<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 23, 1996
REGISTRATION NO. 333-5094
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
Amendment No. 1
to
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
KABELMEDIA HOLDING GMBH
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
FEDERAL REPUBLIC OF GERMANY 4841 NOT APPLICABLE
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification Number)
Organization)
</TABLE>
OBERER STEINWEG 10
08523 PLAUEN, GERMANY
(###-##-####) 26060
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
CT CORPORATION SYSTEM
1633 BROADWAY
NEW YORK, NEW YORK 10019
(212) 246-5070
(Name, Address, Including Zip Code, and Telephone Number, including Area Code,
of Agent for Service)
COPIES TO:
<TABLE>
<S> <C>
THOMAS L. PHILIPP, ESQ. JOHN D. WILSON, ESQ.
BAKER & MCKENZIE SHEARMAN & STERLING
100 NEW BRIDGE STREET 12, RUE D'ASTORG
LONDON, ENGLAND, EC4V 6JA 75008 PARIS, FRANCE
(011-44-171) 919-1000 (011-331) 4471-1717
</TABLE>
------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
PROPOSED MAXIMUM
TITLE OF EACH CLASS AGGREGATE AMOUNT OF
OF DISCOUNT NOTES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------
% Senior Discount Notes Due 2006........................ $100,000,000.00 $34,483.00
- --------------------------------------------------------------------------------------------------------
Total................................................ $ $
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457 under the Securities Act of 1933.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
KABELMEDIA HOLDING GMBH
CROSS-REFERENCE SHEET
CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K, SHOWING
LOCATION IN THE PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM S-1
<TABLE>
<CAPTION>
ITEM FORM S-1 CAPTION LOCATION OR CAPTION IN PROSPECTUS
- ----- ------------------------------------------ ------------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Cover Page of Registration Statement;
Outside Front Cover Page of Prospectus.... Cross-Reference Sheet; Outside Front Cover
Page of Prospectus
2. Inside Front and Outside Back Cover Pages Inside Front and Outside Back Cover Pages
of Prospectus............................. of Prospectus
3. Summary Information, Risk Factors and Prospectus Summary; Risk Factors; Selected
Ratio of Earnings to Fixed Charges........ Consolidated Financial Data; Unaudited Pro
Forma Condensed Consolidated Financial
Data
4. Use of Proceeds........................... Use of Proceeds; Management's Discussion
and Analysis of Financial Condition and
Results of Operations
5. Determination of Offering Price........... *
6. Dilution.................................. *
7. Selling Discount Note Holders............. *
8. Plan of Distribution...................... Underwriting
9. Description of Discount Notes to be Description of the Discount Notes; Certain
Registered................................ Income Tax Considerations
10. Interests of Named Experts and Counsel.... *
11. Information with Respect to the Prospectus Summary; Risk Factors;
Registrant................................ Capitalization; Selected Consolidated
Financial Data; Unaudited Pro Forma
Condensed Consolidated Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Industry; Business; Certain
Regulatory Matters; Management; Certain
Related Party Transactions; Principal
Shareholders; Description of Certain
Indebtedness; Description of the Discount
Notes; Underwriting; Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................... *
</TABLE>
- ------------------
* Omitted because inapplicable or the answer is in the negative.
i
<PAGE> 3
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with
the Securities and Exchange Commission. These securities may not be sold
nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This prospectus shall not constitute an offer
to sell or the solicitation of an offer to buy nor shall there be any sale
of these securities in any State in which such offer, solicitation or sale
would be unlawful prior to registration or qualification under the
securities laws of any such State.
PRELIMINARY PROSPECTUS (Subject to Completion)
Issued June 22, 1996
LOGO
Kabelmedia Holding GmbH
$ % SENIOR DISCOUNT NOTES DUE 2006
NO INTEREST ON THE SENIOR DISCOUNT NOTES (THE "DISCOUNT NOTES") WILL ACCRUE
PRIOR TO , 2001. THEREAFTER, INTEREST ON THE DISCOUNT NOTES WILL BE PAYABLE
ON AND , COMMENCING , 2001. THE GROSS PROCEEDS OF THE DISCOUNT
NOTES WILL BE APPROXIMATELY $100 MILLION, AND THE YIELD TO MATURITY OF THE
DISCOUNT NOTES, COMPUTED ON THE BASIS OF SEMI-ANNUAL COMPOUNDING, IS .
THE OFFERING OF DISCOUNT NOTES MADE HEREBY IS REFERRED TO HEREIN AS THE
"OFFERING."
------------------------
THE DISCOUNT NOTES WILL BE REDEEMABLE, IN WHOLE OR IN PART, AT THE OPTION OF
KABELMEDIA AT ANY TIME ON OR AFTER , 2001 AT THE REDEMPTION PRICES SET
FORTH HEREIN, PLUS ACCRUED AND UNPAID INTEREST, IF ANY, TO THE DATE OF
REDEMPTION. IN ADDITION, IN THE EVENT OF THE FIRST TO OCCUR PRIOR TO ,
1999 OF (I) A PUBLIC EQUITY OFFERING (AS DEFINED IN "DESCRIPTION OF THE
DISCOUNT NOTES -- CERTAIN DEFINITIONS") BY KABELMEDIA FOR GROSS PROCEEDS
OF DM 30 MILLION OR MORE OR (II) A SALE OR A SERIES OF RELATED SALES BY
KABELMEDIA OF ITS COMMON STOCK TO ONE OR MORE STRATEGIC EQUITY INVESTORS
(AS DEFINED IN "DESCRIPTION OF THE DISCOUNT NOTES -- CERTAIN
DEFINITIONS"), FOR AN AGGREGATE PURCHASE PRICE OF AT LEAST DM 30
MILLION, KABELMEDIA MAY, AT ITS OPTION, REDEEM UP TO 35% OF THE
ORIGINAL AGGREGATE PRINCIPAL AMOUNT AT MATURITY OF THE DISCOUNT NOTES
FROM THE NET PROCEEDS THEREOF AT % OF THEIR ACCRETED VALUE (AS
DEFINED IN "DESCRIPTION OF THE DISCOUNT NOTES -- CERTAIN
DEFINITIONS"). SEE "DESCRIPTION OF THE DISCOUNT NOTES -- TERMS OF
THE DISCOUNT NOTES." IN THE EVENT OF CERTAIN CHANGES AFFECTING THE
WITHHOLDING TAX TREATMENT OF CERTAIN PAYMENTS ON THE DISCOUNT
NOTES, THE DISCOUNT NOTES WILL ALSO BE REDEEMABLE, AS A WHOLE
BUT NOT IN PART, AT THE OPTION OF KABELMEDIA, ON OR AFTER ,
2001, AT 100% OF THE PRINCIPAL AMOUNT AT MATURITY THEREOF, PLUS
ACCRUED AND UNPAID INTEREST, IF ANY, TO THE DATE OF REDEMPTION.
SEE "DESCRIPTION OF THE DISCOUNT NOTES -- REDEMPTION FOR CHANGES
IN WITHHOLDING TAXES."
------------------------
UPON A CHANGE OF CONTROL (AS DEFINED IN "DESCRIPTION OF THE DISCOUNT NOTES --
CERTAIN DEFINITIONS"), EACH HOLDER WILL HAVE THE RIGHT TO REQUIRE KABELMEDIA TO
REPURCHASE THE DISCOUNT NOTES AT (I) 101% OF THEIR ACCRETED VALUE, IF
REDEEMED PRIOR TO , 2001, AND (II) 101% OF THEIR PRINCIPAL
AMOUNT, PLUS ACCRUED AND UNPAID INTEREST, IF ANY, THEREAFTER. THERE
CAN BE NO ASSURANCE THAT KABELMEDIA WILL HAVE THE FINANCIAL
RESOURCES NECESSARY TO REPURCHASE THE DISCOUNT NOTES AT THE
TIME OF ANY CHANGE OF CONTROL OR AT THE TIME OF A REPURCHASE
REQUIRED IN CONNECTION WITH CERTAIN ASSET SALES DESCRIBED
HEREIN.
------------------------
THE DISCOUNT NOTES WILL BE ISSUED AS A GLOBAL SECURITY IN REGISTERED FORM, WHICH
WILL BE DEPOSITED WITH THE BANK OF NEW YORK, AS CUSTODIAN FOR THE DEPOSITORY
TRUST COMPANY ("DTC"). EXCEPT AS DESCRIBED UNDER "DESCRIPTION OF THE
DISCOUNT NOTES -- FORM OF DISCOUNT NOTES," THE DISCOUNT NOTES WILL NOT
BE AVAILABLE IN DEFINITIVE FORM TO THE PURCHASERS THEREOF.
BENEFICIAL INTERESTS IN THE DISCOUNT NOTES WILL BE SHOWN ON, AND
TRANSFERS THEREOF WILL BE EFFECTED ONLY THROUGH,
RECORDS MAINTAINED IN BOOK-ENTRY FORM BY DTC OR ITS
NOMINEE AND ITS PARTICIPANTS (INCLUDING EUROCLEAR AND
CEDEL HOLDING THROUGH THEIR RESPECTIVE DEPOSITARIES,
MORGAN GUARANTY TRUST COMPANY OF NEW YORK AND
CITIBANK, N.A.).
------------------------
THE DISCOUNT NOTES WILL REPRESENT GENERAL UNSECURED OBLIGATIONS OF KABELMEDIA.
KABELMEDIA IS A HOLDING COMPANY WITH LIMITED ASSETS OF ITS OWN WHICH CONDUCTS
SUBSTANTIALLY ALL OF ITS BUSINESS THROUGH SUBSIDIARIES. KABELMEDIA WILL BE
DEPENDENT UPON ACCESS TO THE EARNINGS, IF ANY, OR ASSETS OF ITS SUBSIDIARIES
TO MAKE ANY PAYMENT ON THE DISCOUNT NOTES. THE DISCOUNT NOTES WILL RANK PARI
PASSU IN RIGHT OF PAYMENT WITH ANY OTHER UNSUBORDINATED AND UNSECURED
INDEBTEDNESS AND SENIOR IN RIGHT OF PAYMENT TO ALL SUBORDINATED
INDEBTEDNESS THAT MAY BE INCURRED BY KABELMEDIA IN THE FUTURE. THE
DISCOUNT NOTES WILL BE EFFECTIVELY SUBORDINATED TO ALL EXISTING AND FUTURE
INDEBTEDNESS OF KABELMEDIA'S SUBSIDIARIES, INCLUDING BORROWINGS UNDER
THE BANK FACILITY (AS DEFINED IN "DESCRIPTION OF CERTAIN INDEBTEDNESS")
AND OTHER INDEBTEDNESS FOR MONEY BORROWED OF SUCH SUBSIDIARIES.
KABELMEDIA WILL HOLD SUBORDINATED SUBSIDIARY NOTES IN AGGREGATE
PRINCIPAL AMOUNT EQUAL TO THE NET PROCEEDS FROM THE SALE OF THE
DISCOUNT NOTES (THE "SUBORDINATED SUBSIDIARY NOTES"). ON A PRO FORMA
BASIS, AFTER GIVING EFFECT TO THE SHAREHOLDER DEBT CONVERSION AND THE
OFFERING AND THE APPLICATION OF THE PROCEEDS THEREOF, AS AT MARCH
31, 1996, KABELMEDIA'S SUBSIDIARIES WOULD HAVE HAD DM98.7 MILLION
($66.8 MILLION) OF OUTSTANDING BORROWINGS UNDER THE BANK FACILITY
AND DM6.1 MILLION ($4.1 MILLION) OF OTHER INDEBTEDNESS FOR MONEY
BORROWED. ON A PRO FORMA BASIS, AFTER GIVING EFFECT TO THE
SHAREHOLDER DEBT CONVERSION, THE OFFERING AND THE APPLICATION OF
THE NET PROCEEDS THEREOF, AND THE PENDING ACQUISITIONS (AS
DEFINED IN "PROSPECTUS SUMMARY -- THE COMPANY"), AS AT MARCH 31,
1996, KABELMEDIA'S SUBSIDIARIES WOULD HAVE HAD DM155.8 MILLION
($105.5 MILLION) OF OUTSTANDING BORROWINGS UNDER THE BANK
FACILITY AND DM6.1 MILLION ($4.1 MILLION) OF OTHER INDEBTEDNESS
FOR MONEY BORROWED. THE TERMS OF CERTAIN INDEBTEDNESS OF
KABELMEDIA'S SUBSIDIARIES MATERIALLY LIMIT THE PAYMENT OF
DIVIDENDS, LOANS OR OTHER DISTRIBUTIONS BY SUCH SUBSIDIARIES
TO KABELMEDIA, PROVIDED THAT SUCH PAYMENTS ARE PERMITTED TO
THE EXTENT NECESSARY TO MAKE INTEREST PAYMENTS ON THE
DISCOUNT NOTES FOR SO LONG AS THERE IS NO EVENT OF DEFAULT
UNDER SUCH INDEBTEDNESS. ACCORDINGLY, KABELMEDIA'S ABILITY
TO MAKE PRINCIPAL PAYMENTS ON, OR ANY REQUIRED REDEMPTIONS
OF, THE DISCOUNT NOTES MAY BE DEPENDENT, IN PART, UPON
KABELMEDIA'S ABILITY TO REFINANCE SUCH INDEBTEDNESS IN
THE FUTURE, WHICH WOULD DEPEND, IN PART, UPON FACTORS
BEYOND THE CONTROL OF KABELMEDIA. IN ADDITION, THE
ABILITY OF KABELMEDIA TO ACCESS THE EARNINGS OF ITS
SUBSIDIARIES MAY BE LIMITED BY GERMAN LAW. SEE
"DESCRIPTION OF THE DISCOUNT NOTES -- RANKING." THE
INDENTURE UNDER WHICH THE DISCOUNT NOTES WILL BE
ISSUED DOES NOT CONTAIN ANY PROVISIONS THAT AFFORD
HOLDERS OF DISCOUNT NOTES PROTECTION IN THE EVENT OF
A HIGHLY LEVERAGED TRANSACTION BY KABELMEDIA, OTHER
THAN THE PROVISIONS CONTAINED THEREIN LIMITING THE
ABILITY OF KABELMEDIA AND ITS RESTRICTED
SUBSIDIARIES (AS DEFINED IN "DESCRIPTION OF THE
DISCOUNT NOTES -- CERTAIN DEFINITIONS") TO INCUR
ADDITIONAL INDEBTEDNESS AND REQUIRING KABELMEDIA
TO OFFER TO REPURCHASE THE DISCOUNT NOTES UPON A
CHANGE OF CONTROL. SEE "RISK FACTORS -- ADVERSE
CONSEQUENCES OF FINANCIAL LEVERAGE", "--
HOLDING COMPANY STRUCTURE" AND "-- POSSIBLE
ADDITIONAL SUBSIDIARY DEBT."
The Discount Notes will not be listed on any United States securities exchange
or on an over-the-counter market system and there can be no assurance that an
active trading market for the Discount Notes will develop.
SEE "RISK FACTORS" BEGINNING ON PAGE 16 FOR INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THE DISCOUNT NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC(1) AND COMMISSIONS(2) COMPANY(1)(3)
--------- ---------------------- -------------
<S> <C> <C> <C>
Per Discount Note................................ % % %
Total............................................ $ $ $
</TABLE>
- ------------
(1) Plus accrued original issue discount, if any, from , 1996.
(2) Kabelmedia has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses payable by Kabelmedia estimated at $ .
------------------------
The Discount Notes are offered, subject to prior sale, when, as and if
accepted by the Underwriters and subject to approval of certain legal matters by
Shearman & Sterling, counsel for the Underwriters. It is expected that delivery
of the Discount Notes in global form will be made on or about , 1996 at
the offices of Morgan Stanley & Co. Incorporated, New York, New York, against
payment therefor in same day funds.
------------------------
MORGAN STANLEY & CO. CHASE SECURITIES INC.
Incorporated
, 1996
<PAGE> 4
MAP
2
<PAGE> 5
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE
SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
------------------------
UNTIL , 1996 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE DISCOUNT NOTES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Enforceability of Certain Civil
Liabilities.......................... 4
Prospectus Summary..................... 5
Risk Factors........................... 16
Use of Proceeds........................ 26
Exchange Rate Data..................... 26
Capitalization......................... 27
Selected Consolidated Financial Data... 28
Unaudited Pro Forma Condensed
Consolidated Financial Data.......... 30
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 44
Industry............................... 53
Business............................... 57
<CAPTION>
PAGE
------
<S> <C>
Certain Regulatory Matters............. 72
Management............................. 77
Certain Related Party Transactions..... 82
Principal Shareholders................. 86
Description of Certain Indebtedness.... 89
Description of the Discount Notes...... 92
Certain Income Tax Considerations...... 122
Underwriting........................... 127
Legal Matters.......................... 128
Experts................................ 128
Available Information.................. 129
Index to Financial Statements.......... F-1
Appendix A: Glossary................... A-1
</TABLE>
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE DISCOUNT NOTES
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------------
FOR CALIFORNIA RESIDENTS ONLY
WITH RESPECT TO SALES OF THE DISCOUNT NOTES OFFERED HEREBY TO CALIFORNIA
RESIDENTS, SUCH DISCOUNT NOTES MAY BE SOLD ONLY TO (a) "ACCREDITED INVESTORS"
WITHIN THE MEANING OF REGULATION D UNDER THE SECURITIES ACT OF 1933, (b) BANKS,
SAVINGS AND LOAN ASSOCIATIONS, TRUST COMPANIES, INSURANCE COMPANIES, INVESTMENT
COMPANIES REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940, PENSION AND
PROFIT SHARING TRUSTS, ANY CORPORATIONS OR OTHER ENTITIES WHICH, TOGETHER WITH
SUCH CORPORATION'S OR OTHER ENTITY'S AFFILIATES, HAVE A NET WORTH ON A
CONSOLIDATED BASIS ACCORDING TO THEIR MOST RECENT REGULARLY PREPARED FINANCIAL
STATEMENTS (WHICH SHALL HAVE BEEN REVIEWED BUT NOT NECESSARILY AUDITED, BY
OUTSIDE ACCOUNTANTS) OF NOT LESS THAN $14,000,000 AND SUBSIDIARIES OF THE
FOREGOING, (c) ANY NATURAL PERSON OR ANY CORPORATION, PARTNERSHIP OR
ORGANIZATION
3
<PAGE> 6
(OTHER THAN A CORPORATION, PARTNERSHIP OR ORGANIZATION FORMED FOR THE SOLE
PURPOSE OF PURCHASING THE DISCOUNT NOTES BEING OFFERED HEREBY) WHO PURCHASES AT
LEAST $1,000,000 AGGREGATE AMOUNT OF THE DISCOUNT NOTES OFFERED HEREBY, OR (d)
ANY NATURAL PERSON WHO (i) HAS INCOME OF $65,000 AND A NET WORTH OF $250,000, OR
(ii) HAS A NET WORTH OF $500,000 (IN EACH CASE, EXCLUDING HOME, HOME FURNISHINGS
AND PERSONAL AUTOMOBILES).
------------------------
ENFORCEABILITY OF CERTAIN CIVIL LIABILITIES
Kabelmedia is a limited liability company organized under the laws of
Germany, and a majority of its Executive Committee members, managing directors
and executive officers reside outside the United States. All or a substantial
portion of the assets of the Company and certain of its Executive Committee
members, managing directors and executive officers also are located outside the
United States. As a result, it may not be possible for investors to effect
service of process within the United States upon Kabelmedia or such persons with
respect to matters arising under the U.S. federal securities laws or to enforce
against Kabelmedia or such persons located outside the United States judgments
of U.S. courts predicated upon the civil liability provisions of the U.S.
federal securities laws.
Kabelmedia has been advised by its counsel, Baker & McKenzie, that there is
doubt as to the enforceability in Germany, in original actions or in actions for
enforcement of judgments of U.S. courts, of civil liabilities predicated solely
upon the federal securities laws of the United States. In addition, awards of
punitive damages in actions brought in the United States or elsewhere may be
unenforceable in Germany. Kabelmedia has appointed CT Corporation System as its
agent to receive service of process in any action against Kabelmedia in any
state or federal court in the State of New York arising out of the Offering made
by this Prospectus or any purchase or sale of the Discount Notes in connection
with such Offering.
------------------------
In this Prospectus, references to "U.S. dollars" or "$" are to United
States currency and references to "Deutsche Mark" or "DM" are to German
currency. For the convenience of the reader, this Prospectus contains
translations of certain Deutsche Mark amounts into U.S. dollars which should not
be construed as a representation that such Deutsche Mark amounts actually
represent such U.S. dollar amounts or could be, or could have been, converted
into U.S. dollars at the rates indicated or at any other rate. Unless otherwise
stated, such dollar amounts have been derived by converting from Deutsche Mark
to U.S. dollars at the rate of DM1.4766 equals $1.00, the Noon Buying Rate in
The City of New York for cable transfers in Deutsche Mark as announced by the
Federal Reserve Bank of New York for customs purposes (the "Noon Buying Rate")
on March 29, 1996. This rate may differ from the actual rates in effect during
the periods covered by the financial information discussed herein. See "Exchange
Rate Data."
------------------------
Amounts and percentages appearing in this Prospectus may not total due to
rounding.
------------------------
The principal executive office of the Company is located at Oberer Steinweg
10, 08523 Plauen, The Federal Republic of Germany ("Germany"), and its telephone
number is (###-##-####)26060.
4
<PAGE> 7
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. As used in
this Prospectus, the "Company" refers to Kabelmedia Holding GmbH ("Kabelmedia"),
a limited liability company formed under the laws of Germany, together with its
subsidiaries and, where appropriate, its predecessors. Certain terms used in
this Prospectus are defined in the Glossary included herein as Appendix A.
THE COMPANY
The Company acquires, owns and operates cable television systems that serve
primarily medium- and small-sized communities in Germany. Principally as a
result of completing 14 acquisitions since its inception in 1992, the Company
owned and operated cable systems passing approximately 492,000 homes and serving
approximately 359,000 customers as of March 31, 1996. In addition, the Company
has entered into non-binding letters of intent and commenced negotiations of
definitive purchase agreements to acquire two cable companies serving an
aggregate of approximately 46,000 customers (the "Pending Acquisitions"). See
"Business -- Acquisitions and Pending Acquisitions."
The Company has followed a systematic approach in acquiring, consolidating
and operating cable television systems, based on the goal of increasing
operating cash flow while maintaining or improving service standards. A key
element of the Company's strategy is to expand its existing regional clusters of
cable television systems and to establish new regional clusters of systems large
enough to serve as cores for new operating regions. In addition, the Company
aggressively consolidates cable systems following their acquisition to improve
operating performance by eliminating duplicative personnel and office locations,
creating regional customer service centers and signal distribution facilities
and centralizing corporate support functions, including accounting, billing,
marketing and technical and administration services. Between January 1, 1994 and
March 31, 1996, the Company completed 12 acquisitions, thereby adding cable
systems serving approximately 317,500 customers (measured at the date of the
respective acquisitions), while reducing the number of office locations serving
customers of such acquired systems and the Company's other systems from 25 to
seven and the number of employees serving such acquired systems and the
Company's other systems from 211 to 125.
The following tables provide certain data for the Company's cable
television systems (i) on an actual basis as at and for the years ended December
31, 1993, 1994 and 1995 and the three months ended March 31, 1996; (ii) on a pro
forma basis as at and for the year ended December 31, 1995 giving effect to the
Recent Acquisitions (as defined in "-- Recent and Pending Acquisitions"), the
Shareholder Debt Conversion (as defined in "-- Shareholder Debt Conversion") and
the Offering and the application of the proceeds therefrom as if such
transactions had occurred on January 1, 1995; (iii) on a pro forma basis as at
and for the year ended December 31, 1995 giving effect to the Recent
Acquisitions, Shareholder Debt Conversion, the Offering and the application of
the proceeds therefrom and the Pending Acquisitions as if such transactions had
occurred on January 1, 1995; and (iv) on a pro forma basis as at and for the
three-month period ended March 31, 1996 giving effect to the InfoSat Acquisition
(as defined in "-- Recent and Pending Acquisitions"), the Shareholder Debt
Conversion, the Offering and the application of the proceeds therefrom and the
Pending Acquisitions as if such transactions had occurred on January 1, 1996.
See "Business -- Acquisitions and Pending Acquisitions."
5
<PAGE> 8
<TABLE>
<CAPTION>
HISTORICAL(1)
-------------------------------------------------------------------
DECEMBER 31, MARCH 31,
------------------------------------------- -------------------
1993 1994 1995 1995(2) 1996 1996(2)
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Homes passed(3)................................. 23,890 71,032 452,948 -- 491,863 --
Customers(3).................................... 22,655 58,613 342,752 -- 358,784 --
Penetration(3)(4)............................... 94.8% 82.5% 75.7% -- 72.9% --
Average monthly revenue per customer(5)......... DM9.24 DM9.37 DM12.44 $8.42 DM14.30 $9.68
Average monthly EBITDA per customer(5).......... DM4.22 DM1.59 DM 4.60 $3.11 DM 7.50 $5.08
EBITDA margin(6)................................ 45.7% 17.0% 37.0% -- 52.4% --
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
-------------------------------------------------------------
DECEMBER 31, 1995 MARCH 31, 1996
--------------------------------------- -----------------
FOR THE RECENT FOR THE INFOSAT
FOR THE RECENT ACQUISITIONS, ACQUISITION,
ACQUISITIONS, THE SHAREHOLDER THE SHAREHOLDER
THE SHAREHOLDER DEBT CONVERSION, DEBT CONVERSION,
DEBT CONVERSION THE OFFERING THE OFFERING
AND THE AND THE PENDING AND THE PENDING
OFFERING(2) ACQUISITIONS(2)(7) ACQUISITIONS(2)(7)
----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Homes passed(3)........................................ 467,184 -- 517,394 -- 542,073 --
Customers(3)........................................... 356,251 -- 402,251 -- 404,784 --
Penetration(3)(4)...................................... 76.3% -- 77.7% -- 74.7% --
Average monthly revenue per customer(5)................ DM13.98 $9.47 DM13.43 $9.10 DM13.71 $9.28
Average monthly EBITDA per customer(5)................. DM 6.98 $4.73 DM 6.88 $4.66 DM 7.35 $4.98
EBITDA margin(6)....................................... 49.9% -- 51.2% -- 53.6% --
</TABLE>
- ---------------
(1) Reflects acquisitions completed by the Company from inception through March
31, 1996 as of their acquisition dates. See "Business -- Systems."
(2) For convenience, the financial data have been translated at the rate of
DM1.4766 = $1.00, the Noon Buying Rate on March 29, 1996.
(3) At end of period. Homes passed and penetration at March 31, 1996 reflect
results reported to the Company during 1996 of a survey commissioned by the
Company of the number of homes in certain of its concession areas and, to a
lesser extent, the build-out of existing systems.
(4) Customers as a percentage of homes passed.
(5) "EBITDA" consists of earnings (loss) before extraordinary items, minority
interests, net interest expense, income taxes and depreciation and
amortization. The Company believes that EBITDA and related measures of cash
flow from operating activities serve as important financial indicators in
measuring and comparing cable television companies in several areas,
including liquidity, operating performance and leverage. EBITDA is not a
U.S. GAAP measure of income (loss) or cash flow from operations and should
not be considered as an alternative to net income as an indication of the
Company's financial performance or as an alternative to cash flow from
operating activities as a measure of liquidity. Historical average monthly
revenue and EBITDA per customer equals (a)(i) historical revenues and EBITDA
for the period divided by (ii) twelve for the annual periods and three for
the quarterly periods divided by (b) the average monthly number of customers
for such period. Pro forma average monthly revenue and EBITDA per customer
equals (a)(i) pro forma revenue and EBITDA for the period divided by (ii)
twelve for the annual periods and three for the quarterly periods divided by
(b) the pro forma number of customers at December 31, 1995 or March 31,
1996, as appropriate.
(6) Represents EBITDA as a percentage of revenues.
(7) Computations of pro forma number of homes passed, number of customers and
average monthly revenue per customer reflect information with respect to the
Pending Acquisitions supplied by the respective sellers as of certain dates
during the fourth quarter of 1995. Such information has been subject to only
limited verification by the Company and, in some cases, has been calculated
on a different basis than that used by the Company.
The Company has experienced rapid growth since its inception in 1992 and,
as is common for cable television companies in comparable stages of development,
has incurred significant net losses in each of its first three years of
operations (DM1,501,000 in 1993, DM6,116,000 in 1994 and DM38,282,000 in 1995).
The Company had accumulated deficits amounting to DM1,501,000, DM7,617,000 and
DM45,899,000 as at December 31, 1993, 1994 and 1995, respectively.
6
<PAGE> 9
THE GERMAN CABLE TELEVISION MARKET
Germany is the largest cable television market in Europe and provides a
highly favorable environment for cable television system acquisitions and
operations:
- - Large, Fragmented Cable Television Market -- Germany has a population of
over 81 million people and over 36 million homes. Deutsche Telekom AG
("Deutsche Telekom") is the dominant cable television supplier; its cable
television distribution systems, either directly or indirectly through
private cable system operators, passed approximately 24 million homes and
served over 15 million cable subscribers as of September 30, 1995. Deutsche
Telekom provides cable television signals to over 5,000 private cable
system operators with over 100 subscribers each and to over 475 private
cable system operators with over 1,000 subscribers each. A large number of
German cable system operators also obtain their programming directly
through their own head-ends and provide that programming to a significant
number of additional homes in Germany. This large number of cable system
operators provides the Company with significant consolidation
opportunities.
- - Built-out Infrastructure -- The German cable television infrastructure is
substantially built-out. As of September 30, 1995, Deutsche Telekom cable
television distribution systems, either directly or through cable
transmission lines of private system operators, passed approximately 64% of
the homes in Germany. In addition, systems in which the head-end is owned
by a private cable system operator pass or provide signal to a significant
number of other homes in Germany. The Company estimates that as of March
31, 1996, principal transmission lines passed 84% of the approximately
585,000 homes in its concession areas.
- - High Density -- Germany has an average population density of 562 persons per
square mile, compared to 70 persons per square mile in the United States
and 616 persons per square mile in the United Kingdom. Approximately 86% of
Germany's population resides in urban areas, compared to 75% in the United
States and 89% in the United Kingdom. In addition to generating cost
savings from lower investment in cable plant per home passed, such density
contributes to lower operating costs because fewer technicians are required
to service a given number of customers.
- - Low Churn Rate -- The Company estimates that its churn rate has historically
been less than 5%, which is a significantly lower churn rate than those
which generally prevail in the U.S. and U.K. cable television industries.
The Company believes such lower churn rate to be due primarily to the
greater use of preauthorized payment procedures, fewer alternative tiers of
programming and, when compared with the United States, a less transient
population. See "Business -- Programming."
- - Wide Use of Preauthorized Payment Procedures -- Approximately 70% of the
Company's customers pay their subscription fees through preauthorized
payment procedures, whereby an automatic draw is made on such customer's
bank account. The Company believes that preauthorized payment procedures
result in lower billing costs, less bad debt expense and lower churn rates.
- - Low Programming Costs -- Historically, the Company's cost of programming as
a percentage of revenue has been nominal. Although such costs are expected
to increase due to several factors, including the possible imposition of
copyright royalty fees in respect of programming received on Company-owned
head-ends and pursuant to Deutsche Telekom signal delivery contracts (see
"Risk Factors -- Copyright Royalty Fees") and the increasing market
strength of certain program providers relative to that of Deutsche Telekom
and private cable system operators (see "Risk Factors -- Access to and Cost
of Programming"), the Company believes that for the foreseeable future, the
uncertain state of German copyright law and market conditions in the German
cable television industry will enable the Company and other German cable
system operators to maintain a level of programming cost as a percentage of
revenue which is relatively low as compared to cable television operators
in the United States and the United Kingdom. See "Business -- Programming."
For further information on the German cable television market, see
"Industry," "Business" and "Certain Regulatory Matters."
7
<PAGE> 10
BUSINESS STRATEGY
The Company's objective is to enhance the value of its business by
capitalizing on opportunities presented by the large and fragmented German cable
television market. The Company's business strategy to achieve this objective
focuses on the following general principles:
- - Emphasis on Regional Clusters and Growth Through Acquisitions -- A key
element of the Company's strategy is to develop regional clusters of cable
television systems by acquiring cable systems that are either in close
proximity to its existing systems or large enough to serve as cores for new
operating regions. The Company has established significant regional
clusters of cable systems in the regions surrounding Plauen, Leipzig,
Berlin, Dresden, Stuttgart and Osnabruck. The Company is not aware of any
reliable or consistent published industry data on the relative size of
private cable system operators in Germany. However, on the basis of
discussions with competitors, the Company believes that with over 359,000
existing customers it is the fifth largest private cable system operator in
Germany in terms of customers (not including Deutsche Telekom, which is not
considered a private cable system operator). Approximately 46,000
additional customers are served by the systems expected to be acquired upon
consummation of the Pending Acquisitions, although no assurances can be
given as to when or if any of the Pending Acquisitions will be consummated.
The Company believes that its clustering strategy and the scope of its
operations have enabled it to reduce operating costs. See "Business."
- - Enhancing Efficiency and Margins by Streamlining Operations -- Upon
completion of an acquisition, the Company generally implements extensive
management, operational and organizational changes designed to enhance
operating cash flow and operating margins. The Company's customer account
processing and administrative services for acquired cable systems are
transferred to one centralized location, thereby reducing redundant
overhead costs.
- - Promoting Internal Growth -- The Company seeks to increase revenues in
acquired systems in a number of ways, including selective increases in
rates for cable services that are timed to coincide with published
increases in various cost of living indices or the introduction of new or
improved programming, the continued build-out of existing cable systems and
marketing efforts designed to increase penetration.
- - Technological Enhancement -- The Company strives to maintain high
technological standards in its cable television systems on a cost-effective
basis and continuously upgrades its cable systems to achieve this goal. The
Company monitors and evaluates new technological developments on the basis
of its ability to make optimal use of its existing assets and to anticipate
the introduction of new services and program delivery capabilities. The
Company believes that it is well-positioned in terms of technological
capabilities to take advantage of the introduction of new cable television
and ancillary services in the German market.
- - Customer Service Orientation -- Each of the Company's operating regions is
managed by a regional manager who is responsible for both customer and
technical service within his region and who reports directly to Ernst
Uhlig, the Company's Chief Operating Officer. The Company believes that
this flat operating structure enables it to be more responsive to customer
needs.
- - Ownership and Control of Systems -- The Company owns approximately 98% of
its cable television systems on an equity subscriber basis. The Company
owns 100% of each of its cable systems, with the exception of systems
serving three communities with an aggregate of approximately 33,000
customers, in which it owns 91%, 50% and 80%, respectively.
RECENT AND PENDING ACQUISITIONS
During the year ended December 31, 1995, the Company completed the
acquisition of six cable television companies and the assets of one additional
cable television company serving an aggregate of approximately 270,000 customers
(measured at the dates of the respective acquisitions) in the regions of
Leipzig, Berlin, Stuttgart and Osnabruck (collectively, the "1995
Acquisitions"), and during the first quarter of 1996 the Company completed the
acquisition of InfoSat GmbH (as defined in "Business -- Systems"), a cable
television company serving approximately 13,500 customers in and around the
towns of Aschersleben and Luckenwalde (the "InfoSat Acquisition" and, together
with the 1995 Acquisitions, the "Recent Acquisi-
8
<PAGE> 11
tions"). In addition, the Company has entered into non-binding letters of intent
with respect to the Pending Acquisitions. The Company expects to enter into
definitive agreements with respect to the Pending Acquisitions in the
foreseeable future. The Company estimates that the aggregate consideration,
including acquired indebtedness, brokerage fees and closing costs, payable in
respect of the Pending Acquisitions will be between DM50,000,000 and
DM57,000,000, which the Company would borrow under the Bank Facility (as defined
in "Description of Certain Indebtedness"). There can be no assurance, however,
that the Company will consummate either of such acquisitions. See "Business --
Acquisitions and Pending Acquisitions."
RISK FACTORS
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN RISK FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS. Such risks relate to: (a) the adverse
consequences of financial leverage; (b) the deficiency of the Company's earnings
to fixed charges; (c) the risks associated with a holding company structure; (d)
the ability of the Company's subsidiaries to incur debt senior to the Discount
Notes; (e) the effect of a change of control; (f) the requirement for additional
funds; (g) significant competition; (h) access to and cost of programming; (i)
the potential imposition of copyright royalty fees; (j) extensive government
regulation; (k) the risks associated with an acquisition strategy; (l)
integration of the Company's acquired businesses and the management of growth;
(m) variations in quarterly results; (n) the potential difficulties in enforcing
civil liabilities against the Company; (o) the dependence upon certain key
personnel; (p) rapid technological changes; (q) currency risks and hedging
transactions; (r) limited insurance coverage; (s) influence of the Company's
principal shareholders; (t) certain interests of affiliates of the Underwriters;
(u) the lack of an established market for the Discount Notes; and (v) original
issue discount consequences.
THE OFFERING
$ PRINCIPAL AMOUNT AT MATURITY OF % DISCOUNT NOTES DUE 2006
The Discount Notes are to be issued pursuant to the Indenture (as defined
herein). For a more detailed description of the Discount Notes and definitions
of certain terms used in this summary description, see "Description of the
Discount Notes."
TERMS OF THE DISCOUNT NOTES
Issue Price................ $ per $1,000 principal amount at maturity
of Discount Notes.
Maturity Date.............. , 2006.
Yield and Interest......... % per annum (computed on a semi-annual bond
equivalent basis) calculated from , 1996.
Cash interest will not accrue on the Discount Notes
prior to , 2001. Thereafter, cash
interest on the Discount Notes will be payable at a
rate of % per annum, semi-annually in arrears on
each and , commencing
, 2001.
Original Issue Discount.... The Discount Notes are being offered at an original
issue discount for U.S. federal income tax
purposes. Thus, although cash interest will not be
payable on the Discount Notes prior to ,
2001, original issue discount (i.e., the difference
between the principal amount at maturity of the
Discount Notes and their issue price) will accrue
from the issue date of the Discount Notes and will
be included as interest income periodically
(including for periods ending prior to ,
2001) in a Discount Note holder's gross income for
United States federal income tax purposes in
advance of receipt of the cash payments to which
the income is attributable. See "Certain Income Tax
Considerations."
9
<PAGE> 12
Optional Redemption........ The Discount Notes will be redeemable, at
Kabelmedia's option, in whole or in part, at any
time on or after , 2001 at the redemption
prices set forth herein, plus accrued and unpaid
interest to the date of redemption. In addition, in
the event of the first to occur prior to
1999, of (i) a Public Equity Offering by Kabelmedia
for gross proceeds of DM 30 million or more or (ii)
a sale or a series of related sales by Kabelmedia
of its Common Stock to one or more Strategic equity
Investors for an aggregate purchase price of at
least DM 30 million, Kabelmedia may, at its option,
use all or any portion of the net proceeds thereof
to redeem an amount of Discount Notes representing
up to 35% of the original aggregate principal
amount at maturity of the Discount Notes at a
redemption price of % of their Accreted Value.
See "Description of the Discount Notes --
Limitation on Asset Sales."
Tax Redemption............. In the event of certain changes affecting
withholding taxes applicable to certain payments on
the Discount Notes, the Discount Notes will be
redeemable, as a whole, but not in part, at the
option of Kabelmedia, on or after , 2001,
at 100% of the principal amount thereof, plus
accrued unpaid interest, if any, to the date of
redemption. See "Description of the Discount Notes
-- Redemption for Changes in Withholding Taxes."
Change of Control.......... Upon a Change of Control, each holder of the
Discount Notes will have the right to require
Kabelmedia to purchase such holder's Discount Notes
at a price of 101% of the Accreted Value thereof
(determined at the date of purchase) if such
purchase is prior to , 2001, or 101% of
the principal amount at maturity thereof, plus
accrued and unpaid interest, if any, to the date of
purchase, if such purchase is on or after
, 2001. The Company is not required to
make a Change of Control Offer (as defined under
"Description of the Discount Notes -- Change of
Control") following a Change of Control if a third
party makes a Change of Control Offer that would be
in compliance with the Change of Control provisions
in the Indenture if it were made by the Company and
purchases the Discount Notes validly tendered and
not withdrawn. Within 30 days of any Change of
Control, the Company must (i) repay in full all
Indebtedness of the Company that would prohibit the
repurchase of the Discount Notes or (ii) obtain any
requisite consents under instruments governing any
such Indebtedness of the Company to permit the
repurchase of the Discount Notes. The Company is
required, however, to make a Change of Control
Offer within 30 days of a Change of Control,
irrespective of whether any Indebtedness
prohibiting the purchase of the Discount Notes has
been repaid or the holders thereof have given the
requisite consent. If the Company is unable to
repay all of its Indebtedness that would prohibit
repurchase of the Discount Notes or is unable to
obtain the consents of the holders of Indebtedness,
if any, of the Company outstanding at the time of a
Change of Control whose consent would be so
required to permit the repurchase of Discount
Notes, then the Company will have breached the
"Change of Control" covenant. Such a breach would
constitute an Event of Default under the Indenture
if it continues for a period of 30 consecutive days
after written notice is given to the Company by the
Trustee or the Holders of at least 25% in aggregate
principal amount of the Discount Notes outstanding.
In addition, the failure by the Company to
10
<PAGE> 13
repurchase Discount Notes at the conclusion of the
Change of Control Offer would constitute an Event
of Default without any waiting period or notice
requirements. In the event the Change of Control
provisions are triggered, an event of default could
be triggered under the other Indebtedness of the
Company. For example, a Change of Control would
trigger an event of default under the terms of the
Bank Facility, upon which no repayment or
prepayment of any amount owing to the Company from
the Borrowers of the Guarantors (as such terms are
defined in "Description of Certain Indebtedness")
would be permitted until the Bank Facility has been
repaid, prepaid and/or cancelled in full. See
"Description of Certain Indebtedness." Such an
event of default could preclude the flow of money
from the Company's subsidiaries to the Company and
thereby prevent the Company from making any
payment, including Change of Control payments,
under the terms of the Discount Notes. Kabelmedia
does not currently have, and there can be no
assurance that Kabelmedia would have, the financial
resources necessary to purchase the Discount Notes
upon a Change of Control. Furthermore, it is
possible to have a more restrictive definition of
change of control in other Indebtedness of the
Company. For example, an acquisition, directly or
indirectly, of more than 24.9% of the shares in
Kabelmedia, by a person who is not a shareholder of
Kabelmedia at the date of closing of the Bank
Facility, would cause an event of default under the
Bank Facility. The occurrence of a change of
control under such other Indebtedness of the
Company could cause there to be a requirement for
the Company to repay such Indebtedness even though
such requirement would not apply with respect to
the Discount Notes under the Indenture. See "Risk
Factors -- Effect of Change of Control,"
"Description of Certain Indebtedness" and
"Description of the Discount Notes -- Redemption --
Mandatory Redemption; Change of Control; Certain
Asset Sales."
Ranking.................... The Indebtedness evidenced by the Discount Notes
will be senior indebtedness of Kabelmedia and will
rank pari passu in right of payment with any
unsubordinated and unsecured indebtedness which may
be incurred by Kabelmedia in the future and senior
in right of payment to all subordinated
indebtedness of Kabelmedia. Kabelmedia is a holding
company with limited assets and no business
operations of its own. Kabelmedia operates its
business through its subsidiaries. The Discount
Notes will be effectively subordinated to
borrowings under the Bank Facility and other
indebtedness for money borrowed of such
subsidiaries. Kabelmedia will hold Subordinated
Subsidiary Notes in an aggregate principal amount
equal to the net proceeds received by Kabelmedia
from the sale of the Discount Notes and lent to
such subsidiaries. The Subordinated Subsidiary
Notes will be subordinated to indebtedness under
the Bank Facility and existing and future
indebtedness for money borrowed of such
subsidiaries, will have interest and payment terms
identical to those of the Discount Notes and will
prohibit any pledge thereof, except to holders of
Senior Indebtedness (as defined in the Indenture).
The Indenture does not contain any specific
covenant prohibiting Kabelmedia from amending,
waiving any rights under, or terminating the
Subordinated Subsidiary Notes. On a pro forma
basis, after giving effect to the Shareholder Debt
Conversion and the completion of the Offering and
the application of the net proceeds therefrom, as
at
11
<PAGE> 14
March 31, 1996 Kabelmedia's subsidiaries would have
had DM98.7 million ($66.8 million) of outstanding
borrowings under the Bank Facility and DM6.1
million ($4.1 million) of other indebtedness for
money borrowed. On a pro forma basis, after giving
effect to the Shareholder Debt Conversion, the
completion of the Offering and the application of
the net proceeds therefrom, and the Pending
Acquisitions, as at March 31, 1996 Kabelmedia's
subsidiaries would have had DM155.8 million ($105.5
million) of outstanding borrowings under the Bank
Facility and DM6.1 million ($4.1 million) of other
indebtedness for money borrowed. Kabelmedia and one
or more of Kabelmedia's subsidiaries may incur
other debt in the future, including, in the case of
subsidiaries, debt which would be senior to the
Discount Notes. The terms of certain indebtedness
of Kabelmedia's subsidiaries materially limit the
payment of dividends, loans or other distributions
by such subsidiaries to Kabelmedia, provided that
such payments are permitted to the extent necessary
to make interest payments on the Discount Notes for
so long as there is no event of default under such
indebtedness. Accordingly, Kabelmedia's ability to
make principal payments on, or any required
redemptions of, the Discount Notes may be
dependent, in part, upon Kabelmedia's ability to
refinance such indebtedness in the future which
would depend, in part, upon factors beyond the
control of Kabelmedia. In addition, the ability of
Kabelmedia to access the earnings of its
subsidiaries may be limited by German law.
Certain Covenants.......... The Indenture will contain certain covenants which,
among other things, will restrict the ability of
Kabelmedia and the Restricted Subsidiaries to (i)
incur additional indebtedness; (ii) pay dividends
or make distributions in respect of capital stock
of Kabelmedia or make certain other restricted
payments; (iii) create certain liens against or
upon any of its property or assets (including any
pledge of the Subordinated Subsidiary Notes, except
to holders of Senior Indebtedness); (iv) enter into
certain transactions with shareholders or
Affiliates; or (v) sell certain assets. In
addition, the Indenture will limit the ability of
(i) Kabelmedia to consolidate, merge or sell all or
substantially all of its assets and (ii) the
Restricted Subsidiaries to issue capital stock.
These covenants are subject to important exceptions
and qualifications. The Indenture does not contain
any provisions that afford holders of Discount
Notes protection in the event of a highly leveraged
transaction by Kabelmedia, other than the
provisions contained therein limiting the ability
of Kabelmedia and its Restricted Subsidiaries to
incur additional indebtedness and requiring
Kabelmedia to offer to repurchase the Discount
Notes upon a Change of Control.
Form of Discount Notes..... The Discount Notes will be represented by a global
security in registered form (the "Global Discount
Note"), which will be issued in a denomination
equal to the outstanding principal amount at
maturity of the Discount Notes represented thereby.
The Global Discount Note will be deposited with The
Bank of New York, as custodian for DTC. Except as
set forth under "Description of the Discount
Notes," owners of beneficial interests in the
Global Discount Note will not be entitled to
receive physical delivery of Discount Notes in
definitive form or to have Discount Notes issued
and registered in their names and will not be
considered the owners or holders thereof under the
Indenture. See "Description of the Discount Notes."
12
<PAGE> 15
Shareholder Debt
Conversion................. At March 31, 1996, the Company's aggregate
indebtedness included DM156,470,000 principal
amount of subordinated loans from certain of its
shareholders ("ECO I" and "ECO II," as such terms
are defined in "Certain Related Party Transactions
-- Capital Contributions and Subordinated
Shareholder Loans") plus DM20,664,000 of accrued
interest thereon, of which DM13,652,000 was accrued
during 1995 and DM4,495,000 was accrued during the
first quarter of 1996. A further subordinated
shareholder loan of DM10,198,562 was advanced to
the Company by ECO II on May 30, 1996. On June 19,
1996, the aggregate principal amount of the
subordinated shareholder loans to the Company was
DM166,669,000 and as at that date a total of
DM24,458,000 of interest had accrued on such loans
(such principal and interest are referred to
collectively as the "Subordinated Shareholder
Loans"). On June 19, 1996, the Subordinated
Shareholder Loans were contributed to the capital
of Kabelmedia by ECO I and ECO II and its capital
surplus was increased by the equivalent amount of
DM191,127,000 (the "Shareholder Debt Conversion").
As a result of the Shareholder Debt Conversion and
a related increase of DM125,400 to the Company's
capital on July 15, 1996, the aggregate percentage
ownership interest of ECO I and ECO II in the share
capital of the Company increased from 90% to
92.75%. See "Capitalization," "Certain Related
Party Transactions -- Shareholder Agreement" and
"Principal Shareholders."
Use of Proceeds............ The net proceeds to be received by Kabelmedia from
the sale of the Discount Notes are estimated to be
approximately DM138,727 ($93,950,000 translated at
a rate of DM1.4766 = $1.00, the Noon Buying Rate on
March 29, 1996). Such net proceeds will be used to
repay outstanding indebtedness under two bank
credit agreements (the "Prior Kabelmedia Facility"
and the "Prior Kabelvision Facility," and
collectively the "Prior Facilities," as such terms
are defined in "Description of Certain
Indebtedness"). The Prior Facilities are scheduled
to be repaid in full concurrently with the closing
of the Offering or on the next following business
day, in part from the estimated net proceeds of the
Offering and in part from borrowings under the Bank
Facility, the aggregate committed principal amount
of which is DM400,000,000. The estimated borrowings
under the Bank Facility to repay the Prior
Facilities are DM94,254,000. The estimated sources
and uses of funds in the Company's refinancing are
as follows:
<TABLE>
<CAPTION>
AMOUNT
-------
DM '000
<S> <C>
SOURCES OF FUNDS:
Discount Notes................................... 138,727
Bank Facility.................................... 98,773
-------
237,500
=======
USES OF FUNDS:
Repayment of Prior Kabelmedia Facility........... 137,500
Repayment of Prior Kabelvision Facility.......... 100,000
-------
237,500
=======
</TABLE>
See "Use of Proceeds," "Certain Related Party
Transactions" and "Description of Certain
Indebtedness."
13
<PAGE> 16
SUMMARY FINANCIAL AND OPERATING DATA
The following tables set forth certain summary historical and pro forma
financial and operating data of the Company. Summary pro forma data for the year
ended December 31, 1995 are provided on two different bases: first, to reflect
the Recent Acquisitions (which have been consummated), the Shareholder Debt
Conversion and the Offering, and second, to reflect the Recent Acquisitions, the
Shareholder Debt Conversion and the Offering as well as the Pending Acquisitions
(consummation of which cannot be assured). Summary pro forma data for the three
months ended March 31, 1996 reflect the InfoSat Acquisition, the Shareholder
Debt Conversion, the Offering and the Pending Acquisitions. Acquisitions of
cable television systems during the periods for which the summary data are
presented below materially affect the comparability of such data from one period
to another. The data presented below should be read in conjunction with the
historical consolidated financial statements of the Company and the notes
thereto, the "Unaudited Pro Forma Condensed Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," all of which are included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
HISTORICAL(1)
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------------------- ----------------------------
<CAPTION>
1993 1994 1995 1995(2) 1995 1996 1996(2)
------ ------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
DM'000 DM'000 DM'000 $'000 DM'000 DM'000 $'000
STATEMENT OF OPERATIONS DATA:
Revenues............................................ 2,220 4,551 33,510 22,694 5,604 15,327 10,380
Operating costs and expenses:
Operations........................................ (219) (1,275) (6,663) (4,512) (855) (2,919) (1,977)
Selling, general and administrative............... (987) (2,504) (14,465) (9,796) (3,027) (4,370) (2,959)
Depreciation and amortization..................... (1,460) (3,028) (23,685) (16,040) (4,122) (10,731) (7,267)
------ ------- -------- ------- ------ ------- --------
Total........................................... (2,666) (6,807) (44,813) (30,348) (8,004) (18,020) (12,203)
------ ------- ------- -------- ------- ------- --------
Operating loss...................................... (446) (2,256) (11,303) (7,654) (2,400) (2,693) (1,823)
Interest expense:
Cash interest expense............................. (312) (812) (11,166) (7,563) (1,771) (3,975) (2,692)
Non-cash interest expense(5)...................... (743) (3,048) (14,177) (9,601) (2,837) (4,626) (3,133)
------ ------- ------- -------- ------- ------- --------
Total........................................... (1,055) (3,860) (25,343) (17,164) (4,608) (8,601) (5,825)
Minority interest................................... -- -- 118 80 21 27 18
------ ------- ------- -------- ------- ------- --------
Net loss before income tax benefit and extraordinary
item.............................................. (1,501) (6,116) (36,528) (24,738) (6,987) (11,267) (7,630)
Income tax benefit.................................. -- -- 916 620 599 406
------ ------- ------- -------- ------- ------- --------
Net loss before extraordinary item.................. (1,501) (6,116) (35,612) (24,118) (6,987) (10,668) (7,224)
====== ======= ======= ======== ======= ======= ========
OTHER FINANCIAL DATA:
Capital expenditures (excluding acquisitions)(6).... 6,635 5,617 10,955 7,419 2,038 2,891 1,958
Deficiency of earnings to fixed charges(7).......... (1,501) (6,116) (39,316) (26,626) (7,008) (11,294) (7,649)
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets........................................ 14,761 128,229 420,865 285,023 190,117 430,739 291,709
Total debt less Subordinated Shareholder Loans...... 7,267 47,178 228,812 154,959 78,049 243,566 164,950
Subordinated Shareholder Loans...................... 4,833 63,584 172,638 116,915 85,020 177,134 119,961
Total debt.......................................... 12,100 110,762 401,450 271,874 163,069 420,700 284,911
Total liabilities and minority interest............. 15,812 120,559 448,477 303,722 186,434 469,019 317,633
Shareholders' equity (deficiency)................... (1,051) 7,670 (27,612) (18,699) 3,683 (38,280) (25,924)
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
PRO FORMA
-----------------------------------------------------------
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1995 MARCH 31, 1996
-------------------------------- ------------------
FOR THE RECENT FOR THE INFOSAT
FOR THE RECENT ACQUISITIONS, THE ACQUISITIONS, THE
ACQUISITIONS, SHAREHOLDER DEBT SHAREHOLDER DEBT
THE SHAREHOLDER CONVERSION, THE CONVERSION, THE
DEBT CONVERSION OFFERING AND THE OFFERING AND THE
AND THE OFFERING PENDING
OFFERING(2)(3) ACQUISITIONS(2)(4) ACQUISITIONS(2)(4)
-------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
DM'000 $'000 DM'000 $'000 DM'000 $'000
STATEMENT OF OPERATIONS DATA:
Revenues............................................ 59,781 40,486 64,830 43,905 16,646 11,273
Operating costs and expenses:
Operations........................................ (13,569) (9,189) (14,312) (9,693) (3,113) (2,108)
Selling, general and administrative............... (16,387) (11,098) (17,289) (11,709) (4,606) (3,119)
Depreciation and amortization..................... (39,331 (26,636) (45,054) (30,512) (12,225) (8,279)
------- ------- ------- -------- ------- --------
Total........................................... (69,287) (46,923) (76,655) (51,914) (19,944) (13,506)
------- ------- ------- -------- ------- --------
Operating loss...................................... (9,506) (6,437) (11,825) (8,009) (3,298) (2,233)
Interest expense:
Cash interest expense............................. (5,976) (4,047) (9,201) (6,231) (2,288) (1,550)
Non-cash interest expense(5)...................... (19,669) (13,320) (19,669) (13,320) (4,784) (3,240)
------- -------- ------- -------- ------- --------
Total........................................... (25,645) (17,367) (28,870) (19,551) (7,072) (4,790)
Minority interest................................... 113 77 113 77 27 18
------- -------- ------- -------- ------- --------
Net loss before income tax benefit and extraordinary
item.............................................. (35,038) (23,727) (40,582) (27,483) (10,343) (7,005)
Income tax benefit.................................. 3,416 2,313 3,416 2,313 599 406
------- -------- ------- ------- ------- -------
Net loss before extraordinary item.................. (31,622) (21,414) (37,166) (25,170) (9,744) (6,599)
======= ======== ======= ======= ======= =======
OTHER FINANCIAL DATA:
Capital expenditures (excluding acquisitions)(6).... -- -- -- -- -- --
Deficiency of earnings to fixed charges(7).......... (37,821) (25,614) (43,366) (29,369) (10,370) (7,023)
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets........................................ 446,030 302,066 506,277 342,866 499,919 338,562
Total debt less Subordinated Shareholder Loans...... 253,335 171,566 310,361 210,186 309,525 209,620
Subordinated Shareholder Loans...................... -- -- -- -- -- --
Total debt.......................................... 253,335 171,566 310,361 210,186 309,525 209,620
Total liabilities and minority interest............. 301,004 203,849 361,251 244,649 361,065 244,525
Shareholders' equity (deficiency)................... 145,026 98,217 145,026 98,217 138,854 94,037
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
HISTORICAL(1)
-----------------------------------------------------------------
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
----------------------------------- ---------------------------
1993 1994 1995 1995(2) 1995 1996 1996(2)
------ ------- ------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS DATA:
Homes passed(8)....................... 23,890 71,032 452,948 -- 189,914 491,863 --
Customers(8).......................... 22,655 58,613 342,752 -- 174,392 358,784 --
Penetration(8)(9)..................... 94.8% 82.5% 75.7% -- 91.8% 72.9% --
Average monthly revenue per
customer(10)........................ DM9.24 DM9.37 DM12.44 $ 8.42 DM13.01 DM14.30 $ 9.68
EBITDA DATA:
EBITDA (in thousands)(11)............. 1,014 772 12,382 8,385 1,722 8,038 5,444
Average monthly EBITDA per
customer(10)........................ DM4.22 DM1.59 DM4.60 $ 3.11 DM3.99 DM7.50 $ 5.08
EBITDA margin(12)..................... 45.7% 17.0% 37.0% -- 30.7% 52.4% --
<CAPTION>
PRO FORMA
-------------------------------------------------------------------
THREE MONTHS
ENDED MARCH 31,
YEAR ENDED DECEMBER 31, 1995 1996
------------------------------------------- ------------------
FOR THE RECENT FOR THE INFOSAT
ACQUISITIONS, THE ACQUISITION, THE
FOR THE RECENT SHAREHOLDER DEBT SHAREHOLDER DEBT
ACQUISITIONS, THE CONVERSION, THE CONVERSION, THE
SHAREHOLDER DEBT OFFERING AND THE OFFERING AND THE
CONVERSION AND PENDING PENDING
THE OFFERING(2)(3) ACQUISITIONS(2)(4) ACQUISITIONS(2)(4)
------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS DATA:
Homes passed(8)....................... 467,184 -- 517,394 -- 542,073 --
Customers(8).......................... 356,251 -- 402,251 -- 404,784 --
Penetration(8)(9)..................... 76.3% -- 77.7% -- 74.7% --
Average monthly revenue per
customer(10)........................ DM13.98 $ 9.47 DM13.43 $ 9.10 DM13.71 $ 9.28
EBITDA DATA:
EBITDA (in thousands)(11)............. 29,825 20,198 33,229 22,504 8,927 6,046
Average monthly EBITDA per
customer(10)........................ DM6.98 $ 4.73 DM6.88 $ 4.66 DM7.35 $ 4.98
EBITDA margin(12)..................... 49.9% -- 51.2% -- 53.6% --
</TABLE>
- ---------------
(1) Reflects acquisitions completed by the Company from inception through March
31, 1996 as of their acquisition dates. See "Business -- Systems."
(2) For convenience, the financial data have been translated at the rate of
DM1.4766 = $1.00, the Noon Buying Rate on March 29, 1996.
(3) Pro forma statement of operations data for the Recent Acquisitions, the
Shareholder Debt Conversion and the Offering reflect such transactions as
if they had occurred on January 1, 1995. Pro forma balance sheet data
reflect the InfoSat Acquisition, the Shareholder Debt Conversion and the
Offering as if they had occurred on December 31, 1995.
(4) Pro forma statement of operations data for the Recent Acquisitions (or the
InfoSat Acquisition), the Shareholder Debt Conversion, the Offering and
the Pending Acquisitions reflect such transactions as if they had occurred
at the beginning of the periods presented. Pro forma balance sheet data
reflect the Recent Acquisitions (or the InfoSat Acquisition), the
Shareholder Debt Conversion, the Offering and the Pending Acquisitions as
if they had occurred on December 31, 1995 or March 31, 1996 (or the
InfoSat Acquisitions as of its acquisition date), as appropriate.
Computations of pro forma number of homes passed, number of customers and
average monthly revenue per customer reflect information with respect to
the Pending Acquisitions supplied by the respective sellers as of certain
dates during the fourth quarter of 1995. Such information has been subject
to only limited verification by the Company and, in some cases, has been
calculated on a different basis than that used by the Company.
(5) Pro forma non-cash interest consists of the following:
<TABLE>
<CAPTION>
DM $
------ ------
<S> <C> <C>
(IN THOUSANDS)
Senior Discount Notes............................. 18,251 12,360
Amortization of debt issuance costs............... 1,418 960
------ ------
19,669 13,320
====== ======
</TABLE>
Non-cash interest on the Discount Notes is compounded on a semi-annual
basis. Amortization of debt issuance costs includes estimated debt
issuance costs of DM8,933,000 ($6,050,000) amortized over the 10-year term
of the Discount Notes and amortization of debt issuance costs on the
Prior Facilities.
(6) Pro forma information for capital expenditures (excluding acquisitions) is
not available.
(7) For purposes of these computations, earnings consist of historical or pro
forma loss before income taxes and minority interest, plus fixed charges
(excluding capitalized interest). Fixed charges consist of interest on
indebtedness (including capitalized interest and amortization of debt
issuance costs) and extraordinary item in 1995 of DM2,670,000 (representing
the full amortization of 1994 debt issuance costs). Fixed charges include
non-cash fixed charges of DM743,000, DM3,048,000 and DM16,847,000 in 1993,
1994 and 1995, and DM2,837,000 and DM4,626,000 as of March 31, 1995 and
March 31, 1996, respectively. Non-cash fixed charges on a pro forma basis
amounted to DM22,339,000 for the Recent Acquisitions, the Shareholder Debt
Conversion and the Offering, as well as the Recent Acquisitions, the
Shareholder Debt Conversion, the Offering and the Pending Acquisitions as
of December 31, 1995 and DM4,784,000 for the InfoSat Acquisition, the
Shareholder Debt Conversion, the Offering and the Pending Acquisitions as
of March 31, 1996.
(8) At end of period. Homes passed and penetration at March 31, 1996 reflect
results reported to the Company during 1996 of a survey commissioned by the
Company of the number of homes in its concession areas.
(9) Customers as a percentage of homes passed.
(10) Historical average monthly revenue and EBITDA per customer equals (a)(i)
historical revenues and EBITDA for the period divided by (ii) twelve for
annual periods and three for quarterly periods divided by (b) the actual
average monthly number of customers for such period. Pro forma average
monthly revenue and EBITDA per customer equals (a)(i) pro forma revenue and
EBITDA for the period divided by (ii) twelve for annual periods and three
for quarterly periods divided by (b) the pro forma number of customers at
December 31, 1995 or March 31, 1996, as appropriate.
(11) The Company believes that EBITDA and related measures of cash flow from
operating activities serve as important financial indicators in measuring
and comparing cable television companies in several areas, including
liquidity, operating performance and leverage. EBITDA is not a U.S. GAAP
measure of income (loss) or cash flow from operations and should not be
considered as an alternative to net income as an indication of the
Company's financial performance or as an alternative to cash flow from
operating activities as a measure of liquidity.
(12) Represents EBITDA as a percentage of revenues.
15
<PAGE> 18
RISK FACTORS
An investment in the Discount Notes is subject to a number of risks,
including, but not limited to, those set forth below. The following risks,
together with the other information set forth in this Prospectus, should be
considered carefully by prospective investors prior to any purchase of the
Discount Notes.
ADVERSE CONSEQUENCES OF FINANCIAL LEVERAGE
The Company is, and will continue to be, highly leveraged as a result of
the substantial indebtedness it has incurred, and intends to incur, to finance
acquisitions and expand its operations. After giving effect to the Shareholder
Debt Conversion of the Subordinated Shareholder Loans, which at March 31, 1996
amounted to DM177,134,000, as if such conversion (which actually occurred on
June 19, 1996) had occurred on March 31, 1996, the Company's aggregate
consolidated indebtedness would have been comprised of approximately
DM243,566,000 of debt to banks. After giving effect to the Shareholder Debt
Conversion and the Offering and the application of the net proceeds therefrom as
if such transactions had occurred on March 31, 1996, the Company's aggregate
consolidated indebtedness on a pro forma basis would have been approximately
DM252,499,000; and after giving effect to the foregoing and the Pending
Acquisitions as if such transactions had occurred on March 31, 1996, the
Company's aggregate consolidated indebtedness on a pro forma basis would have
been approximately DM309,525,000. The Company anticipates that, in light of the
amount of its existing indebtedness and its acquisition policy, it will continue
to have substantial leverage for the foreseeable future. Substantial leverage
poses the risks that (i) a significant portion of the Company's cash flow from
operations must be dedicated to servicing the Company's indebtedness, (ii) the
Company may not be able to generate sufficient cash flow to service the Discount
Notes and its outstanding indebtedness and to adequately fund its planned
capital expenditures and operations, (iii) the Company could be more vulnerable
to changes in general economic conditions, (iv) the Company's ability to obtain
additional financing for working capital, capital expenditures, acquisitions,
general corporate purposes or other purposes may be impaired, (v) the Company's
operating and financial ability may be impaired by restrictions imposed by
various debt instruments on the payment of dividends and on operations and (vi)
because certain of the Company's borrowings are and will continue to be at
variable rates of interest, higher interest expenses could result in the event
of increases in interest rates. A failure by the Company to comply with the
covenants and other provisions of the Bank Facility or other debt instruments to
which the Company may become party in the future could permit acceleration of
the debt under such instruments and, in some cases, acceleration of debt under
other instruments that contain cross-default or cross-acceleration provisions.
The Bank Facility includes various standard events of default for, among other
things, non-payment of amounts due under the Bank Facility, breach of covenants
or representations, defaults under certain other indebtedness, certain events of
insolvency or bankruptcy and, in addition, the following more specific events of
default: the loss of a material concession or franchise; the termination of any
material contract or any notice given to terminate any material contract; a
change at any time in the regulatory environment in a manner significantly
adverse to the Company; Ben Bartel ceasing to be in charge of the management of
the Company's operating companies, KabelMedia Hannover GmbH ("KMH") and
Kabelvision Management GmbH ("KVM"), or their successors; Kabelmedia ceasing to
own 100% of the shares of KMH or KVM (or their successors); and a person or
persons who or which are not shareholders of Kabelmedia at the closing date of
the Bank Facility, acquiring, directly or indirectly, more than an aggregate
24.9% shareholding in the Company. See "Description of Certain Indebtedness."
Upon any default under the Bank Facility, no repayment or prepayment of any
principal amount of Discount Notes outstanding is permitted thereunder until the
Bank Facility has been repaid, prepaid or cancelled in full. See
"Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
The accretion of original issue discount on the Discount Notes will cause
an increase in indebtedness of $ (DM ) by , 2001. Although
the Offering is expected to enhance cash flows and to improve the Company's
financial flexibility, the Company's total indebtedness and total interest
expense will be increased as a result of the Offering and the Company will
continue to be subject to significant financial restrictions and limitations.
16
<PAGE> 19
The Indenture contains certain restrictive covenants. Such restrictions
will affect, and in many respects will significantly limit or prohibit, among
other things, the ability of the Company to incur indebtedness, make prepayments
of certain indebtedness, pay dividends, make investments, engage in transactions
with share-holders and affiliates, issue capital stock of restricted
subsidiaries, create liens, sell assets and engage in mergers and
consolidations. See "Description of the Discount Notes -- Certain Covenants."
The Company expects to require additional external financing to meet its
debt service, working capital and capital expenditure commitments. See "--
Additional Financing Requirements."
DEFICIENCY OF EARNINGS TO FIXED CHARGES
After giving effect to the Recent Acquisitions, the Shareholder Debt
Conversion, the Offering and the application of the net proceeds therefrom as if
such transactions had occurred on January 1, 1995, the Company's pro forma
consolidated earnings for the year ended December 31, 1995 would have been
insufficient to cover its pro forma consolidated fixed charges by approximately
DM37,821,000. After giving effect to the Recent Acquisitions, the Shareholder
Debt Conversion, the Offering and the application of the net proceeds therefrom
and the Pending Acquisitions as if such transactions had occurred on January 1,
1995, the Company's pro forma consolidated earnings for the year ended December
31, 1995 would have been insufficient to cover its pro forma consolidated fixed
charges by approximately DM43,366,000. After giving effect to the InfoSat
Acquisition, the Shareholder Debt Conversion, the Offering and the application
of the net proceeds therefrom and the Pending Acquisitions as if such
transactions had occurred on January 1, 1996, the Company's pro forma
consolidated earnings for the three-month period ended March 31, 1996 would have
been insufficient to cover its pro forma consolidated fixed charges by
approximately DM10,370,000. Substantial amounts of depreciation and amortization
expense are expected to continue to contribute to the net losses experienced by
the Company. These expenses, however, do not result in an outflow of cash on the
Company's statement of operations.
The Company believes that EBITDA provides a more meaningful measure of
fixed cost coverage than does a deficiency of earnings to fixed charges. EBITDA
is not a U.S. GAAP measure of income (loss) or cash flow from operations and
should not be considered as an alternative to net income as an indication of the
Company's financial performance or as an alternative to cash flow from operating
activities as a measure of liquidity. After giving effect to the Recent
Acquisitions, the Shareholder Debt Conversion, the Offering and the application
of the net proceeds therefrom as if such transactions had occurred on January 1,
1995, pro forma EBITDA would have been approximately DM29,825,000 for the year
ended December 31, 1995. After giving effect to the Recent Acquisitions, the
Shareholder Debt Conversion, the Offering and the application of the net
proceeds therefrom and the Pending Acquisitions as if such transactions had
occurred on January 1, 1995, pro forma EBITDA would have been approximately
DM33,229,000 for the year ended December 31, 1995. After giving effect to the
InfoSat Acquisition, the Shareholder Debt Conversion, the Offering and the
application of the net proceeds therefrom and the Pending Acquisitions as if
such transactions had occurred on January 1, 1996, pro forma EBITDA would have
been approximately DM8,927,000 for the three-month period ended March 31, 1996.
HOLDING COMPANY STRUCTURE
Kabelmedia is a holding company with limited assets of its own that
conducts substantially all of its business through its subsidiaries. The ability
of holders of the Discount Notes, to participate in the assets of any of
Kabelmedia's subsidiaries upon any liquidation or administration of any such
subsidiary will be effectively subordinated to borrowings under the Bank
Facility and other indebtedness for money borrowed of such subsidiaries.
Kabelmedia will hold Subordinated Subsidiary Notes in an aggregate principal
amount equal to the net proceeds received by Kabelmedia from the sale of the
Discount Notes and lent to such subsidiaries. The Subordinated Subsidiary Notes
will be subordinated to indebtedness under the Bank Facility and existing and
future indebtedness for money borrowed of such subsidiaries, will have interest
and payment terms identical to those of the Discount Notes and will prohibit any
pledge thereof, except to holders of Senior Indebtedness (as defined in
"Description of the Discount Notes -- Certain Definitions"). The Indenture does
not contain any specific covenant prohibiting Kabelmedia from amending, waiving
any rights under, or
17
<PAGE> 20
terminating the Subordinated Subsidiary Notes. Accordingly, after giving effect
to the Shareholder Debt Conversion, the Offering and the application of the net
proceeds therefrom as if such transactions had occurred on March 31, 1996,
holders of the Discount Notes would have been effectively subordinated to
approximately DM98.7 million ($66.8 million) of borrowings under the Bank
Facility and DM6.1 million ($4.1 million) of other indebtedness for money
borrowed. Further, after giving effect to the Shareholder Debt Conversion, the
Offering and the application of the net proceeds therefrom, and the Pending
Acquisitions as if such transactions had occurred on March 31, 1996, holders of
the Discount Notes would have been effectively subordinated to approximately
DM155.8 million ($105.5 million) of borrowings under the Bank Facility and DM6.1
million ($4.1 million) of other indebtedness for money borrowed. The ability of
Kabelmedia's creditors, including the holders of the Discount Notes, to
participate in distributions of assets of Kabelmedia's subsidiaries will be
limited to the extent that the outstanding shares of any of its subsidiaries and
the dividend or liquidation proceeds thereof are either pledged to secure other
creditors of Kabelmedia or are not owned by Kabelmedia. The Indenture limits,
but does not prohibit, the incurrence of additional indebtedness by Kabelmedia's
subsidiaries. Such subsidiaries are expected to incur substantial additional
indebtedness to fund further cable television acquisitions or investments and
general working capital and capital expenditures.
