement_AES_ID44163_ID 68291
 
 
 
 
 
 

ATTACHMENT 2
BANK CREDIT BILL – No. 100111080022700 SIGNED ON 08/22/2011

Request for Disbursement


São Paulo, August 22 nd , 2011

To Itaú Bank BBA S.A.

Re: BANK CREDIT BILL No. 100111080022700 SIGNED ON 08/22/2011 (“BILL”)

Dear Sirs,

All of the provisions, concepts, and Clauses of this Bill are applied to the loan here requested. Therefore, we confirm the closing of the loan agreed upon in the Bill and request the disbursement in the amount of R$ 28,000,000.00 (twenty eight million reais) (the Loan’s Net Value being equal to R$ 27,474.580.00 (twenty seven million four hundred and seventy four thousand and five hundred and eighty reais) to be made on 09/27/2011 in the following checking accounts of our ownership:



I – Bank: 341 – Agency: 912
Checking Account: 09231-9
Amount: R$ 27,474.580.00 (twenty-seven million four hundred and seventy-four thousand and five hundred and eighty reais).

[signature]                                           [signature]
________________________________________
[stamp:]Rinaldo Pecchio Jr.
ELETROPAULO TELECOMUNICAÇÕES LTDA







Instrument: 100111080022700  Page 12 of 12
Authentication: (SIM-II): 3f15a0c4 – b3fb – 4982 – beee – 3086f6539fad
IBBA_KG_CCB_Grant_Cancel/Disbursement_AES_ID44163_ID 68291

Exhibit 4.9

[handwritten:]TFB-RJ-R$ 2.2 MM
2 nd copy OK


BANK CREDIT BILL
(1 ST amendment)

By this 1 st Amendment (“Amendment”) to bank credit bill No. 10011108002280 issued on 08/22/2011 and disbursed on 08/25/2011, in the original amount of R$ 22,000,000.00 (twenty-two million reais) (hereinafter called, as amendment, corrected or ratified at any time, “Note”) by AES COMMUNICATIONS RIO DE JANEIRO S/A, with main offices at Avenida Marechal Floriano, 19 – 6 th floor, Central district, city of Rio de Janeiro, state of Rio de Janeiro, registered in the CNPJ/MP under No. 02/720.349/0001-23 (hereinafter called simply “ ISSUER” ), the latter asks the BANCO ITAU BBA S.A. , private financial institution, with main office at Av. Brigadeiro Faria Lima, 3400, 3 rd to 8 th and 11 th and 12 floors (partial). In the City of Sao Paulo, State of Sao Paulo, registered in the CNPJ/MF under No. 17.298.092/0001-30 (hereinafter called simply “ CREDITOR” ) to amend the Note as follows:

1.   All terms and expressions written herein in upper case but not defined herein shall have the meanings attributed to them in the Note. All of the terms and expressions defined may be used in masculine or feminine, and singular or plural.

2. Considering the change in the business name of the ISSUER , the Parties decided to amend Table I in the Preamble to the Note, which takes effect with the following wording:

Table I – BANK CREDIT BILL ISSUER
Business name :   TIM FIBER RJ SA, new name of AES   CNPJ/MF :
COMMUNICATIONS RIO DE JANEIRO S/A                   02.720.349/0001-23
Address :  Avenida Marechal Floriano, 19 – 6th floor
City :  RIO DE JANEIRO   State:   RJ                                 CEP: 20080-003
Email:                            Phone:                                    Fax:

3. By this Amendment the parties decide to amend the Interest rate of the Note, with the resulting change in the field for Charges in Table II of the Preamble to the Note, that now takes effect, specifically in relation to the Charges, with the following new wording:

“ CHARGES:

Interest

a) INTEREST RATE:   100% (one hundred percent) of the CDI (money market interest), composed with the fixed rate of 0.900000% (zero point nine percent) annually, equal to 0.074692% (zero point zero seven four six nine two percent) per month.”

 
 
Instrument:  100111080022800
Page 1 of 4
Authentication(SIM-II): a06367df-4646-4f73-9511-d85937426209
 
IBBA_KG_CCB_Aditar_TIM_ID30749
 
[stamp:]  LEGAL – TIM [initials]
 
 
 
 
4. By this Amendment the parties decide to amend the wording contained in sections c, g and h of Clause 7 of the Note, and exclude sections h.1 and l, with Clause 7 of the Note having the following wording as of this date:

“ CLAUSE 7.  Early maturity.   The debt contained in this Bill may be considered mature early and thus payable by judicial and/or extrajudicial notification, in the event of any of the following cases, which the parties hereby acknowledge as being a direct cause for improperly increasing the risk of violation of the obligations assumed by the ISSUER , increasing the obligation to grant credit assumed by the CREDITOR herein:

 
a)
lack of compliance by the ISSUER with (i) any financial obligation assumed thereunder, not remedied within 3 (three) working days counted as of the date when the obligation in question was due; or (ii) any non-financial obligation assumed herein, not remedied within 30 (thirty) days as of the date the relevant notice was received from the CREDITOR ;
 
b)
occurrence of the events mentioned in Articles 333 and 1425 of the Civil Code (Law No. 10.406/02);
 
c)
if the ISSUER (i) has declared bankruptcy, or (ii) has bankruptcy requested and not avoided within the legal time frame; (iii) is dissolved, or (iv) has a legitimate debt collection for which payment is required, in an individual or total amount of over R$80,000,000.00 (eighty million reais) unless (a) it was cancelled, halted, suspended or declared unlawful within 10 (ten) days counted as of the collection, or (b) it was done in error or bad faith by third parties, duly proven by the ISSUER ;
 
d)
if the ISSUER proposes an out of court reorganization plan to the CREDITOR or to any other creditor or class of creditors, whether or not judicial approval for the plan is asked or obtained;
 
e)
if the ISSUER takes legal action with a request for a court-ordered reorganization, regardless of approval of the reorganization or of its approval by the relevant judge;
 
f)
early maturity of any other contract, bill of debt instrument signed by the ISSUER with the CREDITOR in an individual or total amount exceeding R$10,000,000.00 (ten million reais).
 
g)
change or amendment of the ISSUER corporate purpose so as to alter the existing main activities of the ISSUER or to add new business that has priority over current activities, except in cases of incorporation of companies in the same economic group of the ISSUER resulting in change or amendment of the ISSUER corporate purpose.
 
 
Instrument:  100111080022800
Page 2 of 4
Authentication(SIM-II): a06367df-4646-4f73-9511-d85937426209
 
IBBA_KG_CCB_Aditar_TIM_ID30749
 
[stamp:]  LEGAL – TIM [initials]
 
 
 
 
 

 
 
h)
If there is any direct or indirect change, transfer or assignment of corporate/shareholder control or the incorporation, merger or spinoff of the ISSUER , not in the same economic group of the companies TIM BRASIL, SERVICOS E PARTICIPACOES S/A, TIM PARTICIPACOES S/A, TIM CELULAR S/A, INTELIG TELECOMUNICACOES LTDA., without prior, express authorization by the CREDITOR ; and
 
i)
Any noncompliance, falsehood, inaccuracy, error or omission in any document signed, submitted or handed over by the ISSUER related to this Bill was detected.”

5. By this Amendment the parties decide to amend the wording of Clause 8 of the Note, which will take effect with the following wording:

CLAUSE 8.  Payment delay.   If any of the obligations set forth in this Bill are not met on a timely basis, including in the event of early maturity, the ISSUER shall be considered in default, regardless of whether it receives any judicial and/or extrajudicial notification from the CREDITOR , such that the ISSUER agrees to pay during the period in delay and for all amounts due under this Bill:

 
a)
Late interest calculated as of the date of noncompliance until the date payment is made, at the rate of 6% (six percent) annually on the amount due;
 
b)
Irreducible and compensatory late penalty of a flat 1% (one percent) on the amount due to not payment, after a grace period of 3 (three) working days, as of the time the payment was not made due to a fully proven operational problem by the ISSUER.

Paragraph One .  The charges set forth herein, indicated in items a and b above, will be calculated and capitalized until final settlement of the debt.”

6.   By this Amendment the parties decide to amend the wording of Clause 8 of the Note, which will take effect with the following wording:

“CLAUSE 9.  Attorney fees.   In the event there is a need for the CREDITOR to cover any AMOUNT due under this Bill, even if in credit authorization or execution due to insolvent debtor, the ISSUER is obligated to pay the CREDITOR indemnification for any fees due to CREDITOR attorneys due to being unsuccessful in a proceeding, in accordance with a binding and final ruling.”

7.   By this Amendment the parties decide to amend the wording of Clause 8 of the Note, which will take effect with the following wording:

“CLAUSE 10.  Expenses.   The ISSUER shall reimburse the CREDITOR for any expenses required in this Bill or any other general expenses it reasonably incurs or comes to incur related directly or indirectly to this Bill.  Such expenses are limited to a maximum amount of R$ 10,000.00 (ten thousand reais) and

Instrument:  100111080022800
Page 3 of 4
Authentication(SIM-II): a06367df-4646-4f73-9511-d85937426209
 
IBBA_KG_CCB_Aditar_TIM_ID30749
 
[stamp:]  LEGAL – TIM [initials]
 
 
 
 
shall be reimbursed by the ISSUER within 30 (thirty) working days from the time the CREDITOR sends the respective vouchers.”

8.   The ISSUER acknowledges, for all purposes that, on this date, the balance due of its obligations assumed due to issue of the Note is R$ 22,000,000.00 (twenty-two million reais).

9.   Changes made in the Note by this Amendment shall not entail novation, so all obligations, clauses, terms and conditions set forth in the Note and not expressly altered by this Amendment, especially data on the Note contained in the unaltered preamble and its Annex I remain valid.  All guarantees established previously as a result of the Note are ratified.

10.   Due to this Amendment, the ISSUER shall pay in cash to or to the order of the CREDITOR , within the time frame indicated in the Note and at Maturity (as well as in the other payment data as expressly agreed in the Note as amended, corrected and/or ratified at any time), the existing debt, which is accurate, liquid and payable in accordance with the Note, in addition to other Charges, taxes and expenses resulting from the Note.

And the parties, considering it true and as agreed, sign this instrument in 2 (two) copies of identical form and content with a single effect.

Sao Paulo, February 2, 2012
[signature]
 
[signature]
     
Rodrigo G. Galvão
TIM FIBER RJ SA
Luisa Chaves
TIM – Finance & Treasury
[Stamp:] Itaú BBA, Accommodated SP, RJ Branch
TIM CELULAR S.A
   
Treasury Operations

AGREED :
[signatures]
__________________________
BANCO ITAU BBA S/A

 
[ILLEGIBLE] Ramos de Sant Ana
Fernanda {illegible]
 
ID 02136409-5
[illegible]
 
CPF [illegible]
 


WITNESSES:

1) [signature]
 
2) [signature]
 
 
 
 
 
Name: Daniel Fisman Nigri
 
Name: Albertina da F. B. de Oliveira
 
Individual Taxpayers’ Number:
 
Individual Taxpayers Number:
 
106.651.367-81
 
895.067.907-87
 
ID Number: 020.675.100-9
     
 
 
Instrument:  100111080022800
Page 4 of 4
Authentication(SIM-II): a06367df-4646-4f73-9511-d85937426209
 
IBBA_KG_CCB_Aditar_TIM_ID30749
 
[stamp:]  LEGAL – TIM [initials]
 
 
 
 

 
BANK CREDIT BILL
No. 100111080022800
I. PREAMBLE

Table I – BANK CREDIT BILL ISSUER
Business name :  AES COMMUNICATIONS RIO DE JANEIRO S/A    CNPJ/MF :  02.720.349/0001-23
Address :  Avenida Marechal Floriano, No. 19 – 6th floor
City :  RIO DE JANEIRO   State:   RJ                                 CEP: 20080-003
Email:                           Phone:                                    Fax:
Table II – BANK CREDIT BILL CHARACTERISTICS
AMOUNT OF PRINCIPAL:
R$ 22,000,000.00 (twenty-two million reais)
CREDIT LIQUID AMOUNT:
As requested (defined below)
CHARGES:
INTEREST
 
a) Interest rate: 100% (one hundred percent) of CDI composed of the fixed rate of 1.50% (one point five percent) annually, equal to 0.124149 (zero point one two four one four nine percent per month).
 
Structuring Commission:
0.40% (zero point four percent), flat, due on the Principal Amount due on the Disbursement Date.
 
EXPENSES:
Expenses for registration and formalization of this Bill per Expenses Clause.
ISSUE DATE:
8-22-2011
DISBURSEMENT DATE:
8-25-2011
PLACE OF PAYMENT:
SAO PAULO
TAXES:
a)   Tax on Financial Operations – paid on the same date as the loan’s disbursement
 
□ with Issuer’s resources
☒ with resources from the loan granted by this CCB
 
The provisions of the Clause “Tax Payment” applies to the new taxes and the eventual increases in the existing ones.
MATURITY OF THIS BILL:
Per Annex I, pursuant to the Clauses Promise to Pay and Early Maturity
Table III – ISSUER CHECKING ACCOUNT – DEBIT
Bank
Itau Unibanco SA – No. 341
Branch
417
Checking Account #
54648-8
Table IV – CHECKING ACCOUNT FOR RELEASE OF PAYMENT
The checking accounts held by the ISSUER and indicated in the respective Applications (defined below)

II. – CLAUSES

CLAUSE 1.  Promise to Pay.  The ISSUER, characterized in the Preamble above (hereinafter called “ ISSUER”) shall pay at the Place of Payment (indicated above) by this BANK CREDIT BILL No.100111080022800

Instrument:  100111080022800
Page 1 of 12
Authentication (SIM-II): 92a715EA-02C2-41f8-B581-F4D1B3115287
 
IBBA_KG_CCB_Conceder_TIM_ID44163_ID68281
 
[stamp: ] LEGAL – TIM [initials]
 
[stamp:] NON-NEGOTIABLE
 
 
 
 
(Bill) ISSUED in accordance with legislation now in effect, to BANCO ITAU BBA S/A (hereinafter simply called “ CREDITOR” ), a financial institution with main offices in the City of Sao Paulo, State of Sao Paulo, at Av. Brigadeiro Faria Lima, No. 3400 – 3 rd to 8 th and 11 th and 12 th floors, registered in the CNPJ/MF under No. 17.298.092/0001-20, either at its order, in installments, or at sight on the dates and at the times indicated in this Bill, in the Preamble and its Annexes (“ MATURITY” ), the debt in cash, accurate, liquid and payable, corresponding to the total amount used in this Bill plus the other Charges, taxes and expenses agreed herein (together called “ AMOUNT” ), in compliance with the other Clauses indicated hereinafter.

CLAUSE 2.  Subject and release of the credit. The subject of this Bill is the granting by the CREDITOR of a loan for use by the ISSUER .  The loan contracted herein shall become effective after request for disbursement to be sent by the ISSUER to the CREDITOR as set forth in Annex II (“Request”) or otherwise as allowed or not prohibited by standards now in effect.

Paragraph One - When indicated in the Preamble that the IOF will be paid with resources from the loan granted in this Bill, the CREDITOR shall withhold the tax, releasing the liquid amount of the loan to the ISSUER .

Paragraph Two - After the Request is send and the taxes and charges due early are deducted, as applicable, the Principal Amount mentioned in the Preamble will be credited directly to the Checking Accounts for release of ownership by the ISSUER indicated pursuant to the Preamble, unless otherwise indicated in writing.  The loan will be made by transfer and/or TED (Available Electronic Transfer) issued by the CREDITOR in accordance with the Request, or otherwise as allowed or not prohibited by standards now in effect.

Paragraph Three - When the terms of this bill have been met and the ISSUER instructions obeyed, the transfer made by the CREDITOR to the ISSUER or the use of other legal means of transfer shall characterize the usage of the loan contracted herein.

Paragraph Four - The Annexes and other documents issued   within the framework thereof are integral parts of this Bill.

Paragraph Five - In cases in which the Disbursement Daye is after the Issue Date of this bill, in the event of any adverse and relevant change to the political, financial or economic conditions, national or international, of controls for exchange, interest, currency, exchange rates or interest rates, the CREDITOR may, at its sole discretion, prior to the disbursement to be made within the scope of this Bill, make a new agreement on Interest Fees, with prior notice.

If the ISSUER does not accept the changes proposed by the CREDITOR does not accept the changes proposed by the CREDITOR , the ISSUER may rescind this Bill at no charge, and without the obligation to pay any commission or compensation.

CLAUSE 3.  Charges and other financial markups.   The ISSUER shall pay the interest mentioned in the Preamble to be capitalized, notwithstanding payment of the other Charges and Taxes set forth in the

Instrument:  100111080022800
Page 2 of 12
Authentication (SIM-II): 92a715EA-02C2-41f8-B581-F4D1B3115287
 
IBBA_KG_CCB_Conceder_TIM_ID44163_ID68281
 
[stamp: ] LEGAL – TIM [initials]
 
[stamp:] NON-NEGOTIABLE
 
 
 
 
Preamble and the other Clauses of this Bill, on the Principal Amount.  The Interest may be the pre-set or post-set rate,

Paragraph One - At each half-year, counted as of the Disbursement Date for this Bill, the CREDITOR may, at its sole discretion, make a new agreement on the Interest Rate indicated in the Preamble, by prior notice of fifteen (15) days before the end of the aforementioned period, to be sent in accordance with the provisions of the “Communications” Clause hereinafter.  If the ISSUER does not agree with the interest Rate reported by the CREDITOR , the ISSUER is required, irrevocably and irreversibly, to pay this bill in advance, with the provisions of the Early maturity Clause applying, on the closing fate of the respective half year.  The absence of comment by the ISSUER within ten days of the closing of the respective half year shall be considered as tacit agreement of the new Interest Rate for all legal purposes and effects.

Paragraph Two -   The Interest will be capitalized daily, that is, capitalized exponentially pro rate temporis applying the Interest rate indicated in the Preamble to the balance due of the Principal Amount as of the Disbursement Date.  Daily capitalization is defined as being the result obtained by accumulation, in the form of capitalization consisting of the percentage of the average dally date of the CDI consisting of the fixed rate (both indicated in the Preamble), with (i) the percentage of the CDI being calculated on the basis of the annual average rate (considering a 252-day year) relative to operations with Interbank Certificates of Deposit (CDI) for a term equal to 1 (one) working day (over), determined and disclosed by CEIPT – Chamber of Custody and Settlement, with the daily factor rounded up to the eighth decimal and, (ii) the fixed rate, when defined, will also be calculated on a capitalized basis, but based on a 360 (three hundred sixty) day year.  If the CDI percentage is zero, interest shall be considered pre-set.

Paragraph Three - The Interest will be applied during the period this Bill is in effect (i) including the Interest Rate referring to the Disbursement Date, or date of the last payment of the principal installment, and (ii) excluding the Interest Rate referring to the respective maturity date.  In the event of termination, non disclosure or impossibility, for any reason, to sue the average daily rates for the CDI, during the time when it is not possible to use the daily average rates of the CDI, replacement rates shall be used based on the variance in the SELIC Rate at the Banco Central do Brasil (BACEN), published by ANDIMA – National Association of Financial Market Institution.

Paragraph Four -   Considering the introductory information in this Clause and its other Paragraphs, the following mathematical formula shows calculation of the amounts with proper application of interest:


Where:
a   =   
fixed rate expressed in base 360;
 
 
Instrument:  100111080022800
Page 3 of 12
Authentication (SIM-II): 92a715EA-02C2-41f8-B581-F4D1B3115287
 
IBBA_KG_CCB_Conceder_TIM_ID44163_ID68281
 
[stamp: ] LEGAL – TIM [initials]
 
[stamp:] NON-NEGOTIABLE
 
 
 
 

 
DC n =
term in straight days from the Disbursement Date or date of final payment of interest, whichever comes first, until the respective maturity date;
DU n =
term in working days from the Disbursement Date or date of final payment of interest, whichever comes first, until the respective maturity date;
P =
percentage of CDI;
Taxacetip = 
rate of Interbank Certificates of Deposit (CDI), expressed in base 252;
VF n =
amount of each installment in respective maturity;
VP n =
amount of amortization of principal in nth percentage;
n =
installment number
SD n =
balance due of principal without deducting the installment being amortized.

CLAUSE 4.  Form of payment.   The ISSUER shall pay the entire AMOUNT due at the respective MATURITIES obligatorily   by means of debit from the account mentioned in the Preamble held at Itau Unibanco SA (with main offices at Praca Alfredo Egydio de Souza Aranha, No. 100, Torre Itausa, in the city and state of Sao Paulo, registered in the CNPJ under No. 60.701.190/0001-04, hereinafter called “ ITAU UNIBANCO” ), which must have a sufficient balance.

Paragraph One - If the ISSUER does not have a checking account open with ITAU UNIBANCO , the ISSUER is obligated irrevocably and irreversibly to make the payments on the MATURITY dates by TED sent directly to the CREDITOR .

Paragraph Two - Any installment received outside the term set constitutes simple tolerance and shall not affect MATURITIES or other aspects of the conditions of this Bill, regardless of novation or modification of what is agreed herein, including late fees.