The Discount Notes will be obligations solely of Kabelmedia and not
obligations of its subsidiaries. The ability of Kabelmedia to pay interest on
the Discount Notes, or to repay the Discount Notes at maturity or otherwise,
will be dependent upon the cash flow of its subsidiaries, and the payment of
funds by those subsidiaries to Kabelmedia in the form of repayment of loans,
dividends or otherwise. Provisions of applicable law limit the amount of
dividends which may be paid by Kabelmedia's subsidiaries to the extent they do
not have profits available for distribution and other statutory and general law
obligations may limit or eliminate the ability of Kabelmedia's subsidiaries to
declare dividends or to make payments to Kabelmedia on account of the
Subordinated Subsidiary Notes. Specifically, to the extent that the Subordinated
Subsidiary Notes are deemed not to be on terms which are commercially
reasonable, which is generally determined with reference to the terms on which
third party lenders would have extended such indebtedness on an arms-length
basis, the Subordinated Subsidiary Notes are subject to being recharacterized as
quasi-equity. In the event of such recharacterization, any payment of interest
in respect of such recharacterized Subordinated Subsidiary Notes would be deemed
to be a dividend subject to German tax and corporate law limitations, including
the dividend payment limitation that profits be available from which to make
such a deemed distribution. The Subordinated Subsidiary Notes will have the same
financial terms as apply to the Discount Notes, and Kabelmedia believes that it
would be able to establish that such terms are commercially reasonable in the
event any claim were brought seeking to recharacterize such Subordinated
Subsidiary Notes as quasi-equity. Further, the terms of certain indebtedness of
Kabelmedia's subsidiaries limit the payment of dividends, interest, loans and
other distributions to Kabelmedia. In particular, certain of Kabelmedia's
subsidiaries have entered into the Bank Facility which limits the payment of
dividends, interest, loans and other distributions and the making of other
payments to Kabelmedia, except to pay interest on the Discount Notes and for
certain other limited purposes, provided there is no event of default under the
Bank Facility. See "Description of Certain Indebtedness."
POTENTIAL ADDITIONAL SUBSIDIARY DEBT
As noted above under "Holding Company Structure," the terms of the
Indenture permit the Company's subsidiaries to incur additional indebtedness
under certain circumstances. Such indebtedness incurred by the Company's
subsidiaries would be effectively senior to the indebtedness evidenced by the
Discount Notes. See "Description of the Discount Notes -- Ranking."
EFFECT OF A CHANGE OF CONTROL
Upon the occurrence of a Change of Control (as defined in "Description of
the Discount Notes -- Certain Definitions"), the Company is required to make an
offer to repurchase the outstanding Discount Notes. Such an occurrence could
cause a default under other Indebtedness (as defined in "Description of the
Discount Notes -- Certain Definitions") of the Company and thereby inhibit the
flow of funds from the Company's subsidiaries to the Company. For example, a
Change of Control would trigger an event of default
18
<PAGE> 21
under the terms of the Bank Facility, under which no repayment or prepayment of
any amount owing to the Company from the Guarantors (as defined in "Description
of Certain Indebtedness") is permitted until the Bank Facility has been repaid,
prepaid and/or cancelled in full. As a result, the ability of the Company to
make any payments to the holders of Discount Notes upon a Change of Control
could be precluded or severely restricted. Further, the Change of Control
provisions in the Indenture require the Company to repay all of its Indebtedness
that would prohibit repurchase of the Discount Notes or obtain the consent of
holders of such Indebtedness to permit the repurchase of the Discount Notes. In
addition, it is possible to have a more restrictive definition of change of
control in other Indebtedness of the Company. For example, an acquisition,
directly or indirectly, of an aggregate of more than 24.9% of the shares in
Kabelmedia, by a person or persons who are not shareholders of Kabelmedia at the
date of closing of the Bank Facility, would cause an event of default under the
Bank Facility. The occurrence of a change of control under such other
Indebtedness of the Company could cause there to be a requirement for the
Company to repay such Indebtedness even though such requirement would not apply
with respect to the Discount Notes under the Indenture. Consequently, the rights
of the holders of Discount Notes to receive payments from the Company upon a
Change of Control could be adversely affected. See "Description of Certain
Indebtedness" and "Description of the Discount Notes -- Change of Control."
ADDITIONAL FINANCING REQUIREMENTS
Future acquisitions and capital expenditures may require the Company to
borrow additional amounts or obtain equity financing. In addition, if the
Company has underestimated its capital or other expenditure requirements or
overestimated future operating results, modifications to the Bank Facility or
additional debt or equity financing may be required. There can be no assurance
that such modifications or financing will be obtainable or, if obtainable, that
the terms thereof would be attractive to the Company. The Company's ability to
secure additional debt or equity financing will be restricted by the terms of
its outstanding indebtedness, including the Bank Facility, and the Discount
Notes.
SIGNIFICANT COMPETITION IN THE CABLE TELEVISION INDUSTRY
The Company faces significant competition in the provision of cable
television services within Germany. The Company's cable television systems
compete with direct reception of terrestrial broadcast television signals and
with other methods of delivering television signals to the home, such as
direct-to-home ("DTH") satellite-delivered television services and satellite
master antenna television ("SMATV") systems, and may in the future compete with
multi-channel, multi-point distribution services ("MMDS") which use low power
microwave frequencies to transmit programming over the air to customers. The
Company also competes to varying degrees with other communications and
entertainment media, including home video, cinema exhibition of feature films
and live theater. The extent of such competition depends upon, among other
things, the price, variety, availability and quality of the programming offered
and, with respect to terrestrial television, the quality of reception. In the
future, cable television companies may face competition from television services
offered by operators using existing or new delivery systems.
Premiere, the only German-language premium cable television channel, and a
second potential market entrant, which, based on press reports, the Company
believes to be a consortium of program suppliers and DTH (but not cable) system
operators, have each announced that they expect to launch multichannel digital
satellite pay television services in Germany during 1996, and one or more
additional competitors could emerge in this market. However, in order to capture
meaningful penetration of this market, these programmers may make digital
satellite pay television services available to cable system operators.
The cable television industry in Germany is in the process of undergoing
significant consolidation. The Company encounters competition for the
acquisition of cable systems from existing cable television operators, as well
as financial investors. Many of these competitors, including Deutsche Telekom,
have significantly greater resources than the Company. To the extent that any of
such existing or potential competitors significantly expand their activities in
the markets in which the Company operates, the Company's ability to continue the
implementation of its acquisition strategy could be materially adversely
affected. See "Business -- Competition."
19
<PAGE> 22
ACCESS TO AND COST OF PROGRAMMING
The Company obtains programming either directly from program suppliers via
a company-owned head-end or indirectly through a signal delivery contract with
Deutsche Telekom. As of December 31, 1995, approximately 58% of the Company's
customers were served by systems that acquired their programming directly from
program suppliers via company-owned head-ends and approximately 42% of the
Company's customers were served by systems that received programming indirectly
through signal delivery contracts with Deutsche Telekom. The Company's signal
delivery contracts with Deutsche Telekom are generally for a fixed period of
time and are subject to negotiated renewal. The Company is in the process of
negotiating a master signal delivery agreement with Deutsche Telekom covering
all of its existing and future Level 2 Systems procuring signals via Deutsche
Telekon signal delivery agreements and all Level 3 Systems (as defined in
"Industry -- Regulatory and Operating Environment"), which the Company believes
will result in more uniform costs per subscriber supplied with signal procured
through signal delivery contracts with Deutsche Telekom at lower weighted
average prices than those currently applicable under its existing Deutsche
Telekom signal delivery agreements. However, no assurances can be given as to if
or when the Company will enter into any such master signal delivery agreement.
In addition, Deutsche Telekom is scheduled to be privatized in 1996, and it is
possible that Deutsche Telekom's policy or prices with respect to programming
for cable operators could change in the future. See "Industry" and "Business --
Programming."
In common with other cable system operators in Germany, the Company has
generally been able to receive programming directly from program suppliers
without any formal agreements or contact with or approval from such program
suppliers authorizing the retransmission of such programming or setting out
terms applicable to any such retransmission, and the Company has not paid
program suppliers for the right to retransmit any such programming. While the
Company believes, based on discussions with its competitors, including Deutsche
Telekom, that such program suppliers are generally aware that it and other cable
system operators in Germany are retransmitting such programming without formal
authorization, to the best of its knowledge no programming supplier has objected
to such retransmissions. However, such program suppliers are not contractually
obligated to provide programming to the Company, and there can be no assurance
that some or all of such program suppliers will not in the future require the
Company to pay for their programming or offer their programming exclusively or
on substantially more favorable terms (including price and availability) to the
Company's competitors, which could have a material adverse effect on the
Company's business and results of operations.
As satellite channel programmers become more established in Germany, it is
possible that their market strength will increase relative to that of Deutsche
Telekom and private cable system operators, which could lead to satellite
broadcasters assessing programming fees to both Deutsche Telekom and private
cable system operators. While the Company believes that the nature of Deutsche
Telekom's programming sourcing agreements with satellite broadcasters and of its
signal delivery contracts with Deutsche Telekom mitigates the risk of Deutsche
Telekom being assessed any such higher programming costs or of such costs being
passed on to the Company, particularly in the short term, any such developments
could have the effect of increasing the cost of programming for the Company's
systems which obtain programming indirectly through signal delivery contracts
with Deutsche Telekom. The Company is seeking to conclude a master signal
delivery contract with Deutsche Telekom to further reduce these risks and
believes that it will be able to maintain a level of programming cost as a
percentage of revenue which is relatively low as compared to cable television
operators in the United States and the United Kingdom.
COPYRIGHT ROYALTY FEES
Deutsche Telekom pays an annual fee to a German copyright royalty
collecting society in respect of the retransmission of terrestrial broadcasting
on its cable network. Deutsche Telekom has indicated to the Company that it
believes payment of this license fee permits Deutsche Telekom to allow private
cable system operators connected to Deutsche Telekom signal delivery points to
retransmit terrestrial broadcasting on their cable systems. The relevant
copyright fee collecting society has expressed the contrary view, and asserted
that further royalties could be assessed to private cable system operators
retransmitting terrestrial broadcasting received by a Deutsche Telekom signal
delivery point. The Company and other private cable system operators
20
<PAGE> 23
have agreed pursuant to the Deutsche Telekom standard signal delivery contract
to hold Deutsche Telekom harmless against any successful claim by the relevant
copyright fee collecting society for any license fee in addition to those now
paid by Deutsche Telekom. Accordingly, to the extent the belief of the copyright
fee collecting society referred to above is correct, it is possible that the
Company and other private cable system operators in Germany may be assessed
copyright license fees in respect of terrestrial broadcasting received pursuant
to Deutsche Telekom signal delivery contracts.
Further, the Company has been advised by certain German copyright royalty
collecting societies that upon the expected completion of a general agreement
among those societies designating one society to collect cable retransmission
license fees in respect of terrestrial broadcasting, that society expects to
assess a license fee which it estimates will be in the range of 4%-5% of the
revenues of the cable system operators carrying such terrestrial broadcasting,
whether the broadcasting is received on the operators' own head-ends or via
Deutsche Telekom signal delivery points.
To date, the Company does not believe that any satellite broadcaster has
charged Deutsche Telekom or any private cable system operator for its
programming or for copyright license fees in respect of its programming. The
Company attributes this to the desire of satellite programmers to increase
market penetration and thereby enhance advertising revenues. There can be no
assurance that the market strength of satellite programmers will not increase as
compared to that of Deutsche Telekom and private cable system operators or that
this will not lead to fees, including copyright license fees, being assessed to
the Company and other German cable system operators in respect of satellite
programming.
Although the Company believes that there are legal uncertainties in respect
of the possible assessment of copyright license fees in relation to certain
terrestrial broadcasting and that market conditions in the German cable
television industry may lead satellite broadcasters to refrain from assessing
copyright license fees on cable system operators who retransmit their
programming, no assurance can be given that such fees will not be imposed upon
the Company in respect of either terrestrial or satellite broadcasting, or both,
or if such fees are imposed that the Company would be able to increase the fees
it charges to its customers by a comparable amount or without a time delay, or
that its results of operations or financial position would not be materially
adversely affected thereby. See "Business -- Programming."
EXTENSIVE GOVERNMENT REGULATION OF THE CABLE TELEVISION INDUSTRY
The licensing, construction, operation and acquisition of cable television
systems in Germany are principally regulated by the Federal Ministry of Posts
and Telecommunications (the "BMPT"), the Federal Office of Posts and
Telecommunications (the "BAPT") and state media laws. Changes in the regulation
of the Company's activities and those of its competitors (including in the areas
of licensing requirements, the regulations relating to Deutsche Telekom and
interconnection arrangements) could have a material adverse effect on the
Company.
Proposed legislation regulating the telecommunications industry is
currently before the German Federal Parliament and is being considered by the
German federal states. Under such proposed federal legislation, certain basic
telecommunications services could be deemed to be "universal services," and the
provision of such services could become mandatory for a service provider with a
dominant position in a certain market, which could include a regional market. In
addition, the compensation for the provision of such essential services would be
subject to review by the competent authority. Under the present draft of such
federal legislation, which is subject to change, the competent authority could
designate operators of cable television systems to be service providers required
to open their networks to content providers and competitors in order to enhance
competition, and the competent authority could exercise supervisory authority in
respect of standard contractual terms and conditions, rates and particular
billing standards of any such service provider. Under such proposed state
legislation, certain telecommunications services could be deemed to be "media
services," and cable system operators may be required to grant
non-discriminatory network access to providers of such services.
The legislative process is ongoing and the Company cannot predict the final
content of such legislation or its effects. For example, the Company cannot
presently determine whether cable television services will be
21
<PAGE> 24
considered universal services or media services, whether the legislation will
require the Company to open its networks to others or whether or how rates and
other terms and conditions applied to service providers will be regulated.
However, no assurance can be given that such legislation will not be deemed to
apply to the Company and its business or that it will not have a material
adverse effect on the Company's ability to make certain independent business
decisions with respect to customers serviced and rates charged for such services
as well as other matters. It is also probable that other legislation and
regulations will be proposed in connection with the liberalization of
telecommunications regulation throughout Europe, and it is impossible to predict
the impact of any resulting changes in the regulatory environment on the
Company's business. See "Certain Regulatory Matters."
RISKS RELATING TO ACQUISITION STRATEGY
A significant element of the Company's growth strategy is expansion by
acquisition of cable television systems that are either located in reasonable
proximity to existing systems or large enough to serve as the basis for a new
regional cluster. There can be no assurance that the Company will be able to
identify and acquire such systems or that it will be able to finance significant
acquisitions in the future. The Company encounters competition for the
acquisition of cable systems from both existing cable television operators and
financial investors. See "Business -- Business Strategy."
The Company searches for appropriate candidates for acquisition on an
ongoing basis. The Company has entered into non-binding letters of intent to
acquire two cable television systems, where negotiations have progressed to a
stage where the Company considers consummation of the acquisitions to be
probable, serving an aggregate of approximately 46,000 customers in the German
States of Thuringen and Sachsen-Anhalt. There can, however, be no assurance that
the Company will consummate either of such acquisitions on the terms set forth
in the respective letters of intent, if at all. See "Business -- Acquisitions
and Pending Acquisitions."
INTEGRATION OF ACQUIRED BUSINESSES; MANAGEMENT OF GROWTH
The Company has experienced rapid growth and development in a relatively
short period of time and intends to continue to do so to meet its strategic
objectives. The management of such growth has placed a strain on the management
resources of the Company and will require, among other things, continued
development of the Company's financial and management controls, stringent
control of construction and other costs, increased marketing activities and the
training of new personnel. Failure to manage its rapid growth and development
successfully could have a material adverse effect on the Company's financial
condition and operating results. See "Business."
Since its inception, the Company has acquired 14 cable television systems.
The Recent Acquisitions have involved, and the Pending Acquisitions, if
consummated, and other possible future acquisitions by the Company will involve,
risks, including successful integration with the Company's existing systems and
operations and, possibly, lower relative operating margins associated with such
acquisitions (before the economic benefits of integration, if successful, are
fully realized). The integration of acquired systems may also lead to the loss
of key employees of the acquired companies and operations and diversion of
management attention from other ongoing business concerns. The costs of
integration have had an adverse impact on short-term operating results. Any or
all of these may have a material adverse effect on the Company's operations in
the future.
VARIATIONS IN QUARTERLY RESULTS
The Company's results of operations are affected by the timing of
acquisitions, the timing and magnitude of integration costs and the degree to
and the rate at which the economic benefits of integration are realized. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Therefore, the operating results of any three-month period are not
necessarily indicative of the results that may be achieved for any subsequent
fiscal quarter or the full fiscal year.
22
<PAGE> 25
POTENTIAL DIFFICULTIES IN PROTECTING RIGHTS OF HOLDERS OF THE DISCOUNT NOTES AND
IN ENFORCING CIVIL LIABILITIES
Kabelmedia is a limited liability company organized under the laws of
Germany, and a majority of its Executive Committee members, managing directors
and executive officers reside outside the United States. All or a substantial
portion of the assets of the Company and certain of its Executive Committee
members, managing directors and executive officers also are located outside the
United States. As a result, it may not be possible for investors to effect
service of process within the United States upon such persons or Kabelmedia or
to enforce against them judgments obtained in U.S. courts predicated upon civil
liability provisions of the federal securities laws of the United States.
Kabelmedia has been advised by its counsel, Baker & McKenzie, that there is
doubt as to the enforceability in Germany, in original actions or in actions for
enforcement of judgments of U.S. courts, of civil liabilities predicated solely
upon the federal securities laws of the United States. In addition, awards of
punitive damages in actions brought in the United States or elsewhere may be
unenforceable in Germany. See "Enforceability of Certain Civil Liabilities."
DEPENDENCE ON KEY PERSONNEL
The Company's business is managed by a small number of key executive
officers, including Ben Bartel, the Chief Executive Officer of the Company,
Ernst Uhlig, the Chief Operating Officer of the Company, and Paul Thomason, the
Chief Financial Officer of the Company, the loss of whose services could have a
material adverse effect on the Company. Each of such persons has entered into an
employment contract with the Company, but there can be no assurance that any of
such persons will not choose to terminate his employment relationship with the
Company or otherwise become unable to continue to perform his services for the
Company. The Company carries key-man insurance on the life of Mr. Bartel. See
"Management."
RAPID TECHNOLOGICAL CHANGE
The cable television industry is subject to rapid and significant changes
in technology. While the Company believes that in the foreseeable future these
changes will neither materially affect the continued use of coaxial technology
nor materially hinder the Company's ability to introduce fiber optic cabling
technologies or necessary additional technologies, the effect of technological
changes on the business of the Company cannot be predicted.
The Company believes that its various network designs are sufficiently
flexible to permit it to deliver a wide variety of existing entertainment and
information services and will enable it to offer anticipated new services in the
future without incurring significant additional construction costs to adapt its
existing underground network. The cost of implementing emerging technologies or
expanding capacity could be significant and the Company's ability to fund such
implementation may be dependent upon its ability to obtain additional financing.
See "Business -- Network Configuration."
CURRENCY RISK AND HEDGING ACTIVITIES
The Company expects certain of its debt obligations (including the Discount
Notes) to be denominated in U.S. dollars, while the Company will generate
revenues in Deutsche Mark. Therefore, the Company will encounter currency
exchange rate risks. While the Company is considering entering into transactions
to hedge the risk of exchange rate fluctuations, there can be no assurance that
it will engage in such transactions, or, if it decides to engage in such
transactions, that they will be successful and that shifts in currency exchange
rates will not have a material adverse effect on the Company.
LIMITED INSURANCE COVERAGE
While the Company carries general liability insurance on its properties,
like many other operators of cable television systems in Germany, it does not
insure the underground portion of its cable television networks. Accordingly,
any catastrophe affecting a significant portion of the Company's cable
television networks could result in substantial uninsured losses and could have
a material adverse effect on the Company.
23
<PAGE> 26
INFLUENCE OF PRINCIPAL SHAREHOLDERS
The Company, each of its existing shareholders and each partner of ECO I
and ECO II (as defined in "Certain Related Party Transactions -- Capital
Contributions and Subordinated Shareholder Loans") has entered into a
Shareholder Agreement (as defined in "Certain Related Party Transactions --
Shareholder Agreement") pursuant to which the making of certain management and
policy decisions, which the Managing Director would otherwise have authority to
take, have been reserved to the shareholders. The shareholders have an ability
to elect the Chief Executive Officer and Managing Director, the Chief Operating
Officer and the Chief Financial Officer of the Company, who, together with the
shareholders, will direct the operations and business of the Company. The
shareholders have also established an Executive Committee, comprised of
shareholder representatives, to facilitate the taking of shareholder action.
There may be conflicts of interest between the shareholders of the Company or
their representatives on the Executive Committee, on the one hand, and the
holders of the Discount Notes, on the other hand, and there can be no assurance
that any such conflict, should it occur, will be resolved in a manner favorable
to the holders of the Discount Notes. No procedures are being adopted to resolve
any conflicts of interest that may arise between the shareholders or their
representatives on the Executive Committee and the holders of the Discount
Notes. See "-- Certain Interests of Affiliates of the Underwriters,"
"Management," "Principal Shareholders" and "Certain Related Party Transactions
- -- Certain Interests of Affiliates of the Underwriters."
CERTAIN INTERESTS OF AFFILIATES OF THE UNDERWRITERS
Morgan Stanley Capital Partners III, L.P., MSCP III 892 Investors, L.P. and
Morgan Stanley Capital Investors, L.P. (the "MSCP Funds"), affiliates of Morgan
Stanley & Co. Incorporated ("Morgan Stanley"), collectively own approximately
14.34% of the capital stock of Kabelmedia. See "Principal Shareholders."
Pursuant to the terms of the Shareholder Agreement, the MSCP Funds have the
right to appoint one member to the Executive Committee of Kabelmedia. An officer
of Morgan Stanley currently serves on the Executive Committee of Kabelmedia. See
"Management."
Chase Investment Bank Limited ("CIBL") and Chase Manhattan Bank AG are
affiliates of Chase Securities Inc., one of the Underwriters for the Offering,
and are the Arranger and the Agent, respectively, under the Bank Facility. The
initial drawing under the Bank Facility is scheduled to occur concurrently with
or on the business day next following the closing of the Offering, at which time
such initial drawing and the proceeds of the Offering will be used to repay the
Prior Facilities (as defined in "Description of Certain Indebtedness"). The loan
commitments of CIBL to the Company as of December 31, 1995 under the Prior
Facilities were approximately DM55,100,000, representing approximately 18.8% of
the Company's total loan commitments under the Prior Facilities at such date.
CIBL presently has outstanding loan commitments to the Company of DM400,000,000,
representing the entire loan commitment under the Bank Facility. Based on
commitments received by CIBL to date from potential syndicate members, which are
subject to final documentation to be signed prior to the closing of the
Offering, the Company does not expect the percentage of the total commitments
under the Bank Facility of Chase Manhattan Bank AG's (which will be the only
affiliate of Chase Securities Inc. lending under the Bank Facility) to exceed
CIBL's percentage of the total commitments under the Prior Facilities. See
"Certain Related Party Transactions -- Certain Interests of Affiliates of the
Underwriters," "Description of Certain Indebtedness," and "Use of Proceeds."
Certain affiliates of Chase Securities Inc. also collectively own approximately
8.11% of the capital stock of Kabelmedia. See "Principal Shareholders." Under
the Shareholder Agreement, such affiliates of Chase Securities Inc. have the
right to appoint one member to the Executive Committee of Kabelmedia. An officer
of certain affiliates of Chase Securities Inc. currently serves on the Executive
Committee of Kabelmedia. See "Management."
Certain decisions concerning the operations or financial structure of the
Company may present conflicts of interest between the holders of the Discount
Notes, on the one hand, and owners of the Company's capital stock and the
Company's lenders, on the other. For example, if the Company encounters
financial difficulties, or is unable to pay its debts as they mature, the
interests of the Company's equity investors or lenders might conflict with those
of the holders of the Discount Notes. In addition, the equity investors may have
an interest in pursuing acquisitions, divestitures, financings or other
transactions that, in their judgment, could enhance
24
<PAGE> 27
their equity investment, even though such transactions might involve risks to
the holders of the Discount Notes.
The Management of the Company does not include any persons affiliated with
the Underwriters or any of the Company's lenders. As noted above, with the
exception of two members of the Executive Committee of the Company, who serve as
representatives of two equity shareholders affiliated in one case with an
Underwriter and in the other case with a different Underwriter that is an
affiliate of the Company's principal lender, no persons affiliated with the
Underwriters or any lender currently serve on the Company's Executive Committee.
See "Management." Further, pursuant to the terms of the Shareholder Agreement,
each of the shareholders has agreed to certain restrictions limiting its ability
to divest its shareholding in the Company, imposing supermajority voting
requirements in relation to specified corporate actions and requiring that
certain business opportunities in the German cable industry of which the
shareholder may become aware in the future be offered to the Company before the
shareholder may pursue such opportunities itself. Accordingly, the Company has
not deemed it necessary to adopt any specific procedures to address potential
conflicts of interest.
LACK OF AN ESTABLISHED MARKET FOR THE DISCOUNT NOTES
The Discount Notes are a new issue of securities for which there is
presently no active trading market. Although the Underwriters have informed
Kabelmedia that they currently intend to make a market in the Discount Notes,
they are not obligated to do so, and any such market-making may be discontinued
at any time without notice. Accordingly, there can be no assurance as to the
development or liquidity of any market for the Discount Notes. If any active
public market does not develop, the market price and liquidity of the Discount
Notes may be adversely affected.
ORIGINAL ISSUE DISCOUNT CONSEQUENCES
The Discount Notes will be issued at a substantial discount from their
principal amount at maturity. Consequently, purchasers of the Discount Notes
generally will be required to include amounts in gross income for U.S. federal
income tax purposes in advance of receipt of the cash payments to which the
income is attributable. See "Certain Income Tax Considerations -- U.S. Federal
Income Tax Considerations" for a more detailed discussion of the U.S. federal
income tax consequences to the owners of the Discount Notes resulting from the
purchase, ownership and disposition of the Discount Notes.
25
<PAGE> 28
USE OF PROCEEDS
The net proceeds to Kabelmedia from the sale of the Discount Notes are
estimated to be approximately DM138,727,000 ($93,950,000 translated at a rate of
DM1.4766 = $1.00, the Noon Buying Rate on March 29, 1996).
Kabelmedia intends to use all of the net proceeds from the Offering to
repay a portion of the outstanding indebtedness under the Prior Facilities. The
balance of the Prior Facilities will be repaid concurrently with new borrowings
under the Bank Facility. The indebtedness of the Company under the Prior
Facilities matures on December 31, 2003 (but will be repaid in full upon the
closing of the Offering) and at March 31, 1996 accrued interest at a rate of
approximately 5.625% per annum. See "Certain Related Party Transactions,"
"Description of Certain Indebtedness," "Risk Factors -- Adverse Consequences of
Financial Leverage" and "-- Certain Interests of Affiliates of the Underwriters"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." The estimated sources and uses
of funds in the Company's refinancing are as follows:
<TABLE>
<CAPTION>
AMOUNT
-----------
DM '000
<S> <C>
SOURCE OF FUNDS:
Discount Notes........................................... 138,727
Bank Facility............................................ 98,773
-----------
237,500
USES OF FUNDS:
Repayment of Prior Kabelmedia Facility................... 137,500
Repayment of Prior Kabelvision Facility.................. 100,000
-----------
237,500
</TABLE>
EXCHANGE RATE DATA
The following table sets forth, for the periods and dates indicated,
certain information concerning the Noon Buying Rates per U.S. dollar for the
Deutsche Mark.
<TABLE>
<CAPTION>
DEUTSCHE MARK PER $1.00
-----------------------------------------------
YEAR ENDED DECEMBER 31, HIGH LOW AVERAGE(1) PERIOD END
- ------------------------------------------------- ------ ------ ---------- ----------
<S> <C> <C> <C> <C>
1991............................................. 1.8350 1.4450 1.6610 1.5200
1992............................................. 1.6777 1.3907 1.5618 1.6197
1993............................................. 1.7405 1.5675 1.6545 1.7395
1994............................................. 1.7627 1.4920 1.6216 1.5495
1995............................................. 1.5612 1.3565 1.4321 1.4345
1996 (through July 19, 1996)..................... 1.5477 1.4354 1. 1.
</TABLE>
- ---------------
(1) The average of the Noon Buying Rates on each trading day during the period.
26
<PAGE> 29
CAPITALIZATION
The following table sets forth the Company's consolidated cash and
capitalization at March 31, 1996 (i) on an actual basis and (ii) on a pro forma
basis to give effect to the Shareholder Debt Conversion, the Offering and the
application of the net proceeds therefrom and the Pending Acquisitions
(consummation of which cannot be assured). The table should be read in
conjunction with the Company's consolidated financial statements and the notes
thereto, "Unaudited Pro Forma Condensed Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," all of which are included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------------------------
PRO FORMA FOR THE
SHAREHOLDER DEBT
CONVERSION,
THE OFFERING AND
THE PENDING
ACTUAL ACQUISITIONS
-------------------- --------------------
DM'000 $'000(1) DM'000 $'000(1)
<S> <C> <C> <C> <C>
Cash.............................................. 6,297 4,264 6,829 4,625
======= ======== ======= ========
Debt:
Bank debt....................................... 243,566 164,950 161,865 109,620
Senior Discount Notes........................... -- -- 147,660 100,000
Subordinated Shareholder Loans.................. 177,134 119,961 -- --
------- -------- ------- --------
Total Debt................................... 420,700 284,911 309,525 209,620
Minority Interest................................. 450 304 450 305
Shareholders' equity (deficiency):
Registered capital.............................. 100 68 100 68
Capital contributions........................... 18,187 12,317 195,321 132,278
Accumulated deficit............................. (56,567) (38,309) (56,567) (38,309)
------- -------- ------- --------
Total shareholders' equity (deficiency)......... (38,280) (25,924) 138,854 94,037
------- -------- ------- --------
Total capitalization............................ 382,870 259,291 448,829 303,962
======= ======== ======= ========
</TABLE>
- ---------------
(1) For convenience, the financial statements have been translated at the rate
of DM1.4766 = $1.00, the Noon Buying Rate on March 29, 1996.
27
<PAGE> 30
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated balance sheet data set forth below as at December
31, 1994 and 1995 and the selected consolidated statement of operations data set
forth below for the three years ended December 31, 1993, 1994 and 1995, have
been derived from the financial statements of the Company included elsewhere in
this Prospectus, which have been audited by Ernst & Young GmbH, independent
auditors. The selected consolidated balance sheet data as at March 31, 1995 and
March 31, 1996 and the selected consolidated statement of operations data for
the three-month periods then ended have been derived from unaudited financial
statements of the Company included elsewhere in this Prospectus and the selected
consolidated balance sheet data as at December 31, 1993 have been derived from
the unaudited financial statements of the Company which are not included in this
Prospectus; however, in the opinion of management each of such unaudited
financial statements contains all adjustments necessary for a fair presentation
of the financial position of the Company as at such dates and the results of
operations for such periods. Acquisitions of cable television systems during the
periods for which the selected financial data are presented below materially
affect the comparability of such data from one period to another. The selected
consolidated financial data should be read in conjunction with the Company's
consolidated financial statements and notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
HISTORICAL(1)
---------------------------------------------------------
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------- -----------------
1993 1994 1995 1995(2) 1996 1996(2)
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
DM'000 DM'000 DM'000 $'000 DM'000 $'000
STATEMENT OF OPERATIONS DATA:
Revenues.................................. 2,220 4,551 33,510 22,694 15,327 10,380
Operating costs and expenses:
Operations.............................. (219) (1,275) (6,663) (4,512) (2,919) (1,977)
Selling, general and administrative..... (987) (2,504) (14,465) (9,796) (4,370) (2,959)
Depreciation and amortization........... (1,460) (3,028) (23,685) (16,040) (10,731) (7,267)
------- ------- ------- ------- ------- -------
Total................................. (2,666) (6,807) (44,813) (30,348) (18,020) (12,203)
------- ------- ------- ------- ------- -------
Operating loss............................ (446) (2,256) (11,303) (7,654) (2,693) (1,823)
Interest Expense
Cash interest expense................... (312) (812) (11,166) (7,563) (3,975) (2,692)
Non-cash interest expense............... (743) (3,048) (14,177) (9,601) (4,626) (3,133)
------- ------- ------- ------- ------- -------
Total................................. (1,055) (3,860) (25,343) (17,164) (8,601) (5,825)
Minority interest......................... -- -- 118 80 27 18
------- ------- ------- ------- ------- -------
Net loss before income tax benefit and
extraordinary item...................... (1,501) (6,116) (36,528) (24,738) (11,267) (7,630)
Income tax benefit........................ -- -- 916 620 599 406
------- ------- ------- ------- ------- -------
Net loss before extraordinary items....... (1,501) (6,116) (35,612) (24,118) (10,668) (7,224)
========= ========= ========= ========= ========= =========
OTHER FINANCIAL DATA:
Capital expenditures (excluding
acquisitions)........................... 6,635 5,617 10,955 7,419 2,891 1,958
Deficiency of earnings to fixed
charges(3).............................. (1,501) (6,116) (39,316) (26,626) (11,294) (7,649)
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets.............................. 14,761 128,229 420,865 285,023 430,739 291,709
Total debt less Subordinated Shareholder
Loans................................... 7,267 47,178 228,812 154,959 243,566 164,950
Subordinated Shareholder Loans............ 4,833 63,584 172,638 116,915 177,134 119,961
Total debt.............................. 12,100 110,762 401,450 271,874 420,700 284,911
Total liabilities and minority interest... 15,812 120,559 448,477 303,722 469,019 317,633
Shareholders' equity (deficiency)......... (1,051) 7,670 (27,612) (18,699) (38,280) (25,924)
</TABLE>
28
<PAGE> 31
<TABLE>
<CAPTION>
HISTORICAL(1)
-------------------------------------------------------
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------ ----------------
1993 1994 1995 1995(2) 1996 1996(2)
------- ------ -------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS DATA:
Homes passed(4)................................ 23,890 71,032 452,948 -- 491,863 --
Customers(4)................................... 22,655 58,613 342,752 -- 358,784 --
Penetration(4)(5).............................. 94.8% 82.5% 75.7% -- 72.9% --
Average monthly revenue per customer(6)........ DM 9.24 DM9.37 DM 12.44 $ 8.42 DM14.30 $ 9.68
EBITDA DATA:
EBITDA (in thousands)(7)....................... DM1,014 DM 772 DM12,382 $8,385 DM8,038 $5,444
Average monthly EBITDA per customer(6)......... DM 4.22 DM1.59 DM 4.60 $ 3.11 DM 7.50 $ 5.08
EBITDA margin(8)............................... 45.7% 17.0% 37.0% -- 52.4% --
</TABLE>
- ---------------
(1) Reflects acquisitions completed by the Company from inception through March
31, 1996 as of their acquisition dates. See "Business -- Systems."
(2) For convenience, the financial data have been translated at the rate of
DM1.4766 = $1.00, the Noon Buying Rate on March 29, 1996.
(3) For purposes of these computations, earnings consist of historical loss
before income taxes and minority interest, plus fixed charges (excluding
capitalized interest). Fixed charges consist of interest on indebtedness
(including capitalized interest and amortization of debt issuance costs).
Fixed charges include non-cash fixed charges of DM743,000, DM3,048,000 and
DM16,847,000 for the years ended December 31, 1993, 1994 and 1995,
respectively, and DM4,626,000 for the three months ended March 31, 1996.
(4) At end of period. Homes passed and penetration at March 31, 1996 reflect
results reported to the Company during 1996 of a survey commissioned by the
Company of the number of homes in certain of its concession areas and, to a
lesser extent, the build-out of existing systems.
(5) Customers as a percentage of homes passed.
(6) Equals (a)(i) revenues for the period divided by (ii) twelve for annual
periods and three for quarterly periods divided by (b) the average monthly
number of customers for such period. Equals (a)(i) EBITDA for the period
divided by (ii) twelve for annual periods and three for quarterly periods
divided by (b) the average monthly number of customers for such period.
(7) The Company believes that EBITDA and related measures of cash flow serve as
important financial indicators in measuring and comparing cable television
companies in several areas, including liquidity, operating performance and
leverage. EBITDA is not a U.S. GAAP measure of income (loss) or cash flow
from operations and should not be considered as an alternative to net
income as an indication of the Company's financial performance or as an
alternative to cash flow from operating activities as a measure of
liquidity.
(8) Represents EBITDA as a percentage of revenues.
29
<PAGE> 32
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma financial data of the Company have been
prepared on two different bases and as of both December 31, 1995 and March 31,
1996: first, to reflect the Recent Acquisitions or the InfoSat Acquisition
(which have been consummated), the Shareholder Debt Conversion (see "Summary --
Shareholder Debt Conversion") and the Offering, and second, to reflect the
Recent Acquisitions or the InfoSat Acquisition, the Shareholder Debt Conversion
and the Offering as well as the Pending Acquisitions (consummation of which
cannot be assured).
The first table set forth below reflects (i) pro forma statement of
operations data for 1995 for the Recent Acquisitions, the Shareholder Debt
Conversion and the Offering (reflecting the Recent Acquisitions, the Shareholder
Debt Conversion, the Offering and the application of the net proceeds therefrom
as if such transactions had occurred on January 1, 1995), and (ii) pro forma
balance sheet data as of December 31, 1995 for the Recent Acquisitions, the
Shareholder Debt Conversion and the Offering (reflecting the InfoSat
Acquisition, the Shareholder Debt Conversion, the Offering and the application
of the net proceeds therefrom as if such transactions had occurred on December
31, 1995).
The second table set forth below reflects (i) pro forma statement of
operations data for 1995 for the Recent Acquisitions, the Shareholder Debt
Conversion, the Offering and the Pending Acquisitions (reflecting the Recent
Acquisitions, the Shareholder Debt Conversion, the Offering and the application
of the net proceeds therefrom, and the Pending Acquisitions as if such
transactions had occurred on January 1, 1995), and (ii) pro forma balance sheet
data as of December 31, 1995 for the Recent Acquisitions, the Shareholder Debt
Conversion, the Offering and the Pending Acquisitions (reflecting the InfoSat
Acquisition, the Offering and the application of the net proceeds therefrom, and
the Pending Acquisitions as if such transactions had occurred on December 31,
1995). See "Business -- Acquisitions and Pending Acquisitions."
The third table set forth below reflects pro forma statement of operations
data for the three months ended March 31, 1995 for the Recent Acquisitions, the
Shareholder Debt Conversion, the Offering and the Pending Acquisitions
(reflecting the Recent Acquisitions, the Shareholder Debt Conversion, the
Offering and the application of the net proceeds therefrom, and the Pending
Acquisitions as if such transactions had occurred on January 1, 1995).
The fourth table set forth below reflects (i) pro forma statement of
operations data for the three months ended March 31, 1996 for the InfoSat
Acquisition, the Shareholder Debt Conversion, the Offering and the Pending
Acquisitions (reflecting the InfoSat Acquisition, the Shareholder Debt
Conversion, the Offering and the application of the net proceeds therefrom, and
the Pending Acquisitions as if such transactions had occurred on January 1,
1996), and (ii) pro forma balance sheet data as of March 31, 1996 for the
InfoSat Acquisition, the Shareholder Debt Conversion, the Offering and the
Pending Acquisitions (reflecting the Offering and the application of the net
proceeds therefrom, and the Pending Acquisitions as if such transactions had
occurred on March 31, 1996). See "Business -- Acquisitions and Pending
Acquisitions."
THE UNAUDITED PRO FORMA FINANCIAL INFORMATION IS PROVIDED FOR INFORMATION
PURPOSES ONLY AND DOES NOT PURPORT TO REPRESENT WHAT THE COMPANY'S RESULTS OF
OPERATIONS AND FINANCIAL POSITION ACTUALLY WOULD HAVE BEEN IF SUCH TRANSACTIONS
IN FACT HAD OCCURRED ON SUCH DATES, OR TO PROJECT THE COMPANY'S RESULTS OF
OPERATIONS FOR ANY FUTURE PERIOD.
The unaudited pro forma financial data should be read in conjunction with,
and are qualified in their entirety by reference to, "Selected Consolidated
Financial Data" and the historical consolidated financial statements and notes
thereto appearing elsewhere in this Prospectus.
30
<PAGE> 33
PRO FORMA FOR THE RECENT ACQUISITIONS, THE SHAREHOLDER DEBT CONVERSION AND THE
OFFERING
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------------
PRO FORMA FOR THE
RECENT
ACQUISITIONS,
THE SHAREHOLDER
DEBT CONVERSION
HISTORICAL ADJUSTMENTS AND THE OFFERING(1)
---------- ----------- -------------------
<S> <C> <C> <C> <C>
DM'000 DM'000 DM'000 $'000
STATEMENT OF OPERATIONS DATA:
Revenues.................................... 33,510 26,271(a) 59,781 40,486
Operating costs and expenses:
Operations................................ (6,663) (6,906)(b) (13,569) (9,189)
Selling, general and administrative....... (14,465) (1,922)(b) (16,387) (11,098)
Depreciation and amortization............. (23,685) (15,646)(c) (39,331) (26,636)
---------- ----------- ------- -------
Total.................................. (44,813) (24,474) (69,287) (46,923)
---------- ----------- ------- -------
Operating loss............................ (11,303) 1,797 (9,506) (6,437)
Interest Expense:
Cash interest expense.................. (11,166) 5,190(d) (5,976) (4,047)
Non-cash interest expense.............. (14,177) (5,492)(d) (19,669) (13,320)
---------- ----------- ------- -------
Total................................ (25,343) (302)(d) (25,645) (17,367)
Exchange gain (loss)...................... -- --(e) -- --
Minority interest......................... 118 (5)(f) 113 77
---------- ----------- ------- -------
Net loss before income tax benefit and
extraordinary item..................... (36,528) 1,490 (35,038) (23,727)
Income tax benefit........................ 916 2,500(f) 3,416 2,313
---------- ----------- ------- -------
Net loss before extraordinary item........ (35,612) 3,990 (31,622) (21,414)
======= ========= ======= =======
BALANCE SHEET DATA (AT END OF PERIOD):
Assets:
Cash...................................... 7,866 474(g) 8,340 5,648
Accounts receivable -- net................ 2,291 505(g) 2,796 1,894
Inventory................................. 1,185 -- 1,185 803
Property, plant and equipment -- net...... 235,327 4,668(g) 239,995 162,532
Goodwill -- net........................... 153,155 10,423(g) 163,578 110,780
Other assets.............................. 21,041 9,095(g)(h) 30,136 20,409
---------- ----------- ------- -------
Total assets........................... 420,865 25,165 446,030 302,066
======= ========= ======= =======
Liabilities and shareholders' equity
(deficiency):
Accounts payable.......................... 13,930 238(g) 14,168 9,595
Accrued expenses and other liabilities.... 21,540 404(g) 21,944 14,861
Deferred revenue.......................... 9,830 -- 9,830 6,657
Bank debt................................. 228,812 (123,137)(i) 105,675 71,566
Senior Discount Notes..................... -- 147,660(j) 147,660 100,000
Subordinated Shareholder Loans............ 172,638 (172,638)(k) -- --
---------- ----------- ------- -------
Total liabilities...................... 446,750 (147,473) 299,277 202,679
Minority interest......................... 1,727 -- 1,727 1,170
Shareholders' equity (deficiency):
Registered capital..................... 100 -- 100 68
Capital contributions.................. 18,187 172,638(k) 190,825 129,233
Accumulated deficit.................... (45,899) -- (45,899) (31,084)
---------- ----------- ------- -------
Total Shareholders' equity
(deficiency)......................... (27,612) 172,638 145,026 98,217
Total liabilities and shareholders'
equity (deficiency).................. 420,865 25,165 446,030 302,066
======= ========= ======= =======
</TABLE>
- ---------------
(1) For convenience, the financial data has been translated at the rate of
DM1.4766 = $1.00, the Noon Buying Rate on March 29, 1996.
(See notes to Unaudited Pro Forma Condensed Consolidated Financial Data)
31
<PAGE> 34
PRO FORMA FOR THE RECENT ACQUISITIONS, THE SHAREHOLDER DEBT CONVERSION,
THE OFFERING AND THE PENDING ACQUISITIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------------
PRO FORMA FOR THE
RECENT ACQUISITIONS,
THE SHAREHOLDER DEBT
CONVERSION,
THE OFFERING AND THE
HISTORICAL ADJUSTMENTS PENDING ACQUISITIONS
---------- ----------- --------------------
<S> <C> <C> <C> <C>
DM'000 DM'000 DM'000 $'000(1)
STATEMENT OF OPERATIONS DATA:
Revenues........................................ 33,510 31,320(l) 64,830 43,905
Operating costs and expenses:
Operations.................................... (6,663) (7,649)(m) (14,312) (9,693)
Selling, general and administrative........... (14,465) (2,824)(m) (17,289) (11,709)
Depreciation and amortization................. (23,685) (21,369)(n) (45,054) (30,512)
---------- ----------- ------- --------
Total...................................... (44,813) (31,842) (76,655) (51,914)
---------- ----------- ------- --------
Operating loss.................................. (11,303) (522) (11,825) (8,009)
Interest expense:
Cash interest expense......................... (11,166) 1,965(o) (9,201) (6,231)
Non-cash interest expense..................... (14,177) (5,492)(o) (19,669) (13,320)
---------- ----------- ------- --------
Total...................................... (25,343) (3,527)(o) (28,870) (19,551)
Exchange gain (loss)............................ -- --(p) -- --
Minority interest............................... 118 (5)(q) 113 77
---------- ----------- ------- --------
Net loss before income tax benefit and
extraordinary item............................ (36,528) (4,054) (40,582) (27,483)
Income tax benefit.............................. 916 2,500(q) 3,416 2,313
---------- ----------- ------- --------
Net loss before extraordinary item.............. (35,612) (1,554) (37,166) (25,170)
======= ========= ======= =======
BALANCE SHEET DATA (AT END OF PERIOD):
Assets:
Cash.......................................... 7,866 1,006(r) 8,872 6,008
Accounts receivable -- net.................... 2,291 673(r) 2,964 2,007
Inventory..................................... 1,185 -- 1,185 803
Property, plant and equipment -- net.......... 235,327 13,776(r) 249,103 168,700
Goodwill -- net............................... 153,155 59,633(r) 212,788 144,107
Other assets.................................. 21,041 10,324(r)(s) 31,365 21,241
---------- ----------- ------- --------
Total assets............................... 420,865 85,412 506,277 342,866
Liabilities and shareholders' equity
(deficiency):
Accounts payable.............................. 13,930 708(r) 14,638 9,913
Accrued expenses and other liabilities........ 21,540 3,155(r) 24,695 16,723
Deferred revenue.............................. 9,830 -- 9,830 6,657
Bank debt..................................... 228,812 (66,111)(t) 162,701 110,186
Senior Discount Notes......................... 147,660(u) 147,660 100,000
Subordinated Shareholder Loans................ 172,638 (172,638)(v) -- --
---------- ----------- ------- --------
Total liabilities.......................... 446,750 (87,226) 359,524 243,479
Minority interest............................. 1,727 -- 1,727 1,170
Shareholders' equity (deficiency):
Registered capital............................ 100 -- 100 68
Capital contributions......................... 18,187 172,638(v) 190,825 129,233
Accumulated deficit........................... (45,899) -- (45,899) (31,084)
---------- ----------- ------- --------
Total Shareholders' equity (deficiency)....... (27,612) 172,638 145,026 98,217
---------- ----------- ------- --------
Total liabilities and shareholders' equity
(deficiency)............................. 420,865 85,412 506,277 342,866
======= ========= ======= =======
</TABLE>
- ---------------
(1) For convenience, the financial data has been translated at the rate of
DM1.4766 = $1.00, the Noon Buying Rate on March 29, 1996.
(See notes to Unaudited Pro Forma Condensed Consolidated Financial Data)
32
<PAGE> 35
PRO FORMA FOR THE RECENT ACQUISITIONS, THE SHAREHOLDER DEBT CONVERSION, THE
OFFERING
AND THE PENDING ACQUISITIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1995
----------------------------------------------------
PRO FORMA FOR THE
RECENT ACQUISITIONS,
THE SHAREHOLDER DEBT
CONVERSION, THE
OFFERING AND THE
HISTORICAL ADJUSTMENTS PENDING ACQUISITIONS
---------- ----------- --------------------
<S> <C> <C> <C> <C>
DM'000 DM'000 DM'000 $'000(1)
STATEMENT OF OPERATIONS DATA:
Revenues...................................... 5,604 10,028(w) 15,632 10,586
Operating costs and expenses:
Operations.................................. (855) (2,342)(x) (3,197) (2,165)
Selling, general and administrative......... (3,027) (1,630)(x) (4,657) (3,154)
Depreciation and amortization............... (4,122) (7,050)(y) (11,172) (7,566)
---------- ----------- ------- --------
Total.................................... (8,004) (11,022) (19,026) (12,885)
---------- ----------- ------- --------
Operating loss.............................. (2,400) (994) (3,394) (2,299)
Interest Expense:
Cash interest expense.................... (1,771) (529)(z) (2,300) (1,558)
Non-cash interest expense................ (2,837) (1,947)(z) (4,784) (3,240)
---------- ----------- ------- --------
Total.................................. (4,608) (2,476)(z) (7,084) (4,798)
Exchange gain (loss)........................ -- --(aa) -- --
Minority interest........................... 21 --(bb) 21 14
---------- ----------- ------- --------
Net loss before income tax benefit and
extraordinary item....................... (6,987) (3,470) (10,457) (7,083)
Income tax benefit.......................... -- 625(bb) 625 423
---------- ----------- ------- --------
Net loss before extraordinary item.......... (6,987) (2,845) (9,832) (6,660)
======= ========= ======= =======
</TABLE>
- ---------------
(1) For convenience, the financial data has been translated at the rate of
DM1.4766 = $1.00, the Noon Buying Rate on March 29, 1996.
(See notes to Unaudited Pro Forma Condensed Consolidated Financial Data)
33
<PAGE> 36
PRO FORMA FOR THE INFOSAT ACQUISITION, THE SHAREHOLDER DEBT CONVERSION,
THE OFFERING AND THE PENDING ACQUISITIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
-------------------------------------------------------
PRO FORMA FOR THE
INFOSAT ACQUISITION,
THE SHAREHOLDER
DEBT CONVERSION,
THE OFFERING AND THE
HISTORICAL ADJUSTMENTS PENDING ACQUISITIONS
---------- ----------- --------------------
<S> <C> <C> <C> <C>
DM'000 DM'000 DM'000 $'000(1)
STATEMENT OF OPERATIONS DATA:
Revenues...................................... 15,327 1,319(cc) 16,646 11,273
Operating costs and expenses:
Operations.................................. (2,919) (194)(dd) (3,113) (2,108)
Selling, general and administrative......... (4,370) (236)(dd) (4,606) (3,119)
Depreciation and amortization............... (10,731) (1,494)(ee) (12,225) (8,279)
---------- ----------- ------- --------
Total.................................... (18,020) (1,924) (19,944) (13,506)
---------- ----------- ------- --------
Operating loss................................ (2,693) (605) (3,298) (2,233)
Interest expense:
Cash interest expense....................... (3,975) 1,687(ff) (2,288) (1,550)
Non-cash interest expense................... (4,626) (158)(ff) (4,784) (3,240)
---------- ----------- ------- --------
Total.................................... (8,601) 1,529(ff) (7,072) (4,790)
Exchange gain (loss).......................... -- --(gg) -- --
Minority interest............................. 27 --(hh) 27 18
---------- ----------- ------- --------
Net loss before income tax benefit and
extraordinary item.......................... (11,267) 924 (10,343) (7,005)
Income tax benefit............................ 599 --(hh) 599 406
---------- ----------- ------- --------
Net loss before extraordinary item............ (10,668) 924 (9,744) (6,599)
======= ========= ======= =======
BALANCE SHEET DATA (AT END OF PERIOD):
Assets:
Cash........................................ 6,297 532(ii) 6,829 4,625
Accounts receivable -- net.................. 3,044 168(ii) 3,212 2,175
Inventory................................... 1,389 -- 1,389 941
Property, plant and equipment -- net........ 236,329 9,108(ii) 245,437 166,218
Goodwill -- net............................. 162,872 49,210(ii) 212,082 143,629
Other assets................................ 20,808 10,162(ii)(jj) 30,970 20,974
---------- ----------- ------- --------
Total assets............................. 430,739 69,180 499,919 338,562
Liabilities and shareholders' equity
(deficiency):
Accounts payable............................ 8,259 470(ii) 8,729 5,912
Accrued expenses and other liabilities...... 29,136 2,751(ii) 31,887 21,595
Deferred revenue............................ 10,474 -- 10,474 7,093
Bank debt................................... 243,566 (81,701)(kk) 161,865 109,620
Senior Discount Notes....................... 147,660(ll) 147,660 100,000
Subordinated Shareholder Loans.............. 177,134 (177,134)(mm) -- --
---------- ----------- ------- --------
Total liabilities........................ 468,569 (107,954) 360,615 244,220
Minority interest........................... 450 -- 450 305
Shareholders' equity (deficiency):
Registered capital.......................... 100 -- 100 68
Capital contributions....................... 18,187 177,134(mm) 195,321 132,278
Accumulated deficit......................... (56,567) -- (56,567) (38,309)
---------- ----------- ------- --------
Total Shareholders' equity (deficiency)..... (38,280) 177,134 138,854 94,037
---------- ----------- ------- --------
Total liabilities and shareholders'
equity (deficiency).................... 430,739 69,180 499,919 338,562
======= ========= ======= =======
</TABLE>
- ---------------
(1) For convenience, the financial data has been translated at the rate of
DM1.4766 = $1.00, the Noon Buying Rate on March 29, 1996.
(See notes to Unaudited Pro Forma Condensed Consolidated Financial Data)
34
<PAGE> 37
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
YEAR ENDED, AND AS AT, DECEMBER 31, 1995 -- PRO FORMA FOR THE RECENT
ACQUISITIONS, THE SHAREHOLDER DEBT CONVERSION AND THE OFFERING:
(a) To reflect the revenues of the cable systems acquired in the 1995
Acquisitions for the periods in 1995 prior to their respective acquisition
dates and the InfoSat Acquisition for a full year in 1995.
(b) To reflect operations and selling, general and administrative expenses for
the cable systems acquired in the 1995 Acquisitions for the periods in 1995
prior to their respective acquisition dates and the InfoSat Acquisition for
a full year in 1995, net of anticipated savings from the consolidations of
office space and elimination of redundant personnel as follows:
<TABLE>
<CAPTION>
RECENT ACQUISITIONS
PRIOR TO
ACQUISITION ANTICIPATED NET
DATE SAVINGS ADJUSTMENT
------------------- ----------- ---------------
DM DM DM $
------------------- ----------- ----- -----
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Operations.............................. 7,403 (497) 6,906 4,677
Selling, general and administrative..... 6,932 (5,010) 1,922 1,302
</TABLE>
(c) To reflect amortization over a 12-year period of the excess of purchase
price over the estimated fair values of the net assets of the cable systems
acquired and depreciation of property, plant and equipment acquired in the
1995 Acquisitions for the periods in 1995 prior to their respective
acquisition dates and the InfoSat Acquisition for a full year in 1995.
(d) Interest expense is based upon the pro forma consolidated debt of the
Company, taking into account the Shareholder Debt Conversion and the
Offering and the application of the net proceeds therefrom, based on the
assumed interest rates indicated, and also taking into account the Recent
Acquisitions:
<TABLE>
<CAPTION>
DM $
------- -------
<S> <C> <C>
(IN THOUSANDS)
Senior Discount Notes due 2006 ($100 million at 12.0%)(1)(2)...... (18,251) (12,360)
Amortization of debt issuance costs(3)............................ (893) (605)
Adjustment to interest expense from Shareholder Debt
Conversion(4)................................................... 13,652 9,246
Additional interest expense from indebtedness incurred or acquired
in connection with the InfoSat Acquisition...................... (882) (597)
Adjustment to interest expense from assumed repayment of Prior
Facilities with net proceeds of the Offering as described in
"Use of Proceeds"............................................... 6,072 4,112
------- -------
Adjustment to interest expense.................................... (302) (204)
======= =======
Cash interest expense............................................. 5,190 3,515
Non-cash interest expense......................................... (5,492) (3,719)
</TABLE>
Pro forma non-cash interest expense consists of the following:
<TABLE>
<CAPTION>
DM $
------- -------
<S> <C> <C>
(IN THOUSANDS)
Senior Discount Notes(2).......................................... 18,251 12,360
Amortization of debt issuance costs(5)............................ 1,418 960
------- -------
19,669 13,320
======= =======
</TABLE>
- ---------------
(1) The interest rate shown above for the Discount Notes has been assumed
by the Company pending determination of the actual rate.
(2) Non-cash interest expense on the Discount Notes is compounded on a
semi-annual basis.
(3) Estimated debt issuance costs of DM8,933,000 ($6,050,000) are amortized
over the 10-year term of the Discount Notes.
35
<PAGE> 38
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA --
(CONTINUED)
(4) Represents elimination of non-cash interest expense on the Subordinated
Shareholder Loans during the twelve-month period as if the Shareholder
Debt Conversion had been consummated on January 1, 1995.
(5) Includes estimated debt issuance costs of DM8,933,000 ($6,050,000)
amortized over the 10-year term of the Discount Notes and amortization
of debt issuance costs on the Prior Facilities.
(e) For purposes of the pro forma statement of operations, no adjustment has
been made to reflect the impact in 1995 of unrealized exchange rate gains
or losses. Absent any hedging on the part of the Company, the pro forma
unrealized exchange rate gain for 1995 would have been approximately
DM7,242,000 ($4,905,000) due to the substantial depreciation of the U.S.
dollar against the Deutsche Mark in 1995. The Company is considering
entering into transactions to hedge the risk of exchange rate fluctuations.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Treasury Policies."
(f) To reflect the impact on minority interest and income tax benefit of the
preceding adjustments.
(g) To reflect the acquisition of the net assets of the InfoSat Acquisition
assuming the acquisition price and acquired debt were paid with borrowings
under the Prior Facilities. The following represents the preliminary
allocation of the excess of purchase price over the historical net book
value of the net assets acquired in the InfoSat Acquisition:
<TABLE>
<CAPTION>
DM $
------- -------
(IN THOUSANDS)
<S> <C> <C>
Purchase price.................................................... 10,468 7,089
Acquired net assets at book value (December 31, 1995)............. 45 30
------- -------
10,423 7,059
======= =======
</TABLE>
The adjustment to amortization of goodwill includes amortization over 12
years of the excess of purchase price over the historical net book value of
the net assets acquired in the InfoSat Acquisition.
(h) Represents estimated debt issuance costs of DM8,933,000 ($6,050,000) and
other assets acquired in the InfoSat Acquisition of DM162,000 ($110,000).
(i) Represents repayment of the Prior Facilities using the net proceeds of the
Offering, in addition to debt borrowed to fund the purchase price for the
InfoSat Acquisition and debt acquired in the InfoSat Acquisition:
<TABLE>
<CAPTION>
DM $
------- ------
(IN THOUSANDS)
<S> <C> <C>
Repayment of Prior Facilities...................................... 138,727 93,950
Purchase price for InfoSat Acquisition............................. (10,468) (7,089)
Acquired debt in InfoSat Acquisition............................... (5,122) (3,469)
------- ------
123,137 83,392
======= ======
</TABLE>
(j) Represents gross proceeds of the issuance of Discount Notes of
$100,000,000 (DM147,660,000 converted at the rate of DM1.4766=$1.00, the
Noon Buying Rate on March 29, 1996).
(k) To reflect Shareholder Debt Conversion as if consummated on December 31,
1995.
36
<PAGE> 39
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA --
(CONTINUED)
YEAR ENDED, AND AS AT, DECEMBER 31, 1995 -- PRO FORMA FOR THE RECENT
ACQUISITIONS, THE SHAREHOLDER DEBT CONVERSION, THE OFFERING AND THE PENDING
ACQUISITIONS:
(l) To reflect the revenues of the cable systems acquired in the 1995
Acquisitions for the periods in 1995 prior to their respective acquisition
dates, and the InfoSat Acquisition and the Pending Acquisitions for a full
year in 1995.
(m) To reflect operations and selling, general and administrative expenses for
the cable systems acquired in the 1995 Acquisitions for the periods in 1995
prior to their respective acquisition dates and the InfoSat Acquisition and
the Pending Acquisitions for a full year in 1995, net of anticipated
savings from the consolidations of office space and elimination of
redundant personnel as follows:
<TABLE>
<CAPTION>
1995 ACQUISITIONS
PRIOR TO
ACQUISITION
DATE AND INFOSAT
ACQUISITION AND
PENDING
ACQUISITIONS FOR A ANTICIPATED NET
FULL YEAR IN 1995 SAVINGS ADJUSTMENT
------------------- ----------- ---------------
DM DM DM $
------------------- ----------- ----- -----
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Operations.............................. 8,228 (579) 7,649 5,180
Selling, general and administrative..... 8,758 (5,934) 2,824 1,913
</TABLE>
(n) To reflect amortization over a 12-year period of the excess of purchase
price over the estimated fair values of the net assets of the cable systems
acquired and depreciation of property, plant and equipment acquired in the
1995 Acquisitions for the periods in 1995 prior to their respective
acquisition dates and the InfoSat Acquisition and the Pending Acquisitions
for a full year in 1995.
(o) Interest expense is based upon the pro forma consolidated debt of the
Company, taking into account the Shareholder Debt Conversion and the
Offering and the application of the net proceeds therefrom, based on the
assumed interest rates indicated and taking into account the Recent
Acquisitions and the Pending Acquisitions:
<TABLE>
<CAPTION>
DM $
------- -------
<S> <C> <C>
(IN THOUSANDS)
Senior Discount Notes due 2006 ($100 million at 12.0%)(1)(2)...... (18,251) (12,360)
Amortization of debt issuance costs(3)............................ (893) (605)
Adjustment to interest expense from Shareholder Debt
Conversion(4)................................................... 13,652 9,246
Additional interest expense from indebtedness incurred or acquired
in connection with the InfoSat Acquisition...................... (882) (597)
Additional interest expense from indebtedness incurred or acquired
in connection with the Pending Acquisitions(5).................. (3,225) (2,184)
Adjustment to interest expense from assumed repayment of Prior
Facilities with net proceeds of the Offering as described in
"Use of Proceeds"............................................... 6,072 4,112
------- -------
Adjustment to interest expense.................................... (3,527) (2,388)
------- -------
Cash interest expense............................................. 1,965 1,331
Non-cash interest expense......................................... (5,492) (3,719)
</TABLE>
37
<PAGE> 40
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA --
(CONTINUED)
Pro forma non-cash interest expense consists of the following:
<TABLE>
<CAPTION>
DM $
------ ------
<S> <C> <C>
(IN THOUSANDS)
Senior Discount Notes(2)............................................ 18,251 12,360
Amortization of debt issuance costs(6).............................. 1,418 960
------ ------
19,669 13,320
</TABLE>
- ---------------
(1) The interest rates shown above for the Discount Notes has been assumed
by the Company pending determination of the actual rate.
(2) Non-cash interest expense on the Discount Notes is compounded on a
semi-annual basis.
(3) Estimated debt issuance costs of DM8,933,000 ($6,050,000) are amortized
over the 10-year term of the Discount Notes.
(4) Represents elimination of non-cash interest expense on the Subordinated
Shareholder Loans during the twelve-month period as if the Shareholder
Debt Conversion had been consummated on January 1, 1995.
(5) Assumes the consideration for the Pending Acquisitions will be at the
top end of the Company's estimated range of DM50,000,000 to
DM57,000,000.
(6) Includes estimated debt issuance costs of DM8,933,000 ($6,050,000)
amortized over the 10-year term of the Discount Notes and amortization
of debt issuance costs on the Prior Facilities.
(p) For purposes of the pro forma statement of operations, no adjustment has
been made to reflect the impact in 1995 of unrealized exchange rate gains
or losses. Absent any hedging on the part of the Company, the pro forma
unrealized exchange rate gain for 1995 would have been approximately
DM7,242,000 ($4,905,000) due to the substantial depreciation of the U.S.
dollar against the Deutsche Mark in 1995. The Company is considering
entering into transactions to hedge the risk of exchange rate fluctuations.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Treasury Policies."
(q) To reflect the impact on minority interest and income tax benefit of the
preceding adjustments.
(r) To reflect the acquisition of the net assets of the InfoSat Acquisition and
the net assets included in the Pending Acquisitions assuming the
acquisition price and acquired debt were paid with borrowings under the
Prior Facilities. The following represents the preliminary allocation of
the excess of purchase price over the historical net book value of the
acquired net assets of the InfoSat Acquisition and the Pending
Acquisitions:
<TABLE>
<CAPTION>
DM $
-------- --------
(IN THOUSANDS)
<S> <C> <C>
InfoSat Acquisition
Purchase price.................................................... 10,468 7,089
Acquired net assets at book value (December 31, 1995)............. 45 30
-------- --------
10,423 7,059
Pending Acquisitions
Purchase price.................................................... 53,526 36,249
Acquired net assets at book value (December 31, 1995)............. 4,316 2,923
-------- --------
49,210 33,326
-------- --------
Goodwill -- net................................................... 59,633 40,385
======= =======
</TABLE>
38
<PAGE> 41
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA --
(CONTINUED)
The adjustment to amortization of goodwill includes amortization over 12
years of the excess of purchase price over the historical net book value of
the acquired net assets of the InfoSat Acquisition and the net assets
included in the Pending Acquisitions.
(s) Represents estimated debt issuance costs of DM8,933,000 ($6,050,000) and
acquired other assets of the InfoSat Acquisition of DM162,000 ($110,000)
and the other assets included in the Pending Acquisitions of DM 1,229,000
($832,000).
(t) Represents the repayment of the Prior Facilities using the net proceeds of
the Offering, in addition to debt borrowed to fund the InfoSat Acquisition
and to be borrowed to fund the Pending Acquisitions and debt acquired in
the InfoSat Acquisition and to be acquired in the Pending Acquisitions:
<TABLE>
<CAPTION>
DM $
------- -------
(IN THOUSANDS)
<S> <C> <C>
Repayment of Prior Facilities..................................... 138,727 93,950
Purchase of InfoSat Acquisition................................... (10,468) (7,089)
Acquired debt in InfoSat Acquisition.............................. (5,122) (3,469)
Purchase of Pending Acquisitions.................................. (53,526) (36,249)
Acquired debt in Pending Acquisitions............................. (3,500) (2,370)
------- -------
66,111 44,773
======= =======
</TABLE>
(u) Represents gross proceeds of the issuance of Discount Notes of $100,000,000
(DM147,660,000 converted at the rate of DM1.4766 = $1.00, the Noon Buying
Rate on March 29, 1996).
(v) To reflect Shareholder Debt Conversion as if consummated on December 31,
1995.
39
<PAGE> 42
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA --
(CONTINUED)
THREE MONTHS ENDED MARCH 31, 1995 -- PRO FORMA FOR THE RECENT ACQUISITIONS, THE
SHAREHOLDER DEBT CONVERSION, THE OFFERING AND THE PENDING ACQUISITIONS:
(w) To reflect the revenues of the cable systems acquired in the 1995
Acquisitions, the InfoSat Acquisition and the Pending Acquisitions for the
full first quarter in 1995.
(x) To reflect operations and selling, general and administrative expenses for
the cable systems acquired in the 1995 Acquisitions, the InfoSat
Acquisition and the Pending Acquisitions for the full first quarter in
1995, net of anticipated savings from the consolidations of office space
and elimination of redundant personnel.
(y) To reflect amortization over a 12-year period of the excess of purchase
price over the estimated fair values of the net assets of the cable systems
acquired and depreciation of property, plant and equipment acquired in the
1995 Acquisitions, the InfoSat Acquisition and the Pending Acquisitions for
the full first quarter in 1995.
(z) Interest expense is based upon the pro forma consolidated debt of the
Company and the Offering and the application of the net proceeds therefrom,
based on the assumed interest rates indicated and taking into account the
Recent Acquisitions and the Pending Acquisitions:
<TABLE>
<CAPTION>
DM $
------- -------
<S> <C> <C>
(IN THOUSANDS)
Senior Discount Notes due 2006 ($100 million at 12.0%)(1)(2)...... (4,430) (3,000)
Amortization of debt issuance costs(3)............................ (223) (151)
Adjustment to interest expense from Shareholder Debt
Conversion(4)................................................... 2,706 1,833
Additional interest expense from indebtedness incurred or acquired
in connection with the InfoSat Acquisition...................... (220) (149)
Additional interest expense from indebtedness incurred or acquired
in connection with the Pending Acquisitions(5).................. (806) (546)
Adjustment to interest expense from assumed repayment of Prior
Facilities with net proceeds of the Offering as described in
"Use of Proceeds"............................................... 497 337
------- -------
Adjustment to interest expense.................................... (2,476) (1,676)
------- -------
Cash interest expense............................................. (529) (358)
Non-cash interest expense......................................... (1,947) (1,318)
</TABLE>
Pro forma non-cash interest expense consists of the following:
<TABLE>
<CAPTION>
DM $
------ ------
<S> <C> <C>
(IN THOUSANDS)
Senior Discount Notes(2)............................................ 4,430 3,000
Amortization of debt issuance costs(6).............................. 354 240
------ ------
4,784 3,240
</TABLE>
- ---------------
(1) The interest rates shown above for the Discount Notes has been assumed
by the Company pending determination of the actual rate.
(2) Non-cash interest expense on the Discount Notes is compounded on a
semi-annual basis.
(3) Estimated debt issuance costs of DM8,933,000 ($6,050,000) are amortized
over the 10-year term of the Discount Notes.
(4) Represents non-cash interest expense on the Subordinated Shareholder
Loans during the three-month period as if the Shareholder Debt
Conversion had been consummated on January 1, 1995.
40
<PAGE> 43
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA --
(CONTINUED)
(5) Assumes the consideration for the Pending Acquisitions will be at the
top end of the Company's estimated range of DM50,000,000 to
DM57,000,000.
(6) Includes estimated debt issuance costs of DM8,933,000 ($6,050,000)
amortized over the 10-year term of the Discount Notes and amortization
of debt issuance costs on the Prior Facilities.
(aa) For purposes of the pro forma statement of operations, no adjustment has
been made to reflect the impact in the first quarter 1995 of unrealized
exchange rate gains or losses. Absent any hedging on the part of the
Company, the pro forma unrealized exchange rate gain for the first quarter
in 1995 would have been approximately DM7,509,000 ($5,085,000) due to the
substantial depreciation of the U.S. dollar against the Deutsche Mark in
the first quarter in 1995. The Company is considering entering into
transactions to hedge the risk of exchange rate fluctuations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Treasury Policies."
(bb) To reflect the impact on minority interest and income tax benefit of the
preceding adjustments.
41
<PAGE> 44
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA --
(CONTINUED)
THREE MONTHS ENDED MARCH 31, 1996 -- PRO FORMA FOR THE INFOSAT ACQUISITION, THE
SHAREHOLDER DEBT CONVERSION, THE OFFERING AND THE PENDING ACQUISITIONS:
(cc) To reflect the revenues of the cable systems acquired in the InfoSat
Acquisition for the period in the first quarter in 1996 prior to its
acquisition date and the Pending Acquisitions for the full first quarter in
1996.
(dd) To reflect operations and selling, general and administrative expenses for
the cable systems acquired in the InfoSat Acquisition for the period in the
first quarter in 1996 prior to its acquisition date and the Pending
Acquisitions for the full first quarter in 1996, net of anticipated savings
from the consolidations of office space and elimination of redundant
personnel.
(ee) To reflect amortization over a 12-year period of the excess of purchase
price over the estimated fair values of the net assets of the cable systems
acquired and depreciation of property, plant and equipment acquired in the
InfoSat Acquisition for the period in the first quarter in 1996 prior to
its acquisition date and the Pending Acquisitions for the full first
quarter in 1996.
(ff) Interest expense is based upon the pro forma consolidated debt of the
Company, taking into account the Shareholder Debt Conversion and the
Offering and the application of the net proceeds therefrom, based on the
assumed interest rates indicated and taking into account the InfoSat
Acquisition and the Pending Acquisitions:
<TABLE>
<CAPTION>
DM $
------- -------
<S> <C> <C>
(IN THOUSANDS)
Senior Discount Notes due 2006 ($100 million at 12.0%)(1)(2)...... (4,430) (3,000)
Amortization of debt issuance costs(3)............................ (223) (151)
Adjustment to interest expense from Shareholder Debt
Conversion(4)................................................... 4,495 3,044
Additional interest expense from indebtedness incurred or acquired
in connection with the Pending Acquisitions(5).................. (806) (546)
Adjustment to interest expense from assumed repayment of Prior
Facilities with net proceeds of the Offering as described in
"Use of Proceeds"............................................... 2,493 1,688
------- -------
Adjustment to interest expense.................................... 1,529 1,035
------- -------
Cash interest expense............................................. 1,687 1,142
Non-cash interest expense......................................... (158) (107)
</TABLE>
Pro forma non-cash interest expense consists of the following:
<TABLE>
<CAPTION>
DM $
------ ------
<S> <C> <C>
(IN THOUSANDS)
Senior Discount Notes(2)............................................ 4,430 3,000
Amortization of debt issuance costs(6).............................. 354 240
------ ------
4,784 3,240
</TABLE>
- ---------------
(1) The interest rates shown above for the Discount Notes has been assumed
by the Company pending determination of the actual rate.
(2) Non-cash interest expense on the Discount Notes is compounded on a
semi-annual basis.
(3) Estimated debt issuance costs of DM8,933,000 ($6,050,000) are amortized
over the 10-year term of the Discount Notes.
(4) Represents non-cash interest expense on the Subordinated Shareholder
Loans during the three-month period, as if the Shareholder Debt
Conversion had been consummated on January 1, 1996.