Paragraph Three - In the event that any maturity date (for principal, Charges, Taxes and financial markups) provided in this Bill and in the Requests coincides with national, municipal or bank holidays, the ISSUER shall make the payment on the first subsequent working day.  In this case, the interest shall apply up to the date of actual payment.

Paragraph Four - The ISSUER may make early payment of this Bill, partially or in full, in accordance with the provisions of the Early Liquidation Clause of this Bill.

CLAUSE 5.   The CREDITOR shall make available to the ISSUER on a monthly basis statement or calculation forms to be considered integral parts of this Bill.  The statements and calculation forms shall be sent by email to the ISSUER , in accordance with Clause 17, upon request.

Sole Paragraph - THE ISSUER ACKNOWLEDGES THAT THE AFOREMENTIONED ISSUER CHECKING ACCOUNT STATEMENTS AND CALCULATION FORMS SUBMITTED BY THE CREDITOR ARE PART OF THIS BILL AND THAT THE AMOUNTS CONTAINED THEREIN, IF DETERMINED IN ACCORDANCE WITH THIS BILL, ARE LIQUID, ACCURATE AND DETERMINED.  IF THE ISSUER DOES NOT AGREE WITH THE AMOUNTS ON ANY STATEMENT OR CALCULATION FORM, IT SHALL COMMUNICATE THIS FACT TO THE CREDITOR IN WRITING.  IF THE CLAIM IS NOT MADE AFTER 5 (FIVE) DAYS FROM THE DATE OF THE STATEMENTS AND/OR CALCULATION FORMS,

Instrument:  100111080022800
Page 4 of 12
Authentication (SIM-II): 92a715EA-02C2-41f8-B581-F4D1B3115287
 
IBBA_KG_CCB_Conceder_TIM_ID44163_ID68281
 
[stamp: ] LEGAL – TIM [initials]
 
[stamp:] NON-NEGOTIABLE
 
 
 
 
THEY WILL CONSTITUTE DOCUMENTARY EVIDENCE OF THE USE, ACCURACY AND LIQUIDITY OF THE CREDIT.

CLAUSE 6.  Place of payment.   In the event of payments due not being made by debt from the checking account, notwithstanding the applicable legal regulations and standards, the payments of the amounts due under this Bill, including the aforementioned markups, shall be made at the address of the CREDITOR , or any of its affiliates, directly to it or to its order.

CLAUSE 7.  Early maturity.   The debt contained in this Bill may be considered mature early and thus payable, by judicial and/or extrajudicial notification, in any of the following cases, which the parties hereby acknowledge to be direct grounds for improper increase in the risk of noncompliance with the obligations assumed by the ISSUER , making the obligation to grant the loan assumed by the CREDITOR in this Bill more burdensome:

a)
lack of compliance by the ISSUER (i) with any financial obligation assumed herein, not remedied within 3 (three) working days counted from the date on which the obligation in question was due, or (ii) with any non-financial obligation assumed in this Bill, not remedied within 30 (thirty) days counted as of the date of receipt of the relevant notification from the CREDITOR ;
b)
the events mentioned in Articles 333 and 1.425 of the Civil Code (Law No. 10.406/02);
c)
If the issuer (i) has declared bankruptcy, or (ii) has bankruptcy requested and not avoided within the legal time frame; (iii) is dissolved, or (iv) has a legitimate debt collection for which payment is required, in an individual or total amount of over R$20,000,000.00 (twenty million reais) unless (A) within the period of 5 (five) working days the is has proven that the collection was done by mistake or in bad faith, (B) it was cancelled, or (C) its enforceability was suspended by court order;
d)
if the ISSUER proposes an out of court reorganization plan to the CREDITOR or to any other creditor or class of creditors, whether or not judicial approval for the plan is asked or obtained;
e)
if the ISSUER takes legal action with a request for a court-ordered reorganization, regardless of approval of the reorganization or of its approval by the relevant judge;
f)
early maturity of any other contract, bill of debt instrument signed by the ISSUER with the CREDITOR in an individual or total amount exceeding R$10,000,000.00 (ten million reais).
g)
change or amendment of the ISSUER corporate purpose so as to alter the existing main activities of the ISSUER or to add new business that has priority over current activities,;
h)
if there in any change, transfer or, direct or indirect, surrender of the control of the shares/company, or in the event that the ISSUER suffers incorporation, merger or separation outside the same business group of the companies without the CREDITOR ’s previous approval, except when the control of the share/company is transferred to another company
 
 
Instrument:  100111080022800
Page 5 of 12
Authentication (SIM-II): 92a715EA-02C2-41f8-B581-F4D1B3115287
 
IBBA_KG_CCB_Conceder_TIM_ID44163_ID68281
 
[stamp: ] LEGAL – TIM [initials]
 
[stamp:] NON-NEGOTIABLE
 
 
 
 

 
whose rating is equal to or higher than (i) AA+, according to the parameters established by the  S&P or Fitch Agencies, and (ii) Aa1, according to the parameters established by the Moody’s Agency; or,
h.1)
in the event the corporate/shareholder control of the ISSUER becomes held by a company with no rating published by the rating agencies as indicated in item h above, the CREDITOR may at its sole discretion choose whether to declare early maturity of this Bill.
k)
[ sic ] any noncompliance, falsehood, inaccuracy, error or omission in any document signed, submitted or handed over by the ISSUER related to this Bill was detected; and
l)
the ISSUER fails to maintain the following financial index to be determined annually during the term of this Bill:

Liquid debt/EBITDA < (less than or equal to) 2.50 (two point five centisimos)

L1)
for the purposes of determining the financial index established above, which will be done annually as of the Issue Date of this Bill, accounting and financial documents of the ISSUER referring to the end of each fiscal year shall be used, with the following definitions being used:

Debt :
Sum of short- and long-term loans and financing, including discounted notes with regression, bonds and sureties provided to third parties, commercial /financial leasing and fixed-rate notes issued by the company that are not convertible resulting from public or private issue, on the local or international market, as well as liabilities resulting from derivatives.

Liquid Debt :
Amount of Debt less cash on hand, financial applications and assets from derivatives.

EBITDA:
Result from the 12 months prior to the determination date, before interest, taxes, depreciation and amortization, of the income from the non-operational result by the equity method.

CLAUSE 8.  Payment delay - If any of the obligations contained in this Bill is not met on a timely basis, including in the event of early maturity, the ISSUER is in default, regardless of whether it receives judicial and/or extrajudicial notification from the CREDITOR , such that the ISSUER agrees to pay, during the delay period and on all amounts due under this Bill:

 
a)
Default Interest, calculated day by day, in accordance with the variance in the BC SELIC rate published by ANDIMA, in the period between the obligation maturity date and the date of actual payment, affecting the total amount of the balance due determined on the maturity date, plus 1% (one percent) annually;
 
 
Instrument:  100111080022800
Page 6 of 12
Authentication (SIM-II): 92a715EA-02C2-41f8-B581-F4D1B3115287
 
IBBA_KG_CCB_Conceder_TIM_ID44163_ID68281
 
[stamp: ] LEGAL – TIM [initials]
 
[stamp:] NON-NEGOTIABLE
 
 
 
 

 
 
b)
Late fees at an effective rate of 1.00% (one percent) monthly, calculated day to day.

Paragraph One - The charges set forth herein, indicated in items a and b above, shall be calculated and capitalized up to the final settlement of the debt.

Paragraph Two - In the event   it is impossible for any reason to use the rate indicated in item a, the Default Interest shall be calculated using the average of interest rates used by at least five (5) major Brazilian banks for assets, in their assets activities in reais, during the period between the maturity date of the obligation and the date of actual payment.

CLAUSE 9.  Attorney fees.   If there is a need for the CREDITOR to pay any AMOUNT due under this Bill, in credit approval or in enforcement against a bad debtor, the ISSUER is obligated to pay the CREDITOR an indemnification for any fees that may be due to CREDITOR attorneys for the case.

CLAUSE 10.  Expenses.   The ISSUER shall be responsible for any and all expenses and charges, regular or extraordinary, especially but not exclusively expenses for collection under this Bill, notarization of signatures and registration and/or notary records.  These expenses shall be paid by the ISSUER to the CREDITOR within 3 (three) working days after the ISSUER receives the respective debit note, under penalty of early maturity of this Bill.

CLAUSE 11.  Tax payment.   The ISSUER represents that it is aware of and agrees that the CREDITOR may pass on to it or require payment of any taxes, contributions and/or other charges, except for income tax affecting this Bill and/or that may affect it in the future. Resulting from the existence, increase and/or creation if such taxes, contributions and/or other charges.  Therefore, the ISSUER hereby acknowledges as liquid, accurate and payable any and all  amounts that may be presented against it by the CREDITOR relevant to these taxes, contributions and/or other charges, which shall be paid by the ISSUER when presented, under penalty of early maturity of this Bill and use of the guarantees established for this Bill.

Sole Paragraph - The IOF shall always be handled, collected and paid in accordance with this Bill and legislation in effect, and debit is authorized from the ISSUER checking account indicated in Table III of the preamble for payment purposes.

CLAUSE 12.  Early liquidation - The term of the ISSUER obligations under this Bill was established in the interests of both parties, such that the early payment by the ISSUER , including early payment by the CREDITOR receiving resources from another financial institution, constitutes compliance with the obligation outside the term.  The parties thus establish in advance that the balance due on the date of early payment will consist of the amount of unamortized principal, plus:  (i) the charges agreed in this Bill for the period until the early payment date and (ii) indemnification that the parties hereby agree will be 0.06% flat amount to be paid.

Instrument:  100111080022800
Page 7 of 12
Authentication (SIM-II): 92a715EA-02C2-41f8-B581-F4D1B3115287
 
IBBA_KG_CCB_Conceder_TIM_ID44163_ID68281
 
[stamp: ] LEGAL – TIM [initials]
 
[stamp:] NON-NEGOTIABLE
 
 
 
 
Paragraph One - At each half year, counted as of the Disbursement Date, the CREDITOR may, at its sole discretion, make order a new amount for the aforementioned indemnification, by prior notice of 15 (fifteen) days in advance of the end of the aforementioned period.

Paragraph Two - Payment of the indemnification addressed in this Clause 12 shall not apply in the event of prepayment made on the following dates:

I.  last day of the period of six (6) months counted as of the Disbursement Date of this Bill;
II. last day of the period of twelve (12) months counted as of the Disbursement Date of this Bill;
III. last day of the period of eighteen (18) months counted as of the Disbursement Date of this Bill;
IV. last day of the period of twenty-four (24) months counted as of the Disbursement Date of this Bill;
V. last day of the period of thirty (30) months counted as of the Disbursement Date of this Bill.

CLAUSE 13.  Tolerance .  Failure by the CREDITOR to exercise any rights or authorities it has under this Bill, or any agreement with delays in meeting the obligations assumed hereunder by the ISSUER , shall not involve a novation and shall not prevent the CREDITOR from exercising such rights and authorities at any time.

CLAUSE 14.   Other ISSUER obligations:

 
a)
The ISSUER assumes the responsibility to keep the CREDITOR updated in writing with its address. For the purposes of communication/information about nay act or fact arising from this Bill, it shall automatically be considered notified, with no further formalities, at the respective address indicated in the Preamble.
 
b)
The ISSUER is responsible for the accuracy and correctness of the data and information provided herein or sent to the CREDITOR in the Request or otherwise.
 
c)
The ISSUER is obligated to deliver to the CREDITOR , on the date requested by the CREDITOR , the documents requested by the CREDITOR to update those already delivered, which come to be required by standards in effect or due to a decision or guidelines from applicable authorities.

CLAUSE 15.  Environmental Responsibility.   The ISSUER represents that it respects environmental legislation and that resources used under this Bill  shall not be used for any purposes and/or projects that may cause social harm and that do not comply strictly with the legal and regulatory standards governing the National Environmental Policy.

Paragraph One - The ISSUER is required to obtain all documents (studies, studies, reports, licenses, etc.) when needed according to environmental protection standards, attesting to compliance therewith, and to inform the CREDITOR immediately of the existence of any unfavorable report by any authority.

 
 
Instrument:  100111080022800
Page 8 of 12
Authentication (SIM-II): 92a715EA-02C2-41f8-B581-F4D1B3115287
 
IBBA_KG_CCB_Conceder_TIM_ID44163_ID68281
 
[stamp: ] LEGAL – TIM [initials]
 
[stamp:] NON-NEGOTIABLE
 
 
 
 
Paragraph Two:   The ISSUER shall deliver to the CREDITOR , upon request, a certified copy of all of the aforementioned documents, immediately reporting to the CREDITOR , in writing, any irregularity or event that could lead the oversight agencies to consider noncompliance with any environmental protection standard or any obligation to indemnify any environmental damage.\

Paragraph Three:   The ISSUER , regardless of who is at fault, shall refund to the CREDITOR any amount it is ordered to pay for environmental damage that, in any way, the authority considers to be related to this Bill, and indemnify the CREDITOR for any loss of damage, including to its image,   that the CREDITOR experiences as a result of the environmental damage.

CLAUSE 16.  Credit Information System (SCR) .  The ISSUER authorizes the CREDITOR , at any time, even after termination of this operation, to:

 
a)
provide to the Banco Central do Brasil (BACEN), to be included in the SCR, information about the amount of its debts to mature and already matured, including late debts and activities taking a loss, as well as the amount of joint obligations assumed and guarantees given, and
 
b)
consult the SCR on any information on the ISSUER .

Sole Paragraph :  The purpose of the SCR is to provide BACEN with information on credit activity for purposes of supervising the credit risk and exchanging information among financial institutions.  The ISSUER is aware that consultation of the SCR by the CREDITOR requires prior authorization and approves any consultation done in advance for purposes hereof.  The ISSUER may have access and, in the event of discrepancy in the SCR data provided by the CREDITOR , request correction, exclusion or record of an additional annotation, including court-ordered measures, by written, well-founded request of the CREDITOR .

CLAUSE 17.  Communication.   Any notice of communication from one Party to the other about this Bill shall be made in writing and may be delivered or send by registered letter, fax or electronic mail, in any event with proof of receipt, to the address and to the attention of the legal representatives identified below:

To the ISSUER :
To the CREDITOR :
Attn: Luiz Eduardo Burger
Attn: Middle Office Operacoes
Ribeiro
Estruturadas
Address:  Rua Lourenco
Address:  Av. Brigadeiro Faria Lima,
Marques, No. 158 – 3 rd floor
3400 - 11 th floor – SP
Fax: 11 2195-2503
Fax: 11-3708-8857
Email:
Email: BBA-
luiz.eduardo.ribeiro@aes.com
MiddleEstruturadasOperacoes@itaubba.com.br

Paragraph One:   Any change in the above information, except in relation to the name of the current occupant of the positions indicated, shall be communicated to the other Party first and in writing, at least  5 (five) days in advance.  If any provision of this item is violated, communicates send according to the above information

Instrument:  100111080022800
Page 9 of 12
Authentication (SIM-II): 92a715EA-02C2-41f8-B581-F4D1B3115287
 
IBBA_KG_CCB_Conceder_TIM_ID44163_ID68281
 
[stamp: ] LEGAL – TIM [initials]
 
[stamp:] NON-NEGOTIABLE
 
 
 
 
shall be considered valid and delivered on a timely basis.

Paragraph Two:   Provided this Bill requires or allows any consent, approval, notice or request from one Party to the other, the consent, approval, notice or request shall be considered delivered and received:  (i) on the delivery date, if delivered by hand or by telegram; (ii) at the end of the first working day following transmission (with confirmation of receipt), if sent by fax; (iii) at the end of the second business day after it was sent, if sent by courier service, and (iv) at the end of the fifth working day after being sent, if sent by regular mail, postage prepaid, certified or registered, in any event when sent to people at the addresses indicated in this Clause.

CLAUSE 18.  Jurisdiction .  The jurisdiction of the Comarca of the Capital of the State of Sao Paulo is chosen to resolve any disputes over or based on this Bill and its warranties, and the CREDITOR may choose the jurisdiction of the ISSUER main offices, excluding any other jurisdiction that may apply.

Sao Paulo, August 22, 2011
[signatures and stamps]

ISSUER:
[signatures]
 
AES COMMUNICATIONS RIO DE JANEIRO S/A
 
     
     
AGREED:
BANCO ITAU BBA S/A
 
 
[signature]
[signature]
     
 
[stamp:]
[stamp:]
 
Alfredo Fernandes Pereira
Maisa Golçalves Vieira
 
Individual Taxpayers’ Registry:
ID Number: 12.854.680-3
 
091.546.888-33
Individual Taxpayers’ Registry:
 
ID Number: 9.822.972-2
064.676.168-47
     
 
[stamp:] ITAÚ BANK BBA S/A
 


WITNESSES:

1)
[signature]
 
 2)
[signature]
 
Katia Muniz de [illegible]
   
Juliana Cristina Rocha
 
RG. 19.291.206-9
   
CPF: 287.547.488-01
 
CPF: 135.464.468-95
   
RG: 26.493.507-X





Instrument:  100111080022800
Page 10 of 12
Authentication (SIM-II): 92a715EA-02C2-41f8-B581-F4D1B3115287
 
IBBA_KG_CCB_Conceder_TIM_ID44163_ID68281
 
[stamp: ] LEGAL – TIM [initials]
 
[stamp:] NON-NEGOTIABLE
 
 
 
 

ANNEX I
 
 
BANK CREDIT BILL No. 100111080022800  SIGNED ON 08-22-2011
PAYMENT SCHEDULE FOR PRINCIPAL AND INTEREST

INSTALLMENTS
AMOUNT IN R$
MATURITY
01
0.00 + 100% of CDI + 1.50% annually
02-22-2012
02
0.00 + 100% of CDI + 1.50% annually
08-20-2012
03
0.00 + 100% of CDI + 1.50% annually
02-18-2013
04
33.33% of principal + CDI + 1.50% annually
08-19-2013
05
33.33% of principal + CDI + 1.50% annually
02-17-2014
06
33.34% of principal + CDI + 1.50% annually
08-18-2014


Instrument:  100111080022800
Page 11 of 12
Authentication (SIM-II): 92a715EA-02C2-41f8-B581-F4D1B3115287
 
IBBA_KG_CCB_Conceder_TIM_ID44163_ID68281
 
[stamp: ] LEGAL – TIM [initials]
 
[stamp:] NON-NEGOTIABLE
 
 
 
 
ANNEX II
BANK CREDIT BILL No. 100111080022800  SIGNED ON 08-22-2011


DISBURSEMENT REQUEST

Sao Paulo, August 22, 2011

To Banco Itau BBA SA

Re:                                           BANK CREDIT BILL No. 100111080022800  SIGNED ON 08-22-2011 (BILL)

Dear Sirs:

All of the provisions, concepts and Clauses of the Bill apply to the loan hereby requested.  Thus, we confirm the loan date agreed in the Bill and ask for disbursement of the amount of R$ 22,000,000.00 (twenty-two million reais) (with the Liquid Amount of the Loan equal to R$ 21,587,170.00 (twenty-one million five hundred eighty-seven thousand one hundred seventy reais) on 08-25-2011 into the following checking accounts held by us:

I.  Bank:  341
Branch: 417
Checking Account number:
54648-8
Amount:
R$ 21,587,170.00 (twenty-one million five hundred eighty-seven thousand one hundred seventy reais)

[signature and [seal:] ITAÚ BANK BBA S/A

 
 
AES COMMUNICATIONS RIO DE JANEIRO S/A
 

 
 
 
Instrument:  100111080022800
Page 12 of 12
Authentication (SIM-II): 92a715EA-02C2-41f8-B581-F4D1B3115287
 
IBBA_KG_CCB_Conceder_TIM_ID44163_ID68281
 
[stamp: ] LEGAL – TIM [initials]
 
[stamp:] NON-NEGOTIABLE
 
Exhibit 4.10
[logo:] SANTANDER
 
[handwritten: Po 2209509 – Doc 984215 - GMB]

AMENDMENT TO Contract of Transfer of Resources Funded Abroad in Reais No. 230192809

I.   Type of Contract
Execution Date:
08/31/2009
Expiration Date:
12/30/2009
Value of the Contract (“Principal”)
R$ 184,813,000.00
II.   Parties
BANK
: Banco Santander  (Brasil) S/A
CNPJ/MF [Tax No.]
: 90.400.888/0001-42
Address
: Rua Amador Bueno, 474 – Santo Amaro
City/State
 
: São Paulo – SP
BORROWER: TIM CELULAR S/A
CNPJ/MF [Tax No.]
: 04.206.050/0001-80
Address
: Av. Giovani Gronchi, 7143 – Vila Andrade
City/State
: São Paulo – SP
 
GUARANTOR: Void
CNPJ/CPF [Tax No.]
:
 
GUARANTOR: Void
CNPJ/CPF [Tax No.]
:
   
GUARANTOR: Void
CNPJ/CPF [Tax No.]
:
   

Whereas the above qualified parties, on 8/31/2009, signed the International Monetary Transfer Contract in Reais No. 230192809 (“Contract”);

Whereas, by these presents, the parties intend to amend certain conditions of Contract;

The parties herein resolve to amend the following terms:

1.  
As of 12/30/2009 , the following items of the preamble to the Contract are hereby amended as follows:

Contract Extension Information
Term – in days
Maturity Date:
Value of the Principal Extended
547 counting from 12/30/2009
6/30/2011
R$ 150,000,000.00
Interest Rate:
 
( ) Fixed Rate:  % a year, equivalent to % a month, calculated exponentially “ pro-rata temporis ” (capitalized) considering a     -day year.
 