42
<PAGE> 45
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA --
(CONTINUED)
(5) Assumes the consideration for the pending acquisitions will be at the
top end of the Company's estimated range of DM50,000,000 to
DM57,000,000.
(6) Includes estimated debt issuance costs of DM8,933,000 ($6,050,000)
amortized over the 10-year term of the Discount Notes and amortization
of debt issuance costs on the Prior Facilities.
(gg) For purposes of the pro forma statement of operations, no adjustment has
been made to reflect the impact in the first quarter in 1996 of unrealized
exchange rate gains or losses. Absent any hedging on the part of the
Company, the pro forma unrealized exchange rate loss for the first quarter
in 1996 would have been approximately DM4,346,000 ($2,943,000) due to the
substantial appreciation of the U.S. dollar against the Deutsche Mark in
the first quarter in 1996. The Company is considering entering into
transactions to hedge the risk of exchange rate fluctuations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Treasury Policies."
(hh) To reflect the impact on minority interest and income tax benefit of the
preceding adjustments.
(ii) To reflect the acquisition of the net assets included in the Pending
Acquisitions assuming the acquisition price and acquired debt were paid
with borrowings under the Prior Facilities. The following represents the
preliminary allocation of the excess of purchase price over the historical
net book value of the acquired net assets of the Pending Acquisitions:
<TABLE>
<CAPTION>
DM $
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Pending Acquisitions
Purchase price.................................................... 53,526 36,249
Acquired net assets at book value (December 31, 1995)............. 4,316 2,923
-------- --------
Goodwill -- net................................................... 49,210 33,326
======= =======
</TABLE>
The adjustment to amortization of goodwill includes amortization over 12
years of the excess of purchase price over the historical net book value of
the net assets included in the Pending Acquisitions.
(jj) Represents estimated debt issuance costs of DM8,933,000 ($6,050,000) and
the other assets included in the Pending Acquisitions of DM1,229,000
($832,000).
(kk) Represents the repayment of the Prior Facilities using the net proceeds of
the Offering, in addition to debt to be borrowed to fund the Pending
Acquisitions and debt to be acquired in the Pending Acquisitions:
<TABLE>
<CAPTION>
DM $
------- -------
(IN THOUSANDS)
<S> <C> <C>
Repayment of Prior Facilities..................................... 138,727 93,950
Purchase of Pending Acquisitions.................................. (53,526) (36,249)
Acquired debt from Pending Acquisitions........................... (3,500) (2,370)
------- -------
81,701 55,331
======= =======
</TABLE>
(ll) Represents gross proceeds of the issuance of Discount Notes of
$100,000,000 (DM147,660,000 converted at the March 29, 1996 Noon Buying
Rate of DM1.4766 = $1.00).
(mm) To reflect Shareholder Debt Conversion as if consummated on March 31, 1996.
43
<PAGE> 46
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Since its inception in 1992, the Company has generated substantially all of
its revenues from monthly customer charges for basic cable service and, to a
significantly lesser extent, from installation income. The Company operates
solely within Germany and from its inception through April 1995 focused its
efforts on acquiring cable television systems located in the New German States.
During this period, the Company acquired five cable television companies and the
cable network assets of two additional cable television companies serving an
aggregate of approximately 162,600 customers (at the dates of the respective
acquisitions). Subsequent to April 1995, the Company began to make acquisitions
in the Old German States. From April 1995 through January 1996, the Company
acquired three cable television companies located in the Old German States
serving approximately 74,600 customers (at the dates of the respective
acquisitions). In addition, during such period the Company continued to acquire
cable television companies located in the New German States, acquiring an
additional three cable television companies and the cable network assets of one
additional cable television company serving an aggregate of approximately 88,000
customers (at the dates of the respective acquisitions).
The Company's revenues increased 105.0% in 1994 over 1993 and 636.3% in
1995 over 1994. These increases resulted primarily from acquisitions, although
they also reflect some improvements in the operating performance of the
Company's existing cable systems and increases in subscribers due to continued
build-out of cable systems and penetration in the Company's concession areas.
Operations, selling, general and administrative expenses have also increased
significantly due to the Company's growth through acquisitions. The significant
increase in depreciation and amortization expense is primarily due to the number
of acquisitions and to capital expenditures related to continued construction
and upgrading of the cable systems. Depreciation and amortization expense and
interest expense comprised the majority of the Company's expenses, contributing
significantly to the net losses reflected in the financial statements of the
Company.
In addition to other items, some of which are reflected in its statement of
operations data, the Company measures its financial performance by EBITDA. The
Company defines EBITDA as earnings (loss) before extraordinary items, minority
interests, net interest expense, income taxes and depreciation and amortization.
The Company believes that EBITDA is a meaningful measure of performance because
it is commonly used in the cable television industry to analyze and compare
cable television companies on the basis of operating performance, leverage and
liquidity. EBITDA is not a U.S. GAAP measure of income (loss) or cash flow from
operations and should not be considered as an alternative to net income as an
indication of the Company's financial performance or as an alternative to cash
flow from operating activities as a measure of liquidity.
44
<PAGE> 47
The following table sets forth, for the periods indicated, certain
statement of operations data and EBITDA in thousands of Deutsche Mark and as a
percentage of total revenues on a historical basis (audited for annual periods
and unaudited for quarterly periods) and on an unaudited pro forma basis.
<TABLE>
<CAPTION>
PRO FORMA
-----------------------------------------------------------
THREE MONTHS ENDED MARCH 31,
----------------------------
YEAR ENDED
DECEMBER 31, 1995 1995 1996
---------------------------- ------------- ------------
FOR THE FOR THE FOR THE
RECENT RECENT INFOSAT
FOR THE ACQUISITIONS, ACQUISITIONS, ACQUISITION,
RECENT THE THE THE
ACQUISITIONS, SHAREHOLDER SHAREHOLDER SHAREHOLDER
HISTORICAL THE DEBT DEBT DEBT
-------------------------------------------- SHAREHOLDER CONVERSION, CONVERSION, CONVERSION,
THREE MONTHS DEBT THE OFFERING THE OFFERING THE OFFERING
YEAR ENDED DECEMBER 31, ENDED MARCH 31, CONVERSION AND THE AND THE AND THE
------------------------- ---------------- AND THE PENDING PENDING PENDING
1993 1994 1995 1995 1996 OFFERING ACQUISITIONS ACQUISITIONS ACQUISITIONS
------ ------ ------- ------ ------- ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.............. 2,220 4,551 33,510 5,604 15,327 59,781 64,830 15,632 16,646
Operating costs and
expenses:
Operations.......... (219) (1,275) (6,663) (855) (2,919) (13,569) (14,312) (3,197) (3,113)
Selling, general and
administrative.... (987) (2,504) (14,465) (3,027) (4,370) (16,387) (17,289) (4,657) (4,606)
Depreciation and
amortization...... (1,460) (3,028) (23,685) (4,122) (10,731) (39,331) (45,054) (11,172) (12,225)
------ ------ ------- ------ ------- --------- ---------- ---------- ---------
Total operating
expenses............ (2,666) (6,807) (44,813) (8,004) (18,020) (69,287) (76,655) (19,026) (19,944)
------ ------ ------- ------ ------- --------- ---------- ---------- ---------
Operating loss........ (446) (2,256) (11,303) (2,400) (2,693) (9,506) (11,825) (3,394) (3,298)
Interest expense:
Cash interest
expense........... (312) (812) (11,166) (1,771) (3,975) (5,976) (9,201) (2,300) (2,288)
Non-cash interest
expense........... (743) (3,048) (14,177) (2,837) (4,626) (19,669) (19,669) (4,784) (4,784)
------ ------ ------- ------ ------- --------- ---------- ---------- ---------
Total............... (1,055) (3,860) (25,343) (4,608) (8,601) (25,645) (28,870) (7,084) (7,072)
Minority interest..... -- -- 118 21 27 113 113 21 27
------ ------ ------- ------ ------- --------- ---------- ---------- ---------
Net loss before income
tax
benefit and
extraordinary item.. (1,501) (6,116) (36,528) (6,987) (11,267) (35,088) (40,582) (10,457) (10,343)
Income tax benefit.... -- -- 916 -- 599 3,416 3,416 625 599
------ ------ ------- ------ ------- --------- ---------- ---------- ---------
Net loss before
extraordinary
item................ (1,501) (6,116) (35,612) (6,987) (10,668) (31,622) (37,166) (9,832) (9 ,744)
====== ====== ======= ====== ======= ========= ========== ========== =========
EBITDA................ 1,014 772 12,382 1,722 8,038 29,825 33,229 7,778 8,927
====== ====== ======= ====== ======= ========= ========== ========== =========
AS A PERCENTAGE OF REVENUES
Revenues.............. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Operating costs and
expenses:
Operations.......... 9.9% 28.0% 19.9% 15.3% 19.1% 22.7% 22.1% 20.5% 18.7%
Selling, general and
administrative.... 44.4% 55.0% 43.1% 54.0% 28.5% 27.4% 26.7% 29.8% 27.7%
Depreciation and
amortization...... 65.8% 66.6% 70.7% 73.5% 70.0% 65.8% 69.5% 71.5% 73.4%
------ ------ ------- ------ ------- --------- ---------- ---------- ---------
Total operating
expenses............ 120.1% 149.6% 133.7% 142.8% 117.6% 115.9% 118.3% 121.8% 119.8%
------ ------ ------- ------ ------- --------- ---------- ---------- ---------
Operating loss........ 20.1% 49.6% 33.7% 42.8% 17.6% 15.9% 18.3% 21.8% 19.8%
Interest expense:
Cash interest
expense........... 14.0% 17.8% 33.3% 31.6% 25.9% 10.0% 14.2% 14.7% 13.7%
Non-cash interest
expense........... 33.5% 67.0% 42.3% 50.6% 30.2% 32.9% 30.3% 30.6% 28.7%
------ ------ ------- ------ ------- --------- ---------- ---------- ---------
Total interest
expense......... 47.5% 84.8% 75.6% 82.2% 56.1% 42.9% 44.5% 45.3% 42.4%
Minority interest..... -- -- 0.4% 0.4% 0.2% 0.2% 0.2% 0.1% 0.2%
------ ------ ------- ------ ------- --------- ---------- ---------- ---------
Net loss before income
tax benefit and
extraordinary
item................ 67.6% 134.4% 109.0% 124.7% 73.5% 58.6% 62.6% 67.0% 62.0%
Income tax benefit.... -- -- 2.7% -- 3.9% 5.7% 5.3% 4.0% 3.6%
------ ------ ------- ------ ------- --------- ---------- ---------- ---------
Net (loss) before
extraordinary
item................ 67.6% 134.4% 106.3% 124.7% 69.6% 52.9% 57.3% 63,0% 58.4%
====== ====== ======= ====== ======= ========= ========== ========== =========
EBITDA................ 45.7% 17.0% 37.0% 30.7% 52.4% 49.9% 51.2% 49.8% 53.6%
====== ====== ======= ====== ======= ========= ========== ========== =========
</TABLE>
45
<PAGE> 48
RESULTS OF OPERATIONS
Set forth below is a discussion and analysis of the Company's results of
operations for the three-month periods ended March 31, 1995 and 1996 and the
years ended December 31, 1993, 1994 and 1995. Because the Company has completed
14 acquisitions since its inception in 1992, the Company believes that
period-to-period comparisons of its financial results to date are not
necessarily meaningful. To facilitate analysis, the discussion of year 1994
versus year 1995 includes: (i) historical data reflecting the inclusion of the
acquisitions in 1994 and 1995 as of the respective dates of such acquisitions;
(ii) pro forma statement of operations data reflecting the Recent Acquisitions,
the Shareholder Debt Conversion and the Offering and the application of the net
proceeds therefrom; and (iii) pro forma statement of operations data reflecting
the Recent Acquisitions, the Shareholder Debt Conversion and the Offering and
the application of the net proceeds therefrom and the Pending Acquisitions. Pro
forma data has been calculated as set forth in "Unaudited Pro Forma Condensed
Consolidated Financial Data." The Pending Acquisitions are at different stages
of negotiation and, although the Company considers consummation of both of these
transactions to be probable, there can be no assurance that the Company will
consummate either of such acquisitions on the terms set forth in the respective
letters of intent, if at all. See "Business -- Acquisitions and Pending
Acquisitions."
THREE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1996
The following discussion compares historical results of operations for the
first quarters of 1995 and 1996. A separate pro forma discussion is not
presented, as all of the Recent Acquisitions (which include the InfoSat
Acquisition) are reflected in the historical data for the first quarter of 1996.
See "Unaudited Pro Forma Condensed Consolidated Financial Data."
Revenues. Revenues increased 173.5% from DM5,604,000 in the first quarter
of 1995 to DM15,327,000 in the first quarter of 1996. This increase was
primarily attributable to a 148.8% increase (from 143,611 to 357,352) in the
average monthly number of customers and a 9.9% increase (from DM13.01 to
DM14.30) in the average monthly revenue per customer from the first quarter of
1995 to the first quarter of 1996. The increase in average monthly number of
customers was primarily related to the Recent Acquisitions, which, as of the
respective dates of the acquisitions, collectively served approximately 283,500
customers. In addition, the Company acquired approximately 16,600 additional
customers by building out its existing systems. Approximately 75% of the
increase in the average monthly revenue per customer is attributable to higher
average monthly revenue per customer in the systems acquired in the Recent
Acquisitions. The remaining 25% of the increase in average monthly revenue per
customer is attributable to rate increases implemented in the first quarter of
1996.
Operations. Operations expenses consist principally of signal delivery
fees paid to Deutsche Telekom for the provision of programming and the rental of
the principal transmission lines to the home, wages and benefits of technicians
and fees paid to sub-contracted service firms for the repair and maintenance of
Company-owned cable networks and head-ends and for connecting additional
subscribers, and the costs of related materials consumed in these maintenance,
repair and connection activities. Operations expenses increased significantly
from approximately DM855,000 in the first quarter of 1995 to DM2,919,000 in the
first quarter of 1996, principally as a result of the increased number of
personnel acquired in the Recent Acquisitions, increased maintenance associated
with a larger customer base and increased costs under the Company's signal
delivery contracts with Deutsche Telekom due to the Company's ownership of Level
4 or B1-Model Systems (as defined in "Industry -- Regulatory and Operating
Environment") in Osnabruck. Signal delivery fees for these systems represent a
higher percentage of revenues than applies to the Company's remaining systems,
which are predominantly Level 2 or Level 3 Systems (as defined in "Industry --
Regulatory and Operating Environment"), because the signal delivery fees for
such Level 4 or B1-Model Systems include a fee for the rental of Deutsche
Telekom's principal transmission lines to the home.
Selling, general and administrative. Selling, general and administrative
expenses consist principally of professional fees, salaries, wages and benefits
of non-technical employees, rental of office space, travel costs and office
related expenses. Selling, general and administrative expenses increased by
44.4% from DM3,027,000 in the first quarter of 1995 to DM4,370,000 in the first
quarter of 1996, principally as a result of
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increases in legal and financial consulting costs related to acquisition due
diligence, as well as the development of accountancy and other in-house
functions. As a percent of revenue, selling, general and administrative expenses
declined from 54% of revenues to approximately 29% of revenues, reflecting
higher revenue per subscriber and improved efficiencies.
Depreciation and amortization. Depreciation and amortization expenses
consist of depreciation of property, plant and equipment and amortization of
goodwill. Depreciation and amortization increased 160.3% from DM4,122,000 in the
first quarter of 1995 to DM10,731,000 in the first quarter of 1996 principally
as a result of amortization of goodwill associated with the Recent Acquisitions.
Interest expense. Interest expense increased 86.7% from DM4,608,000 in the
first quarter of 1995 to DM8,601,000 in the first quarter of 1996 as a result of
additional indebtedness incurred under the Prior Facilities, which increased
from DM78,049,000 at March 31, 1995 to DM237,500,000 at March 31, 1996, and
Subordinated Shareholder Loans, which increased from DM85,020,000 at March 31,
1995 to DM177,134,000 at March 31, 1996. Of the interest accrued in the first
quarter of 1996, DM4,495,000 related to non-cash interest on Subordinated
Shareholder Loans, which was subsequently contributed to the equity of
Kabelmedia as part of the Shareholder Debt Conversion.
Net loss before extraordinary item. Net loss before extraordinary item
increased 52.7% from DM6,987,000 in the first quarter of 1995 to DM10,668,000 in
the first quarter of 1996 as a result of the factors discussed above.
EBITDA. EBITDA increased significantly from DM1,722,000 for the three
months ended March 31, 1995 to DM8,038,000 for the three months ended March 31,
1996, primarily as a result of revenues increasing at a faster rate than
operating costs and expenses. The Company's EBITDA margin improved from 30.7% to
52.4% reflecting the results of factors discussed above.
YEARS ENDED DECEMBER 31, 1994 AND 1995
Historical results
Revenues. Revenues increased 636.3% from DM4,551,000 in 1994 to
DM33,510,000 in 1995. This increase was primarily attributable to a 454.4%
increase (from 40,494 to 224,516) in the average monthly number of customers
between 1994 and 1995 and a 32.8% increase (from DM9.37 to DM12.44) in the
average monthly revenue per customer. The increase in the average monthly number
of customers was principally related to the 1995 Acquisitions of systems which,
as of the respective dates of acquisition, collectively served approximately
270,000 customers, representing approximately 95.0% of such subscriber growth in
1995. In addition, the Company acquired approximately 14,200 additional
customers by building out its existing systems and increasing the penetration of
such systems, which represented approximately 5.0% of such subscriber growth.
The increase in the average monthly revenue per customer is principally related
to the higher average monthly revenue per customer of systems acquired in the
1995 Acquisitions and to a lesser extent selective rate increases implemented in
the Company's cable operations acquired in 1993 and 1994.
Operations. Operations expenses increased 422.6% from DM1,275,000 in 1994
to DM6,663,000 in 1995, principally as a result of the inclusion of these costs
related to companies acquired in the 1995 Acquisitions. Operations expenses of
companies acquired in the 1995 Acquisitions were DM5,344,000. Operations
expenses in 1995 included a non-recurring charge of approximately DM325,000 for
the write-down of obsolete inventory comprising a portion of the assets of
companies acquired in 1995.
Signal delivery fees paid to Deutsche Telekom increased significantly from
DM180,000 in 1994 to DM2,250,000 in 1995. DM732,500 of the Deutsche Telekom
signal delivery fees relate to three months' ownership of Level 4 or B1-Model
Systems in Osnabruck (acquired at the end of September 1995). Signal delivery
fees for these systems represent a higher percentage of revenues than applies to
the Company's remaining systems, which are predominantly Level 2 or Level 3
Systems, because the signal delivery fees for such Level 4 or B1-Model Systems
include a fee for the rental of Deutsche Telekom's principal transmission lines
to the home.
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Selling, general and administrative. Selling, general and administrative
expenses increased 477.7% from DM2,504,000 in 1994 to DM14,465,000 in 1995
principally as a result of the inclusion of the companies acquired in the 1995
Acquisitions. Selling, general and administrative expenses of companies acquired
in 1995 amounted to DM6,955,000. Selling, general and administrative expenses in
1995 included approximately DM2,900,000 of consulting, reorganization and
acquisition search related expenses.
Depreciation and amortization. Depreciation and amortization expenses
increased 682.2% from DM3,028,000 in 1994 to DM23,685,000 in 1995 as a result of
the increase in amortization of goodwill associated with the 1995 Acquisitions,
a full year of amortization associated with the acquisitions made in 1994 (the
"1994 Acquisitions"), increases in depreciation related to such acquisitions and
capital expenditures associated with construction activities.
Interest expense. Interest expense increased from DM3,860,000 in 1994 to
DM25,343,000 in 1995, primarily as a result of the Company drawing down
additional bank debt and incurring additional Subordinated Shareholder Loans
(which increased from DM63,584,000 to DM172,638,000) to finance the 1995
Acquisitions. Of the interest incurred in 1995, DM13,652,000 related to non-cash
interest on Subordinated Shareholder Loans, which was subsequently contributed
to the equity in Kabelmedia as part of the Shareholder Debt Conversion. Also
included in interest was DM515,000, representing a non-cash expense associated
with the amortization of loan origination fees.
Net loss before extraordinary item. Net loss before extraordinary item
increased from DM6,116,000 in 1994 to DM35,612,000 in 1995 as a result of the
factors discussed above.
Extraordinary item. Extraordinary item consists of the write-off of a
portion of the loan origination fees paid in 1994 to the Company's banks in
connection with the Company's 1994 bank facility. This facility was refinanced
and replaced by its 1995 bank facility, and the unamortized portion of such loan
origination fees, in the amount of DM2,670,000, was written off.
Net loss. Net loss increased from DM6,116,000 in 1994 to DM38,282,000 in
1995 as a result of the factors discussed above.
EBITDA. EBITDA increased from DM772,000 in 1994 to DM12,382,000 in 1995.
This increase was principally due to the 636.3% increase in revenues in 1995
compared to 1994, primarily as a result of the 1995 Acquisitions and the
reduction in the percentage of revenue of operations expenses (from 28.0% to
19.9%) and selling, general and administrative expenses (from 55.0% to 43.1%).
The reductions in these expense categories as a percentage of revenues were
primarily attributable to the elimination by the Company of duplicative
personnel and office locations and administrative functions in furtherance of
the Company's consolidation strategy. The Company's EBITDA margin improved
substantially from 17.0% to 37.0%.
Pro Forma results
On a pro forma basis for the Recent Acquisitions, the Shareholder Debt
Conversion and the Offering and the application of the net proceeds therefrom,
revenues for 1995 would be DM59,781,000 compared to historical revenues of
DM33,510,000, due to the pro forma impact of reflecting the revenues for the
Recent Acquisitions for the full year. Total pro forma operating expenses of
DM69,287,000 represent 115.9% of pro forma revenues, compared to historical
operating expenses of DM44,813,000, representing 133.7% of historical revenues.
Pro forma operations expenses include DM4,000,000 of Deutsche Telekom signal
delivery fees relating to the Company's Level 4 or B1-Model Systems in
Osnabruck, which are higher as a percentage of revenues than is the case for the
Company's other systems, since the signal delivery fees for Osnabruck include a
fee for the rental of Deutsche Telekom's principal transmission lines to the
home. Such lower pro forma total operating expenses as a percentage of revenues
principally reflect reduced pro forma selling, general and administrative
expenses and, to a lesser extent, reduced pro forma depreciation and
amortization, in each case as a percentage of pro forma revenues. Pro forma
selling, general and administrative expenses are lower as a percentage of
revenues due to the impact of significantly higher revenues and savings
(reflected as DM5,010,000 in the pro forma statement of operations) resulting
from the consolidation of acquired systems following their acquisition to
improve operating performance. Included in 1995 historical and pro forma
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operations expenses and selling, general and administrative expenses are
DM325,000 in write-downs of obsolete inventory and DM2,900,000 of consulting,
reorganization and acquisition search related expenses. Pro forma 1995 interest
expense would be DM25,645,000 compared to historical interest expense of
DM25,343,000, due to higher levels of indebtedness and higher average interest
rates resulting from the Offering and the application of proceeds to repay bank
debt, offset by the Shareholder Debt Conversion. However, pro forma cash
interest expense would decline by DM5,190,000 compared to historical cash
interest expense. DM19,669,000 of the pro forma 1995 interest expense is
non-cash expense, attributable to the Discount Notes (DM18,251,000) and
amortization of bank financing fees (DM1,418,000). Pro forma net loss before
extraordinary item would be DM31,622,000 compared to historical net loss before
extraordinary item of DM35,612,000 as a result of the items discussed above. Pro
forma EBITDA for 1995 would be DM29,825,000, representing an EBITDA margin of
49.9%, compared to historical EBITDA of DM12,382,000, representing an EBITDA
margin of 37.0%. The significant improvement in EBITDA margin reflected in the
pro forma statement of operations is due primarily to significantly higher
revenues and lower selling, general and administrative expenses as a percentage
of revenues.
On a pro forma basis for the Recent Acquisitions, the Shareholder Debt
Conversion, the Offering and the application of the net proceeds therefrom and
the Pending Acquisitions, revenues for 1995 would be DM64,830,000 compared to
historical revenues of DM33,510,000. Due to the pro forma effect of reflecting
revenues for the Recent Acquisitions and Pending Acquisitions for the full year,
total pro forma operating expenses of DM76,655,000 would represent 118.3% of pro
forma revenues, compared to total historical operating expenses of DM44,813,000,
representing 133.7% of historical revenues. Pro forma interest expense would be
DM28,870,000, compared to historical interest expense of DM25,343,000, due to
higher levels of indebtedness and higher average interest rates resulting from
the Offering, offset in part by the Shareholder Debt Conversion. Pro forma cash
interest would decline by DM1,965,000 to DM9,201,000 compared to historical cash
interest of DM11,166,000. DM19,669,000 of pro forma interest expense would be
non-cash as compared to historical non-cash interest expense of DM14,177,000.
The increase is attributable to the Discount Notes and amortization of debt
issuance costs related to the Offering, which exceed the reduction in non-cash
interest expense as a result of the Shareholder Debt Conversion. Pro forma net
loss before extraordinary item would be DM37,166,000 compared to historical net
loss before extraordinary item of DM35,612,000, as a result of the items
discussed above. Pro forma EBITDA would be DM33,229,000 representing a 51.2%
EBITDA margin, compared to historical EBITDA of DM12,382,000, representing a
37.0% EBITDA margin on a historical basis. The significant improvement in EBITDA
margin reflected in the pro forma statement of operations is due primarily to
significantly higher revenues and lower selling, general and administrative
expenses as a percentage of revenues.
YEARS ENDED DECEMBER 31, 1993 AND 1994
Revenues. Revenues increased 105.0% from DM2,220,000 in 1993 to
DM4,551,000 in 1994. This increase was primarily attributable to an 102.3%
increase (from 20,017 to 40,494) in the average monthly number of customers
between 1993 and 1994 and a modest increase (from DM9.24 to DM9.37) in the
average monthly revenue per customer. The increase in the average monthly number
of customers was principally related to the 1994 Acquisitions, which, as of the
respective dates of acquisition, collectively served approximately 34,000
customers. In addition, the Company acquired approximately 2,000 additional
customers by building out its existing systems and increasing the penetration of
such systems, which represented approximately 5.6% of such subscriber growth.
The increase in average monthly revenue per customer was principally a result of
rate increases implemented in the Company's first cable television company,
which was acquired in April 1993, and an increase in the number of customers who
subscribed to extended basic services. The acquired company's revenue for
December 1994 was approximately 32.0% higher than that for December 1993. The
increase in the Company's average monthly revenue per customer was partially
offset by the lower average monthly revenue per customer of the cable systems
acquired in the 1994 Acquisitions.
Operations. Operations expenses increased from DM219,000 in 1993 to
DM1,275,000 in 1994, principally as a result of the increased number of
personnel acquired in the 1994 Acquisitions, increased
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maintenance associated with a larger customer base and increased costs under
Deutsche Telekom signal delivery agreements due to the larger customer base.
Selling, general and administrative. Selling, general and administrative
expenses increased from DM987,000 in 1993 to DM2,504,000 in 1994, principally as
a result of a substantial increase in legal and financial consulting costs
related to the 1994 Acquisitions, as well as the development of accounting and
other in-house functions during the Company's early growth stage.
Depreciation and amortization. Depreciation and amortization expenses
increased from DM1,460,000 in 1993 to DM3,028,000 in 1994 as a result of the
amortization of goodwill associated with the 1994 Acquisitions, increases in
depreciation related to such acquisitions and capital expenditures associated
with construction activities.
Interest Expense. Interest expense increased from DM1,055,000 in 1993 to
DM3,860,000 in 1994, primarily as a result of DM98,662,000 of additional
indebtedness incurred under the Company's bank facilities (which increased from
DM7,267,000 to DM47,178,000) and Subordinated Shareholder Loans (which increased
from DM4,833,000 to DM63,584,000) to finance the 1994 Acquisitions. Interest
expense in 1994 also includes amortization of financing fees and facilities
payments under the Company's bank facilities.
Net loss before extraordinary item and net loss. Net loss before
extraordinary item and net loss increased from DM1,501,000 in 1993 to
DM6,116,000 in 1994 as a result of the factors discussed above.
EBITDA. EBITDA decreased from DM1,014,000 in 1993 to DM772,000 in 1994.
This decrease was principally due to operations and selling, general and
administrative costs increasing faster than revenues due to the increased number
of personnel and increased legal and financial consulting expenses.
INCOME TAXES
The Company paid no income taxes in 1993, 1994 or 1995 as a result of the
losses it has incurred. At December 31, 1995, the Company had net operating loss
carryforwards for German corporate and trade tax purposes of approximately
DM58,797,000 and DM49,765,000, respectively, which have no time limitation in
respect of their usage. See note 7 to the consolidated financial statements of
the Company included in this Prospectus.
TREASURY POLICIES
To date, the Company's results of operations have not been significantly
affected by exchange rates because substantially all of its revenues, operating
expenses and interest expense has been in Deutsche Mark. The Company expects to
obtain a portion of its financing from the sale of the Discount Notes, which
will be denominated in U.S. dollars, and therefore the Company will encounter
currency exchange rate risk. See "Risk Factors -- Currency Risk and Hedging
Activities." The Company is considering entering into transactions to hedge the
risk of exchange rate fluctuations. Derivative products will not be used to
enhance returns.
Certain of the Company's expenses, principally for wages and benefits as
well as for equipment repair and replacement, generally increase with inflation.
However, the Company does not believe that its financial results have been
materially adversely affected by inflation because the Company has been able to
increase its rates and thereby pass on the impact of inflation to its
subscribers, as generally permitted under the Company's concession and franchise
agreements and terms and conditions with customers. See "Business -- Concession
and Franchise Agreements."
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically relied on three sources for necessary funding:
(i) borrowings under its bank facilities; (ii) loans and contributions from
equity investors; and, to a lesser extent, (iii) cash flow from operations.
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At March 31, 1996, the Company's aggregate consolidated indebtedness was
approximately DM420,700,000, comprised of DM243,566,000 of debt to banks and
DM177,134,000 of Subordinated Shareholder Loans. After giving effect to the
Shareholder Debt Conversion and the Offering and the application of the net
proceeds therefrom as if such transactions had occurred on March 31, 1996, the
Company's aggregate consolidated indebtedness on a pro forma basis would have
been approximately DM252,499,000. After giving effect to the foregoing and the
Pending Acquisitions as if such transactions had occurred on March 31, 1996, the
Company's aggregate consolidated indebtedness on a pro forma basis would have
been approximately DM309,525,000. From the Company's inception through March 31,
1996, it received approximately DM191,000,000 in advances from its equity
investors, of which DM18,187,000 had been in the form of equity capital and
DM177,134,000 had been in the form of Subordinated Shareholder Loans, which
included DM20,664,000 of accrued non-cash interest. A further advance of
DM10,199,000 was made to the Company by the Shareholders on May 30, 1996 and the
Subordinated Shareholder Loans increased accordingly. The Subordinated
Shareholder Loans were subsequently contributed to the equity of the Company in
the Shareholder Debt Conversion. The Company generated cash flows from operating
activities of DM1,801,000, DM1,078,000 and DM3,248,000 for the years ended
December 31, 1993 and 1994 and the quarter ended March 31, 1996, respectively,
and was a net user of DM2,124,000 of cash in 1995. The Company used cash in
investing activities of DM11,621,000, DM88,880,000, DM129,993,000 and
DM14,947,000 for the years ended December 31, 1993, 1994 and 1995 and the
quarter ended March 31, 1996, respectively. Such cash uses were principally
related to acquisitions. Net cash provided by financing activities amounted to
DM9,843,000, DM90,201,000, DM137,505,000 and DM10,130,000 for the years ended
December 31, 1993, 1994, 1995 and the quarter ended March 31, 1996,
respectively. Such cash was principally provided by proceeds from bank debt and
Subordinated Shareholder Loans. Cash flows from operating and financing
activities have been sufficient to meet the Company's debt service, working
capital and capital expenditure requirements, including the purchase cost of
prior acquisitions.
Capital expenditures of DM6,635,000, DM5,617,000 and DM10,955,000 for the
years ended December 31, 1993, 1994 and 1995, respectively, and DM2,891,000 for
the three months ended March 31, 1996 have been related to the continued
construction, expansion and upgrading of existing systems. Over the three-year
period ended December 31, 1995, the Company has added 19,000 customers by
building out its existing systems and increasing penetration of such systems.
The Company has only minimal commitments to make capital expenditures under the
terms of concession or franchise agreements or otherwise, but anticipates that
it will continue to increase its capital expenditures in the near future to
further upgrade existing cable systems and to expand and upgrade new cable
systems once they have been acquired. To the extent cash flow is not sufficient
to fund its capital expenditures, the Company expects to borrow necessary funds
under the Bank Facility.
Substantial amounts of depreciation and amortization expense and accretion
of non-cash interest expenses are expected to continue to contribute to the net
losses experienced by the Company. These expenses, however, do not result in an
outflow of cash.
The Company believes that EBITDA provides a more meaningful measure of
fixed cost coverage than does a deficiency of earnings to fixed charges. EBITDA
amounts in each period are not solely available to satisfy cash interest expense
amounts payable by the Company and may also be required for other corporate
purposes, including increases in working capital, principal payments on debt and
capital expenditures. After giving effect to the Recent Acquisitions, the
Shareholder Debt Conversion and the Offering and the application of the net
proceeds therefrom as if such transactions had occurred on January 1, 1995, pro
forma EBITDA would have been approximately DM29,825,000 for the year ended
December 31, 1995. After giving effect to the Recent Acquisitions, the
Shareholder Debt Conversion and the Offering and the application of the net
proceeds therefrom and the Pending Acquisitions as if such transactions had
occurred on January 1, 1995, pro forma EBITDA would have been approximately
DM33,229,000 for the year ended December 31, 1995. After giving effect to the
InfoSat Acquisition, the Shareholder Debt Conversion, the Offering and the
application of the net proceeds therefrom and the Pending Acquisitions as if
such transactions had occurred on January 1, 1996, pro forma EBITDA would have
been approximately DM8,927,000 for the quarter ended March 31, 1996. See "Risk
Factors -- Deficiency of Earnings to Fixed Charges." Cash interest expense on a
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pro forma basis for the Recent Acquisitions, the Shareholder Debt Conversion and
the Offering would have been DM5,976,000 for the year ended December 31, 1995.
Cash interest expense on a pro forma basis for the Recent Acquisitions, the
Shareholder Debt Conversion, the Offering and the Pending Acquisitions would
have been DM9,201,000 for the year ended December 31, 1995. Cash interest
expense on a pro forma basis for the InfoSat Acquisition, the Shareholder Debt
Conversion, the Offering and the application of the net proceeds therefrom and
the Pending Acquisitions would have been DM2,288,000 for the quarter ended March
31, 1996.
After the closing of the Offering and the application of the net proceeds
therefrom, the Company expects to have DM93,343,000 outstanding under its new
DM400,000,000 Bank Facility. The Company anticipates that upon the closing of
the Bank Facility, unamortized bank financing fees relating to its existing
facility will be fully written off in 1996 resulting in a non-cash extraordinary
loss of approximately DM5,429,000. For a discussion of the Bank Facility, see
"Description of Certain Indebtedness." Future acquisitions and capital
expenditures may require the Company to borrow additional amounts or obtain
equity financing. The Company's ability to secure additional debt or equity
financing will be restricted by the terms of its outstanding indebtedness,
including the Bank Facility and the Indenture.
Although the Company has not historically generated earnings sufficient to
cover fixed charges, the Company expects that it will continue to generate cash
flow which, together with its existing financing commitments under the Bank
Facility, will be sufficient to meet its debt service, working capital and
capital expenditure requirements for the foreseeable future.
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INDUSTRY
Germany is the largest cable television market in Europe, with a population
of over 81 million people and over 36 million homes. Deutsche Telekom cable
television distribution systems, either directly or indirectly through private
cable system operators, passed approximately 24 million homes and served over 15
million cable subscribers as of September 30, 1995. Deutsche Telekom provides
cable television signals to over 5,000 cable system operators with over 100
subscribers each and over 475 cable system operators with over 1,000 subscribers
each. In addition, a large number of German cable system operators also obtain
their programming directly through their own head-ends and provide that
programming to a significant number of additional homes in Germany.
Additionally, as of December 31, 1995, Germany had approximately 6.8 million
homes served by DTH satellite and SMATV systems.
Although the German cable industry shares many characteristics with the
U.S. cable industry, due to differences in the regulatory and operating
environments, differing demographic and customer characteristics, and the
relatively recent reunification of the Old and New German States, the German
cable industry has developed several distinguishing characteristics.
REGULATORY AND OPERATING ENVIRONMENT
The characteristics of the German cable television industry have been
influenced by the regulatory environment in which the industry operates. German
law provides that Deutsche Telekom, the legal successor of Deutsche Bundespost
Telekom, has in effect a right of first refusal to provide cable infrastructure
and cable television services to all new (i.e., uncabled) areas. However, in
accordance with the Gemeinsame Erklarung von Bundespost und Handwerk dated June
1983, Deutsche Telekom has generally agreed to limit its ownership of cable
infrastructure to those portions located on or in public land. The cabling
inside the private households is generally owned and operated by private cable
companies or, in certain circumstances, the owner of the building. See "Certain
Regulatory Matters." Accordingly, three levels of cable system integration have
developed in Germany.
LOGO
To the extent that Deutsche Telekom has exercised its right of first
refusal with respect to an area, Deutsche Telekom owns and operates the head-end
and the principal transmission lines, and the role of private cable systems
operators generally is limited to extending the cable system from the end of the
principal transmission line at the "front door" of the home, billing the
subscriber, debt collection and customer
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management (a "Level 4 System," referred to in Germany as a "B1-Model System").
In those cases where Deutsche Telekom does not exercise its right of first
refusal with respect to a particular area, private cable system operators are
permitted to establish cable systems similar to those found in the United States
and the United Kingdom, where the operator owns and operates the entire cable
system, from the head-end through the in-house connections (a "Level 2 System").
Approximately 58% of the Company's customers are served by Level 2 Systems.
Notwithstanding this right, many private cable system operators have entered
into signal delivery contracts with Deutsche Telekom in lieu of owning and
operating their own head-end (a "Level 3 System"). Private cable system
operators operating Level 3 or Level 4 Systems are required to pay Deutsche
Telekom a fee for access to Deutsche Telekom's network. Such charges and fees
are not payable to Deutsche Telekom by operators of Level 2 Systems, which are
owned and operated entirely by the cable system operators. The program
generation and transmission are referred to as a "Level 1 System." The Company
does not own or operate any Level 1 Systems. See "Business -- Systems."
Deutsche Telekom is by far the largest cable television system operator in
Germany. In the Old German States, Deutsche Telekom has exercised its right of
first refusal with respect to substantially all communities with over 10,000
inhabitants. Consequently, substantially all private cable systems in the Old
German States are either Level 4 Systems or systems serving communities with
less than 10,000 inhabitants. In contrast, Deutsche Telekom has not exercised
its right of first refusal in the majority of cases in the New German States.
Consequently, many of the communities in the New German States are served by
private cable systems operating either Level 2 or Level 3 Systems.
The German regulatory system has also indirectly influenced the
relationship between cable system operators and suppliers of programming. Unlike
the United States and the United Kingdom where the fees paid by cable system
operators for access to satellite programming are often a significant component
of operating cost, this has not been the case in Germany, where programming
costs have historically been very low. Deutsche Telekom pays an annual fee to a
German copyright royalty collecting society in respect of the retransmission of
terrestrial broadcasting on its cable network. Deutsche Telekom has advised the
Company that it believes payment of this license fee permits Deutsche Telekom to
allow private cable system operators connected to Deutsche Telekom signal
delivery points to retransmit that terrestrial broadcasting on their cable
systems. The relevant copyright fee collecting society has expressed the
contrary view, and has asserted that further royalties could be assessed to
private cable system operators retransmitting terrestrial broadcasting received
via Deutsche Telekom signal delivery points. Aside from this license fee,
Deutsche Telekom has advised that it pays nothing for either terrestrial or
satellite programming carried on its cable network. If the belief of Deutsche
Telekom in respect of the license fee it pays for terrestrial broadcasting is
correct, the Company believes it is appropriate to treat only a small portion of
the signal delivery payments made to Deutsche Telekom as a programming cost, but
if the position of the copyright fee collecting society is correct, the Company
believes it is appropriate to treat no portion of such signal delivery payments
as a programming cost. The Company further believes it is appropriate to treat
the remainder of the signal delivery fee paid to Deutsche Telekom as a network
rental charge in lieu of the cost of building and maintaining a head-end and
principal transmission lines to the home. Although this allocation by the
Company of signal delivery payments made by it to Deutsche Telekom between
programming cost and network rental fees does not affect operating results, the
Company believes such an allocation permits more meaningful comparisons to be
made of the relative significance of such operating expenses between the German
and other cable television markets. The Company attributes the historically low
cost of programming in the German cable television industry principally to a
combination of uncertainties in relation to Germany copyright protection of
retransmission rights in programming and the market strength of Deutsche Telekom
and private cable system operators as compared to that of broadcasters,
particularly satellite broadcasters, which the Company believes have sought to
increase market penetration and thereby enhance advertising revenues by
providing programming without charge and without assessing any copyright license
fees. German copyright royalty collecting societies have indicated to the
Company that they intend to seek to assess license fees for both terrestrial and
satellite broadcasting. See "Risk Factors -- Access to and Cost of Programming,"
"-- Copyright Royalty Fees" and "Business -- Programming."
54
<PAGE> 57
DEMOGRAPHIC AND CUSTOMER CHARACTERISTICS
Germany has an average population density of 562 persons per square mile,
compared to 70 persons per square mile in the United States and 616 persons per
square mile in the United Kingdom. Approximately 86% of Germany's population
resides in urban areas, compared to 75% in the United States and 89% in the
United Kingdom. See "Business -- The German Cable Television Market." In
addition to the cost savings resulting from the lower investment in cable plant
per home passed, such density enables cable operators in Germany to operate at a
lower cost because fewer technicians are required to service a given number of
customers. Further, the Company's churn rate is significantly lower than the
churn rates that generally prevail in either the United States or the United
Kingdom. The Company believes that the primary reasons for this lower churn rate
are that the population in Germany is less transient than that of the United
States, the wider use of preauthorized payment procedures in Germany than in the
United States and the United Kingdom, and the availability of fewer alternative
tiers of programming in Germany than in the United States and the United
Kingdom. Approximately 70% of the Company's customers pay their cable
subscription fees through preauthorized payment procedures, whereby an automatic
draw is made on such customer's bank account. The Company believes that
additional advantages of preauthorized payment procedures are lower billing
costs, less bad debt expense and lower churn rates.
REUNIFICATION OF THE OLD AND NEW GERMAN STATES
The cable television industry in the New German States has gone through
rapid change since German reunification in 1990. Prior to reunification, cable
television services in the New German States were provided primarily by
relatively small, government-owned community antennae television systems and
government-owned SMATV systems, with limited channel capacity and inferior
technology when compared with cable television systems in the Old German States.
After reunification, many of these systems were sold for nominal consideration
to the persons previously operating the systems, which resulted in a large
number of under-capitalized cable system operators offering inferior cable
services at relatively low cable subscription
fees when compared with the Old German States. Although many of these systems
have been acquired by industry consolidators and upgraded to increase quality
and channel capacity, the subscription fees for cable services in the New German
States remain significantly lower than those for similar services in the Old
German States. The Company believes that the cost of cable services in the New
German States, in common with the costs of many other services in the New German
States, will continue to converge with the costs of similar services in the Old
German States.
LIMITED PREMIUM PROGRAMMING
The market for premium programming services in Germany is in the early
stages of development, with only one German-language premium channel (Premiere)
currently being offered in Germany and less than 5% of cable subscribers as of
December 31, 1995 subscribing to such channel. The Company believes that the
principal reason for this low penetration of premium programming services in
Germany is consumer resistance to the fees charged by Premiere, which are
incremental to the combined governmental television license fee and subscription
fees charged for basic cable services. As of December 31, 1995, the monthly
subscription fee for Premiere was DM44 per month and customers were required to
pay an up-front deposit of DM120. This monthly fee was approximately twice the
highest basic cable subscription fee charged by Deutsche Telekom. Similarly,
virtually no pay-per-view services are currently being offered in Germany. The
Company believes that the introduction of pay-per-view services and additional
premium programming services in Germany could permit greater opportunities for
innovative packaging of tiered programming services and could create significant
opportunities for cable system operators to increase their revenue per
subscriber.
Premiere and a second potential market entrant, which, based on press
reports, the Company believes to be a consortium of program suppliers and DTH
(but not cable) system operators, have each announced that they expect to launch
multi-channel digital satellite pay television services in Germany during 1996,
and one or more additional competitors could emerge in this market. However, in
order to achieve meaningful penetration of this market, these programmers may
make digital satellite pay television services available to cable system
operators.
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<PAGE> 58
FRAGMENTED AND CONSOLIDATING MARKET
Deutsche Telekom provides cable television signals to over 5,000 cable
system operators with over 100 subscribers each and to over 475 cable system
operators with over 1,000 subscribers each. In addition, a large number of
German cable system operators acquire their programming directly through their
own head-ends and provide that programming to a significant number of additional
homes in Germany. However, since the reunification of the Old and New German
States, the German cable television industry has been consolidating. In addition
to the Company, the industry consolidators include Veba Telekom GmbH, Bosch
Telekom GmbH, Urbana Systemtechnik AG & Co. and Suweda AG. See "Business --
Competition."
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<PAGE> 59
BUSINESS
The Company acquires, owns and operates cable television systems that serve
primarily medium- and small-sized communities in Germany. Principally as a
result of completing 14 acquisitions since its inception in 1992, the Company
owned and operated cable systems passing approximately 492,000 homes and serving
approximately 359,000 customers as of March 31, 1996. In addition, the Company
has entered into non-binding letters of intent and commenced negotiations of
definitive purchase agreements in relation to the Pending Acquisitions of two
cable companies serving an aggregate of approximately 46,000 customers. See "--
Acquisitions and Pending Acquisitions."
The Company has followed a systematic approach in acquiring, consolidating
and operating cable television systems, based on the goal of increasing
operating cash flow while maintaining or improving service standards. A key
element of the Company's strategy is to expand its existing regional clusters of
cable television systems and to establish new regional clusters of systems large
enough to serve as cores for new operating regions. In addition, the Company
aggressively consolidates cable systems following their acquisition to improve
operating performance by eliminating duplicative personnel and office locations,
creating regional customer service centers and signal distribution facilities
and centralizing corporate support functions, including accounting, billing,
marketing and technical and administration services. Between January 1, 1994 and
March 31, 1996, the Company completed 12 acquisitions, thereby adding cable
systems serving approximately 317,500 customers (measured at the date of the
respective acquisitions), while reducing the number of office locations serving
customers of such acquired systems and the Company's other systems from 25 to
seven and the number of employees serving such acquired systems and the
Company's other systems from 211 to 125.
The Company's cable television systems are organized into six operating
regions: the Plauen Region, the Leipzig Region, the Berlin Region and the
Dresden Region, all of which are located within the New German States, and the
Stuttgart Region and the Osnabruck Region, both of which are located within the
Old German States. The following table sets forth certain information relating
to the Company's cable television systems within each of these regions as of
March 31, 1996.
<TABLE>
<CAPTION>
PLAUEN LEIPZIG BERLIN DRESDEN STUTTGART OSNABRUCK
REGION REGION REGION REGION REGION REGION TOTAL
------- ------- ------- ------- --------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Homes passed................... 36,367 199,354 46,650 49,611 79,886 79,995 491,863
Customers...................... 31,075 169,946 37,473 42,929 40,118 37,243 358,784
Penetration(1)................. 85.4% 85.2% 80.3% 86.5% 50.2% 46.6% 72.9%
</TABLE>
- ---------------
(1) Customers as a percentage of homes passed.
THE GERMAN CABLE TELEVISION MARKET
Germany is the largest cable television market in Europe and provides a
highly favorable environment for cable television system acquisitions and
operations:
- - Large, Fragmented Market -- Germany has a population of over 81 million
people and over 36 million homes. Deutsche Telekom is the dominant cable
television supplier; its cable television distribution systems, either
directly or indirectly through private cable system operators, passed
approximately 24 million homes and served over 15 million cable subscribers
as of September 30, 1995. Deutsche Telekom provides cable television
signals to over 5,000 cable system operators with over 100 subscribers each
and to over 475 cable system operators with over 1,000 subscribers each. A
large number of German cable system operators also acquire their
programming directly through their own head-ends and provide that
programming to a significant number of additional homes in Germany. This
large number of cable system operators provides the Company with
significant consolidation opportunities.
- - Built-out Infrastructure -- The German cable television market is
substantially built-out. As of September 30, 1995, Deutsche Telekom, either
directly or through cable transmission lines of private system operators,
passed approximately 64% of the homes in Germany. In addition, systems in
which the
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<PAGE> 60
head-end is owned by a private cable system operator pass or provide cable
signal to a significant number of additional homes in Germany. The Company
estimates that as of March 31, 1996, principal transmission lines passed
84% of the approximately 585,000 homes in its concession areas.
- - High Density -- Germany has an average population density of 562 persons per
square mile, compared to 70 persons per square mile in the United States
and 616 persons per square mile in the United Kingdom. Approximately 86% of
Germany's population resides in urban areas, compared to 75% in the United
States and 89% in the United Kingdom. In addition to the cost savings
resulting from the lower investment in cable plant per home passed, such
density is a factor which permits the Company to operate at a lower cost
because fewer technicians are required to service a given number of
customers.
- - Low Churn Rate -- The Company estimates that its churn rate has historically
been less than 5%, which is a significantly lower churn rate than those
which generally prevail in the U.S. and U.K. cable television industries.
The Company believes such lower churn rate to be due primarily to the
greater use of preauthorized payment procedures, fewer alternative tiers of
programming and, when compared with the United States, a less transient
population. See "-- Programming."
- - Wide Use of Preauthorized Payment Procedures -- Approximately 70% of the
Company's customers pay their subscription fees through preauthorized
payment procedures, whereby an automatic draw is made on such customer's
bank account. The Company believes that preauthorized payment procedures
result in lower billing costs, less bad debt expense and lower churn rates.
- - Low Programming Costs -- Historically, the Company's cost of programming as
a percentage of revenue has been nominal. Although such costs are expected
to increase due to several factors, including the possible imposition of
copyright royalty fees in respect of programming received on Company-owned
head-ends and pursuant to Deutsche Telekom signal delivery contracts (see
"Risk Factors -- Copyright Royalty Fees") and the increasing market
strength of certain program providers relative to that of Deutsche Telekom
and private cable system operators (see "Risk Factors -- Access to and Cost
of Programming"), the Company believes that for the foreseeable future, the
uncertain state of German copyright law and market conditions in the German
cable television industry will enable the Company and other German cable
system operators to maintain a level of programming costs as a percentage
of revenue which is relatively low as compared to cable television
operators in the United States and the United Kingdom. See "-- Programming"
and "Industry -- Regulatory and Operating Environment."
BUSINESS STRATEGY
The Company's objective is to enhance the value of its business by
capitalizing on opportunities presented by the large and fragmented German cable
television market. The Company's business strategy to achieve this objective
focuses on the following general principles:
- - Emphasis on Regional Clusters and Growth Through Acquisitions -- A key
element of the Company's strategy is to develop regional clusters of cable
television systems by acquiring cable systems that are either in close
proximity to its existing systems or large enough to serve as cores for new
operating regions. The Company has established significant regional
clusters of cable systems in the regions surrounding Plauen, Leipzig,
Berlin, Dresden, Stuttgart and Osnabruck. The Company is not aware of any
reliable or consistent published industry data on the relative size of
private cable system operators in Germany. However, on the basis of
discussions with competitors, the Company believes that with over 359,000
existing customers it is the fifth largest private cable system operator in
Germany in terms of customers (not including Deutsche Telekom, which is not
considered a private cable system operator). Approximately 46,000
additional customers are served by the systems expected to be acquired upon
consummation of the Pending Acquisitions, although no assurances can be
given as to when or if either of the Pending Acquisitions will be
consummated. The Company believes that its clustering strategy and the
scope of its operations have enabled it to reduce operating costs and
capital expenditures.
- - Enhancing Efficiency and Margins by Streamlining Operations -- Upon
completion of an acquisition, the Company generally implements extensive
management, operational and organizational changes designed to enhance
operating cash flow and operating margins. The Company's customer account
processing and
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<PAGE> 61
administrative services for acquired cable systems are transferred to one
centralized location, thereby reducing redundant overhead costs.
- - Promoting Internal Growth -- The Company seeks to increase revenues in
acquired systems in a number of ways. In the New German States, where the
Company's rates for cable services are lower than in the Old German States
(approximately DM10 versus DM22 per month as of December 31, 1995), these
efforts generally consist of selective increases in rates for cable
services that are timed to coincide with published increases in various
cost of living indices or the introduction of new or improved programming,
which the Company believes improves customer acceptance of the rate
increases. In the Old German States, where penetration levels of the
Company's systems are lower than in the New German States (approximately
55% of homes passed versus 80% of homes passed), the Company focuses its
efforts on increasing penetration through marketing, including innovative
packaging of tiered cable television services. For the year ended December
31, 1995, the Company increased its number of customers by approximately
14,200 as a result of expanding its systems within concession areas or
increasing penetration, which contributed approximately 5% of the Company's
growth in customers in 1995, the remainder being customers acquired through
the acquisition of additional systems.
- - Technological Enhancement -- The Company strives to maintain high
technological standards in its cable television systems on a cost-effective
basis and continuously upgrades its cable systems to achieve this goal. The
Company monitors and evaluates new technological developments on the basis
of its ability to make optimal use of its existing assets and to anticipate
the introduction of new services and program delivery capabilities. As
substantially all of the Company's cable systems have bandwidths of at
least 450MHz, the Company believes that it is well-positioned to benefit
from the development of advertising, security and utility meter monitoring,
pay-per-view and home shopping services, as well as anticipated future
services, such as video games, video-on-demand and other interactive
communications, such as telephony. The Company currently does not intend to
offer telephony services via its cable television systems.
- - Customer Service Orientation -- Each of the Company's operating regions is
managed by a regional manager who is responsible for both customer and
technical service within his region and reports directly to Ernst Uhlig,
the Company's Chief Operating Officer. The Company believes that this flat
operating structure enables it to be more responsive to customer needs.
- - Ownership and Control of Systems -- The Company owns approximately 98% of
its cable television systems on an equity subscriber basis. The Company
owns 100% of each of its cable television systems, with the exception of
the Company's systems serving the communities of Osnabruck, Neuruppin and
Heidenau, which as of December 31, 1995 served approximately 25,111, 4,510
and 3,380 customers, respectively, and included approximately 61,090, 4,600
and 3,080 homes, respectively, in the Company's concession areas. The
Company has an 91%, 50% and 80% ownership interest in the systems serving
the communities of Osnabruck, Neuruppin and Heidenau, respectively.
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<PAGE> 62
SYSTEMS
The Company's cable television systems are organized into six operating
regions: the Plauen Region, the Leipzig Region, the Berlin Region and the
Dresden Region, all of which are located within the New German States, and the
Stuttgart Region and the Osnabruck Region, both of which are located within the
Old German States. The following table lists each of the acquisitions effected
by the Company and the location of the cable systems acquired as a result
thereof.
<TABLE>
<CAPTION>
ACQUISITION
DATE OPERATING REGION(S)
--------------- -------------------------
<S> <C> <C>
1993 ACQUISITIONS
Kabelfernsehen Plauen GmbH & Co. KG................ April 1993 Plauen
Adorf (asset purchase)............................. December 1993 Plauen
1994 ACQUISITIONS
Seemann GmbH....................................... March 1994 Dresden
ERKA I Erfurt (asset purchase)..................... March 1994 Leipzig
Kabelrent Gesellschaft fur den Vertrieb und Service March 1994 Leipzig
von Medientechnik mbH............................
Antech Gesellschaft fur Vermietung und Vertrieb von November 1994 Plauen, Leipzig, Berlin
Satelliten-und Kabelfernsehempfangsanlagen mbH...
1995 ACQUISITIONS
APA Basic Beteiligungsgesellschaft mbH............. January 1995 Berlin, Leipzig, Dresden
PKG Holding GmbH................................... January 1995 Berlin, Leipzig, Dresden
PKG Kabelbetriebsgesellschaft mbH ("PKG Mature January 1995 Berlin, Leipzig, Dresden
Networks").......................................
Kabel Plus Gesellschaft fur Kabel und May 1995 Stuttgart
Satellitenfernsehen mbH and Wiedmann-Dettwiler
St. Georgen GmbH.................................
TELECable Betriebsgesellschaft Halle mbH........... August 1995 Leipzig
BFR Beteiligungsgesellschaft mbH, Kabelcom GmbH and September 1995 Leipzig, Berlin, Dresden,
ISIT GmbH ("BFR Group").......................... Osnabruck
TKB Telekabel Betriebsgesellschaft mbH............. October 1995 Leipzig
ERKA II Erfurt (asset purchase).................... October 1995 Leipzig
KSW GmbH & Co. KG Kabel- und October 1995 Stuttgart
Satellitenempfangsanlagen fur Wohngebiete und
Kommunen.........................................
1996 ACQUISITION
info-Sat Elektro- und Kommunikationstechnik GmbH January 1996 Leipzig, Berlin
("InfoSat GmbH").................................
</TABLE>
Except for its Osnabruck and Gera cable systems, which are Level 4 or
B1-Model Systems where the Company owns only the drop cable running from the end
of the principal transmission line at the front door to the in-house
connections, all of the Company's cable systems are Level 3, where the Company
also owns the principal transmission line from the head-end to the front door,
or Level 2 Systems, where the Company owns the entire cable system, from the
head-end through the in-house connections. See "Industry -- Regulatory and
Operating Environment." The Company procures programming through signal delivery
agreements with Deutsche Telekom for its Level 3 and Level 4 Systems. The fees
paid under such signal delivery agreements are assessed by Deutsche Telekom on
either a flat fee or a per subscriber basis and currently vary among the
Company's systems and operating regions. In each of its operating regions, the
Company believes, based on its market research, that the number and line-up of
channels offered on its systems are competitive with those offered by cable
system operators in neighboring concession areas. See "-- Programming."
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<PAGE> 63
Plauen Region
The Plauen Region includes the first cable television system acquired by
the Company and the Company's corporate headquarters. As of March 31, 1996, the
Plauen Region systems passed approximately 36,000 homes and served approximately
31,100 customers. These systems serve primarily medium- and small-sized
communities primarily located in the southern portion of the New German States
of Thuringen and Sachsen. Approximately 74% of the Company's Plauen Region
customers were served by Level 2 Systems as of March 31, 1996. See "Industry."
As of March 31, 1996, the Company's Plauen Region Level 2 Systems were served by
31 head-ends, the largest of which provided service to approximately 23,420
customers. The Plauen Region systems carry between four and 29 channels and are
generally capable of distributing over 40 channels.
Leipzig Region
The Leipzig Region is the Company's largest region in terms of customers.
As of March 31, 1996, the Leipzig Region systems passed approximately 199,000
homes and served approximately 170,000 customers. These systems serve a mix of
large-, medium- and small-sized communities primarily located in the western
portion of Sachsen, Sachsen-Anhalt and the northern portion of Thuringen.
Approximately 41% of the Company's Leipzig Region customers were served by Level
2 Systems as of March 31, 1996. See "Industry." As of March 31, 1996, the
Company's Leipzig Region Level 2 Systems were served by 72 head-ends, the
largest of which provided service to approximately 18,370 customers. The Leipzig
Region cable systems carry between three and 41 channels and are generally
capable of distributing over 40 channels.
Berlin Region
As of March 31, 1996, the Company's Berlin Region cable systems passed
approximately 51,000 homes and served approximately 46,600 customers. These
systems serve primarily medium- and small-sized communities primarily located in
Brandenburg and Mecklenburg-Vorpommern. Approximately 79% of the Berlin Region
customers were served by Level 2 Systems as of March 31, 1996. See "Industry."
As of March 31, 1996, the Company's Berlin Region Level 2 Systems were served by
98 head-ends, the largest of which provided service to approximately 5,750
customers. The Berlin Region cable systems carry between six and 30 channels and
are generally capable of distributing over 40 channels.
Dresden Region
As of March 31, 1996, the Company's Dresden Region cable systems passed
approximately 49,600 homes and served approximately 43,000 customers. These
systems serve primarily medium- and small-sized communities primarily located in
Sachsen. Approximately 90% of the Dresden Region customers were served by Level
2 Systems as of March 31, 1996. See "Industry." As of March 31, 1996, the
Company's Dresden Region Level 2 Systems were served by seven head-ends, the
largest of which provided service to approximately 27,750 customers. The Dresden
Region systems carry between four and 31 channels and are generally capable of
distributing over 40 channels.
Stuttgart Region
The Company's Stuttgart Region cable systems are characterized by the
highest average revenue and cash flow per customer of all of the Company's cable
systems. As of March 31, 1996, the Stuttgart Region systems passed approximately
80,000 homes and served approximately 40,100 customers. These systems serve
primarily medium- and small-sized communities primarily located in
Baden-Wurttemberg and Hessen. Approximately 89% of the Stuttgart Region
customers were served by Level 2 Systems as of March 31, 1996. See "Industry."
As of March 31, 1996, the Company's Stuttgart Region Level 2 Systems were served
by 32 head-ends, the largest of which provided service to approximately 13,900
customers. The Stuttgart Region systems carry between 18 and 30 channels and are
generally capable of distributing over 40 channels.
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Osnabruck Region
As of March 31, 1996, the Company's Osnabruck Region cable systems passed
approximately 80,000 homes and served approximately 37,200 customers. These
systems serve primarily medium- and small-sized communities primarily located in
the northern portion of Nordrhein-Westfalen and the city of Osnabruck in
Niedersachsen. The Osnabruck Region includes the Company's only Level 4 or
B1-Model Systems. Approximately 12% of the Osnabruck Region customers were
served by Level 2 Systems as of March 31, 1996. See "Industry." As of March 31,
1996, the Company's Osnabruck Region Level 2 Systems were served by five
head-ends, the largest of which provided service to approximately 1,690
customers. The Company's cable systems in the Osnabruck Region carry between 23
and 31 channels and are generally capable of distributing over 40 channels.
ACQUISITIONS AND PENDING ACQUISITIONS
During the year ended December 31, 1995, the Company completed the
acquisition of six cable television companies serving an aggregate of
approximately 270,000 customers (measured at the date of the respective
acquisitions) in the regions of Leipzig, Berlin, Osnabruck and Stuttgart, and
during the first quarter of 1996 the Company completed the InfoSat Acquisition,
and thereby acquired systems serving approximately 13,500 customers. In
addition, the Company has entered into non-binding letters of intent in relation
to the Pending Acquisitions, pursuant to which the Company would acquire systems
serving an aggregate of approximately 46,000 customers in Thuringen and
Sachsen-Anhalt for an aggregate estimated consideration, including acquired
indebtedness, brokerage fees and closing costs, of between DM50 million and DM57
million, which the Company would borrow under the Bank Facility. There can be no
assurance that the Company will consummate either of the Pending Acquisitions.
Set forth below is certain information with respect to the Pending Acquisitions
provided by the respective sellers.
<TABLE>
<CAPTION>
SACHSEN-
THURINGEN ANHALT
--------- -------------
<S> <C> <C>
Homes passed..................................................... 30,100 20,110
Customers........................................................ 27,100 19,000
Penetration(1)................................................... 90.0% 94.5%
Monthly revenue per customer(2).................................. DM10.96 DM11.16
</TABLE>
- ---------------
(1) Customers as a percentage of homes passed.
(2) Consists of monthly revenue per customer supplied by the respective sellers
as of certain dates during the fourth quarter of 1995. Such information has
been subject to only limited verification by the Company and, in some
cases, has been calculated on a different basis than that used by the
Company.
Of the customers of the systems which would be acquired as part of the
Pending Acquisitions, approximately 16,000 are served by Level 3 Systems and
approximately 30,000 are served by Level 2 Systems. The cable systems comprising
the Pending Acquisitions are generally capable of distributing over 40 channels,
with bandwidths generally of at least 450MHz.
NETWORK CONFIGURATION
The Company emphasizes high technological standards in its cable television
systems and considers the application of new technology on the basis of
cost-effectiveness, enhancement of product quality and service delivery and
industry-wide acceptance.
As of December 31, 1995, substantially all of the Company cable systems had
bandwidths of at least 450MHz and were capable of distributing over 40 channels,
and over 80% of the Company's cable systems utilized star architecture.
The Company monitors and evaluates new technological developments on the
basis of its ability to make optimal use of its existing assets and to
anticipate the introduction of new services and program delivery capabilities.
The use of fiber optic cable as an enhancement to coaxial cable is playing a
significant role in
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<PAGE> 65
expanding channel capacity and improving the performance of cable television
systems. Fiber optic cable is capable of carrying hundreds of video, data and
voice channels. To date, the Company has chosen not to implement fiber optic
technology in its systems, primarily because virtually all of its systems have
substantial unused channel capacity, so that the Company does not believe the
cost of implementing fiber optic technology, which at present would be
underutilized, to be warranted. Based on discussions with suppliers of equipment
required to implement these technologies, the Company believes that private
cable system operators with which it competes have not implemented fiber optic
technology, except to a limited extent. Similarly, the Company generally does
not use addressable technology in its cable systems and, based on discussions
with relevant equipment suppliers, does not believe that its competitors have
introduced such technology other than on a modest basis. The principal benefits
of addressable or two-way technology include remote monitoring and extension of
access to selected programming and termination of service for non-payment. Due
to the low churn rate and limited amount of multiple premium programming tiers
and pay-per-view programming offered in Germany, the Company does not believe
that the cost of addressable technology is currently justified. See "Industry."
The Company intends to continue to assess the potential benefits of fiber optic
and addressable technologies.
New technological advances that are anticipated to become commercially
viable in the foreseeable future include digital compression and expanded
bandwidth amplifiers, which offer cable operators the potential for a dramatic
expansion of channel capacity, along with alternative communications delivery
systems. As these new technologies and related services become available, the
Company intends to assess their economic return and market demand, with the goal
of implementing additional services in a cost-effective manner.
PROGRAMMING
The Company's systems typically offer a choice of at least two tiers of
basic cable television programming service: a "lifeline" or "ground" tier
(consisting generally of network and public terrestrial television signals
available over the air in the franchise community) and a "standard package" or
basic satellite programming tier (consisting primarily of satellite-delivered
programming). Additionally, in certain markets, the Company offers either one or
two additional tiers of basic cable television programming service.
Approximately 90% of the Company's customers subscribed to at least the
"standard package" tier of service as of December 31, 1995. The following table
sets forth the programming currently offered on some or all of the Company's
cable systems.
<TABLE>
<CAPTION>
PROGRAMMING DESCRIPTION
- ---------------------------------------- ----------------------------------------------------
<S> <C>
NEWS AND INFORMATION -- LOCAL
Infotafel............................... Regional news
Infokanal............................... News and information
24-hour news
NEWS AND INFORMATION -- INTERNATIONAL
CNN International....................... 24-hour international news
Euronews................................ International news
Sky News................................ 24-hour UK news service
MUSIC
CMT..................................... Country music videos
MTV..................................... Music videos
VH-1.................................... Music videos for 25-49 age group
VIVA.................................... 24-hour German music channel
VIVA-2.................................. 24-hour German music channel
SPORTS
DSF..................................... German sports channel
Eurosport............................... European sports channel
</TABLE>
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<PAGE> 66
<TABLE>
<CAPTION>
PROGRAMMING DESCRIPTION
- ---------------------------------------- ----------------------------------------------------
<S> <C>
INTERNATIONAL
A3...................................... French language programming (France)
Fr. Schweiz............................. French language programming (Switzerland)
FR1..................................... French language programming (France)
FR2..................................... French language programming (France)
Ital. Schweiz........................... Italian language programming (Switzerland)
NBC Super Channel....................... English language programming (US)
ORF1.................................... German language programming (Austria)
ORF2.................................... German language programming (Austria)
RAI Uno................................. Italian language programming (Italy)
RAI Due................................. Italian language programming (Italy)
SRG..................................... German language programming (Switzerland)
TNT..................................... English language programming (US)
TRT International....................... Turkish language programming (Turkey)
TVE..................................... Spanish language programming (Spain)
TV 5.................................... French language programming (France)
PREMIUM
Premiere................................ Pay television for movies and sports
GENERAL INTEREST -- REGIONAL
Bayern 3................................ News, sport and entertainment
Berlin 1................................ General interest for Berlin
Hessen 1................................ Evening entertainment for Hessen (ARD)
Hessen 3................................ News, sports and entertainment for Hessen
MDR..................................... News, sports and entertainment
Nord 3.................................. Entertainment for northern Germany
Sudwest 1............................... Evening entertainment for southern Germany (ARD)
Sudwest 3............................... Entertainment for southwestern Germany
West 3.................................. Entertainment for young adults
IA-Brandenburg.......................... General interest
ORB..................................... German programming
GENERAL INTEREST -- NATIONAL
3 sat................................... ADR/ZDF, ORF and SRG news and sports
ARD..................................... News, sports and entertainment
arte.................................... Cultural arts
CTV..................................... General interest
Dt. Welle TV............................ German programming broadcast abroad
Kabel 1................................. Entertainment for young adults
PRO 7................................... News and entertainment
RTL..................................... 24-hour entertainment
RTL 2................................... Entertainment for young people
Sat 1................................... 24-hour entertainment
Super RTL............................... Entertainment-oriented family programming
VOX..................................... News and entertainment for entire family
ZDF..................................... News, sports and entertainment
n-tv.................................... 24-hour news
</TABLE>
The Company obtains its programming either directly from program
broadcasters via a Company-owned head-end or indirectly through a signal
delivery contract with Deutsche Telekom. As of December 31, 1995, approximately
58% of the Company's customers were served by systems that acquired their
programming directly from broadcasters via a Company-owned head-end, and
approximately 42% of the Company's
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customers were served by systems that obtained their programming indirectly
through signal delivery agreements with Deutsche Telekom.
In those cases where the Company acquires its programming indirectly
through Deutsche Telekom, it does so pursuant to signal delivery contracts with
Deutsche Telekom. The cable television systems comprising the Pending
Acquisitions include signal delivery contracts with Deutsche Telekom with
comparable terms to the Company's existing signal delivery contracts. The
Deutsche Telekom contracts are generally for a fixed period of time and are
subject to negotiated renewal. Under these agreements, the Company typically
pays Deutsche Telekom either a flat fee or a fee per customer that is determined
by reference to a published fee schedule based on the number of homes connected
to one connection point. As of December 31, 1995, fees payable by the Company to
Deutsche Telekom under its existing contracts ranged from DM0.57 to DM22.50 per
month for each customer connected to a Deutsche Telekom connection point, with a
weighted average of approximately DM1.90 per month for each such customer. These
costs are offset by obviating the need for a Company-owned head-end. The Company
is in the process of negotiating a master signal delivery agreement with
Deutsche Telekom covering its existing and future Level 2 and Level 3 Systems,
which the Company believes will provide for more uniform costs per customer at
lower weighted average prices than those currently applicable under its existing
Deutsche Telekom signal delivery agreements. However, no assurances can be given
as to if or when the Company will enter into such a master signal supply
agreement. Because the Company's signal delivery contracts with Deutsche Telekom
are generally long-term with either flat rates or rates determined by reference
to a published fee schedule based on the number of homes connected to one
connection point, the Company believes that such contracts provide it with
significant protection against increases in programming costs for its systems
that obtain their programming indirectly through signal delivery agreements with
Deutsche Telekom. See "Industry."
In those cases where the Company acquires its programming directly from
broadcasters via a Company-owned head-end, historically the Company has been
able, and believes that all other German cable system operators have been able,
to acquire such programming at no cost and without any formal agreements or
contact with or approval or authorization from such broadcasters. The Company's
beliefs are based on discussions with its competitors and German copyright
royalty collecting societies, which act as royalty processing and clearing
agencies for those entitled to copyright protection. The Company further
believes, based on those discussions, that with the exception of possible claims
for copyright fees which may be assessed for the retransmission by the Company
of programs received by the Company on its own head-ends, as discussed below,
the Company does not have any potential liability arising from its acquisition
of programming in this manner. The Company has no present plans to enter into
formal agreements with broadcasters for the acquisition of programming via its
own head-ends. See "Risk Factors -- Access to and Cost of Programming."
Other than any portion of the fees paid by the Company to Deutsche Telekom
under signal delivery contracts which may be allocable to copyright license
fees, the Company has not to date paid any copyright license fees in respect of
programming carried on its cable systems. The Company believes, based on
discussions with its competitors and copyright royalty collecting societies,
that, with the exception of one small cable system operator, its competitors
similarly have paid no copyright license fees in respect of programming carried
on their cable systems. The Company expects that copyright license fees will be
imposed in the future in respect of the retransmission of programming on cable
systems in Germany, but the possible imposition of such fees is uncertain. The
complexity of the debate in this area is increased due to the differing
approaches which have and may apply to the retransmission of terrestrial
broadcasting, on the one hand, and satellite broadcasting, on the other. The
applicable legal framework is in the course of being modified by legislation and
the judicial interpretations of that framework include inconsistent decisions.
Discussions within the cable television industry in Germany in respect of
retransmission rights and license fees, in particular between broadcasters and
copyright royalty collecting societies, are ongoing and the Company's
information on the status of those discussions is based solely on informal
discussions with representatives of its competitors, including Deutsche Telekom,
broadcasters and German copyright royalty collecting societies. The Company is
unable to assess the accuracy and completeness of information given by those
sources and believes that some
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of such information may reflect current negotiating positions of the sources and
is subject to change. See "Risk Factors -- Copyright Royalty Fees."
While the Company expects in the foreseeable future to be required to pay
some copyright license fees in respect of programming carried on its cable
systems, it is unable at present to predict when such license fees might become
payable, what programming might attract such fees, the basis and level of the
assessment of such fees or the possible impact on the Company and its financial
position. The Company believes that if it becomes liable for copyright license
fees, such liability will extend generally to cable system operators in Germany
and that the Company and such other operators are likely to be able to increase
the cost of their future cable services in order to recover the amount of any
such license fees from their cable customers. The Company is generally permitted
under the terms of its concession and franchise agreements to increase fees to
cover increased programming costs, and the terms and conditions governing its
provision of cable services to customers either permit increased fees, or
generally could be modified unilaterally by the Company to permit fees to be
increased, subject to the giving of notice by the Company to such customers
conditioning the Company's future provision of cable services on the application
of such modified terms and conditions. However, the Company's ability to recover
future license fees from customers cannot be assured in all instances; it may be
unable to pass on to its customers any copyright license fees which may be
assessed with reference to past periods, and any need to revise applicable
customer terms and conditions would delay the increase in the Company's fees
reflecting such increased costs. See "-- Concession and Franchise Agreements."
An inability to pass on such copyright license fees to customers, any delay in
its ability to do so or any loss of customers which could result from an
increase in the cost of the Company's cable services could have a material
adverse effect on the Company and its financial position.
Deutsche Telekom has informed the Company that it pays a copyright license
fee to the largest German copyright royalty collecting society (referred to as
"GEMA"). GEMA has advised Deutsche Telekom that it is acting as a central
clearing agency for all other German copyright royalty collecting societies and
broadcasting companies. GEMA has also advised the Company that in its view the
license fees paid by Deutsche Telekom relate only to retransmissions by Deutsche
Telekom on its cable system and not by cable system operators connected to
Deutsche Telekom signal delivery connection points. Deutsche Telekom disagrees
with this view and contends that its payment of this license fee entitles it to
grant retransmission rights to private cable operators. Deutsche Telekom has
also advised the Company that it pays no copyright royalties in respect of
satellite broadcasting and that in respect of most satellite programming carried
by it, the broadcasting companies have entered into programming sourcing
agreements in which the broadcasters have agreed to hold Deutsche Telekom
harmless in the event any royalties are owing in respect of the cable
retransmission of such programming. Deutsche Telekom has indicated to the
Company that although it has not paid any copyright royalties to non-German
satellite broadcasters, it has not entered into program sourcing agreements with
certain non-German satellite broadcasters or obtained hold harmless agreements
in respect of copyright royalties from such broadcasters.
The Company has agreed pursuant to its signal delivery contracts with
Deutsche Telekom (and is advised by Deutsche Telekom that other cable system
operators have similarly agreed pursuant to the standard Deutsche Telekom signal
delivery contract) to hold Deutsche Telekom harmless against any successful
claims by the holders of retransmission rights for any copyright license fees
attributable to the retransmission of programming obtained from Deutsche Telekom
pursuant to such signal delivery contracts. No claim has been made by Deutsche
Telekom against the Company for reimbursement of any such copyright license
fees. Deutsche Telekom has also informed the Company that no such claim has been
made by Deutsche Telekom against any other cable system operator, because to
date, with the exception of the fees paid by Deutsche Telekom to GEMA in respect
of the retransmission of German terrestrial broadcasting, no copyright license
fees have been assessed against Deutsche Telekom by any copyright royalty
collecting society or any program broadcaster.
The Company has not paid copyright license fees in respect of programming
received by its own head-ends, whether that programming is broadcast by German
or non-German broadcasters. Based on discussions with its competitors, including
Deutsche Telekom, and copyright royalty collecting societies, the
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Company does not believe that any other cable system operators in Germany have
paid copyright license fees for programming received by the head-ends of those
operators.
Under current German law, parties having copyright protection have the
option of claiming transmission rights in copyrighted material themselves or
transferring those rights to a third party, including one of several German
copyright royalty collecting societies. The Company has been advised by several
German copyright royalty collecting societies that, in part because of
uncertainties created by the possibility of multiple copyright holders and
royalty collecting societies claiming retransmission royalties, to date no
German royalty collecting society or broadcaster has assessed copyright license
fees against German cable system operators, with the exception of the agreement
between GEMA and Deutsche Telekom in respect of the retransmission of public
terrestrial broadcasting by Deutsche Telekom and one agreement entered into in
1992 with a small private cable system operator. However, GEMA has informed the
Company that the German copyright royalty collecting societies are currently
seeking to reduce this uncertainty by negotiating an agreement under which GEMA
would act as the central clearing agency for copyright collections relating to
cable retransmissions of terrestrial television broadcasting.
Legislation is pending before the German Parliament to implement the 1993
directive of the European Union (the "EU") on satellite broadcasting and cable
retransmissions. Legislation implementing the EU directive or containing
comparable terms in respect of retransmission rights will apply to all
programming carried on the Company's cable systems and the cable systems of the
Company's competitors in Germany. The Company has been advised by the German
Ministry of Justice that this legislation is unlikely to be enacted prior to the
end of 1996. This draft legislation provides that retransmission rights in such
broadcasting must be exercised by either copyright royalty collecting societies
or broadcasting companies. Broadcasting companies would not be required under
the draft legislation to designate a collecting society to exercise their own
rights or any rights they have acquired by way of transfer from owners,
producers, actors or other protected parties. Instead, they would be permitted
to seek to collect such royalties from cable system operators directly or to
refrain from assessing such fees if business considerations dictate, including
as a result of their desire to achieve or maintain market penetration and
advertising revenues by not increasing cable television programming costs.
The draft German legislation further provides that copyright royalty
collecting societies and broadcasting companies are under an obligation to enter
into negotiations with cable operators concerning retransmission rights and to
grant such retransmission rights on reasonable terms. The draft legislation
reflects that these provisions are designed to prevent collecting societies and
broadcasting companies from abusing their dominant market position by assessing
unreasonably high license fees, which could adversely affect the investment made
by cable operators in their systems.
The Company is advised by several copyright royalty collecting societies
that in light of the present and anticipated legislative position in Germany,
such societies and television broadcasters are discussing two means of
collecting license fees in respect of retransmission rights, one in respect of
terrestrial broadcasting and the other in respect of satellite broadcasting.
Copyright royalty collecting societies contacted by the Company expect that
retransmission rights in relation to terrestrial broadcasting will be pursued by
GEMA, acting as a central clearing agency. GEMA has expressed the intention to
seek to collect copyright royalties from private cable system operators in
respect of the retransmission of terrestrial broadcasts on cable systems if and
when it succeeds in completing a general agreement with other German copyright
royalty collecting societies and broadcasters allowing it to act as a central
clearing agency in relation to such retransmissions. GEMA has indicated that in
the context of the negotiations for such a general agreement, it has proposed
that a license fee be assessed against cable system operators equal to 4% to 5%
of the revenues of such cable operators.
Based on discussions with its competitors, the Company believes that legal
questions exist concerning the possible assessment of copyright license fees
relating to the retransmission without time delay of German public terrestrial
television within the statutorily assigned broadcast area for that terrestrial
channel and the adjacent (so-called "spill-over") areas into which the broadcast
signal is directed. Although GEMA has indicated that it expects to attempt to
assess a license fee in respect of any retransmission of terrestrial
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broadcasting if it concludes a general agreement with other copyright royalty
collecting societies and broadcasters, the Company believes that legal questions
exist concerning the entitlement of copyright holders to such royalties both in
respect of the retransmission of terrestrial broadcasting within the statutorily
designated broadcast area and the retransmission of such broadcasting into
spill-over areas.
GEMA has advised the Company that to date no satellite broadcasting
companies have assessed copyright license fees for the retransmission of
satellite broadcasting by either Deutsche Telekom or any private cable operator
due to their desire to achieve market penetration. GEMA has also informed the
Company that in the future it expects that license fees will be claimed for the
retransmission of German satellite broadcasting. However, under the pending
legislation amending the German Copyright Act, broadcasters of satellite
programming and other copyright holders would not be required to assign such
retransmission rights to GEMA or any other copyright royalty collecting society,
but could, as they have done historically, retain such rights and decide
themselves on the basis of economic considerations whether or not to seek to
recover license fees from cable system operators.
The Company has been advised by GEMA and a collecting agency that this
agency has been appointed as a central royalty collecting agency for 19
non-German satellite channels. That agency has issued a fee schedule for those
channels, but only one of those 19 satellite channels is carried by the Company
on any of its cable systems. This agency had indicated to the Company that it
was in discussions with a number of other satellite programmers, but as the
agency did not identify the channels broadcast, the Company cannot determine
whether any such channels are carried on its systems.
Deutsche Telekom has indicated to the Company that, contrary to the
statements by GEMA, it does not expect to be assessed royalties by satellite
broadcasters because of the continuing desire of such broadcasters to achieve
and maintain market penetration in order to enhance their advertising revenues.
The Company believes that, as a result of Deutsche Telekom's market strength,
Deutsche Telekom has been and will continue to be paid by or will pay nothing to
satellite channel broadcasters or will agree to pay only nominal amounts to such
broadcasters for the right to retransmit their programming via Deutsche
Telekom's cable network. Because the proposed legislation amending the German
Copyright Act requires copyright royalty collecting societies and broadcasters
to be reasonable in assessing license fees against cable system operators, and
because of protections likely to be available to private cable operators under
the German Antitrust Act, the Company further believes that satellite
broadcasters could not discriminate against private cable system operators or in
favor of Deutsche Telekom in setting royalties for satellite programming.
If, notwithstanding the legal uncertainties relating to the liability of
cable operators for the retransmission of terrestrial broadcasting referred to
above, license fees were successfully assessed against the Company in relation
to retransmissions of terrestrial broadcasting, GEMA has indicated that such
license fees would be assessed against cable operators retroactively from
January 1, 1996 at the rate of 4% to 5% of the revenues of such operators. For
the year ended December 31, 1995, 4% of the Company's revenues on a pro forma
basis, including the Recent and Pending Acquisitions as if such acquisitions had
occurred on January 1, 1995, would have been DM2,593,200, and each increment to
any license fee of 1% of the Company's revenues would have increased that amount
by DM648,300.
Uncertainties exist as to the prospect of satellite broadcasters seeking to
recover copyright license fees from cable operators. Based on discussions with
its competitors, including Deutsche Telekom, the Company does not expect
satellite broadcasters generally to seek to recover copyright license fees from
cable operators. The Company has been unable to elicit information from GEMA and
other copyright royalty collecting societies in respect of the level of any
license fees which might be assessed by such collecting societies or satellite
broadcasters and is not able to estimate the amount of additional programming
expense it might incur if it is assessed copyright license fees in respect of
satellite programming.
CONCESSION AND FRANCHISE AGREEMENTS
The Company's cable television systems are generally operated pursuant to
long-term concession agreements with local governmental authorities and
franchise agreements with housing authorities that administer large housing
blocks. Concession agreements with local governmental authorities provide the
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Company with the right to use public rights-of-way, while franchise agreements
with housing authorities provide the Company with access to potential customers
living in the housing blocks. Each individual franchise agreement typically
provides access to a relatively small number of homes. As of February 20, 1996,
the Company's cable systems operated pursuant to 106 concession agreements with
local governmental authorities and 165 franchise agreements with housing
authorities, providing access to approximately 467,000 homes.
The Company's concession and franchise agreements typically contain
standardized conditions, such as conditions of service and limitations on
commencement and completion of construction. Additionally, most of the Company's
concession and franchise agreements contain provisions that permit the Company
to raise the prices for its existing level of cable services with reference to
general inflation indices and to raise prices to cover increased costs of
programming. However, by timing rate increases to published cost of living
increases or the introduction of new or improved programming, the Company has
generally been able to increase the rates for its cable services without the
objection of the respective housing authority.
Most of the Company's franchise agreements with housing authorities provide
that the Company is the exclusive provider of cable services in the franchise
area. Although the Company generally does not pay concession/franchise fees on
any of its cable systems, in certain cases it pays housing authorities for
billing and collecting subscription fees from homes within the applicable
apartment blocks pursuant to agreements entered into prior to the Company's
acquisition of the related cable system. In addition, certain governmental
authorities have attempted to extract concession fees from the Company, and
there can be no assurance that the Company will not be required to pay
concession fees in the future in connection with the acquisition, establishment
or renewal of concessions.
The table below illustrates the groupings of the concession and franchise
agreements of the Company's cable systems by date of expiration (inclusive of
any period for which the Company can unilaterally extend the term by the giving
or withholding of notice if it is not in breach of the terms thereof) as of
February 20, 1996:
<TABLE>
<CAPTION>
TOTAL NUMBER
NUMBER OF NUMBER OF OF CONCESSION
CONCESSION FRANCHISE AND FRANCHISE
YEAR OF EXPIRATION AGREEMENTS AGREEMENTS AGREEMENTS
- -------------------------------------------------------- ---------- ---------- -------------
<S> <C> <C> <C>
Prior to 2000........................................... 24 2 26
2001 to 2005............................................ 3 18 21
2006 and after.......................................... 79 145 224
--- --- ---
Total................................................... 106 165 271
======== ======== ==========
</TABLE>
Because its concession and franchise agreements have the remaining terms
reflected in the above table, the Company has addressed the possible extension
of concession and franchise agreements in only limited circumstances. Such
limited extensions to date have been and are in the future expected by the
Company to be negotiated on a case-by-case basis, principally with reference to
the services to be provided and the costs of such services. Any cable system
operator competing for a concession or franchise agreement with an existing
operator would be required, if awarded such concession or franchise, to build
out its cable system in the concession or franchise area, which the Company
believes will give existing system operators a competitive advantage when
negotiating extensions.
COMPETITION
The cable television industry in Germany is in the process of undergoing
significant consolidation. The Company encounters competition for the
acquisition of cable systems from both existing cable television operators and
financial investors. Many of these competitors or potential competitors,
including Deutsche Telekom, Veba Telekom GmbH, Bosch Telekom GmbH, Urbana
Systemtechnik AG & Co. and Suweda A.G., have significantly greater assets than
the Company. To the extent that any of such competitors or
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potential competitors significantly expand their acquisition activities in
competition with the Company, the Company's ability to continue to implement its
acquisition strategy could be materially adversely affected.
The costs per subscriber of operating a cable system where a competing
cable service exists (referred to in the cable industry as an "overbuild") is
substantially greater than if there were no competition present. Although the
potential for overbuild theoretically exists, the Company is not aware of any
other company that has obtained permits or concessions for areas presently
served by the Company. Additionally, as a significant portion of the Company's
customers live in large apartment blocks with which the Company has exclusive
service agreements and in most cases "overbuilding" the Company's cable systems
would require the Company's competitors to obtain concessions from local
governmental authorities permitting such competitors to engage in a significant
amount of construction in public rights-of-way, the Company believes that its
exposure to the risk of a competitor overbuilding is mitigated. See "--
Concession and Franchise Agreements."
Cable television systems also face competition from alternative methods of
receiving and distributing television signals, including DTH satellite, MMDS and
SMATV systems, as well as other sources of news, information and entertainment
such as newspapers, movie theaters, live sporting events, interactive computer
programs and home video products, including video tape cassette recorders. The
extent to which cable service is competitive depends, in part, upon the cable
system's ability to provide a greater variety of programming at a reasonable
price to consumers than that available through alternative delivery systems.
DTH satellite users in Germany obtain programming from one of a number of
different satellites, including Astra and Eutelsat. In order to receive DTH
satellite programming, the consumer must have an outdoor reception dish, which
generally is smaller and less expensive than the satellite dish typically used
in the United States. DTH satellite services are widely available in Germany.
The Company believes that DTH satellite will continue to provide significant
competition in the future. However, the Company believes cable television has a
number of competitive advantages over DTH satellite services. First, cable
television does not involve the up-front cost for the purchase of a dish and
related equipment required for DTH. Second, satellite dishes are often perceived
as unsightly, and planning or zoning laws and regulations and building rules
often forbid their being affixed to buildings where cable television services
are available. Third, at present there is a wider range of programming generally
available on cable systems, due in part to the inability of DTH reception dishes
to receive programming from more than one satellite at any time or to switch to
another satellite without being realigned by a technician. Finally, consumers
have expressed concerns as to the level of fees that they will be required to
pay to providers of DTH satellite programming if and when DTH satellite signals
are encrypted. The Company believes that DTH satellite service may become more
competitive with cable service if digital compression technology is implemented
in the industry such that satellite services can provide more channels and
direct specific programming to particular subscribers.
In certain markets, primarily outside of Germany, cable television systems
also compete with MMDS systems, which use low power microwave frequencies to
transmit video programming over the air to customers. MMDS systems are less
capital-intensive than cable television systems and are often developed in areas
that are not served by cable television systems. However, to date, the ability
of MMDS systems to compete with cable television systems has been limited by the
need for unobstructed line-of-site over-the-air transmission. Additionally, the
deployment of MMDS systems in Germany is currently very limited. Cable
television systems also face competition from SMATV systems that serve
condominiums, apartment complexes and other private residential developments.
Advances in communications technology as well as changes in the marketplace
and the regulatory environment are constantly occurring. It is not possible to
predict the effect that ongoing or future developments might have on the cable
industry.
EMPLOYEES
At March 31, 1996, the Company had 125 full-time and five part-time
employees. The Company considers its relations with its employees to be good.
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PROPERTIES
The Company currently operates systems in approximately 275 communities in
Germany. In connection with the operation of its systems, the Company owns or
leases real property for signal reception sights (antennae towers and
head-ends), microwave facilities and business offices. The Company's current
central operation center is located in 12,000 square feet of leased space in
Plauen, Germany. The Company believes that its properties, both owned and
leased, are in good condition and are suitable and adequate for the Company's
business operations.
Cable television systems generally consist of four principal operating
components. The first component is program generation and transmission (referred
to as "level 1" in Germany). The Company does not operate at level 1. The second
component, known as the head-end facility (referred to as "level 2" in Germany),
receives television and radio signals and other programming and information by
means of terrestrial and satellite antennae and microwave relays. The third
component, the principal transmission line from the head-end to the "front door"
or trunk-distribution network (referred to as "level 3" in Germany), extends
throughout the system service area and in the Company's systems consists
primarily of coaxial and to a lesser extent fiber optic cables buried
underground and associated electronic equipment. The fourth component of the
system (referred to as "level 4" in Germany) is a drop cable, which extends from
the end of the distribution network at the "front door" to the in-house
connections in each customer's home, where the distribution system is connected
to the customer's television set.
The Company's cables generally are buried in underground ducts or trenches.
The physical components of the Company's systems require maintenance and
periodic upgrading to keep pace with technological advances.
German law generally provides that where an element, such as a cable
network, is built into real property, ownership of that element automatically
passes on to the owner of the real property. However, where it can be
demonstrated that the parties only intended that the network be on-site
"temporarily," title will remain with the party building the network, rather
than the owner of the real property. It is in each case a question of fact
whether elements of a cable network have been built into real property and
whether it is the intention of the parties that the network will remain there
temporarily. The Company has indicated in many of its concession and franchise
agreements an intention that its network remain on real property only
temporarily, and believes that in such instances title to the cable network
should be retained by the Company. If a court were to determine under these
legal principles that legal title to the network has been transferred to the
owner of the real property, the Company would be entitled under German law to
payment of the value of its cable network.
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company or any
of its subsidiaries are a party or to which any of their respective properties
are subject.
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CERTAIN REGULATORY MATTERS
CABLE TELEVISION LICENSES
General. The establishment and operation of cable television systems in
Germany falls within the monopoly granted to Deutsche Telekom by the Federal
Ministry for Posts and Telecommunications (the "BMPT") pursuant to the
Telecommunications Installation Act of 1989 (the "Telecommunications Act").
However, the BMPT has discretionary authority to grant licenses allowing for the
establishment and operation of private cable television systems as an exemption
to the statutory monopoly granted to Deutsche Telekom. In January 1994, the BMPT
issued Administrative Rule 3/1994 entitled "Licensing Provisions for Radio
Broadcasting Receiving Installations" ("Rule 3/1994") which established the
rules to be followed by the BMPT in exercising its discretionary authority in
the issuance of licenses for cable television operators other than Deutsche
Telekom.
On October 19, 1995, the BMPT adopted the "Ordinance on the Opening of the
Market for Services and on the Regulation of Content, Scope and Procedures for
Licensing in the Telecommunications Sector"
(Telekommunikations-Verleihungsverordnung) (the "Ordinance"), which governs,
among other things, the licensing requirements for the establishment and
operation of private cable television systems on or after November 1, 1995.
Although licenses applied for on or after November 1, 1995 are subject to the
regulatory framework set forth in the Ordinance, licenses issued in accordance
with the provisions of Rule 3/1994 remain valid until the expiration date set
forth in such license. The Company's cable systems are established and operated
pursuant to BMPT licenses issued under either the Ordinance or under Rule
3/1994, the effects of which are discussed below.
THE ORDINANCE
General. Section 3 of the Ordinance regulates the establishment and
operation of private transmission lines in installations or distribution systems
(referred to in the Ordinance as Empfangs- und Verteilanlagen fur
Rundfunksignale or "EVAs") which have been designed to receive broadcast signals
from terrestrial radio broadcasting stations, broadcasting or telecommunications
satellites or at defined interfaces from telecommunications networks for the
distribution of broadcast signals (e.g., Deutsche Telekom's telecommunications
networks). In accordance with this section, the establishment and operation of
antennae installations for the purpose of interconnection with residential
distribution installations and the establishment and operation of private
transmission lines in EVAs require a license. However, either no license is
required or a general license is granted without individual application but
subject to stated conditions for the establishment and operation of (i) antennae
installations for the purpose of receiving and distributing broadcast signals
and (ii) private transmission lines within the confines of contiguous parcels of
real property that are not separated by certain types of public property (e.g.,
roads and waterways). An individual license is required for the establishment
and operation of private transmission lines which extend beyond the confines of
such contiguous parcels of real property and which are to be used in EVAs. In
accordance with the Ordinance, the Federal Office for Posts and
Telecommunications (the "BAPT") will ordinarily grant an individual license
unless Deutsche Telekom submits to the applicant, during the one-month period
following the submission of the license application, a binding declaration that
Deutsche Telekom will provide the requested transmission lines within the four-
month period following the date of Deutsche Telekom's notification. In the event
that Deutsche Telekom does not provide the requested transmission lines during
the four-month period, the individual license will ordinarily be granted;
provided, however, that Deutsche Telekom's four-month deadline may be extended
to one year in situations where Deutsche Telekom is prevented from meeting the
four-month deadline for reasons beyond its control or if Deutsche Telekom
demonstrates that the extension of the time period would constitute a
"substantially less heavy burden" to Deutsche Telekom.
The Ordinance generally provides that the interconnection of Deutsche
Telekom's transmission lines and broadband distribution networks with
residential distribution installations and licensed EVAs will be "freely usable"
for the purpose of receiving and distributing broadcast signals. However, the
Ordinance does not elaborate on the term "freely usable."
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License Term. Unless limited for radio technical reasons, licenses granted
under the Ordinance have an unlimited term.
Revocation of Licenses. The Ordinance provides that a license may be
revoked in situations where essential changes of the technical requirements
result after the granting of the license and the BAPT determines that the
license would not have been granted if the technical changes had been known
prior to the granting of such license. Furthermore, the Ordinance provides that
a license may be revoked by the BAPT in instances where the licensee violates
the obligations set forth in the license or violates other legal
telecommunication provisions.
Restrictions on Ownership and Transfer. No restrictions exist under German
law with respect to the ownership of cable television systems. The transfer of a
license requires the written consent of the BMPT. Changes concerning the
licensee, such as its name or address, must be reported to the BMPT within one
month of the change. However, no consent of or a report to the BMPT is required
in respect of changes in the ownership interests of the licensee by virtue of
the sale of equity interests in the licensee, so that no such consent or report
would be required in the event that the Pending Acquisitions, which are share
acquisitions, are consummated.
Scope of License. Licenses granted to EVAs pursuant to the Ordinance may
only be used in connection with the receipt and distribution of television and
radio broadcast signals, and may not be used in connection with any other data
transmission or telephony services, the provision of which is subject to a
different regulatory scheme.
RULE 3/1994
General. Rule 3/1994 governed the issuance of licenses by the BMPT prior
to November 1, 1995. Although licenses applied for on or after November 1, 1995
are subject to the regulatory framework set forth in the Ordinance, licenses
issued in accordance with Rule 3/1994 remain valid until the expiration date set
forth in such licenses. As a majority of the Company's licenses were granted
prior to November 1, 1995, set forth below is a discussion of certain provisions
of Rule 3/1994 that may affect such licenses in the future.
License Term and Renewals. Under Rule 3/1994, an individual BAPT license
for the establishment and operation of an EVA was initially granted for a period
of 15 years and would ordinarily be renewed for an additional 15-year term
provided that there were no electromagnetic incompatibilities between the EVA
and other electronic equipment, systems or installations. The cable television
licenses held by the Company for its operations in Germany were issued for 15
year periods, with the exception of a limited number of licenses issued on a
provisional basis for a shorter period pending the construction of head-ends by
Deutsche Telekom.
In general, licenses granted under Rule 3/1994 are limited to the number of
residential units connected within the area covered by the EVA. In the event of
an expansion of the coverage area or an increase in the number of connected
residential units, the licensee must submit a new application to the BAPT and
surrender the granted license prior to the issuance of the expanded license by
the BAPT. In addition, changes concerning "important characteristics" of a
granted license, such as the location of antennae and changes of line
transmission routes on public ground, would require that the licensee submit a
new license application.
Revocation of Licenses. Under Rule 3/1994, a license may be revoked by the
BAPT for "important reasons," including the failure to comply with material
provisions of the license.
Restrictions on Ownership and Transfer. No restrictions exist under German
law with respect to the ownership of cable television systems. However, under
Rule 3/1994, an application must be made for a new license in the event of a
change in the identity of the person holding the license as a result of a
transfer of the license or a change in the name or address of the license
holder. Moreover, in instances where a license is jointly held, under Rule
3/1994, an application must be made for a new license in the event of the
withdrawal or addition of one or more of the joint licensees. However, changes
in the ownership interests of the license holder by virtue of the sale of equity
interests in the license holder do not require an application to be made for a
new license.
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Scope of License. Licenses granted under Rule 3/1994 may only be used in
connection with the receipt and distribution of television and radio broadcast
signals, and may not be used in connection with any other data transmission or
telephony services, the provision of which is subject to a different regulatory
scheme. The Company does not expect to apply for such additional licenses in the
foreseeable future.
New German States. Rule 3/1994 provided a transition mechanism for EVAs
established in the former East Germany, under which EVAs established and
operated in the New German States prior to October 3, 1990 were deemed to have
been licensed and may be operated as if licensed under Rule 3/1994.
CONSTRUCTION PERMITS
In the event that an EVA makes use of a public right-of-way, the EVA is
required to obtain a permit from the relevant municipality. See "Business --
Concession and Franchise Agreements."
DEUTSCHE TELEKOM SIGNAL DELIVERY AGREEMENTS
Deutsche Telekom has entered into signal delivery contracts with private
cable television operators in certain designated expansion areas in which
Deutsche Telekom's broadband distribution networks have not been completed.
Private operators may apply for a license to establish and operate a private
cable television system, which may include a head-end station, until Deutsche
Telekom has provided a connection or "interface," including a head-end station
operated by Deutsche Telekom, between the private cable television system and
Deutsche Telekom's broadband distribution network. Under the signal delivery
contracts, when the interface is established, the private operators are required
to connect their EVA to Deutsche Telekom's broadband distribution network and
receive the broadcast signal provided by Deutsche Telekom. Licenses granted for
the operation of a head-end station in instances where a signal delivery
contract has been entered into with Deutsche Telekom are granted subject to
expiration or revocation by the BAPT when the interface becomes available. The
Company is not party to any signal delivery contracts with Deutsche Telekom of
the type described in this paragraph. See "Business -- Programming."
RETRANSMISSION AND CHANNEL LINE-UP PROVISIONS; MEDIA SERVICES
The retransmission of cable television programs within Germany through
private cable television systems is regulated at the federal level pursuant to
The State Treaty on Broadcasting within the United Germany of 1994 (the "State
Broadcasting Treaty") and at the state level pursuant to the media laws of the
various states. The State Broadcasting Treaty authorizes the various states to
make decisions with respect to the assignment and use of transmission
capacities. The State Broadcasting Treaty also provides that the retransmission
of cable television programs which may be received nationwide and which have
been produced in accordance with applicable European legal provisions must be
permitted by the federal states within the framework of existing technical
capabilities. State laws generally provide that the simultaneous retransmission
of an unchanged and complete cable television program is not subject to any
licensing requirement, but does subject the operator to reporting the
retransmission to the relevant state media institution. Broadcasting activity
(which is defined to exclude the simultaneous and unchanged retransmission of
programming), such as the insertion of local commercials, subjects the cable
television operator to a different regulatory regime.
Private broadcasting companies require a broadcasting license issued in
accordance with the provisions of the State Broadcasting Treaty and the media
laws of the federal states. While the State Broadcasting Treaty sets forth the
framework for the admissibility of private broadcasting, the state media laws
set forth the detailed requirements to be met by private broadcasting companies
in order to obtain a broadcasting license, including requirements with respect
to diversity of opinion, observation of constitutional principles, professional
ethics and restrictions on advertisements.
Private cable television operators are required to observe channel line-up
priorities established by the states with reference to the technical
capabilities of the cable television systems in connection with the
retransmission of cable television programs. These requirements have not to date
affected the Company's programming decisions, because its systems have excess
channel capacity, so that all program priorities can be met without limiting the
Company's ability to offer non-prioritized programs. Generally, the
retransmission
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priority has been established as follows: (i) programs which have been legally
prescribed by the state, (ii) local programs (i.e., those programs which may
otherwise be received without additional antennae), (iii) programs which may be
received locally with the use of additional antennae, and (iv) all other
programs. In addition, certain state media laws have established priorities for
programs falling within category (iv) for programming produced within the
European union.
Certain states within Germany, including states where the Company maintains
cable television operations, have adopted channel line-up statutes which
established line-up priorities in situations where the technical capacities of a
licensed cable television system are limited. The Sachsen Channel Line-Up
Statute, for example, provides that when the number of available channels is
insufficient to carry all programs in the same priority category, the German
language programs will be given priority. In addition, the statute requires
cable network operators to report their proposed channel line-up to the state
media authority, which has the right to reconfigure nonconforming proposed
channel line-ups or to exempt certain proposed channel line-ups from the
statutory requirements.
The German federal states are presently preparing a State Treaty on new
media services. A preliminary draft of this proposed State Treaty includes an
obligation of cable system operators to grant non-discriminatory network access
to providers of so-called "media services," which are distinguished from
"broadcasting services." The definitions of the terms "media services" and
"broadcasting services" are the subject of continuing debate, but it is
currently expected that media services will include certain telecommunications
services that are provided to the general public (as opposed to
telecommunications services provided to individual users or to closed user
groups). The legislative process is ongoing and the Company cannot predict the
final content of such legislation or its effects. For example, the Company
cannot presently determine whether cable television services will be considered
media services, which telecommunications services might be construed as being
media services, whether the legislation will require the Company to open its
networks to others or whether or how rates and other terms and conditions
applied to media service providers will be regulated. However, no assurance can
be given that such legislation will not be deemed to apply to the Company and
its business or that it will not have a material adverse effect on the Company's
ability to make certain independent business decisions with respect to the
customers serviced and the rates charged for such services as well as other
matters.
TELEPHONY DEREGULATION
In accordance with the Directive on Competition in the Markets for
Telecommunications Services issued by the European Commission, proposed
legislation regulating the telecommunications industry is presently before the
German Federal Parliament. This proposed legislation would establish a new
regulatory framework for the German telecommunications industry and addresses
the abolition of Deutsche Telekom's voice telephone and network monopolies. It
is currently expected that this legislation will become effective in two stages,
on July 1, 1996 and on January 1, 1998. However, there can be no assurance that
this legislation will become effective on such date or as to the provisions such
legislation will contain when finally adopted. Although the Company currently
has no plans to provide telephony services, it intends to continue monitoring
the development of the new legislation regulating the telecommunications
industry and assessing the opportunities that may be presented thereby.
Under the present draft of such proposed legislation, certain basic
telecommunications services could be deemed to be "universal services," and the
provision of such services could become mandatory for a service provider with a
dominant position in a certain market, which could include a regional market. In
addition, the compensation for the provision of such essential services would be
subject to review by the competent authority. Under the present draft of such
legislation, which is subject to change, the competent authority could designate
operators of cable television systems to be service providers required to open
their networks to content providers and competitors in order to enhance
competition, and the competent authority could exercise supervisory authority in
respect of standard contractual terms and conditions, rates and particular
billing standards of any such service provider.
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The legislative process is ongoing and the Company cannot predict the final
content of such legislation or its effects. For example, the Company cannot
presently determine whether cable television services will be considered
universal services, whether the legislation will require the Company to open its
networks to others or whether or how rates and other terms and conditions
applied to service providers will be regulated. However, no assurance can be
given that such legislation will not be deemed to apply to the Company and its
business or that it will not have a material adverse effect on the Company's
ability to make certain independent business decisions with respect to the
customers serviced and the rates charged for such services as well as other
matters. It is also probable that other legislation and regulations will be
proposed in connection with the liberalization of telecommunications regulation
throughout Europe, and it is impossible to predict the impact of any resulting
changes in the regulatory environment on the Company's business. See "Certain
Regulatory Matters."
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MANAGEMENT
In accordance with its Articles of Association (Gesellschaftsvertrag), the
Company may have one or more Managing Directors (Geschaftsfuhrer) appointed by
the shareholders, who are charged with carrying on the business of the Company.
In addition to its Managing Director, the Company also has an Executive
Committee of Shareholders (the "Executive Committee") comprised of nine members
appointed by the Company's shareholders. The Executive Committee is not a
statutory body under German law, but rather is constituted pursuant to the
Shareholder Agreement. Under the Shareholder Agreement, the Executive Committee
members will be appointed by seven shareholders or groups of affiliated
shareholders. Two members, Messrs. Brown and Prelz Oltramonti, have been
appointed to the Executive Committee by investment funds managed by affiliates
of Advent International Corporation ("Advent International"). Mr. Hoch was
appointed by investment funds managed by affiliates of Morgan Stanley Group Inc.
("Morgan Stanley Group"); Mr. Berylson was appointed by a shareholder affiliated
with General Cinema Theaters Inc. ("General Cinema"); Mr. Meggs was appointed by
a shareholder affiliated with The Chase Manhattan Corporation ("Chase
Manhattan"); Ms. Manfrey was appointed by a shareholder affiliated with APAX
Partners & Co. Ventures Ltd.; Mr. van der Hyden was appointed by a shareholder
affiliated with KPN Kabel BV; and Mr. Bartel represents his own shareholding.
Finally, Dr. van Dohnanyi is an independent member of the Executive Committee
appointed by the vote of 75% of the shareholders as a group. The shareholders of
the Company have agreed to appoint a second independent director, which will
increase the size of the Executive Committee to ten members, and are considering
appropriate candidates.
The Executive Committee has no independent policy or management function
similar to that of a board of directors, but rather is a contractually
constituted body designed to facilitate the making of decisions on certain
matters reserved to the shareholders of the Company. For this reason and because
it is not a statutory body under German law, the Executive Committee members
have no fiduciary duty to the Company arising by reason of their membership on
the Executive Committee. Rather, the members represent the interests of the
respective shareholders who appointed them or, in the case of the independent
directors, are intended to express their independent business judgment. The
authority of the Executive Committee is limited to considering matters which are
reserved pursuant to the Shareholder Agreement for decision by the shareholders
and are removed by contract from the authority of the Managing Director. Matters
requiring shareholder approval as a matter of German law must be considered by a
shareholders' meeting. The Executive Committee can approve by unanimous vote
matters reserved for shareholder approval under the Shareholder Agreement. In
the event such unanimous approval is not obtained, but three or more votes of
Executive Committee members have been cast in support of the matter, the matter
will automatically be referred to a shareholders' meeting, and in the absence of
such a vote any shareholder or shareholders holding 10% or more of the shares of
the Company can place a resolution in respect of the matter before a
shareholders' meeting.
Set forth below is certain information with respect to the Company's
executive officers and members of its Executive Committee.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- --------------------------------- --- ----------------------------------------------------
<S> <C> <C>
Ben Bartel....................... 35 Chief Executive Officer, Managing Director
and Member of Executive Committee
Ernst Uhlig...................... 54 Chief Operating Officer
Paul Thomason.................... 40 Chief Financial Officer
Douglas R. Brown................. 42 Chairman of Executive Committee
Massimo Prelz Oltramonti......... 41 Member of Executive Committee
James S. Hoch.................... 36 Member of Executive Committee
John G. Berylson................. 42 Member of Executive Committee
Jonathan Meggs................... 35 Member of Executive Committee
Barbara Manfrey.................. 41 Member of Executive Committee
Jos van der Hyden................ 40 Member of Executive Committee
Klaus von Dohnanyi............... 67 Member of Executive Committee
</TABLE>
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Mr. Bartel has more than ten years' experience in the cable television
industry, having spent eight years working in a variety of capacities in a
family-owned cable television business in Lodi, Ohio from 1977 to 1985. He has
been the Chief Executive Officer and Managing Director of the Company since its
inception. From July 1991 to September 1992, Mr. Bartel was an Assistant Vice
President -- Corporate Finance at First Union National Bank of North Carolina,
where he was primarily involved in the area of specialized lending to companies
in the communications industry. Prior thereto, from September 1989 to May 1991,
he attended the New York University Stern School of Business, from where he
received an M.B.A. degree. During the period from March 1991 to June 1991, Mr.
Bartel was employed by Chappo & Co., a corporate finance company.
Mr. Uhlig has more than five years' experience in the cable television
industry. He has been the Chief Operating Officer of the Company since October
1995. From March 1992 to September 1995, Mr. Uhlig held various positions at
Robert Bosch GmbH ("Bosch"), one of the largest cable television providers in
Germany, including Sales Director for its broadband communications division from
July 1994 to September 1995. From January 1990 to February 1992, he was
Technical Director of Telenorma S.A., Brussels, Belgium, a wholly-owned
subsidiary of Bosch, which was engaged in the sale and rental of telephone and
alarm system equipment. Additionally, from October 1993 to September 1995, Mr.
Uhlig was a member of the board of directors of the broadband division of the
Central Federation of the Electronic Industry (Zentral Verband der
Elektrotechnischen Industrie), headquartered in Frankfurt, Germany.
Mr. Thomason has more than nine years' experience in the communications and
media industry. He has been the Chief Financial Officer of the Company since
January 1996. Additionally, Mr. Thomason has provided financial advice to the
Company since 1993. From 1980 until January 1996, he was employed by the First
Union National Bank of North Carolina, where he served as Senior Vice President
in such bank's communications and media finance group from 1986 to January 1996.
Mr. Brown has more than five years' experience in the cable television
industry. He has served as Chairman of the Executive Committee of the Company
since May 1996. Mr. Brown has been President and Chief Executive Officer of
Advent International since 1995, prior to which and from 1994 he was Chief
Investment Officer for Advent International's worldwide investment activities.
From 1990 through 1994, he headed Advent International's European operations. He
has been employed by Advent International since 1985. Before that he worked for
Ionics, Inc., which manufactured membrane separation and water treatment
systems, where he held engineering and staff positions with responsibilities for
production, marketing and applications development. Mr. Brown has served as a
director of Aspen Technology, Inc., ChemDesign Corporation, Inspec Group plc,
Ionics Inc., and several Advent European fund management companies.
Mr. Prelz Oltramonti has more than three years' experience in the cable
television industry, having been a director of Cable Management (Ireland) Ltd.
since October 1992. He has served on the Executive Committee of the Company or
on a predecessor body carrying out comparable functions since April 1993. Mr.
Prelz Oltramonti is a Senior Vice President of Advent International and a
Managing Director of its affiliate Advent International plc. He assists in the
management of Advent International's European investment activities, with a
particular focus on the media and communications sectors. Prior to joining
Advent International in February 1991, he was General Partner of Alta Berkeley
Associates. Before that he worked with the Boston Consulting Group and Ing. C.
Olivetti & Co, where he focused on mergers and acquisitions and venture capital
and where he assisted in establishing Olivetti's financial information services
business in Italy.
Mr. Hoch has served on the Executive Committee of the Company or on a
predecessor body carrying out comparable functions since September 1995. Since
1994, Mr. Hoch has been Executive Director of Morgan Stanley & Co., Ltd. Since
February 1993, Mr. Hoch has been a Principal of Morgan Stanley & Co.
Incorporated. From January 1991 to February 1993, Mr. Hoch was a Vice President
of Morgan Stanley & Co. Incorporated and prior to such time he was an Associate.
Mr. Hoch has been a director of SITA Telecommunications Holding N.V. since 1995
and a director of Silgan Corporation since 1991. Mr. Hoch has also served as
Chairman of Nokia Alumiini Oy since 1995.
Mr. Berylson has served on the Executive Committee of the Company or on a
predecessor body carrying out comparable functions since January 1995. He is the
President of GCC Investments Inc., an affiliate of
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General Cinema, responsible for making equity investments with capital generated
by the theater business of the General Cinema group. He is also a director of
Vision Express Group Ltd. Prior to joining General Cinema in August 1993, he was
Vice President and Managing Director of Advent International Financial Services,
Inc., which he joined in 1989. From 1984 to 1989, he was a Partner and founder
of Cowen & Company's corporate finance department. Before that he was a Vice
President at Blyth Eastman Paine Webber in its corporate finance group.
Mr. Meggs has served on the Executive Committee of the Company or on a
predecessor body carrying out comparable functions since April 1994. Mr. Meggs
was employed by The Chase Manhattan Bank, N.A. from 1985 to 1989 and thereafter
by Chase Mezzanine Capital, later known as Chase Capital, where he became a
Principal in 1992. Chase Capital is now known as Chase Capital Partners
following the merger of Chase Manhattan with Chemical Banking Corporation in
April 1996. Mr. Meggs is also a Vice President of The Chase Manhattan Bank, N.A.
and a director of Chase Investment Bank Limited. Prior to joining Chase, Mr.
Meggs worked for Andersen Consulting.
Ms. Manfrey has served on the Executive Committee of the Company or on a
predecessor body carrying out comparable functions since January 1995. Ms.
Manfrey is a director of Apax Partners & Co. Ventures Ltd. ("Apax"), where she
specializes in media investments. Prior to joining Apax in 1992, she was a
Partner of E.M. Warburg, Pincus & Co, Inc., where she served as Managing
Director from 1988 to 1992 and was a co-founder of the firm's London office, a
Managing Director of the firm's New York office from 1985 to 1992 and an
Associate from 1976 to 1984. Ms. Manfrey currently serves on the board of
directors of Virgin Radio Ltd.
Mr. van der Hyden has served on the Executive Committee of the Company or
on a predecessor body carrying out comparable functions since January 1995. Mr.
van der Hyden has been the Business Development Director of KPN Kabel BV since
February 1995. He is responsible for acquiring and running cable television
networks for KPN Kabel BV in several European countries. He is President of
Reseaux Cables de France, President of Interkabel Polska S.P. z o.o and STK S.P.
z o.o in Poland and a Director of Intercable s.r.o. in the Czech Republic. From
1992 to February 1995, he was employed by PTT Telecom as Marketing Director of
the Mobile Communications Services Business Unit, responsible for the marketing
of mobile telephony and paging, and as the head of the strategy department of
the International Communications Business Unit. From 1989 to 1992, Mr. van der
Hyden was an Associate with McKinsey & Company in Amsterdam and, from 1981 to
1988, he was employed by the Schlumberger Group in New York, where his main
responsibilities were in the development and commercialization of data
interpretation services for clients in the petroleum industry.
Dr. von Dohnanyi has served on the Executive Committee of the Company or a
predecessor body carrying out comparable functions since January 1996. Between
1954 and 1960, he worked for Ford Motor Company, both in the United States and
Germany. From 1960 to 1968, Dr. von Dohnanyi was a co-owner and Managing
Director of the Institut fur Marktforschung und Unternehmensberatung Infratest,
Munich (Market and Social Research, Infratest) and, between 1968 and 1969, he
was Permanent Secretary at the German Ministry of Economics. Dr. von Dohnanyi
was a Member of Parliament in Bonn from 1969 to 1981, Parliamentary
Undersecretary from 1969 to 1972, and Minister for Science, Technology and
Education from 1972 to 1974. From 1976 to 1981, he was Deputy Foreign Minister
(Staatminister), Bonn (in charge of European affairs). From 1981 to 1988, he was
Governor of the City State of Hamburg. From 1990 to 1994, Dr. von Dohnanyi was
Chairman of the Board of TAKRAF Heavy Machinery, Leipzig, and since 1994 he has
been a Special Advisor to the board of directors of the Treuhandanstalt (since
January 1, 1995, Bundesanstalt fur Vereinigungsbedingte Sonderaufgaben), Berlin.
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EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company for the
years ended December 31, 1993, 1994 and 1995 to its Chief Executive Officer. No
other executive officer of the Company was paid more than $100,000 during 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) COMPENSATION
- -------------------------------- ---- --------- ----- --------------- ------------
<S> <C> <C> <C> <C> <C>
Ben Bartel...................... 1995 DM136,730 -- DM174,589 --
Chief Executive Officer 1994 DM 76,930 -- DM102,710 --
1993 DM 76,930 -- DM 68,870 --
</TABLE>
- ---------------
(1) Represents the value of the provision to Mr. Bartel of a housing allowance
(DM22,482 in 1995 and DM12,978 in 1994), an automobile allowance (DM8,757
in 1995 and DM5,056 in 1994) and tax gross-up payments (DM143,350 in 1995,
DM84,676 in 1994 and DM68,870 in 1993).
Mr. Bartel's employment agreement relates to his employment as Managing
Director or Geschaftsfuhrer of the Company. He is required to work exclusively
for the Company and is entitled to an annual salary of L72,000 (approximately
DM165,000 or $110,000 at current exchange rates) and will receive a bonus in
1996 of L36,000 (approximately DM82,500 or $55,000 at current exchange rates),
each of which will be grossed up to cover all German and U.S. tax payments and
social security contributions, so that Mr. Bartel will receive these amounts net
of such taxes and contributions. In addition, he is entitled to benefits typical
for an employee in Germany in his position, a housing allowance and a
performance-related bonus to be calculated on a basis to be negotiated between
members of management and the Remuneration Committee of the Executive Committee.
As at the date hereof, Mr. Bartel holds 5% of the shares of the Company.
Pursuant to the Share Transfer and Option Agreement (as defined in "Certain
Related Party Transactions -- Shareholder Agreement") in the event Mr. Bartel
terminates his employment with the Company or is terminated by the Company for
cause at any time before June 30, 1999, the Company will be entitled to purchase
a portion of his shares at a price of DM1. Until September 30, 1996, 75% of Mr.
Bartel's shares are subject to this contingent redemption provision and on that
date and on each December 31, March 31, June 30 and September 30 thereafter
through June 30, 1999, such percentage will be reduced by 6.25%.
For a period of two years following the termination of his employment, Mr.
Bartel's employment agreement restricts him from engaging in any business in
Germany or elsewhere which competes with the business carried on by the Company.
For the duration of this non-competition obligation, the Company will pay to Mr.
Bartel 50% of his annual salary plus 50% of the average of any bonuses paid to
him in respect of the previous three years.
Mr. Bartel's employment agreement is for a fixed period of three years, but
will automatically be extended if not terminated by either the Company or Mr.
Bartel on twelve months' prior notice. In addition, the Company may terminate
Mr. Bartel's employment for cause.
Mr. Thomason's employment agreement relates to his employment as Chief
Financial Officer of the Company, with the official title of Prokurist. He is
required to work exclusively for the Company and is entitled to an annual salary
of $115,000 (approximately DM171,000 at current exchange rates) and will receive
a special relocation bonus in connection with the commencement of his employment
with the Company of $247,917 (approximately DM369,000 at current exchange
rates), each of which will be grossed up to cover all German and U.S. tax
payments and social security contributions, so that Mr. Thomason will receive
this amount net of such taxes and contributions. In addition, he is entitled to
benefits typical for an employee in Germany in his position, a housing allowance
and a performance-related bonus to be calculated on a basis to be negotiated
between members of management and the Remuneration Committee of the Executive
Committee.
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As at the date hereof, Mr. Thomason holds 1.25% of the shares of the
Company. In the event that he terminates his employment with the Company or is
terminated by the Company for cause at any time before June 30, 1999, the
Company will be entitled to purchase a portion of his shares at a price of DM1.
Until September 30, 1996, 90% of Mr. Thomason's shares are subject to this
contingent redemption provision and on that date and on each December 31, March
31, June 30 and September 30 thereafter through June 30, 1999, such percentage
will be reduced by 7.5%.
For a period of two years following the termination of his employment, Mr.
Thomason's employment agreement restricts him from engaging in any business in
Germany or elsewhere which competes with the business carried on by the Company.
For the duration of this non-competition obligation, the Company will pay to Mr.
Thomason 50% of his annual salary plus 50% of the average of any bonuses paid to
him in respect of the previous three years.
Mr. Thomason's employment agreement is for an indefinite period, but is
subject to termination by either the Company or Mr. Thomason on four weeks'
prior notice, which may be served at any time after June 30, 1998, and which
notice period is, if the termination is by the Company and is not challenged by
Mr. Thomason, extended to twelve months. In addition, the Company may terminate
Mr. Thomason's employment for cause. If terminated by the Company without cause,
Mr. Thomason is entitled to 75% of his annual salary in lieu of any severance
payments to which he may be entitled under German law.
Mr. Uhlig's employment agreement relates to his employment as Chief
Operating Officer of the Company with the official title of Prokurist. He is
required to work exclusively for the Company and is entitled to an annual salary
of DM275,000. In addition, he is entitled to benefits typical for an employee in
Germany in his position and a performance-related bonus to be calculated on a
basis to be negotiated between members of management and the Remuneration
Committee of the Executive Committee, but which may not exceed DM75,000 per
annum.
As at the date hereof, Mr. Uhlig holds 1% of the shares of the Company. In
the event that he terminates his employment with the Company or is terminated by
the Company for cause at any time before June 30, 1999, the Company will be
entitled to purchase a portion of his shares at a price of DM1. Until September
30, 1996, 90% of Mr. Uhlig's shares are subject to this contingent redemption
provision and on that date and on each December 31, March 31, June 30 and
September 30 thereafter through June 30, 1999, such percentage will be reduced
by 7.5%.
Mr. Uhlig is also entitled to a special bonus in the event that either all
of the shares in Kabelvision Management GmbH or all of its assets are sold to
one or more unrelated third parties. The size of the bonus depends upon whether
Mr. Uhlig is still employed at the time of sale or the date upon which he ceased
to be employed, but is subject to a maximum of $750,000 (approximately
DM1,115,000 at current exchange rates) in the event that he is employed for the
a period of four years from January 1, 1996. The bonus remains payable after he
has left the employment of Kabelvision Management GmbH, provided that the
termination of his employment was by mutual agreement with the Company.
Mr. Uhlig's employment agreement is for a fixed period of four years, but
may be terminated by either the Company or Mr. Uhlig on six-months' prior
notice. In addition, the Company may terminate Mr. Uhlig's employment for cause.
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CERTAIN RELATED PARTY TRANSACTIONS
CAPITAL CONTRIBUTIONS AND SUBORDINATED SHAREHOLDER LOANS
On September 1, 1992, Plauen Cable, Inc. ("Plauen Cable"), a company owned
and controlled by Lloyd Bartel, the father of Ben Bartel, the Chief Executive
Officer of the Company, and Charlotte Cable Holdings, Inc. ("Charlotte"), a
company owned and controlled by Ben Bartel, purchased from unaffiliated parties
95% of the ownership interests in KFP Kabelfernsehen Plauen GmbH & Co. KG
("Plauen KG") and in Kabelfernsehen Plauen GmbH ("Plauen GmbH"), the general
partner (Komplementar) of Plauen KG.
On April 2, 1993, Plauen Cable, Charlotte and two other minority
shareholders (the "Minority Shareholders") exchanged their interests in Plauen
KG and Plauen GmbH for 25% of the share capital of Kabelvision Beteiligungs GmbH
("Kabelvision"), which was merged into the Company on June 19, 1996 (the
"Merger"), which at the time of such exchange had no assets other than DM50,000
of contributed capital. The Minority Shareholders held their interest indirectly
through a civil law partnership. The holder of the remaining 75% of the share
capital of Kabelvision was European Special Situations Fund Limited Partnership
("ESSF"), a limited partnership affiliated with Advent International, which
subsequently became the general partner and a limited partner in ECO Holdings
Limited Partnership ("ECO I"). Contemporaneously with this transaction, ESSF
made a loan (the "Initial Loan") to Plauen KG in the sum of DM2,500,000. An
arrangement fee of DM400,000 payable by Plauen KG to ESSF in respect of the
Initial Loan was contributed by ESSF to the capital of Kabelvision, which loaned
that amount to Plauen KG to fund its payment of that arrangement fee. The
Initial Loan bore interest at the rate of 15% per annum and was to be repaid on
December 31, 1993. In May 1994, the Minority Shareholders transferred their
indirect interest in the share capital in Kabelvision to Charlotte in
consideration for the assumption by Charlotte of all obligations of the Minority
Shareholders under the civil law partnership agreement and as former partners in
Plauen KG. In July 1994, the shareholders of Kabelvision, other than Charlotte,
exchanged their interests in the share capital of Kabelvision for limited
partnership interests of ECO I.
On July 19, 1994, the obligations of Plauen KG under the Initial Loan were
assumed by a subsidiary of Kabelvision, the amount of the loan was increased to
DM7,500,000 and the terms of the Initial Loan were amended. The amended loan
bore interest at the rate of 20% per annum until contributed to the capital of
Kabelmedia as part of the Shareholder Debt Conversion. ECO I contributed to the
capital of Kabelvision DM6,000,000 by way of assignment of a portion of the loan
and DM2,000,000 of cash. On March 31, 1994, ESSF, the general partner and a
limited partner of ECO I, made a loan to a subsidiary of Kabelvision in the
principal amount of DM13,000,000, which was subsequently assigned by ESSF to ECO
I. The proceeds of such loan were used by Kabelvision to make acquisitions of
cable television systems. The loan bore interest at the rate of 20% per annum
until contributed to the capital of Kabelmedia as part of the Shareholder Debt
Conversion. In 1994 and 1995, ECO I made loans to a subsidiary of Kabelvision in
the principal amounts of DM12,361,000 (of which DM6,787,000 was contributed to
the capital of Kabelvision), DM8,000,000 and DM12,000,000 (DM3,000,000 of which
was contributed to the capital of Kabelvision), which were utilized by
Kabelvision in connection with the acquisition of cable television systems. Each
of these contributions from ECO I to Kabelvision was made by way of assignment
of a portion of the relevant loan by ECO I to Kabelvision. Each of these loans
bore interest at the rate of 15% per annum until contributed to the capital of
Kabelmedia as part of the Shareholder Debt Conversion.
On December 28, 1994, ECO II Holdings Limited Partnership ("ECO II") and
Ben Bartel formed Kabelmedia with DM50,000 of capital and made a loan to the
Company in the principal amount of DM49,300,000, which was utilized by the
Company in connection with the acquisition of cable television systems. On
August 31, 1995, ECO II made a loan to the Company in the principal amount of
DM40,252,000, which was utilized by the Company in connection with the
acquisition of Beta Asset Management GmbH ("Beta Asset"), which then acquired
TELECable Betriebsgesellschaft mbH. The loan bore interest at the rate of 12%
per annum commencing January 1, 1996, until contributed to the capital of
Kabelmedia as part of the Shareholder Debt Conversion. The Company acquired Beta
Asset from Morgan Stanley Partners III, Inc. and certain of its affiliates for
DM58,000. Morgan Stanley Partners III, Inc. is an affiliate of Morgan Stanley
and certain of its affiliates were limited partners of ECO II. On October 6,
1995,
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ECO II made a loan to the Company in the principal amount of DM30,900,000, which
was utilized by the Company in connection with the acquisition of cable
television systems. The loan bore interest at the rate of 12% per annum
commencing January 1, 1996, until contributed to the capital of Kabelmedia as
part of the Shareholder Debt Conversion. On May 30, 1996, ECO II made a loan to
the Company of DM10,199,000, which will be used by the Company for general
corporate purposes. The loan bore interest at the rate of 12% per annum, until
contributed to the capital of Kabelmedia as part of the Shareholder Debt
Conversion.
Each of the loans described above was subordinated and was repayable in a
single installment on January 1, 2007. The interest on such loans was not
required to be currently paid, but rather was to accrue until maturity. The
total principal amount of such loans plus accrued interest thereon through June
14, 1996 were contributed to the capital of Kablemedia in the Shareholder Debt
Conversion. See "Summary -- Shareholder Debt Conversion."
On or about the date of closing of the Offering, ECO I and ECO II will be
dissolved and the capital stock of Kabelmedia will be distributed to the
partners of ECO I and ECO II, who will become shareholders in Kabelmedia. As
part of a capital increase on July 15, 1996, Paul Thomason and Ernst Uhlig, the
Chief Financial Officer and Chief Operating Officer of the Company,
respectively, subscribed for 1.25% and 1%, respectively, of the shares of the
Company, at a price equal to the nominal value thereof, DM2,500 and DM2,000,
respectively. The Company and its shareholders, other than Ben Bartel,
Charlotte, Paul Thomason and Ernst Uhlig, have entered into a Registration
Rights Agreement which, under certain circumstances, would permit such
shareholders to require the Company to register their shares under the
Securities Act.
CERTAIN INTERESTS OF AFFILIATES OF THE UNDERWRITERS
The MSCP Funds, affiliates of Morgan Stanley, collectively own
approximately 14.34% of capital stock of Kabelmedia. See "Principal
Shareholders." Pursuant to the terms of the Shareholder Agreement, MSCP III,
L.P., as general partner of the MSCP Funds, has the right to appoint one member
of the Executive Committee of Kabelmedia. An officer of Morgan Stanley currently
serves on the Executive Committee of Kabelmedia. See "Management," "Risk Factors
- -- Certain Interests of Affiliates of the Underwriters" and "Underwriting."
Chase Investment Bank Limited ("CIBL") and Chase Manhattan Bank AG are
affiliates of Chase Securities Inc., one of the Underwriters for the Offering,
and are the Arranger and the Agent, respectively, under the Bank Facility. The
loan commitments of CIBL to the Company as of December 31, 1995 under the Prior
Facilities were approximately DM55,100,000, representing approximately 18.8% of
the total loan commitments under the Prior Facilities at such date. Based on
commitments received by CIBL to date from potential syndicate members, which are
subject to final documentation to be signed prior to the closing of the
Offering, the Company does not expect the percentage of the total commitments
under the Bank Facility of Chase Manhattan Bank AG (which will be the only
affiliate of Chase Securities Inc. lending under the Bank Facility) to exceed
CIBL's percentage of the total commitments under the Prior Facilities. The
initial drawing under the Bank Facility is scheduled to occur concurrently with
or on the business day next following the closing of the Offering, at which time
such initial drawing and the proceeds of the Offering will be used to repay the
Prior Facilities. Certain customary fees have been paid to certain affiliates of
Chase Securities Inc. in connection with the arrangement of the Bank Facility,
the Prior Facilities and earlier credit facilities of the Company and its
services as agent thereunder. See "Description of Certain Indebtedness." Certain
affiliates of Chase Securities Inc. also collectively own approximately 8.11% of
the capital stock of Kabelmedia. Pursuant to the terms of the Shareholder
Agreement, such affiliates of Chase Securities Inc. have the right to appoint
one member of the Executive Committee of Kabelmedia. An officer of such
affiliates of Chase Securities Inc. currently serves on the Executive Committee
of Kabelmedia. See "Management," "Risk Factors -- Certain Interests of
Affiliates of the Underwriters," "Use of Proceeds" and "Underwriting."
SHAREHOLDER AGREEMENT
The Company, each of its current shareholders and each of the partners of
ECO I and ECO II have entered into a Shareholders' Agreement (the "Shareholder
Agreement") pursuant to which the capital of
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Kabelmedia was increased effective July 15, 1996 from DM74,600 to DM200,000 by
way of a cash contribution in amounts which, following the dissolution of ECO I
and ECO II, will result in the respective percentage shareholdings reflected in
"Principal Shareholders."
In addition, the Shareholder Agreement provides for a further increase in
the nominal capital of Kabelmedia by DM9,800,000 to DM10,000,000, by the
conversion of capital surplus to nominal capital, without changing the
percentage holdings of the shareholders, which was filed with the relevant
Commercial Court on July 19, 1996, and will become effective upon the recording
thereof with the Commercial Register, which is expected on or about the date of
closing of the Offering. The parties to the Shareholder Agreement have also
agreed to take all necessary steps to dissolve ECO I and ECO II, which is
expected to occur on or about the date of closing of the Offering, whereupon ECO
I and ECO II will distribute the assets held by them, comprised of the shares in
the Company, to their partners, pro rata to their respective partnership
interests.
As reflected under "Management," the Shareholder Agreement reserves certain
matters for decision by the shareholders of the Company. Certain shareholder
approvals can be granted upon the unanimous approval of the Executive Committee.
The matters which are reserved to the shareholders by German law or the
Shareholder Agreement can be categorized as follows:
(i) matters which are required by law to be approved by the shareholders
by either a simple majority or a 75% majority of the shareholders
present at a meeting called to consider such resolution, which under the
Shareholder Agreement uniformly require the prior written consent of a
75% majority of the shareholders;
(ii) matters which require either a prior unanimous resolution of the
Executive Committee or a resolution passed by a 75% majority of the
shareholders present at a meeting called to consider such resolution;
and
(iii) matters which require either a prior unanimous resolution of the
Executive Committee or a resolution passed by a simple majority of the
shareholders present at a meeting called to consider such resolution.
The matters referred to in clause (i) above include any change to the share
capital of the Company, the grant of any option over or interest in, or the
issue of any instrument carrying rights of conversion into, any other security
of the Company, the redemption, purchase, reorganization, consolidation,
cancellation or conversion of any share capital or other securities issued by
the Company, a change of the Company's auditors or fiscal year, the declaration
of any dividend, the appointment or removal of any Geschaftsfuhrer or Prokurist
of the Company, a change of the Company's name, the adoption of the Company's
annual financial statements, any variation of the Company's accounting policies
and any amendment of the Company's Articles of Association.
The matters referred to in clause (ii) above include refinancings involving
over DM150,000,000 or new financings involving over DM50,000,000, acquisitions
or disposals of any assets which account for more than 10% of the operating cash
flow, net revenues or total assets of the Company, the acquisition of any
capital asset for more than DM1,000,000, entering into any joint venture or
similar arrangement, implementing any change in the nature of the business or
commencing business outside Germany, entering into any contract with a related
party, approving the annual business plan and entering into any contract
affecting more than 10% of the homes passed by the Company's cable television
systems.
The matters referred to in clause (iii) above include any financing,
acquisition or disposal involving more than DM1,000,000 in any calendar year,
any loan (subject to a de minimis exception) and any political or charitable
donation.
The Shareholder Agreement provides that shareholders may only transfer
shares (i) to a "connected person," which is defined in the Company's Articles
of Association as including a family member, a family trust or, in the case of a
transfer by a partnership, any of its partners, provided such transfer is a
distribution made in accordance with the relevant partnership agreement; or (ii)
to a third party, provided (A) such
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transfer takes place after June 12, 1997, (B) the transferring shareholder
complies with the right of first offer procedure which is set out in the
Articles of Association, pursuant to which each of the other shareholders has
the right to purchase all or a portion of the shares to be sold by the
shareholder at a price not greater than the price to be paid by the proposed
third party acquiror and (C) the proposed third party acquiror, in the event
that the price per DM100 of nominal capital to be paid by the proposed third
party acquiror is no greater than 110% of the price at which such shares were
offered to the other shareholders, has made an offer to acquire on like terms
the same percentage of any shares which were offered for sale by other
shareholders as part of the same first offer procedure or, in the event that the
price per DM100 of nominal capital to be paid by the proposed third party
acquiror is greater than 110% of the price at which such shares were offered to
the other shareholders, has made an offer to acquire on like terms the same
percentage of shares held by all other shareholders.
In addition, if a person makes an offer to all of the shareholders to
acquire all of their shares and such offer is accepted by shareholders holding
at least 66 2/3% of the share capital of the Company (excluding any capital held
by any offeror), the remaining shareholders can be forced by such accepting
shareholders to accept such offer.
Prior to pursuing any acquisition or other business opportunity in the
cable television industry in Germany, each shareholder is required under the
Shareholder Agreement to offer such opportunity to the Company.
Pursuant to a Share Transfer and Option Agreement, which is an exhibit to
the Shareholder Agreement (the "Share Transfer and Option Agreement"), each of
ECO I and ECO II has agreed to the Shareholder Debt Conversion, in return for
which Ben Bartel and Charlotte have agreed that, upon the increase in the
capital of the Company from DM74,600 to DM200,000, they will only subscribe for
such amount of share capital as will result in their aggregate percentage
holding of such increased share capital being 5% of the Company's share capital.
In addition, Ben Bartel and Charlotte have granted options to the Company
implementing the contingent share purchase provisions applicable upon certain
terminations of Mr. Bartel's employment, as described in "Management." Further,
the Share Transfer and Option Agreement contains provisions which the parties
thereto have agreed to include in the Articles of Association, designed to
protect Ben Bartel and Charlotte from dilution of their shareholdings by
permitting Ben Bartel and Charlotte to sell their rights to participate in
future capital increases to the extent that such capital increases are not made
by unrelated third parties and are made at a subscription price per DM100 of
nominal capital which is below certain valuation thresholds.
Paul Thomason and Ernst Uhlig have entered into Share Transfer and Option
Agreements, which are exhibits to their respective employment agreements and
which include comparable terms to the Share Transfer and Option Agreement,
implementing the contingent share purchase provisions applicable upon certain
terminations of their respective employment and designed to protect them from
dilution of their respective shareholdings.
The Company and its shareholders, other than Ben Bartel, Charlotte, Paul
Thomason and Ernst Uhlig, have entered into a Registration Rights Agreement
which, under certain circumstances, permits such shareholders to require the
Company to register their shares under the Securities Act.
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the share capital of the Company as of the date hereof by: (i) each
person known by the Company to own beneficially 5% or more of the outstanding
share capital of the Company; (ii) each of the Company's Executive Committee
members; (iii) each of the executive officers of the Company; and (iv) all
Executive Committee members and executive officers of the Company as a group.
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER(1)(2) PERCENTAGE OF SHARES(3)
- ------------------------------------------------------------------------ ------------------------
<S> <C>
SHAREHOLDERS
Advent International(4)............................................... 42.48%
Morgan Stanley Group(5)............................................... 14.34%
General Cinema(6)..................................................... 9.56%
Chase Manhattan(7).................................................... 8.11%
APAX Partners(8)...................................................... 7.17%
KPN Kabel(9).......................................................... 7.17%
Ben Bartel(10)........................................................ 5.00%
MANAGEMENT AND EXECUTIVE COMMITTEE(11)
Ben Bartel............................................................ 5.00%
Paul Thomason......................................................... 1.25%
Ernst Uhlig........................................................... 1.00%
All Executive Committee members and executive officers as a 7.25%
group(10)..........................................................
</TABLE>
- ---------------
(1) Except as indicated in the footnotes to this table, the persons named in the
table have sole voting and investment power with respect to the share
capital of the Company shown as beneficially owned by them, subject to
community property laws where applicable.
(2) Each shareholder (other than Ben Bartel) currently holds its respective
interest in the Company through ECO I, ECO II or both. ECO I and ECO II
will be dissolved effective on or about the date of closing of the Offering
and the shares in the Company distributed to the partners in ECO I and ECO
II, who will become shareholders in the Company. The percentages shown in
the table reflect the shareholders' aggregate percentage holdings in the
Company subsequent to the Merger and the dissolution of ECO I and ECO II.
Advent International and Chase Manhattan are limited partners in both ECO I
and ECO II. The other limited partner of ECO I is Plauen Cable, which will
hold 1.53% of the Company's shares. The other limited partners of ECO II
are the entities described in this table as Morgan Stanley, General Cinema,
APAX Partners and KPN Kabel; plus Allstate Insurance Company, which will
hold 2.39% of the Company's shares. Ben Bartel holds his shares in the
Company directly and through Charlotte.
Prior to the Shareholder Debt Conversion, ECO I held 90% of the shares of
Kabelvision, ECO II held 90% of the shares of Kabelmedia, Ben Bartel held
10% of the shares of Kabelvision and Charlotte held 10% of the shares of
Kabelmedia. In consideration of the Shareholder Debt Conversion, pursuant
to which ECO I and ECO II contributed Subordinated Shareholder Loans to the
capital of Kabelvision and Kabelmedia, respectively, Ben Bartel and
Charlotte agreed in the Share Transfer and Option Agreement that, upon an
increase in the capital of the Company from DM 74,600 to DM 200,000, which
occurred on July 15, 1996, to permit their aggregate interests to be
diluted to 5%. As part of the same capital increase to DM 200,000, Messrs
Thomason and Uhlig subscribed pursuant to comparable agreements for 1.25%
and 1%, respectively, of the shares of the Company, at a price equal to the
nominal value thereof, DM 2,500 and DM 2,000, respectively. The interests
of ECO I and ECO II increased accordingly, by an aggregate of 2.75% of the
increased share capital.
(3) The total nominal share capital (Stammkapital) of the Company (or of any
other limited liability company or GmbH organized under German law) is
expressed as a particular Deutsch Mark amount. The interests held by the
shareholders are represented by individual shares in the total capital,
each of
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which carries a Deutsch Mark nominal value (the aggregate of which is the
total nominal capital of the GmbH) and entitles the holder to a
proportional share in the capital of GmbH. Such an interest entitles the
holder to participate upon distribution in an equivalent percentage of
capital other than nominal capital, such as capital surplus and retained
earnings, if any. For convenience, interests in the nominal capital of the
Company are referred to herein as shares.
(4) Represents shares held by European Special Situations Fund Limited
Partnership, which holds 15.83% of the Company's shares, Global Private
Equity II Limited Partnership, which holds 13.98% of the Company's shares,
Kabelgate L.L.C., which holds 11.29% of the Company's shares, Advent
Partners Limited Partnership, which holds .67% of the Company's shares,
Advent Crown Fund C.V., which holds .65% of the Company's shares, Advent
International Investors II Limited Partnership, which holds .02% of the
Company's shares, and Advent International Investors III Limited
Partnership, which holds .05% of the Company's shares. The general partners
or members of the above limited partnerships and limited liability company
are affiliates of Advent International and such shares of the Company may
be deemed to be beneficially owned by Advent International. Advent
International disclaims beneficial ownership of shares held by such
investment limited partnerships and limited liability company, except to
the extent of its pecuniary interest therein. The address for each of the
above limited partnerships and limited liability company is c/o Advent
International Corporation, 101 Federal Street, Boston, Massachusetts 02110.
(5) Represents shares held by Morgan Stanley Partners III, L.P., which holds
12.68% of the Company's shares, MSCP III 892 Investors, L.P., which holds
1.30% of the Company's shares, and Morgan Stanley Capital Investors, L.P.,
which holds .36% of the Company's shares. The general partner of each of
these investment limited partnerships is an affiliate of Morgan Stanley
Group. Morgan Stanley Group disclaims beneficial ownership of shares of the
Company held by such investment limited partnerships, except to the extent
of its pecuniary interest therein. The address for each of the above
limited partnerships is c/o Morgan Stanley Capital Partners, 1221 Avenue of
the Americas, New York, New York 10020.
(6) Represents shares held by Chestnut Hill Media, an affiliate of General
Cinema Corporation. General Cinema disclaims beneficial ownership of the
shares held by Chestnut Hill Media Inc., except to the extent of its
pecuniary interest therein. The address for Chestnut Hill Media Inc. is 27
Boylston Street, Chestnut Hill, Massachusetts 02167.
(7) Represents shares held by Willard Holdings Inc., which holds 4.05% of the
Company's shares, and Woodward Holdings Inc., which holds 4.05% of the
Company's shares, each of which is an affiliate of Chase Manhattan. Chase
Manhattan disclaims beneficial ownership of shares held by such companies,
except to the extent of its pecuniary interest therein. The address for
each of Willard Holdings Inc. and Woodward Holdings Inc. is c/o The Chase
Manhattan Bank, N.A., Woolgate House, Coleman Street, London EC2P 2HD,
England.
(8) Represents shares held by ECO Holdings (Cayman) Limited. APAX Partners
disclaims beneficial ownership of the shares held by ECO Holdings (Cayman)
Limited, except to the extent of its pecuniary interest therein. ECO
Holdings (Cayman) Limited is not affiliated with either ECO I or ECO II,
other than as a limited partner in ECO II and to the extent of its
precuniary interest therein. The address of ECO Holdings (Cayman) Limited
is c/o Maples & Calder, Ugland House, George Town, Grand Cayman, Cayman
Islands, British West Indies.