( X ) Floating rates:
Monetary correction parameter: 108.00% of the CDI – Certificado de Depósito Interbancário [ID - Interbank Deposit Certificate] rate
Fixed Rate: 0.00% a year, equivalent to 0.00% a month, calculated exponentially “ pro-rata temporis ” (capitalized) considering a     -day year.
Value of Principal to be liquidated on 12/30/2009

1
 
Santander Customer Service: Central Phone Line: 4004-3535 (State Capitals and metropolitan regions), and
0800-702-3535 (other locations) – SAC 0800-762-7777 – Ombudsperson: 0800-726-0322
[initials] [initialed stamp of TIM’s Legal Department]
 
 
 
[logo:] SANTANDER
 

 
R$ 34,813,000.00

2.   The following conditions shall apply to the interests and finance charges accumulated until 12/30/2009 :
 
Payment of financial interests and charges:
 
(  ) Financial Interests and charges will be incorporated to the Value of the Extended Principal, with the new value of the Contract to become the sum of these two amounts
 
( X ) Payment  on 12/30/2009
 
 Value of interests and charges accumulated until 12/30/2009:
 
( X ) To be accumulated according to the criterion stipulated under the Contract
 
(  )  R$

3.    In case of liquidation of interests and finance charges, or amortization of the Principal, the BORROWER hereby irrevocably and irreversibly authorizes the BANK to debit the respective amounts from its checking account.

4.    In case it is applicable to the Contract, as indicated herein, the Floating Interest Rate, the finance charges will accrue on the new value of the Contract as stipulated herein, starting on 12/30/2009 until the maturity date, according to the conditions set forth in clause I above, meaning: (i) monetary correction parameter, and (ii) fixed interest rates.
 
4.1.   The “rate adjustment parameter” will be calculated exponentially and cumulatively “pro rata temporis” through the accumulation of the ID Rate (as defined below) posted for each business day of the period from the date the funds are released (included) until the date(s) of the respective maturity date(s) (excluded), each one multiplied by the percentage defined in the preamble. The rate adjustment will accrue on the amount effectively owed by the BORROWER .

4.1.1.   For the purpose of this Contract, the ID Rate is the average daily rate of Interbank Deposits for 1 (one) day, called overnight ID rate “Extra Group,” calculated and posted daily by CETIP – Central de Custódia e de Liquidação de Títulos [Clearing House for the Custody and Financial Settlement of Securities] expressly in percentage form per year, based on a 252 (two hundred and fifty-two) business-day year.

4.1.2.   In the event the ID Rates have not been posted up to the date of the effective payment of the charges, thus making impossible to calculate the final amount owed, a temporary calculation will be made on the date of payment using the latest ID Rate posted as substitute parameter.
 
4.1.3.   On the posting date of the final ID Rates, if not published before the effective payment date of the debt balance, a new calculation will be made using the final rates. Once the eventual difference between the temporary and the final rates is calculated, the ID earning as described in the preamble of this clause will accrue on such difference, counting from the date of the temporary payment (included) until the date of the posting of the final ID Rates (excluded). In this case, the payment of the calculated difference, duly added of the ID Tax earning, must be made by the BORROWER or by the BANK , depending on the case, on the date the final rates are published.

2
Santander Customer Service: Central Phone Line: 4004-3535 (State Capitals and metropolitan regions), and
0800-702-3535 (other locations) – SAC 0800-762-7777 – Ombudsperson: 0800-726-0322
[initials] [initialed stamp of TIM’s Legal Department]
 
 
 
[logo:] SANTANDER
 
4.1.4.   In the event of extinction, suppression, or inapplicability of the ID Rate, during the period in which the ID Rate cannot be used, we will use the variation of the average weighted and adjusted rate of financing operations for one day, backed by federal bonds, and ran through the SELIC – Sistema Especial de Liquidação e de Custódia [Special System for Settlement and Custody], or through the assets clearing and settlement house, as repurchase agreements, published by the Central Bank of Brazil.

4.2.   According to the terms of clause 1, exponentially calculated fixed interests may accrue on the value of the operation, duly updated by the “monetary correction parameter” under clause 4.1. above.
 
5.   The contracted terms under this amendment will take effect on 12/30/2009 .
 
6.   This amendment does not constitute contract novation; therefore the parties do not have the right to novate the obligations assumed under the Contract amended herein, and for all legal purposes said Contract shall become an integral and supplemental part thereof.
 
 
7.     The undersigned parties expressly declare that they have full knowledge of the terms of the Contract amended herein and are in joint agreement with such terms.

8.    For the purpose of this instrument, the only provisions considered valid are those which fields were duly marked / filled.

9.    All remaining clauses and conditions of the Contract that have not been expressly changed by this amendment Instrument are hereby ratified.

And in being in joint agreement, the parties sign this instrument in 2 (two) copies of the same form and tenor before the witnesses undersigned and qualified at the end of the document.

São Paulo, December 15, 2009


[illegible stamp]
  [signature]
[signature]
   
TIM CELULAR S/A                                                      
Claudio Zezza
Administrative, Finance
and Control Director
Banco Santander (Brasil) S/A
 
[Stamp: Signatures and Powers]
 
 
 
GUARANTOR(S):
 
 
 
 
 
 
 
 
 
Void
 
Void
 
 
 
     
Void
     

 

3
Santander Customer Service: Central Phone Line: 4004-3535 (State Capitals and metropolitan regions), and
0800-702-3535 (other locations) – SAC 0800-762-7777 – Ombudsperson: 0800-726-0322
[initials] [initialed stamp of TIM’s Legal Department]
 
 
 
 
[logo:] SANTANDER
 
 

This signature page is an integral part of the Amendment to Contract of Transfer of Resources Funded Abroad in Reais , signed by Banco Santander (Brasil) S/A and TIM CELULAR S/A on December 15, 2009 .

The individual(s) qualified below appear in this act as witness(es), pursuant to the provisions of Article 1.647 of the [Brazilian] Civil Code.


       
Name: Void
CPF [Taxpayer No.]: [blank]
Marriage System: [blank]
 
 
 
Name: Void
CPF [Taxpayer No.]: [blank]
Marriage System: [blank]
 
       
Name: Void
CPF [Taxpayer No.]: [blank]
Marriage System: [blank]
     


Witnesses:


[signature]  
[signature]
 
 
Name: Priscila Francelino Costa
CPF [Taxpayer No.]: 198.622.418-02
RG [ID No.]: 26.641.021-2
 
Name: Roberta de Matheus
CPF [Taxpayer No.]: [illegible]
RG [ID No.]: 19.585.902-8
 




















4
Santander Customer Service: Central Phone Line: 4004-3535 (State Capitals and metropolitan regions), and
0800-702-3535 (other locations) – SAC 0800-762-7777 – Ombudsperson: 0800-726-0322
[initials] [initialed stamp of TIM’s Legal Department]
 
 
 
[logo:] SANTANDER

[handwritten: 3138611 / 1693091]
­
ADTOPADRAOR$230192809

Amendment to Contract of Transfer of Resources Funded Abroad in Reais No. 230192809

 The parties qualified below hereby resolve to amend the instrument identified in the preamble, under the following clauses and conditions:

International Monetary Transfer Contract in Reais
No . 230192809
Branch Code / Borrower’s Checking Account No.:
2.263 / 130.003.017
I. BANK
Banco Santander  (Brasil) S/A , with offices located at Avenida Presidente Juscelino Kubitschek, 2041 e 2235 – Bloco A, Vila Olímpia, São Paulo, State of São Paulo. Registered under [Corp. Taxpayer] No. 90.400.888/0001-42.
II. BORROWER
Name of Company:
TIM CELULAR S/A
CNPJ/MF [Tax No.]
04.206.050/0001-80
Address
Av. Giovani Gronchi, 7143 – Vila Andrade
City/State
São Paulo – SP
III. JOINT AND SEVERAL DEBTOR(S)
GUARANTOR(S)
Name of Company/Individual
Void
CNPJ/MF or CPF/MF [Taxpayer No.]
[blank]
IV. CREDIT OPERATION SPECIFICATION
Principal:
R$ 150,000,000.00
I.O.F. [Tax on Fin. Operations]
R$ 0.00
TAC [Credit Opening Tax] %
R$ Void
Issuing Date
08/31/2009
Term
668 days
Maturity Date
06/30/2011

1.     The following conditions shall apply to the interests accumulated until 06/30/2011 :

( X ) paid in full on 06/30/2011 ;
(   ) incorporated to the Principal on ;

2.    Considering the terms of item 1 above, starting on 06/30/2011 the debt balance of the Instrument mentioned herein will be R$ 150,000,000.00 ,
 
3.    Starting on 06/30/2011 , the following conditions marked below regarding table IV of the preamble are hereby re-contracted:
 
IV.   RECONTRACTED CONDITIONS OF CREDIT OPERATION
Principal
R$ 150,000,000.00
(as per item 2 above)
Term
540 days
Maturity Date
12/21/2012
Interests
(   ) Fixed, equivalent to the Effective Interest Rate
( X ) Floating rate, equivalent to the Effective Interest Rate + 108.00% of the ID rate
Effective Rate
0.00% a year , equivalent to 0.00% a month , exponentially calculated “pro rata temporis” (capitalized), based on a year of 360 calendar days .
Payment Terms
(   ) Principal on the final maturity date and monthly interest
( X ) Principal and interests on the date of final maturity date
(   )Principal and interests in equal, monthly installments in the amount of R$ , with 1 st installment due on
(   ) According to the attached flow.
 
Santander Customer Service: Central Phone Line: 4004-3535 (State Capitals and metropolitan regions), and
0800-702-3535 (other locations) – SAC 0800-762-7777 – Ombudsperson: 0800-726-0322
[initials] [initialed stamp of TIM’s Legal Department]
 
 
 
[logo:] SANTANDER
 
 
4.    All other clauses and conditions of the Contract that have not been changed by this amendment Instrument are hereby ratified and remain unaltered.

5.    This contract does not constitute novation of debt; and all remaining clauses, conditions, and guarantees of the amended Certificate/Contract are hereby ratified, and become an integral and in severable part thereof.

São Paulo, June 27, 2011

                     [signature]         [stamp: Luca
Luciani - President]
________________________________
TIM CELULAR S/A
[signature]
Marco Chiarucci – Financial Manager
                [signature stamp]
________________________________
BANCO SANTANDER (BRASIL) S/A
 
 
JOINT AND SEVERAL DEBTOR(S)/GUARANTOR(S):
 
 
SPOUSAL AUTHORIZATION:
 
________________________________
Void
CNPJ/MF or CPF/MF : [blank]
 
 
________________________________
Name: Void
CPF [Taxpayer No.]:
Marriage System: [blank]
 
________________________________
Void
CNPJ/MF or CPF/MF : [blank]
 
 
________________________________
Name: Void
CPF [Taxpayer No.]:
Marriage System: [blank]
 
________________________________
  Void
CNPJ/MF or CPF/MF : [blank]
 
 
________________________________
Name: Void
CPF [Taxpayer No.]:
Marriage System: [blank]
 
________________________________
Void
CNPJ/MF or CPF/MF: [blank]
 
 
________________________________
Name: Void
CPF [Taxpayer No.]:
Marriage System: [blank]


Witnesses:


                     [signature]
________________________________
Name: Rodrigo G. Galvão
TIM – Finance & Treasury
CPF [Taxpayer No.]:
 
                     [signature]
________________________________
Name: Yara Cerqueira Assunção Neves
CPF [Taxpayer No.]: 129.751.518-88
RG [ID No.]: 20.595.368-2

2
Santander Customer Service: Central Phone Line: 4004-3535 (State Capitals and metropolitan regions), and
0800-702-3535 (other locations) – SAC 0800-762-7777 – Ombudsperson: 0800-726-0322
[initials] [initialed stamp of TIM’s Legal Department]
 
 
 
[logo:] SANTANDER

 
[barcode]
[handwritten: Op 2073854 – Doc  874813 – Doc 875185]
­

CONTRACT OF TRANSFER OF RESOURCES FUNDED ABROAD IN REAIS No. 230192809

 
 
Banco Santander  (Brasil) S/A Branch
2,263
Checking Account No.
130.003.017
BORROWER
Tim Celular S/A
CNPJ/MF [Tax No.]
04.206.050/0001-80
Address
Av. Giovani Gronchi, 7143 – Vila Andrade
City/State
São Paulo – SP
GUARANTEES
Void
 
 
AMOUNT OF TRANSFER
R$ 184,813,000.00
 
 
FORM OF RELEASE
 
In Installments: (   ) Date:
Date of  Release: 08/31/2009
 
 
FINANCIAL CHARGES
 
Monetary correction parameter according to DCI variation; Percentage : 120.00%
 
Fixed interest of 0.00% a year , equivalent to 0.00% a month , exponentially calculated, considering a year of 360 calendar days.
 
PAYMENT TERMS
                               
Principal:  
In Installments:  
Charges:  ( X ) In one single installment, on 12/30/2009.
In Installments:
(   ) Date:  Amount: R$
 
 
1
Santander Customer Service: Central Phone Line: 4004-3535 (State Capitals and metropolitan regions), and
0800-702-3535 (other locations) – SAC 0800-762-7777 – Ombudsperson: 0800-726-0322
[initials] [initialed stamp of TIM’s Legal Department]
 
 
 
[logo:] SANTANDER

 

 
TARIFFS
 
·   TAC – Tarifa de Abertura de Crédito [Credit Opening Tariff], payable as follows: R$ , at the time of the execution of the Contract. Void.
 
I.O.F. – Imposto sobre Operações Financeiras [Tax on Financial Operations]
 
R$ 0.00
 
TERM
 
121 days, counting from the date of the execution of this Contract, maturing on 12/30/2009 .
 

Whereas at Banco Santander (Brasil) S/A , located at Rua Amador Bueno, 474 – Santo Amaro,  São Paulo – SP, registered at the National Registry of Corporation of the Brazilian Ministry of the Treasury (CNPJ/MF) under No. 90.400.888/0001-42, hereinafter referred to as the BANK, has funded resources abroad, called regional currency, to back operations of  transfer of funds to customers, pursuant to the terms of Resolution No. 2770 issued on August 30, 2000 (“Resolution 2770/00”).

By these presents, the BANK and the BORROWER, both named and qualified in the preamble above (“Preamble”) have jointly agreed to enter into this Contract of Transfer of Resources Funded Abroad in Reais (“Contract”), which will be governed under the following clauses and conditions:

I – OBJECT

1.    The BANK, herein, under the terms of this Contract, extends to the BORROWER a loan in cash in the amount listed in the Preamble, by means of transfer of resources funded abroad based on Resolution No. 2770 of the National Monetary Fund, by the contervalue in Brazilian currency (“Transfer”).

1.1.   The BORROWER is responsible for all the information provided to the BANK regarding the Transfer under this Contact.

II – FORMALIZATION AND RELEASE OF THE TRANSFER

2.    The release of the funds resulting from the Transfer will be done on the date, under the conditions, and in the amount indicated in the Preamble, in Brazilian currency.

3.   The BANK shall place the funds at the BORROWER’s disposal, under the conditions set forth in the Preamble,
in their checking account at the BANK, which information is listed in the Preamble or, in the absence of an account at the BANK, in another checking account  held by the BORROWER in a financial institution to be specified by the BORROWER.
 
2
Santander Customer Service: Central Phone Line: 4004-3535 (State Capitals and metropolitan regions), and
0800-702-3535 (other locations) – SAC 0800-762-7777 – Ombudsperson: 0800-726-0322
[initials] [initialed stamp of TIM’s Legal Department]
 
 
 
[logo:] SANTANDER
 
 
4.    Whereas the current Brazilian Payment System (“SYSTEM”) allows for different forms of release of the Transfer funds through electronic systems, the BANK is expressly exempt, including from liability with third parties, of any and all responsibilities resulting directly or indirectly from the following events, for example: (i) interruptions in the telecommunications system as a result of failures and / or interventions by any state entity, telecommunication service provider, or services provided by third-parties (“Network”); and (ii) availability failures of the SYSTEM, in the access itself, or in the Network itself as a result of acts of God or force majeure, which can also interfere in the release or payment of the Transfer funds made through the SYSTEM, even though the aforementioned events result in financial losses for the BORROWER.

III – PAYMENTS AND CHARGES

5.    All financial charges owed by the BORROWER will be calculated from the date the funds are available until the date of the respective maturity dates stipulated in the Preamble, in addition to the financial charges owed, also described in the Preamble, which are: (i) monetary correction parameter according to CDI [ID] variation rate.

5.1.      The calculation of the financial charges owed will be done by applying the “monetary correction parameter of the daily variation of the ID rate” defined in the Preamble over the value of the principal financed, and this parameter will be calculated according to the accumulated variation of the percentage highlighted as the daily reference for the average rate of the Interbank Deposits, referred to as Overnight DI Rate “Extra Group,” expressed in percentage, calculated and published daily by CETIP – Central de Custódia e de Liquidação de Títulos [Clearing House for the Custody and Financial Settlement of Securities], hereinafter referred to as “ID Rate”. The ID Rate will be calculated exponentially and cumulatively “pro rata temporis” for each day.

5.1.1.   In case ID Rate has not been posted until the date of the effective payment of the charges, thus making impossible to calculate the final amount owed, a temporary calculation will be made on the date of payment using the ID Rate posted on the day before as substitute parameter, and the payment will be made under a temporary amount.

5.1.2.   On the posting date of the final ID Rates, if not published until the effective payment date of the debt balance, a new calculation will be made using the final rates. Once the eventual difference between the temporary and the final rates is calculated, the ID earning as described in the preamble of this clause, will accrue on such difference, counting from the date of the temporary payment (included) until the date of the posting of the final ID Rates (excluded). In this case, the payment of the calculated difference, duly added of the ID Tax earning, must be made by the BORROWER or by the BANK, depending on the case, on the date the final rates are published.
 
5.1.3.   In the event of extinction, suppression, or inapplicability of the ID Rate, we will use any rate or index that replaces the ID Rate, pursuant to current legislation.

5.2.   According to Clause 5.1. above, fixed interests calculated exponentially based on a 360-day calendar year, may accrue on the amount of the principal financed, duly updated according to the “monetary correction parameter of the daily variation of the ID rate,” calculated from the date of the availability of the funds to the BORROWER.


3
Santander Customer Service: Central Phone Line: 4004-3535 (State Capitals and metropolitan regions), and
0800-702-3535 (other locations) – SAC 0800-762-7777 – Ombudsperson: 0800-726-0322
[initials] [initialed stamp of TIM’s Legal Department]

 
 
 
[logo:] SANTANDER
 
 
6.    All amounts owed by the BORROWER will be paid by debit to the BORROWER’s checking account at the BANK which information is listed in the Preamble or by paying the payment notices sent by the BANK, or by using other payment order mechanisms and instruments available in the market, and the fulfillment of the obligations resulting from the terms of this Contract will be subject to the effective receipt in full of the funds by the BANK. In the event of default, the late charges set forth in this Contract will apply, including over any payment notices that the BANK may have send – also from the day following the due date of said obligations.

6.1.   To the exception of payments made through payment vouchers, eventual payments made by the BORROWER with its own check, credit documents, or any other document cleared by the Centralizadora da Compensação de Chequas e outros Papéis , will only be deemed as official liquidated and / or received, when they are converted into immediately available funds and, as a result, will incur charges for the use of credit during such period.

7.    In case the BORROWER decides for debit in its account held at the BANK, which information is listed in the Preamble;

(i)   the BORROWER must maintain in such account enough, immediately available funds  for such debit o occur;

(ii)   the BORROWER hereby irrevocably and irreversibly authorizes the BANK to debit the respective amounts from its checking account, including cash deposit of the amount owed pertinent to this Contract; and
 
(iii)   regarding the amount or installment of the amount to be debited, for which there are no funds available in the BORROWER’s account, the late charges set forth in this Contract will incur on such amount / installment from the maturity date of the obligation owed by the BORROWER.

8.    The payment of the amounts owed by the BORROWER will be made as follows:

(i)        in installments, on the dates listed on the Preamble; or

(ii)        in one single installment, on the date listed in the Preamble.

9.    The parties herein agree that, in the event that any due date set forth in this CONTRACT coincide with a non-business day in São Paulo, such due date shall be anticipated to the previous business day.

10.   If, until the effective date that the funds will be available there are any legal or normative changes that may, directly or indirectly alter any of the conditions set forth herein, such change shall be incorporated in the Contract, regardless of any formal act, and the BANK is hereby exempt from any responsibility resulting from that fact.