(9) The address for KPN Kabel BV is Polarisavenue 27, 2132 JH Hoofddorp, The
Netherlands.
(10)Represents shares held by Ben Bartel and Charlotte. The address for Ben
Bartel is Oberer Steinweg 10, 08523 Plauen, Germany.
(11)Pursuant to the Shareholder Agreement, eight members of the Executive
Committee are appointed by a designated shareholder or affiliated group of
shareholders of the Company to represent those shareholders, and one
independent member of the Executive Committee is elected by the vote of 75%
of the shareholders as a group. See "Management." Other than Ben Bartel, no
member of the Executive Committee is the registered holder of any of the
share capital of the Company. Mr. Brown and Mr. Prelz Oltramonti were
appointed to the Executive Committee by shareholders affiliated with Advent
Interna-
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tional; Mr. Hoch by shareholders affiliated with Morgan Stanley Group; Mr.
Berylson by a shareholder affiliated with General Cinema; Mr. Meggs by
shareholders affiliated with Chase Manhattan; Ms. Manfrey by a shareholder
affiliated with APAX Partners & Co. Ventures Ltd. and Mr. van der Hyden by
a shareholder affiliated with KPN Kabel BV, in each case to represent its
or their interests, and certain members of the Executive Committee are
officers or shareholders of general partners of limited partnerships which
are shareholders of the Company. None of such Executive Committee members
is a registered holder of any shares and each such person disclaims
beneficial ownership of the shares held by the shareholder whose interest
he represents on the Executive Committee, except to the extent of his
pecuniary interest therein.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
Set forth below is a summary of the Bank Facility. The following summary
does not purport to be complete and is qualified in its entirety by reference to
the agreements described herein, copies of which have been filed with the
Securities and Exchange Commission as exhibits to the Registration Statement of
which this Prospectus forms a part.
BANK FACILITY
GENERAL
Prior to the closing of the Offering, certain operating companies, which
are wholly owned subsidiaries of Kabelmedia (collectively, "the Borrowers"),
will enter into a facility agreement and related documentation (the "Bank
Facility") with Chase Investment Bank Limited (the "Arranger"), as arranger, and
Chase Manhattan Bank AG (the "Agent"), as agent for the banks and financial
institutions named therein (together with the Agent, the "Lenders"), pursuant to
which the Lenders will agree to lend to the Borrowers or their respective
subsidiaries up to DM400,000,000 aggregate principal amount, which is subdivided
into three tranches as follows:
Tranche 1 is a DM375,000,000 revolving credit facility (the "Revolving
Credit Facility"), which may be repaid and redrawn as described below;
Tranche 2 is a DM20,000,000 working capital facility (the "Working Capital
Facility"), which may be drawn until one month prior to June 30, 2004
("Final Maturity"); and
Tranche 3 is a DM5,000,000 overdraft facility (the "Overdraft Facility"),
which is to be repaid at Final Maturity.
The proceeds from the three facilities referred to above are to be used by
the Borrowers to refinance indebtedness outstanding under the Facility Agreement
dated June 1995 between a group of lenders and Kabelvision Management GmbH (the
"Prior Kabelvision Facility") and the Facility Agreement dated August 1995
between a group of lenders and KabelMedia Holding Hannover GmbH, then known as
PKG Holding GmbH (the "Prior Kabelmedia Facility" and, together with the Prior
Kabelvision Facility, the "Prior Facilities"), to finance acquisitions and
capital expenditures, for general corporate purposes, and to finance the
Borrowers' day-to-day liquidity requirements.
AVAILABILITY, CONVERSION, REPAYMENT AND INTEREST
The maximum aggregate number of loans under the Revolving Credit Facility
and the Working Capital Facility that may be outstanding is eight, each of which
must be for a minimum principal amount of DM2,500,000, and each of which will
only be made if, inter alia, certain financial tests are met and no event of
default has occurred or potential event of default exists. These conditions
provide that no drawdown may be made unless (i) the senior leverage ratio is,
prior to December 31, 1996, less than or equal to 6.50:1; between January 1,
1997 and June 30, 1997, less than or equal to 6.25:1; between July 1, 1997 and
December 31, 1997, less than or equal to 5.75:1; between January 1, 1998 and
June 30, 1998, less than or equal to 5.25:1; between July 1, 1998 and December
31, 1998, less than or equal to 4.75:1; between January 1, 1999 and June 30,
1999, less than or equal to 4:1; between July 1, 1999 and December 31, 1999,
less than or equal to 3.75:1; and thereafter less than or equal to 3.25:1 and
(ii) the ratio of senior debt to contributed equity is less than 55:45. The
"senior leverage ratio" is defined as the ratio of senior debt divided by
annualized operating cash flow, "senior debt" is defined as all indebtedness for
money borrowed of the Company, excluding Subordinated Subsidiary Notes,
subordinated loans which may be made to the Company by its shareholders and the
Discount Notes, and "contributed equity" as defined includes the aggregate
amount contributed by way of capital contribution to the Borrower, Subordinated
Subsidiary Notes and subordinated loans made to the Company by its shareholders.
The Revolving Credit Facility provides that loans will be made to finance
acquisitions of cable television systems without the Lenders' prior approval
where the pro forma ratio of total debt to annualized operating cash flow is
less than 4.50:1. In addition, where such ratio is equal to or greater than
4.50:1, the loans will be made available without the Lenders' prior consent
where the consideration for
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such acquisition is equal to or less than DM20,000,000, provided that the
following conditions are satisfied: the Borrowers' pro forma total indebtedness
does not exceed DM850 per Equivalent Subscriber (as defined in the Bank
Facility) and the consideration to be paid per Equivalent Subscriber does not
exceed DM1,250; or, if certain financial ratios are met, the consideration per
Equivalent Subscriber does not exceed DM1,650. The term of each loan made
pursuant to the Revolving Loan Facility will be one, two, three or six months,
as designated by the Borrowers, or such other period as may be agreed by the
Lenders. If the above financial conditions are not met, loans will be available
to finance acquisitions of cable television systems on provision to the Lenders
of a full description of the proposed transaction and satisfactory completion of
a due diligence report by counsel to the Lenders. Acquisitions for consideration
of between DM20,000,001 and DM50,000,000 may be made on the approval of an
Instructing Group of the Lenders (as defined in the Bank Facility). Acquisitions
for consideration in excess of DM50,000,000 may be made on approval of all
Banks.
All amounts borrowed under the Revolving Loan Facility will automatically
be consolidated into no more than three term loans (collectively, the "Term
Loan") on December 31, 1997 (the "Revolving Facility Term Date"). The Term Loan
will be required to be repaid in quarterly installments over the seven-year
period following the Revolving Facility Term Date, such that 5%, 10%, 15%,
17.5%, 20%, 20% and 12.5% of the outstanding principal amount of the Term Loan
are repaid during the first through seventh years, respectively, following the
Revolving Facility Term Date. The Working Capital Facility and the Overdraft
Facility are repayable in full on Final Maturity. The Revolving Credit Facility
requires that amounts outstanding thereunder pursuant to the Term Loan be
prepaid by an amount equal to 50% of Excess Cash Flow (as defined in the Bank
Facility). Loans under the Revolving Credit Facility and the Working Capital
Facility bear interest at an annual rate equal to LIBOR (as defined in the Bank
Facility) plus a margin ranging from 1.25% per annum to 2.00% per annum,
depending on the ratio of indebtedness for borrowed money to the Company's
annualized operating cash flow.
The Overdraft Facility bears interest at the Agent's usual overdraft rate
plus the Margin applicable to the Revolving Credit Facility.
SECURITY
All principal, interest and other obligations of the Borrowers in respect
of loans under the Bank Facility will be secured by, among other things, liens
on the receivables from cable television subscribers, concession agreements,
equipment, intercompany loans, partnership interests and shares of the Borrowers
and have been guaranteed by certain of the Company's subsidiaries (the
"Guarantors").
COVENANTS
The Bank Facility contains certain financial and other covenants, including
covenants with respect to cash flow, interest coverage, debt service and
shareholders' equity, and requiring the Borrowers to maintain key man insurance
on the life of Ben Bartel in an amount of at least DM2,500,000. The Borrowers'
ability to borrow under the Revolving Credit Facility is subject to, among other
things, its compliance with the covenants contained therein, and the failure to
so comply could result in all amounts outstanding under the facility becoming
immediately due and payable.
EVENTS OF DEFAULT
The Bank Facility contains various standard events of default for, among
other things, non-payment of amounts due under the facility, breach of covenants
or representations, defaults under certain other indebtedness, certain events of
insolvency or bankruptcy and, in addition, the following more specific events of
default:
(a) loss of a material concession or franchise;
(b) termination of any material contract or any notice given to terminate
any material contract;
(c) change at any time in the regulatory environment in a manner
significantly adverse to the Company;
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(d) Ben Bartel ceasing to be in charge of the management of the Company's
operating companies, KabelMedia Holding Hannover GmbH ("KMH") and
Kabelvision Management GmbH ("KVM") or their successors;
(e) Kabelmedia ceasing to own 100% of the shares of KMH or KVM (or their
successors); and
(f) a person or persons, who or which are not shareholders of Kabelmedia
at the date upon which the Bank Facility closes, acquiring, directly or
indirectly, more than an aggregate 24.9% shareholding in Kabelmedia.
The occurrence of any event of default could result in all amounts outstanding
under the Bank Facility becoming immediately due and payable and the
cancellation of the Bank Facility.
BORROWINGS
As of March 31, 1996, the Borrowers had drawn down DM237,500,000 under the
Prior Facilities, which they intend to repay from the proceeds of the Offering
and borrowings under the Bank Facility. See "Use of Proceeds."
FEES
In connection with the Bank Facility, an arrangement fee will be paid to
the Arranger and a facility agency fee and a security agency fee will be paid to
the Agent.
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DESCRIPTION OF THE DISCOUNT NOTES
The Discount Notes are to be issued under an Indenture, to be dated as of
July , 1996 (the "Indenture") between the Company and The Bank of New York,
as Trustee (the "Trustee"). Except as otherwise provided in the following
summary, references to the "Company" shall mean Kabelmedia, in its capacity as
issuer of the Discount Notes.
The following summary of certain provisions of the Indenture does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, all the provisions of the Indenture including the definitions of
certain terms therein and those terms made a part thereof by the Trust Indenture
Act of 1939, as amended. Certain capitalized terms used in this Section of the
Prospectus are defined below. Whenever particular Sections or defined terms of
the Indenture not otherwise defined herein are referred to, such Sections or
defined terms are incorporated herein by reference.
GENERAL
A paying agent will be maintained for the Discount Notes in New York, New
York (the "Paying Agent").
TERMS OF THE DISCOUNT NOTES
The Discount Notes will be unsecured senior obligations of the Company, and
will mature on , 2006. The Discount Notes will be issued in an
aggregate principal amount at maturity to generate gross proceeds of
approximately $100 million. The Discount Notes will accrete at a rate of %,
compounded semi-annually, to their aggregate principal amount at maturity by
, 2001. At maturity, the Company will pay the aggregate principal
amount at maturity of the Discount Notes then outstanding. Cash interest will
not accrue on the Discount Notes prior to , 2001. Thereafter, cash
interest on the Discount Notes will be payable, at a rate of % per annum,
semi-annually in arrears on each and (each an "Interest
Payment Date"), commencing , 2001, to the holder thereof, on the
or , as the case may be, immediately preceding such Interest
Payment Date. Cash interest will accrue from the most recent Interest Payment
Date to which interest has been paid or duly provided for or, if no interest has
been paid or duly provided for, from , 2001. Cash interest will be
computed on the basis of a 360-day year of twelve 30-day months. For additional
information concerning payments on the Discount Notes, see "-- Form of Discount
Notes" and "-- Book-Entry; Delivery and Form."
Optional Redemption
The Discount Notes will be redeemable, at the Company's option, in whole or
in part, at any time or from time to time, on or after , 2001 and
prior to maturity, upon not less than 30 nor more than 60 days' prior notice, at
the following Redemption Prices (expressed in percentages of principal amount),
plus accrued and unpaid interest, if any, to the Redemption Date, if redeemed
during the 12-month period commencing July of the years set forth
below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---------------------------------------------------------- ----------------
<S> <C>
2001...................................................... %
2002...................................................... %
2003...................................................... %
</TABLE>
and thereafter at 100% of the principal amount plus accrued and unpaid interest,
if any, to the Redemption Date.
In addition, in the event of the first to occur prior to , 1999,
of (i) a Public Equity Offering for gross proceeds of DM 30 million (or, if
non-Deutsche Mark denominated, the Deutsche Mark Equivalent thereof) or more or
(ii) a sale or series of related sales by the Company of its Common Stock to one
or more Strategic Equity Investors for an aggregate purchase price of DM 30
million (or, if non-Deutsche Mark denominated, the Deutsche Mark Equivalent
thereof) or more, the Company may, at its option, use all or any
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portion of the net proceeds thereof to redeem up to a maximum of 35% of the
original aggregate principal amount at maturity of the Discount Notes at a
redemption price equal to % of the Accreted Value of the Discount Notes
(determined at the Redemption Date). See definition of Accreted Value under "--
Certain Definitions." Any such redemption may only be effected once and must be
effected upon not less than 30 nor more than 60 days' notice given within 30
days following such Public Equity Offering or the most recent such sale to a
Strategic Equity Investor, as the case may be.
The determination of whether a "series of related sales" has occurred to
one or more Strategic Equity Investors that permits a redemption of the Discount
Notes under the preceding paragraph will be made by the Company. The Trustee
will become aware of any such occurrence upon receipt of the notice of
redemption. In addition, as a result of the Company's ongoing obligation to
submit compliance certificates to the Trustee, the Trustee will be kept informed
with respect to the Company's compliance with all of the covenants, conditions
and obligations in the Indenture.
Redemption for Changes in Withholding Taxes
The Discount Notes will be subject to redemption as a whole, but not in
part, at the option of the Company at any time on or after , 2001, at
100% of the aggregate principal amount at maturity thereof, together with
accrued interest thereon to the Redemption Date, if the Company has become or
would become obligated to pay, on the next date on which any amount would be
payable with respect to the Discount Notes, any Additional Amounts (as defined
below) as a result of a change in laws (including any regulations promulgated
thereunder) or in the interpretation or administration thereof, if such change
is announced and becomes effective on or after the Issue Date.
For more information concerning redemption, see "-- Redemption."
FORM OF DISCOUNT NOTES
The Discount Notes will be represented by a single global security in fully
registered form (the "Global Discount Note") and will be deposited with The Bank
of New York or any successor, as custodian for DTC. The Global Discount Note
will be registered in the name of Cede & Co., as nominee of DTC, and will
represent the Discount Notes kept in custody for DTC Participants (including
Euroclear and Cedel). Definitive certificates representing individual Discount
Notes shall not be issued except as described under "Book-Entry; Delivery and
Form."
ADDITIONAL AMOUNTS
All payments made by the Company under or with respect to the Discount
Notes will be made free and clear of and without withholding or deduction for or
on account of any present or future Taxes imposed or levied by or on behalf of
any Taxing Authority within Germany, or within any other jurisdiction in which
the Company is organized or engaged in business for tax purposes, unless the
Company is required to withhold or deduct Taxes by law or by the interpretation
or administration thereof. If the Company is required to withhold or deduct any
amount for or on account of Taxes imposed by a Taxing Authority within Germany,
or within any other jurisdiction in which the Company is organized or engaged in
business for tax purposes, from any payment made under or with respect to the
Discount Notes, the Company will pay such additional amounts ("Additional
Amounts") as may be necessary so that the net amount received by each holder of
Discount Notes (including Additional Amounts) after such withholding or
deduction will not be less than the amount the holder and beneficial owner would
have received if such Taxes had not been withheld or deducted; provided that no
Additional Amounts will be payable with respect to a payment made to a holder of
Discount Notes (an "Excluded Holder") with respect to any Tax which would not
have been imposed, payable or due: (i) but for the existence of any present or
former connection between the holder (or the beneficial owner of, or person
ultimately entitled to obtain an interest in, such Discount Notes) and Germany
or other jurisdiction in which the Company is organized or engaged in business
for tax purposes other than the holding of, or the receipt of payments under,
the Discount Notes; (ii) if the payment could have been made by or through
another paying agent without such withholding; or (iii) if the beneficial owner
of, or person ultimately entitled
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to obtain an interest in, such Discount Notes had been the holder of the
Discount Notes and would not be entitled to the payment of Additional Amounts.
In addition, Additional Amounts will not be payable with respect to any Tax
which is payable otherwise than by withholding from payments of, or in respect
of principal of, or any interest on, the Discount Notes. The Company will also
(i) make such withholding or deduction and (ii) remit the full amount deducted
or withheld to the relevant authority in accordance with applicable law. The
Company will make reasonable efforts to obtain certified copies of tax receipts
evidencing the payment of any Taxes so deducted or withheld from each Taxing
Authority imposing such Taxes. The Company will furnish to the holders of the
Discount Notes, within 60 days after the date the payment of any Taxes so
deducted or withheld is due pursuant to applicable law, either certified copies
of tax receipts evidencing such payment by the Company or, if such receipts are
not obtainable, other evidence of such payments by the Company.
At least 30 days prior to each date on which any payment under or with
respect to the Discount Notes is due and payable, if the Company will be
obligated to pay Additional Amounts with respect to such payment, the Company
will deliver to the Trustee an Officers' Certificate stating the fact that such
Additional Amounts will be payable and the amounts so payable and will set forth
such other information necessary to enable the Trustee to pay such Additional
Amounts to the holders of Discount Notes on the payment date. Whenever in the
Indenture or in this "Description of the Discount Notes" there is mentioned, in
any context, the payment of amounts based upon the principal amount or Accreted
Value of the Discount Notes or of principal, premium, if any, interest or of any
other amount payable under or with respect to any of the Discount Notes, such
mention shall be deemed to include mention of the payment of Additional Amounts
to the extent that, in such context, Additional Amounts are, were or would be
payable in respect thereof.
REDEMPTION
Optional Redemption
See "-- Terms of the Discount Notes."
Mandatory Redemption; Change of Control; Certain Asset Sales
The Company will not be required to make any mandatory redemption or
sinking fund payments in respect of the Discount Notes. However, upon the
occurrence of a Change of Control, the Company will be obligated to make an
offer to purchase all outstanding Discount Notes, (A) in the case of Discount
Notes purchased prior to , 2001, at a price of 101% of the Accreted
Value thereof (determined at the date of purchase)and (B) in the case of
Discount Notes purchased on or after , 2001, at a price of 101% of the
principal amount at maturity thereof, plus accrued and unpaid interest thereon,
if any, to the date of purchase. See definition of Accreted Value under "--
Certain Definitions." In addition, upon the occurrence of an Asset Sale, the
Company may be obligated to make an offer to purchase all or a portion of the
outstanding Discount Notes. See "-- Certain Covenants -- Limitation on Asset
Sales; Change of Control."
Within 30 days of any Change of Control Offer (as defined under "Change of
Control"), the Company must (i) repay in full all Indebtedness of the Company
that would prohibit the repurchase of the Discount Notes or (ii) obtain the
requisite consent of the holder of any such Indebtedness of the Company to
permit the repurchase of the Discount Notes. The Company is required, however,
to make a Change of Control Offer within 30 days of a Change of Control,
irrespective of whether any Indebtedness prohibiting the purchase of the
Discount Notes has been repaid or the holders thereof have given the requisite
consent. If the Company is unable to repay all of its Indebtedness that would
prohibit repurchase of the Discount Notes or is unable to obtain the consents of
the holders of Indebtedness, if any, of the Company outstanding at the time of a
Change of Control, if any, would be so required to permit the repurchase of
Discount Notes, the Company will have breached the "Change of Control" covenant
in the Indenture. Such a breach would constitute an Event of Default under the
Indenture if it continues for a period of 30 consecutive days after written
notice is given to the Company by the Trustee or the Holders of at least 25% in
aggregate principal amount of the Discount Notes outstanding. In addition, the
failure by the Company to repurchase Discount Notes at the conclusion of the
Change of Control Offer would constitute an Event of Default without any waiting
period or notice
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requirements. In the event the Change of Control provisions are triggered, an
event of default could be triggered under the other indebtedness of the Company.
For example, a Change of Control would trigger an event of default under the
terms of the Bank Facility, upon which no repayment or prepayment of any amount
owing to the Company from the Borrowers or the Guarantors (as such terms are
defined in "Description of Certain Indebtedness") would be permitted until the
Bank Facility has been repaid, prepaid or cancelled in full. Such an event of
default could preclude the flow of money from the Company's subsidiaries to the
Company and thereby prevent the Company from making any payment, including
Change of Control payments, under the terms of the Discount Notes. Furthermore,
it is possible to have a more restrictive definition of change of control in
other credit agreements of the Company. For example, an acquisition, directly or
indirectly, of more than 24.9% of the shares in Kabelmedia, by a person who is
not a shareholder of Kabelmedia at the date of closing of the Bank Facility,
would cause an event of default under the Bank Facility. See "Description of
Certain Indebtedness" and "-- Change of Control."
The Company will not, and will not permit any Restricted Subsidiary to,
make any Asset Sale unless (a) the Company or such Restricted Subsidiary, as the
case may be, receives consideration at the time of such Asset Sale at least
equal to the Fair Market Value of the shares or assets sold or otherwise
disposed of and (b) at least 80% of such consideration consists of cash or Cash
Equivalents. See "-- Certain Covenants -- Limitation on Asset Sales." To the
extent the Net Cash Proceeds of any Asset Sale are not required to be applied to
repay, and permanently reduce the commitments under, any Restricted Subsidiary
Indebtedness pursuant to the terms of the agreement or instrument under which
such Restricted Subsidiary Indebtedness was incurred, or are not so applied, the
Company or any Restricted Subsidiary may apply such Net Cash Proceeds within 365
days thereof, to an investment in properties and assets that will be used in a
Cable Business (or in Capital Stock of any Person that will become a Restricted
Subsidiary as a result of such investment if such Person's primary business
consists of a Cable Business) of the Company or any Restricted Subsidiary
("Replacement Assets"). Notwithstanding the foregoing, the Company or its
Restricted Subsidiaries may retain up to DM10 million (or, if non-Deutsche Mark
denominated, the Deutsche Mark Equivalent thereof) of Net Cash Proceeds from any
Asset Sale for any purpose. Any Net Cash Proceeds from any Asset Sale that are
neither used to repay, and permanently reduce the commitments under, any
Restricted Subsidiary Indebtedness nor invested in Replacement Assets within
such 365-day period (exclusive of up to DM10 million referred to in the
preceding sentence) shall constitute "Excess Proceeds" subject to disposition as
provided below. Within 30 days after the aggregate amount of Excess Proceeds
equals or exceeds DM20 million (or, if non-Deutsche Mark denominated, the
Deutsche Mark Equivalent thereof), the Company shall make an offer to purchase
(an "Excess Proceeds Offer") (i) from all Holders of the Discount Notes, that
aggregate principal amount of Discount Notes as can be purchased by application
of such Excess Proceeds at a price in cash equal to 100% of the Accreted Value
thereof on any purchase date prior to , 2001 or 100% of the
outstanding principal amount at maturity thereof plus accrued and unpaid
interest, if any, on any purchase date on or after , 2001. See
definition of Accreted Value under "-- Certain Definitions." See "-- Certain
Covenants -- Limitation on Asset Sales."
There can be no assurance that the Company will have the financial
resources necessary to repurchase the Discount Notes at the time of any Change
of Control or in connection with any Excess Proceeds Offer.
Selection; Effect of Redemption Notice
In the case of any partial redemption, selection of the Discount Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate; provided that no Discount Note of $1,000 in principal amount or
less shall be redeemed in part. If any Discount Note is to be redeemed in part
only, the notice of redemption relating to such Discount Note shall state the
portion of the principal amount thereof to be redeemed. A new Discount Note in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original Discount Note. Upon
giving of any redemption notice, the interest on the Discount Notes called for
redemption will cease to accrue (in the case of the Discount Notes redeemed on
or after , 2001), or the principal amount of Discount Notes called for
redemption will cease to accrete (in the case of Discount Notes redeemed prior
to , 2001) from and after the date fixed for
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redemption (unless the Company defaults in providing the funds for such
redemption) and such Discount Notes will then cease to be outstanding.
RANKING
The Indebtedness evidenced by the Discount Notes will be senior
indebtedness of the Company and will rank pari passu in right of payment with
each other and with all other unsubordinated and unsecured indebtedness of the
Company and senior in right of payment to all subordinated indebtedness of the
Company. The Discount Notes will be unsecured.
The Company is a holding company with limited assets of its own and
conducts substantially all of its business through its subsidiaries. The Company
is dependent upon access to the earnings, if any, or assets of its subsidiaries
to make any payment on the Discount Notes. The ability of the Company to access
the earnings of its subsidiaries may be limited by German law, which requires
that profits be available for the payment of dividends and under which
intercompany indebtedness incurred on terms deemed to be commercially
unreasonable may be recharacterized as quasi-equity and interest payments
thereon treated as constructive dividends subject to the requirement that such
payments be made from profits. Any right of the Company and its creditors,
including Holders of the Discount Notes, to participate in the assets of any of
the Company's subsidiaries upon any liquidation or administration of any such
subsidiary will be effectively subordinated to borrowings under the Bank
Facility and other indebtedness for money borrowed. Kabelmedia will hold
subordinated notes from certain of its subsidiaries ("Subordinated Subsidiary
Notes") in an aggregate principal amount equal to the net proceeds received by
Kabelmedia from the sale of the Discount Notes and lent to such subsidiaries.
The Subordinated Subsidiary Notes will be subordinated to indebtedness under the
Bank Facility and future indebtedness for money borrowed of such subsidiaries,
will have interest and payment terms identical to the Discount Notes and will
prohibit any pledge thereof, except to holders of Senior Indebtedness. Senior
Indebtedness is indebtedness under the Discount Notes and the Indenture, so that
any pledge of Subordinated Subsidiary Notes to holders of such indebtedness
would result in the Subordinated Subsidiary Notes and any payments of principal
or interest thereunder being available only to holders of the Discount Notes,
and not to other creditors of Kabelmedia. On a pro forma basis, after giving
effect to the Shareholder Debt Conversion, the Offering and the application of
the net proceeds thereof, as at March 31, 1996, the Company's subsidiaries would
have had DM104.8 million ($70.9 million) of outstanding indebtedness under the
Bank Facility and other indebtedness. On a pro forma basis, after giving effect
to the Shareholder Debt Conversion, the Offering and the application of the net
proceeds thereof and the Pending Acquisitions, as of March 31, 1996, the
Company's subsidiaries would have had DM161.9 million ($109.6 million) of
outstanding indebtedness under the Bank Facility and other indebtedness. The
Company and one or more of the Company's subsidiaries may incur other debt in
the future, including secured debt, which, in the case of the debt of the
Company's subsidiaries, would be effectively senior to the Discount Notes. The
provisions of certain indebtedness of the Company's subsidiaries materially
limit the payment of dividends, loans or other distributions by such
subsidiaries to the Company, provided that such payments are permitted to the
extent necessary to make interest payments on the Discount Notes for so long as
there is no event of default under such indebtedness. Accordingly, the Company's
ability to make principal payments on, or any required redemptions of, the
Discount Notes may be dependent, in part, upon the Company's ability to
refinance such indebtedness in the future, which would depend, in part, upon
factors beyond the control of the Company.
CERTAIN COVENANTS
Limitation on Indebtedness
(a) Under the terms of the Indenture, the Company will not, and will not
permit any Restricted Subsidiary to, Incur any Indebtedness (including Acquired
Indebtedness) other than the Discount Notes, Indebtedness existing on the Issue
Date, and Permitted Indebtedness; provided that the Company or a Restricted
Subsidiary may Incur Indebtedness if, after giving effect to the Incurrence of
such Indebtedness and the receipt and application of the proceeds therefrom, the
ratio of Total Consolidated Indebtedness to Annualized Pro Forma Consolidated
Operating Cash Flow would be less than or equal to 8.0 to 1.0.
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(b) For purposes of determining any particular amount of Indebtedness under
this "Limitation on Indebtedness" covenant, Guarantees, Liens or obligations
with respect to letters of credit supporting Indebtedness otherwise included in
the determination of such particular amount shall not be included. For purposes
of determining compliance with this "Limitation on Indebtedness" covenant, (A)
in the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness provided for in paragraph (a) or described in the
definition of Permitted Indebtedness, the Company shall classify such item of
Indebtedness and only be required to include the amount and type of such
Indebtedness in paragraph (a) or in one of the clauses in the definition of
Permitted Indebtedness and (B) the amount of Indebtedness issued at a price that
is less than the principal amount thereof shall be equal to the amount of the
liability in respect thereof determined in conformity with GAAP.
Limitation on Restricted Payments
The Indenture will provide that the Company will not, and will not permit
any of the Restricted Subsidiaries to, make, directly or indirectly, any
Restricted Payment unless:
(i) no Default shall have occurred and be continuing at the time of or
after giving effect to such Restricted Payment;
(ii) immediately after giving effect to such Restricted Payment, the
Company would be able to incur DM1.00 of Indebtedness under the proviso in
paragraph (a) of the covenant "Limitation on Indebtedness"; and
(iii) immediately after giving effect to such Restricted Payment, the
aggregate amount of all Restricted Payments declared or made on or after
the Issue Date does not exceed an amount equal to the sum of (a) the
difference between (x) the Cumulative Available Cash Flow determined at the
time of such Restricted Payment and (y) 150% of the cumulative Consolidated
Interest Expense of the Company determined for the period commencing on the
Issue Date and ending on the last day of the latest fiscal quarter for
which consolidated financial statements of the Company are available
preceding the date of such Restricted Payment, plus (b) the aggregate net
cash proceeds received by the Company either (x) as capital contributions
to the Company after the Issue Date or (y) from the issue or sale (other
than to a Subsidiary of the Company) of its Capital Stock (other than
Disqualified Stock) on or after the Issue Date, plus (c) the aggregate net
proceeds received by the Company from the issuance (other than to a
Subsidiary of the Company) after the Issue Date of its Capital Stock (other
than Disqualified Stock) upon the conversion of, or exchange for,
Indebtedness of the Company, plus (d) in the case of the repayment of any
Investment constituting a Restricted Payment made after the Issue Date, an
amount equal to the lesser of the return of capital with respect to such
Investment and the cost of such Investment, in either case less the cost of
the disposition of such Investment. For purposes of the preceding clauses
(b)(y) and (c), the value of the aggregate net proceeds received by the
Company upon the issuance of Capital Stock either upon the conversion of
convertible Indebtedness or in exchange for outstanding Indebtedness or
upon the exercise of options, warrants or rights will be the net cash
proceeds received upon the issuance of such Indebtedness, options, warrants
or rights plus the incremental amount received by the Company upon the
conversion, exchange or exercise thereof.
For purposes of determining the amount expended for Restricted Payments, cash
distributed shall be valued at the face amount thereof and property other than
cash shall be valued at its Fair Market Value.
The foregoing provision shall not be violated by reason of: (i) the payment
of any dividend within 60 days after the date of declaration thereof if, at said
date of declaration, such payment would comply with the foregoing paragraph;
(ii) the redemption, repurchase, defeasance or other acquisition or retirement
for value of Indebtedness that is subordinated in right of payment to the
Discount Notes including premium, if any, and accrued and unpaid interest, with
the proceeds of, or in exchange or conversion for, (A) shares of Capital Stock
(other than Disqualified Stock) of the Company or (B) Indebtedness Incurred
under clause (i) of the definition of Permitted Indebtedness; (iii) the
repurchase, redemption or other acquisition of Capital Stock of the Company in
exchange for, or out of the proceeds of a substantially concurrent offering of,
shares of Capital
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Stock (other than Disqualified Stock) of the Company; (iv) payments or
distributions pursuant to or in connection with a consolidation, merger or
transfer of assets that complies with the provisions of the Indenture applicable
to mergers, consolidations and transfers of all or substantially all of the
property and assets of the Company; (v) the extension by the Company or any
Restricted Subsidiary of trade credit to Unrestricted Subsidiaries, represented
by accounts receivable, extended on usual and customary terms in the ordinary
course of business; (vi) advances by the Company or any Restricted Subsidiary to
fund the working capital or network construction requirements or to refinance
Indebtedness of Unrestricted Subsidiaries in an aggregate amount not to exceed
DM10 million (or, if non-Deutsche Mark denominated, the Deutsche Mark Equivalent
thereof) at any time outstanding; (vii) Investments in Unrestricted Subsidiaries
promptly made with the proceeds of a substantially concurrent (1) capital
contribution to the Company or (2) issue or sale of Capital Stock (other than
Disqualified Stock) of the Company; and (viii) Investments of any Person
acquired by the Company or by any Restricted Subsidiary, which Investments were
existing at the time of such acquisition; provided that, except in the case of
clauses (i), (iii) and (v), no Default shall have occurred and be continuing or
occur as a consequence of the actions or payments set forth therein.
In determining the amount of Restricted Payments permissible under this
covenant, amounts expended pursuant to clauses (i), (ii)(A), (iii), (iv), (v),
(vi) or (vii) of the foregoing paragraph shall be included as Restricted
Payments.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries
So long as any of the Discount Notes are outstanding, the Company will not,
and will not permit any Restricted Subsidiary to, create or otherwise cause or
suffer to exist or become effective any consensual encumbrance or consensual
restriction of any kind on the ability of any Restricted Subsidiary to (i) pay
dividends or make any other distributions permitted by applicable law on any
Capital Stock of such Restricted Subsidiary owned by the Company or any other
Restricted Subsidiary, (ii) pay any Indebtedness owed to the Company or any
other Restricted Subsidiary, (iii) make loans or advances to the Company or any
other Restricted Subsidiary or (iv) transfer any of its property or assets to
the Company or any other Restricted Subsidiary.
The foregoing provisions shall not restrict (A) in the case of clause (i),
(ii), (iii) or (iv), any such encumbrance or restriction (I) existing on the
Issue Date, including those provided for in the Indenture; (II) applicable to a
Restricted Subsidiary which encumbrance or restriction is contained in an
agreement or instrument governing or relating to Indebtedness (an "Indebtedness
Instrument") provided that, in the case of this clause (II) such encumbrance or
restriction applies only to amounts which (x) at any point in time other than
during such periods as are described in the following clause (y)(1) are in
excess of interest and, at stated maturity, principal (after giving effect to
any realization by the Company under any applicable Currency Agreement) due and
payable (or which are to become due and payable within 30 days) in respect of
the Discount Notes or the Indenture or are either in excess of the amount
permitted by, or in an amount that would be prohibited as a result of, financial
covenants contained in such Indebtedness Instrument, or (2) if paid, would
result in an event described in the following clause (y) of this sentence,
and/or (y) during the pendency of any event that causes, permits or, after
notice and/or lapse of time, would cause or permit the holder(s) of the
Indebtedness governed by the Indebtedness Instrument to declare any such
Indebtedness to be immediately due and payable and/or require cash
collateralization or cash cover for such Indebtedness for so long as such cash
collateralization or cash cover has not been provided; (III) existing under or
by reason of applicable law; (IV) existing with respect to any Person or the
property or assets of such Person acquired by the Company or any Restricted
Subsidiary and existing at the time of such acquisition, which encumbrance or
restriction is not applicable to any Person or the property or assets of any
Person other than such Person or the property or assets of such Person so
acquired; or (V) with respect to a Restricted Subsidiary and imposed pursuant to
an agreement that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock of, or property and assets of, such
Restricted Subsidiary; or (B), in the case of clause (iv) only, any such
encumbrance or restriction (I) that restricts in a customary manner the
subletting, assignment or transfer or any property or asset that is a lease,
license, conveyance or contract or similar property or asset; (II) existing by
virtue of any transfer of, agreement to transfer, option or right with respect
to, or Lien on, any
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property or assets of the Company or any Restricted Subsidiary not otherwise
prohibited by the Indenture; or (III) arising or agreed to in the ordinary
course of business, not relating to any Indebtedness, and that does not
individually, or together with all such encumbrances or restrictions, detract
from the value of property or assets of the Company or any Restricted Subsidiary
in any manner material to the Company or Restricted Subsidiary. Nothing
contained in this "Limitation on Dividends and Other Payment Restrictions
Affecting Restricted Subsidiaries" covenant shall prevent the Company or any
Restricted Subsidiary from (1) creating, incurring, assuming or suffering to
exist any Liens otherwise permitted in the "Limitation on Liens Securing Certain
Indebtedness" covenant or (2) restricting the sale or other disposition of
property or assets of the Company or any of its Restricted Subsidiaries that
secure Indebtedness of the Company or any of its Restricted Subsidiaries.
Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries
Under the terms of the Indenture, the Company will not sell, and will not
permit any Restricted Subsidiary, directly or indirectly, to issue or sell, any
shares of Capital Stock of a Restricted Subsidiary (including options, warrants
or other rights to purchase shares of such Capital Stock) except (i) to the
Company or a Wholly-Owned Restricted Subsidiary, (ii) if, immediately after
giving effect to such issuance or sale, such Restricted Subsidiary would no
longer constitute a Restricted Subsidiary, or (iii) in the case of issuances of
Capital Stock by a non-Wholly-Owned Restricted Subsidiary if, after giving
effect to such issuance, the Company maintains its percentage ownership of such
non-Wholly-Owned Restricted Subsidiary.
Limitation on Issuances of Guarantees by Restricted Subsidiaries
The Company will not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee any Indebtedness of the Company ("Guaranteed
Indebtedness"), unless (i) such Restricted Subsidiary simultaneously executes
and delivers a supplemental indenture to the Indenture providing for a Guarantee
(a "Subsidiary Guarantee") of payment of the Discount Notes issued under the
Indenture by such Restricted Subsidiary and (ii) such Restricted Subsidiary
waives and will not in any manner whatsoever claim or take the benefit or
advantage of, any rights of reimbursement, indemnity or subrogation or any other
rights against the Company or any other Restricted Subsidiary as a result of any
payment by such Restricted Subsidiary under its Subsidiary Guarantee; provided
that this paragraph shall not be applicable to any Guarantee of any Restricted
Subsidiary that (x) existed at the time such Person became a Restricted
Subsidiary and (y) was not Incurred in connection with, or in contemplation of,
such Person becoming a Restricted Subsidiary. If the Guaranteed Indebtedness is
(A) pari passu with the Discount Notes, then the Guarantee of such Guaranteed
Indebtedness shall be pari passu with, or subordinated to, the Subsidiary
Guarantee or (B) subordinated to the Discount Notes, then the Guarantee of such
Guaranteed Indebtedness shall be subordinated to the Subsidiary Guarantee at
least to the extent that the Guaranteed Indebtedness is subordinated to the
Discount Notes.
Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary shall provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or transfer,
to any Person not an Affiliate of the Company, of all of the Company's and each
Restricted Subsidiary's Capital Stock in, or all or substantially all the assets
of, such Restricted Subsidiary (which sale, exchange or transfer is not
prohibited by the Indenture) or (ii) the release or discharge of the Guarantee
which resulted in the creation of such Subsidiary Guarantee, except a discharge
or release by or as a result of payment under such Guarantee.
Limitation on Transactions with Shareholders and Affiliates
Under the terms of the Indenture, the Company will not, and will not permit
any Restricted Subsidiary to, directly or indirectly, enter into, renew or
extend any transaction (including, without limitation, the purchase, sale, lease
or exchange of property or assets, or the rendering of any service) with any
holder (or any Affiliate of such holder) of 5% or more of the Capital Stock of
the Company or with any Affiliate of the Company or any Restricted Subsidiary
(together, "Related Persons"), except upon fair and reasonable terms to the
Company or such Restricted Subsidiary. Specifically, the Company will not, and
will not permit any
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Restricted Subsidiary to, (x) provide credit support for, or a Guarantee of, any
Indebtedness of any Unrestricted Subsidiary (including any agreement,
undertaking or instrument evidencing such Indebtedness), provided that the
Company or any Restricted Subsidiary may pledge Capital Stock or Indebtedness of
any Unrestricted Subsidiary on a nonrecourse basis such that the pledgee has no
claim whatsoever against the Company or any Restricted Subsidiary other than to
obtain such pledged property, (y) be directly or indirectly liable for any
Indebtedness of any Unrestricted Subsidiary or (z) be directly or indirectly
liable for any Indebtedness which provides that the holder thereof may (upon
notice, lapse of time or both) declare a default thereon or cause the payment
thereof to be accelerated or payable prior to its final scheduled maturity upon
the occurrence of a default with respect to any Indebtedness of any Unrestricted
Subsidiary (including any right to take enforcement action against such
Unrestricted Subsidiary), except in the case of clause (x), (y) or (z) to the
extent permitted under the covenant "Limitation on Indebtedness" and, in the
case of clause (x) or (y), to the extent permitted under the covenant
"Limitation on Restricted Payments."
The foregoing limitation does not limit, and shall not apply to (i) any
transaction between the Company and any of its Restricted Subsidiaries or
between Restricted Subsidiaries; (ii) the payment of reasonable and customary
regular fees to members of the Executive Committee of the Company who are not
employees of the Company; (iii) any payments or other transactions pursuant to
any tax-sharing agreement between the Company and any other Person with which
the Company files a consolidated tax return or with which the Company is part of
a consolidated group for tax purposes; (iv) any Restricted Payments not
prohibited by the "Limitation on Restricted Payments" covenant; (v) any
transaction pursuant to an agreement in effect on the Issue Date; or (vi) any
transaction in the ordinary course of business between the Company or any
Restricted Subsidiary and any Affiliate thereof engaged in the Cable Business.
The foregoing limitation also does not limit, and shall not apply to,
transactions (A) approved by a majority of the disinterested members of the
Executive Committee or (B) for which the Company or a Restricted Subsidiary
delivers to the Trustee a written opinion of an Independent Financial Advisor,
stating that the transaction is fair to the Company or such Restricted
Subsidiary from a financial point of view.
Any transaction (or series of related transactions) with a Related Person
(other than those transactions set forth in clauses (i) through (vi) of the
immediately preceding paragraph and any payments of interest or principal to
CIBL or Chase Manhattan Bank AG under the Bank Facility) in which any Person
receives in excess of DM5 million in any fiscal year shall be approved by a
majority of the disinterested members of the Executive Committee of the Company
or in the absence of such a body, a majority of the disinterested shareholders
of the Company. Any transaction (or series of related transactions) with a
Related Person involving in excess of DM10 million, or as to which there are no
disinterested Executive Committee members, is subject to the further requirement
that the Company obtain an opinion of an Independent Financial Advisor with
experience in appraising the terms and conditions of the relevant type of
transactions (or series of related transactions) stating that the transaction
(or series of related transactions) is fair, from a financial point of view, to
the Company or such Restricted Subsidiary.
Limitation on Liens Securing Certain Indebtedness
Under the terms of the Indenture, the Company will not, and will not permit
any Restricted Subsidiary to, create, incur, assume or suffer to exist any Liens
of any kind against or upon any of its property or assets (including any pledge
of the Subordinated Subsidiary Notes, except to holders of Senior Indebtedness),
or any proceeds therefrom, which secure either (x) Subordinated Indebtedness
unless the Discount Notes are secured by a Lien on such property, assets or
proceeds that is senior in priority to the Liens securing such Subordinated
Indebtedness or (y) Pari Passu Indebtedness, unless the Discount Notes are
equally and ratably secured with the Liens securing such Pari Passu
Indebtedness.
Limitation on Asset Sales
The Company will not, and will not permit any Restricted Subsidiary to,
make any Asset Sale unless (a) the Company or such Restricted Subsidiary, as the
case may be, receives consideration at the time of such Asset Sale at least
equal to the Fair Market Value of the shares or assets sold or otherwise
disposed of and (b) at least 80% of such consideration consists of cash or Cash
Equivalents. To the extent the Net Cash
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Proceeds of any Asset Sale are not required to be applied to repay, and
permanently reduce the commitments under, any Restricted Subsidiary Indebtedness
pursuant to the terms of the agreement or instrument under which such Restricted
Subsidiary Indebtedness was incurred, or are not so applied, the Company or any
Restricted Subsidiary may apply such Net Cash Proceeds within 365 days thereof,
to an investment in properties and assets that will be used in a Cable Business
(or in Capital Stock of any Person that will become a Restricted Subsidiary as a
result of such investment if such Person's primary business consists of a Cable
Business) of the Company or any Restricted Subsidiary ("Replacement Assets").
Notwithstanding the foregoing, the Company or its Restricted Subsidiaries may
retain up to DM10 million (or, if non-Deutsche Mark denominated, the Deutsche
Mark Equivalent thereof) of Net Cash Proceeds from any Asset Sale for any
purpose. Any Net Cash Proceeds from any Asset Sale that are neither used to
repay, and permanently reduce the commitments under, any Restricted Subsidiary
Indebtedness nor invested in Replacement Assets within such 365-day period
(exclusive of the up to DM10 million referred to in the preceding sentence)
shall constitute "Excess Proceeds" subject to disposition as provided below.
Within 30 days after the aggregate amount of Excess Proceeds equals or
exceeds DM20 million (or, if non-Deutsche Mark denominated, the Deutsche Mark
Equivalent thereof), the Company shall make an offer to purchase (an "Excess
Proceeds Offer"), from all Holders of the Discount Notes, that aggregate
principal amount of Discount Notes as can be purchased by application of such
Excess Proceeds at a price in cash equal to 100% of the Accreted Value thereof
on any purchase date prior to , 2001 or 100% of the outstanding
principal amount at maturity thereof, plus accrued and unpaid interest, if any,
to any purchase date on or after , 2001. Each Excess Proceeds Offer
shall remain open for a period of 20 Business Days or such longer period as may
be required by law. To the extent that the aggregate of the Accreted Value (if
applicable) and principal and accrued interest, as the case may be, of Discount
Notes validly tendered and not withdrawn pursuant to an Excess Proceeds Offer is
less than the Excess Proceeds, the Company may use such surplus for general
corporate purposes. If the aggregate of the Accreted Value or principal and
accrued interest (as appropriate) of the Discount Notes validly tendered and not
withdrawn by Holders thereof exceeds the amount of Discount Notes which can be
purchased with the Excess Proceeds, Discount Notes to be purchased will be
selected on a pro rata basis among Holders of Discount Notes. Upon completion of
such Excess Proceeds Offer, the amount of Excess Proceeds shall be reset to
zero.
Notwithstanding the two immediately preceding paragraphs, the Company and
the Restricted Subsidiaries will be permitted to consummate an Asset Sale
without compliance with the two immediately preceding paragraphs to the extent
(i) at least 80% of the consideration for such Asset Sale constitutes
Replacement Assets and (ii) such Asset Sale is for Fair Market Value; provided
that any consideration not constituting Replacement Assets received by the
Company or any of the Restricted Subsidiaries in connection with any Asset Sale
permitted to be consummated under this paragraph shall constitute Net Cash
Proceeds subject to the provisions of the two preceding paragraphs.
The Company shall commence an Excess Proceeds Offer by mailing a notice to
the Trustee and each Holder stating: (i) that the Excess Proceeds Offer is being
made pursuant to this "Limitation on Asset Sales" covenant and that all Discount
Notes validly tendered will be accepted for payment on a pro rata basis among
Holders of Discount Notes; (ii) the purchase price and the date of purchase
(which shall be a Business Day no earlier than 30 days nor later than 60 days
from the date such notice is mailed) (the "Excess Proceeds Payment Date"); (iii)
that any Discount Note not tendered will continue to accrete or accrue interest,
as the case may be, pursuant to its terms; (iv) that, unless the Company
defaults in the payment of the Excess Proceeds Payment, any Discount Note
accepted for payment pursuant to the Excess Proceeds Offer shall cease to
accrete or accrue interest, as the case may be, on and after the Excess Proceeds
Payment Date; (v) that Holders electing to have a Discount Note purchased
pursuant to the Excess Proceeds Offer will be required to surrender the Discount
Note, together with the form entitled "Option of the Holder to Elect Purchase"
on the reverse side of the Discount Note completed, to the Paying Agent at the
address specified in the notice prior to the close of business on the Business
Day immediately preceding the Excess Proceeds Payment Date; (vi) that Holders
will be entitled to withdraw their election if the Paying Agent receives, not
later than the close of business on the third Business Day immediately preceding
the Excess Proceeds Payment Date, a telegram, facsimile transmission or letter
setting forth the name of such Holder, the principal
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amount of Discount Notes delivered for purchase and a statement that such Holder
is withdrawing his election to have such Discount Notes purchased; and (vii)
that Holders whose Discount Notes are being purchased only in part will be
issued new Discount Notes equal in principal amount to the unpurchased portion
of the Discount Notes surrendered; provided that each Discount Note purchased
and each new Discount Note issued shall be in a principal amount of $1,000 or
integral multiples thereof.
On the Excess Proceeds Payment Date, the Company shall (i) accept for
payment on a pro rata basis Discount Notes or portions thereof tendered pursuant
to the Excess Proceeds Offer; (ii) deposit with the Paying Agent money
sufficient to pay the purchase price of all Discount Notes or portions thereof
so accepted; and (iii) deliver, or cause to be delivered, to the Trustee all
Discount Notes or portions thereof so accepted together with an Officers'
Certificate specifying the Discount Notes or portions thereof accepted for
payment by the Company. The Paying Agent shall promptly mail to the Holders of
Discount Notes so accepted payment in an amount equal to the purchase price, and
the Trustee shall promptly authenticate and mail to such Holders a new Discount
Note equal in principal amount to any unpurchased portion of the Discount Note
surrendered; provided that each Discount Note purchased and each new Discount
Note issued shall be in a principal amount of $1,000 or integral multiples
thereof. The Company will publicly announce the results of the Excess Proceeds
Offer as soon as practicable after the Excess Proceeds Payment Date. For
purposes of this "Limitation On Asset Sales" covenant, the Trustee shall act as
the Paying Agent.
If the Company is required to make an Excess Proceeds Offer, the Company
will comply with all applicable tender offer rules, including, to the extent
applicable, Section 14(e) and Rule 14e-1 under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and any other applicable securities laws
and regulations.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder shall have the
right to require the repurchase of its Discount Notes by the Company in cash
pursuant to the offer described below (the "Change of Control Offer") at a
purchase price equal to 101% of the Accreted Value thereof (determined at the
date of purchase) if such purchase is prior to , 2001, or 101% of the
principal amount at maturity thereof, plus accrued and unpaid interest thereon,
if any, to the date of purchase if such purchase is on or after , 2001
(the "Change of Control Payment"). The Company is not required to make a Change
of Control Offer following a Change of Control if a third party makes a Change
of Control Offer that would be in compliance with the provisions described in
this section if it were made by the Company and purchases the Discount Notes
validly tendered and not withdrawn. Prior to the mailing of the notice to
Holders provided for in the succeeding paragraph, but in any event within 30
days following any Change of Control, the Company covenants to (i) repay in full
all Indebtedness of the Company that would prohibit the repurchase of the
Discount Notes as provided for in the succeeding paragraph or (ii) obtain any
requisite consents under instruments governing any such Indebtedness of the
Company to permit the repurchase of the Discount Notes as provided for in the
succeeding paragraph. The Company shall first comply with the covenant in the
preceding sentence before it shall be required to repurchase Discount Notes
pursuant to this "Change of Control" covenant. The Company is required, however,
to make a Change of Control Offer within 30 days of a Change of Control,
irrespective of whether any Indebtedness prohibiting the purchase of the
Discount Notes has been repaid or the holders thereof have given the requisite
consent.
Within 30 days following the Change of Control, the Company shall mail a
notice to the Trustee and each Holder stating: (i) that a Change of Control has
occurred, that the Change of Control Offer is being made pursuant to this
"Change of Control" covenant and that all Discount Notes validly tendered will
be accepted for payment; (ii) the purchase price and the date of purchase (which
shall be a Business Day no earlier than 30 days nor later than 60 days from the
date such notice is mailed) (the "Change of Control Payment Date"); (iii) that
any Discount Note not tendered will continue to accrete or accrue interest, as
the case may be, pursuant to its terms; (iv) that, unless the Company defaults
in the payment of the Change of Control Payment, any Discount Note accepted for
payment pursuant to the Change of Control Offer shall cease to accrete or accrue
interest, as the case may be, on and after the Change of Control Payment Date;
(v) that Holders electing to have any Discount Note or portion thereof purchased
pursuant to the Change of
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Control Offer will be required to surrender such Discount Note, together with
the form entitled "Option of the Holder to Elect Purchase" on the reverse side
of such Discount Note completed, to the Paying Agent at the address specified in
the notice prior to the close of business on the Business Day immediately
preceding the Change of Control Payment Date; (vi) that Holders will be entitled
to withdraw their election if the Paying Agent receives, not later than the
close of business on the third Business Day immediately preceding the Change of
Control Payment Date, a telegram, telex, facsimile transmission or letter
setting forth the name of such Holder, the principal amount of Discount Notes
delivered for purchase and a statement that such Holder is withdrawing his
election to have such Discount Notes purchased; and (vii) that Holders whose
Discount Notes are being purchased only in part will be issued new Discount
Notes equal in principal amount to the unpurchased portion of the Discount Notes
surrendered; provided that each Discount Note purchased and each new Discount
Note issued shall be in a principal amount of $1,000 or integral multiples
thereof.
On the Change of Control Payment Date, the Company shall: (i) accept for
payment Discount Notes or portions thereof tendered pursuant to the Change of
Control Offer; (ii) deposit with the Paying Agent money sufficient to pay the
purchase price of all Discount Notes or portions thereof so accepted; and (iii)
deliver, or cause to be delivered, to the Trustee, all Discount Notes or
portions thereof so accepted together with an Officers' Certificate specifying
the Discount Notes or portions thereof accepted for payment by the Company. The
Paying Agent shall promptly mail, to the Holders of Discount Notes so accepted,
payment in an amount equal to the purchase price, and the Trustee shall promptly
authenticate and mail to such Holders a new Discount Note equal in principal
amount to any unpurchased portion of the Discount Notes surrendered; provided
that each Discount Note purchased and each new Discount Note issued shall be in
a principal amount of $1,000 or integral multiples thereof. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date. For purposes of this
"Change of Control" covenant, the Trustee shall act as Paying Agent.
The Company will comply with Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in the event that a Change of Control occurs and the
Company is required to repurchase the Discount Notes under this "Change of
Control" covenant.
If the Company is unable to repay all of its Indebtedness that would
prohibit repurchase of the Discount Notes or is unable to obtain the consents of
the holders of Indebtedness, if any, of the Company outstanding at the time of a
Change of Control whose consent would be so required to permit the repurchase of
Discount Notes, then the Company will have breached this "Change of Control"
covenant. This breach will constitute an Event of Default under the Indenture if
it continues for a period of 30 consecutive days after written notice is given
to the Company by the Trustee or the Holders of at least 25% in aggregate
principal amount of the Discount Notes outstanding. In addition, the failure by
the Company to repurchase Discount Notes at the conclusion of the Change of
Control Offer will constitute an Event of Default without any waiting period or
notice requirements.
There can be no assurances that the Company will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of Discount Notes) required by the foregoing covenant (as
well as may be contained in other securities of the Company which might be
outstanding at the time). The above covenant requiring the Company to repurchase
the Discount Notes will, unless the consents referred to above are obtained,
require the Company to repay all Indebtedness then outstanding which by its
terms would prohibit such Discount Note repurchase, either prior to or
concurrently with such Discount Note repurchase.
SEC REPORTS AND REPORTS TO HOLDERS
The Company shall deliver to the Trustee and to the Holders, within 30 days
after it files them with the Securities and Exchange Commission (the
"Commission"), copies of its annual and quarterly reports which the Company is
required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act. Notwithstanding that the Company may not be required to remain
subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act
or otherwise report on an annual and quarterly basis on forms
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provided for such annual and quarterly reporting pursuant to rules and
regulations promulgated by the Commission, the Indenture requires the Company to
continue to file with the Commission and provide to the Trustee and to the
Holders annual audited financial statements and quarterly unaudited financial
statements, along in each case with a management's discussion and analysis
thereof, all in the form the Company would be required to file were it subject
to such reporting requirements. The Company shall not be obligated to file any
such reports with the Commission if the Commission does not permit such filings.
EVENTS OF DEFAULT
The following events will be defined as "Events of Default" in the
Indenture: (a) default in the payment of principal of or premium on any Discount
Note when the same becomes due and payable at maturity, upon acceleration,
redemption or otherwise; (b) default in the payment of interest or Additional
Amounts on any Discount Note when the same becomes due and payable, and such
default continues for a period of 30 days; (c) failure to perform or comply with
the provisions described under "-- Consolidation, Merger and Sale of Assets";
(d) the Company fails to repurchase Discount Notes at the conclusion of the
Change of Control Offer or Excess Proceeds Offer referred to under "-- Change of
Control" or "-- Limitation on Asset Sales" above; (e) the Company defaults in
the performance of or breaches any other covenant or agreement of the Company in
the Indenture or under the Discount Notes and such default or breach continues
for a period of 30 consecutive days after written notice by the Trustee or the
Holders of 25% or more in aggregate principal amount of the Discount Notes
outstanding; (f) there occurs with respect to any issue or issues of
Indebtedness of the Company or any Significant Subsidiary having an outstanding
principal amount of DM10 million or more in the aggregate for all such issues of
all such Persons, whether such Indebtedness now exists or shall hereafter be
created, (I) an event of default that has caused the holders thereof to declare
such Indebtedness to be due and payable prior to its Stated Maturity and such
Indebtedness has not been discharged in full or such acceleration has not been
rescinded or annulled within 30 days following such acceleration and/or (II) the
failure to make a principal payment at the final (but not any interim) fixed
maturity and such defaulted payment shall not have been made, waived or extended
within 30 days of such payment default; (g) any final judgment or order for the
payment of money in excess of DM10 million in the aggregate for all such final
judgments or orders against all such Persons shall be rendered against the
Company or any Significant Subsidiary and shall not be paid or discharged, and
there shall be any period of 60 consecutive days following entry of the final
judgment or order that causes the aggregate amount for all such final judgments
or orders outstanding and not paid or discharged against all such Persons to
exceed DM10 million during which a stay of enforcement of such final judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect; and
(h) certain events of bankruptcy, insolvency, reorganization or administration
affecting the Company or any Significant Subsidiary.
If an Event of Default (other than an Event of Default specified in clause
(h) above that occurs with respect to the Company) occurs and is continuing
under the Indenture, the Trustee thereto or the Holders of at least 25% in
aggregate principal amount then outstanding of the Discount Notes, by written
notice to the Company (and to the Trustee if such notice is given by the Holders
(the "Acceleration Notice")), may, and the Trustee at the request of such
Holders shall, declare the Discount Notes to be immediately due and payable at
100% of the Accreted Value thereof (determined at the date of such declaration)
if such declaration is prior to , 2001, or 100% of the principal
amount at maturity thereof, plus accrued and unpaid interest thereon, if any, to
the date of such declaration, if such declaration is on or after ,
2001. Upon a declaration of acceleration, such principal of, premium, if any,
and accrued interest shall be immediately due and payable. In the event of a
declaration of acceleration because an Event of Default set forth in clause (f)
above has occurred and is continuing, such declaration of acceleration shall be
automatically rescinded and annulled if the event of default triggering such
Event of Default pursuant to clause (f) shall be remedied or cured by the
Company and/or the relevant Significant Subsidiaries or waived by the holders of
the relevant Indebtedness within 60 days after the declaration of acceleration
with respect thereto. If an Event of Default specified in clause (h) above
occurs with respect to the Company, the Discount Notes then outstanding shall
ipso facto become and be immediately due and payable at 100% of the Accreted
Value thereof at the date of such Event of Default, if such date is prior to
, 2001, or at 100% of the outstanding principal amount at maturity
thereof, plus accrued and unpaid interest, if any, to the date of such
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Event of Default, if such date is on or after , 2001, in each case
without any declaration or other act on the part of the Trustee or any Holder.
The Holders of at least a majority in principal amount of the outstanding
Discount Notes, by written notice to the Company and to the Trustee, may waive
all past defaults and rescind and annul a declaration of acceleration and its
consequences if, in addition to certain other covenants, (i) all existing Events
of Default, other than the nonpayment of the principal of, premium, if any, and
interest on such Discount Notes that have become due solely by such declaration
of acceleration, have been cured or waived and (ii) the rescission would not
conflict with any judgment, decree or order of a court of competent
jurisdiction. The Holders of at least a majority in aggregate principal amount
of the outstanding Discount Notes, by notice to the Trustee, may waive an
existing Default or Event of Default and the consequences under the relevant
Indenture, except a Default in the principal of, premium, if any, or interest on
the Discount Notes or in respect of a covenant or provision of the Indenture
that cannot be modified or amended without the consent of the Holder of each
outstanding Discount Note affected.
The Holders of at least a majority in aggregate principal amount of the
outstanding Discount Notes may direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or exercising any trust
or power conferred on the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or the Indenture, that may involve the Trustee
in personal liability, or that the Trustee determines in good faith may be
unduly prejudicial to the rights of Holders of Discount Notes, not joining in
the giving of such direction and may take any other action it deems proper that
is not inconsistent with any such direction received from Holders of Discount
Notes. A Holder may not pursue any remedy with respect to the Indenture or the
Discount Notes unless: (i) the Holder gives the Trustee written notice of a
continuing Event of Default; (ii) the Holders of at least 25% in aggregate
principal amount at maturity of outstanding Discount Notes make a written
request to the Trustee to pursue the remedy; (iii) such Holder or Holders offer
the Trustee indemnity satisfactory to the Trustee against any costs, liability
or expense; (iv) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer of indemnity; and (v) during such
60-day period, the Holders of a majority in aggregate principal amount of the
outstanding Discount Notes do not give the Trustee a direction that is
inconsistent with the request. However, such limitations do not apply to the
right of any Holder of a Discount Note to receive payment of the principal of,
premium, if any, or interest on, such Discount Note or to bring suit for the
enforcement of any such payment, on or after the due date expressed in the
Discount Notes, which right shall not be impaired or affected without the
consent of such Holder.
The Indenture will require certain officers of the Company to certify, on
or before a date not more than 90 days after the end of each fiscal year, that a
review has been conducted of the activities of the Company and its Restricted
Subsidiaries, and of the Company's and its Restricted Subsidiaries' performance
under the Indenture, and that the Company has, to the best of their knowledge,
fulfilled all obligations under the Indenture, or, if there has been a default
in the fulfilment of any such obligation, specifying each such default and the
nature and status thereof. The Company will also be obligated to notify the
Trustee of any default or defaults in the performance of any covenants or
agreements under the Indenture.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company shall not consolidate with, merge with or into, or sell,
convey, transfer, lease or otherwise dispose of all or substantially all of its
property and assets (as an entirety or substantially an entirety in one
transaction or a series of related transactions) to, any Person (other than a
consolidation or merger with or into a Wholly-Owned Restricted Subsidiary with a
positive net worth; provided that, in connection with any such merger or
consolidation, no consideration (other than Common Stock in the surviving Person
or the Company) shall be issued or distributed to the stockholders of the
Company) or permit any Person to merge with or into the Company unless: (i) the
Company shall be the continuing Person, or the Person (if other than the
Company) formed by such consolidation or into which the Company is merged or
that acquired or leased such property and assets of the Company shall be a
corporation organized and validly existing under the laws of the United States
or of any country that is a member of the European Union and shall expressly
assume, by a supplemental indenture, executed and delivered to the Trustee, all
of the obligations of the Company under the Indenture; (ii) immediately after
giving effect to such transaction, no Default or Event of Default shall
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have occurred and be continuing; (iii) immediately after giving effect to such
transaction on a pro forma basis the Company, or any Person becoming the
successor obligor of the Discount Notes, as the case may be, could Incur at
least DM1.00 of Indebtedness under the proviso in paragraph (a) of the
"Limitation on Indebtedness" covenant; and (iv) the Company delivers to the
Trustee an Officers' Certificate (attaching the arithmetic computations to
demonstrate compliance with clause (iii)) and Opinion of Counsel, in each case
stating that such consolidation, merger or transfer and such supplemental
indenture complies with this provision and that all conditions precedent
provided for herein relating to such transaction have been complied with.
DEFEASANCE
The Indenture will provide that (A) if applicable, the Company will be
discharged from any and all obligations in respect of all outstanding Discount
Notes other than certain obligations of the Company to transfer the Discount
Notes, or (B) if applicable, the Company may omit to comply with certain
restrictive covenants, and certain events will cease to be Events of Default
under the Indenture and the Discount Notes, in either case (A) or (B), upon
irrevocable deposit by the Company with the Trustee, in trust, of money and/or
U.S. Government Obligations which will provide money in an amount sufficient to
pay the principal of and each installment of interest, if any, on the
outstanding Discount Notes. With respect to Clause (B), the obligations under
the Indenture other than with respect to certain covenants and Events of Default
will remain in full force and effect. Such trust may only be established if,
among other things, (i) with respect to Clause (A), the Company has received
from, or there has been published by, the Internal Revenue Service a ruling or
there has been a change in law, which, in the opinion of counsel provides that
holders of the Discount Notes will not recognize income, gain or loss for U S.
federal income tax purposes as a result of such deposit, defeasance and
discharge and will be subject to U.S. federal income tax on the same amount, in
the same manner and at the same times as would have been the case if such
deposit, defeasance and discharge had not occurred; or, with respect to Clause
(B), the Company has delivered to the Trustee an opinion of counsel (which may
be based on an Internal Revenue Service ruling) to the effect that the holders
of the Discount Notes will not recognize gain or loss for U.S. federal income
tax purposes as a result of such deposit and defeasance and will be subject to
U.S. federal income tax on the same amount, in the same manner and at the same
times as would have been the case if such deposit and defeasance had not
occurred; (ii) no Default shall have occurred and be continuing; (iii) the
Company has delivered to the Trustee an opinion of counsel to the effect that
such deposit shall not cause the Trustee or the trust so created to be subject
to the Investment Company Act of 1940 and (iv) certain other customary
conditions precedent are satisfied.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company
and the relevant Trustee with the consent of the Holders of not less than a
majority in aggregate principal amount of the outstanding Discount Notes;
provided, however, that no such modification or amendment may, without the
consent of each Holder affected thereby, (i) change the Stated Maturity of the
principal of any Discount Note, or any installment of interest on any Discount
Note, (ii) reduce the Accreted Value or principal amount of, or the rate of
interest on, or any premium payable upon, any Discount Note, whether payable
upon redemption, repurchase or at maturity, (iii) change the place or currency
of payment of principal of, or premium, if any, or interest on, any Discount
Note, (iv) adversely affect any right of repayment exercisable at the option of
any Holder of any Discount Note, (v) impair the right to institute a suit for
the enforcement of any payment on or after the Stated Maturity (or, in the case
of a redemption, on or after the Redemption Date) of any Discount Note, (vi)
amend or modify the provisions described under "Additional Amounts" in any
manner adverse to the Holders, (vii) reduce the above-stated percentage of
outstanding Discount Notes the consent of whose Holders is necessary to modify
or amend the Indenture, or (viii) reduce the percentage or aggregate principal
amount of outstanding Discount Notes the consent of whose Holders is necessary
for waiver of compliance with certain provisions of the Indenture or for waiver
of certain defaults.
NO PERSONAL LIABILITY OF INCORPORATORS, SHAREHOLDERS, OFFICERS,
EXECUTIVE COMMITTEE MEMBERS OR EMPLOYEES
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The Indenture provides that no recourse for the payment of the principal of
or interest on any of the Discount Notes or for any claim based thereon or
otherwise in respect thereof, and no recourse under or upon any obligation,
covenant or agreement of the Company in the Indenture or in the Discount Notes
or because of the creation of any Indebtedness represented thereby, shall be had
against any incorporator, shareholder, officer, director, employee, Executive
Committee member or controlling person of the Company or of any successor Person
thereof. Each Holder, by accepting the Discount Notes, waives and releases all
such liability. The waiver and release are part of the consideration for
issuance of the Discount Notes. Such waiver may not be effective to waive
liabilities under German or the U.S. federal securities laws and it is the view
of the SEC that such a waiver is against public policy.
CONCERNING THE TRUSTEE
The Indenture provides that, except during the continuance of a Default,
the Trustee will not be liable, except for the performance of such duties as are
specifically set forth in the Indenture. If an Event of Default has occurred and
is continuing, the Trustee will use the same degree of care and skill in its
exercise as a prudent person would exercise under the circumstances in the
conduct of such person's own affairs.
The Indenture and provisions of the Trust Indenture Act of 1939, as
amended, incorporated by reference therein contain limitations on the rights of
the Trustee, should either become a creditor of the Company, to obtain payment
of claims in certain cases or to realize on certain property received by the
Trustee in respect of any such claims, as security or otherwise. The Trustee is
permitted to engage in other transactions; provided, however, that if they
acquire any conflicting interest, it must eliminate such conflict or resign.
GOVERNING LAW
The Indenture provides that the Indenture and the Discount Notes thereunder
will be governed by and construed in accordance with the laws of the State of
New York without regard to principles of conflict of laws.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the full definition of all terms as well as any other capitalized
term used herein for which no definition is provided.
"Accreted Value" is defined to mean, as at any date of determination prior
to , 2001, the amount provided for each $1,000 principal amount at
maturity of Discount Notes:
(i) if the date of determination occurs on one of the following dates
(each a "Semi-Annual Accrual Date"), the Accreted Value will equal the
amount set forth below for such Semi-Annual Accrual Date:
<TABLE>
<CAPTION>
SEMI-ANNUAL ACCRUAL DATE ACCRETED VALUE
----------------------------------------------------- --------------
<S> <C>
July , 1996.......................................
January , 1997....................................
July , 1997.......................................
January , 1998....................................
July , 1998.......................................
January , 1999....................................
July , 1999.......................................
January , 2000....................................
July , 2000.......................................
January , 2001....................................
July , 2001.......................................
</TABLE>
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<PAGE> 110
(ii) if the date of determination occurs before the first Semi-Annual
Accrual Date, the Accreted Value will equal the sum of (a) the original
issue price and (b) an amount equal to the product of (1) the Accreted
Value for the first Semi-Annual Accrual Date less the original issue
price multiplied by (2) a fraction, the numerator of which is the number
of days from the issue date of the Discount Notes to the date of
determination, using a 360-day year of twelve 30-day months, and the
denominator of which is the number of days elapsed from the issue date
of the Discount Notes to the first Semi-Annual Accrual Date, using a
360-day year of twelve 30-day months;
(iii) if the date of determination occurs between the two Semi-Annual
Accrual Dates, the Accreted Value will equal the sum of (a) the Accreted
Value for the Semi-Annual Accrual Date immediately preceding such date
of determination and (b) an amount equal to the product of (1) the
Accreted Value for the immediately following Semi-Annual Accrual Date
less the Accreted Value for the immediately preceding Semi-Annual
Accrual Date multiplied by (2) a fraction, the numerator of which is the
number of days from the immediately preceding Semi-Annual Accrual Date
to the date of determination, using a 360-day year of twelve 30-day
months, and the denominator of which is 180; or
(iv) if the date of determination occurs after the last Semi-Annual Accrual
Date, the Accreted Value will equal $ .
"Acquired Indebtedness" is defined to mean Indebtedness of a Person
existing at the time such Person became a Restricted Subsidiary and not Incurred
in connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary.
"Affiliate" is defined to mean, as applied to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, is defined to mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Annualized Pro Forma Consolidated Operating Cash Flow" is defined to mean
Consolidated Operating Cash Flow for the latest fiscal quarter for which
consolidated financial statements of the Company are available multiplied by
four. For purposes of calculating "Consolidated Operating Cash Flow" for any
fiscal quarter for purposes of this definition, (i) any Subsidiary of the
Company that is a Restricted Subsidiary on the Transaction Date shall be deemed
to have been a Restricted Subsidiary at all times during such fiscal quarter and
(ii) any Subsidiary of the Company that is not a Restricted Subsidiary on the
Transaction Date shall be deemed to have been a Restricted Subsidiary at all
times during such fiscal quarter and (iii) any Subsidiary of the Company that is
not a Restricted Subsidiary on the Transaction Date shall be deemed not to have
been a Restricted Subsidiary at any time during such fiscal quarter. In addition
to and without limitation of the foregoing, for purposes of this definition,
"Consolidated Operating Cash Flow" shall be calculated after giving effect on a
pro forma basis for the applicable fiscal quarter to, without duplication, any
Asset Sales or Asset Acquisitions (including, without limitation, any Asset
Acquisition giving rise to the need to make such calculation as a result of the
Company or one of the Restricted Subsidiaries (including any Person who becomes
a Restricted Subsidiary as a result of the Asset Acquisition) incurring,
assuming or otherwise being liable for Acquired Indebtedness) occurring during
the period commencing on the first day of such fiscal quarter to and including
the Transaction Date (the "Reference Period"), as if such Asset Sale or Asset
Acquisition occurred on the first day of the Reference Period.
"Asset Acquisition" is defined to mean (i) an Investment or capital
contribution (by means of transfers of cash or other property to others or
payments for property or services for the account or use of others, or
otherwise) by the Company or any Restricted Subsidiary in any other Person, or
any acquisition or purchase of Capital Stock of another Person by the Company or
any Restricted Subsidiary, in either case pursuant to which such Person shall
become a Restricted Subsidiary or shall be merged with or into or consolidated
with the Company or any Restricted Subsidiary or (ii) an acquisition by the
Company or any Restricted Subsidiary of the property and assets of any Person
other than the Company or any Restricted Subsidiary which
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constitute substantially all of a division, operating unit or line of business
of such Person or which is otherwise outside the ordinary course of business.