 
IV – TARIFFS AND RATES
 
11.   The rates stipulated in the Preamble of the Contract are the sole responsibility of the BORROWER, who is obligated to pay them on the due dates mentioned in the Preamble.
 

 
4
Santander Customer Service: Central Phone Line: 4004-3535 (State Capitals and metropolitan regions), and
0800-702-3535 (other locations) – SAC 0800-762-7777 – Ombudsperson: 0800-726-0322
[initials] [initialed stamp of TIM’s Legal Department]
 
 
 
 
[logo:] SANTANDER

 
V - GUARANTEES
 
12.   The guarantees will be formalized by virtue of specific document(s) to be established by the BANK, which will become an integral and in severable part of this Contract, as set forth in the Preamble.
 
13.   In the event of a default on the part of the BORROWER, the effective guarantees submitted will be demanded immediately, regardless of notice, summons, citation or any other judicial or extrajudicial formality.

14.   The obligations regarding guarantees submitted under this Contract, even after said Contract is rescinded or terminated, shall remain valid and obligatory within the originally stipulated conditions, until the effective payment.

 
VI. DEFAULT
 
15.   The BORROWER shall incur in late fees, regardless of notice or notification of any kind, for the purpose of the provisions of Article 397 of the [Brazilian] Civil Code, if it does not fulfill any of the obligations derived from this Contract and, in such event, it will be automatically obligated to pay the amount owed, in addition to the following: (i) late interest on the totality of the past due amounts, for each day of non-payment, calculated at a rate of 12% (twelve percent) a year, capitalized annually; (ii) default interest for each day of non-payment, calculated at the same rates practiced by the BANK in its active revolving credit operations; and (iii) contractual fine at 2% (two percent) of the amount owed.
 
15.1.   The surcharges described under items (i) and (ii) of the main section of this clause will be calculated and will be applicable from the due date of the obligation until the effective date that the payment is made to the BANK.

16.   In the event the BANK has to go to Court in order to recover any amounts owed as a result of this Contract, the BORROWER will also be obligated to pay court costs and attorney’s fees, established by the Court.

VII – EARLY MATURITY

17.    The BANK will have the right to consider the early maturity of this Contract, and immediately terminate the BANK’s obligation to transfer any installment yet to be disbursed, and demand from the BORROWER, regardless of any notice, the full payment in one lump sum, of the debt balance resulting from this Contract, including demand of guarantees, under the hypotheses provided for under the law; and also:

 
(a) 
if the BORROWER is late to fulfill any of its obligations under this Contract;

 
(b)
if the BORROWER infringes or fails to fulfill, in part or in full, any clause or condition under this Contract;

 
(c)
if the BORROWER is liable or co-liable for any protested bonds, or under foreclosure or seizure of assets, without providing the pertinent requested information to the BANK within the time stipulated by the BANK, or having submitted such explanation, it is deemed unsatisfactory by the BANK.;

 

5
Santander Customer Service: Central Phone Line: 4004-3535 (State Capitals and metropolitan regions), and
0800-702-3535 (other locations) – SAC 0800-762-7777 – Ombudsperson: 0800-726-0322
[initials] [initialed stamp of TIM’s Legal Department]
 
 
 
 
[logo:] SANTANDER
 
 
(d)      if, in case the guarantees of loss or depreciation of guarantees, the BORROWER does not reinforce such guarantees within the time stipulated by the BANK;

(e)     if the BORROWER is direct or indirect the majority shareholder of his company and such shareholdings are transferred to a third-party without the BANK’s previous and formal manifestation regarding a decision on whether to maintain this Contract active after such transfer;
 
(f)     if the BORROWER’s rights and obligations established under this Contract and other documents resulting of this instrument are transferred to third-parties without the previous, express consent of the BANK;
 
(g)     if the BORROWER defaults its obligations and / or does not pay at the respective maturity date debt of its responsibility resulting from other contracts, loans, or discounts entered into with the BANK and/or any other entities of the BANKG Group, including abroad, and / or if the respective documents are rescinded, by fault of the BORROWER; or
 
(h)     if the BORROWER and / or any company’s part of the BORROWER’s economic group, including abroad, become insolvent, proposes a judicial or extrajudicial composition of debt, or files for bankruptcy.
 
17.1.   In any of the foregoing hypotheses, the BANK will have the right to demand from the BORROWER all the credits detained against any one of these.

VIII – TERM OF THE CONTRACT

18.   This Contract is valid from the date of its execution and shall be valid until the maturity date stipulated in the Preamble.

18.1.   The BORROWER will only be able to early liquidate or pay the amounts owed according to definition of the liquidation or amortization conditions, and such must be previously agreed upon by both the BANK and the BORROWER.

IX - EXPENSES

19.   The BORROWER will be responsible for any expenses related to the registration, recording, and other expenses derived from the formalization of this Contract before the competent government agencies, and also all judicial and extrajudicial expenses that the BANK may incur in order to collect its credit.

19.1.   All expenses shall be paid by the BORROWER within 30 (thirty) days after the issuance, by the BANK, of the pertinent notice of debit, under penalty of early maturity of the totality of the debit.

20.   The BORROWER will also be responsible for any existing annual taxes, or any such taxes that will become due in the future, such taxes being: federal, state or local taxes, directly or indirectly related to this Contract, and taxes on Credit, Exchange, and Insurance Operations, or related to Securities – IOF – will be calculated according to current legislation.



6
Santander Customer Service: Central Phone Line: 4004-3535 (State Capitals and metropolitan regions), and
0800-702-3535 (other locations) – SAC 0800-762-7777 – Ombudsperson: 0800-726-0322
[initials] [initialed stamp of TIM’s Legal Department]
 
 
 
 
[logo:] SANTANDER
 
 

X – EARLY PAYMENT

21.   In the event that the BORROWER request the early payment, of total or part of the present debt, it shall pay the amount equivalent to the principal to be amortized, in addition to interest owed until the final maturity of the Contract, minus the percentage equivalent to the projected market rate for the remainder of the contract term at the time of the [early] payment.

XI – FINAL PROVISIONS
 
22.   The BORROWER hereby acknowledges as proof of debit or credit deriving from this Contract any financial statements, debit notes, or payment vouchers issued by the BANK. These financial statements, debit notes, or payment vouchers will be sent to the BORROWER by postal service, fax, or e-mail, at the discretion of the BANK, and if they are not contested within a maximum of 15 days from their issuing date, they will be deemed accepted, good, clear and legal, enough and sufficient, and valid as rendering of accounts, operated and formalized between the BANK and the BORROWER, for all legal purposes, and the BANK’s  credit liquidity is hereby expressly and fully confirmed.

23.   In the event of bankruptcy, judicial or extrajudicial recovery, or insolvency of the BORROWER, and in case of non-payment of all or part of the amount owed, the BANK can compensate the amount of the debt and its increases with any amount that the BORROWER have deposited, pledged or delivered to the BANK, at any account, or with any amount that the BORROWER may be the creditor of, or may retain in guarantee of this Contract, in the event of late payment by the BORROWER, any amounts, securities, values and other assets that the BANK may have in its possession that belong to the BORROWER, including object of custody.
 
24.   The BANK may assign or transfer the rights resulting from this Contract to institutions authorized to purchase them, and may also give this Contract in guarantee of refinancing operations or other operations legally allowed. The BORROWER may assign or transfer the rights resulting from this Contract with prior written authorization of the BANK.  Said written pre-approval will not be unjustly denied by the BANK.
 
25.   Non-use by the BANK of any rights or faculties it is granted under the law or under this Contract does not imply waiver of such rights, but a mere tolerance or reservation on the part of the BANK to have them prevail at any other time or opportunity.
 
26.   The BORROWER is obligated to keep the BANK informed of any changes in address, telephone, and other information pertaining to its location. In case the BORROWER does not provide updated information, any correspondence sent by the BANK to the address recorded in its files will be, for intents and purposes, deemed as received.

27.   The BORROWER and / or the GUARANTORS, hereby authorize the BANK to consult and include information pertinent to active, passive, and financial operations, as well as guarantees under its responsibility, recorded in the credit information system and in the records of the Central Bank of Brazil.
 
28.   The parties herein establish that the information provided by the BORROWER may be disseminated to the companies of the BANK’s economic conglomerate.
 
7
Santander Customer Service: Central Phone Line: 4004-3535 (State Capitals and metropolitan regions), and
0800-702-3535 (other locations) – SAC 0800-762-7777 – Ombudsperson: 0800-726-0322
[initials] [initialed stamp of TIM’s Legal Department]
 
 
 
[logo:] SANTANDER
 

29.   This Contract represents the sole and complete formalization of the operation contemplated herein and shall obligate and bind the parties and their successors.

XII – SOCIAL AND ENVIRONMENTAL POLICY

30.   The BORROWER hereby declares that the funds resulting from this Contract will not be used for any purpose and / or projects that may cause social damage and that do not strictly meet the legal and regulatory standards that govern the National Environmental Policy.

XIII – JURISDICTION

31.   The parties herein elect the Court of the County of the Capital of the State of São Paulo to resolve any issues arising from the terms of this Contract, renouncing any other court regardless of how privileged it may be. However, the BANK reserves the right to choose the Court of the BORROWER’s domicile.

And in being in joint agreement, the parties herein sing this Contract in 2 (two) copies of the same form and tenor, and for one single legal effect, in the presence of the witnesses below.


São Paulo, August 31, 2009




 
[signature stamp]
________________________________
Banco Santander (Brasil) S/A
[signature]
Luca Luciani - President
________________________________
Tim Celular S/A
 

 
Witnesses:
 

[signature]
________________________________
Name: [illegible] Ferreira da Silva
CPF [Taxpayer No.]: [illegible]
RG [ID No.]: [illegible]
                     [signature]
________________________________
Name: Priscila Francelino Costa
CPF [Taxpayer No.]: 198.622.418-02
RG [ID No.]: 26.641.021-2



TIM CELULAR S/A
[signature]
Marco Chiarucci
 Financial Manager
[initials] [stamp:] TIM Legal; Department 8
 
Santander Customer Service: Central Phone Line: 4004-3535 (State Capitals and metropolitan regions), and
0800-702-3535 (other locations) – SAC 0800-762-7777 – Ombudsperson: 0800-726-0322
[initials] [initialed stamp of TIM’s Legal Department]
 
 
Exhibit 4.11
AUTHORIZATION AGREEMENT



PERSONAL MOBILE SERVICE – SMP
REGION III

SUB-RANGE D



STARCEL S.A.





 [logo:] ANATEL

 
 
 
AUTHORIZATION AGREEMENT PVCP/SPV no. 003/2001 - ANATEL

 
AUTHORIZATION AGREEMENT FOR PERSONAL MOBILE SERVICE CELEBRATED BETWEEN AGÊNCIA NACIONAL DE TELECOMUNICAÇÕES – ANATEL AND STARCEL SA

This agreement is entered by and between AGÊNCIA NACIONAL DE TELECOMUNICAÇÕES - ANATEL, hereinafter referred to as ANATEL , entity part of the UNION , under the terms in Federal Law 9472 dated July 16, 1997 – General Telecommunications Law - LGT, registered with the Taxpayers’ Registry of the Ministry of Finance under no. CGC/MF 02030715/0001-12, herein represented by the Chairman of the Board of ANATEL, RENATO NAVARRO GUERREIRO, jointly with Board member LUIZ TITO CERASOLI, according to approval in Act 15442, dated March 1, 2001, published in the Official Gazette dated March 2, 2001, and STARCEL SA , registered with the Taxpayers’ Registry of the Ministry of Finance under no. CNPJ 04206050/0001-80, herein represented by its Attorney, GUGLIELMO NOYA, Italian, single, engineer, bearer of Italian Passport no. 157184, hereinafter referred to as AUTHORIZED PARTY , enter this AUTHORIZATION AGREEMENT, Anatel Process   no. 53500.001361/2001 to be governed by the following sections:

Chapter I
Purpose, Area of Provision and Term

Section 1.1 - The purpose of this Agreement is the issuance of Authorization to explore Personal Mobile Service – SMP, provided as private service, in Region III in Exhibit I in the Bidding Invitation no. 001/2000/SPV/ANATEL.

[initials]
[stamp:] ANATEL FILING – signature
1/13

 
 
 
 
Sole Paragraph. The   object of this Authorization includes Personal Mobile Service, provided as private service, according to ANATEL regulations and, especially, under the terms in SMP Regulation and the General Plan of Authorization for Personal Mobile Service – SMP.

Section 1.2 - Personal Mobile Service is the terrestrial mobile telecommunication services of collective interest that enables communication between mobile stations and from mobile stations to other stations, under the terms in the regulation.

Section 1.3 - The AUTHORIZED PARTY is entitled to engage in the industrial exploitation of means used in the provision of services, compliant with the terms in the regulation, as well as the terms in articles 154 and 155 in LGT.

Section 1.4 - The term of this authorization to explore SMP is undetermined.

Section 1.5 - The service should be explored with the use, by the AUTHORIZED PARTY, of  radiofrequency sub-ranges below:
Sub-range “D”:
 
Mobile Station Transmission:
1710 MHz to 1725 MHz
 
Fixed Station Transmission:
1805 MHz to 1820 MHz

Section 1.6 - The right to use radiofrequencies mentioned in the section above shall be in force for 15 (fifteen) years from the date of signature of this Agreement, extendable once, for an equal period, which extension shall have the appropriate cost.

§1. The use of the radiofrequency shall be primary and limited to the respective Area of Provision.
§2. The right to use the radiofrequency is conditioned to the effective and appropriate use.
§3. Failing to imply in prejudicial interference or imposing limitations to the provision of SMP, sharing radiofrequencies may be authorized by Anatel.

Section 1.7 - To extend the right to use radiofrequencies associated to this Authorization, the  AUTHORIZED PARTY shall pay, biannually, during the extension term, a fee equal to 2% (two percent) of


[initials]
[stamp:] ANATEL FILING – signature
2/13


 
 
 
 
its revenue in the previous year for the SMP, net of taxes and social contributions.

§1. The calculation in the heading of this Section shall consider the net revenue arising out of the application of the Basic and Alternative Service Plans, object of this Authorization.

§2. Calculation of the percentage in the heading of this Section shall always be done regarding the revenue net of deductions of taxes and contributions, calculated in January and December in the previous year and based on financial statements prepared according to essential accounting principles approved by the Management of the AUTHORIZED PARTY and audited by independent auditors, and payment shall be due on April 30 in the year following the calculation.

§3.  The first installment of the fee should be due on April 30, 2018, calculated considering the net revenue calculated from January 1 to December 31, 2017, and subsequent installments should be due every twenty-four months, based on the revenue of the previous year.

§4.  Late payment of the fee referred to in this Section shall imply a fine equal to 0.33% (zero point thirty-three percent) a day, up to the limit of 10% (ten percent), added with interest equal to the reference rate of SELIC for federal notes, on the debt amount considering all the delayed days of payment.

Section 1.8 - The request to extend the right to use the radiofrequencies should be sent to Anatel within the period between four and three years, at least, prior to the original due date.

Sole Paragraph. The request will be rejected solely if the interested party is not using rationally and appropriately the radiofrequencies, in case of reiterated infringement in its activities or if there is need to alter the purpose of the use of the radiofrequency.

Section 1.9 - Anatel is hereby authorized to install a new process to grant authorization to explore SMP, if the extension request is not presented in a timely manner within 24 (twenty-four) months prior to the original due date.
 
 

Chapter II
Value of Authorization to Explore SMP

[initials]
[stamp:] ANATEL FILING – signature
3/13

 
 
 
 
Section 2.1- The value of the Consolidation of Authorization Agreements to explore SMP in Region III is R$ 997,000,000.00 (nine hundred ninety-seven million reais), basic for February 1, 2001, to be paid as follows:

I . 50% (fifty percent) of this amount, corresponding to R$ 498,500,000.00 (four hundred ninety- eight million five hundred thousand reais) should be paid on the date of signature of the Authorization Agreement, and the amount to be paid should be adjusted according to the IGP-DI (Index of General Prices – Internal Availability) published by Fundação Getúlio Vargas, from the date of delivery of the Identification Documents, Price Proposals and Qualification Documents, until the date of effective payment, should the payment occur after 12 (twelve) months from the date of delivery of the Identification Documents, Price Proposals and Qualification Documents.

II . The remaining 50% (fifty percent), corresponding to R$ 498,500,000.00 (four hundred ninety- eight million five hundred thousand reais) should be paid within twelve months from the date of signature of the Authorization Agreement, and the amount to be paid should be adjusted according to the IGP-DI (Index of General Prices – Internal Availability) published by Fundação Getúlio Vargas, from February 1, 2001, date of delivery of the Identification Documents, Price Proposals and Qualification Documents, until the date of effective payment, should the payment occur after 12 (twelve) months from the date of delivery of the Identification Documents, Price Proposals and Qualification Documents, added with simple interest of 1% (one percent) a month, incurring on the adjusted amount, from the date of signature of this Authorization Agreement.

§1. Late payment of the fee referred to in this Section shall imply a fine equal to 0.33% (zero point thirty-three percent) a day, up to the limit of 10% (ten percent), added with interest equal to the reference rate of SELIC for federal notes, on the debt amount considering all the delayed days of payment.

§2. Failure to pay the amount set in this section shall imply termination of this Authorization, regardless of applicability of other penalties.

Section 2.2. – (Objected)

Section 2.3. – (Objected)


[initials]
[stamp:] ANATEL FILING – signature
4/13


 
 
 
 

Chapter III
Terms, Means, and Conditions for the Provision of Services

Section 3.1 - The AUTHORIZED PARTY agrees upon providing SMP in order to fully comply with obligations inherent to the service provided as private service, according to criteria, formula, and standards defined herein this Authorization Agreement.

Sole paragraph. Failure to comply with obligations related to this Authorization Agreement shall imply application of sanctions set forth herein, allowing temporary suspension by Anatel and, as the case may be, this Authorization will be deemed terminated under the terms in article 137 in LGT.

Section 3.2 - The AUTHORIZED PARTY should provide the services object of this Authorization by its own risk and at its costs, within the fair and broad competition set forth in LGT, being compensated for prices charged as set forth in this Authorization Agreement.

§1. The AUTHORIZED PARTY shall not be entitled to any type of exclusivity, any kind of guarantee of economic-finance balance, and shall not be entitled to claim any rights related to the admittance of new providers for the same service.

§2. The AUTHORIZED PARTY shall not have rights related to the maintenance of current conditions upon issuance of this Authorization or the beginning of the activities, and shall comply with new conditions imposed by law and regulation.

§3. The rules shall grant terms sufficient to adapt to new conditions.

Section 3.3 - The AUTHORIZED PARTY agrees upon starting commercial exploration of the service after December 31, 2001.

§1. The terms in item 1.3.1. in the Bidding Invitation no. 001/2000/SPV-ANATEL is objected in the portion referring to Sub-Range “C” which bidding, in Regions I, II, and II specified in Exhibit I was deemed to be objected by the Special Commission of Tenders and validated by Anatel’s Board, under the terms in Order 19/2001-CD, dated February 8, 2001, part of this Agreement.

§2. Provision of SMP shall be deemed as begun with the regular offer of services to users and the existence of a Subscription Agreement.

Section 3.4 - (Objected)

[initials]
[stamp:] ANATEL FILING – signature
5/13


 
 
 
 
Section 3.5 - The AUTHORIZED PARTY shall maintain free access for public emergency services as set forth in the regulation.

Section 3.6 - The AUTHORIZED PARTY shall ensure to the user free exercise of its right to choose the STFC provider to forward Long-Distance calls at each originating call, under the terms in the SMP regulation.

Section 3.7 - Changes in the corporate control of the AUTHORIZED PARTIES, under the law and current regulations, are subject to ANATEL’s prior control aiming to maintain conditions indispensable for the authorization and other conditions in the regulation.

§1. Conditions indispensable to expedition and maintenance of the authorization are, without limitation, the terms in article 7 in the General Plan of SMP Authorizations, in article 10, §2 in PGO and in article 133 in LGT.

§2. The transfer of the Authorization is subject to ANATEL’s approval, under the terms in §2 in article 136 in LGT.

Section 3.8 - The AUTHORIZED PARTY shall set forth, freely, prices to be adopted in the exploitation of SMP, defining Service Plans with reasonable and non-discriminatory structures, models, criteria, and costs,  which may vary according to technical characteristics, specific costs, and utilities offered to users, as defined in the SMP regulation.