"Asset Sale" is defined to mean any direct or indirect sale, transfer,
conveyance or lease (which has the effect of a disposition and is not for
security purposes) or other disposition (including by way of merger,
consolidation or sale-leaseback transactions, but not including Restricted
Payments permitted under the Indenture) in one transaction or a series of
related transactions by the Company or any Restricted Subsidiary to any Person
other than the Company or any Restricted Subsidiary of (i) all or any of the
Capital Stock of any Restricted Subsidiary, (ii) any material license or other
authorization of the Company or any Restricted Subsidiary pertaining to a Cable
Business, (iii) all or substantially all of the property and assets of an
operating unit or business of the Company or any Restricted Subsidiary or (iv)
any other property and assets of the Company or any Restricted Subsidiary
outside the ordinary course of business of the Company or such Restricted
Subsidiary and, in each case, that is not governed by the provisions of the
Indenture applicable to mergers, consolidations and sales of assets of the
Company; provided, however, that the term "Asset Sale" shall in no case include
any sale, transfer, conveyance, lease or other disposition in one transaction or
a series of related transactions (i) of property or equipment that has become
worn out, obsolete or damaged or otherwise unsuitable for use in connection with
the business of the Company or any Restricted Subsidiary, as the case may be,
(ii) involving assets with a Fair Market Value not in excess of DM500,000 (or,
if non-Deutsche Mark denominated, the Deutsche Mark Equivalent thereof), or
(iii) of inventory in the ordinary course of business.
"Average Life" is defined to mean, at any date of determination with
respect to any debt security, the quotient obtained by dividing (i) the sum of
the products of (a) the number of years from such date of determination to the
dates of each successive scheduled principal payment of such debt security and
(b) the amount of such principal payment by (ii) the sum of all such principal
payments.
"Business Day" is defined to mean any day (other than a Saturday or Sunday)
on which DTC, Euroclear or Cedel and banks in London and New York are open for
business.
"Cable Acquisition" is defined to mean an Asset Acquisition of properties
or assets to be used in a Cable Business or of the Capital Stock of any Person
that becomes a Restricted Subsidiary or, subject to the covenant "Limitation on
Restricted Payments," an Unrestricted Subsidiary as a result of such Asset
Acquisition, provided that such Person's assets and properties consist
principally of properties or assets that will be used in a Cable Business.
"Cable Business" is defined to mean any business operating a cable system
located entirely in the territory comprised of the 15 countries which are
members of the European Union on the Issue Date and of the Czech Republic,
Hungary, Norway, Poland and Switzerland, or any business reasonably related
thereto, including, without limitation, any business conducted by the Company or
any Restricted Subsidiary on the Issue Date.
"Capital Stock" is defined to mean, with respect to any Person, any and all
shares, interests, participations, rights in or other equivalents (however
designated, whether voting or non-voting) in equity of such Person, whether
outstanding at the Issue Date or issued after the Issue Date, including, without
limitation, all Common Stock and Preferred Stock, and any and all rights,
warrants or options exchangeable for or convertible into any thereof.
"Capitalized Lease" is defined to mean, as applied to any Person, any lease
or license of, or other agreement conveying the right to use, any property
(whether real, personal or mixed, movable or immovable) of which the present
value of the obligations of such Person to pay rent or other amounts is
required, in conformity with GAAP, to be classified and accounted for as a
finance lease obligation; and "Capitalized Lease Obligation" is defined to mean
the capitalized present value of the obligations to pay rent or other amounts
under such lease or other agreement, determined in accordance with GAAP.
"Cash Equivalents" is defined to mean (i) any evidence of Indebtedness with
a maturity of 180 days or less issued or directly and fully guaranteed or
insured by the Federal Republic of Germany or the United States of America or
any agency or instrumentality thereof (provided that the full faith and credit
of the
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Federal Republic of Germany or the United States of America, as the case may be,
is pledged in support thereof or such Indebtedness constitutes a general
obligation of such country); (ii) deposits, certificates of deposit or
acceptances with a maturity of 180 days or less of any institution which is
authorized by the Deutsche Bundesbank of the Federal Republic of Germany or
financial institution that is a member of the Federal Reserve System, in each
case having combined capital and surplus and undivided profits (or any similar
capital concept) of not less than DM500 million (or, if non-Deutsche Mark
denominated, the Deutsche Mark Equivalent thereof); (iii) commercial paper with
a maturity of 180 days or less issued by a corporation (other than an Affiliate
of the Company) organized under the laws of the Federal Republic of Germany or
any part thereof or the United States of America or any state thereof or the
District of Columbia and rated at least "A-1" by Standard & Poor's Corporation
or "P-1" by Moody's Investors Service; and (iv) repurchase agreements and
reverse repurchase agreements relating to marketable direct obligations issued
or unconditionally guaranteed by the government of the Federal Republic of
Germany or the United States Government (in the case of any United States
Government Obligations), in each case maturing within one year from the date of
acquisition.
"Cedel" is defined to mean Cedel Bank, societe anonyme.
"Change of Control" is defined to mean the occurrence of any of the
following events: (a) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act), excluding Permitted Holders, is
or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all securities that such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 50% of the total Voting Stock of the
Company; or (b) the Company consolidates with, or merges with or into, another
person or sells, assigns, conveys, transfers, leases or otherwise disposes of
all or substantially all of its assets to any person, or any person consolidates
with, or merges with or into, the Company, in any such event pursuant to a
transaction in which the outstanding Voting Stock of the Company is converted
into or exchanged for cash, securities or other property, other than any such
transaction where (i) the outstanding Voting Stock of the Company is converted
into or exchanged for (1) Voting Stock (other than Disqualified Stock) of the
surviving or transferee corporation or (2) cash, securities and other property
in an amount which could be paid by the Company as a Restricted Payment under
the Indenture and (ii) immediately after such transaction no "person" or "group"
(as such terms are used in Sections 13(d) and 14(d) of the Exchange Act),
excluding the Permitted Holders, is the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed to
have "beneficial ownership" of all securities that such person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than 50% of the total Voting Stock of
the surviving or transferee corporation; provided that (i) to the extent that
one or more regulatory approvals are required for one or more of the events or
circumstances described in clauses (a) or (b) to become effective under
applicable law, such events or circumstances shall be deemed to have occurred at
the time such approvals have been obtained and become effective under applicable
law, and (ii) no Change of Control shall be deemed to occur solely by reason of
the placement of any Voting Stock held by a Permitted Holder into a trust or
similar arrangement as a result of a prohibition under the laws or regulations
of the European Community or any of its predecessors or successors (the "EC") or
the European Union or any of its predecessors or successors (the "EU") or
Germany on the ownership of Voting Stock of the Company by persons not organized
under or citizens of a country which is a member of the EC or EU or Germany, if
the Company delivers an Opinion of Counsel to the Trustee prior thereto
confirming such trust or similar arrangement is necessary as a result of such
prohibition.
"Common Stock" is defined to mean, with respect to any Person, any and all
shares, interests or other participations in, and other equivalents (however
designated and whether voting or non-voting) of such Person's common stock or
ordinary shares, whether or not outstanding at the Issue Date, and includes,
without limitation, all series and classes of such common stock or ordinary
shares.
"Consolidated Income Tax Expense" is define to mean, for any period, the
provision for local, foreign and all other income taxes of the Company and its
Restricted Subsidiaries for such period as determined in accordance with GAAP.
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"Consolidated Interest Expense" is defined to mean, for any period, the
aggregate amount of interest in respect of Indebtedness (including, without
limitation, amortization of original issue discount on any indebtedness and the
interest portion of any deferred payment obligation, calculated in accordance
with the effective interest method of accounting; all commissions, discounts and
other fees and charges owed with respect to letters of credit and bankers'
acceptance financing; the net costs associated with Interest Rate Protection
Obligations; and Indebtedness that is Guaranteed or secured by the Company or
any of its Restricted Subsidiaries) and all but the principal component of rent
or other amounts in respect of Capitalized Lease Obligations paid, accrued or
scheduled to be paid or to be accrued by the Company and its Restricted
Subsidiaries during such period; excluding, however, any premiums, fees and
expenses (and any amortization thereof) payable in connection with the offering
of the Discount Notes, all as determined on a consolidated basis in conformity
with GAAP.
"Consolidated Net Income" is defined to mean, for any period, the
consolidated net income (or loss) of the Company and the Restricted Subsidiaries
for such period determined in accordance with GAAP, adjusted, to the extent
included in calculating such consolidated net income, by excluding, without
duplication, (i) all extraordinary gains or losses of such Person (net of fees
and expenses relating to the transaction giving rise thereto) for such period,
(ii) income of the Company and the Restricted Subsidiaries derived from or in
respect of all Investments in Persons other than Subsidiaries of the Company or
any Restricted Subsidiary, (iii) the portion of net income (or loss) of such
Person allocable to minority interests in unconsolidated Persons for such
period, except to the extent actually received by the Company or any Restricted
Subsidiary, (iv) net income (or loss) of any other Person combined with such
Person on a "pooling of interests" basis attributable to any period prior to the
date of combination, (v) any gain or loss, net of taxes, realized by such Person
upon the termination of any employee pension benefit plan during such period,
(vi) gains or losses in respect of any Asset Sales (net of fees and expenses
relating to the transaction giving rise thereto) during such period and (vii)
except the net income of any Restricted Subsidiary for such period to the extent
that the declaration of dividends or similar distributions by that Restricted
Subsidiary of that income is not at the time permitted directly or indirectly,
by operation of the terms of its constitutional documents or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulations
applicable to that Restricted Subsidiary or its stockholders.
"Consolidated Operating Cash Flow" is defined to mean, with respect to any
period, the Consolidated Net Income of the Company and the Restricted
Subsidiaries for such period increased by the sum of (i) the Consolidated Income
Tax Expense of the Company and the Restricted Subsidiaries accrued according to
GAAP for such period (other than taxes attributable to extraordinary, unusual or
nonrecurring gains or losses); (ii) Consolidated Interest Expense for such
period; (iii) depreciation of the Company and the Restricted Subsidiaries for
such period; and (iv) amortization of the Company and the Restricted
Subsidiaries for such period, including, without limitation, amortization of
capitalized debt issuance costs for such period, all determined on a
consolidated basis in accordance with GAAP.
"Cumulative Available Cash Flow" is defined to mean, as at any date of
determination, the positive cumulative Consolidated Operating Cash Flow realized
during the period commencing on the Issue Date and ending on the last day of the
most recent fiscal quarter immediately preceding the date of determination for
which consolidated financial information of the Company is available or, if such
cumulative Consolidated Operating Cash Flow for such period is negative, the
negative amount by which cumulative Consolidated Operating Cash Flow is less
than zero.
"Currency Agreement" is defined to mean any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement designed to
protect the Company or any Restricted Subsidiary against fluctuations in
currency values.
"Deeply Subordinated Shareholder Loans" is defined to mean any indebtedness
of the Company for money borrowed from a shareholder of the Company or any
Affiliate thereof, provided such indebtedness of the Company has been expressly
subordinated in right of payment and postponed as to all payments of interest or
principal prior to the earlier of (a) the end of the sixth month after the final
maturity of the Discount Notes and (b) the payment in full in cash of all
Discount Notes (or due provision therefor which results in the
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discharge of all obligations under the Discount Notes and the Indenture);
provided further that the terms of the subordination agreement are in the form
annexed to the Indenture and the Company receives one or more Opinions of
Counsel as to the validity and enforceability of such subordination agreement.
"Default" is defined to mean any event that is, or after notice or passage
of time or both would be, an Event of Default.
"Deutsche Mark Equivalent" is defined to mean, with respect to any monetary
amount in a currency other than German Deutsche Marks, at any time for the
determination thereof, the amount of Deutsche Marks obtained by converting such
foreign currency involved in such computation into Deutsche Marks at the spot
rate for the purchase of Deutsche Marks with the applicable foreign currency as
quoted by the Financial Times (European edition) published on the last Business
Day immediately preceding such determination.
"Disqualified Stock" is defined to mean, with respect to any Person, any
Capital Stock of such Person which, by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable), or upon
the happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or is exchangeable for Indebtedness, or is
redeemable at the option of the holder thereof, in whole or in part, on or prior
to the final maturity date of the Discount Notes.
"Euroclear" is defined to mean Morgan Guaranty Trust Company of New York,
Brussels office, as operator of the Euroclear system.
"Executive Committee" is defined to mean the executive committee of the
Company or other similar body established by the Company's shareholders pursuant
to the Company's Articles of Incorporation.
"Fair Market Value" is defined to mean, with respect to any asset or
property, the price that could be negotiated in an arms-length free market
transaction, for cash, between a willing seller and a willing buyer, neither of
whom is under pressure or compulsion to complete the transaction. Unless
otherwise specified in the Indenture, Fair Market Value shall be determined by
the Managing Director and approved by either a unanimous resolution of the
Executive Committee or a majority of the Shareholders of the Company acting in
good faith and shall be evidenced by a Resolution delivered to the Trustee.
"GAAP" is defined to mean, at any date of determination, generally accepted
accounting principles in effect in the United States which are applicable as of
the Issue Date.
"Guarantee" is defined to mean any obligation, contingent or otherwise, of
any Person directly or indirectly guaranteeing any Indebtedness or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such other Person (whether
arising by virtue of partnership arrangements, or by agreements to keep-well, to
purchase assets, goods, securities or services, to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for purposes
of assuring in any other manner the obligee of such Indebtedness or other
obligation of the Payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part); provided that the term "Guarantee" shall
not include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
"Guarantor" is defined to mean any Person obligated under a Guarantee.
"Incur" is defined to mean, with respect to any Indebtedness, to incur,
create, issue, assume, Guarantee or otherwise, contingently or otherwise, become
liable, directly or indirectly, for or with respect to, or become responsible
for, the payment of such Indebtedness, including an Incurrence of Indebtedness
by reason of the acquisition of more than 50% of the Capital Stock of any
Person; provided that neither the accrual of interest nor the accretion of
original issue discount shall be considered an Incurrence of Indebtedness. The
term "Incurrence" used as a noun has a corresponding meaning.
"Indebtedness" is defined to mean, with respect to any Person at any date
of determination (without duplication), (i) any liability, contingent or
otherwise, of such Person for borrowed money, (ii) all obligations
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of such Person evidenced by bonds, debentures, notes or other similar
instruments, (iii) all obligations of such Person in respect of letters of
credit or other similar instruments (including reimbursement obligations with
respect thereto and purchase money obligations), (iv) all obligations of such
Person to pay the deferred and unpaid purchase price of property or services,
which purchase price is due more than 180 days after the date of placing such
property in service or taking delivery and title thereto or the completion of
such services, except Trade Payables, (v) all obligations of such Person as
lessee under Capitalized Leases, (vi) all Indebtedness of other Persons secured
by a Lien on any asset of such Person, whether or not such Indebtedness is
assumed by or is otherwise the legal liability of such Person; provided that the
amount of such Indebtedness shall be the lesser of (A) the Fair Market Value of
such asset at such date of determination and (B) the amount of such
Indebtedness, (vii) all Indebtedness of other Persons Guaranteed by such Person
or which is otherwise the legal liability of such Person, to the extent such
Indebtedness is Guaranteed by or is otherwise the legal liability of such
Person, (viii) to the extent not otherwise included in this definition,
obligations under Currency Agreements and Interest Rate Protection Obligations,
(ix) any and all deferrals, renewals, extensions and refundings of, or
amendments of or supplements to, any liability or obligation of the kind
described in this definition, and (x) Disqualified Stock; provided, however,
that Indebtedness shall not include Deeply Subordinated Shareholder Loans. The
amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and,
with respect to contingent obligations, the maximum liability upon the
occurrence of the contingency giving rise to the obligation, provided that the
amount outstanding at any time of any Indebtedness issued with original issue
discount is the face amount of such Indebtedness less the remaining unamortized
portion of the original issue discount of such Indebtedness at such time as
determined in conformity with GAAP.
"Independent Financial Advisor" is defined to mean a United States or
German investment banking firm of national standing in the United States or
Germany, as the case may be, (i) which, in the judgment of the Managing
Director, approved by either a unanimous resolution of the Executive Committee
or a majority of the shareholders of the Company, does not, and whose
shareholders, members, directors, officers or Affiliates do not, have a material
direct or indirect financial interest in the Company, and (ii) which, in the
judgment of the Managing Director, approved by either a unanimous resolution of
the Executive Committee or a majority of the shareholders of the Company, is
otherwise independent and qualified to perform the task for which it is to be
engaged.
"Indirect Participant" is defined to mean a Person who holds an interest
through a Participant.
"Interest Rate Protection Obligations" is defined to mean the obligations
of any Person pursuant to any arrangement with any other Person whereby,
directly, or indirectly, such Person is entitled to receive from time to time
periodic payments calculated by applying either a floating or a fixed rate of
interest on a stated notional amount and shall include, without limitation,
interest rate swaps, caps, floors, collars, forward interest rate agreements and
similar agreements.
"Investment" is defined to mean, with respect to any Person, any advance,
loan, account receivable (other than an account receivable arising in the
ordinary course of business), or other extension of credit (including, without
limitation, by means of any guarantee) or any capital contribution to (by means
of transfers of property to others, payments for property or services for the
account or use of others, or otherwise), or any purchase or ownership of any
stocks, bonds, notes, debentures or other securities, of any other Person.
Notwithstanding the foregoing, in no event shall any issuance of Capital Stock
(other than Disqualified Stock) of the Company in exchange for Capital Stock,
property or assets of another Person constitute an Investment by the Company in
such other Person. For purposes of the definition of "Unrestricted Subsidiary"
described below and the "Limitation on Restricted Payments" covenant described
above, (i) "Investment" shall include the Fair Market Value of the assets (net
of liabilities) of any Restricted Subsidiary of the Company at the time that
such Restricted Subsidiary of the Company is designated an Unrestricted
Subsidiary and shall exclude the Fair Market Value of the assets (net of
liabilities) of any Unrestricted Subsidiary at the time that such Unrestricted
Subsidiary is designated a Restricted Subsidiary of the Company, and (ii) any
property transferred to or from an Unrestricted Subsidiary shall be valued at
its Fair Market Value at the time of such transfer, in each case as determined
by the Executive Committee of the
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Company in good faith or, if it may be in excess of DM2 million (or, if
non-Deutsche Mark denominated, the Deutsche Mark Equivalent thereof), by an
Independent Financial Advisor.
"Issue Date" is defined to mean the original date of issuance of the
Discount Notes.
"Lien" is defined to mean any mortgage, charge, pledge, security interest,
encumbrance, lien (statutory or other), hypothecation, assignment for security,
claim, or preference or priority or other encumbrance of any kind upon or with
respect to any property (including, without limitation, any conditional sale or
other title retention agreement or lease in the nature thereof, any sale with
recourse against the seller or any Affiliate of the seller, or any agreement to
give any security interest).
"Net Cash Proceeds" is defined to mean, (a) with respect to any Asset Sale,
the proceeds of such Asset Sale in the form of cash or Cash Equivalents,
including payments in respect of deferred payment obligations (to the extent
corresponding to the principal, but not interest, component thereof) when
received in the form of cash or Cash Equivalents (except to the extent such
obligations are financed or sold with recourse to the Company or any Restricted
Subsidiary of the Company) and proceeds from the conversion of other property
received when converted to cash or Cash Equivalents if converted within 12
months after receipt, net of (i) brokerage commissions and other fees and
expenses (including fees and expenses of counsel and investment bankers) related
to such Asset Sale, (ii) provisions for all taxes (whether or not such taxes
will actually be paid or are payable) as a result of such Asset Sale without
regard to the consolidated results of operations of the Company and its
Restricted Subsidiaries, taken as a whole, (iii) payments made to repay
Indebtedness or any other obligation outstanding at the time of such Asset Sale
that either (A) is secured by a Lien on the property or assets sold or (B) is
required to be paid as a result of such sale and (iv) appropriate amounts to be
provided by the Company or any Restricted Subsidiary of the Company as a reserve
against any liabilities associated with such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale, all as determined in conformity
with GAAP and (b) with respect to any issuance or sale of Capital Stock, the
proceeds of such issuance or sale in the form of Cash or Cash Equivalents,
including payments in respect of deferred payment obligations (to the extent
corresponding to the principal, but not interest, component thereof) when
received in the form of cash or Cash Equivalents (except to the extent such
obligations are financed or sold with recourse to the Company or any Restricted
Subsidiary of the Company) and proceeds from the conversion of other property
received when converted to cash or Cash Equivalents, net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees incurred in connection with
such issuance or sale and net of taxes paid or payable as a result thereof.
"Officer" is defined to mean the Chairman of the Executive Committee, the
Chief Executive Officer, any Managing Director (Geschaftsfuhrer), the Chief
Financial Officer, any Senior Vice President, the Chief Operating Officer, the
Treasurer, the General Counsel, the Secretary, the Controller or any Executive
Committee member of the Company.
"Officers' Certificate" is defined to mean a certificate signed by any two
of the Managing Director, Chief Executive Officer, Chief Operating Officer and
Chief Financial Officer of the Company.
"Opinion of Counsel" is defined to mean a written opinion from legal
counsel who is reasonably acceptable to the Trustee, which may include an
individual employed as counsel to the Trustee.
"Pari Passu Indebtedness" is defined to mean any indebtedness of the
Company which ranks pari passu in right of payment with the Discount Notes.
"Participant" is defined to mean, with respect to DTC, Euroclear or Cedel,
Persons who have accounts with DTC, Euroclear or Cedel, respectively (and, with
respect to DTC, shall include Euroclear and Cedel).
"Permitted Holders" is defined to mean Advent International Corporation, a
Delaware corporation, General Cinema Corporation, a Delaware corporation, Morgan
Stanley Group Inc., a Delaware corporation, The Chase Manhattan Corporation, a
Delaware corporation, and their controlled Affiliates.
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"Permitted Indebtedness" is defined to mean the following indebtedness
(each of which shall be given independent effect):
(a) Indebtedness under the Discount Notes and the Indenture;
(b) Indebtedness of the Company and any Restricted Subsidiary
outstanding on the Issue Date;
(c) Indebtedness, including under any bank term loan and/or revolving
credit facility (which may include any guarantee, bonding and/or letter of
credit facility) or any capitalized lease, of the Company and/or any
Restricted Subsidiary to the extent that the proceeds of or credit support
provided by any such Indebtedness are used to finance or support working
capital for, or the construction of, a Cable Business of the Company or any
Restricted Subsidiary existing on the Issue Date, the acquisition of
properties or assets to be used by the Company or any Restricted Subsidiary
existing on the Issue Date (other than pursuant to an Asset Acquisition) or
the acquisition of capital stock in any Person to the extent necessary to
maintain the ownership interest of the Company or any Restricted Subsidiary
therein on the Issue Date, or to make any other Investment in any Person in
which an Investment has been made on or prior to the Issue Date, provided
such new Investment is made pro rata with the other equity holders of such
Person;
(d) (i) Indebtedness of the Company and/or any Restricted Subsidiary
to the extent the proceeds thereof or credit support are used to finance or
support a Cable Acquisition or working capital for, or to finance the
construction of, the business or network acquired and refinancings thereof
and (ii) Acquired Indebtedness;
(e) (i) Indebtedness of any Restricted Subsidiary owed to and held by
the Company or a Restricted Subsidiary and (ii) Indebtedness of the Company
owed to and held by any Restricted Subsidiary; provided that an Incurrence
of Indebtedness shall be deemed to have occurred upon (x) any sale or other
disposition of any Indebtedness of the Company or a Restricted Subsidiary
referred to in this clause (e) to a Person other than the Company or a
Restricted Subsidiary or (y) any sale or other disposition of Capital Stock
of a Restricted Subsidiary, or (z) any designation as an Unrestricted
Subsidiary of a Restricted Subsidiary which holds Indebtedness of the
Company or another Restricted Subsidiary;
(f) Interest Rate Protection Obligations of the Company and/or any
Restricted Subsidiary to the extent relating to (i) Indebtedness of the
Company and/or such Restricted Subsidiary, as the case may be (which
Indebtedness (x) bears interest at fluctuating interest rates and (y) is
otherwise permitted to be incurred under the "Limitation on Indebtedness"
covenant), and/or (ii) Indebtedness for which a lender has provided a
commitment in an amount reasonably anticipated to be Incurred by the
Company and/or any Restricted Subsidiary in the following 12 months after
such Interest Rate Protection Obligation has occurred, but only to the
extent that the notional principal amount of such Interest Rate Protection
Obligation does not exceed the principal amount of the Indebtedness (and/or
Indebtedness subject to commitments) to which such Interest Rate Protection
Obligation relates;
(g) Indebtedness of the Company and/or any Restricted Subsidiary under
Currency Agreements to the extent relating to (i) Indebtedness of the
Company or a Restricted Subsidiary and/or (ii) obligations to purchase
assets, properties or services incurred in the ordinary course of business
of the Company or any Restricted Subsidiary; provided that such Currency
Agreements do not increase the Indebtedness or other obligations of the
Company and its Restricted Subsidiaries outstanding other than as a result
of fluctuations in foreign currency exchange rates or by reason of fees,
indemnities or compensation payable thereunder;
(h) Indebtedness of the Company and/or any Restricted Subsidiary in
respect of performance bonds of the Company or any Restricted Subsidiary or
surety bonds provided by the Company or any Restricted Subsidiary incurred
in the ordinary course of business in connection with the construction or
operation of a Cable Business;
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(i) Indebtedness of the Company and/or any Restricted Subsidiary to
the extent it represents a replacement, renewal, refinancing, or extension
of outstanding Indebtedness of the Company and/or any Restricted Subsidiary
incurred or outstanding pursuant to clause (a), (b), (c), (d) or this
clause (i) of this definition or the proviso to the covenant "Limitation on
Indebtedness"; provided that (A) Indebtedness of the Company may not be
replaced, renewed, refinanced or extended under this clause (i) with
Indebtedness of any Restricted Subsidiary, (B) any such replacement,
renewal, refinancing or extension (x) shall not result in such Indebtedness
having a shorter Average Life as compared with the Indebtedness being
replaced, renewed, refinanced or extended and (y) shall not exceed the sum
of the principal amount (or, if such Indebtedness provides for a lesser
amount to be due and payable upon a declaration or acceleration thereof, an
amount no greater than such lesser amount) of the Indebtedness being
replaced, renewed, refinanced or extended plus the amount of accrued
interest thereon and the amount of any reasonably determined prepayment
premium necessary to accomplish such replacement, renewal, refinancing or
extension and such reasonable fees and expenses incurred in connection
therewith, and (C) in the case of any Indebtedness replacing, renewing,
refinancing, or extending Indebtedness which is pari passu to the Discount
Notes, any such replacing, renewing, refinancing or extending Indebtedness
is made pari passu to the Discount Notes or subordinated to the Discount
Notes, and, in the case of any Indebtedness replacing, renewing,
refinancing, or extending Indebtedness which is subordinated to the
Discount Notes or is Disqualified Stock, any such replacing, renewing,
refinancing or extending Indebtedness is subordinated to the Discount Notes
to the same extent as the Indebtedness being replaced, renewed, refinanced
or extended or is Disqualified Stock; and
(j) Indebtedness of the Company and/or any Restricted Subsidiary other
than Indebtedness described in the foregoing clauses (a) through (i), which
Indebtedness does not in aggregate principal amount exceed DM50 million
(or, if non-Deutsche Mark denominated, the Deutsche Mark Equivalent
thereof) outstanding at any time.
"Permitted Investment" is defined to mean (a) an Investment in a Restricted
Subsidiary or a Person which will, upon the making of such Investment, become a
Restricted Subsidiary or be merged or consolidated with or into or transfer or
convey all or substantially all its assets to the Company or a Restricted
Subsidiary; (b) Cash Equivalents; (c) Investments in prepaid expenses,
negotiable instruments held for collection and lease, utility and workers'
compensation, performance and other similar deposits; (d) loans and advances to
employees made in the ordinary course of business; (e) Interest Rate Protection
Obligations and Currency Agreements; (f) Investments made in the ordinary course
of business as partial payment for constructing a network relating principally
to a Cable Business; and (g) Investments in any Person engaged in a Cable
Business.
"Person" is defined to mean any individual, corporation, partnership, joint
venture, trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Preferred Stock" is defined to mean, with respect to any Person, any and
all shares, interests, participations or other equivalents (however designated)
of such Person's preferred or preference stock, whether now outstanding, or
issued after the Issue Date, and including, without limitation, all classes and
series of preferred or preference stock of such Person.
"Public Equity Offering" is defined to mean an underwritten public offering
or floatation of Common Stock of the Company which has been registered under the
Securities Act of 1933, as amended.
"Redemption Date" is defined to mean, with respect to any Discount Note,
the date on which such Discount Note is to be redeemed by the Company pursuant
to the terms of the Discount Note.
"Restricted Payment" is defined to mean any of the following: (i) the
declaration or payment of any dividend or any other distribution on Capital
Stock of the Company or any payment made to the direct or indirect holders (in
their capacities as such) of Capital Stock of the Company (other than dividends
or distributions payable solely in Capital Stock (other than Disqualified Stock)
of the Company); (ii) the purchase, redemption or other acquisition or
retirement for value of any Capital Stock of the Company (other than any such
Capital Stock owned by the Company or a Restricted Subsidiary); (iii) the
purchase,
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redemption, defeasance or other acquisition or retirement for value of any
Subordinated Indebtedness (other than any Subordinated Indebtedness held by a
Restricted Subsidiary); or (iv) the making of any Investment (other than a
Permitted Investment) in any Person (other than an Investment by a Restricted
Subsidiary in the Company or an Investment by the Company or a Restricted
Subsidiary in either (x) a Restricted Subsidiary or (y) a Person that becomes a
Restricted Subsidiary as a result of such Investment).
"Restricted Subsidiary" is defined to mean any Subsidiary of the Company
(including any newly acquired or newly formed Subsidiary of the Company) other
than an Unrestricted Subsidiary.
"Restricted Subsidiary Indebtedness" is defined to mean Indebtedness of any
Restricted Subsidiary which is not subordinated to any other Indebtedness of
such Restricted Subsidiary.
"Share Capital" is defined to mean, at the time of determination, the
stated capital of the preference shares (other than Disqualified Stock) and
ordinary shares and additional paid-in capital of the Company, all as determined
in accordance with GAAP.
"Significant Subsidiary" is defined to mean, at any date of determination,
any Restricted Subsidiary of the Company that, together with its Subsidiaries,
(i) for the most recent fiscal year of the Company, accounted for more than 10%
of the consolidated revenues of the Company and its Restricted Subsidiaries or
(ii) as of the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of the Company and its Restricted Subsidiaries, all as set
forth on the most recently available consolidated financial statements of the
Company for such fiscal year.
"Stated Maturity" is defined to mean (i) with respect to any debt security,
the date specified in such debt security as the fixed date on which the final
installment of principal of such debt security is due and payable and (ii) with
respect to any scheduled installment of principal of or interest on any debt
security, the date specified in such debt security as the fixed date on which
such installment is due and payable.
"Strategic Equity Investor" is defined to mean any company which is (or a
controlled Affiliate of which is), or a controlled Affiliate of any company
which is, engaged principally in a Cable Business; provided, however, that
Strategic Equity Investor shall not include any Subsidiary of the Company, or
any Person that is an Affiliate of the Company.
"Subordinated Indebtedness" is defined to mean any Indebtedness of the
Company which is expressly subordinated in right of payment to the Discount
Notes.
"Subordinated Subsidiary Notes" is defined to mean the notes issued by
subsidiaries of the Company, and which are subordinated in right of payment to
certain indebtedness of such subsidiaries for money borrowed pursuant to the
subordination provisions contained in the form attached to the Indenture.
"Subsidiary" is defined to mean, with respect to any Person, any
corporation, association or other business entity (i) of which outstanding
Capital Stock having at least a majority of the votes entitled to be cast in the
election of directors is owned, directly or indirectly, by such Person and one
or more other Subsidiaries of such Person, or (ii) of which at least a majority
of voting interest is owned, directly or indirectly, by such Person and one or
more other Subsidiaries of such Person.
"Tax" is defined to mean any tax, duty, levy, impost, assessment or other
governmental charge (including penalties, interest and other liabilities related
thereto).
"Taxing Authority" is defined to mean any government or political
subdivision or territory or possession of any government or any authority or
agency therein or thereof having power to tax.
"Total Consolidated Indebtedness" is defined to mean, at the time of
determination, an amount equal to the aggregate amount of all Indebtedness of
the Company and the Restricted Subsidiaries outstanding (without duplication) as
of the date of determination.
"Trade Payables" is defined to mean, with respect to any Person, any
accounts payable or any other Indebtedness or monetary obligation to trade
creditors created, assumed or Guaranteed by such Person or any
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of its Subsidiaries arising in the ordinary course of business in connection
with the acquisition of goods or services.
"Transaction Date" is defined to mean, with respect to the Incurrence of
any Indebtedness by the Company or any of its Restricted Subsidiaries, the date
such Indebtedness is to be Incurred and, with respect to any Restricted Payment,
the date such Restricted Payment is to be made.
"Unrestricted Subsidiary" is defined to mean any Subsidiary of the Company
(other than a Subsidiary which would constitute a Significant Subsidiary based
on the financial test set forth in the definition thereof) that at the time of
determination shall have been designated an Unrestricted Subsidiary by the
Managing Director with the approval of either a unanimous resolution of the
Executive Committee or a majority of the shareholders, in the manner provided
below and which remains so designated at the time of determination. The Managing
Director with the approval of either a unanimous resolution of the Executive
Committee or a majority of the shareholders may, by a Resolution delivered to
the Trustee, designate any Restricted Subsidiary of the Company (other than a
Significant Subsidiary) (including any newly acquired or newly formed Subsidiary
of the Company) to be an Unrestricted Subsidiary unless such Restricted
Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property
of, the Company or any Restricted Subsidiary, and provided that (i) no Default
or Event of Default shall have occurred and be continuing at the time of or
after giving effect to such designation, and (ii) either (A) the Subsidiary to
be so designated has total assets of DM2,000 (or, if non-Deutsche Mark
denominated, the Deutsche Mark Equivalent thereof) or less or (B) if such
Subsidiary has assets greater than DM2,000 (or, if non-Deutsche Mark
denominated, the Deutsche Mark Equivalent thereof), that such designation would
be permitted under the "Limitation on Restricted Payments" covenant described
above. The Managing Director with the approval of either a unanimous resolution
of the Executive Committee or a majority of the shareholders, may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary of the Company, provided
that (i) no Default shall have occurred and be continuing at the time of or
after giving effect to such designation and (ii) all Liens and Indebtedness of
such Unrestricted Subsidiary outstanding immediately following such designation
would, if Incurred at such time, have been permitted to be Incurred for all
purposes of the Indenture. Any designation by the Managing Director pursuant to
this paragraph shall be evidenced to the Trustee by promptly filing with the
Trustee a copy of the Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complies with the
foregoing provisions.
"Voting Stock" is defined to mean, with respect to any Person, Capital
Stock of any class or kind ordinarily having the power to vote for the election
of Executive Committee members, managing directors, managers or other voting
members of the governing body of such Person.
"Wholly-Owned" is defined to mean, with respect to any Subsidiary of any
Person, such Subsidiary if all the outstanding Capital Stock in such Subsidiary
(other than any directors' qualifying shares or Investments by foreign nationals
mandated by applicable law) is owned by such Person or one or more Wholly-Owned
Subsidiaries of such Person.
BOOK-ENTRY; DELIVERY AND FORM
The Global Discount Note
The Discount Notes will be represented by the Global Discount Note in
registered form, which shall be deposited with The Bank of New York, as
custodian of DTC, and registered in the name of Cede & Co., DTC's nominee.
Investors may elect to hold interests in the Global Discount Note through any of
DTC, Euroclear or Cedel, if they are Participants in such systems, or indirectly
through organizations that are Participants in such systems. Euroclear and Cedel
will hold interests on behalf of their Participants through customers'
securities accounts in Euroclear's and Cedel's names on the books of their
respective depositaries, which in turn will hold such interests in customers'
securities accounts in the depositaries' names on the books of DTC. Except under
limited circumstances detailed below, owners of beneficial interests in the
Global Discount Note will not be entitled to have Discount Notes registered in
their name, will not receive or be entitled to receive Discount Notes in
definitive form and will not be considered holders thereof.
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Upon the issuance of the Global Discount Note, DTC or its custodian will
credit, on its internal system, the respective principal amount of Discount
Notes of the individual beneficial interests represented by such Global Discount
Note to the accounts of persons who have accounts with such depositary. Such
accounts initially will be designated by or on behalf of the Underwriters.
Ownership of beneficial interests in the Global Discount Note will be limited to
Participants or Indirect Participants. Ownership of beneficial interests in the
Global Discount Note will be shown on, and the transfer of that ownership will
be effected only through, records maintained by DTC or its nominee (with respect
to interests of Participants) and the records of Participants (with respect to
interests of Indirect Participants).
So long as DTC, or its nominee, is the registered owner or holder of the
Global Discount Note, DTC or such nominee, as the case may be, will be
considered the sole owner or holder of the Discount Notes represented by such
Global Discount Note for all purposes under the Indenture and the Discount
Notes. Accordingly, each beneficial owner of an interest in the Global Discount
Note must rely on the procedures of DTC, Euroclear and Cedel and, if such person
is not a Participant in DTC, on the procedures of the Participant in DTC through
which such person owns its interest, to exercise any rights and remedies of a
holder under the Indenture. No beneficial owner of an interest in the Global
Discount Note will be able to transfer that interest except in accordance with
DTC's applicable procedures, in addition to those provided for under the
Indenture.
Payments of the principal of, and interest on, the Global Discount Note
will be made to DTC or its nominee, as the case may be, as the registered owner
thereof. Neither the Company, the Trustee nor the Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global
Discount Note or for maintaining, supervising or reviewing any records relating
to such beneficiary ownership interests.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal or interest in respect of the Global Discount Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of Discount Notes of
such Global Discount Note as shown on the records of DTC or its nominee. The
Company also expects that payments by Participants to owners of beneficial
interests in such Global Discount Note held through such Participants will be
governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of such
Participants.
Transfers between Participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in clearinghouse funds. If a
holder requires physical delivery of a definitive Discount Note for any reason,
including to sell Discount Notes to persons in states which require such
delivery of such Discount Notes or to pledge such Discount Notes, such holder
must transfer its interest in the Global Discount Note in accordance with the
normal procedures of DTC and the procedures set forth in the Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Discount Notes (including the presentation of Discount
Notes for exchange as described below) only at the direction of one or more
Participants to whose accounts the DTC interests in the Global Discount Note are
credited and only in respect of such portion of the aggregate principal amount
of Discount Notes as to which such Participant or Participants has or have given
such direction.
DTC will exchange the Global Discount Note for definitive Discount Notes,
which it will distribute to its Participants, only if (i) DTC is unwilling or
unable to continue to act as depositary or ceases to be a clearing agency
registered under the Exchange Act and, in either case, a successor depositary is
not appointed by Kabelmedia within 90 days, (ii) an Event of Default under the
Indenture occurs, upon the request delivered in writing to DTC by the holder of
a Discount Note, (iii) at any time Kabelmedia, in its sole discretion,
determines that the Global Discount Note (in whole but not in part) should be
exchanged for definitive debentures, or (iv) an investor is ineligible to trade
through DTC as a Participant or Indirect Participant in such system or is unable
to acquire an interest in the Global Discount Note through a financial
institution that
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is a DTC Participant or Indirect Participant, upon the request delivered in
writing to Kabelmedia by such investor.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Discount Note among Participants of DTC, it
is under no obligation to perform or continue to perform such procedures, and
such procedures may be discontinued at any time. Neither the Company nor the
Trustee will have any responsibility for the performance by DTC or its
Participants or Indirect Participants of their respective obligations under the
rules and procedures governing their operations. Should DTC discontinue such
procedures, the Company would request DTC to transfer the Global Discount Note
to another depositary willing to perform such procedures. Under the Indenture,
the right of any holder of Discount Notes to receive payment of principal,
premium or interest and to bring suit for the enforcement of such right is
absolute and unconditional and will not be impaired or affected without the
consent of such holder.
Payments on the Global Discount Note
Payments of any amounts owing in respect of the Global Discount Note will
be made through one or more paying agents appointed under the Indenture (which
initially will include The Bank of New York, as Paying Agent for the Discount
Notes) to the respective holders thereof. All such amounts will be payable in
United States dollars.
Upon receipt of any such amounts, The Bank of New York will pay the amount
so received to DTC which will distribute such payments to its Participants.
Payments of all such amounts will be made without deduction or withholding for
or on account of any present or future Taxes of whatever nature except as may be
required by law, and if any such deduction or withholding is required to be made
by any law or regulation of Germany or of any other jurisdiction in which the
Company is engaged in business for tax purposes then, to the extent described
under "-- Additional Amounts" above, the Company has agreed pursuant to the
Indenture, as applicable, that such Additional Amounts will be paid as may be
necessary in order that the net amounts received by any holder of the Global
Discount Note or owner of beneficial interests in the Global Discount Note after
such deduction or withholding will equal the net amounts that such holder or
owner would have otherwise received in respect of the Global Discount Note or
beneficial interests in the Global Discount Note, as the case may be, absent
such withholding or deduction. DTC, upon receipt of any such payment, will
immediately credit Participants' accounts with payments in amounts proportionate
to their respective ownership of beneficial interests in the Global Discount
Note, as shown on the records of DTC. The Company expects that payments by
Participants to owners of beneficial interests in the Global Discount Note held
through such Participants will be governed by standing customer instructions and
customary practices, as is now the case with the securities held for the
accounts of customers in bearer form or registered in "street name" and will be
the responsibility of such Participants.
Distribution with respect to ownership of beneficial interests in the
Global Discount Note owned through Euroclear or Cedel will be credited to the
accounts of Euroclear Participants or Cedel Participants in accordance with the
relevant system's rules and procedures.
Information Concerning DTC, Euroclear and Cedel
The Company understands as follows with respect to DTC, Euroclear and
Cedel:
DTC is a limited purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended. DTC was created to hold securities of its Participants
and to facilitate the clearance and settlement of transactions among its
Participants in such securities through electronic book-entry changes in
accounts of the Participants, thereby eliminating the need for physical movement
of securities certificates. DTC Participants include securities brokers and
dealers (including the Underwriters), banks, trust companies, clearing
corporations and certain other organizations, some of whom (and/or their
representatives) own DTC. Access to the DTC book-entry system is also available
to others, such as banks, brokers, dealers and trust
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companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of an owner of a
book-entry interest to pledge such interest to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
interest, may be limited by the lack of a definitive certificate for such
interest. The laws of some states require that certain Persons take physical
delivery of securities in definitive form. Consequently, the ability to transfer
book-entry interests to such Person may be limited. In addition, beneficial
owners of book-entry interests through the DTC system will receive distributions
attributable to the Global Discount Note only through DTC Participants.
Euroclear and Cedel hold securities for participating organizations and
facilitate the clearance and settlement of securities transactions between their
respective Participants through electronic book-entry changes in accounts of
such Participants. Euroclear and Cedel provide to their Participants, among
other things, services for safekeeping, administration, clearance and settlement
of internationally traded securities and securities lending and borrowing,
Euroclear and Cedel interface with domestic securities markets. Euroclear and
Cedel Participants are financial institutions such as underwriters, securities
brokers and dealers, banks, trust companies and certain other organizations.
Indirect access to Euroclear or Cedel is also available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a custodian
relationship with a Euroclear or Cedel Participant, either directly or
indirectly.
Global Clearance and Settlement Procedures
The Global Discount Note will be delivered to The Bank of New York, as
custodian for DTC. Interests in the Global Discount Note will trade in DTC's
same-day funds settlement system.
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CERTAIN INCOME TAX CONSIDERATIONS
PERSONS CONSIDERING THE PURCHASE OF DISCOUNT NOTES SHOULD CONSULT THEIR OWN
TAX ADVISORS CONCERNING THE ACQUISITION, OWNERSHIP AND DISPOSITION OF DISCOUNT
NOTES AND THE APPLICATION OF GERMAN LAWS AND UNITED STATES FEDERAL INCOME TAX
LAWS TO THEIR PARTICULAR SITUATIONS AND ANY CONSEQUENCES ARISING UNDER THE LAWS
OF ANY OTHER TAXING JURISDICTION.
GERMAN INCOME TAX CONSIDERATIONS
Under German law presently in effect, payment of the principal of or
interest on the Discount Notes by Kabelmedia or the Trustee or a paying agent
located outside of Germany, each acting on behalf of Kabelmedia, will not be
subject to withholding or deduction for or on account of any taxes, assessments
or other governmental charges imposed by the Federal Republic of Germany or any
state (Land), municipality or other political subdivision or taxing authority
thereof or therein, except as set forth below.
Under German law presently in effect, payments of interest on Discount
Notes are subject to withholding tax (Zinsabschlagsteuer) to be withheld (i) if
made by a credit institution located in Germany (including a German branch of a
foreign credit institution, but excluding a foreign branch of a credit
institution), by such credit institution in respect of Discount Notes on deposit
with or administered by such credit institution, or (ii) if made by the debtor
or a paying agent other than a credit institution located in Germany, by the
debtor, if such Discount Notes are held by (x) German tax residents (i.e.,
persons whose residence, customary place of abode, head office or management is
located in Germany), or (y) persons who are not resident in Germany and who are
subject to limited tax liability in Germany only with respect to their
German-source income and the interest on the Discount Notes represents income
from German agriculture or forestry, trade or business, self-employment or
letting or leasing of German property (according to Sections 43(4) and 49 of the
German Income Tax Law). This Zinsabschlagsteuer is imposed at an effective rate
of 32.25% (30% plus an additional 2.25% due to the introduction of the
solidarity tax or Solidaritatszuschlag). In the unlikely event that the
Zinsabschlagsteuer and Solidaritatszuschlag were to become relevant to any
payment with respect to the Discount Notes, a U.S. Holder of Discount Notes
should consult its U.S. tax advisor concerning possible treaty protection and in
the absence thereof, possible foreign tax credit effects.
U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is the opinion of Baker & McKenzie, special United States tax
counsel to the Company, of the material United States federal income tax
consequences of the ownership and disposition of Discount Notes. The discussion
is based upon the provisions of the U.S. Internal Revenue Code of 1986, as
amended (the "Code"), the applicable Treasury Regulations promulgated and
proposed thereunder, judicial authority and current administrative rulings and
practice as of the date hereof. Subsequent developments in these areas could
have a material effect on the statements and conclusions set forth below.
This discussion is limited to the U.S. federal income tax considerations
applicable to a holder who or which is (i) a citizen or resident of the United
States, a corporation organized under the laws of the United States or any
political subdivision thereof or therein, or an estate or trust, the income of
which is subject to United States federal income tax regardless of the source,
or (ii) otherwise subject to U.S. federal income tax on a net basis in respect
of their beneficial interest in the Discount Notes (a "U.S. Holder"). This
discussion deals only with Discount Notes held as capital assets and does not
deal with special tax situations, such as investors in pass-through entities,
U.S. holders who or which are dealers in securities or foreign currency,
financial institutions, insurance companies, tax-exempt organizations, U.S.
Holders holding the Discount Notes as part of a "straddle," "hedge" or
"conversion transaction," or that have "functional currency" other than the
United States dollar, and U.S. Holders who own, directly or indirectly, 10
percent or more of the vote or value of the outstanding stock of the Company.
Moreover, the effect of any applicable state, local or foreign tax laws is not
discussed.
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The Company will characterize all Discount Notes as indebtedness of the
Company for all United States federal income tax purposes. This characterization
by the Company will be binding on every U.S. Holder of a Discount Note, unless
the U.S. Holder discloses its inconsistent characterization on such U.S.
Holder's federal income tax return. The United States Internal Revenue Service
(the "Service") will not be bound by the characterization of the Discount Notes
by the Company and the U.S. Holders.
The Discount Notes will be "applicable high yield discount obligations" (as
defined in Section 163(j) of the Code). The designation of the Discount Notes as
applicable high yield discount obligations, however, will not have an adverse or
positive effect on U.S. Holders.
Original Issue Discount. For the reasons discussed below, the Discount
Notes will be deemed to have been issued with original issue discount ("OID")
for U.S. federal income tax purposes. Accordingly, each U.S. Holder will be
required to include in income (regardless of whether such U.S. Holder is a cash
or accrual basis taxpayer) in each taxable year, in advance of the receipt of
cash payments on such Discount Notes, that portion of the OID, computed on a
constant interest basis, attributable to each day during such year on which the
U.S. Holder held the Discount Notes. See "-- Taxation of Original Issue
Discount" below. Such OID will be treated as foreign source passive income (or,
for U.S. Holders that are "financial services entities" as defined in
Regulations under the Code, financial services income) for U.S. foreign tax
credit limitation purposes.
The amount of OID with respect to each Discount Note will be equal to the
excess of (i) its "stated redemption price at maturity" over (ii) its "issue
price."
Because they will be issued for cash, the "issue price" of the Discount
Notes will be the first price at which a substantial amount of the Discount
Notes are sold. For purposes of determining the issue price of the Discount
Notes, sales to bond houses, brokers, or similar persons or organizations acting
in the capacity of underwriters, placement agents or wholesalers are ignored.
Under the Treasury Regulations, the "stated redemption price at maturity"
of each Discount Note will include all payments to be made in respect thereof,
other than payments of "qualified stated interest" (i.e., interest that is
unconditionally payable at least annually). Because prior to , 2001,
no interest will be paid on the Discount Notes, none of the interest actually
paid on the Discount Notes will constitute qualified stated interest.
Accordingly, the "stated redemption price at maturity" of a Discount Note will
equal the sum of all cash payments required to be made on such Discount Note
(including principal and stated interest) and the excess of the aggregate of
such amounts over the issue price of a Discount Note would be included in the
U.S. Holder's income as OID.
The face of each Discount Note will set forth the issue date, issue price,
yield to maturity, amount of OID, the amount of OID allocable to the first short
accrual period, if any, and any other information required by Treasury
Regulations. The Company will furnish to the Service the amount of OID, the
issue date and additional information required by Treasury Regulations. U.S.
Holders, including subsequent U.S. Holders, will be required to determine for
themselves the reportable amount of OID income for a year.
Taxation of Original Issue Discount. An original holder of a debt
instrument issued with OID is required to include in gross income for federal
income tax purposes an amount equal to the sum of the "daily portions" of such
OID for all days during the taxable year in which such holder holds the debt
instrument, including the purchase date and excluding the disposition date. The
daily portions of OID required to be included in a holder's gross income in a
taxable year will be determined on a constant interest rate basis by allocating
to each day during the taxable year on which the holder holds the debt
instrument a pro rata portion of the OID on such debt instrument which is
attributable to the "accrual period" in which such day is included. The amount
of the OID on a Discount Note attributable to each accrual period will be the
product of (i) its "adjusted issue price" at the beginning of such accrual
period multiplied by (ii) its "yield to maturity." The Discount Note's "yield to
maturity" is that discount rate which, when used in computing the present value
of all principal and stated interest payments to be made on a Discount Note,
produces an amount equal to its issue price. The "adjusted issue price" of a
Discount Note at the beginning of an accrual period will be its issue price plus
the aggregate amount of OID that accrued in all prior accrual periods
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(determined without regard to the rules described below concerning acquisition
premium and bond premium) less any cash payments on the Discount Note.
Acquisition Premium. If a subsequent U.S. Holder purchases a Discount Note
at a cost that exceeds the Discount Note's "adjusted issue price" (as defined
above) on the purchase date but is less than or equal to the sum of all amounts
payable on the Discount Note after the purchase date -- such excess being
"acquisition premium" -- the daily portion of the OID (as otherwise determined)
to be included in income by such U.S. Holder will be reduced by an amount equal
to the OID (as otherwise determined to be includible) multiplied by a fraction;
the numerator of which is equal to the amount of such excess and the denominator
of which is the OID for the period remaining after the subsequent purchaser's
purchase to the maturity date of such Discount Note.
Market Discount. Generally, the market discount rules discussed below will
not apply to a U.S. Holder who acquired the Discount Note when it was originally
issued. These rules would apply, however, to any original U.S. Holder whose tax
basis in the Discount Note is less than such Discount Note's "issue price" (as
defined above).
Gain recognized on the disposition (including a redemption) by a subsequent
purchaser of a Discount Note that has accrued market discount will be treated as
ordinary income, and not capital gain, to the extent of the accrued market
discount, provided that the amount of market discount exceeds a
statutorily-defined de minimis amount. "Market discount" is defined as the
excess, if any, of (i) the stated redemption price at maturity or, in the case
of a debt obligation issued with OID (such as the Discount Notes), the "revised
issue price" (as defined below) over (ii) the tax basis of the debt obligation
in the hands of the holder immediately after its acquisition. The "revised issue
price" of a debt obligation equals the sum of its issue price and the total
amount of OID includible in the gross income of all holders for periods before
the acquisition of the debt obligation by the current holder (without regard to
any reduction in such income resulting from acquisition premium) and less any
cash payments in respect of such debt obligation.
Under the de minimis exception, there is no market discount if the excess
of the stated redemption price at maturity of the obligation (or its "revised
issue price" in the case of an obligation issued with OID) over the holder's tax
basis in the obligation is less than 0.25% of the stated redemption price at
maturity (or its "revised issue price") multiplied by the number of complete
years after the acquisition date to the Discount Note's date of maturity. Unless
the holder elects otherwise, the accrued market discount would be the amount
calculated by multiplying the market discount by a fraction, the numerator of
which is the number of days the obligation has been held by the holder and the
denominator of which is the number of days after the holder's acquisition of the
obligation up to and including its maturity date.
If a U.S. Holder of a Discount Note acquired at market discount disposes of
such Discount Note in any transaction other than a sale, exchange or involuntary
conversion, even though otherwise non-taxable (e.g., a gift), such U.S. Holder
will be deemed to have realized an amount equal to the fair market value of the
Discount Note and would be required to recognize as ordinary income any accrued
market discount to the extent of the deemed gain. A holder of a Discount Note
acquired at a market discount also may be required to defer the deduction of all
or a portion of the interest on any indebtedness incurred or maintained to carry
the Discount Note until it is disposed of in a taxable transaction.
A U.S. Holder of a Discount Note acquired at market discount may elect to
include the market discount in income as it accrues. This election would apply
to all market discount obligations acquired by the electing U.S. Holder on or
after the first day of the first taxable year to which the election applies. The
election may be revoked only with the consent of the Service. If a U.S. Holder
of a Discount Note so elects to include market discount in income currently, the
above-discussed rules with respect to ordinary income recognition resulting from
sales and certain other disposition transactions and to deferral of interest
deductions would not apply.
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Bond Premium. If a U.S. Holder purchases a Discount Note at a cost that is
in excess of the amount payable on maturity (such excess being the "bond
premium"), the U.S. Holder is not required to include any OID in gross income.
If the Discount Note has bond premium, a U.S. Holder may elect under Section 171
of the Code to amortize such bond premium on a constant interest basis over the
period from the acquisition date to the maturity date of such Discount Note and,
except as future Treasury Regulations may otherwise provide, reduce the amount
of interest included in income in respect of the Discount Note by such amount. A
U.S. Holder who elects to amortize bond premium must reduce its adjusted basis
in the Discount Note by the amount of such allowable amortization. An election
to amortize bond premium would apply to all amortizable bond premium on all
taxable bonds held at or acquired after the beginning of the U.S. Holder's
taxable year as to which the election is made, and may be revoked only with the
consent of the Service.
If an election to amortize bond premium is not made, a U.S. Holder must
include the full amount of each interest payment in income in accordance with
its regular method of accounting and will generally receive a tax benefit from
the bond premium only upon computing its gain or loss upon the sale or other
disposition or payment of the principal amount of the Discount Note.
Tax Basis. A U.S. Holder's initial tax basis in a Discount Note will be
equal to the purchase price paid by such U.S. Holder for such Discount Note.
A U.S. Holder's tax basis in a Discount Note will be increased by the
amount of OID that is included in such U.S. Holder's income pursuant to the
foregoing rules through the day preceding the day of disposition (and the
accrual of market discount, if any, which the U.S. Holder elected to include in
gross income on an annual basis) and will be decreased by the amount of any cash
payments received (and the accrual of amortizable bond premium, if any, which
the U.S. Holder elected to deduct on an accrual basis).
Sale or Redemption. Unless a nonrecognition provision applies, the sale,
exchange, redemption (including pursuant to an offer by the Company) or other
disposition of a Discount Note will be a taxable event for federal income tax
purposes. In such event, a U.S. Holder will recognize gain or loss equal to the
difference between (i) the amount of cash plus the fair market value of any
property received (other than in respect of accrued and unpaid interest thereon)
and (ii) the U.S. Holder's adjusted tax basis therein (other than any tax basis
attributable to accrued and unpaid interest). Subject to the discussion above
under "-- Market Discount," such gain or loss should be capital gain or loss and
will be long-term capital gain or loss if the Discount Note had been held by the
U.S. Holder for more than one year at the time of such sale, exchange,
redemption or other disposition. Any such gain realized by a U.S. Holder will be
treated as U.S. source income for U.S. foreign tax credit limitation purposes.
There is a substantial risk, however, that any loss realized upon such a sale,
exchange, redemption or other disposition of a Discount Note will be allocated
against foreign source passive income (or, for U.S. Holders that are "financial
services entities" as defined in Regulations under the Code, financial services
income) for U.S. foreign tax credit limitation purposes by reference to the
income arising under the Discount Note.
Election to Treat all Interest as OID. A U.S. Holder of a Discount Note,
subject to certain limitations, may elect to include in gross income for federal
income tax purposes all interest that accrues on the Discount Note by using the
constant interest method described above. For purposes of the election, interest
includes stated and unstated interest, acquisition discount, OID, market
discount and de minimis market discount, as adjusted by an amortizable bond
premium or acquisition premium. Such an election, if made in respect of a
Discount Note with market discount or bond premium, will constitute the
above-discussed elections to include market discount in income currently or to
amortize bond premium, as the case may be. See discussion above under "-- Market
Discount," "-- Acquisition Premium" and "--Bond Premium."
Backup Withholding and Information Reporting. Under the Code, a U.S.
Holder of a Discount Note may be subject, under certain circumstances, to
information reporting and/or backup withholding at a 31% rate with respect to
certain payments in respect of OID, interest or the gross proceeds from
dispositions thereof. This withholding applies only if the U.S. Holder (i) fails
to furnish its social security or other taxpayer identification number ("TIN")
within a reasonable time after a request therefor, (ii) furnishes an incorrect
TIN, (iii) fails to report properly interest, or (iv) fails, under certain
circumstances, to provide a certified statement, signed under penalty of
perjury, that the TIN provided is its correct number and that it is not
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subject to backup withholding. Any amount withheld from a payment to a U.S.
Holder under the backup withholding rules is allowable as a credit (and may
entitle such holder to a refund) against such holder's federal income tax
liability, provided that the required information is furnished to the Service.
Certain persons are exempt from backup withholding, including corporations,
financial institutions and non-U.S. persons, provided the required
certifications are provided to the Company or its agents.
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UNDERWRITING
Under the terms and subject to the conditions in an Underwriting Agreement
dated the date hereof, Morgan Stanley & Co. Incorporated and Chase Securities
Inc. (the "Underwriters") have agreed to purchase, and Kabelmedia has agreed to
sell to the Underwriters, the following respective principal amounts of Discount
Notes:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
AT MATURITY OF
DISCOUNT NOTES
----------------
<S> <C>
Morgan Stanley & Co. Incorporated.................................... $
Chase Securities Inc.................................................
----------------
Total.............................................................. $
=============
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the Discount Notes is subject to
the approval of certain legal matters by counsel for the Underwriters and to
certain other conditions. The Underwriters are obligated to take and pay for all
the Discount Notes if any are taken.
The Underwriters propose to offer part of the Discount Notes directly to
the public at the public offering price set forth on the cover page hereof and
part to certain dealers at a price that represents a concession not in excess of
% of the principal amount of the Discount Notes. The Underwriters may
allow, and such dealers may reallow, a concession, not in excess of % of
the principal amount of the Discount Notes, to certain other dealers.
Each Underwriter has agreed that: (a) it has not offered or sold and will
not offer to sell any Discount Notes to persons in the United Kingdom prior to
admission of the Discount Notes to listing in accordance with Part IV of the
Financial Services Act 1986 (the "Act"), except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995 or the Act; (b) it has complied and will
comply with all applicable provisions of the Act with respect to anything done
by it in relation to the Discount Notes in, from or otherwise involving the
United Kingdom; and (c) it has only issued or passed on, and will only issue or
pass on, in the United Kingdom any document received by it in connection with
the issue of the Discount Notes other than any document which consists of or any
part of listing particulars, supplementary listing particulars or any other
document required or permitted to be published by listing rules under Part IV of
the Act, to a person who is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995
or is a person to whom the document may otherwise lawfully be issued or passed
on.
Because more than 10% of the net proceeds of the Offering, not including
the underwriting compensation, will be used to repay amounts outstanding under
the Prior Bank Facilities for the benefit of Chase Securities Inc., a member of
the National Association of Securities Dealers, Inc. (the "NASD") who is
participating in the Offering as an Underwriter, the Offering is being conducted
pursuant to Article III, Section 44(c)(8) of the NASD Rules of Fair Practice.
See "Risk Factors -- Certain Interests of Affiliates of the Underwriters," "Use
of Proceeds" and "Certain Related Party Transactions -- Certain Interests of
Affiliates of the Underwriters." In accordance with these provisions, Morgan
Stanley & Co. Incorporated is acting as qualified independent underwriter
("QIU"), and the yield on the Discount Notes will be no lower than that
recommended by the QIU. The QIU has participated in the preparation of the
Registration Statement of which this Prospectus is a part and has performed due
diligence with respect thereto.
Kabelmedia has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
Kabelmedia has been advised by the Underwriters that they presently intend
to make a market in the Discount Notes, as permitted by applicable laws and
regulations. The Underwriters are not obligated,
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however, to make a market in the Discount Notes and any such market-making may
be discontinued at any time without notice, at the sole discretion of the
Underwriters. Accordingly, no assurance can be given as to the liquidity of, or
trading markets for, the Discount Notes. See "Risk Factors -- Lack of an
Established Market for the Discount Notes."
LEGAL MATTERS
The validity of the Discount Notes offered hereby will be passed upon for
the Company by Baker & McKenzie, New York, New York. Certain legal matters in
connection with the Offering will be passed upon for the Underwriters by
Shearman & Sterling, New York, New York.
EXPERTS
The consolidated balance sheets of Kabelmedia Holding GmbH and subsidiaries
as of December 31, 1995 and 1994 and the related consolidated statements of
operations, shareholders' equity (deficiency) and cash flows for each of the
three years in the period ended December 31, 1995; the balance sheet of Antech
Gesellschaft fur Vermietung und Vertrieb von Satelliten-und
Kabelfernsehempfangsanlagen mbH as of December 31, 1993 and the related
statements of operations and accumulated deficit and cash flows for the period
January 1, 1994 through November 23, 1994 and for the year ended December 31,
1993; the consolidated balance sheet of PKG Holding GmbH as of December 31, 1994
and the related consolidated statements of operations and accumulated deficit
and cash flows for the year then ended; the combined balance sheet of PKG Mature
Networks as of December 31, 1994 and the related combined statements of
operations, shareholders' equity and cash flows for the year then ended; the
balance sheet of TELECable Betriebsgesellschaft Halle mbH as of December 31,
1994 and the related statements of operations, shareholders' deficiency and cash
flows for the eight months ended August 31, 1995 and for each of the two years
in the period ended December 31, 1994; the combined balance sheets of the BFR
Group (Osnabruck and Angelbachtel Operations) as of December 31, 1994 and the
related combined statements of operations, shareholders' equity (deficiency) and
cash flows for the nine months ended September 30, 1995 and for each of the two
years in the period ended December 31, 1994; the statements of operations and
cash flows of the BFR Group (Berlin and Bielefeld Operations) for the nine
months ended September 30, 1995; the balance sheets of KSW GmbH & Co., KG Kabel-
und Satellitenempangsanlagen fur Wohngebiete und Kommunen as of December 31,
1994 and 1993 and the related statements of operations for the years then ended;
the combined balance sheets of the BTV Group at December 31, 1995 and 1994 and
the related combined statements of operations for the years then ended;
appearing in this Prospectus have been audited by Ernst & Young GmbH,
independent auditors, as set forth in their reports thereon appearing elsewhere
herein and in the Registration Statement, and are included in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
The consolidated balance sheet of PKG Holding GmbH as of December 31, 1993
and the related statements of operations and accumulated deficit and cash flows
for the year then ended; the balance sheets of Kabel Plus Gesellschaft fur
Kabel- und Satellitfernsehen mbH as of December 31, 1994 and 1993 and the
related statements of operations for the years then ended; the balance sheets of
Wiedmann-Dettwiler St. Georgen GmbH as of December 31, 1994 and 1993 and the
related statements of operations for the years then ended; appearing in this
Prospectus have been audited by Arthur Andersen GmbH, independent auditors, as
set forth in their report thereon appearing elsewhere herein, and are included
in reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The balance sheet of Kabel-Fernsehen Leipzig GmbH as of December 31, 1993
and the related statements of income and cash flows for the year then ended have
been audited by Wollert-Elmendorff Deutsche Industrie-Treuhand GmbH, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
128
<PAGE> 131
AVAILABLE INFORMATION
Kabelmedia has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act of 1933, as amended (the "Securities Act"), of
which this Prospectus is a part, with respect to the Discount Notes offered
hereby. This Prospectus, filed as a part of the Registration Statement, omits
certain information contained in the Registration Statement, and reference is
made to the Registration Statement for further information with respect to
Kabelmedia and the Discount Notes offered hereby. Statements contained herein
concerning the provisions of documents are necessarily summaries of such
documents and when any such document is an exhibit to the Registration
Statement, each such statement is qualified in its entirety by reference to the
copy of such document filed with the Commission.
Kabelmedia will be subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), upon the
consummation of the Offering, and in accordance therewith will file all reports
and other information as required thereby with the Commission. Such reports and
other information filed by Kabelmedia can be inspected and copied at the public
reference facilities of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 and the regional offices of the Commission located at 7 World Trade
Center, New York, New York 10048 and 500 West Madison Street, 14th Floor,
Chicago, Illinois 60661. Copies of such materials may be obtained from the
Commission's Public Reference Section, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at its public reference facilities in New York, New
York and Chicago, Illinois at prescribed rates.
So long as Kabelmedia is subject to the periodic reporting requirements of
the Exchange Act, it is required to furnish the information required to be filed
with the Commission to the Trustee and the holders of the Discount Notes.
Notwithstanding that Kabelmedia may not be required to remain subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act or otherwise
report on an annual and quarterly basis on forms provided for such annual and
quarterly reporting pursuant to rules and regulations promulgated by the
Commission, Kabelmedia will file with the Commission and provide to the Trustee
and to the Holders annual audited financial statements and quarterly unaudited
financial statements, along in each case with a management's discussion and
analysis thereof, all in the form Kabelmedia would be required to file were it
subject to such reporting requirements. Kabelmedia will not be obligated to file
any such reports with the Commission if the Commission does not permit such
filings.
129
<PAGE> 132
INDEX TO FINANCIAL STATEMENTS
HISTORICAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
KABELMEDIA HOLDING GMBH
Independent Auditors Report............................................... F-4
Consolidated Balance Sheets at December 31, 1994 and 1995 and March 31,
1996 (unaudited)....................................................... F-5
Consolidated Statements of Operations for the years ended December 31,
1993,
1994 and 1995 and for the three months ended March 31, 1996
(unaudited)............................................................ F-6
Consolidated Statements of Shareholders' Equity (Deficiency) for the years
ended December 31, 1993, 1994 and 1995 and for the three months ended
March 31, 1996 (unaudited)............................................. F-7
Consolidated Statements of Cash Flows for the years ended December 31,
1993,
1994 and 1995 and for the three months ended March 31, 1996
(unaudited)............................................................ F-8
Notes to Consolidated Financial Statements................................ F-9
ANTECH GESELLSCHAFT FUR VERMIETUNG UND VERTRIEB VON SATELLITEN-UND
KABELFERNSEHEMPFANGSANLAGEN MBH
Independent Auditors Report............................................... F-19
Balance Sheet at December 31, 1993........................................ F-20
Statements of Operations and Accumulated Deficit for the year ended
December 31, 1993 and for the period January 1, 1994 through November
23, 1994............................................................... F-21
Statements of Cash Flows for the year ended December 31, 1993 and for the
period January 1, 1994 through November 23, 1994....................... F-22
Notes to Financial Statements............................................. F-23
PKG HOLDING GMBH
Independent Auditors Report............................................... F-29
Consolidated Balance Sheet at December 31, 1994........................... F-30
Consolidated Statement of Operations and Accumulated Deficit for the year
ended December 31, 1994................................................ F-31
Consolidated Statement of Cash Flows for the year ended December 31,
1994................................................................... F-32
Notes to Consolidated Financial Statements................................ F-33
Independent Auditors Report............................................... F-39
Consolidated Balance Sheet at December 31, 1993........................... F-40
Consolidated Statement of Operations and Accumulated Deficit for the year
ended December 31, 1993................................................ F-41
Consolidated Statement of Cash Flows for the year ended December 31,
1993................................................................... F-42
Notes to Consolidated Financial Statements................................ F-43
KABEL-FERNSEHEN LEIPZIG GMBH
Independent Auditors Report............................................... F-49
Balance Sheet at December 31, 1993........................................ F-50
Statement of Income for the year ended December 31, 1993.................. F-52
Statement of Cash Flows for the year ended December 31, 1993.............. F-53
Notes to Financial Statements............................................. F-54
</TABLE>
F-1
<PAGE> 133
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
PKG MATURE NETWORKS
Independent Auditors Report............................................... F-57
Combined Balance Sheet at December 31, 1994............................... F-58
Combined Statement of Operations for the year ended December 31, 1994..... F-59
Combined Statement of Shareholders' Equity for the year ended December 31,
1994................................................................... F-60
Combined Statement of Cash Flows for the year ended December 31, 1994..... F-61
Notes to Combined Financial Statements.................................... F-62
KABEL-PLUS GESELLSCHAFT FUR KABEL-UND SATELLITFERNSEHEN MBH
Report of Independent Auditors............................................ F-67
Balance Sheet at December 31, 1994........................................ F-69
Statement of Operations for the year ended December 31, 1994 and for the
five months ended May 31, 1995......................................... F-70
Notes to Financial Statements............................................. F-71
Management Report......................................................... F-75
Report of Independent Auditors............................................ F-76
Balance Sheet at December 31, 1993........................................ F-78
Statement of Operations for the year ended December 31, 1993.............. F-79
Notes to Financial Statements............................................. F-80
Management Report......................................................... F-84
WIEDMANN- DETTWILER ST. GEORGEN GMBH
Report of Independent Auditors............................................ F-85
Balance Sheet at December 31, 1994........................................ F-87
Statement of Operations for the year ended December 31, 1994 and for the
five months ended May 31, 1995......................................... F-88
Notes to Financial Statements............................................. F-89
Management Report......................................................... F-94
Report of Independent Auditors............................................ F-95
Balance Sheet at December 31, 1993........................................ F-97
Statement of Operations for the year ended December 31, 1993.............. F-98
Notes to Financial Statements............................................. F-99
Management Report......................................................... F-104
TELECABLE BETRIEBSGESELLSCHAFT HALLE MBH
Independent Auditors Report............................................... F-105
Balance Sheet at December 31, 1994........................................ F-106
Statements of Operations for the years ended December 31, 1993 and 1994
and for the eight month period ended August 31, 1995................... F-107
Statements of Shareholders' Deficiency for the years ended December 31,
1993 and 1994 and for the eight month period ended August 31, 1995..... F-108
Statements of Cash Flows for the years ended December 31, 1993 and 1994
and for the eight month period ended August 31, 1995................... F-109
Notes to Financial Statements............................................. F-110
</TABLE>
F-2
<PAGE> 134
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
BFR GROUP (OSNABRUCK AND ANGELBACHTAL OPERATIONS)
Independent Auditors Report............................................... F-116
Combined Balance Sheet at December 31, 1994............................... F-117
Combined Statements of Operations for the years ended December 31, 1993
and 1994 and for the nine month period ended September 30, 1995........ F-118
Combined Statements of Shareholders' Equity (Deficiency) for the years
ended December 31, 1993 and 1994 and for the nine month period ended
September 30, 1995..................................................... F-119
Combined Statements of Cash Flows for the years ended December 31, 1993
and 1994 and for the nine month period ended September 30, 1995........ F-120
Notes to Combined Financial Statements.................................... F-121
BFR GROUP (BERLIN AND BIELEFELD OPERATIONS)
Independent Auditors Report............................................... F-127
Statement of Operations for the nine month period ended September 30,
1995................................................................... F-128
Statement of Cash Flows for the nine month period ended September 30,
1995................................................................... F-129
Notes to Financial Statements............................................. F-130
KSW GMBH & CO. KG KABEL- UND SATELLITENEMPFANGSANLAGEN FUR
WOHNGEBIETE UND KOMMUNEN
Independent Auditors Report............................................... F-132
Balance Sheets at December 31, 1993 and 1994.............................. F-133
Statements of Operations for the years ended December 31, 1993 and 1994
and nine months ended September 30, 1995 (unaudited)................... F-134
Notes to Financial Statements............................................. F-135
BTV GROUP
Independent Auditors Report............................................... F-140
Combined Balance Sheets at December 31, 1994 and 1995..................... F-141
Combined Statements of Operations for the years ended December 31, 1994
and 1995............................................................... F-142
Notes to the Combined Financial Statements................................ F-143
</TABLE>
F-3
<PAGE> 135
INDEPENDENT AUDITORS REPORT
To the Board of Directors,
Kabelmedia Holding GmbH
We have audited the accompanying consolidated balance sheets of Kabelmedia
Holding GmbH and subsidiaries as of December 31, 1995 and 1994 and the related
consolidated statements of operations, shareholders' equity (deficiency) and
cash flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Kabelmedia
Holding GmbH and subsidiaries at December 31, 1995 and 1994 and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with accounting principles
generally accepted in the United States of America.