Chapter IV
Scope Obligations

Section 4.1 - The AUTHORIZED PARTY agrees upon:

I . hold coverage area equivalent to at least 50% (fifty percent) of the urban area in 50% (fifty percent) of the capitals of the State, municipalities with more than 500,000 (five hundred thousand) inhabitants and, in Region II, including the Federal District, up to 12 (twelve) months after the signature of this Authorization Agreement;

II . serve capitals of the State, municipalities with more than 500,000 (five hundred thousand) inhabitants and, in Region II, including the Federal District, up to 24 (twenty-four) months after the signature of this Authorization Agreement;

III . hold coverage area equivalent to at least 50% (fifty percent) of the urban area in 50% (fifty percent) of the municipalities with more than 200,000 (two hundred thousand) inhabitants up to 36 (thirty-six) months after the signature of this Authorization Agreement;

IV . serve municipalities with more than 200,000 (two hundred thousand) inhabitants up to 48 (forty-eight) months after the signature of this Authorization Agreement;


[initials]
[stamp:] ANATEL FILING – signature
6/13

 
 
 
 
V . serve municipalities with more than 100,000 (one hundred thousand) inhabitants up to 60 (sixty) months after the signature of this Authorization Agreement;

Section 4.2 - A location will be deemed as served when the coverage area contains at least 80% of the urban area.

Section 4.3 -   Failure to comply with obligations causes the AUTHORIZED PARTY to be subject to sanctions set forth in this Agreement and in the Regulation, and may cause termination of the authorization.

Section 4.4 - Locations object of obligations set forth in 4.1. shall be defined considering the estimates of Population   for States and Municipalities with reference date of July 1, 2000, published by IBGE under Resolution 9, dated August 8, 2000.


Chapter V
Service Quality

Section 5.1 - The appropriate quality of the service provided by the AUTHORIZED PART is prerequisite for the Authorization, considering as such the service that meets conditions related to regularity, effectiveness, safety, generality, courtesy and update terms.

§1. Regularity is characterized by the continuous exploitation of the service strictly compliant with the rules issued by ANATEL.

§2. Effectiveness is characterized by consecution and preservation of parameters set forth in the Authorization Agreement and service to the users under terms set forth in the regulation.

§3. Safety in service exploitation is characterized by the confidentiality of data related to the use of the service by the users as well as by full preservation of the secrecy of information disclosed under such exploitation.

§4. The update terms is characterized by updated equipment, premises and techniques in service exploitation, technological advancement that, definitely, offer benefits to the users, compliant with the terms in this Authorization Agreement.

§5. Generality is characterized by the non-discriminatory provision of services to each and every user, when the AUTHORIZED PARTY agrees upon providing the service to whoever requests it, under the regulation.

[initials]
[stamp:] ANATEL FILING – signature
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§6. Courtesy is characterized by respectful and immediate response to all authorized service users, as well as compliance with obligations of informing and promptly and politely serving all who, regardless of being users, request information, measures or any type of data to the AUTHORIZED PARTY, as set forth in this Authorization Agreement.

Section 5.2 - The AUTHORIZED PARTY shall comply with quality goals set forth in the General Plan of Quality Goals for SMP – PGMQ-SMP.

Section 5.3 - The authorized service exploitation may be suspended according to the SMP Regulation, issued by Anatel.

Chapter VI
Numbering Plan

Section 6.1 - Upon compliance with the regulation, the AUTHORIZED PARTY agrees upon complying with the Numbering Regulation issued by ANATEL, and shall ensure to the service subscriber portability of access codes within the terms set forth in the regulation.

Chapter VII
Billing Users

Section 7.1 - The amount, measuring method and criteria to bill for provided services shall be set forth by the AUTHORIZED PARTY based on the terms in the SMP Regulation.

Chapter VIII
User Rights and Obligations

Section 8.1 - User rights and obligations are those set forth in LGT and in the applicable regulation, without prejudice to rights set forth in Law 8078, dated September 11, 1990, when applicable, or those set forth in the SMP provision agreements.

Chapter IX
AUTHORIZED PARTY Rights and Obligations


[initials]
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Section 9.1 - AUTHORIZED PARTY rights and obligations are those set forth in LGT and in the regulation.

Section 9.2 - When contracting services and acquiring equipment and material related to SMP, the AUTHORIZED PARTY agrees upon considering the offer from independent suppliers, including national suppliers, and basing its decisions, regarding different offers, under objective criteria related to price, delivery terms and technical specifications set forth in the applicable regulation.

Sole Paragraph. In the above mentioned contracting, procedures set forth in the Regulation on the Conditions for the Contraction of Services and Purchase of Equipment or Material by Telecommunication Service Providers approved by Anatel Resolution 155 dated August 5, 1999.

Chapter X
ANATEL Obligations and Prerogatives

Section 10.1 - Additionally to other prerogatives inherent to the function as regulating entity and other obligations arising out of this Authorization Agreement, ANATEL shall:

 
I.
accompany and supervise service exploitation aiming for compliance with the regulation;
 
II.
regulate authorized service exploitation;
 
III.
apply penalties set forth in the service regulation and, specifically, under this Authorization Agreement;
 
IV.
care for the good quality of the service, receive, investigate, and solve claims and questions from users, notifying users within 90 (ninety) days about measures taken aiming to solve infringements against their rights;
 
V.
determine termination of the Authorization under cases set forth in LGT;
 
VI.
care for the interconnection guarantee, solving eventual issues raised between the AUTHORIZED PARTY and other providers;
 
VII.
permanently accompany the relationship between the AUTHORIZED PARTY and other providers, solving eventual conflicts;
 
VIII.
prevent behaviors by the AUTHORIZED PARTY contrary to the competition regime, under the competences of CADE, the terms in the regulation and especially the terms in sections 10.2 and 10.3.
 
IX.
exercise service supervising activities as set forth in the Authorization Agreement; and

 [initials]
[stamp:] ANATEL FILING – signature
9/13


 
 
 
 

 
X.
receive fees related to FISTEL adopting measures set forth in the law.

Section 10.2 - ANATEL may file an Administrative Procedure of Obligation Non-compliance (PADO) aiming to investigate false or ungrounded conditions represented by the AUTHORIZED PARTY, related to the non-participation in the control of other companies or other prohibitions that aim to avoid economic concentration, whenever there are signs of relevant influence by the AUTHORIZED PARTY, its affiliates, controlled companies or parent companies on a legal entity providing SMP, under the terms in the Regulation to Investigate Control and Transfer of Control in Companies Providing Telecommunication Services, approved by Anatel Resolution 101, dated February 4, 1999.

Sole paragraph . Upon performance of the procedure set forth in this Section, proof of existence of any situation characterizing false or ungrounded conditions represented by the AUTHORIZED PARTY shall imply termination, by cassation, of the Authorization under the terms in Article 139 in LGT.

Section 10.3 - ANATEL may also file an administrative procedure to investigate infringement against the economic order as set forth in Law 8884/94.

Chapter XI
Supervision Regime

Section 11.1 - ANATEL shall supervise the service aiming to ensure compliance with obligations set forth in the Authorization Agreement.

§1. ANATEL’s supervision shall include inspection and accompaniment of AUTHORIZED PARTY activities, equipment and facilities, implying access to all AUTHORIZED PARTY and third party data and information.

§2. Information collected in the exercise of supervision activities shall be published in the Library except for information that, upon request by the AUTHORIZED PARTY, is deemed by ANATEL as confidential.

§3. Information deemed confidential under the terms in the paragraph above shall only be used in procedures related to this Authorization Agreement, and ANATEL, and those appointed by it, shall respond for any disclosure, broad or limited, of such information outside of this scope of use.

[initials]
[stamp:] ANATEL FILING – signature
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Section 11.2 - The AUTHORIZED PARTY, by the appointed representative, may accompany any supervision activity by ANATEL, and may not prevent or hinder the supervision under penalty of incurring in sections set forth in the regulation.

Section XII
Telecommunication Networks and Access to Visiting Users

Section 12.1 - Regarding deployment and operation of Telecommunication Networks destined to support SMP exploitation, the AUTHORIZED PARTY shall comply with the terms set forth in the regulation, especially in the Regulation of Telecommunication Services, issued by Resolution 73, dated November 25, 1998, in the General Interconnection Regulation approved by Resolution 40 dated July 23, 1998 and the SMP Regulation.

Section 12.2 - Compensation for the use of the networks shall be agreed upon between the AUTHORIZED PARTY and other telecommunication service providers under the terms in article 152, in LGT and in the SMP regulation.

Chapter XIII
Sanctions

Section 13.1 - The AUTHORIZED PARTY is subject to ANATEL’s supervision under applicable legal and regulatory terms, and upon request, the AUTHORIZED PARTY shall present its accounts  according to the SMP regulation, allowing free access to its technical resources and accounting records.

Section 13.2 - Failure to comply with the terms or obligations agreed upon associated to the authorization shall cause the AUTHORIZED PARTY to be subject to warnings, fine, temporary suspension or termination, under the terms in the SMP regulation.

Chapter XIV
Authorization Termination

Section 14.1 - The Authorization shall be deemed terminated by cassation, termination, extinction, waiver or annulment, under the terms in articles 138 to 144 in LGT and according to procedures in the regulation.

 [initials]
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Sole paragraph. The extinction shall not exempt application of applicable sanctions according to the terms in this Authorization Agreement for infringements caused by the AUTHORIZED PARTY.

Chapter XV
Legal Regime and Applicable Documents

Section 15.1 - Without prejudice to other rules in the Brazilian legal system, the Authorization is governed by the LGT and applicable regulation.

Section 15.2 - SMP exploitation shall comply with the regulation issued by ANATEL as part of this Authorization Agreement, especially documents related to the SMP Regulation.

Section 15.3 -   This Authorization Agreement also includes, as if transcribed herein, the Bidding Invitation no. 001/2000/SPV-ANATEL, its exhibits, consultations and responses.

Section 15.4 - In the interpretation of rules and terms in this Authorization Term, additionally to documents referred to in this Chapter, general hermeneutic rules and rules and principles in the LGT shall be considered.

Chapter XVI
Venue

Section 16.1 - The competent court to solve any conflicts arising out of this Authorization Term shall be the Federal Justice Court of the Judicial Section of Brasília, Federal District.

Chapter XVII
Final Terms

Section 17.1 - This Authorization Agreement is in force upon publication in the Federal Official Gazette.



 [initials]
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In witness whereof and agreeing upon the terms and conditions in this Authorization Agreement, the parties sign this Agreement in 3 (three) counterparts of equal tenor, before the undersigned witnesses who also sign for legal effective purposes.

Brasília, March 12, 2001

By ANATEL:

[signature]
 
[signature]
     
RENATO NAVARRO GUERREIRO
 
LUIZ TITO CERASOLI
Chairman of the Board
 
Member of the Board
     
By the  AUTHORIZED PARTY:
   
     
[signature]
   
     
GUGLIELMO NOYA
   
Attorney
   
     
WITNESSES:
   
     
[signature]
 
[signature]
     
Luis Roberto Luz
 
André Gustavo R. Rosa
CREA/RJ 81-1-02929-9-D
 
OAB/DF 15733



 [stamp:] ANATEL FILING – signature
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[stamp:] Tender 00132000 SPV/ANATEL page no. 5986

NATIONAL AGENCY OF TELECOMMUNICATIONS

BOARD OF DIRECTORS

ORDER NO. 19/2001-CD

On February 8, 2001


The BOARD OF DIRECTORS OF THE NATIONAL AGENCY OF TELECOMMUNICATIONS – ANATEL, in the use of its legal, regulatory, and regimental attributions, decided, under Deliberative Circuit no.  216, dated February 8, 2001, upon validating the decision of the Special Commission of Tenders – CEL, created to conduct procedures related to the issuance of Authorizations to explore the Personal Mobile Service – SMP, object of Bidding Invitation no. 001/2000/SPV-ANATEL, determining to be frustrated the opening, analysis and judgment of Price Proposals for the exploration of  the Personal Mobile Service – SMP, in Sub-Range “C,” Regions I, II, and III, included in the Minutes of the 9 th Meeting of CEL, dated February 7, 2001, and accept the proposal formulated by said Commission to hold on February 13, 2001, at 10 am, at the Room of Negotiations of the Stock Exchange of Rio de Janeiro, the first session to open, analyze and judge Price Proposals, as set forth in sub-item 8.1 in the Invitation, thus beginning the phase related to Regions I, II, and II in Sub-range “D,” based on the terms in sub-item 8.14 in the Invitation.

[signature]
RENATO NAVARRO GUERREIRO
Chairman of the Board

[initials]



[stamp:] ANATEL FILING – signature

Exhibit 4.12
[logo:] ANATEL Agência Nacional de Telecomunicações
SAUS Quadra 6 – Bloco H – Brasília/DF – CEP 70070-940
Tel: (61) 2312-2000 and Fax (61) 2312-2002
http://www.anatel.gov.br


Document no. 61 /2010/PVCPA/ANATEL
Brasília, March 17 , 2010

To
Mr. MARIO GIRASOLE
Director of Regulatory Affairs and Interconnection of Tim Celular SA
Av. das Américas 3434 – 5°andar – Barra da Tijuca
22640-102 – Rio de Janeiro/RJ

Subject: Sending Authorization Agreement for Unified Service under Bidding  no. 002/2007/SPV-ANATEL

Dear Sir,

 
01.
We hereby attach your copy of the Authorization Agreement no. 002/2010/PVCP/SPV-ANATEL, dated January 2010, executed between TIM CELULAR S.A. and the National Agency of Telecommunications – ANATEL.

Sincerely


[signature]
JOSÉ DE ASSIS NOGUEIRA
Authorization and Accompaniment Manager
[stamp:]
Received
Regulatory Affairs Dir.
3/22/10
at 06:00 pm
No. ____



[stamp:] Sicap no.
201090047494
Date 03/17/10 Signature: [signature]
Authorization and Accompaniment Management – PVCPA


 
 
 

AUTHORIZATION AGREEMENT
NO. 02/2010/PVCP/SPV-ANATEL


GRANTING AGREEMENT OF AUTHORIZATION OF UNIFIED SERVICE EXECUTED BETWEEN
AGÊNCIA NACIONAL DE TELECOMUNICAÇÕES – ANATEL AND TIM CELULAR S.A.




JANUARY 2010



[logo:] ANATEL
 
 
 
 
 
 
[stamp:] Published in the Official Gazette on 3/10/2010

[logo:] ANATEL Agência Nacional de Telecomunicações

AUTHORIZATION AGREEMENT NO. 002/2010/PVCP/SPV - ANATEL

 
AUTHORIZATION AGREEMENT FOR PERSONAL MOBILE SERVICE CELEBRATED BETWEEN AGÊNCIA NACIONAL DE TELECOMUNICAÇÕES – ANATEL AND TIM CELULAR SA

This agreement is entered by and between AGÊNCIA NACIONAL DE TELECOMUNICAÇÕES, hereinafter referred to as ANATEL, entity part of the UNION, exercising its competence attributed under article 19, IX in Federal Law 9472 dated July 16, 1997 – LGT, combined with article 175, VIII, Anatel Internal Rules, approved by Resolution 270 dated July 19, 2001, registered with the Taxpayers’ Registry of the Ministry of Finance under no. CGC/MF 02030715/001-2, herein represented by the Chairman of the Board RONALDO MOTA SARDENBERG, Brazilian, married, ID by the Ministry of Foreign Affairs no. 5601-MRE and registered with the Taxpayers’ Registry of the Ministry of Finance under no. CPF/MF 075074884-20, jointly with Board member JOÃO BATISTA DE REZENDE, Brazilian, divorced, bearer of ID no. 3412238-5 – SSP/PR, registered with the Taxpayers’ Registry of the Ministry of Finance under no. CPF/MF 472648709-44, under Act 7543, dated December 22, 2009, published in the Official Gazette dated January 13, 2010, and TIM CELULAR SA, registered with the Taxpayers’ Registry of the Ministry of Finance under no. CNPJ 04206050/0001-80, herein represented by its Directory of Regulatory Affairs, MARIO GIRASOLE, Italian, married, economist, bearer of ID V396929-V (RNE) and registered with the Taxpayers’ Registry of the Ministry of Finance under no. CPF/MF 059292237-50 and the Manager of Regulatory Relations, LEANDRO ENRIQUE LOBO GUERRA, Brazilian, married, engineer, bearer of ID 3055777-8 and registered with the Taxpayers’ Registry of the Ministry of Finance under no. CPF/MF 680334279-49, hereinafter referred to as AUTHORIZED PARTY, enter this AUTHORIZATION AGREEMENT FOR PERSONAL MOBILE SERVICE, hereinafter referred to as Agreement, under the terms in item 1.6 and sub-items in the Bidding Invitation no. 002/2007/SPV-ANATEL, to be governed by the rules below and the following sections:

Chapter I
Purpose, Area of Provision and Term

Section 1.1. The purpose of this Agreement is to unify Authorizations to explore Personal Mobile Service – SMP, provided as private service in the Area(s) of Provision corresponding to Region II in the General Plan of Authorization for Personal Mobile Service – SMP, upon consolidating the Authorization Agreements to explore Personal Mobile Service – SMP no. 002/2001/PVCP/SPV-ANATEL, dated March 12, 2001 and published in the Official Gazette dated March 13, 2001, no. 006/2002/PVCP/SPV-ANATEL, dated December 10, 2002, and published in the Federal Official Gazette on December 12, 2002, no. 049/2004//PVCP/SPV-ANATEL dated December 30, 2004 and published in the Federal Official Gazette dated January 14, 2005 and no. 050/2004/PVCP/SPV-ANATEL dated December 30, 2004 and published in the Federal Official Gazette dated January 14, 2005, hereinafter referred to as CONSOLIDATED AGREEMENTS.

Paragraph One. Unification of Authorizations to explore SMP, object of this Agreement, should not be deemed as creation, change or extinction of rights and obligations

[stamp:] Sicap no. 201090008294
[initials]
 
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[logo] ANATEL Agência Nacional de Telecomunicações

set forth in the CONSOLIDATED AGREEMENTS.

Paragraph Two. The   object of this Authorization includes Personal Mobile Service, provided as private service, according to ANATEL regulations and, especially, under the terms in SMP Regulation and the General Plan of Authorization for Personal Mobile Service – SMP.

Section 1.2. Personal Mobile Service is the terrestrial mobile telecommunication services of collective interest that enables communication between mobile stations and from mobile stations to other stations, under the terms in the regulation.

Section 1.3. The AUTHORIZED PARTY is entitled to engage in the industrial exploitation of means used in the provision of services, compliant with the terms in the regulation, as well as the terms in articles 154 and 155 in LGT.

Section 1.4. The term of this authorization to explore SMP is undetermined.

Section 1.5. The service should be explored with the use, by the AUTHORIZED PARTY, of  radiofrequency sub-ranges set forth in the CONSOLIDATED AGREEMENTS and the related Authorization Agreements for the Use of Radiofrequencies, as well as the Authorization Agreements for the Use of Radiofrequencies to be executed under bidding processes to be run by ANATEL.

Section 1.6. The Authorization Agreements for the Use of Radiofrequencies previously associated to the CONSOLIDATED AGREEMENTS, object of this unification, are now associated to this Agreement, being essential and inseparable, thus being effective jointly and united, however preserving rights and obligations set forth in each Authorization Agreement for the Use of Radiofrequencies and this Agreement.

Chapter II
Value of Authorization to Explore SMP

Section 2.1. The value of the Consolidation of Authorization Agreements to explore SMP in the respective Area of Provision is R$ 9,000.00 (nine thousand reais) to be paid on the date of execution.

§1. Late payment of the fee referred to in this Section shall imply a fine equal to 0.33% (zero point thirty three per cent) a day, up to the limit of 10% (ten per cent), added with interest equal to the reference rate of the Special System of Settlement and Custody (SELIC), accrued monthly, from the month following the due date and 1% (one percent) in the month of payment.
§2. Failure  to pay the amount set in this section shall imply termination of this Authorization, regardless of applicability of other penalties.
§3. In any event causing termination of this Authorization, the amount paid for the public price of the Authorization, up to the termination, will not be refunded.

Chapter II
Terms, Means, and Conditions for the Provision of Services

Section 3.1. The AUTHORIZED PARTY agrees upon providing SMP in order to fully comply with obligations inherent to the service provided as private service, according to criteria, formula, and standards defined herein this Authorization Agreement.
 [initials]
 
2
 

 
[logo:] ANATEL Agência Nacional de Telecomunicações

Sole paragraph. Failure to comply with obligations related to this Authorization Agreement shall imply application of sanctions set forth herein, allowing temporary suspension by Anatel and, as the case may be, this Authorization will be deemed terminated under the terms in article 137 in LGT.

Section 3.2. The AUTHORIZED PARTY should provide the services object of this Authorization by its own risk and at its costs, within the fair and broad competition set forth in LGT, being compensated for prices charged as set forth in this Authorization Agreement.

§1. The AUTHORIZED PARTY shall not be entitled to any type of exclusivity, any kind of guarantee of economic-finance balance, and shall not be entitled to claim any rights related to the admittance of new providers for the same service.

§2. The AUTHORIZED PARTY shall not have rights related to the maintenance of current conditions upon issuance of this Authorization or the beginning of the activities, and shall comply with new conditions imposed by law and regulation.

§3. The rules shall grant terms sufficient to adapt to new conditions.

Section 3.3. The AUTHORIZED PARTY agrees upon starting commercial exploration of the service at sites that are not yet covered under the conditions set forth in the bidding documents, under the terms and conditions set forth in the Authorization Agreements for the Use of Radiofrequencies associated to this Agreement.

Section 3.4. The AUTHORIZED PARTY shall maintain free access for public emergency services as set forth in the regulation.

Section 3.5. The AUTHORIZED PARTY shall ensure to the user free exercise of its right to choose the STFC provider to forward Long-Distance calls at each originating call, under the terms in the SMP regulation.

Section 3.6. Changes in the corporate control of the AUTHORIZED PARTIES, under the law and current regulations, are subject to ANATEL’s prior control aiming to maintain conditions indispensable for the authorization and other conditions in the regulation.

§1. Conditions indispensable to expedition and maintenance of the authorization are the ones set forth in the applicable regulation and in article 133 in LGT.

§2. The transfer of the Authorization is subject to ANATEL’s approval, under the terms in §2 in article 136 in LGT.

§3. In every event of corporate change, the AUTHORIZED PARTY shall provide ANATEL with authenticated copies of the respective amendments, filed or registered with the appropriate entity, within sixty days from their effective date.

Section 3.7 . The AUTHORIZED PARTY shall set forth, freely, prices to be adopted in the exploitation of SMP, which may vary according to technical characteristics, specific costs, and utilities offered to users, as defined in the SMP regulation, under the terms in item 1.3 in the attachment to Anatel Resolution 318 dated September 27, 2002, if applicable, during the effectiveness of the authorization, and every practice that prejudices competition is prohibited as well as the abuse of economic power under the terms in the applicable laws.

 [initials ]
 
3
 

[logo:] ANATEL Agência Nacional de Telecomunicações

Paragraph one . The AUTHORIZED PARTY shall widely disclose its price list in order to ensure users and interested parties are aware of such prices, as set forth in the applicable regulation.

Paragraph two. Maximum compensation amounts to be charged from users considered as a whole, as well as the respective adjustment criteria, shall be those in the Service Plans validated by Anatel.

Chapter IV
Scope Obligations

Section 4.1. The AUTHORIZED PARTY agrees upon complying with the Scope Obligations set forth in the Authorization Agreements for the Use of Radiofrequencies associated to this Agreement.

Chapter V
Service Quality

Section 5.1 . The appropriate quality of the service provided by the AUTHORIZED PART is prerequisite for the Authorization, considering as such the service that meets conditions related to regularity, effectiveness, safety, generality, courtesy and update terms.

§1. Regularity is characterized by the continuous exploitation of the service strictly compliant with the rules issued by ANATEL.

§2. Effectiveness is characterized by consecution and preservation of parameters set forth in the Authorization Agreement and service to the users under terms set forth in the regulation.

§3. Safety in service exploitation is characterized by the confidentiality of data related to the use of the service by the users as well as by full preservation of the secrecy of information disclosed under such exploitation.

§4. The update terms is characterized by updated equipment, premises and techniques in service exploitation, technological advancement that, definitely, offer benefits to the users, compliant with the terms in this Authorization Agreement.

§ Generality is characterized by the non-discriminatory provision of services to each and every user, when the AUTHORIZED PARTY agrees upon providing the service to whoever requests it, under the regulation.

§6. Courtesy is characterized by respectful and immediate response to all authorized service users, as well as compliance with obligations of informing and promptly and politely serving all who, regardless of being users, request information, measures or any type of data to the AUTHORIZED PARTY, as set forth in this Authorization Agreement.

Section 5.2. The AUTHORIZED PARTY shall not, in case of interruption of service exploitation, claim non-compliance with any obligation by ANATEL or the Union.

Section 5.3 . The authorized service exploitation may be suspended according to the SMP Regulation.

 [initials]
 
4
 

 
[logo:] ANATEL Agência Nacional de Telecomunicações

Section 5.4. The AUTHORIZED PARTY shall comply with quality goals set forth in the specific regulation.

Chapter VI
Numbering Plan

Section 6.1 . Upon compliance with the regulation, the AUTHORIZED PARTY agrees upon complying with the Numbering Regulation issued by ANATEL, and shall ensure to the service subscriber portability of access codes within the terms set forth in the regulation.

Chapter VII
Billing Users

Section 7.1. The amount, measuring method and criteria to bill for provided services shall be set forth by the AUTHORIZED PARTY based on the terms in the SMP Regulation.

Chapter VIII
User Rights and Obligations

Section 8.1. User rights and obligations are those set forth in LGT and in the applicable regulation, without prejudice to rights set forth in Law 8078, dated September 11, 1990, when applicable, or those set forth in the SMP provision agreements.

Chapter IX
AUTHORIZED PARTY Rights and Obligations

Section 9.1. AUTHORIZED PARTY rights and obligations are those set forth in Law 9472, dated July 16, 1997, in the applicable regulation and in this Authorization Agreement.

Section 9.2. When contracting services and acquiring equipment and material related to SMP, the AUTHORIZED PARTY agrees upon considering the offer from independent suppliers, including national suppliers, and basing its decisions, regarding different offers, under objective criteria related to price, delivery terms and technical specifications set forth in the applicable regulation.

Section 9.2.1. In the above mentioned contracting, procedures set forth in the Regulation on the Conditions for the Contraction of Services and Purchase of Equipment or Material by Telecommunication Service Providers approved by Resolution 155 dated August 5, 1999, amended by Resolution 421 dated December 2, 2005.

Section 9.2.2. Services include those related to research and development, planning, project, deployment and physical installation, operation, maintenance, as well as acquisition of software, supervision and telecommunication systems evaluation tests.


 [initials]
 
5
 

 
[logo:] ANATEL Agência Nacional de Telecomunicações

Chapter X
ANATEL Obligations and Prerogatives

Section 10.1. Additionally to other prerogatives inherent to the function as regulating entity and other obligations arising out of this Authorization Agreement, ANATEL shall:

 
I.
accompany and supervise service exploitation aiming for compliance with the regulation;
 
II.
regulate authorized service exploitation;
 
III.
apply penalties set forth in the service regulation and, specifically, under this Authorization Agreement;
 
IV.
care for the good quality of the service, receive, investigate, and solve claims and questions from users, notifying users within ninety (90) days about measures taken aiming to solve infringements against their rights;
 
V.
determine termination of the Authorization under cases set forth in LGT;
 
VI.
care for the interconnection guarantee, solving eventual issues raised between the AUTHORIZED PARTY and other providers;
 
VII.
permanently accompany the relationship between the AUTHORIZED PARTY and other providers, solving eventual conflicts;
 
VIII.
prevent behaviors by the AUTHORIZED PARTY contrary to the competition regime, under the competences of CADE and the terms in the regulation. and
 
IX.
exercise service supervising activities as set forth in the Authorization Agreement; and
 
X.
receive fees related to FISTEL and contributions related to FUST, adopting measures set forth in the law.

Section 10.2. ANATEL may file an Administrative Procedure of Obligation Non-compliance (PADO) aiming to investigate false or ungrounded conditions represented by the AUTHORIZED PARTY, related to the non-participation in the control of other companies or other prohibitions that aim to avoid economic concentration, whenever there are signs of relevant influence by the AUTHORIZED PARTY, its affiliates, controlled companies or parent companies on a legal entity providing SMP, under the terms in the Regulation to Investigate Control and Transfer of Control in Companies Providing Telecommunication Services, approved by Anatel Resolution 101, dated February 4, 1999.

Sole paragraph . Upon performance of the procedure set forth in this Section, proof of existence of any situation characterizing false or ungrounded conditions represented by the AUTHORIZED PARTY shall imply termination, by cassation, of the Authorization under the terms in Article 139 in LGT.

Section 10.3. ANATEL may also file an administrative procedure to investigate infringement against the economic order as set forth in Law 8884/94.


[initials]
 
6
 

 
[logo:] ANATEL Agência Nacional de Telecomunicações


Chapter XI
Supervision Regime

Section 11.1 . ANATEL shall supervise the service aiming to ensure compliance with obligations set forth in the Authorization Agreement.

§1. ANATEL’s supervision shall include inspection and accompaniment of AUTHORIZED PARTY activities, equipment and facilities, implying access to all AUTHORIZED PARTY  and third party data and information.

§2. Information collected in the exercise of supervision activities shall be published in the Library except for information that, upon request by the AUTHORIZED PARTY, is deemed by ANATEL as confidential.

§3. Information deemed confidential under the terms in the paragraph above shall only be used in procedures related to this Authorization Agreement, and ANATEL, and those appointed by it, shall respond for any disclosure, broad or limited, of such information outside of this scope of use.

Section 11.2. The AUTHORIZED PARTY, by the appointed representative, may accompany any supervision activity by ANATEL, and may not prevent or hinder the supervision under penalty of incurring in sections set forth in the regulation.

Section XII
Telecommunication Networks

Section 12.1. Regarding deployment and operation of Telecommunication Networks destined to support SMP exploitation, the AUTHORIZED PARTY shall comply with the terms set forth in the regulation, especially in the Regulation of Telecommunication Services, issued by Resolution 73, dated November 25, 1998, and amended by Resolution 343, dated July 17, 2003, in the General Interconnection Regulation approved by Resolution 410 dated July 11, 2005 and the SMP Regulation.

Sole Paragraph. Changes in technology standards promoted by the AUTHORIZED PARTY shall not incur in arbitrary cost increases to the user, including under the terms of existing service conditions for users.

Section 12.2. Compensation for the use of the networks shall be agreed upon between the AUTHORIZED PARTY and other telecommunication service providers under the terms in article 152, in LGT and in the regulation.

Chapter XIII
Sanctions

Section 13.1 . The AUTHORIZED PARTY is subject to ANATEL’s supervision under applicable legal and regulatory terms, and upon request, the AUTHORIZED PARTY shall present its accounts  according to the regulation, allowing free access to its technical resources and accounting records.

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Section 13.2 . Failure to comply with the terms or obligations agreed upon associated to the authorization shall cause the AUTHORIZED PARTY to be subject to warnings, fine, temporary suspension or termination, under the terms in the regulation.

Chapter XIV
Authorization Termination


Section 14.1. The Authorization shall be deemed extinct by cassation, termination, extinction, waiver or annulment, under the terms in articles 138 to 144 in LGT and according to procedures in the regulation.

Sole paragraph. The extinction shall not exempt application of applicable sanctions according to the terms in this Authorization Agreement for infringements caused by the AUTHORIZED PARTY.

Chapter XV
Legal Regime and Applicable Documents

Section 15.1 . Without prejudice to other rules in the Brazilian legal system, the Authorization is governed by the LGT and applicable regulation.

Section 15.2. SMP exploitation shall comply with the regulation issued by ANATEL as part of this Authorization Agreement.

Section 15.3. In the interpretation of rules and terms in this Authorization Agreement, additionally to documents referred to in this Chapter, general hermeneutic rules and rules and principles in the LGT shall be considered.

Chapter XVI
Venue

Section 16.1. The competent court to solve any conflicts arising out of this Authorization Agreement shall be the Federal Justice Court of the Judicial Section of Brasília, Federal District.

Chapter XVII
Final Terms

Section 17.1. This Authorization Agreement and its effects are in force on November 1, 2009, under the terms in item 16.1 in the Bidding Process no. 002/2007/SPV dated October 23, 2007.

Section 17.2 . The AUTHORIZED PARTY agrees upon strictly complying with every regulation, being subject to new regulations and amendments that may be published under the law.

Section 17.3 . Under the terms in Article 130 in LGT and in bidding publications, the AUTHORIZED PARTY shall not have rights related to the maintenance of conditions existing on the date of signature of this Agreement, and shall comply with new conditions that may be imposed by law or regulation to be issued by ANATEL.


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In witness whereof and agreeing upon the terms and conditions in this Authorization Agreement, the parties sign this Agreement in three (3) counterparts of equal tenor, before the undersigned witnesses who also sign for legal effective purposes.

Brasília, February 26 , 2010

By ANATEL:
 
   
[signature]
 
   
RONALDO MOTA SARDENBERG
 
Chairman of the Board
 
   
[signature]
 
   
JOÃO BATISTA REZENDE
 
Member of the Board
 
   
By the  AUTHORIZED PARTY:
 
   
[signature]
 
   
MARIO GIRASOLE
 
Director of Regulatory Affairs of Tim Celular SA
 
   
[signature]
 
   
LEANDRO ENRIQUE LOBO GUERRA
 
Regulatory Relations Manager of Tim Celular SA
 

WITNESSES:

[signature]
 
[signature]
 
       
DIRCEU BARAVEIRA
 
NELSON MITSUO TAKAYANAGI
 
CI no. 5380723 SSP/SP
 
CI no. 435023 SSP/DF
 


 
 
 
9
Exhibit 4.13
 
[logo:] ANATEL Agência Nacional de Telecomunicações

AUTHORIZATION AGREEMENT NO. 003/2010/PVCP/SPV - ANATEL

AUTHORIZATION AGREEMENT FOR PERSONAL MOBILE SERVICE CELEBRATED BETWEEN AGÊNCIA NACIONAL DE TELECOMUNICAÇÕES – ANATEL AND TIM CELULAR SA

This agreement is entered by and between AGÊNCIA NACIONAL DE TELECOMUNICAÇÕES, hereinafter referred to as ANATEL, entity part of the UNION, exercising its competence attributed under Article 19, IX in Federal Law 9472 dated July 16, 1997 – LGT, combined with Article 175, VIII, Anatel Internal Rules, approved by Resolution 270 dated July 19, 2001, registered with the Taxpayers’ Registry of the Ministry of Finance under no. CGC/MF 02030715/001-12, herein represented by the Chairman of the Board RONALDO MOTA SARDENBERG, Brazilian, married, ID by the Ministry of Foreign Affairs no. 5601-MRE and registered with the Taxpayers’ Registry of the Ministry of Finance under no. CPF/MF 075074884-20, jointly with Board member JOÃO BATISTA DE REZENDE, Brazilian, divorced, bearer of ID no. 3412238-5 – SSP/PR, registered with the Taxpayers’ Registry of the Ministry of Finance under no. CPF/MF 472648709-44, under Act 5464 dated August 25, 2010, published in the Official Gazette dated September 1, 2010, and TIM CELULAR SA, registered with the Taxpayers’ Registry of the Ministry of Finance under no. CNPJ 04206050/0001-80, herein represented by its Directory of Regulatory Affairs, MARIO GIRASOLE, Italian, married, economist, bearer of ID V396929-V (RNE) and registered with the Taxpayers’ Registry of the Ministry of Finance under no. CPF/MF 059292237-50 and the Manager of Regulatory Relations, LEANDRO ENRIQUE LOBO GUERRA, Brazilian, married, engineer, bearer of ID 3055777-8 and registered with the Taxpayers’ Registry of the Ministry of Finance under no. CPF/MF 680334279-49, hereinafter referred to as AUTHORIZED PARTY, enter this AUTHORIZATION AGREEMENT FOR PERSONAL MOBILE SERVICE, hereinafter referred to as Agreement, under the terms in item 1.6 and sub-items in the Bidding Term no. 002/2007/SPV-ANATEL, to be governed by the rules below and the following sections:

Chapter I
Purpose, Area of Provision and Term

Section 1.1. The purpose of this Agreement is to unify Authorizations to explore Personal Mobile Service – SMP, provided as private service in the Area(s) of Provision corresponding to Region I in the General Plan of Authorization for Personal Mobile Service – SMP, upon consolidating the Authorization Agreements to explore Personal Mobile Service – SMP no. 004/2001/PVCP/SPV-ANATEL, dated March 29, 2001 and published in the Official Gazette dated March 30, 2001 and no. 001/2010/PVCP/SPV-ANATEL dated July 22, 2010 and published in the Federal Official Gazette dated July 26, 2010, hereinafter referred to as CONSOLIDATED AGREEMENTS.

Paragraph One. Unification of Authorizations to explore SMP, object of this Agreement, should not be deemed as creation, change or extinction of rights and obligations set forth in the CONSOLIDATED AGREEMENTS.

Paragraph Two. The   object of this Authorization includes Personal Mobile Service, provided as private service, according to ANATEL regulations

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and, especially, under the terms in SMP Regulation and the General Plan of Authorization for Personal Mobile Service – SMP.

Section 1.2. Personal Mobile Service is the terrestrial mobile telecommunication services of collective interest that enables communication between mobile stations and from mobile stations to other stations, under the terms in the regulation.

Section 1.3. The AUTHORIZED PARTY is entitled to engage in the industrial exploitation of means used in the provision of services, compliant with the terms in the regulation, as well as the terms in Articles 154 and 155 in LGT.

Section 1.4. The term of this authorization to explore SMP is undetermined.

Section 1.5. The service should be explored with the use, by the AUTHORIZED PARTY, of radio frequency sub-ranges set forth in the CONSOLIDATED AGREEMENTS and the related Authorization Agreements for the Use of Radiofrequencies, as well as the Authorization Agreements for the Use of Radiofrequencies to be executed under bidding processes to be run by ANATEL.

Section 1.6. The Authorization Agreements for the Use of Radiofrequencies previously associated to the CONSOLIDATED AGREEMENTS, object of this unification, are now associated to this Agreement, being essential and inseparable, thus being effective jointly and united, however preserving rights and obligations set forth in each Authorization Agreement for the Use of Radiofrequencies and this Agreement.

Chapter II
Value of Authorization to Explore SMP

Section 2.1. The value of the Consolidation of Authorization Agreements to explore SMP in the respective Area of Provision if R$ 9,000.00 (nine thousand reais) to be paid on the date of execution.

§1. Late payment of the fee referred to in this Section shall imply a fine equal to 0.33% (zero point thirty three percent) a day, up to the limit of 10% (ten percent), added with interest equal to the reference rate of the Special System of Settlement and Custody (SELIC), accrued monthly, from the month following the due date and 1% (one percent) in the month of payment.

§2. Failure to pay the amount set in this section shall imply termination of this Authorization, regardless of applicability of other penalties.

§3. In any event causing termination of this Authorization, the amount paid for the public price of the Authorization, up to the termination, will not be refunded.

Chapter II
Terms, Means, and Conditions for the Provision of Services

Section 3.1. The AUTHORIZED PARTY agrees upon providing SMP in order to fully comply with obligations inherent to the service provided as private service, according to criteria, formula, and standards defined herein this Authorization Agreement.

Sole paragraph. Failure to comply with obligations related to this Authorization Agreement shall imply application of sanctions set forth herein, allowing temporary suspension

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by Anatel and, as the case may be, this Authorization will be deemed terminated under the terms in Article 137 in LGT.

Section 3.2. The AUTHORIZED PARTY should provide the services object of this Authorization by its own risk and at its costs, within the fair and broad competition set forth in LGT, being compensated for prices charged as set forth in this Authorization Agreement.

§1. The AUTHORIZED PARTY shall not be entitled to any type of exclusivity, any kind of guarantee of economic-finance balance, and shall not be entitled to claim any rights related to the admittance of new providers for the same service.

§2. The AUTHORIZED PARTY shall not have rights related to the maintenance of current conditions upon issuance of this Authorization or the beginning of the activities, and shall comply with new conditions imposed by law and regulation.

§3. The rules shall grant terms sufficient to adapt to new conditions.

Section 3.3. The AUTHORIZED PARTY agrees upon starting commercial exploration of the service at sites that are not yet covered under the conditions set forth in the bidding documents, under the terms and conditions set forth in the Authorization Agreements for the Use of Radiofrequencies associated to this Agreement.

Section 3.4. The AUTHORIZED PARTY shall maintain free access for public emergency services as set forth in the regulation.

Section 3.5. The AUTHORIZED PARTY shall ensure to the user free exercise of its right to choose the STFC provider to forward Long-Distance calls at each originating call, under the terms in the SMP regulation.

Section 3.6. Changes in the corporate control of the AUTHORIZED PARTIES, under the law and current regulations, are subject to ANATEL’s prior control aiming to maintain conditions indispensable for the authorization and other conditions in the regulation.

§1. Conditions indispensable to expedition and maintenance of the authorization are the ones set forth in the applicable regulation and in Article 133 in LGT.

§2. The transfer of the Authorization is subject to ANATEL’s approval, under the terms in §2 in Article 136 in LGT.

§3. In every event of corporate change, the AUTHORIZED PARTY shall provide ANATEL with authenticated copies of the respective amendments, filed or registered with the appropriate entity, within sixty days from their effective date.

Section 3.7 . The AUTHORIZED PARTY shall set forth, freely, prices to be adopted in the exploitation of SMP, which may vary according to technical characteristics, specific costs, and utilities offered to users, as defined in the SMP regulation, under the terms in item 1.3 in the attachment to Anatel Resolution 318 dated September 27, 2002, if applicable, during the effectiveness of the authorization, and every practice that prejudices competition is prohibited as well as the abuse of economic power under the terms in the applicable laws.

Paragraph one . The AUTHORIZED PARTY shall widely disclose its price list in order to ensure users and interested parties are aware of such prices, as set forth in the applicable regulation.

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Paragraph two. Maximum compensation amounts to be charged from users considered as a whole, as well as the respective adjustment criteria, shall be those in the Service Plans validated by Anatel.

Chapter IV
Scope Obligations

Section 4.1. The AUTHORIZED PARTY agrees upon complying with the Scope Obligations set forth in the Authorization Agreements for the Use of Radiofrequencies associated to this Agreement.