Ernst & Young GmbH
Frankfurt, Germany
February 28, 1996,
except for Note 1, as to which the date is May 21, 1996.
F-4
<PAGE> 136
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------------------- --------------------------
1994 1995 1995 1996 1996
------- ------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C>
DM DM U.S.$ DM U.S.$
(UNAUDITED) (UNAUDITED)
ASSETS
Cash (Note 6)........................... 2,478 7,866 5,327 6,297 4,264
Accounts receivable -- net.............. 340 2,291 1,552 3,044 2,061
Inventory............................... 558 1,185 802 1,389 941
Property, plant and equipment -- net
(Note 5).............................. 32,065 235,327 159,371 236,329 160,049
Goodwill -- net (Note 2)................ 19,889 153,155 103,721 162,872 110,302
Investment advance (Note 3)............. 66,783 -- -- -- --
Other assets............................ 6,116 21,041 14,250 20,808 14,092
------- ------- ------- --------- ---------
TOTAL ASSETS............................ 128,229 420,865 285,023 430,739 291,709
======= ======= ======= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Accounts payable........................ 3,258 13,930 9,434 8,259 5,593
Accrued expenses and other
liabilities........................... 5,025 21,540 14,588 29,136 19,732
Deferred revenue........................ 1,514 9,830 6,657 10,474 7,093
Bank debt (Note 6)...................... 47,178 228,812 154,959 243,566 164,950
Subordinated Shareholder Loans (Note
11)................................... 63,584 172,638 116,915 177,134 119,961
------- ------- ------- --------- ---------
TOTAL LIABILITIES....................... 120,559 446,750 302,553 468,569 317,329
Minority interest in subsidiaries....... -- 1,727 1,169 450 304
Commitments and contingencies (Notes 8
and 9)................................
SHAREHOLDERS' EQUITY (DEFICIENCY)
Registered capital (Note 10)............ 100 100 68 100 68
Capital contributions................... 15,187 18,187 12,317 18,187 12,317
Accumulated deficit..................... (7,617) (45,899) (31,084) (56,567) (38,309)
------- ------- ------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY
(DEFICIENCY).......................... 7,670 (27,612) (18,699) (38,280) (25,924)
------- ------- ------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY -- (DEFICIENCY)................ 128,229 420,865 285,023 430,739 291,709
======= ======= ======= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 137
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, FOR THE THREE MONTHS ENDED MARCH 31,
----------------------------------------- -------------------------------------------
1993 1994 1995 1995 1995 1996 1996
------ ------ ------- ------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
DM DM DM U.S.$ DM DM U.S.$
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Revenues....................... 2,220 4,551 33,510 22,694 5,604 15,327 10,380
Operating costs and expenses...
Operations................... 219 1,275 6,663 4,512 855 2,919 1,977
Selling, general and
administrative............. 987 2,504 14,465 9,796 3,027 4,370 2,959
Depreciation and
amortization............... 1,460 3,028 23,685 16,040 4,122 10,731 7,267
------ ------ ------- ------- ------- ------- -------
Total.......................... 2,666 6,807 44,813 30,348 8,004 18,020 12,203
------ ------ ------- ------- ------- ------- -------
Operating loss................. (446) (2,256) (11,303) (7,654) (2,400) (2,693) (1,823)
Interest expense:
Bank debt.................... 328 1,671 11,691 7,918 1,902 4,106 2,781
Subordinated Shareholder
Loans...................... 727 2,189 13,652 9,246 2,706 4,495 3,044
Minority interest in net loss
of subsidiaries.............. -- -- 118 80 21 27 18
------ ------ ------- ------- ------- ------- -------
Loss before income taxes....... (1,501) (6,116) (36,528) (24,738) (6,987) (11,267) (7,630)
Income tax benefit............. -- -- 916 620 -- 599 406
------ ------ ------- ------- ------- ------- -------
Net loss before extraordinary
item......................... (1,501) (6,116) (35,612) (24,118) (6,987) (10,668) (7,224)
Extraordinary item............. -- -- 2,670 1,808 -- --
------ ------ ------- ------- ------- ------- -------
Net loss....................... (1,501) (6,116) (38,282) (25,926) (6,987) (10,668) (7,224)
====== ====== ======= ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE> 138
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIENCY)
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
SHAREHOLDERS'
REGISTERED CAPITAL ACCUMULATED EQUITY
CAPITAL CONTRIBUTIONS DEFICIT (DEFICIENCY)
---------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
DM DM DM DM
Initial capitalization January 1,
1993.................................. 50 -- -- 50
Net loss................................ -- -- (1,501) (1,501)
Additional shareholder contribution..... -- 400 -- 400
---- ------- ------- -------
Balance at December 31, 1993............ 50 400 (1,501) (1,051)
Net loss................................ -- -- (6,116) (6,116)
Additional shareholder contribution..... 50 14,787 -- 14,837
---- ------- ------- -------
Balance at December 31, 1994............ 100 15,187 (7,617) 7,670
Net loss................................ (38,282) (38,282)
Additional shareholder contribution..... 3,000 3,000
---- ------- ------- -------
Balance at December 31, 1995............ 100 18,187 (45,899) (27,612)
Net loss (unaudited).................... (10,668) (10,668)
---- ------- ------- -------
Balance at March 31, 1996 (unaudited)... 100 18,187 (56,567) (38,280)
==== ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements
F-7
<PAGE> 139
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------- -----------------------------------------
1993 1994 1995 1995 1995 1996 1996
------- ------- -------- ------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
DM DM DM U.S. $ DM DM U.S. $
(UNAUDITED) (UNAUDITED) (UNAUDITED)
OPERATING ACTIVITIES
Net loss................................ (1,501) (6,116) (38,282) (25,926) (6,987) (10,668) (7,224)
Adjustments to reconcile net loss to net
cash provided by (used for) operating
activities:
Extraordinary loss on extinguishment
of debt............................. -- -- 2,670 1,808 -- -- --
Depreciation and amortization......... 1,460 3,028 23,685 16,040 4,122 10,731 7,267
Accrued interest on Subordinated
Shareholder Loans................... 727 2,189 13,652 9,246 2,706 4,495 3,044
Amortization of loan financing fees... -- 316 515 349 103 183 124
Deferred income taxes................. -- -- (1,020) (690) -- (750) (508)
Amortization of purchased deferred
revenues............................ -- (128) (1,004) (680) (31) (533) (361)
Minority interest in loss............. -- -- (118) (80) (21) (27) (18)
Changes in assets and liabilities, net
of effects of business acquisitions:
Accounts receivable................... (19) (53) 2,781 1,883 (451) (614) (416)
Inventories........................... (176) 105 615 416 374 (61) (41)
Other assets.......................... (87) (517) 3,445 2,333 179 (3,417) (2,314)
Accounts payable...................... 1,471 (333) 72 48 4,307 (5,898) (3,994)
Accrued expenses and other
liabilities......................... (93) 2,359 (9,099) (6,162) (3,788) 8,630 5,844
Deferred revenue...................... 19 228 (36) (24) (122) 1,177 797
------- ------- -------- ------- ------- ------- -------
Net cash provided by (used in) operating
activities............................ 1,801 1,078 (2,124) (1,439) 391 3,248 2,200
INVESTING ACTIVITIES
Purchases of property, plant and
equipment............................. (6,635) (5,617) (10,955) (7,419) (2,038) (2,891) (1,958)
Prepayments for investment advance...... -- (66,783) -- -- -- -- --
Acquisition of businesses, less cash
acquired.............................. (4,203) (16,047) (118,445) (80,214) (5,312) (11,951) (8,094)
Acquisition of other assets............. (783) (433) (593) (401) (132) (105) (71)
------- ------- -------- ------- ------- ------- -------
Net cash used for investing
activities............................ (11,621) (88,880) (129,993) (88,034) (7,482) (14,947) (10,123)
FINANCING ACTIVITIES
Proceeds from debt...................... 5,343 40,322 177,311 120,080 -- 15,000 10,158
Increase in registered capital.......... -- 50 -- -- -- -- --
Contributions to capital................ -- 14,787 3,000 2,031 3,000 -- --
Payments of acquired debt............... -- (17,116) (132,804) (89,939) (15,691) (4,625) (3,132)
Payments of capitalized bank financing
costs................................. -- (3,079) (6,047) (4,095) -- -- --
Proceeds from (payments of) bank
overdrafts............................ -- (1,324) 638 432 369 (245) (166)
Proceeds from Subordinated Shareholder
Loans................................. 4,500 56,561 95,407 64,613 18,691 -- --
------- ------- -------- ------- ------- ------- -------
Net cash provided by financing
activities............................ 9,843 90,201 137,505 93,122 6,369 10,130 6,860
Net increase (decrease) in cash and cash
equivalents........................... 23 2,399 5,388 3,649 (722) (1,569) (1,063)
Cash and cash equivalents at beginning
of period............................. 56 79 2,478 1,678 2,478 7,866 5,327
------- ------- -------- ------- ------- ------- -------
Cash and cash equivalents at end of
period................................ 79 2,478 7,866 5,327 1,756 6,297 4,264
======= ======= ======== ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements
F-8
<PAGE> 140
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. FORMATION OF BUSINESS AND BASIS OF PRESENTATION
Kabelmedia Holding GmbH, formerly Kabelmedia Beteiligungs GmbH (the
"Company" or "Kabelmedia"), was formed in December 1994 to acquire, own and
operate cable television systems serving communities throughout Germany. On May
21, 1996 the shareholders of Kabelvision Beteiligungs GmbH ("Kabelvision"), a
company controlled by certain shareholders of Kabelmedia, and the shareholders
of Kabelmedia proposed that Kabelvision be merged with and into the Company.
Furthermore, it was proposed that the Subordinated Shareholder Loans (including
accrued interest) be contributed to the capital of Kabelmedia. Kabelvision was
founded in 1992 to acquire, own and operate cable television systems serving
communities throughout Germany. Kabelvision began operations in 1993 when their
first cable system was acquired. The accompanying financial statements have been
prepared as if the merger occurred January 1, 1993, using the historical costs
of each entity as if the merger were a pooling of interests.
The accompanying financial statements have been prepared in accordance with
United States generally accepted accounting principles ("U.S. GAAP") including
those principles specific to the cable television industry. The Company
maintains its financial records in accordance with the German Commercial Code,
which represents generally accepted accounting principles in Germany ("German
GAAP"). Generally accepted accounting principles in Germany vary in certain
significant respects from U.S. GAAP. Accordingly, the Company has recorded
certain adjustments in order that these financial statements be in accordance
with U.S. GAAP.
Solely for the convenience of the reader, the accompanying consolidated
financial statements as of and for the year ended December 31, 1995 and for the
three months ended March 31, 1996 (unaudited) have been translated into United
States dollars ("U.S. $") at the rate of DM1.4766 per $1.00 the Noon Buying Rate
of the Federal Reserve Bank of New York on March 29, 1996. The translations
should not be construed as a representation that the amounts shown could have
been, or could be, converted into U.S. dollars at that or any other rate.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
CASH EQUIVALENTS
All highly liquid investments purchased with an original maturity of three
months or less are considered cash equivalents.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrated
credit risks consist primarily of cash and trade receivables. Credit risk on
trade receivables is minimized as a result of the large and diverse nature of
the Company's customer base. The company maintains cash and cash equivalents,
with various financial institutions located throughout Germany. The Company
policy is designed to limit exposure to any one institution.
REVENUE RECOGNITION
Revenue is comprised of revenue earned from subscription fees and charges
for installation and connections. Revenue is recognized at the time services are
provided to customers.
F-9
<PAGE> 141
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INVENTORIES
Inventories, consisting primarily of supplies used in the construction of
cable television systems, are valued using the first in, first out (FIFO)
method.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost and are comprised
principally of assets used in the development and operation of cable television
systems. These assets are depreciated or amortized in accordance with Statement
of Financial Accounting Standards No. 51 "Financial Reporting by Cable
Television Companies."
Depreciation is provided using the straight-line method over estimated
useful lives as follows: cable television systems: 12 to 20 years; equipment and
fixtures: 3 to 5 years.
GOODWILL
Goodwill consists of the excess purchase price over the fair value of
assets acquired in various acquisitions. Such amounts are generally amortized
using the straight-line method over 12 years. Accumulated amortization for
goodwill is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1995
------- -------
(DM IN THOUSANDS)
<S> <C> <C>
Goodwill................................................................. 796 10,925
</TABLE>
On an ongoing basis management evaluates the amortization periods and the
recoverability of the net carrying value of goodwill by reviewing the
performance of the underlying operations, in particular, the future undiscounted
operating cash flows of the acquired entities.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109. "Accounting for Income Taxes", which has
been applied for all periods presented. Under this method, deferred tax assets
and liabilities are based on differences between financial reporting and tax
bases of assets and liabilities and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to reverse. The
effect of a change in tax rates on deferred tax assets and liabilities is
recognized in the period that includes the enactment date.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments such as cash, accounts
receivable and accounts payable approximate their fair value based on the
short-term maturities of these instruments. The carrying value of bank debt
approximates fair value based on quoted market prices for the same or similar
issues as well as the current rates offered to the Company. The fair value of
Subordinated Shareholder Loans is not determinable.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-10
<PAGE> 142
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INTERIM FINANCIAL STATEMENTS
The unaudited balance sheet as of March 31, 1996 and the related unaudited
statements of operations, shareholders' equity (deficiency) and cash flows for
the three months ended March 31, 1996 and 1995 have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, the unaudited interim financial statements do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. The operating results for the interim
periods are not necessarily indicative of results to be expected for an entire
year.
3. BUSINESS ACQUISITIONS
Kabelmedia and Kabelvision have made a series of acquisitions of cable
television systems and operations. The following table summarizes these
acquisitions through December 31, 1995:
<TABLE>
<CAPTION>
TRANSACTION
DATE COMPANY TYPE
- ---- ------- -----------
<S> <C> <C>
1993 ACQUISITIONS
April 1993............. Kabelfernsehen Plauen GmbH & Co. KG Share
December 1993.......... Adorf Asset
1994 ACQUISITIONS
March 1994............. Seemann GmbH Share
March 1994............. ERKA I Erfurt Asset
March 1994............. Kabelrent Gesellschaft fur den Vertrieb und Service von Share
Medientechnik mbH
November 1994.......... Antech Gesellschaft fur Vermietung und Vertrieb von Share
Satelliten-und Kabelfernsehempfangsanlagen mbH
1995 ACQUISITIONS
January 1995........... APA Basic Beteiligungsgesellschaft mbH Share
PKG Holding GmbH Share
PKG Kabelbetriebsgesellschaft mbH ("PKG Mature Networks") Share
May 1995............... Kabel Plus Gesellschaft fur Kabel und Share
Satellitenfernsehen mbH and
Wiedmann-Dettwiler St. Georgen GmbH Asset
August 1995............ TELECable Betriebsgesellschaft Halle mbH Share
September 1995......... BFR Beteiligungsgesellschaft mbH, Kabelcom GmbH and ISIT Share
GmbH ("BFR Group")
October 1995........... TKB Telekabel Betriebsgesellschaft mbH Share
October 1995........... ERKA II Erfurt Asset
October 1995........... KSW GmbH & Co. KG Kabel- und Satellitenempfangsanlagen fur Share
Wohngebiete und Kommunen
</TABLE>
The acquisitions referred to above have been accounted for using the
purchase method of accounting and accordingly the accompanying financial
statements reflect the results of operation commencing on the acquisition dates.
The aggregate purchase price of the 1993 Acquisitions, including
acquisition costs, consisted of cash of DM4,241,000. These transactions resulted
in goodwill of DM1,108,000.
F-11
<PAGE> 143
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The aggregate purchase price of the 1994 Acquisitions, including
acquisition costs, consisted of cash of DM16,695,000, the assumption of bank
indebtedness and other liabilities of DM17,116,000 and a deferred payment of
DM350,000. These transactions resulted in goodwill of DM19,703,000.
The aggregate purchase price of the 1995 Acquisitions, including
acquisition costs, consisted of cash of DM183,071,000, the assumption of bank
indebtedness and other liabilities of DM133,746,000 and deferred payments of
DM12,583,000. The deferred payments are classified as other liabilities and
represent the remaining purchase price to be paid to the respective sellers for
two separate acquisitions amounting to DM10,000,000 and DM2,583,000. The
purchase price payable of DM10,000,000 is due on December 31, 1998 and is
non-interest bearing. It is included in the balance sheet at its present value
of DM6,919,000 discounted at 12%. The purchase price payable of DM2,583,000 is
due on March 31, 1996 and carries an interest rate based on the Frankfurt
Interbank Offered Rates ("FIBOR") plus 1% (4.87% at December 31, 1995).
Preliminary goodwill on the 1995 Acquisitions amounted to DM143,181,000,
subject to the finalization of certain purchase price adjustments in 1996.
Advance payments for these investments as of December 31, 1994 amounted to
DM66,783,000.
The following represents the unaudited pro forma results of operations as
if the above noted business combinations had occurred at the beginning of the
respective year in which the Companies were acquired as well as at the beginning
of the immediately preceding year:
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
(UNAUDITED)
(DM IN THOUSANDS)
1995 ACQUISITIONS
Revenue................................................................ 45,625 57,043
Net loss before extraordinary item..................................... (52,535) (46,721)
Net Loss............................................................... (52,535) (49,391)
1994 ACQUISITIONS
Revenue................................................................ 5,253 6,877
Net Loss............................................................... (5,283) (9,095)
</TABLE>
The pro forma information given above does not purport to be indicative of
the results that actually would have been obtained if the operations were
combined during the periods presented, and is not intended to be a projection of
future results or trends.
4. INVESTMENT GRANTS
Investment grants from the government for certain acquisitions of property,
plant and equipment are recognized by the Company when estimable and realizable.
The basis of property, plant and equipment is reduced by investment grants
recognized, and depreciated over the useful life of the acquired property.
During 1994 and 1995 fixed assets were reduced by investment grants received of
DM716,000 and DM1,603,000, respectively. No investment grants were received in
1993.
Investment grants received are subject to government review. Management
does not anticipate any significant adjustments to the amount of investment
grants recorded.
F-12
<PAGE> 144
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
-------- --------
(DM IN THOUSANDS)
<S> <C> <C>
Cable television systems............................................... 37,921 250,461
Equipment and fixtures................................................. 712 4,036
-------- --------
Total.................................................................. 38,633 254,497
Less accumulated depreciation.......................................... (6,568) (19,170)
-------- --------
Property, plant and equipment -- net................................... 32,065 235,327
======= =======
</TABLE>
6. BANK DEBT
Bank debt consisted of the following:
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31, -----------
------------------- MARCH 31,
1994 1995 1996
------- ------- -----------
<S> <C> <C> <C>
(DM IN THOUSANDS)
Revolving credit facilities............................... 46,689 222,500 237,500
Bank notes................................................ -- 2,400 2,400
Bank overdrafts........................................... 489 3,912 3,666
------- ------- -------
47,178 228,812 243,566
======= ======= =======
current portion thereof................................... 489 5,663 5,752
</TABLE>
The borrowings under revolving credit facilities included in the Balance
Sheet as of December 31, 1994 (hereafter the "1994 facility") were obtained by
Kabelvision under a credit facility entered into during 1994. The total
aggregate amount of the 1994 facility was DM 74,500,000 plus a secured overdraft
facility of DM 500,000. This facility carried an interest rate based on London
Interbank Offered Rates (hereafter "LIBOR") plus a margin of 2.5%. Interest on
the 1994 facility was payable quarterly. LIBOR at December 31, 1994 was 5.25%.
As of December 31, 1994, DM 27,811,000 and DM 500,000 of the 1994 facility and
secured overdraft facility respectively were unused.
Kabelvision and Kabelmedia (collectively the "Borrowers") entered into two
new revolving credit facilities (hereafter the "1995 facilities") with a number
of banks effective June 28, 1995 and August 18, 1995, respectively. The total
aggregate amount of both 1995 facilities is DM 293,250,000 plus secured
overdraft facilities of DM 1,750,000. A portion of the proceeds received under
the 1995 facilities was used to pay off the 1994 facility existing as of
December 31, 1994.
An extraordinary loss of DM 2,670,000 resulting from the full amortization
of unamortized bank financing fees relating to the 1994 facility was recorded in
1995 upon the payment of amounts outstanding under the 1994 facility.
The 1995 facilities are presented at fair value, estimated based on the
quoted market prices for the same or similar issues as well as the current rates
offered to the Borrowers for debt of the same remaining maturities.
Under the terms of the 1995 facilities, advances paid including any portion
of the secured overdraft facilities made available to the borrower shall later
convert into term loans. The conversion will take place on the earlier of the
date following two years after the effective date of the respective facility, or
at the time in
F-13
<PAGE> 145
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
which the aggregate amount of the respective facility has been utilized. The
term loans are required to be paid in quarterly installments over a seven year
period following the date of conversion into the term loan.
Maturities for the 1995 facilities as of December 31, 1995 (assuming no
further borrowings) are presented as follows:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
<S> <C>
1996......................................................................... --
1997......................................................................... 7,419
1998......................................................................... 19,160
1999......................................................................... 27,196
2000......................................................................... 33,375
Thereafter................................................................... 135,350
-------
222,500
=======
</TABLE>
The interest rates under the 1995 facilities are determined at the time of
borrowing and are based on LIBOR plus a margin of 2.25%. This margin will
decrease to 2.0% or 1.5% provided that the Borrowers can demonstrate that the
total debt-to-annualized cash flow ratio is less than 5.5:1 or 4.00:1
respectively. Interest on the 1995 facilities is payable monthly. LIBOR at
December 31, 1995 was 3.81%. As of December 31, 1995, DM 70,750,000 and DM
1,750,000 of the 1995 facilities and secured overdraft facility, respectively,
were unused. As of March 31, 1996, DM 55,750,000 and DM 1,750,000 of the 1995
facilities and secured overdraft facility, respectively, were unused.
The 1995 facilities are secured through first ranking security interests on
substantially all assets and revenues of the Borrowers and their subsidiaries, a
pledge of the shares of the Borrowers and their subsidiaries, as well as
guarantees from all subsidiaries. In addition, the 1995 facilities contain
certain covenants which, among other things, require the Company to maintain
specified ratios relating to cash flow and total debt to contributed equity. As
of December 31, 1995, the Company had DM 1,363,000 of cash subject to withdrawal
restrictions.
Bank financing fees of DM 6,047,000 relating to the procurement of the 1995
facilities have been capitalized in other assets as of December 31, 1995. They
are being amortized over a period of 8.5 years representing the term of the 1995
facilities. Commitment fees of 0.5% per year are charged on the unused portion
of the respective facilities.
Bank notes as of December 31, 1995 include short and long term notes
amounting to DM 1,500,000 and DM 900,000 respectively. The short term note is
collateralized with certain fixed assets and accounts receivable at one of the
Company's subsidiaries, and carries an interest rate of 5.25%. The long term
note is not collateralized and carries an interest rate of 7.3%.
The aggregate principal payments of these notes for the next five years
subsequent to December 31, 1995 are as follows:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
-----------------
<S> <C>
1996......................................................................... 1,751
1997......................................................................... 334
1998......................................................................... 315
</TABLE>
Bank overdrafts represent a short term financing method commonly used in
Germany. Interest rates ranging from 9.75 to 13.0% are generally charged on such
balances.
F-14
<PAGE> 146
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The weighted average interest rate on bank notes and overdrafts outstanding
at December 31, 1995 approximated 8.14%.
<TABLE>
<CAPTION>
UNAUDITED
YEAR ENDED DECEMBER 31, ---------
------------------------------- MARCH 31,
1993 1994 1995 1996
------- ------- ------- ---------
<S> <C> <C> <C> <C>
(DM IN THOUSANDS)
Cash paid on bank debt during the period for
interest....................................... 312 812 11,166 3,975
</TABLE>
7. INCOME TAXES
The Company and its consolidated subsidiaries each file separate tax
returns in accordance with German tax laws. Under German corporate tax law,
taxes on income are composed of corporate taxes and trade taxes. For financial
reporting purposes, the Company and its consolidated subsidiaries calculate
their respective tax liabilities on a separate return basis which are combined
in the accompanying consolidated financial statements.
The provisions for income taxes consisted of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
------- ------- -------
(DM IN THOUSANDS)
<S> <C> <C> <C>
Current..................................................... -- -- 104
Deferred.................................................... -- -- (1,020)
------- ------- -------
-- -- (916)
======= ======= =======
</TABLE>
Reconciliations between the German corporate statutory tax rate of 50% for
1993 and 45% for 1994 and 1995 and the Company's effective tax rate before
extraordinary item are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
------- ------- -------
(DM IN THOUSANDS)
<S> <C> <C> <C>
Computed income tax benefit at German statutory rate........ (751) (2,753) (16,438)
Change in valuation allowance............................... 985 3,414 19,068
Trade taxes on income, net of corporate tax benefit......... (144) (830) (3,345)
Amortization of goodwill.................................... 12 124 2,023
Other....................................................... (102) 45 (2,224)
------- ------- -------
-- -- (916)
======= ======= =======
</TABLE>
F-15
<PAGE> 147
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of December
31, 1994 and 1995 are presented below:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1994 1995
------- -------
(DM IN THOUSANDS)
<S> <C> <C>
Deferred tax assets
Net operating loss carry forwards.................................... 7,346 31,017
Interest expense on Subordinated Shareholder Loans................... -- 3,672
Other................................................................ 56 894
------- -------
7,402 35,583
less -- valuation allowance.......................................... (5,366) (21,576)
------- -------
2,036 14,007
Deferred tax liabilities
Property, plant and equipment........................................ -- (10,865)
Unamortized bank financing fees...................................... (1,532) (3,156)
Capitalized acquisition costs........................................ (216) (2,757)
Other assets......................................................... (288) (2,567)
------- -------
(2,036) (19,345)
------- -------
-- (5,338)
======= =======
</TABLE>
As of December 31, 1995, the Company and its subsidiaries had available
combined cumulative tax loss carry-forwards for corporate income tax of
approximately DM 58,797,000 and for trade tax on income of approximately DM
49,765,000. Under current German tax laws, these loss carryforwards have an
indefinite life and may be used to offset the Company's and its consolidated
subsidiaries future taxable income.
8. COMMITMENTS
The Company obtains certain programming directly from Deutsche Telekom
through signal delivery contracts. The signal delivery contracts with Deutsche
Telekom are generally for a fixed period of time and are subject to negotiated
renewal. Under these contracts the Company typically pays Deutsche Telekom
either a flat fee or a fee per customer that is determined by reference to a
published fee schedule. As of December 31, 1995, fees payable by the Company to
Deutsche Telekom under its existing contracts ranged from DM 0.57 to DM22.50 per
subscriber per month. For the year ended December 31, 1995 total fees paid to
Deutsche Telekom amounted to approximately DM 2,250,000.
The Company operates primarily in leased facilities and in addition leases
certain technical and office equipment. Lease terms generally range up to 5
years with options to renew at varying terms. Rental expense was DM 102,000, DM
409,000 and DM 1,527,000 in 1993, 1994 and 1995, respectively.
F-16
<PAGE> 148
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum payments under noncancellable operating leases with initial
or remaining terms in excess of one year consisted of the following at December
31, 1995:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
-----------------
<S> <C>
1996...................................................................... 1,606
1997...................................................................... 1,448
1998...................................................................... 1,362
1999...................................................................... 1,203
2000...................................................................... 390
Thereafter................................................................ 179
------
6,188
======
</TABLE>
9. CONTINGENCIES
The Company is subject to legal proceedings and claims which arise in the
ordinary course of business. In the opinion of management, the ultimate
resolution of such legal proceedings and claims will not have a material effect
on the consolidated financial position and results of operations of the Company.
10. REGISTERED CAPITAL
The Company is a limited liability company (hereafter "GmbH") under German
law. Shareholders are generally not liable for the Company's obligations, except
to the extent of their capital investment. Registered capital of a GmbH is not
in the form of shares and does not represent negotiable securities. The minimum
capital requirement for a GmbH is DM 50,000.
Capital contributions represent additional contributions made by the
shareholders in the form of cash or conversion of debt.
11. RELATED PARTY TRANSACTIONS
Subordinated Shareholder Loans due to shareholders represent principal,
accrued interest and an arrangement fee payable due to the Company's majority
shareholder. These loans are subject to annual interest rates ranging between
12% and 20% for the periods presented and are subordinate to bank debt of the
Company and its subsidiaries. The average weighted interest rate on Subordinated
Shareholder Loans at December 31, 1995 was 13.2%. The interest accrues and is
payable with principal in one installment at various dates from March 31, 2002
through December 31, 2003. Interest expense on these loans for the periods
presented amounted to DM 727,000 (including DM 400,000 of arrangement fees), DM
2,189,000 and DM 13,652,000 for 1993, 1994 and 1995, respectively. Accumulated
interest of DM 16,168,000 is included in Subordinated Shareholder Loans at
December 31, 1995.
The arrangement fee payable of DM 400,000 with respect to the initial
Subordinated Shareholder Loans was forgiven and contributed to the capital of
Kabelvision.
Included in other assets are receivables due from officers of DM 10,000 and
DM 76,000 for the years ended December 31, 1994 and 1995, respectively.
12. PENSION AND EMPLOYEE BENEFIT PLANS
The Company provides no significant pension, post retirement or post
employment benefits to its employees.
F-17
<PAGE> 149
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. SUBSEQUENT EVENTS
In January 1996 the Company acquired all of the registered capital of
info-Sat Elektro-und Kommunicationstechnik GmbH for a preliminary purchase price
of DM 10,468,000. The acquisition was financed through proceeds from borrowings
under the 1995 facilities.
F-18
<PAGE> 150
INDEPENDENT AUDITORS REPORT
To the Board of Directors,
Antech Gesellschaft fur Vermietung und Vertrieb von Satelliten-und
Kabelfernsehempfangsanlagen mbH
We have audited the accompanying balance sheet of Antech Gesellschaft fur
Vermietung und Vertrieb von Satelliten- und Kabelfernsehempfangsanlagen mbH as
of December 31, 1993, and the related statements of operations and accumulated
deficit and cash flows for the period January 1, 1994 through November 23, 1994
and for the year ended December 31, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Antech Gesellschaft fur
Vermietung und Vertrieb von Satelliten- und Kabelfernsehempfangsanlagen mbH as
of December 31, 1993 and the results of its operations and its cash flows for
the period January 1, 1994 through November 23, 1994 and for the year ended
December 31, 1993, in conformity with accounting principles generally accepted
in the United States of America.
Ernst & Young GmbH
Frankfurt, Germany
November 23, 1995
F-19
<PAGE> 151
ANTECH GESELLSCHAFT FUR VERMIETUNG UND VERTRIEB VON
SATELLITEN-UND KABELFERNSEHEMPFANGSANLAGEN MBH
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1993
-----------------
<S> <C>
DM
(IN THOUSANDS)
ASSETS
Cash.......................................................................... 3
Accounts receivable -- net.................................................... 103
Inventory (Note 2)............................................................ 356
Prepaid expenses.............................................................. 20
Property, plant and equipment -- net (Note 3)................................. 7,826
Loans and other receivables due from shareholders (Note 11)................... 3,122
Other assets (Note 10)........................................................ 391
-------
TOTAL ASSETS.................................................................. 11,821
=======
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Accounts payable.............................................................. 596
Accrued expenses.............................................................. 147
Deferred gains (Note 1)....................................................... 1,068
Debt (Note 4)................................................................. 7,550
Capital lease obligations (Note 8)............................................ 5,154
-------
TOTAL LIABILITIES............................................................. 14,515
SHAREHOLDERS' DEFICIENCY
Registered capital.......................................................... 50
Accumulated deficit......................................................... (2,744)
-------
TOTAL SHAREHOLDERS' DEFICIENCY................................................ (2,694)
-------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIENCY................................ 11,821
=======
</TABLE>
See accompanying notes to financial statements
F-20
<PAGE> 152
ANTECH GESELLSCHAFT FUR VERMIETUNG UND VERTRIEB VON
SATELLITEN-UND KABELFERNSEHEMPFANGSANLAGEN MBH
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
PERIOD
JANUARY 1, 1994
YEAR ENDED THROUGH
DECEMBER 31, 1993 NOVEMBER 23, 1994
----------------- -----------------
<S> <C> <C>
DM DM
(IN THOUSANDS)
Revenues
Cable services........................................... 966 1,654
Amortization of deferred gains........................... 130 133
Net sales of technical equipment........................... 95 335
------- -------
Total revenues............................................. 1,191 2,122
Operating costs and expenses:
Operations............................................... 177 366
Selling, general and administrative...................... 903 1,144
Depreciation and amortization............................ 540 632
------- -------
Total operating costs and expenses......................... 1,620 2,142
------- -------
Operating loss............................................. (429) (20)
Other income............................................... 10 74
Interest income from related parties....................... 341 234
Interest expense........................................... 1,243 1,484
------- -------
Loss before income taxes................................... (1,321) (1,196)
Provision for income taxes................................. -- --
------- -------
Net loss................................................... (1,321) (1,196)
Accumulated deficit, beginning of period................... (1,423) (2,744)
------- -------
Accumulated deficit, end of period......................... (2,744) (3,940)
======= =======
</TABLE>
See accompanying notes to financial statements
F-21
<PAGE> 153
ANTECH GESELLSCHAFT FUR VERMIETUNG UND VERTRIEB VON
SATELLITEN-UND KABELFERNSEHEMPFANGSANLAGEN MBH
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD
JANUARY 1, 1994
YEAR ENDED THROUGH
DECEMBER 31,1993 NOVEMBER 23,1994
----------------- -----------------
<S> <C> <C>
DM DM
(IN THOUSANDS)
OPERATING ACTIVITIES
Net loss................................................... (1,321) (1,196)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization............................ 540 632
Gain on sale of equipment sold........................... (210) --
Accrued interest......................................... -- 58
Changes in assets and liabilities:
Accounts receivable...................................... 324 39
Inventory................................................ (89) 356
Prepaid expenses......................................... (20) 6
Other assets............................................. (260) 12
Other receivables due from shareholders.................. (422) 865
Accounts payable......................................... (282) (317)
Accrued expenses......................................... (112) (62)
Deferred gains........................................... 80 (114)
------- -------
Net cash provided by (used in) operating activities........ (1,772) 279
INVESTING ACTIVITIES
Purchases of property, plant and equipment................. (3,457) (1,866)
Proceeds from sale of equipment............................ 2,472 --
Loans to shareholders...................................... (450) 250
------- -------
Net cash used in investing activities...................... (1,435) (1,616)
FINANCING ACTIVITIES
Net proceeds from bank overdraft accounts.................. 793 1,155
Proceeds from long-term debt............................... 3,034 1,081
Principal payments on long-term debt and capital lease
obligations.............................................. (619) (901)
------- -------
Net cash provided by financing activities.................. 3,208 1,335
Net increase (decrease) in cash and cash equivalents....... 1 (2)
Cash and cash equivalents at beginning of period........... 2 3
------- -------
Cash and cash equivalents at end of period................. 3 1
======= =======
</TABLE>
See accompanying notes to financial statements
F-22
<PAGE> 154
ANTECH GESELLSCHAFT FUR VERMIETUNG UND VERTRIEB VON
SATELLITEN- UND KABELFERNSEHEMPFANGSANLAGEN MBH
NOTES TO THE FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Antech Gesellschaft fur Vermietung und Vertrieb von Satelliten- und
Kabelfernsehempfangsanlagen mbH (hereafter the "Company"), a German limited
liability company, was founded on January 15, 1991 for the purpose of the
construction, operation and management of satellite and cable television
systems.
Effective November 4, 1994, the shares of the Company were sold to
Kabelvision Beteiligungs GmbH ("Kabelvision"). The sales price of DM 19,901,000
was based on the number of subscribers as of November 23, 1994 adjusted for
certain assets and closing costs and the assumption of liabilities.
The financial statements have been prepared in accordance with United
States generally accepted accounting principles ("U.S. GAAP") including those
principles specific to the cable television industry. The Company maintains its
financial records in accordance with the German Commercial Code, which
represents generally accepted accounting principles in Germany ("German GAAP").
Generally accepted accounting principles in Germany vary in certain significant
respects from U.S. GAAP. Accordingly, the Company has recorded certain
adjustments in order that these financial statements be in accordance with the
U.S. GAAP.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents. As of December 31,
1993, the Company held no cash equivalents.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrated
credit risks consist primarily of accounts receivable. Credit risk on accounts
receivable is minimized as a result of the large and diverse nature of the
Company's customer base.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and are comprised
principally of assets used in the development and operation of cable television
systems. These assets, which include assets recorded under capital leases, are
depreciated or amortized in accordance with the United States Statement of
Financial Accounting Standards No. 51 "Financial Reporting by Cable Television
Companies".
Depreciation is provided using the straight-line method over estimated
useful lives as follows: cable television systems: 15 years; equipment and
fixtures: 2 to 5 years.
INVESTMENT GRANTS
Investment grants received from the government for certain acquisitions of
property, plant and equipment are recognized by the Company when estimable and
realizable. The basis of property, plant and equipment is reduced by investment
grants and depreciated over the useful life of the acquired property. As of
December 31, 1993 property, plant and equipment was reduced by DM 381,000
relating to the recording of investment grants.
Investment grants are subject to government review. Management does not
anticipate significant adjustments to the amount of investment grants recorded.
F-23
<PAGE> 155
ANTECH GESELLSCHAFT FUR VERMIETUNG UND VERTRIEB VON
SATELLITEN- UND KABELFERNSEHEMPFANGSANLAGEN MBH
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful accounts as of December 31, 1993 was DM 82,000.
LEASES
The Company has entered into several agreements for the sale and leaseback
of certain of its cable television systems which have resulted in the
realization of gains. These gains have been deferred and amortized over the
terms of the applicable lease. The noncancellable leaseback agreements, with
terms ranging from 48 to 165 months, are classified as capital leases.
In addition, the Company leases or subleases cable television systems to
building owners and homeowner associations under operating leases.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes", which has
been applied for all periods presented. Deferred income taxes and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect of a
change in tax rates on deferred tax assets and liabilities is recognized in the
period that includes the enactment date.
2. INVENTORY
Inventory is recorded at the lower of cost (first-in, first-out) or market
and consists primarily of supplies used in repairs and maintenance and materials
used in the construction of cable television systems.
3. PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment at December 31, 1993 are as
follows:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
-----------------
<S> <C>
Cable television systems..................................................... 9,047
Equipment and fixtures....................................................... 77
-------
Total........................................................................ 9,124
Less-accumulated depreciation................................................ (1,298)
-------
Property, plant and equipment -- net......................................... 7,826
=======
</TABLE>
F-24
<PAGE> 156
ANTECH GESELLSCHAFT FUR VERMIETUNG UND VERTRIEB VON
SATELLITEN- UND KABELFERNSEHEMPFANGSANLAGEN MBH
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
4. DEBT
Total debt outstanding at December 31,1993 is as follows:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
-----------------
<S> <C>
Bank loans
10.50% Notes payable due between October 31, 2000 and November 30, 2004,
payable in monthly installments of DM 36,000, including interest........ 2,411
7.95% Term note payable due in full January 30, 2000....................... 2,400
Various bank overdraft accounts with interest rates ranging from 11% to
12%..................................................................... 1,454
Other........................................................................ 1,285
------
7,550
======
</TABLE>
The weighted average interest rate on short term borrowings outstanding at
December 31, 1993 approximated 11.3%. Total interest paid for the year ended
December 31, 1993 and the period January 1, 1994 through November 23, 1994
amounted to DM 1,229,000 and DM 1,444,000, respectively.
Collateral provided under various debt agreements include the assignment of
lease and sublease receivables, security interest in certain cable television
systems, a blanket mortgage of DM 1,250,000, personal guarantees of shareholders
and assignment of life insurance policies of shareholders. The carrying value of
the Company's assets which have been collateralized under the various debt
agreements approximate DM 2,820,000 as of December 31, 1993.
Annual maturities of debt at December 31, 1993 are as follows:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
-----------------
<S> <C>
1994...................................................................... 1,864
1995...................................................................... 361
1996...................................................................... 460
1997...................................................................... 561
1998...................................................................... 666
Thereafter................................................................ 3,638
-------
7,550
==============
</TABLE>
In connection with the sale of the Company, the above debt was paid by the
purchaser.
5. INCOME TAXES
The Company files a separate tax return in accordance with German tax laws.
Under German corporate tax law, taxes on income are comprised of corporate taxes
and trade taxes. As of December 31, 1993, the Company had available cumulative
tax loss carry-forwards for corporate income tax of approximately DM 1,688,000
and for trade tax on income of approximately DM 812,000. Under current German
tax laws, these loss carryforwards have an indefinite life and may be used to
offset the Company's future taxable income.
There were no current or deferred income taxes for the period January 1,
1994 through November 23, 1994 and for the year ended December 31, 1993.
F-25
<PAGE> 157
ANTECH GESELLSCHAFT FUR VERMIETUNG UND VERTRIEB VON
SATELLITEN- UND KABELFERNSEHEMPFANGSANLAGEN MBH
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of total tax provisions to the amount computed by applying
the expected German corporate statutory tax rate of 50% in 1993 and 45% in 1994
to loss before income taxes is as follows:
<TABLE>
<CAPTION>
PERIOD
JANUARY 1,
1994
YEAR ENDED THROUGH
DECEMBER 31, NOVEMBER 23,
1993 1994
------------ ------------
(DM IN THOUSANDS)
<S> <C> <C>
Computed income tax benefit at German statutory rate............. 661 538
Trade tax on income, net of corporate tax benefit................ 64 69
Change in valuation allowance.................................... (731) (496)
Change due to tax rate fluctuations.............................. -- (125)
Other............................................................ 6 14
---- -----
Income tax benefit............................................... 0 0
===== =====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and the deferred tax liability as of
December 31, 1993 are presented below:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
-----------------
<S> <C>
Deferred tax assets:
Net operating loss carry forwards.......................................... 912
Deferred gains............................................................. 589
less -- valuation allowance................................................ (1,456)
-------
Net deferred tax asset..................................................... 45
=======
Deferred tax liability:
Accounts receivable........................................................ (45)
-------
0
=======
</TABLE>
6. REGISTERED CAPITAL
The Company is a limited liability company (hereafter "GmbH") under German
law. Shareholders are generally not liable for the Company's obligations, except
to the extent of their capital investment. Registered capital of a GmbH is not
in the form of shares and does not represent negotiable securities. The minimum
capital requirement for a GmbH is DM 50,000. As of December 31, 1993 registered
capital of the Company totaled DM 50,000.
7. PENSION AND RETIREMENT PLANS
The Company provides no significant pension, postretirement or
postemployment benefits to its employees.
8. LEASES
The Company leases a significant portion of its cable television systems
through sale-leaseback agreements. The December 31, 1993 balance sheet includes
cable television systems under capital leases having a cost of DM 5,474,000 and
accumulated amortization of DM 703,000.
F-26
<PAGE> 158
ANTECH GESELLSCHAFT FUR VERMIETUNG UND VERTRIEB VON
SATELLITEN- UND KABELFERNSEHEMPFANGSANLAGEN MBH
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1993, minimum annual rentals for capital leases were as
follows:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
-----------------
<S> <C>
1994......................................................................... 1,330
1995......................................................................... 1,330
1996......................................................................... 1,330
1997......................................................................... 971
1998......................................................................... 475
Thereafter................................................................... 2,484
------
Total minimum lease payments................................................. 7,920
Less amount representing interest............................................ 2,766
------
Prevent value of minimum lease payments...................................... 5,154
======
</TABLE>
In connection with the sale of the Company, all capital leases were
terminated subsequent to November 23, 1994.
As lessor, the Company owns or leases its cable television systems which
are in turn leased or subleased to third parties. These leases and subleases to
third parties are accounted for as operating leases. Future minimum lease
payments receivable under noncancellable leasing arrangements as of December 31,
1993 are approximately DM 1,664,000 per year for 1994 through 1998 and DM
25,552,000 thereafter.
At December 31, 1993, the assets leased or subleased to third parties were
being carried at a cost of approximately DM 8,868,000 with accumulated
depreciation or amortization of DM 1,277,000.
9. COMMITMENTS AND CONTINGENCIES
LEGAL MATTERS
The Company is subject to litigation from time to time in the ordinary
course of business. In the opinion of management, the ultimate resolution of
such legal proceedings and claims will not have a material adverse effect on the
financial position or results of operations of the Company.
10. OTHER ASSETS
At December 31, 1993 other assets in the balance sheet are comprised of the
following:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
-----------------
<S> <C>
VAT receivable............................................................ 254
Deposits.................................................................. 78
Vendor receivables........................................................ 39
Other..................................................................... 20
---
391
===
</TABLE>
11. RELATED PARTY TRANSACTIONS
At December 31, 1993 the balance sheet reflects loans and other receivables
due from shareholders of DM 3,122,000. Included therein are loans receivable of
DM 2,000,000 and DM 450,000 bearing interest at 12% and 8%, respectively. The
remaining balance is made up of interest receivable of DM 462,000 and
receivables in the regular course of business in the amount of DM 210,000. All
receivables and loans were paid as a result of the sale of the Company on
November 23, 1994.
F-27
<PAGE> 159
ANTECH GESELLSCHAFT FUR VERMIETUNG UND VERTRIEB VON
SATELLITEN- UND KABELFERNSEHEMPFANGSANLAGEN MBH
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Management fees charged by a shareholder owned company totalled DM 400,000
in 1993 and DM 377,000 for the period January 1 through November 23, 1994.
Interest income charged to related parties was DM 341,000 and DM 234,000 for the
same periods.
Purchases of fixed assets from an affiliated company amounted to DM
1,507,000 in 1993.
F-28
<PAGE> 160
INDEPENDENT AUDITORS REPORT
To the Board of Directors,
PKG Holding GmbH
We have audited the accompanying consolidated balance sheet of PKG Holding
GmbH as of December 31, 1994, and the related consolidated statements of
operations and accumulated deficit and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of PKG Holding
GmbH as of December 31, 1994 and the consolidated results of its operations and
its cash flows for the year then ended, in conformity with accounting principles
generally accepted in the United States of America.
Ernst & Young GmbH
Frankfurt, Germany
July 28, 1995
F-29
<PAGE> 161
PKG HOLDING GMBH
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,1994
-----------------
<S> <C>
DM
(IN THOUSANDS)
ASSETS
Cash.......................................................................... 2,230
Accounts receivable -- net:
Trade (Note 1).............................................................. 530
PKG Mature Networks (Note 11)............................................... 224
Inventory (Note 3)............................................................ 197
Prepaid expenses.............................................................. 26
Property, plant and equipment -- net (Notes 1 and 4).......................... 30,347
Goodwill and other intangible assets -- net (Note 1).......................... 5,645
Other assets (Note 5)......................................................... 1,962
-------
TOTAL ASSETS.................................................................. 41,161
=======
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Accounts payable:
Trade....................................................................... 2,728
PKG Mature Networks (Note 11)............................................... 157
Accrued expenses.............................................................. 1,433
Accrued interest.............................................................. 1,101
Other liabilities............................................................. 1,376
Debt:
Related party (Note 11)..................................................... 9,300
Banks (Note 6).............................................................. 30,542
Deferred taxes (Note 7)....................................................... 763
-------
TOTAL LIABILITIES............................................................. 47,400
Minority interest in subsidiaries............................................. 166
SHAREHOLDERS' DEFICIENCY
Registered capital (Note 8)................................................. 492
Accumulated deficit......................................................... (6,897)
-------
TOTAL SHAREHOLDERS' DEFICIENCY................................................ (6,405)
-------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIENCY................................ 41,161
=======
</TABLE>
See accompanying notes to consolidated financial statements.
F-30
<PAGE> 162
PKG HOLDING GMBH
CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
DM
(IN THOUSANDS)
Revenues
Third parties............................................................... 7,272
PKG Mature Networks (Note 11)............................................... 1,059
-------
Total revenues................................................................ 8,331
Operating costs and expenses
Operations.................................................................. 1,710
Selling, general and administrative......................................... 4,709
Depreciation and amortization............................................... 4,266
-------
Total operating costs and expenses............................................ 10,685
-------
Operating loss................................................................ (2,354)
Other income.................................................................. 640
Other expense (Note 1)........................................................ (1,329)
Interest expense.............................................................. (2,838)
Minority interest in net income of subsidiaries............................... (34)
-------
Loss before income taxes...................................................... (5,915)
Provision for income taxes.................................................... (293)
-------
Net loss...................................................................... (6,208)
Accumulated deficit, December 31, 1993........................................ (532)
Cash dividends................................................................ (157)
-------
Accumulated deficit, December 31, 1994........................................ (6,897)
=======
</TABLE>
See accompanying notes to consolidated financial statements.
F-31
<PAGE> 163
PKG HOLDING GMBH
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
DM
(IN THOUSANDS)
OPERATING ACTIVITIES
Net loss...................................................................... (6,208)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization............................................... 4,266
Amortization of other assets................................................ 317
Loss on sale of property, plant and equipment............................... 166
Minority interest in net income of subsidiaries............................. 34
Provision for losses on receivables......................................... 27
Changes in assets and liabilities, net of effects of business acquisition:
Accounts receivable......................................................... (320)
Prepaid expenses and inventory.............................................. (27)
Other assets................................................................ (1,963)
Accounts payable............................................................ 1,750
Other liabilities and accrued expenses...................................... 2,519
-------
Net cash provided by operating activities..................................... 561
INVESTING ACTIVITIES
Purchases of property, plant and equipment.................................... (14,132)
Acquisition of business, less cash acquired (Note 2).......................... (1,774)
Other......................................................................... (161)
-------
Net cash used in investing activities......................................... (16,067)
FINANCING ACTIVITIES
Principal payments on bank debt............................................... (10,404)
Proceeds from bank debt....................................................... 22,966
Proceeds from related party loans............................................. 4,087
Dividends paid................................................................ (157)
-------
Net cash provided by financing activities..................................... 16,492
-------
Net increase in cash and cash equivalents..................................... 986
Cash and cash equivalents at beginning of year................................ 1,244
-------
Cash and cash equivalents at end of year...................................... 2,230
=======
</TABLE>
See accompanying notes to consolidated financial statements.
F-32
<PAGE> 164
PKG HOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
PKG Holding GmbH ("PKG" or the "Company") is a German limited liability
company established in December, 1992. PKG acts as a holding company for
subsidiaries engaged in the construction and operation of cable television
systems in Germany. PKG and its subsidiaries operate cable television systems
throughout Germany. Certain subsidiaries also engage in the construction and
general management of affiliated and third-party cable television systems.
Effective January 1, 1995, the Company was sold to Kabelmedia Beteiligungs
GmbH ("Kabelmedia"). The sales price of DM 31,804,000 was based on the number of
subscribers as of December 31, 1994 adjusted for certain assets and the
assumption of liabilities. Costs incurred by PKG in relation to the sale during
1994 (DM 1,163,000) have been fully accrued and recorded within other expense in
the accompanying consolidated statement of operations.
The financial statements have been prepared in accordance with United
States generally accepted accounting principles ("U.S. GAAP") including those
principles specific to the cable television industry. The Company maintains its
financial records in accordance with the German Commercial Code, which
represents generally accepted accounting principles in Germany ("German GAAP").
Generally accepted accounting principles in Germany vary in certain significant
respects from U.S. GAAP. Accordingly, the Company has recorded certain
adjustments in order that these financial statements be in accordance with U.S.
GAAP.
The financial statements include the accounts of the Company and its
majority-owned and controlled subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents. As of December 31, 1994
the Company held no cash equivalents.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrated
credit risks consist primarily of accounts receivable. Credit risk on accounts
receivable is minimized as a result of the large and diverse nature of the
Company's customer base.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and are comprised
principally of assets used in the development and operation of cable television
systems. These assets are depreciated or amortized in accordance with the United
States Statement of Financial Accounting Standards No. 51 "Financial Reporting
by Cable Television Companies."
Depreciation is provided using the straight-line method over estimated
useful lives as follows: cable television systems: 5 to 12 years; equipment and
fixtures: 5 years.
INVESTMENT GRANTS
Investment grants received from the government for certain acquisitions of
property, plant and equipment are recognized by the Company when estimable and
realizable. The basis of property, plant and equipment is reduced by investment
grants and depreciated over the useful life of the acquired property. As of
December 31, 1994, property, plant and equipment was reduced by DM 599,000
relating to the recording of investment grants.
F-33
<PAGE> 165
PKG HOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Investment grants are subject to government review. Management does not
anticipate any significant adjustments to the amount of investment grants
recorded.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill arising from business acquisitions (DM 4,483,000) is amortized on
a straight line basis generally over 12 years. Other intangible assets (DM
1,739,000) consist primarily of costs associated in obtaining per-mission
agreements. Permission agreements are entered into with the owners/authorized
users of residential units and provide the Company the right to connect the
residential units to the cable network once a contract has been set up with that
specific unit. Amounts incurred in obtaining permission agreements are amortized
over the life of the agreements which is generally 12 years. Accumulated
amortization for goodwill and other intangible assets aggregated DM 577,000 as
of December 31, 1994.
On an ongoing basis management evaluates the amortization periods and the
recoverability of the net carrying value of goodwill and other intangible assets
by reviewing the performance of the underlying operations, in particular, the
future undiscounted operating cash flows of the acquired entities.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful accounts as of December 31, 1994 was DM 53,000.
REVENUE RECOGNITION
Revenue is derived from the sale of cable television services to
subscribers in Germany and from the construction and management of cable
television systems.
The Company receives cash from its subscribers principally through
automatic bank withdrawals initiated at the beginning of each month. The Company
also may charge an initial fee (installation fee), which is recorded as income
to the extent of direct selling costs with the remainder deferred. Deferred
revenue related to installation fees is amortized on a straight-line basis into
income over two years. Revenues generated from cable services provided to
subscribers for the year ended December 31, 1994 approximated DM 6,207,000.
Revenues generated from the construction and management of cable television
systems approximated DM 2,124,000 for the year ended December 31, 1994.
EQUITY IN NET LOSS OF AFFILIATE
The Company holds a 50 percent interest in BKG Breitbandkabelgesellschaft
mbH ("BKG"), a German limited liability company engaged in the operation and
management of cable television systems. The investment is accounted for using
the equity method. As of December 31, 1994, the Company's share in the net
losses of BKG exceeded its investment. The Company will not recognize equity in
earnings in subsequent periods until the accumulated losses have been recovered.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes", which has
been applied for 1994. Deferred income tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect of a change in
tax rates on deferred tax assets and liabilities is recognized in the period
that includes the enactment date.
F-34
<PAGE> 166
PKG HOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. BUSINESS ACQUISITION
Effective January 1, 1994 PKG acquired HAFI GmbH Vertrieb und Vermietung
von Satellitenempfangsanlagen (HAFI), a German limited liability company engaged
in the operation of cable television systems. The purchase price approximated DM
1,779,000. The acquisition has been accounted for by the purchase method of
accounting. The excess of the aggregate purchase price over the fair market
value of net assets acquired of approximately DM 1,718,00 was recognized as
goodwill and is being amortized over 12 years.
3. INVENTORY
Inventory is stated at the lower of cost (first-in, first-out) or market
and consists primarily of supplies used in repairs and maintenance and for use
in future construction of cable television systems.
4. PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment at December 31, 1994 were
as follows:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
<S> <C>
Cable television systems..................................................... 34,762
Equipment and fixtures....................................................... 700
------
Total........................................................................ 35,462
Less-accumulated depreciation................................................ (5,115)
------
Property, plant and equipment -- net......................................... 30,347
======
</TABLE>
5. OTHER ASSETS
Other assets is comprised principally of capitalized sales commissions of
DM 951,000 and VAT (sales tax) receivable of DM 744,000. Sales commissions
relate to one-time payments made in connection with obtaining new subscribers.
These charges have been capitalized and are amortized on a straight-line basis
into selling, general and administrative expense over two years.
6. DEBT
Total debt outstanding at December 31, 1994 was comprised solely of bank
loans as follows:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
-----------------
<S> <C>
7% Notes payable............................................................. 18,657
Credit facilities............................................................ 11,820
Other........................................................................ 65
-------
30,542
=======
</TABLE>
The notes payable to bank are comprised of two notes of DM 17,144,000
("Note 1") and DM 1,513,000 ("Note 2"). Note 1 is due in equal monthly
installments, including interest, of DM 188,000 commencing January 1996 through
December 2003. In December 2003, the interest rate for Note 1 is subject to
renegotiation with the bank and payments continue in equal installments through
December 2006. Note 2 is due in equal monthly installments, including interest,
of DM 16,000.
The credit facilities provide for total borrowings of DM 50,000,000. As of
December 31, 1994, the unused portion of the credit facilities was DM
38,180,000. The interest rates range from 9.0% to 12.5%. The Company is also
required to pay a fee of .25% on the unused portion of the credit facilities.
F-35
<PAGE> 167
PKG HOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
All of the assets of the consolidated group are pledged as collateral under
the Company's note and credit facilities. The note and credit facilities also
contain various warranties and covenants. In connection with the sale of the
Company's shares as of January 1, 1995, the majority of the outstanding balance
of the notes and the credit facilities were paid in 1995.
Interest expense charged to operations during 1994 was DM 1,819,000.
Interest paid on debt during 1994 amounted to DM 1,769,000. The weighted average
interest rate on short term borrowings outstanding as of December 31, 1994 was
9.7%.
Annual maturities of bank debt as of December 31, 1994 were as follows:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
-----------------
<S> <C>
1995......................................................................... 9,961
1996......................................................................... 1,191
1997......................................................................... 1,280
1998......................................................................... 1,376
1999......................................................................... 1,479
Thereafter................................................................... 15,255
------
30,542
======
</TABLE>
7. INCOME TAXES
PKG and its consolidated subsidiaries each file separate tax returns in
accordance with German tax laws. Under German corporate tax law, taxes on income
are comprised of corporate taxes and trade taxes. For financial reporting
purposes, PKG and such subsidiaries calculate their respective tax liabilities
on a separate return basis which are combined in the accompanying consolidated
financial statements.
As of December 31, 1994, the Company had available cumulative tax loss
carryforwards for corporate income tax of approximately DM 9,978,000 and for
trade tax on income of approximately DM 7,393,000. Under current German tax
laws, these loss carryforwards have an indefinite life and may be used to offset
PKG's and its consolidated subsidiaries future taxable income.
The provision for income taxes consisted of the following for the year
ended December 31, 1994:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
<S> <C>
Current provision......................................................... 293
Deferred provision........................................................ 0
------
Total provision........................................................... 293
======
</TABLE>
A reconciliation of total tax provisions to the amount computed by applying
the expected German corporate statutory tax rate of 45% to loss before income
taxes is as following for the year ended December 31, 1994:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
<S> <C>
Computed income tax benefit at German statutory rate...................... (2,662)
Trade tax on income, net of corporate tax benefit......................... (488)
Valuation allowance on losses incurred in 1994............................ 3,443
------
293
======
</TABLE>
F-36
<PAGE> 168
PKG HOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of December
31, 1994 are presented below:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
<S> <C>
Deferred tax assets
Net operating loss carry forwards.......................................... 5,100
less -- valuation allowance................................................ (5,100)
------
Net deferred tax assets.................................................... 0
Deferred tax liabilities
Cable television systems................................................... 750
Other...................................................................... 13
------
Deferred tax liability..................................................... 763
------
Net deferred tax liability................................................... 763
======
</TABLE>
8. REGISTERED CAPITAL
The Company is a limited liability company (hereafter "GmbH") under German
law. Shareholders are generally not liable for the Company's obligations, except
to the extent of their capital investment. Registered capital of a GmbH is not
in the form of shares and does not represent negotiable securities. The minimum
capital requirement for a GmbH is DM 50,000. As of December 31, 1994 registered
capital of the Company totalled DM 492,000.
9. PENSION AND RETIREMENT PLANS
The Company provides no significant pension, postretirement or
postemployment benefits to its employees.
10. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company has certain noncancelable operating leases with renewal options
for buildings and equipment. In 1994, rental expenses for all leases totalled DM
272,000.
At December 31, 1994, commitments under noncancelable lease agreements were
as follows:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
<S> <C>
1995......................................................................... 327
1996......................................................................... 257
1997......................................................................... 234
1998......................................................................... 214
1999......................................................................... 210
Thereafter................................................................... 1,515
</TABLE>
LEGAL MATTERS
The Company is subject to litigation from time to time in the ordinary
course of business. In the opinion of management, the ultimate resolution of
such legal proceedings and claims will not have material adverse effect on the
consolidated financial position or results of operations of the Company.
11. RELATED PARTY TRANSACTIONS
APA-Basic Beteiligungsgesellschaft, an 80% shareholder in PKG, has provided
loans to the Company totalling DM 9,300,000. The loans bear interest at 14% per
annum and are subordinated to all other creditors
F-37
<PAGE> 169
PKG HOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of PKG. The loans plus accrued interest are due in full in 1998. Interest
expense incurred during the year totalled DM 1,019,000. In connection with the
sale of the Company, the loans and related accrued interest were paid in full in
1995.
The Company has entered into agreements with four affiliated companies
(collectively, the "PKG Mature Networks") to provide construction, management
and marketing services through 1998. The PKG Mature Networks are principally
owned by the shareholders of the Company. Sales to the PKG Mature Networks
during 1994 totalled DM 1,059,000. In addition, the Company engaged in 1994 the
PKG Mature Networks to construct certain cable television systems. Charges
incurred and capitalized during the year totalled DM 1,221,000.
F-38
<PAGE> 170
INDEPENDENT AUDITORS REPORT
FOR 1993 FINANCIAL STATEMENTS
To PKG Holding GmbH
Hannover
We have audited the accompanying consolidated balance sheet of PKG Holding GmbH,
Hannover (see note 1), as of December 31, 1993, and the related consolidated
statement of operations and accumulated deficit and cash flows for the year then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of PKG Holding
GmbH, Hannover, as of December 31, 1993 and the consolidated results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles in the United States.
ARTHUR ANDERSEN
Wirtschaftsprufungsgesellschaft
Steuerberatungsgesellschaft mbH
<TABLE>
<S> <C>
VON SPERBER STEINWEG
Wirtschaftsprufer Wirtschaftsprufer
</TABLE>
Hannover, Germany
June 29, 1994
F-39
<PAGE> 171
PKG HOLDING GMBH
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1993
<TABLE>
<CAPTION>
DM
---------
<S> <C>
ASSETS
Cash........................................................................... 1,243,792
Accounts receivable -- trade................................................... 363,150
Accounts receivable -- affiliate............................................... 87,620
Inventory...................................................................... 144,101
Other receivables and prepaid expenses......................................... 297,315
Property and equipment -- net.................................................. 19,598,639
Permission agreements and goodwill -- net...................................... 4,390,599
Other assets................................................................... 32,100
----------
Total assets................................................................... 26,157,316
==========
LIABILITIES AND CAPITAL DEFICIT
Accounts payable -- trade...................................................... 1,134,441
Accrued expenses............................................................... 389,171
Other liabilities.............................................................. 492,544
Debt -- banks.................................................................. 17,924,399
Debt -- related party.......................................................... 5,213,000
Deferred taxes................................................................. 912,000
----------
Total liabilities.............................................................. 26,065,555
----------
Minority interest in subsidiaries.............................................. 131,864
----------
Capital deficit................................................................
Capital subscribed............................................................. 492,000
Accumulated deficit............................................................ (532,103)
----------
Total capital deficit.......................................................... (40,103)
----------
Total liabilities and capital deficit.......................................... 26,157,316
==========
</TABLE>
See accompanying notes to the consolidated financial statements
F-40
<PAGE> 172
PKG HOLDING GMBH
CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
DM
---------
<S> <C>
Revenues (including amounts of affiliates: DM1,896,872).......................... 3,761,456
Operating costs and expenses
Operating...................................................................... (1,909,968)
Selling, general and administrative............................................ (2,120,866)
Depreciation and amortization.................................................. (116,305)
----------
(4,147,139)
Operating loss................................................................... (385,683)
Equity in losses of affiliated company........................................... (30,000)
Other income, net................................................................ 179,444
Interest expenses................................................................ (157,664)
Minority interest in consolidated subsidiaries................................... (31,095)
----------
Loss before income taxes......................................................... (424,998)
Provision for income taxes....................................................... (107,105)
----------
Net loss......................................................................... (532,103)
Accumulated deficit, balance as of December 31, 1992............................. 0
----------
Accumulated deficit, balance as of December 31, 1993............................. (532,103)
==========
</TABLE>
See accompanying notes to the consolidated financial statements
F-41
<PAGE> 173
PKG HOLDING GMBH
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
DM
---------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss......................................................................... (532,103)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization.................................................. 116,305
Minority interests in consolidated subsidiaries................................ 31,095
Equity in loss of affiliate.................................................... 30,000
Change in assets and liabilities:
Accounts receivable, trade.................................................. 386,342
Accounts receivable, affiliate.............................................. (87,620)
Inventory................................................................... (60,182)
Other receivables and prepaid expenses...................................... (199,700)
Accounts payable, trade..................................................... (242,437)
Accrued expenses............................................................ 239,274
Other liabilities........................................................... (17,600)
----------
Net cash used in operating activities..................................... (336,626)
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment............................................. (386,454)
Purchase of business, net of cash acquired..................................... 821,716
Additions to other assets...................................................... (30,000)
Additions to permission agreements............................................. (24,676)
----------
Net cash provided by investing activities................................... 380,586
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from bank borrowings.............................................. 620,242
Capital contributions from minority interests.................................. 29,499
Proceeds from capital contributions............................................ 402,000
----------
Net cash provided by financing activities................................... 1,051,741
----------
INCREASE IN CASH................................................................. 1,095,701
CASH, BEGINNING OF YEAR.......................................................... 148,091
----------
CASH, END OF YEAR................................................................ 1,243,792
==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest....................................................................... 0
==========
Income taxes................................................................... 9,585
==========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Fair value of assets acquired, including cash acquired........................... 24,481,646
Liabilities assumed.............................................................. 1,858,546
----------
Consideration paid............................................................. 22,623,100
Less -- Amounts borrowed......................................................... 22,623,100
----------
Net cash paid for acquisition.................................................. 0
==========
</TABLE>
See accompanying notes to the consolidated financial statements
F-42
<PAGE> 174
PKG HOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A) ORGANIZATION AND PRINCIPLES OF CONSOLIDATION
PKG Holding GmbH (PKG) is a German limited liability company established in
December, 1992. PKG acts as a holding company for subsidiaries engaged in the
construction and operation of cable television systems in Germany. During 1993
PKG and its subsidiaries (collectively, the Company) operated cable television
systems in three separate locations in Germany along with separate operations
engaged in the construction and general management of affiliated and third-party
cable television systems.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The accompanying consolidated financial statements include the accounts of
the Company and its majority-owned and controlled subsidiaries. All significant
intercompany accounts and transactions have been eliminated. All amounts in the
consolidated financial statements are shown in Deutsche Mark (DM).
The financial statements have been prepared in accordance with United
States generally accepted accounting principles ("U.S. GAAP") including those
principles specific to the cable television industry. The Company maintains its
financial records in accordance with the German Commercial Code, which
represents generally accepted accounting principles in Germany ("German GAAP").
Generally accepted accounting principles in Germany vary in certain significant
respects from U.S. GAAP. Accordingly, the Company has recorded certain
adjustments in order that these financial statements be in accordance with U.S.
GAAP.
B) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents. The carrying amount of
cash and cash equivalents approximates fair value due to the short maturity of
these investments. There were no cash equivalents at December 31, 1993.
C) INVENTORY
Inventory is stated at lower of cost (first-in, first-out) or market and
consists primarily of supplies used in repairs and maintenance and for use in
future construction of cable television systems.
D) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are comprised principally of
assets used in the development and operation of cable television systems. Major
additions and improvements are charged to the property accounts, while
maintenance and repairs are charged to operations as incurred. Construction
costs of cable systems are accounted for in accordance with Statement of
Financial Accounting Standards (SFAS) No. 51 "Financial Reporting by Cable
Television Companies". Subscriber related costs and general and administrative
expenses are charged to operation as incurred.
SFAS 51 generally requires cable television companies engaged in
construction or development activities to account for cable television assets in
service based upon anticipated subscriber levels of each system. As actual
subscriber levels are achieved, cable television assets are deemed to be placed
in service and depreciated in accordance with industry standards.
F-43
<PAGE> 175
PKG HOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation is provided using the straight-line method over estimated
useful lives as follows: cable television systems: 6 years, equipment and
fixtures: 5 years.
E) PERMISSION AGREEMENTS AND GOODWILL
Permission Agreements (DM 4,377,203) consist of costs associated in
obtaining permission agreements acquired in connection with the acquisition of
Kabel Beteiligungsgesellschaft mbH (see Note 2). Permission agreements are
entered into with the owners or authorized users of residential units and
provide the Company the right to connect the residential units to the cable
network once a contract has been set up with that specific unit. Goodwill (DM
13,396) is recorded to reflect the excess of the cost of an acquisition over the
fair value of the net assets acquired. Permission agreements and goodwill are
amortized using the straight line method over a useful life of 12 years.
Accumulated amortization is DM 1,218 as of December 31, 1993.
On an ongoing basis management evaluates the amortization periods and the
recoverability of the net carrying value of permission agreements and goodwill
by reviewing the performance of the underlying operations, in particular, the
future undiscounted operating cash flows of the acquired entities.
F) REVENUE RECOGNITION
Revenue is derived from the sale of cable television services to
subscribers in Germany and from the construction and management of cable
television systems and is recognized as revenue as services are performed.
G) INCOME TAXES
The company has decided to apply the requirements of SFAS No. 108 as of
January 1, 1993.
Deferred income taxes and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect of a change in tax rates on deferred tax assets
and liabilities is recognized in the period that includes the enactment date. A
valuation allowance is recognized if based on the weight of the available
evidence it is more likely than not that some portion or all of a deferred tax
asset will not be realized in the foreseeable future.
2. ACQUISITION
Effective December 31, 1993, PKG acquired Kabel-Fernsehen Leipzig GmbH
(KFL), a German limited liability company engaged in the operation of cable
television systems. The aggregate purchase price of KFL was DM 22,507,800. In
addition the Company paid approximately DM 115,300 of direct acquisition cost,
DM 25,000 of direct financing costs and assumed liabilities of DM 1,858,546. The
cost of the acquisition was financed by borrowings under the companies credit
facilities and a loan from an affiliate. The acquisition was accounted for using
the purchase method of accounting; accordingly KFL's assets were recorded at
fair market values at the date of acquisition. The results of operations of KFL
have been included in the consolidated financial statements since the date of
acquisition.
The following unaudited pro forma consolidated condensed results of
operations are presented for the year ended December 31, 1993 as if the
acquisition of KFL had occurred on January 1, 1993.
<TABLE>
<S> <C>
Net Revenues................................................................. DM 7,396,053
Net Loss..................................................................... DM(3,927,724)
</TABLE>
F-44
<PAGE> 176
PKG HOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
The components of property and equipment as of December 31, 1993, are as
follows:
<TABLE>
<CAPTION>
DM
----------
<S> <C>
Cable television systems....................................................... 19,042,187
Equipment and fixtures......................................................... 457,131
----------
19,499,318
Less -- accumulated depreciation............................................... (196,933)
Construction-in-process........................................................ 296,254
----------
19,598,639
==========
</TABLE>
4. INVESTMENTS IN AFFILIATED COMPANIES
The Company has a 50% ownership interest in Breitband Kabelgesellschaft
(BKG) which is engaged in the operation and management of cable television
systems in Germany. BKG is managed jointly by the Company and the other partner
who holds the remaining 50% interest. Accordingly, the investment is recorded in
accordance with the equity method of accounting. As of December 31, 1993, the
Company's portion of the cumulative losses of BKG exceeded its investment by
approximately DM 168,000. The Company will not recognize equity in earnings in
subsequent periods until the accumulated losses have been recovered.
5. DEBT
Debt consists of the following as of December 31, 1993:
<TABLE>
<CAPTION>
DM
----------
<S> <C>
Note payable to a bank........................................................... 17,144,000
Credit facilities with banks..................................................... 731,414
Other debt....................................................................... 48,985
----------
17,924,399
==========
</TABLE>
Note payable to a bank is due in equal monthly installments of DM 187,541
commencing on January 15, 1996 through December 13, 2003, including interest at
an annual rate of 7%. Subsequent to December 13, 2003, the interest rate is
subject to renegotiation with the bank and payments continue in equal
installments through December 13, 2006. In connection with the acquisition of
the company by KMH the outstanding balance was paid in full in August 1995.
The Company has credit facilities available from banking institutions which
provided for total borrowings of approximately DM 1,550,000. The interest rates
range from 9.75% to 12.25%.
The notes payable and credit facilities contain covenants which include
certain limitations on the assignment of receivables and the, transfer of rights
on operating assets including intangibles.