Chapter V
Service Quality

Section 5.1 . The appropriate quality of the service provided by the AUTHORIZED PART is prerequisite for the Authorization, considering as such the service that meets conditions related to regularity, effectiveness, safety, generality, courtesy and update terms.

§1. Regularity is characterized by the continuous exploitation of the service strictly compliant with the rules issued by ANATEL.

§2. Effectiveness is characterized by consecution and preservation of parameters set forth in the Authorization Agreement and service to the users under terms set forth in the regulation.

§3. Safety in service exploitation is characterized by the confidentiality of data related to the use of the service by the users as well as by full preservation of the secrecy of information disclosed under such exploitation.

§4. The update terms is characterized by updated equipment, premises and techniques in service exploitation, technological advancement that, definitely, offer benefits to the users, compliant with the terms in this Authorization Agreement.

§ Generality is characterized by the non-discriminatory provision of services to each and every user, when the AUTHORIZED PARTY agrees upon providing the service to whoever requests it, under the regulation.

§6. Courtesy is characterized by respectful and immediate response to all authorized service users, as well as compliance with obligations of informing and promptly and politely serving all who, regardless of being users, request information, measures or any type of data to the AUTHORIZED PARTY, as set forth in this Authorization Agreement.

Section 5.2. The AUTHORIZED PARTY shall not, in case of interruption of service exploitation, claim non-compliance with any obligation by ANATEL or the Union.

Section 5.3 . The authorized service exploitation may be suspended according to the SMP Regulation.

Section 5.4. The AUTHORIZED PARTY shall comply with quality goals set forth in the specific regulation.
 
 

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Chapter VI
Numbering Plan

Section 6.1 . Upon compliance with the regulation, the AUTHORIZED PARTY agrees upon complying with the Numbering Regulation issued by ANATEL, and shall ensure to the service subscriber portability of access codes within the terms set forth in the regulation.

Chapter VII
Billing Users

Section 7.1. The amount, measuring method and criteria to bill for provided services shall be set forth by the AUTHORIZED PARTY based on the terms in the SMP Regulation.

Chapter VIII
User Rights and Obligations

Section 8.1. User rights and obligations are those set forth in LGT and in the applicable regulation, without prejudice to rights set forth in Law 8078, dated September 11, 1990, when applicable, or those set forth in the SMP provision agreements.

Chapter IX
AUTHORIZED PARTY Rights and Obligations

Section 9.1. AUTHORIZED PARTY rights and obligations are those set forth in Law 9472, dated July 16, 1997, in the applicable regulation and in this Authorization Agreement.

Section 9.2. When contracting services and acquiring equipment and material related to SMP, the AUTHORIZED PARTY agrees upon considering the offer from independent suppliers, including national suppliers, and basing its decisions, regarding different offers, under objective criteria related to price, delivery terms and technical specifications set forth in the applicable regulation.

Section 9.2.1. In the above mentioned contracting, procedures set forth in the Regulation on the Conditions for the Contraction of Services and Purchase of Equipment or Material by Telecommunication Service Providers approved by Resolution 155 dated August 5, 1999, amended by Resolution 421 dated December 2, 2005.

Section 9.2.2. Services include those related to research and development, planning, project, deployment and physical installation, operation, maintenance, as well as acquisition of software, supervision and telecommunication systems evaluation tests.


 
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Chapter X
ANATEL Obligations and Prerogatives

Section 10.1. Additionally to other prerogatives inherent to the function as regulating entity and other obligations arising out of this Authorization Agreement, ANATEL shall:

I.
accompany and supervise service exploitation aiming for compliance with the regulation;
II.
regulate authorized service exploitation;
III.
apply penalties set forth in the service regulation and, specifically, under this Authorization Agreement;
IV.
care for the good quality of the service, receive, investigate, and solve claims and questions from users, notifying users within 90 (ninety) days about measures taken aiming to solve infringements against their rights;
V.
determine termination of the Authorization under cases set forth in LGT;
VI.
care for the interconnection guarantee, solving eventual issues raised between the AUTHORIZED PARTY and other providers;
VII.
permanently accompany the relationship between the AUTHORIZED PARTY and other providers, solving eventual conflicts;
VIII.
prevent behaviors by the AUTHORIZED PARTY contrary to the competition regime, under the competences of CADE and the terms in the regulation. and
IX.
exercise service supervising activities as set forth in the Authorization Agreement; and
X.
receive fees related to FISTEL and contributions related to FUST, adopting measures set forth in the law.

Section 10.2. ANATEL may file an Administrative Procedure of Obligation Non-compliance (PADO) aiming to investigate false or ungrounded conditions represented by the AUTHORIZED PARTY, related to the non-participation in the control of other companies or other prohibitions that aim to avoid economic concentration, whenever there are signs of relevant influence by the AUTHORIZED PARTY, its affiliates, controlled companies or parent companies on a legal entity providing SMP, under the terms in the Regulation to Investigate Control and Transfer of Control in Companies Providing Telecommunication Services, approved by Anatel Resolution 101, dated February 4, 1999.

Sole paragraph . Upon performance of the procedure set forth in this Section, proof of existence of any situation characterizing false or ungrounded conditions represented by the AUTHORIZED PARTY shall imply termination, by cassation, of the Authorization under the terms in Article 139 in LGT.

Section 10.3. ANATEL may also file an administrative procedure to investigate infringement against the economic order as set forth in Law 8884/94.



 
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Chapter XI
Supervision Regime

Section 11.1 . ANATEL shall supervise the service aiming to ensure compliance with obligations set forth in the Authorization Agreement.

§1. ANATEL’s supervision shall include inspection and accompaniment of AUTHORIZED PARTY activities, equipment and facilities, implying access to all AUTHORIZED PARTY and third party data and information.

§2. Information collected in the exercise of supervision activities shall be published in the Library except for information that, upon request by the AUTHORIZED PARTY, is deemed by ANATEL as confidential.

§3. Information deemed confidential under the terms in the paragraph above shall only be used in procedures related to this Authorization Agreement, and ANATEL, and those appointed by it, shall respond for any disclosure, broad or limited, of such information outside of this scope of use.

Section 11.2. The AUTHORIZED PARTY, by the appointed representative, may accompany any supervision activity by ANATEL, and may not prevent or hinder the supervision under penalty of incurring in sections set forth in the regulation.

Section XII
Telecommunication Networks

Section 12.1. Regarding deployment and operation of Telecommunication Networks destined to support SMP exploitation, the AUTHORIZED PARTY shall comply with the terms set forth in the regulation, especially in the Regulation of Telecommunication Services, issued by Resolution 73, dated November 25, 1998, and amended by Resolution 343, dated July 17, 2003, in the General Interconnection Regulation approved by Resolution 410 dated July 11, 2005 and the SMP Regulation.

Sole Paragraph. Changes in technology standards promoted by the AUTHORIZED PARTY shall not incur in arbitrary cost increases to the user, including under the terms of existing service conditions for users.

Section 12.2. Compensation for the use of the networks shall be agreed upon between the AUTHORIZED PARTY and other telecommunication service providers under the terms in Article 152, in LGT and in the regulation.

Chapter XIII
Sanctions

Section 13.1 . The AUTHORIZED PARTY is subject to ANATEL’s supervision under applicable legal and regulatory terms, and upon request, the AUTHORIZED PARTY shall present its accounts according to the regulation, allowing free access to its technical resources and accounting records.




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Section 13.2 . Failure to comply with the terms or obligations agreed upon associated to the authorization shall cause the AUTHORIZED PARTY to be subject to warnings, fine, temporary suspension or termination, under the terms in the regulation.

Chapter XIV
Authorization Termination


Section 14.1. The Authorization shall be deemed extinct by cassation, termination, extinction, waiver or annulment, under the terms in Articles 138 to 144 in LGT and according to procedures in the regulation.

Sole paragraph. The extinction shall not exempt application of applicable sanctions according to the terms in this Authorization Agreement for infringements caused by the AUTHORIZED PARTY.

Chapter XV
Legal Regime and Applicable Documents

Section 15.1 . Without prejudice to other rules in the Brazilian legal system, the Authorization is governed by the LGT and applicable regulation.

Section 15.2. SMP exploitation shall comply with the regulation issued by ANATEL as part of this Authorization Agreement.

Section 15.3. In the interpretation of rules and terms in this Authorization Term, additionally to documents referred to in this Chapter, general hermeneutic rules and rules and principles in the LGT shall be considered.

Chapter XVI
Venue

Section 16.1. The competent court to solve any conflicts arising out of this Authorization Term shall be the Federal Justice Court of the Judicial Section of Brasília, Federal District.

Chapter XVII
Final Terms

Section 17.1. This Authorization Term and its effects are in force on November 1, 2009, under the terms in item 16.1 in the Bidding Process no. 002/2007/SPV dated October 23, 2007.

Section 17.2 . The AUTHORIZED PARTY agrees upon strictly complying with every regulation, being subject to new regulations and amendments that may be published under the law.

Section 17.3 . Under the terms in Article 130 in LGT and in bidding publications, the AUTHORIZED PARTY shall not have rights related to the maintenance of conditions existing on the date of signature of this Agreement, and shall comply with new conditions that may be imposed by law or regulation to be issued by ANATEL.



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In witness whereof and agreeing upon the terms and conditions in this Authorization Agreement, the parties sign this Agreement in 3 (three) counterparts of equal tenor, before the undersigned witnesses who also sign for legal effective purposes.

Brasília, November 29 , 2010

By ANATEL:

[signature]
_______________________________
RONALDO MOTA SARDENBERG
Chairman of the Board

[signature]
_______________________________
JOÃO BATISTA REZENDE
Member of the Board

By the AUTHORIZED PARTY:

[signature]
_______________________________
MARIO GIRASOLE
Director of Regulatory Affairs of Tim Celular SA

[signature]
_______________________________
LEANDRO ENRIQUE LOBO GUERRA
Regulatory Relations Manager of Tim Celular SA
 
WITNESSES:
       
         
[signature]     [signature]  
         
DIRCEU BARAVEIRA  
   
BRUNO DE CARVALHO RAMOS
 
CI no. 5380723 SSP/SP 
   
CREA-SP 5060107391/D
 
         
   
[stamp:] Published in the Official Gazette on 11/30/10
[handwritten:] pg.130, SC-3
 
         
         
 
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   Fifth AMENDMENT
 
 

 
 
  to the
 
 

 
 
  COOPERATION AND SUPPORT AGREEMENT
 
 

 
 

 
 
 
 
 
 
Fifth Amendment to the Cooperation and Support Agreement
 
This Fifth Amendment to the Cooperation and Support Agreement (the “ Fifth Amendment ”) is made this _____day of _____ 2012, by and between:
 
Telecom Italia S.p.A. , an Italian corporation, with its head office located in the City of Milan, Italy, at Piazza Affari 2, 20123, registered with the Italian Register of Companies under number 00488410010 (hereinafter referred to as “ TI ”),
 
and
 
Tim Celular S.A . , a corporation organized under the laws of the Federative Republic of Brazil, with its head office located in the City of São Paulo, State of São Paulo, at Avenida Giovanni Gronchi, n o 7143, Brazil, registered with the National Register of Legal Entities (C.N.P.J.) under number 04.206.050/0001-80, (hereinafter referred to as “ Tim Celular ”), intelig telecomunicações ltda a corporation organized under the laws of the Federative Republic of Brazil, with its head office located in the city of Rio de Janeiro, State of Rio de Janeiro, at Praia de Botafogo, 370 registered with the National Register of Legal Entities (C.N.P.J.) under number 02.421.421/0001-11 (hereinafter referred to as “ INTELIG ”), Tim Fiber SP Ltda a corporation organized under the laws of the Federative Republic of Brazil, with its head office located in the city of São Paulo, State of São Paulo, at Avenida Alfredo Egídio de Souza Aranha, n. 100, Bloco B, 1o andar, Jardim Santo Antônio, registered with the National Register of Legal Entities (C.N.P.J.) under number 02.875.211/0001-01 (hereinafter referred to as “ Tim Fiber SP ”),   and Tim Fiber RJ S.A. a corporation organized under the laws of the Federative Republic of Brazil, with its head office located in the city of Rio de Janeiro, State of Rio de Janeiro, at Avenida Marechal Floriano, n o 19, 6o andar,  Centro, registered with the National Register of Legal Entities (C.N.P.J.) under number 02.720.349/0001-23 (hereinafter referred to as “ Tim Fiber RJ ”);
 
and, as intervening party,
 
Tim Participações S.A . , a corporation organized under the laws of the Federative Republic of Brazil, with its head office located in the City of Rio de Janeiro, State of Rio de Janeiro, at Avenida das Américas, n o 3434, 7 th floor, Brazil, registered with the National Register of Legal Entities – C.N.P.J. under number 02.558.115/0001-21, (“ Tim Part ” ).
 
For the purposes hereof TI, TIM Celular, INTELIG, TIM Fiber SP, TIM Fiber RJ and TIM PART shall each individually be referred to as a “ Party ” and collectively be referred to as the “ Parties ”.
 
WHEREAS , TI, TIM CELULAR, TIM PART and TIM Nordeste S.A. , as of the 30 th of May 2007, executed the Cooperation and Support Agreement (the “ Cooperation and Support Agreement ”) for the provision of different kind of services and/or the granting of software licenses, by TI to TIM Celular and TIM Nordeste S.A., in the areas of inter alia Network, Information Technology and Marketing and Sales;

WHEREAS, on the 8 th April 2008, the 22 nd April 2009, the 25 th of May 2010, and the 6 th of May 2011, TI, TIM CELULAR, TIM Nordeste S.A. (this latter only with respect to the
 
 
 
 
 
 
First Amendment and the Second Amendment) and TIM Part, the latter as intervening party, entered into, respectively, a First Amendment, Second Amendment, Third Amendment and Fourth Amendment to the Cooperation and Support Agreement, whereby they agreed upon to extend the Term of the Agreement from its Initial Term until 2 nd January 2012 and determined the Road Map applicable for the years 2008, 2009, 2010 and 2011;

WHEREAS , effective as of December 30, 2009, INTELIG became a wholly owned subsidiary of TIM PART and therefore a company indirectly controlled by TI;

WHEREAS, effective as of December 31, 2009, TIM Nordeste S.A. has been merged into its direct controlling company TIM CELULAR;

WHEREAS , on October 31, 2011, TIM Celular acquired the full Control over TIM Fiber SP and TIM Fiber RJ, which became therefore companies indirectly controlled by TI;

WHEREAS, according to the Fourth Amendment to the Cooperation and Support Agreement, the Term of the Agreement expired on the 2 nd of January 2012;

WHEREAS , (i) TIM Celular is willing to continue availing of TI’s support and expertise, being provided by TI with services support and license in some core areas of the telecommunication business also beyond the above mentioned expiration date, by further extending the term of the Cooperation and Support Agreement for an additional twelve months period and (ii) INTELIG, TIM Fiber SP and TIM Fiber RJ are willing to adhere to the Cooperation and Support Agreement, as amended herein, agreeing to be bound by terms and conditions thereof in order to receive from TI services and licenses based upon TI’s successful expertise in the telecommunication sector;

WHEREAS, the further extension of the Term of the Cooperation and Support Agreement contemplated herein, as well as the adherence of INTELIG, TIM Fiber SP and TIM Fiber RJ thereto, has been duly authorised by each Party’s corporate bodies and competent officers, in compliance with the best corporate governance rules and practice to them applicable;  

NOW, THEREFORE , the Parties hereto, in consideration of the foregoing premises which form an integral and substantial part of this instrument, agreed to execute this Fifth Amendment to the Cooperation and Support Agreement under the following terms and conditions.

1.
Definitions and Interpretation.

1.1
The definitions contained in the Agreement and its Annexes shall apply to this Fifth Amendment (except where any term is specifically defined herein or the context otherwise requires).

1.2
This Fifth Amendment modifies the Agreement according to the terms and conditions set forth below.  Except as expressly provided in this Fifth Amendment, no other term or condition set forth in the Cooperation and Support Agreement and its Annexes is modified, amended or altered by this Fifth Amendment, and nothing contained herein, unless expressly provided to the contrary, shall be deemed to be or constitute an amendment, modification, extension, supplement or novation of the Cooperation and Support Agreement and its Annexes.
 
 
 
 
 
 
 
1.3.
Each reference in the Cooperation and Support Agreement or hereunder to “this Agreement”, “hereunder”, “hereof”, “herein” or words of like import referring to the Cooperation and Support Agreement, shall mean and be a reference to the Agreement as amended pursuant to this Fifth Amendment.

1.4
Each reference in the Agreement to “Company” or “Companies” shall mean a reference, individually or collectively, as the case may be, to TIM Celular, INTELIG, TIM Fiber SP and TIM Fiber RJ.

1.5
Each reference in the Agreement to “Party” or “Parties” shall mean a reference, individually or collectively, as the case may be, to TI, TIM Celular, INTELIG, TIM Fiber SP and TIM Fiber RJ.

2.
Amendment to the Agreement.

2.1
Extension of the Term of the Agreement . The Parties hereby agree to extend the Term of the Agreement, which expired on January 2, 2012, by establishing that the Agreement shall continue in full force and effect until January 2, 2013 (the “ Extended Term ”).

2.2
Project Price Cap for 2012 . The Parties agree to amend sub-section 5.1 of the Agreement setting forth that, during the Extended Term the Projects to be agreed upon between the Parties in connection with the Agreement shall not exceed the total amount of   € 8,000,000.00 (Euro Eight million) (the “ Projects’ Price Cap for the Extended Term ”).

2.3
Road Map for the Extended Term . Prior to the execution of this Fifth Amendment, the Companies have been provided by TI with a new Road Map which relates to the Extended Term, aiming at allowing the identification and evaluation of the possible Projects that the Companies may elect to pursue during the Extended Term. Such new Road Map for the Extended Term, has been further implemented in consultation between TI and the Companies and, by the execution of this Fifth Amendment, it is finally agreed between the Parties in the version which is enclosed hereto as Annex I (“ Road Map for the Extended Term ”). The Road Map for the Extended Term will be used for the purposes set out in Section 3.1.1 of the Agreement.

2.4
For the Extended Term agreed herein, each reference in the Agreement to the terms “Project Price Cap”, “Road Map”, “Term” and “Annex VII”, shall be intended as a reference made to “Project Price Cap for the Extended Term”, “Road Map for the Extended Term”, “Extended Term” and “Annex I”, respectively, as defined in this Fifth Amendment.

2.5
Adherence to the Agreement. By executing this Fifth Amendment, INTELIG, TIM Fiber SP and TIM Fiber RJ adhere to the Agreement as Parties thereto,
 
 
 
 
 
 
irrevocably and unconditionally agreeing and undertaking to be directly bound by any and all terms and conditions of the Agreement.
 
2.6
The Parties acknowledge and agree that, for all that is not expressly provided in this Fifth Amendment to the contrary, the provisions contained in the Agreement shall remain in full force and effect and shall apply.

3.
Governing Law.

This Fifth Amendment shall be governed by the laws of Italy.  The provisions of Section 10 of the Agreement shall apply to this Amendment and are incorporated herein by reference, mutatis mutandis .




/s/ Marco Emilio Angelo Patuano                                   
TELECOM ITALIA S.P.A.
By:  Marco Emilio Angelo Patuano
Title:  Managing Director and Chief Operating Officer



________________________________________
TIM CELULAR S.A.
By:
Title:



_______________________________________
INTELIG   TELECOMUNICAÇÕES LTDA
By:
Title:



_______________________________________
TIM FIBER SP Ltda
By:
Title:



_______________________________________
TIM FIBER RJ S.A.
By:
Title:

 
 
 
 


And, as intervening Party:

________________________________________
TIM PARTICIPAÇÕES S.A.
By:
Title:


 
 
 
 




Annex I

ROADMAP FOR THE EXTENDED TERM
 
 
 
 
 
 
 
 
 
  

Breakdown of Cooperation and Support Agreement 2012


            AREA        Roadmap Price (K.EURO)
======================= ======================
          MARKETING                       170
======================= ======================
             SALES                         48
======================= ======================
    CUSTOMER RELATIONS                    133
======================= ======================
          CORPORATE                        36
======================= ======================
           TIM FIBER                      163
======================= ======================
            INTELIG                       199
======================= ======================
 INFORMATION TECHNOLOGY                  2.588
======================= ======================
           NETWORK                       3.536
======================= ======================
      NETWORK INTELIG                    1.127
----------------------- ----------------------
TOTAL PRICE OF PROJECTS                 8.000


8 / 25
 
 
 
 
 
  

9 / 25

Marketing - Projects 2012 Brazil (1/2)




               PROJECT                                                                BENEFIT              TIMING       PRICE
                                                                                                                      (K.EURO)
----------------------- ------------------------------------------------ --------------------------------- ---------- --------
                                                                          To guarantee the monitoring of   January --      20
[][]Social Network             [][]Actual market situation and TI position new model and site where customer   December
                               [][]Social Network Strategy                           needs arise.             2012
----------------------- ------------------------------------------------ --------------------------------- ---------- --------
                               [][]Revenue Assurance                         To maximize revenues and      January --      40
[][]Diagnostic of E2E          [][]Management tools                             customer satisfaction.     December
   performances phase 2                                                                                       2012
----------------------- ------------------------------------------------ --------------------------------- ---------- --------

                                                                         To guarantee the caring evolution January --      40
[][]Customer            Base[][]Marketing plan                             and optimization on channels    December
   Management in multichannel[][]Multichannel approach                                                        2012
   approach
 
 
 
 
 
  


Marketing - Projects 2012 Brazil (2/2)
---------------------------------------------------------- ------------------------------- ---------- --------
               PROJECT                                                 BENEFIT             TIMING       PRICE
                                                                                                      (K.EURO)
---------------------- ---- ------------------------------ ------------------------------- ---------- --------
                                                           To guarantee Sim card / Handset January --      40
                       [][]SIM card development                  development process       December
[][]SIM Card/Device    [][]Application and testing                                            2012
                       [][]Roadmap generation
                       [][]Smart Phone pack
                       [][]SIM Card Platform
---------------------- ----------------------------------- ------------------------------- ---------- --------
                                                               To reduce costs, increase   January --      30
[][]M-Payment and NFC  [][] Benchmark of Italian situation  revenues and improve service   December
                       [][] Processes and organization        level and corporate image.      2012


TOTAL K.[]

170

10 / 25
 
 
 
 
 
  




Sales Consumer - Projects 2012 Brazil (1/1)
---------------------------------------------------------------------------------------------------- ---------- --------
          PROJECT                                                                 BENEFIT            TIMING       PRICE
                                                                                                                (K.EURO)
---- --------------- ------------------------------------------------ ------------------------------ ---------- --------
                     [][]Processes optimization                       To share experience of mature  January --      18
                     [][]Training                                                    market          December
[][] Trade marketing                                                                                    2012
---- --------------- ------------------------------------------------ ------------------------------ ---------- --------
                                                                       To guarantee model evolution, January --      30
                     [][]Activities and processes                      sales and post sales coverage December
[][] Retail          [][]Organization                                 according to new network model    2012
                                                                                implementation
                     [][]Support to Points of Sales
                     [][]Extension of activities at the point of sale


TOTAL

K.[]


48

11 / 25
 
 
 
 
 
  

12 / 25

Customer Relations - Projects 2012 Brazil (1/2)




               PROJECT                                                      BENEFIT                  TIMING       PRICE
                                                                                                                (K.EURO)
----------------------- ------------------------------------------ --------------------------------- ---------- --------
                        [][]Efficiency in CC human and not human        Not Human channel            January --      48
[][]Multichannel        [][]Channels activities specialization and  development thanks to an         December
                           distribution (caring and sales)         analysis of activities, priority,    2012
                                                                             benchmark
----------------------- ------------------------------------------ --------------------------------- ---------- --------
[][]Customer Care Sales [][]Activities                             To increase sales thanks to       January --      48
                        [][]Logistic                                  activities review, tools       December
                        [][]Processes                                        availability               2012
----------------------- ------------------------------------------ --------------------------------- ---------- --------
                        [][]CC management model                     To share Social Network          January --      19
[][]Social Network                                                  experience and evolution         December
                                                                                                        2012
 
 
 
 
 
  

Customer Relations

- Projects 2012 Brazil (2/2)




               PROJECT                                                    BENEFIT TIMING       PRICE
                                                                                             (K.EURO)
---------------------------- -------------------------------------------- ------- ---------- --------
                             [][]Claims management                                January --      18
[][]Official Organization, and [][]Relationship with government institution         December
   Customer Association                                                              2012


TOTAL K.[]


133
 
 
 
 
 
  



Corporate - Projects 2012 Brazil (1/1)


               PROJECT                                             BENEFIT       TIMING       PRICE
                                                                                            (K.EURO)
-------------------------- ----------------------------------- ----------------- ---------- --------
                                                               Knowledge process January --      18
[][] Compras Comerciais e  [][]Purchasing process optimization                   December
Log[]stica                 [][]Best practice exchange                               2012
-------------------------- ----------------------------------- ----------------- ---------- --------
                                                                    Knowledge    January --      18
[][] Accounting regulatory [][]Management expertise                              December
system                     [][]Support system                                       2012


TOTAL K.[] 36


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TIM Fiber - Projects 2012 Brazil (1/2)


               PROJECT                                                                  BENEFIT                 TIMING       PRICE
                                                                                                                           (k.EURO)
------------------------------- ------------------------------------------ ------------------------------------ ---------- --------
                                Process analysis and support for product     To support the selection of the    January --      29
[][]Devices and Product           evaluation.                                  suitable device for the service.   December
   evaluation                   ADSL CPE requirement definition               To optimize the investments.         2012
                                complaint with the performance and
                                functionality requirements, alignment with
                                the purchasing process in line with the
                                strategic plan
------------------------------- ------------------------------------------ ------------------------------------ ---------- --------
                                Delivery and Assurance Processes review.     To improve the processes in terms    January --      29
[][] ADSL Service Delivery and    Methods and know-how sharing for              of times and costs reduction.     December
Assurance Processes review      managing Delivery and Assurance                                                    2012
                                processes
------------------------------- ------------------------------------------ ------------------------------------ ---------- --------
                                Tools and processes requirement and             To improve the customer         January --      29
[][]Customer Caring             evaluation to support caring.                    information using a unique     December
   Management                   Processes sharing needed to manage the                      system.                2012
                                Caring processes (pre and post sales)
------------------------------- ------------------------------------------ ------------------------------------ ---------- --------
                                Sales Support Tools and Trade Marketing       To improve the performance of     January --      29
[][]Support sales processes and (ej Evolution, Sales HUB, Sales Mate)          the sales activities through the December
   sales management             know-how sharing to support the service           introduction of new tools.       2012
                                sales
------------------------------- ------------------------------------------ ------------------------------------ ---------- --------
                                Performance Analysis and diagnosis,         To optimize the response time to    January --      18
[][]Customer Care - Operations  benchmarking.                                     the customer in case of       December
   guide lines                  Start up support and go-to-market                    assistance needs.             2012



15 / 25
 
 
 
 
 
  


TIM Fiber - Projects 2012 Brazil (2/2)
----------------------------------------------------------------------- ----------------------------------- ---------- --------
               PROJECT                                                               BENEFIT                TIMING       PRICE
                                                                                                                       (k.EURO)
-------------------------- -------------------------------------------- ----------------------------------- ---------- --------
                           Service and Caring Model review: offers,       To optimize the introduction of the January --      29
[][]Service and Caring Model service configuration .Product, advertising, new services following the market   December
                                                                          and innovation requirements.         2012


TOTAL K.[]

163

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Intelig - Projects 2012 Brazil 1/2


   PROJECT                                                                              BENEFIT               TIMING       PRICE
                                                                                                                         (k.EURO)
------------ --------------------------------------------------------------- -------------------------------- ---------- --------
Cloud Offer  Support in the understanding and design of an offer based       Know the overall strategy of     January --      40
             on the Cloud paradigm. Telecom Italia will provide all the      Cloud Computing TI Portfolio     December
             know-how and support needed to service creation and             including roadmap,                  2012
                                                                             organization.
             marketing personnel directly from its operations and line       Determinate the best Cloud
             staff/management.                                               services portfolio for TIM
                                                                             Brazil/Intelig.
------------ --------------------------------------------------------------- -------------------------------- ---------- --------
Federative   Support the creation of a cloud federation with Telecom         Have an demo environment at      January --      40
Clouding     Italia giving an overall looking at the standardization,        fingertips to rapidly and deeply December
             confidentiality, security, provisioning, contracts and legal    investigate on ICT products to      2012
                                                                             launch on the market.
             responsibility for the virtual infrastructure.
------------ --------------------------------------------------------------- -------------------------------- ---------- --------
Vertical ICT Support, on a consultancy basis, to determinate a Vertical      Knowledge about the best in      January --      40
Portfolio    ICT portfolio which will best fit the Brazilian market. Through class ICT Vertical Services and  December
             an advanced competence and a complete portfolio, skilled        related benchmark.                  2012
             experts will sustain the analysis of all the strategies to
             compete on the business.
------------ --------------------------------------------------------------- -------------------------------- ---------- --------
Top Client   In joint with Testimonials of Telecom Italia, the project will  Positioning with its clients and January --      30
Experience   be provided in Italy for the Brasilian Top Client (and/or       in the market. Company           December
             prospect) in order to update them on the most innovative        images.                             2012
             solutions, give trust on the TI Group and stimulate the
             demand on ICT.



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Intelig - Projects 2012 Brazil (2/2)


               PROJECT                                                        BENEFIT             TIMING       PRICE
                                                                                                             (k.EURO)
-------------------------- --------------------------- ----- --- ---- --------------------------- ---------- --------
                                                                       To increase revenues and   January --      15
[][]Roaming Partnership    [][]Strategies and models:    voice and data synergies to leverage on SA December
                              traffic                                             market             2012
                           [][]Alliances and partnership
-------------------------- --------------------------- ----- --- ---- --------------------------- ---------- --------
[][]E2E Intelig processes: [][]Know-how transfer                      To improve the processes in January --      34
   assurance, delivery                                                  terms of times and costs  December
                                                                                reduction.           2012


TOTAL K.[] 199


18 / 25
 
 
 
 
 
  



IT - Projects 2010 Brazil (1/2)


             PROJECT                                                                                  BENEFIT                TIMING
         PRICE

       (K.EURO)
----------------- ----------------------------------------------------------------------- ----------------------------------
 ------------- --------
Interconnection   []"SCTR", is the TI software dedicated to interconnection billing. It                                      January
 --         745
     Billing      performs sizing, pricing, discounting and accounting of the traffic      Corporate centralized solution to
 December 2012
                  exchanged between interconnected telecommunication companies,               manage the Iterconnection

                  both for fixed and obile networks. It has been in house developed and              Billing business.

                  conceived to offer flexible solutions by using a technological platform

                  aligned to the current market standards, in order to meet the growing

                  interconnection needs.

                                                                                            Support the traffic size growth

                  [][] New and/or improved functions shall be developed and                       and the assurance of

                  implemented by TI (evolution);                                               Interconnection revenue.

                  [][] TI will provide a Remote Support Group which will provide           Align SCTR Platform to improve

                  second level assistance to TIM Brasil and will be activated in case of       the performances and to

                  s/w bugs, system crash, critical system performance problems, need       manage the basic configuration

                  of urgent changes in processing flow.                                     in a user-friendly environment

----------------- ----------------------------------------------------------------------- ----------------------------------
 ------------- --------
Revenue Assurance                                                                           To answer Revenue Assurance      January
 --       1.040
      Package     []The RAP System is a Revenue Assurance enabling platform. It is             and Billing areas demands
 December
                  designed with a "best of breed" approach in order to be efficient and     through controls improvements       2012

                  robust and allow a "fast track" implementation of the monitoring                in CDR process from

                  requirements.

                  []It supports both the "classical RA Approach" (balancing and reject

                  monitoring) and a more "transaction oriented" Revenue Assurance         mediation platform , pre paid,

                  approach.                                                               post paid, interconnection and

                  []TI shall provide a package review and new releases of RAP               co-billing systems. Better

                  in the course of 2012, incorporating new functionalities                           information

                  (evolution) and the enhancements of the platform to take into

                  account the new version of the operating system, DB and                    accuracy and performance

                  reporting tool                                                               improvement in the KPI

                  []TI will provide a Remote Support Group which will provide                     analysis, due to the

                  second level assistance to TIM Brasil and will be activated in            development of detailed and

                  case of s/w bugs, system crash, critical system performance                 user-friendly reports, with

                                                                                            comprehensive statistics data

                  problems, need of urgent changes in processing flow.                          from different periods.




19 / 25
 
 
 
 
 
  



IT - Projects 2012 Brazil (2/2)


             PROJECT                                                                           BENEFIT               TIMING
 PRICE

 (K.EURO)
 Security -  []Security is one of the most important issues to be faced by any IT    Provide Automatisation and
PCS Project  department in a telecommunications Company.                                         Control:
                                                                                    Manage user identities and
             []Tim Brasil and Telecom Italia, in order to comply the Sarbanes      entitlements , authentication,   January --
 803
             Oxley Act, shall deploy an Identity and Access Management system     authorization and accounting of
                                                                                                                    December
             that can efficiently support a Company cross functional process.     the user accessing the majority      2012
                                                                                     of Tim Brasil applications
            []Specifically, in its role as support group, TI shall package and    Trace the management activities
            support installation of the s/w kit, produce integration test plans,   of the user credentials (user id
            support integration tests and User Acceptance Tests, provide          and password) and entitlements
            training and all necessary documentation.                                            (SAP);
                                                                                  Trace the user accesses to the
                                                                                   applications 'PCS connected'.



TOTAL K.[] 2.588

20 / 25
 
 
 
 
 
  


AREA Network - Projects 2012 Brazil (1/4)


TIM BRASIL
--------------------------------- --------------------------------------------- ------------- --------
                 PROJECT                    BENEFIT                               TIMING        PRICE
                                                                                              (K.EURO)
--------------------------------- --------------------------------------------- ------------- --------
    Access Network -- Engineering Support to radio access engineering focused      January --    131
                                  on RNC dimensioning (Huawei, Ericsson e       December 2012
                                  Nokia).
--------------------------------- --------------------------------------------- ------------- --------
    Access Network - Testing      Sharing of TI test plan for TIMBR network        January --    351
                                  testing (PVV) and PVV execution.              December 2012
--------------------------------- --------------------------------------------- ------------- --------
    Training                      Basic and Advanced 3G course; Basic LTE          January --     50
                                  course; Guitar course                         December 2012
--------------------------------- --------------------------------------------- ------------- --------
    Microwave                     Testing new vendors and new features             January --    250
                                                                                December 2012
--------------------------------- --------------------------------------------- ------------- --------
    Netep                         Sharing TI own technological scouting process    January --    200
                                  and dimensioning tools for network evolution  December 2012
                                  analysis.
--------------------------------- --------------------------------------------- ------------- --------
    TN CL4 Support                CL4 Network evolution; User Plane Evolution;     January --    100
                                  C4 Network evolution                          December 2012
--------------------------------- --------------------------------------------- ------------- --------
    CN Circuit Switched           C5 Architecture Evolution                        January --    100
                                                                                December 2012



21 / 25
 
 
 
 
 
  




AREA Network - Projects 2012 Brazil (2/4)
TIM BRASIL
---------------------------------------- ------------------------------------------- ------------- --------
                 PROJECT                           BENEFIT                             TIMING        PRICE
                                                                                                   (K.EURO)
---------------------------------------- ------------------------------------------- ------------- --------
    CDN                                  Mobile Content Delivery - Caching              January --     20
                                                                                     December 2012
---------------------------------------- ------------------------------------------- ------------- --------
    Circuit Switched                     Software Evolution in Core Network             January --     50
                                                                                     December 2012
---------------------------------------- ------------------------------------------- ------------- --------
    OSS Engineering and Planning Support Technical specialist support on:               January --    175
                                         - OSS testing (Network Area)                December 2012
                                         - Network and Element Manager requirement
                                         management and deployment
                                         - TEMIP vs Netcool Migration
---------------------------------------- ------------------------------------------- ------------- --------
    IP Network Technical Support         IP Network Testing Support new                 January --    347
                                         functionalities studies, design support and   December 2012
                                         laboratory tests, including people training
---------------------------------------- ------------------------------------------- ------------- --------
    TRANSPORT Support to Testing         Transport Network Testing Support new          January --    411
                                         functionalities studies and laboratory tests, December 2012
                                         including people training
---------------------------------------- ------------------------------------------- ------------- --------
    TRANSPORT Support to Operation       Transport Network deployment support           January --    437
    Maintenance                          PQR, Procedures and optimization for        December 2012
                                         network development, including on field
                                         checks
                                         Transport network OandM support OandM rules
                                         and procedures of transport network



22 / 25
 
 
 
 
 
  



AREA Network - Projects 2012 Brazil (3/4) TIM BRASIL


            PROJECT                               BENEFIT                              TIMING        PRICE
                                                                                                   (K.EURO)
------------------------------------- --- ------------------------------------------ ------------- --------
TRANSPORT NETWORK -                   Workshop and knowledge sharing about:               January --     50
Implementation best practices         -   External network physical BP construction; December 2012
                                      -   Internal network transmission/transport

                                      rooms BP construction;
                                      - Internal network transmission installation
                                      BP;


                                      - Vendor Rating (from Implementation
                                      perspective).
------------------------------------- ---------------------------------------------- ------------- --------
Guitar 2G/3G - License Renewal        Exploiting TI own radio planning tool.            January --    140
                                      Includes Database Customization                December 2012
------------------------------------- ---------------------------------------------- ------------- --------
Erato - License Renewal               To optimize radio channels dimensioning           January --     30
                                      process and increase efficiency                December 2012
------------------------------------- ---------------------------------------------- ------------- --------
TGDS - 2011 License Fee               Allowing operator to improve time to market       January --    155
                                      in launching of new VAS through a              December 2012
                                      multiservice platform (in tim Brasil network)
------------------------------------- ---------------------------------------------- ------------- --------
SANS License Fee                      Allowing operator to monitor the                  January --     43
                                      performance of services implemented on         December 2012
                                      TGDS platform
------------------------------------- ---------------------------------------------- ------------- --------
Operation and Maintenance Support for OandM Support for SMART Platform (TGDS)             January --    224
TGDS                                                                                 December 2012
------------------------------------- --- ------------------------------------------ ------------- --------
Operation and Maintenance Support for Skilled Support for OandM Activity                  January --     52
SANS                                                                                 December 2012



23 / 25
 
 
 
 
 
  

AREA Network - Projects 2012 Brazil (4/4) TIM BRASIL


            PROJECT                           BENEFIT                          TIMING        PRICE
                                                                                           (K.EURO)
------------------------------------- --- ---------------------------------- ------------- --------
iNMS - Evolution Maintenance Services SW and Operation and Maintenance Support    January --    100
                                                                             December 2012
------------------------------------- --- ---------------------------------- ------------- --------
VAS Evolution                         Customization for:                        January --    120
                                      -   New Numbering Plan on Sao Paulo    December 2012
                                      -   Evoluzione TLLA a SIP
                                      -   Upgrade HW


TOTAL TIM Brasil K. [] 3.536

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AREA Network - Projects 2012 Brazil (1/1) INTELIG


            PROJECT                    BENEFIT                                TIMING       PRICE
                                                                                         (K.EURO)
-------------------- -------------------------------------------------------- ---------- --------
SHORT TERM PLAN      Engineering support on MSAN, Aggregation layer,          January --    771
                                                                              April 2012
                     Service Model
                     Testing: E2E PVV, Environmental PVV, and support on
                     PQR
                     Support to secondary network design criteria definition
                     Support to definition of creation, provisioning and
                     assurance processes
                     OSS: Regman and NEXT introduction, case study
                     Support to CPE selection
-------------------- -------------------------------------------------------- ---------- --------
MID - LONG TERM PLAN Study of long term + green field solution+ definition of January --    356
                                                                              December
                     FTTB                                                       2012
                     "Emission of a new RFI/RFQ for long term/green
                     field+FTTB"
                     Study of possible architecture per voice services ,
                     home connected and video / IPTV Broadcast solution.


TOTAL INTELIG K.[] 1.127


25 / 25
 
Exhibit 8.1

List of Significant Subsidiaries

TIM Celular S.A.
 
 
Exhibit 12.1
SECTION 302 CERTIFICATION

I, Claudio Zezza, certify that:

 
1.
I have reviewed this annual report on Form 20-F of TIM Participações S.A.;

 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

 
4.
I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:

 
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 
c)
Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 
d)
Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

 
5.
I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

 
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

 
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.

Date: May 14, 2012
 
By:
 /s/ Claudio Zezza
 
  Name:  Claudio Zezza
 
  Title:  Chief Financial Officer and
  acting principal executive officer
 
Exhibit 13.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The certification set forth below is being submitted in connection with the Annual Report on Form 20-F for the year ended December 31, 2011 (the “Report”) for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to section 906 of the U.S. Sarbanes Oxley Act of 2002.

I, Claudio Zezza, Chief Financial Officer and acting principal executive officer of TIM Participações S.A., certify that, to the best of my knowledge:

 
1.
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and

 
2.
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of TIM Participações S.A.

Date: May 14, 2012
 
 
By:
 /s/ Claudio Zezza
 
Name:  Claudio Zezza
 
Title:  Chief Financial Officer and
acting principal executive officer

Exhibit 15.1
 
 
Consent of Independent Registered
Public Accounting Firm
 
We hereby consent to the incorporation by reference in the Registration Statements on Form F-3 of TIM Participações S.A. (File No. 333-176848), of our report dated May 14, 2012 relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in this Form 20-F of TIM Participações S.A. for the year ended December 31, 2011.

/s/ PricewaterhouseCoopers
PricewaterhouseCoopers
Auditores Independentes
Rio de Janeiro, Brazil
May 14, 2012