Interest expense in 1993 amounted to DM 123,200.
F-45
<PAGE> 177
PKG HOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Annual maturities of debt are as follows:
<TABLE>
<CAPTION>
DM
----------
<S> <C>
1994............................................................................. 780,399
1995............................................................................. --
1996............................................................................. 1,084,778
1997............................................................................. 1,163,196
1998............................................................................. 1,247,284
Thereafter....................................................................... 13,648,742
----------
17,924,399
==========
</TABLE>
6. INCOME TAXES
PKG and its consolidated subsidiaries each file separate tax returns in
accordance with German tax laws. For financial reporting purposes, PKG and such
subsidiaries calculate their respective tax liabilities on a separate return
basis which are combined in the accompanying consolidated financial statements.
At December 31, 1993, the Company had available cumulative tax loss
carryforwards for corporate income tax of approximately DM 2,945,480 and for
Trade tax on income of approximately DM 2,631,300. Under current German tax
laws, these loss carryforwards have an indefinite life and may be used to offset
PKG's and its consolidated subsidiaries future taxable income. Giving the
Company's significant operating losses, it is more likely than not that these
loss carry forwards will not be realized and therefore a full valuation
allowance has been provided at December 31, 1993.
The provision for income taxes consists of the following for the year ended
December 31, 1993:
<TABLE>
<CAPTION>
DM
---------
<S> <C>
Current provision................................................................ 107,105
Deferred provision............................................................... 0
---------
Total provision.................................................................. 107,105
=========
</TABLE>
A reconciliation of total tax provisions to the amount computed by applying
the expected German statutory tax rate of 54% to loss before provision for tax
is as following for the year ended December 31, 1993:
<TABLE>
<CAPTION>
DM
---------
<S> <C>
Computed 'expected' tax benefit.................................................. (229,498)
Valuation allowance on operating losses incurred in 1993......................... 331,800
Other............................................................................ 4,803
---------
107,105
=========
</TABLE>
F-46
<PAGE> 178
PKG HOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1993, are presented below:
<TABLE>
<CAPTION>
DM
----------
<S> <C>
Deferred tax assets:
Net operating loss carry forwards.............................................. 1,562,300
less-valuation allowance....................................................... (1,562,300)
----------
Net deferred tax assets........................................................ 0
----------
Deferred tax liabilities:
Cable television systems....................................................... 898,500
Other assets................................................................... 13,500
----------
Deferred tax liability......................................................... 912,000
----------
Net deferred tax liability..................................................... 912,000
==========
</TABLE>
7. CAPITAL SUBSCRIBED
In 1993 the subscribed capital of the Company was increased through
contributions totaling DM 402,000. At December 31, 1993, the subscribed capital
of the Company is held by two individuals totaling DM 92,000 and APA
Basic-Beteiligungsgesellschaft mbH, Dusseldorf, a German limited liability
company, totaling DM 400,000.
8. COMMITMENTS AND CONTINGENCIES
A) OPERATING LEASES AND RENTALS
The Company has certain noncancellable operating leases and rentals with
renewal options for land, buildings and equipment. In 1993 expenses totaled DM
119,112.
At December 31, 1993, future payments under noncancelable operating leases
and rentals having an initial or remaining terms of one year or more are as
follows:
<TABLE>
<CAPTION>
DM
---------
<S> <C>
1994............................................................................. 240,416
1995............................................................................. 162,716
1996............................................................................. 21,557
1997............................................................................. 0
1998............................................................................. 0
Thereafter....................................................................... 0
---------
424,689
=========
</TABLE>
B) LEGAL MATTERS
The Company is subject to litigation from time to time in the ordinary
course of business. Although the amount of any liability with respect to such
litigation cannot be determined, in the opinion of management, such liability
will not have a material adverse effect on the Company's financial condition or
results of operations.
F-47
<PAGE> 179
PKG HOLDING GMBH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
C) OTHER MATTERS
KFL has entered into a service agreement with GfD Gesellschaft fur
Datenverwaltung mbH, Delmenhorst, for billing and cash collection services.
The operating companies set up so-called permission or user transfer
agreements ("Gestattungs-/Nutzungsvertrage") with the owners or authorized
individuals of residential units. These agreements can be looked upon as
framework agreements obliging the operating companies to connect the residential
units to the cable network at the companies own cost as soon as a supply and
service agreement for that specific unit has been set up. This supply and
service agreement regulates in detail the rights and obligations of the
contractual partners in relation to the specific object.
Kabel-Fernsehen Leipzig GmbH, Leipzig, has, according to information
received from the company, provided dates to perform the cable network which
have already elapsed. As a result all owners or authorized individuals of
residential units not yet connected could terminate their agreements because of
the noncompliance with the set dates established. To date the Company has no
additional information regarding the termination of material
"Gestattungsvertrage". In the opinion of management, the resolution of this
matter will not have a material adverse effect on the Company's financial
condition or results of operations.
9. RELATED PARTY TRANSACTIONS
The Company has different sales agreements with four affiliated companies
to deliver reconstruction care, installations and services for the broad band
cable nets which have various expiration dates through 1998. These companies are
owned by two shareholders of PKG Holding GmbH. The total revenues recorded by
the Company in 1993 were DM 1,521,763. In addition, the four companies paid
sales commissions for subscribers acquired by the Company in the amount of DM
375,109.
The APA-Basic Beteiligungsgesellschaft mbH, a shareholder of the Company,
extended to the Company a line of credit of DM 6,600,000 at an annual interest
rate of 14 %. The line of credit is secured by the investments of PKG Holding
GmbH in its subsidiaries and subordinated it to all other creditors of the
Company. In connection with the acquisition of Kabel-Fernsehen Leipzig GmbH in
December 1993 the Company borrowed DM 5,213,000. The interest expenses in 1993
amounted to DM 34,464. Repayments of the outstanding borrowings under the line
of credit are due in full on December 31, 1998.
10. NEW ACCOUNTING PRONOUNCEMENTS
In December 1991, the Financial Accounting Standards Board (FASB) issued
Statement of Accounting Standards (SFAS) No. 107 "Disclosure about Fair value of
Financial Instruments". This statement requires the disclosure of the fair Value
of Financial Instruments for both assets and liabilities recognized and not
recognized in the balance sheet, for which it is practicable to estimate fair
value. The Company is required to implement SFAS No. 107 no later than December
31, 1995. The Company has not determined when it will adopt this standard,
however estimates that the impact of implementation will not be material.
In November 1992, the FASB issued SFAS No. 112 "Employers' Accounting for
Postemployment Benefits". This statement requires the recognition of obligations
to provide postemployment benefits when certain defined conditions are met. The
Company is required to implement SFAS No. 112 no later than December 31, 1994.
The Company estimates that the impact of adoption of this SFAS will not be
material.
F-48
<PAGE> 180
INDEPENDENT AUDITORS REPORT
To the Board of Directors of
Kabel-Fernsehen Leipzig GmbH, Leipzig
We have audited the accompanying balance sheets of Kabel-Fernsehen Leipzig
GmbH, Leipzig, as of December 31, 1993 and the related statement of income and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in Germany and the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statements presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements present fairly, in all material
respects, the financial position of Kabel-Fernsehen Leipzig GmbH, Leipzig, as of
December 31, 1993 and the results of its operations and its cash flow for the
year then ended, in conformity with accounting principles generally accepted in
Germany.
Generally accepted accounting principles in Germany vary in certain
respects from accounting principles generally accepted in the United States. The
application of the latter would have effected the determination of net income
for the period ended December 31, 1993 and the determination of shareholders'
equity and financial position to the extent summarised in Note 3.
The accompanying financial statements have been translated into English for
the convenience of readers in the United States of America.
Wollert-Elmendorff
Deutsche Industrie-Treuhand GmbH
Wirtschaftsprufungsgesellschaft
Berlin, June 28, 1994
Fab/bu
F-49
<PAGE> 181
KABEL-FERNSEHEN LEIPZIG GMBH, LEIPZIG
BALANCE SHEET AS OF DECEMBER 31, 1993
<TABLE>
<CAPTION>
DM DM DM
------------- ------------- -------------
<S> <C> <C> <C>
ASSETS
A. Fixed assets
I. Intangible assets
Concessions, industrial and similar
rights and assets and licenses in such
rights and assets...................... 2,305,627.00
II. Tangible assets
1. Technical equipment and machines.... 16,441,242.29
2. Other equipment, factory and office
equipment......................... 68,731.00
3. Payments on account and assets under
construction...................... 114,932.77
-------------
16,624,906.06
III. Financial assets
Other loans.............................. 2,100.00
-------------
18,932,633.06
B. Current assets
I. Inventories
Raw materials and supplies............... 1.00
II. Receivables and other assets
1. Trade receivables, of which with a
remaining term of more than one
year: DM --.--.................... 50,447.12
2. Receivables from enterprises and
persons of the Knapp Group, of
which with a remaining term of
more than one year: DM --.--...... 0.00
3. Other assets, of which with a
remaining term of more than one
year: DM --.--.................... 21,698.72
-------------
72,145.84
III. Cheques, cash-in-hand postal giro
balances, bank balances
821,715.67
-------------
893,862.51
C. Prepaid expenses............................... 7,304.57
-------------
19,833,800.14
=============
</TABLE>
F-50
<PAGE> 182
KABEL-FERNSEHEN LEIPZIG GMBH, LEIPZIG
BALANCE SHEET AS OF DECEMBER 31, 1993
<TABLE>
<CAPTION>
DM DM DM
------------- ------------ ------------
<S> <C> <C> <C>
EQUITY AND LIABILITIES
A. Equity
I. Subscribed capital....................... 75,000.00
II. Capital reserves......................... 20,832,843.52
III. Silent participation..................... 0.00
-------------
20,907,843.52
IV. Accumulated losses carry forward.......... (1,707,908.63)
V. Net income/net loss for the year.......... (306,679.56)
18,893,255.33
B. Accruals
Other accruals........................... 76,380.00
C. Liabilities
1. Trade payables, of which with a remaining
term of more than one year: DM
630,156.98............................. 630,156.98
2. Payable to affiliated enterprises, of
which with a remaining term of more
than one year: DM--.--................. 0.00
3. Payable to enterprises and persons of the
Knapp Group, of which with a remaining
term of more than one year: DM
220,536.67............................. 220,536.67
4. Other liabilities, of which with a
remaining term of more than one year: DM
13,471.16
of which taxes; DM 3,470.72
of which relating to social security and
similar obligations: DM 10,448.26........ 13,471.16
------------
864,164.81
D. Deferred Income................................ 0.00
-------------
19,833,800.14
=============
</TABLE>
F-51
<PAGE> 183
KABEL-FERNSEHEN LEIPZIG GMBH, LEIPZIG
STATEMENT OF INCOME
FOR THE PERIOD 1 JANUARY TO 31 DECEMBER 1993
<TABLE>
<CAPTION>
1993
------------
<S> <C> <C>
DM DM
1. Sales................................................... 3,598,716.99
2. Other operating income.................................. 112,163.95
3. Cost of materials:
(a) Cost of raw materials, consumables and supplies and
of purchased merchandise......................... 8,754.18
(b) Cost of purchased services.......................... 70,465.00 79,219.18
------------
4. Personnel expenses:
(a) Wages and salaries.................................. 425,261.35
(b) Social security and other pension costs............. 69,938.67 495,200.02
------------
5. Depreciation:
(a) On intangible fixed assets and tangible assets...... 1,949,863.80
(b) On current assets to the extent that it exceeds
depreciation which is normal for the company..... 12,999.00 1,962,862.80
6. Other operating expenses................................ 819,009.22
7. Other interest and similar income....................... 7,795.49
8. Interest and similar expenses........................... 483,129.51
------------
9. Results from ordinary activities........................ (120,744.30)
10. Other taxes.............................................. (920.91)
11. Expenses from profit and loss transfer agreements with
the atypical silent partner........................... (185,014.35)
12. Income from loss absorption.............................. 0.00
------------
13. Net income/net loss for the year......................... (306,679.56)
============
</TABLE>
F-52
<PAGE> 184
KABEL-FERNSEHEN LEIPZIG GMBH, LEIPZIG
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DEC. 31, 1993
-------------
DM
<S> <C>
OPERATING ACTIVITIES
Net result (loss)............................................................ (306,679.56)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization.............................................. 1,790,863.80
Special tax deductible depreciation........................................ 159,000.00
Loss on sale of fixed assets............................................... 2,867.46
Changes in assets and liabilities:
Accounts receivables....................................................... 62,457.03
Inventories................................................................ 12,999.00
Prepaid expenses........................................................... (5,101.83)
Accounts payable and deferred income....................................... 355,607.43
Other provisions........................................................... (2,020.00)
--------------
Net cash provided by operating activities.................................... 2,069,993.33
==============
INVESTING ACTIVITIES
Purchase of fixed assets..................................................... (2,875,290.67)
Capitalization of valuation reserves (Note 3(f))............................. (10,547,101.64)
--------------
Net cash used in investing activities........................................ (13,422,392.31)
==============
FINANCING ACTIVITIES
Increase in additional paid-in capital....................................... 20,332,843.52
Repayment accounts payable related companies and due to the Knapp-Group...... (6,640,051.06)
Repayment paid-in capital silent partner..................................... (1,976,829.38)
--------------
Net cash provided by financing activities.................................... 11,715,963.08
==============
INCREASE IN NET CASH......................................................... 363,564.10
CASH AT BEGINNING OF YEAR.................................................... 458,151.57
--------------
CASH AT END OF YEAR.......................................................... 821,715.67
==============
</TABLE>
F-53
<PAGE> 185
KABEL-FERNSEHEN LEIPZIG GMBH, LEIPZIG
NOTES TO THE FINANCIAL STATEMENTS AS OF DECEMBER 31, 1993
1. EXPLANATION TO THE BALANCE SHEET AND PROFIT AND LOSS ACCOUNT
BASIS OF PRESENTATION
Effective December 31, 1993, KFL was acquired by PKG Holding GmbH. The
aggregate purchase price of KFL was DM 22,507,800.
The financial statements as of December 31, 1993, have been prepared in
accordance with the accounting principles set forth for small companies
(sec.sec. 264, 267 paragraph (1) of the German Commercial Code).
FIXED ASSETS
Fixed assets are valued at acquisition cost, or manufacturing cost
determined in accordance with tax law provisions (excluding interest on debt),
and subsequently reduced by scheduled and non-scheduled depreciation.
Scheduled depreciation is calculated under the straight-line method and
charged over the assets' expected useful lives. Non-scheduled depreciation of DM
159,000 was made in accordance with sec.sec. 254, 279 paragraph (2) of the
Commercial Code in connection with sec. 4 of the Fordergebietsgesetz. Fixed
assets with acquisition or manufacturing cost of less than DM 800 are expensed
in the year of acquisition or manufacturing in accordance with sec. 6 paragraph
(2) of the Income Tax Law.
INVENTORIES
Inventories are written down to a pro memoria figure of DM 1. -- because of
their technical obsolescence.
OTHER CURRENT ASSETS AND PREPAID EXPENSES
Trade receivables are shown at their nominal value. Uncollectible accounts
were depreciated. Lump-sum valuation adjustments were made in recognition of
cost, interest and non-payment risks. All receivables have a remaining term of
less than one year.
Prepaid expenses do not include a discount within the meaning of sec. 268
paragraph (6) of the German Commercial Code.
EQUITY
The subscribed capital comprises the share capital of the company. The
subscribed capital has been paid in full.
ACCRUALS
Other accruals were set up on the basis of sound business judgement and
caution to the extent that would be necessary to cover the respective risks and
uncertain liabilities. Accruals according to 249 paragraph (1) third sentence
and paragraph (2) of the Commercial Code have not been set up.
LIABILITIES
Liabilities are shown at their repayment amount. Liabilities with a
remaining term of more than five years and liabilities secured by rights of lien
or similar rights did not exist at the balance sheet date.
F-54
<PAGE> 186
KABEL-FERNSEHEN LEIPZIG GMBH, LEIPZIG
NOTES TO THE FINANCIAL STATEMENTS AS OF DECEMBER 31, 1993 -- (CONTINUED)
PROFIT AND LOSS ACCOUNT
Depreciation is composed as shown hereunder:
<TABLE>
<CAPTION>
DM
------------
<S> <C>
Scheduled depreciation........................................................ 1,787,070.52
Special depreciation allowances (according to 254 of the Commercial Code in
connection with 4 of the Fordergebietsgesetz)............................... 159,000.00
Immediate write-off of fixed assets with acquisition or manufacturing cost of
less than DM 800............................................................ 3,793.28
------------
Total amount.................................................................. 1,949,863.80
------------
</TABLE>
Expenses from profit and loss transfer agreements comprise the profit
shares of the former silent partners at an amount of DM 185,014.35.
2. MANAGEMENT
General manager of the company during the period under audit was Mr. Rainer
Strehle, Leipzig.
3. SIGNIFICANT DIFFERENCES BETWEEN GERMAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
The KFL financial statements comply with generally accepted accounting
principles in Germany as prescribed by the German Commercial Code, which can
differ significantly in certain respects from those applicable in the United
States. Such differences can be summarized as follows:
(A) DEPRECIATION OF TECHNICAL EQUIPMENT
The Company depreciates their technical equipment over an average useful
live of 8 years and using the straight line method. In application of FAS-51,
the capitalized cost shall be amortised or depreciated using the prematurity
accounting. Applying the different approach under US GAAP, the useful life would
be less than 8 years.
(B) CAPITALIZATION OF INTEREST COST
In application of FAS-51 and under the provisions of FAS-34 certain
interest costs, if material, have to be capitalized and added to the acquisition
cost of assets which require a certain time to get ready for their intended use.
German GAAP does not allow for the capitalization of interest related to
constructed assets.
(C) ACCRUALS AND PROVISIONS
According to German GAAP, accruals or provisions can be recorded for
uncertain Liabilities and to cover expenditures within the year for known
obligations. Application of the prudence principle under German GAAP may require
the set-up of accruals already when the occurrence of a future event is
reasonably possible which may only trigger disclosure under U.S. GAAP. This
regards the accrual for vacation-payments and other uncertain liabilities.
(D) TAXFREE INVESTMENT GRANTS
The Company received in 1992 and in 1993 taxfree investment grants which
have been recorded directly as income. Under U.S. GAAP investment grants would
be netted from the related acquisition or manufacturing costs.
F-55
<PAGE> 187
KABEL-FERNSEHEN LEIPZIG GMBH, LEIPZIG
NOTES TO THE FINANCIAL STATEMENTS AS OF DECEMBER 31, 1993 -- (CONTINUED)
(E) SPECIAL TAX DEDUCTIBLE DEPRECIATION
The Company used in 1993 special tax deductible depreciation. Under U.S.
GAAP it would be necessary to reverse the special tax depreciation in the
financial statements. In case of a reversal, the tax effected portion
representing the estimated future tax effects of temporary differences should be
recognized as a deferred tax liability.
(F) CAPITALIZATION OF VALUATION RESERVES
In connection with capital contributions in order to buy out the silent
partner (we refer also to the first paragraph in the Management Report) the
Company capitalized identifiable valuation reserves in intangible assets and in
technical equipment. The capitalized valuation reserves in intangible assets are
amortised over 8 years and in technical equipment over 6 years. For 1993, the
amortisation has been computed pro-rated-basis. Under U.S. GAAP the
capitalization of valuation reserves would not be appropriate.
(G) INCOME TAX
For income tax purposes under U.S. GAAP, FAS-109 would have to be
considered for deferred taxation. Taxable temporary differences and an operating
loss carryforward as of December 31, 1993 would result in a deferred tax asset.
This includes the effect of the special tax deductible depreciation under e.
above. However, we are not in the position to judge the possibility for the
realization of the tax asset.
Leipzig
April 6, 1994
F-56
<PAGE> 188
INDEPENDENT AUDITORS REPORT
To the Board of Directors,
PKG Mature Networks
We have audited the accompanying combined balance sheet of PKG Mature
Networks as of December 31, 1994, and the related combined statements of
operations, shareholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of PKG Mature Networks
as of December 31, 1994 and the combined results of its operations and its cash
flows for the year then ended, in conformity with accounting principles
generally accepted in the United States of America.
Ernst & Young GmbH
Frankfurt, Germany
December 13, 1995
F-57
<PAGE> 189
PKG MATURE NETWORKS
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-----------------
<S> <C>
DM
(IN THOUSANDS)
ASSETS
Cash.......................................................................... 352
Accounts receivable -- net:
Trade (Note 1).............................................................. 49
PKG Holding GmbH (Note 9)................................................... 157
Inventory (Note 2)............................................................ 194
Property, plant and equipment -- net (Notes 1 and 3).......................... 11,247
Intangible assets -- net (Note 1)............................................. 76
Other assets.................................................................. 353
-------
TOTAL ASSETS.................................................................. 12,428
=======
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable:
Trade....................................................................... 458
PKG Holding GmbH (Note 9)................................................... 224
Accrued expenses.............................................................. 106
Other liabilities............................................................. 65
Debt (Note 4)................................................................. 10,103
-------
TOTAL LIABILITIES............................................................. 10,956
SHAREHOLDERS' EQUITY
Registered capital (Note 6)................................................. 200
Paid-in capital............................................................. 2,733
Accumulated deficit......................................................... (1,461)
-------
TOTAL SHAREHOLDERS' EQUITY.................................................... 1,472
-------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................................... 12,428
=======
</TABLE>
See accompanying notes to combined financial statements.
F-58
<PAGE> 190
PKG MATURE NETWORKS
COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
DM
(IN THOUSANDS)
Revenues
Third parties............................................................... 4,592
PKG Holding GmbH (Note 9)................................................... 1,221
-------
Total revenues................................................................ 5,813
Operating costs and expenses
Operations.................................................................. 1,656
Selling, general and administrative......................................... 2,764
Depreciation and amortization............................................... 1,352
-------
Total operating costs and expenses............................................ 5,772
-------
Operating income.............................................................. 41
Interest and other income..................................................... 100
Interest expense.............................................................. 896
-------
Loss before income taxes...................................................... ( 755)
Provision for income taxes.................................................... 16
-------
Net loss...................................................................... ( 771)
=======
</TABLE>
See accompanying notes to combined financial statements.
F-59
<PAGE> 191
PKG MATURE NETWORKS
COMBINED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON PAID IN ACCUMULATED
STOCK CAPITAL DEFICIT TOTAL
------ ------- ----------- ------
DM DM DM DM
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Balance at December 31, 1993...................... 200 2,932 (589) 2,543
Net loss.......................................... -- -- (771) (771)
Cash dividends.................................... -- -- (300) (300)
Assumption of loss by silent partnership (Note
6).............................................. -- (199) 199 --
----- ----- ------ -----
Balance at December 31, 1994...................... 200 2,733 (1,461) 1,472
===== ===== ====== =====
</TABLE>
See accompanying notes to combined financial statements.
F-60
<PAGE> 192
PKG MATURE NETWORKS
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,1994
-----------------
<S> <C>
DM
(IN THOUSANDS)
OPERATING ACTIVITIES
Net loss...................................................................... (771)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization............................................... 1,352
Amortization of other assets................................................ 501
Provision for inventory..................................................... 51
Changes in assets and liabilities:
Accounts receivable......................................................... (169)
Inventory and other assets.................................................. (252)
Accounts payable............................................................ 48
Accrued expenses and other liabilities...................................... 76
-------
Net cash provided by operating activities..................................... 836
INVESTING ACTIVITIES
Purchases of property, plant and equipment.................................... (934)
-------
Net cash used in investing activities......................................... (934)
FINANCING ACTIVITIES
Proceeds from debt............................................................ 6,003
Principal payments on debt.................................................... (5,476)
Dividends paid................................................................ (300)
-------
Net cash provided by financing activities..................................... 227
-------
Net increase in cash and cash equivalents..................................... 129
Cash and cash equivalents at beginning of year................................ 223
-------
Cash and cash equivalents at end of year...................................... 352
=======
</TABLE>
See accompanying notes to combined financial statements.
F-61
<PAGE> 193
PKG MATURE NETWORKS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
The accompanying financial statements represent the combined operations of
the following four German limited liability companies (collectively, the "PKG
Mature Networks" or "Combined Companies"):
- PKG Kabelbetriebsgesellschaft mbH, Anklam ("Anklam")
- PKG Kabelbetriebsgesellschaft mbH, Grafenhainichen ("Grafenhainichen")
- PKG Kabelbetriebsgesellschaft mbH, Hoyerswerda ("Hoyerswerda")
- PKG Kabelbetriebsgesellschaft mbH, Stavenhagen ("Stavenhagen")
The PKG Mature Networks are held under common control and are located in
Germany. Each of the companies is engaged in the operation and management of
cable television systems. Hoyerswerda is also engaged in the construction of
cable television systems.
Effective January 1, 1995, the shares of the PKG Mature Networks were sold
to Kabelvision Beteiligungs GmbH ("Kabelvision"). The sales price of DM
33,057,000 was based on the number of subscribers as of December 31, 1994
adjusted for certain assets and the assumption of liabilities.
The financial statements have been prepared in accordance with United
States generally accepted accounting principles ("U.S. GAAP") including those
principles specific to the cable television industry. The PKG Mature Networks
maintain their financial records in accordance with the German Commercial Code,
which represents generally accepted accounting principles in Germany ("German
GAAP"). Generally accepted accounting principles in Germany vary in certain
significant respects from U.S. GAAP. Accordingly, the PKG Mature Networks have
recorded certain adjustments in order that these financial statements be in
accordance with U.S. GAAP. All significant intercompany accounts and
transactions have been eliminated.
CASH EQUIVALENTS
The PKG Mature Networks consider all highly liquid investments purchased
with a maturity of three months or less to be cash equivalents. As of December
31, 1994 the PKG Mature Networks held no cash equivalents.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the PKG Mature Networks to
concentrated credit risks consist primarily of accounts receivable. Credit risk
on accounts receivable is minimized as a result of the large and diverse nature
of the Combined Companies' customer base.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and are comprised
principally of assets used in the development and operation of cable television
systems. These assets are depreciated or amortized in accordance with the United
States Statement of Financial Accounting Standards No. 51 "Financial Reporting
by Cable Television Companies."
Depreciation is provided using the straight-line method over estimated
useful lives as follows: cable television systems: 12 years; equipment and
fixtures: 3 to 5 years.
INVESTMENT GRANTS
Investment grants received from the government for certain acquisitions of
property, plant and equipment are recognized by the PKG Mature Networks when
estimable and realizable. The basis of property, plant and equipment is reduced
by investment grants and depreciated over the useful life of the acquired
property. As of December 31, 1994, property, plant and equipment was reduced by
DM 8,000 relating to the recording of investment grants.
F-62
<PAGE> 194
PKG MATURE NETWORKS
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Investment grants are subject to government review. Management does not
anticipate any significant adjustments to the amount of investment grants
recorded.
INTANGIBLE ASSETS
Intangible assets consist primarily of start-up costs, licenses and other
rights and are amortized over their useful lives which are generally 2 to 4
years. Accumulated amortization aggregated DM 220,000 as of December 31, 1994.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful accounts as of December 31, 1994 was DM 25,000.
REVENUE RECOGNITION
Revenue is derived from the sale of cable television services to
subscribers in Germany and from the construction and management of cable
television systems.
The PKG Mature Networks receive cash from subscribers principally through
automatic bank withdrawals initiated at the beginning of each month. Revenues
generated from cable services provided to subscribers for the year ended
December 31, 1994 approximated DM 4,373,000.
Revenues generated from the construction and management of cable television
systems approximated DM 1,440,000 for the year ended December 31, 1994.
INCOME TAXES
The PKG Mature Networks account for income taxes in accordance with
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes," which has been applied for 1994. Deferred income tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect of a
change in tax rates on deferred tax assets and liabilities is recognized in the
period that includes the enactment date.
2. INVENTORY
Inventory is stated at the lower of cost (first-in, first-out) or market
and consists primarily of supplies used in repairs and maintenance and for use
in future construction of cable television systems.
3. PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment at December 31, 1994 are as
follows:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
-----------------
<S> <C>
Cable television systems..................................................... 14,475
Equipment and fixtures....................................................... 86
-------
Total........................................................................ 14,561
Less-accumulated depreciation................................................ (3,314)
-------
Property, plant and equipment -- net......................................... 11,247
=======
</TABLE>
F-63
<PAGE> 195
PKG MATURE NETWORKS
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. DEBT
Total debt outstanding at December 31,1994 is as follows:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
-----------------
<S> <C>
Bank Loans
7.05% Note due 2004 and payable in monthly installments of DM 50,000 plus
interest................................................................ 5,700
9.75% Note due 2008 and payable in monthly installments of DM 25,000
including interest...................................................... 1,883
7.00% Note due 2005 and payable in monthly installments of DM 16,000
including interest...................................................... 1,463
10.50% Note due 2008 and payable in monthly installments of DM 13,000
including interest...................................................... 985
-------
10,031
Other........................................................................ 72
-------
10,103
=======
</TABLE>
All of the PKG Mature Networks assets are pledged as collateral under the
bank agreements. In connection with the sale of the shares in the PKG Mature
Networks as of January 1, 1995, the outstanding balance of the bank loans were
paid in full by Kabelvision during 1995.
Interest expense charged to operations and paid during 1994 was DM 896,000.
Annual maturities of debt as of December 31, 1994 are as follows:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
-----------------
<S> <C>
1995......................................................................... 866
1996......................................................................... 889
1997......................................................................... 915
1998......................................................................... 943
1999......................................................................... 974
Thereafter................................................................... 5,516
-------
10,103
=======
</TABLE>
5. INCOME TAXES
Each of the PKG Mature Networks files separate tax returns in accordance
with German tax laws. Under German corporate tax law, taxes on income are
comprised of corporate taxes and trade taxes. For financial reporting purposes,
the PKG Mature Networks calculate their respective tax liabilities on a separate
return basis which are aggregated in the accompanying combined financial
statements.
As of December 31, 1994, the PKG Mature Networks had available cumulative
tax loss carryforwards for corporate income tax of approximately DM 2,332,000
and for trade tax on income of approximately DM 1,568,000. Under current German
tax laws, these loss carryforwards have an indefinite life and may be used to
offset future taxable income.
F-64
<PAGE> 196
PKG MATURE NETWORKS
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes consists of the following for the year ended
December 31, 1994:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
-----------------
<S> <C>
Current provision............................................................ 16
Deferred provision........................................................... 0
------
Total provision.............................................................. 16
======
</TABLE>
A reconciliation of total tax provisions to the amount computed by applying
the expected German corporate statutory tax rate of 45% to loss before income
taxes is as follows for the year ended December 31, 1994:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
-----------------
<S> <C>
Computed income tax benefit at German statutory rate......................... (340)
Trade tax on income, net of corporate tax benefit............................ (62)
Valuation allowance on losses incurred in 1994............................... 418
------
16
======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of December
31, 1994 are presented below:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
-----------------
<S> <C>
Deferred tax assets
Net operating loss carry forwards.......................................... 1,179
less -- valuation allowance................................................ (1,179)
-------
Net deferred tax assets.................................................... 0
=======
Deferred tax liabilities..................................................... 0
=======
</TABLE>
6. REGISTERED CAPITAL
The PKG Mature Networks are limited liability companies (hereafter "GmbH")
under German law. Shareholders are generally not liable for the company's
obligations, except to the extent of their capital investment. Registered
capital of a GmbH is not in the form of shares and does not represent negotiable
securities. The minimum capital requirement is DM 50,000. As of December 31,
1994 registered capital of the Combined Companies totaled DM 200,000.
During the year cash dividends of DM 300,000 were paid to a silent
partnership who, through December 29, 1994, held a 30% interest in Hoyerswerda.
The silent partnership also during 1994 assumed DM 199,000 of losses incurred by
Hoyerswerda through a reduction of its share in paid-in capital.
7. PENSION AND EMPLOYEE BENEFIT PLANS
The PKG Mature Networks provide no significant pension, postretirement or
postemployment benefits to its employees.
F-65
<PAGE> 197
PKG MATURE NETWORKS
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The PKG Mature Networks have certain noncancellable operating leases with
renewal options for buildings and equipment. In 1994, rental expense for all
leases totaled DM 38,000.
At December 31, 1994, commitments under noncancellable lease agreements
were as follows:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
-----------------
<S> <C>
1995......................................................................... 38
1996......................................................................... 34
1997......................................................................... 15
1998......................................................................... 12
1999......................................................................... 8
</TABLE>
In connection with the sale of the shares in the PKG Mature Networks as of
January 1, 1995, the Grafenhainichen lease was cancelled by Kabelvision.
Commitments reflected above for the Grafenhainichen lease totaled DM 19,000 for
the period 1995 through 1998.
LEGAL MATTERS
The PKG Mature Networks are subject to litigation from time to time in the
ordinary course of business. In the opinion of management, the ultimate
resolution of such legal proceedings and claims will not have material adverse
effect on the combined financial position or results of operations of the PKG
Mature Networks.
9. RELATED PARTIES
Shareholders of the PKG Mature Networks are also shareholders in PKG
Holding GmbH ("PKG"), a German holding company whose subsidiaries are engaged in
the construction and operation of cable television systems. For the year ended
December 31, 1994, amounts charged by PKG subsidiaries for administrative and
marketing services totaled DM 565,000 and DM 494,000, respectively. Included in
the marketing services are sales commissions of DM 373,000, which relate to
one-time payments made in connection with obtaining new subscribers. These
charges have been capitalized into other assets and are amortized on a
straight-line basis into selling, general and administrative expense over two
years.
During 1994, Hoyerswerda was engaged by certain PKG subsidiaries to
construct cable television systems. Amounts billed and recorded as revenues in
the accompanying combined statement of operations totaled DM 1,221,000 for the
year ended December 31, 1994.
Other related party transactions during 1994 include DM 158,000 of charges
incurred for general and administrative services provided by
Ha-Ma-Beratungsgesellschaft, a German cable company that is partially owned by a
shareholder of the PKG Mature Networks.
F-66
<PAGE> 198
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
of Kabel-Plus Gesellschaft fur Kabel- und Satellitenfernsehen mbH,
Hofheim am Taunus
We have audited the accompanying balance sheet of Kabel-Plus Gesellschaft
fur Kabel- und Satellitenfernsehen mbH, Hofheim am Taunus, as of December 31,
1994 and the related statement of operations for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audit in accordance with auditing standards generally
accepted in Germany and in the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Kabel-Plus Gesellschaft fur
Kabel- und Satellitenfernsehen mbH, Hofheim am Taunus, at December 31, 1994 and
the results of its operations for the year then ended in conformity with
accounting principles generally accepted in Germany.
Generally accepted accounting principles in Germany vary in certain
respects from generally accepted accounting principles in the United States of
America. Application of generally accepted accounting principles in the United
States of America would have effected results of operations for the period ended
December 31, 1994, and shareholders' equity as of December 31, 1994, and the
financial position of the Company.
The main differences between Generally Accepted Accounting Principles in
Germany (in the following referred to as "German-GAAP") and Generally Accepted
Accounting Principles in the United States (in the following referred to as
"US-GAAP") are as follows:
- - Depreciation of Technical Equipment
The Company depreciates its technical equipment over 20 years using the
straight line method. According to US-GAAP the special regulations from SFAS No.
51 have to be used.
- - Capitalization of Interest Cost
The Company has not capitalized any interest expenses which relate to the
construction of the nets. According to US-GAAP the application of SFAS No. 51
and SFAS No. 34 requires that certain interest cost have to be capitalized and
added to the acquisition cost of assets which require a certain time to get
ready for their intended use.
- - Accruals and Provisions
According to German-GAAP, accruals or provisions can be recorded for
uncertain liabilities and to cover expenditures within the year for known
obligations. Application of the prudence principle under German-GAAP may require
the set-up of accruals when the occurrence of a future event is reasonably
possible which may only require disclosure under US-GAAP.
- - Income Tax
In accordance with German-GAAP, the Company is not allowed to book deferred
tax assets for the tax loss carry forward. The application of SFAS No. 109 might
result in different results.
F-67
<PAGE> 199
- - Cash Flow Statements
Statements of cash flows are required to be presented under US-GAAP. Cash
flow statements are not required by German GAAP.
The accompanying financial statements have been translated into English
language for the convenience of readers in the United States of America.
ARTHUR ANDERSEN
Wirtschaftsprufungsgesellschaft
Steuerberatungsgesellschaft mbH
<TABLE>
<S> <C>
VON SPERBER STEINWEG
Wirtschaftsprufer Wirtschaftsprufer
</TABLE>
Hannover, Germany
February 22, 1995
F-68
<PAGE> 200
EXHIBIT I
KABEL PLUS GESELLSCHAFT FUR KABEL- UND SATELLITFERNSEHEN MBH, HOFHEIM AM TAUNUS
BALANCE SHEET AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
DM DM
ASSETS
FIXED ASSETS
Intangible assets
Software......................................................... 680.83 870.83
------------- ------------
680.83 870.83
------------- ------------
Property, plant and equipment
Land........................................................... 10,200.00 10,200.00
Technical equipment, plant and machinery....................... 13,155,388.88 13,712,560.45
Other equipment, operational and office equipment.............. 68,219.89 87,191.84
------------- ------------
13,233,808.77 13,809,952.29
------------- ------------
13,234,489.60 13,810,823.12
------------- ------------
CURRENT ASSETS
Accounts receivable and other assets
Accounts receivable, trade..................................... 27,955.77 62,596.80
Accounts due from affiliated companies......................... 45,321.72 1,879,042.18
-- thereof due from shareholders:
DM 41,466.07 (1993: DM 1,833,429.22)
Other assets................................................... 22,079.66 24,151.08
------------- ------------
95,357.15 1,965,790.06
------------- ------------
Cash on hand..................................................... 454.09 440.32
------------- ------------
95,811.24 1,966,230.38
------------- ------------
DEFERRED CHARGES AND PREPAID EXPENSES............................ 7,099.06 5,294.60
------------- ------------
CAPITAL DEFICIT.................................................. 594,768.66 0.00
------------- ------------
13,932,168.56 15,782,348.10
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
SHAREHOLDERS' EQUITY
Capital subscribed............................................... 4,000,000.00 4,000,000.00
Paid-in surplus.................................................. 20,000,000.00 20,000,000.00
Accumulated deficit, beginning of year........................... 23,929,461.68 22,578,444.96
Net loss......................................................... 665,306.98 1,351,016.72
Capital deficit.................................................. 594,768.66 0.00
------------ ------------
0.00 70,538.32
------------ ------------
RESERVES AND ACCRUED LIABILITIES
Accrued taxes.................................................. 53,203.00 7,692.00
Other reserves and accrued liabilities......................... 245,419.56 154,179.89
------------ ------------
298,622.56 161,871.89
------------ ------------
LIABILITIES
Liabilities due to banks......................................... 4,399,228.63 6,349,652.46
Accounts payable, trade.......................................... 200,618.60 178,572.89
Accounts due to affiliated companies............................. 9,008,201.51 8,364,346.52
Other liabilities................................................ 25,497.26 657,366.02
- -- thereof for taxes: DM 18,161.47 (1993: DM 2,661.94)
- -- thereof for social security: DM 6,576.12 (1993: DM 4,748.58)
------------ ------------
13,633,546.00 15,549,937.89
------------ ------------
13,932,168.56 15,782,348.10
============ ============
</TABLE>
F-69
<PAGE> 201
EXHIBIT II
KABEL-PLUS GESELLSCHAFT FUR KABEL- UND SATELLITENFERNSEHEN MBH,
HOFHEIM AM TAUNUS
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1994
AND THE FIVE MONTHS ENDED MAY 31, 1995
<TABLE>
<CAPTION>
FIVE MONTHS ENDED
MAY 31, 1995 1994 1993
----------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
DM DM DM
Sales.......................................... 996,427.32 2,329,221.43 2,212,420.49
Other operating income......................... 356,493.80 94,876.01 314,870.24
Cost of purchased services..................... (185,454.55) (510,099.67) (477,603.07)
Personnel expenses
Wages and Salaries........................... (77,301.65) (209,929.37) (177,245.06)
Social security.............................. (14,874.68) (40,623.14) (29,223.77)
Depreciation, amortisation and write-offs on
intangible assets and plant and equipment.... (376,330.74) (891,400.94) (867,466.63)
Other operating expenses....................... (150,278.90) (393,532.71) (455,121.47)
Other interest and similar income.............. 11,964.79 93,663.54 72,252.85
- -- thereof from affiliated companies DM
93648,50 (1993: DM 72.213,22)
Interest and similar expenses.................. (295,251.89) (1,088,359.33) (2,029,701.60)
- -- thereof to affiliated companies DM
584.180,99 (1993: DM 1.480.022,88)
----------- ------------ --------------
Result from ordinary operations............. 265,393.50 (616,184.18) (1,436,818.02)
----------- ------------ --------------
Other taxes................................. (289.87) (49,122.80) 85,801.30
----------------- ------------ ------------
Net profit/(loss)........................... 265,103.63 (665,306.98) (1,351,016.72)
============== ============ ============
</TABLE>
F-70
<PAGE> 202
EXHIBIT III
KABEL-PLUS GESELLSCHAFT FUR KABEL- UND SATELLITENFERNSEHEN MBH HOFHEIM AM
TAUNUS
NOTES TO FINANCIAL STATEMENTS FOR THE YEAR 1994
INFORMATION PERTAINING TO THE FIVE MONTHS ENDED MAY 31, 1995 IS UNAUDITED
I. GENERAL COMMENTS
The financial statements for the year ended December 31, 1994 have been
prepared in accordance with the German Commercial Code (HGB).
ACCOUNTING METHODS
The financial statements do contain all assets, debts, deferred charges,
expenses and income as far as not legally prescribed otherwise.
Property, current assets, net equity, debts and deferred income have been
separately stated in the balance sheet.
VALUATION METHODS
The valuation assumes the Company is a going concern.
Assets and debts are valued separately at closing date. Concerning the
valuation of primary network ("Ortsverkabelungen") and residential unit
distribution systems ("Hausverteilanlagen") we refer to our comments to this
item.
The valuation has been performed in a prudent way. All foreseeable risks
and losses which have occurred up to balance sheet date have been considered.
The valuation methods applied for prior year's financial statement are
still valid.
In particular the following valuation methods have been applied:
Assets are principally stated at acquisition or manufacturing costs less
normal depreciation. Depreciation is calculated under the straight line method
over to the expected useful life of the assets. Extraordinary depreciation has
been considered, if necessary.
Receivables are valued at nominal value at the lower of cost or market
principle.
Other assets and additional items of current assets are capitalized at cost
or at such lower value which is appropriate at the balance sheet date.
Accruals are stated at the amount required based on sound business
judgement in the amount of the possible financial obligation, in order to comply
with the concept of prudence. Liabilities are shown at repayment value.
II. EXPLANATORY NOTES TO THE BALANCE SHEET AND THE STATEMENT OF OPERATIONS
ASSETS
Movements in fixed assets during the financial year can be drawn from the
analysis of fixed assets (see page 4).
F-71
<PAGE> 203
KABEL-PLUS GESELLSCHAFT FUR KABEL- UND SATELLITENFERNSEHEN MBH HOFHEIM AM TAUNUS
NOTES TO FINANCIAL STATEMENTS FOR THE YEAR 1994 -- (CONTINUED)
INFORMATION PERTAINING TO THE FIVE MONTHS ENDED MAY 31, 1995 IS UNAUDITED
Technical equipment primarily consists of primary network
("Ortsverkabelungen") for the respective location (cable level 3), residential
unit distribution systems ("Hausverteilanlagen") (cable level 4) in the
respective location and four head-ends. The named cable levels 3 and 4 are
regarded as independent assets as usual in this industry. In valuating cable
levels 3 and 4 all expenses occurred from third parties for installation have
been capitalized as late acquisition expenses for the respective cable levels 3
or 4. Depreciation is performed on the basis of the remaining useful life of the
respective asset. For the determination of depreciation for cable levels 3 and 4
the company assume an overall useful life of 20 years.
Other assets contain receivables due after one year amounting to DM
12,852.00.
LIABILITIES
The paid-in surplus amounting to DM 20,000,000.00 contains additional
payments from the shareholder according to sec.272 sect. 2 no. 4 HGB (German
Commercial Code) carried out in the business year 1993.
As of December 31, 1994, the Company shows a capital deficit of DM
594,768.66. To avoid a overindebtedness situation, a letter of subordination has
been issued by one creditor referring to his accounts receivables.
Subject to the agreement of the shareholder the composing of the financial
statements assumes that the year end result of the year 1994 and the accumulated
losses brought forward will be carried forward.
The split-up and due dates for liabilities are shown in the following
liability analysis.
To guarantee the liabilities due to banks the Company has transferred all
future rights and claims against network clients and home owners resulting from
network installation agreements; head-ends and cable networks of block units
have been transferred by means of chattel mortgage.
<TABLE>
<CAPTION>
THEREOF DUE
------------------------------------------------
TOTAL AMOUNTS AS OF BETWEEN ONE AND
BALANCE SHEET DATE WITHIN ONE YEAR FIVE YEARS AFTER FIVE YEARS
------------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
DM DM DM DM
Liabilities due to banks...... 4,399,228.63 826,874.97 3,412,294.01 160,059.65
(6,349,652.46) (1,002,020.59) (4,471,934.29) (875,697.58)
Accounts payable, trade....... 200,618.60 200,618.60 0.00 0.00
(178,572.89) (178,572.89) (0.00) (0.00)
Accounts due to affiliated
companies................... 9,008,201.51 9,008,201.51 0.00 0.00
(8,364,346.52) (8,364,346.52) (0.00) (0.00)
- -- thereof to shareholder..... 9,000,602.51 9,000,602.51 0.00 0.00
(120,966.02) (120,966.02) (0.00) (0.00)
Other liabilities............. 25,497.26 25,497.26 0.00 0.00
(657,366.02) (657,366.02) (0.00) (0.00)
---------------- -------------- ------------- ------------
13,633,546.00 10,061,192.34 3,412,294.01 160,059.65
(15,549,937.89) (10,202,306.02) (4,471,934.29) (875,697.58)
</TABLE>
(prior year's figures in brackets)
STATEMENT OF OPERATIONS
Other taxes contain passed on expenses in amount of DM 45,511.00 resulting
from municipal trade tax due to an allocation agreement with parent in organic
unity ("Organtrager").
F-72
<PAGE> 204
KABEL-PLUS GESELLSCHAFT FUR KABEL- UND SATELLITENFERNSEHEN MBH HOFHEIM AM TAUNUS
NOTES TO FINANCIAL STATEMENTS FOR THE YEAR 1994 -- (CONTINUED)
INFORMATION PERTAINING TO THE FIVE MONTHS ENDED MAY 31, 1995 IS UNAUDITED
III. OTHER NOTES
GENERAL MANAGEMENT
Herbert Leifker, Hildesheim.
PARENT COMPANY
100% of the share capital is held by Tele Columbus GmbH, Hannover, which
itself is an affiliated company of VEBA AG, Dusseldorf/Berlin.
The parent company, VEBA AG, Dusseldorf/Berlin, composes consolidated
financial statements including the most important circle of group companies.
The consolidated financial statements of VEBA AG, Dusseldorf/Berlin, will
be published in "Bundesanzeiger" (Federal Bulletin) and the publication will be
issued to country court Dusseldorf for trade register purposes.
Hofheim am Taunus, 22 February 1995
Herbert Leifker
General Manager
F-73
<PAGE> 205
KABEL-PLUS GESELLSCHAFT FUR KABEL- UND SATELLITENFERNSEHEN MBH, HOFHEIM AM
TAUNUS
MOVEMENTS IN FIXED ASSETS AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
ACQUISITION COSTS ACCUMULATED DEPRECIATION
------------------------------------------------------- ------------------------
JAN. 1, 1994 ADDITIONS DISPOSITIONS DEC. 31, 1994 JAN. 1, 1994 ADDITIONS
------------ --------- ------------ ------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
DM DM DM DM DM DM
I. INTANGIBLE ASSETS
Software........................ 950.00 0.00 0.00 950.00 79.17 190.00
II. PROPERTY, PLANT AND EQUIPMENT
1. Land........................ 10,200.00 0.00 0.00 10,200.00 0.00 0.00
2. Technical equipment, plant
and machinery............... 29,361,386.42 311,293.56 0.00 29,672,679.98 15,648,825.97 868,465.13
3. Other equipment, operational
and office equipment........ 113,654.43 5,873.86 3,751.17 115,777.12 26,462.59 22,745.81
------------- ---------- --------- ------------- ------------- ----------
29,485,240.85 317,167.42 3,751.17 29,798,657.10 15,675,288.56 891,210.94
------------- ---------- --------- ------------- ------------- ----------
29,486,190.85 317,167.42 3,751.17 29,799,607.10 15,675,367.73 891,400.94
============= ========== ========= ============= ============= ==========
<CAPTION>
NET BOOK VALUE
-----------------------------
DISPOSITIONS DEC. 31, 1994 DEC. 31, 1994 DEC. 31, 1993
------------ ------------- ------------- -------------
<S> <<C> <C> <C> <C>
DM DM DM DM
I. INTANGIBLE ASSETS
Software........................ 0.00 269.17 680.83 870.83
II. PROPERTY, PLANT AND EQUIPMENT
1. Land........................ 0.00 0.00 10,200.00 10,200.00
2. Technical equipment, plant
and machinery............... 0.00 16,517,291.10 13,155,388.88 13,712,560.45
3. Other equipment, operational
and office equipment........ 1,651.17 47,557.23 68,219.89 87,191.84
---------- ------------- ------------- -------------
1,651.17 16,564,848.33 13,233,808.77 13,809,952.29
---------- ------------- ------------- -------------
1,651.17 16,565,117.50 13,234,489.60 13,810,823.12
========== ============= ============= =============
</TABLE>
F-74
<PAGE> 206
EXHIBIT IV
KABEL-PLUS GESELLSCHAFT FUR KABEL- UND SATELLITENFERNSEHEN MBH HOFHEIM AM TAUNUS
MANAGEMENT REPORT AS OF DECEMBER 31, 1994
RESULTS OF OPERATIONS
The expansion of cable networks in the financial year 1994 has nearly been
completed; at the end of the year approx. 7,600 households have been in a
collection relationship.
FINANCIAL SITUATION OF THE COMPANY
The net loss for the year 1994 amounts to KDM665. The interest burden was
relieved due to restructuring payments in the amount of DM20,000,000 received
from Tele Columbus GmbH in 1993.
In order to assure the Company's going concern a letter of subordination
has been issued by Tele Columbus GmbH.
Significant events and facts which would have been reported on did not
occur after closing date.
OUTLOOK
In 1995 the acquisition activities will be reinforced to reach the intended
aim of at least 8,000 connected households. This will be realized by means of
local advertising and mailing activities as well as installing additional radio
and TV-channels .
A loss is expected again for the financial year 1995. Nevertheless, a
positive cash flow may be achieved.
In 1995 the sale of shares is intended. Negotiations thereupon are
currently being held.
Hofheim, 22 February 1995
Herbert Leifker
F-75
<PAGE> 207
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
of Kabel-Plus Gesellschaft fur Kabel- und Satellitenfernsehen mbH,
Hofheim am Taunus
We have audited the accompanying balance sheet of Kabel-Plus Gesellschaft
fur Kabel- und Satellitenfernsehen mbH, Hofheim am Taunus, as of December 31,
1993 and the related statement of operations for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audit in accordance with auditing standards generally
accepted in Germany and in the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Kabel-Plus Gesellschaft fur
Kabel- und Satellitenfernsehen mbH, Hofheim am Taunus, at December 31, 1993 and
the results of its operations for the year then ended in conformity with
accounting principles generally accepted in Germany.
Generally accepted accounting principles in Germany vary in certain
respects from generally accepted accounting principles in the United States of
America. Application of generally accepted accounting principles in the United
States of America would have effected results of operations for the period ended
December 31, 1993, and shareholders' equity as of December 31, 1993, and the
financial position of the Company.
The main differences between Generally Accepted Accounting Principles in
Germany (in the following referred to as "German-GAAP") and Generally Accepted
Accounting Principles in the United States (in the following referred to as
"US-GAAP") are as follows:
- - Depreciation of Technical Equipment
The Company depreciates its technical equipment over 20 years using the
straight line method. According to US-GAAP the special regulations from SFAS No.
51 have to be used.
- - Capitalization of Interest Cost
The Company has not capitalized any interest expenses which relate to the
construction of the nets. According to US-GAAP the application of SFAS No. 51
and SFAS No. 34 requires that certain interest cost have to be capitalized and
added to the acquisition cost of assets which require a certain time to get
ready for their intended use.
- - Accruals and Provisions
According to German-GAAP, accruals or provisions can be recorded for
uncertain liabilities and to cover expenditures within the year for known
obligations. Application of the prudence principle under German-GAAP may require
the set-up of accruals when the occurrence of a future event is reasonably
possible which may only require disclosure under US-GAAP.
- - Income Tax
In accordance with German-GAAP, the Company is not allowed to book deferred
tax assets for the tax loss carry forward. The application of SFAS No. 109 might
result in different results.
F-76
<PAGE> 208
- - Cash Flow Statements
Statements of cash flows are required to be presented under US-GAAP. Cash
flow statements are not required by German-GAAP.
The accompanying financial statements have been translated into English
language for the convenience of readers in the United States of America.
ARTHUR ANDERSEN
Wirtschaftsprufungsgesellschaft
Steuerberatungsgesellschaft mbH
<TABLE>
<S> <C>
Von Sperber Hentschel
Wirtschaftsprufer Wirtschaftsprufer
</TABLE>
Hannover, Germany
February 17, 1994
F-77
<PAGE> 209
KABEL-PLUS GESELLSCHAFT FUR KABEL- UND SATELLITENFERNSEHEN MBH HOFHEIM AM TAUNUS
BALANCE SHEET AS OF DECEMBER 31, 1993
<TABLE>
<CAPTION>
1993 1992
------------ ------------
<S> <C> <C>
DM DM
ASSETS
FIXED ASSETS
Intangible assets
Software..................................................... 870.83 2,558.03
------------ ------------
870.83 2,558.03
------------ ------------
Property, plant and equipment
Land......................................................... 10,200.00 13,200.00
Technical equipment, plant and machinery.................... 13,712,560.45 14,222,443.98
Other equipment, operational and office equipment............ 87,191.84 51,156.44
------------ ------------
13,809,952.29 14,286,800.42
------------ ------------
13,810,823.12 14,289,358.45
------------ ------------
CURRENT ASSETS
Accounts receivable and other assets
Accounts receivable, trade................................... 62,596.80 26,452.86
Accounts due from affiliated companies....................... 1,879,042.18 477,622.28
-- thereof against shareholders: DM 1,833,429.22
(1992: DM 233,403.73)
Other assets................................................. 24,151.08 1,503,704.45
------------ ------------
1,965,790.06 2,007,779.59
------------ ------------
Cash on hand................................................... 440.32 188.02
------------ ------------
1,966,230.38 2,007,967.61
------------ ------------
DEFERRED CHARGES AND PREPAID EXPENSES.......................... 5,294.60 0.00
------------ ------------
CAPITAL DEFICIT............................................... 0.00 18,578,444.96
------------ ------------
15,782,348.10 34,875,771.02
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
SHAREHOLDERS' EQUITY
Capital subscribed............................................. 4,000,000.00 4,000,000.00
Paid-in surplus................................................ 20,000,000.00 0.00
Accumulated deficit, beginning of year......................... 22,578,444.96 5,302,944.31
Net loss....................................................... 1,351,016.72 17,275,500.65
Capital deficit................................................ 0.00 18,578,444.96
------------ ------------
70,538.32 0.00
------------ ------------
RESERVES AND ACCRUED LIABILITIES
Accrued taxes.................................................. 7,692.00 126,000.00
Other reserves and accrued liabilities......................... 154,179.89 242,769.89
------------ ------------
161,871.89 368,769.89
------------ ------------
LIABILITIES
Liabilities due to banks....................................... 6,349,652.46 6,800,000.00
Accounts payable, trade........................................ 178,572.89 244,231.24
Accounts due to affiliated companies........................... 8,364,346.52 27,447,870.10
- -- thereof due to shareholders DM 120,966.02 (1992: DM
678,176.30)
Other liabilities.............................................. 657,366.02 14,818.94
- -- thereof for taxes: DM 2,661.94 (1992: DM 0.00)
- -- thereof for social security: DM 4,748.58 (1992: DM 0.00)
------------ ------------
15,549,937.89 34,506,920.28
------------ ------------
DEFERRED ITEMS................................................. 0.00 80.85
------------ ------------
15,782,348.10 34,875,771.02
============ ============
</TABLE>
F-78
<PAGE> 210
EXHIBIT II
KABEL-PLUS GESELLSCHAFT FUR KABEL- UND SATELLITENFERNSEHEN MBH,
HOFHEIM AM TAUNUS
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
1993 1992
------------ -------------
<S> <C> <C>
DM DM
Sales......................................................... 2,212,420.49 2,079,835.92
Other operating income........................................ 314,870.24 171,509.89
Cost of purchased services.................................... (477,603.07) (565,964.65)
Personnel expenses
Wages and Salaries.......................................... (177,245.06) (141,693.63)
Social security............................................. (29,223.77) (22,670.08)
Depreciation, amortisation and write-offs on intangible assets
and plant and equipment..................................... (867,466.63) (14,070,403.12)
Other operating expenses...................................... (455,121.47) (1,290,523.49)
Other interest and similar income............................. 72,252.85 72,633.80
- -- thereof from affiliated companies
DM 72,213.22 (1992: DM 72,317.15)
Interest and similar expenses................................. (2,029,701.60) (3,402,098.11)
- -- thereof to affiliated companies
DM 1,480,022.88 (1992: DM 2,796,455.88)
------------ -------------
Result from ordinary operations............................... (1,436,818.02) (17,169,373.47)
------------ -------------
Other taxes................................................... 85,801.30 (106,127.18)
------------ -------------
Net loss...................................................... 1,351,016.72 17,275,500.65
============ =============
</TABLE>
F-79
<PAGE> 211
EXHIBIT III
KABEL-PLUS GESELLSCHAFT FUR KABEL- UND SATELLITENFERNSEHEN MBH HOFHEIM AM TAUNUS
NOTES TO FINANCIAL STATEMENTS FOR THE YEAR 1993
I. GENERAL COMMENTS TO THE FINANCIAL STATEMENTS, ACCOUNTING AND
VALUATION METHODS
The financial statements for the year ended December 31, 1993 have been
prepared in accordance with the German Commercial Code (HGB).
ACCOUNTING METHODS
The financial statements do contain all assets, debts, deferred charges,
expenses and income as far as not legally prescribed otherwise.
Property, current assets, net equity, debts and deferred income have been
separately stated in the balance sheet.
VALUATION METHODS
The valuation assumes the Company is a going concern.
Assets and debts are valued separately at closing date. Concerning the
valuation of primary network ("Ortsverkabelungen") and residential unit
distribution systems ("Hausverteilanlagen") we refer to our comments to this
item.
The valuation has been performed in a prudent way. All foreseeable risks
and losses which have occurred up to balance sheet date have been considered.
The valuation methods applied for prior year's financial statement are
still valid.
In particular the following valuation methods have been applied:
Assets are principally stated at acquisition costs less normal
depreciation. Depreciation is calculated under the straight line method over the
expected useful life of the assets. Extraordinary depreciation has been
considered, if necessary.
Receivables are valued at nominal value at the lower of cost or market
principle.
Other assets and additional items of current assets are capitalized at cost
or at such lower value which is appropriate at the balance sheet date.
Accruals are stated at the amount required based on sound business
judgement in the amount of the possible financial obligation, in order to comply
with the concept of prudence.
Liabilities are shown at repayment value.
II. EXPLANATORY NOTES TO THE BALANCE SHEET AND THE STATEMENT OF OPERATIONS
ASSETS
Movements in fixed assets during the financial year can be drawn from the
analysis of fixed assets (see page 4).
Technical equipment primarily consists of primary network
("Ortsverkabelungen") for the respective locations (cable level 3), residential
unit distribution systems ("Hausverteilanlagen") (cable level 4) in the
F-80
<PAGE> 212
KABEL-PLUS GESELLSCHAFT FUR KABEL- UND SATELLITENFERNSEHEN MBH HOFHEIM AM TAUNUS
NOTES TO FINANCIAL STATEMENTS FOR THE YEAR 1993 -- (CONTINUED)
respective locations and two head-ends. The named cable levels 3 and 4 are
regarded as independent assets as usual in this industry. In valuating cable
levels 3 and 4 all expenses occurred from third parties for installation have
been capitalized as late acquisition expenses for the respective cable levels 3
or 4. Depreciation is performed on the basis of the remaining useful life of the
respective asset. For the determination of depreciation for cable levels 3 and 4
the company assumes an overall useful life of 20 years.
Other assets contain receivables due after one year in the amount of DM
7,500.00.
LIABILITIES
The paid-in surplus amounting to DM 20,000,000.00 contains additional
payments from the shareholder according to sec. 272 sect. 2 no. 4 HGB (German
Commercial Code) carried out in the business year 1993.
Subject to the agreement of the shareholder the composing of the financial
statements assumes that the year end result of the year 1993 and the accumulated
losses brought forward will be carried forward.
The split-up and due dates for liabilities are shown in the following
liability analysis.
To guarantee the liabilities due to banks the Company has transferred all
future rights and claims against network clients and home owners resulting from
network installation agreements; head-ends and cable networks of block units
have been transferred by means of chattel mortgage.
<TABLE>
<CAPTION>
THEREOF DUE
--------------------------------------------------------
TOTAL AMOUNTS AS OF BETWEEN ONE AND
BALANCE SHEET DATE WITHIN ONE YEAR FIVE YEARS AFTER FIVE YEARS
------------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
DM DM DM DM
Liabilities due to banks.... 6,349,652.46 1,002,020.59 4,471,934.29 875,697.58
(6,800,000.00) (0.00) (0.00) (6,800,000.00)
Accounts payable, trade..... 178,572.89 178,572.89 0.00 0.00
(244,231.24) (244,231.24) (0.00) (0.00)
Accounts due to affiliated
companies................. 8,364,346.52 8,364,346.52 0.00 0.00
(27,447,870.10) (27,447,870.10) (0.00) (0.00)
- -- thereof to shareholder... 120,966.02 120,966.02 0.00 0.00
(678,176.30) (678,176.30) (0.00) (0.00)
Other liabilities........... 657,366.02 657,366.02 0.00 0.00
(14,818.94) (14,818.94) (0.00) (0.00)
-------------- -------------- ------------ -------------
15,549,937.89 10,202,306.02 4,471,934.29 875,697.58
(34,506,920.28) (27,706,920.28) (0.00) (6,800,000.00)
============== ============== ============ =============
</TABLE>
(prior year's figures in brackets)
STATEMENT OF OPERATIONS
Other taxes contain income from municipal trade tax in the amount of DM
102,865.
III. OTHER NOTES
GENERAL MANAGEMENT
Ulrich Mannes, Pfaffenweiler (until 26 February 1993)
Herbert Leifker, Hildesheim (since 26 February 1993)
F-81
<PAGE> 213
KABEL-PLUS GESELLSCHAFT FUR KABEL- UND SATELLITENFERNSEHEN MBH HOFHEIM AM TAUNUS
NOTES TO FINANCIAL STATEMENTS FOR THE YEAR 1993 -- (CONTINUED)
PARENT COMPANY
The Company is included in the consolidated financial statements of Motor
Columbus AG, Baden/Schweiz.
Hofheim am Taunus, 16 February 1994
Herbert Leifker
General Manager
F-82
<PAGE> 214
KABEL-PLUS GESELLSCHAFT FUR KABEL- UND SATELLITENFERNSEHEN MBH, HOFHEIM AM
TAUNUS
MOVEMENTS IN FIXED ASSETS AS OF DECEMBER 31, 1993
<TABLE>
<CAPTION>
ACQUISITION COSTS ACCUMULATED DEPRECIATION
------------------------------------------------------- ------------------------
JAN. 1, 1993 ADDITIONS DISPOSITIONS DEC. 31, 1993 JAN. 1, 1993 ADDITIONS
------------ --------- ------------ ------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
DM DM DM DM DM DM
I. INTANGIBLE ASSETS
Software......................... 2,887.40 950.00 2,887.40 950.00 329.37 175.42
II. PROPERTY, PLANT AND EQUIPMENT
1. Land......................... 13,200.00 0.00 3,000.00 10,200.00 0.00 0.00
2. Technical equipment, plant
and machinery................29,024,888.20 336,498.22 0.00 29,361,386.42 14,802,444.22 846,381.75
3. Other equipment, operational
and office equipment......... 61,210.81 72,346.71 19,903.09 113,654.43 10,054.37 20,909.46
------------- ---------- --------- ------------- ------------- ----------
29,099,299.01 408,844.93 22,903.09 29,485,240.85 14,812,498.59 867,291.21
------------- ---------- --------- ------------- ------------- ----------
29,102,186.41 409,794.93 25,790.49 29,486,190.85 14,812,827.96 867,466.63
============= ========== ========= ============= ============= ==========
<CAPTION>
NET BOOK VALUE
-----------------------------
DISPOSITIONS DEC. 31, 1993 DEC. 31, 1993 DEC. 31, 1992
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
DM DM DM DM
I. INTANGIBLE ASSETS
Software......................... 425.62 79.17 870.83 2,558.03
II. PROPERTY, PLANT AND EQUIPMENT
1. Land......................... 0.00 0.00 10,200.00 13,200.00
2. Technical equipment, plant
and machinery................ 0.00 15,648,825.97 13,712,560.45 14,222,443.98
3. Other equipment, operational
and office equipment......... 4,501.24 26,462.59 87,191.84 51,156.44
-------- ------------- ------------- -------------
4,501.24 15,675,288.56 13,809,952.29 14,286,800.42
-------- ------------- ------------- -------------
4,926.86 15,675,367.73 13,810,823.12 14,289,358.45
======== ============= ============= =============
</TABLE>
F-83
<PAGE> 215
EXHIBIT IV
KABEL-PLUS GESELLSCHAFT FUR KABEL- UND SATELLITENFERNSEHEN MBH HOFHEIM AM TAUNUS
MANAGEMENT REPORT AS OF DECEMBER 31, 1993
The expansion of cable networks in the financial year 1993 has nearly been
completed; at the end of the year approx. 7,100 households have been in a
collection relationship.
The net loss for the year 1993 amounts to DM 1,351,016.72. The interest
burden was relieved this year due to restructuring payments in the amount of DM
20,000,000.00 received from Tele Columbus GmbH.
In order to assure the Company's going concern a letter of subordination
has been issued by an affiliated company of Motor Columbus group.
In 1994 the acquisition activities will be reinforced to reach the intended
aim of at least 7,600 connected households. This will be realized by means of
local advertising and mailing activities as well as installing additional radio
and TV-channels .
Despite of the depreciation release, which is due to extraordinary
depreciation, a loss is expected again in the financial year 1994. Nevertheless,
a positive cash flow may be achieved.
Hofheim, 16 February 1994
Herbert Leifker
F-84
<PAGE> 216
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
WIEDMANN-DETTWILER ST. GEORGEN GMBH, ST. GEORGEN
We have audited the accompanying balance sheet of Wiedmann-Dettwiler St.
Georgen GmbH, St. Georgen, as of December 31, 1994 and the related statement of
operations for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audit in accordance with auditing standards generally
accepted in Germany and in the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Wiedmann-Dettwiler St.
Georgen GmbH, St. Georgen, at December 31, 1994 and the results of its
operations for the year then ended in conformity with accounting principles
generally accepted in Germany.
Generally accepted accounting principles in Germany vary in certain
respects from generally accepted accounting principles in the United States of
America. Application of generally accepted accounting principles in the United
States of America would have effected results of operations for the period ended
December 31, 1994, and shareholders' equity as of December 31, 1994, and the
financial position of the Company.
The main differences between Generally Accepted Accounting Principles in
Germany (in the following referred to as "German-GAAP") and Generally Accepted
Accounting Principles in the United States (in the following referred to as
"US-GAAP") are as follows:
- - DEPRECIATION OF TECHNICAL EQUIPMENT
The Company depreciates its technical equipment over 20 years using the
straight line method. According to US-GAAP the special regulations from SFAS No.
51 have to be used.
- - CAPITALIZATION OF INTEREST COST
The Company has not capitalized any interest expenses which relate to the
construction of the nets. According to US-GAAP the application of SFAS No. 51
and SFAS No. 34 requires that certain interest cost have to be capitalized and
added to the acquisition cost of assets which require a certain time to get
ready for their intended use.
- - ACCRUALS AND PROVISIONS
According to German-GAAP, accruals or provisions can be recorded for
uncertain liabilities and to cover expenditures within the year for known
obligations. Application of the prudence principle under German-GAAP may require
the set-up of accruals when the occurrence of a future event is reasonably
possible which may only require disclosure under US-GAAP.
- - INCOME TAX
In accordance with German-GAAP, the Company is not allowed to book deferred
tax assets for the tax loss carry forward. The application of SFAS No. 109 might
result in different results.
F-85
<PAGE> 217
- - CASH FLOW STATEMENTS
Statements of cash flows are required to be presented under US-GAAP. Cash
flow statements are not required by German-GAAP.
The accompanying financial statements have been translated into English
language for the convenience of readers in the United States of America.
ARTHUR ANDERSEN
Wirtschaftsprufungsgesellschaft
Steuerberatungsgesellschaft mbH
<TABLE>
<S> <C>
von Sperber Steinweg
Wirtschaftsprufer Wirtschaftsprufer
Hannover, Germany
February 22, 1995
</TABLE>
F-86
<PAGE> 218
EXHIBIT I
WIEDMANN DETTWILER ST. GEORGEN GMBH, ST. GEORGEN
BALANCE SHEET AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
1994 1993
------------- -------------
DM DM
<S> <C> <C>
ASSETS
FIXED ASSETS
Intangible assets
Software............................................................. 1,230.73 2,249.07
------------- -------------
1,230.73 2,249.07
------------- -------------
Property, plant and equipment
Land................................................................. 35,870.19 39,465.81
Technical equipment, plant and machinery............................. 17,538,393.57 18,522,751.72
Other equipment, operational and office equipment.................... 75,227.37 104,863.22
Construction in progress............................................. 20,000.00 0.00
------------- -------------
17,669,491.13 18,667,080.75
------------- -------------
Financial assets
Investments.......................................................... 0.00 20,000.00
------------- -------------
17,670,721.86 18,689,329.82
------------- -------------
CURRENT ASSETS
Inventories
Stock................................................................ 425.00 0.00
------------- -------------
Accounts receivable and other assets
Accounts receivable, trade........................................... 64,925.54 69,037.88
Accounts due from affiliated companies............................... 33,989.05 35,597.04
-- thereof due from shareholders: DM 33,989.05 (1993: DM 34,597.04)
Other assets......................................................... 3,364.75 54,175.12
------------- -------------
102,279.34 158,810.04
------------- -------------
Cash on hand and in Federal Bank....................................... 5,458.03 9,786.53
------------- -------------
108,162.37 168,596.57
------------- -------------
DEFERRED CHARGES AND PREPAID EXPENSES.................................. 3,144.30 0.00
------------- -------------
CAPITAL DEFICIT........................................................ 9,127,879.09 7,423,234.13
------------- -------------
26,909,907.62 26,281,160.52
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
SHAREHOLDERS' EQUITY
Capital subscribed..................................................... 10,000,000.00 10,000,000.00
Paid-in surplus........................................................ 2,138,000.00 2,138,000.00
Accumulated deficit, beginning of year................................. 19,561,234.13 17,439,857.95
Net loss............................................................... 1,704,644.96 2,121,376.18
Capital deficit........................................................ 9,127,879.09 7,423,234.13
------------- -------------
0.00 0.00
------------- -------------
RESERVES AND ACCRUED LIABILITIES
Accrued taxes.......................................................... 30,128.00 0.00
Other reserves and accrued liabilities................................. 253,553.71 232,840.10
------------- -------------
283,681.71 232,840.10
------------- -------------
LIABILITIES
Liabilities due to banks............................................... 6,717,830.62 7,856,933.87
Accounts payable, trade................................................ 97,109.28 84,035.47
Accounts due to affiliated companies................................... 19,795,638.64 18,090,320.34
-- thereof against shareholders DM 19,783,541.64 (1993: DM
1,801,221.42)
Other liabilities...................................................... 15,647.37 17,030.74
-- thereof for taxes: DM 3,970.46 (1993: DM 2,439.60)
-- thereof for social security: DM 7,625.11 (1993: DM 5,685.66)
------------- -------------
26,626,225.91 26,048,320.42
------------ ------------
26,909,907.62 26,281,160.52
============= =============
</TABLE>
F-87
<PAGE> 219
EXHIBIT II
WIEDMANN-DETTWILER ST. GEORGEN GMBH, ST. GEORGEN
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994 AND
THE FIVE MONTHS ENDED MAY 31, 1995
<TABLE>
<CAPTION>
FIVE MONTHS ENDED
MAY 31, 1995 1994 1993
----------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
DM DM DM
1. Sales...................................... 1,090,706.50 2,560,987.50 2,470,895.34
2. Other operating income..................... 125,420.45 85,683.77 44,419.08
3. Cost of materials:
Cost of raw materials, supplies and
trading stock........................ 270.20 75.00 10,473.83
Cost of purchased services.............. 547,332.04 588,688.43 613,860.69
4. Personnel expenses
Wages and salaries...................... 87,177.32 234,188.50 226,834.99
Social security......................... 20,089.85 46,376.11 39,644.75
5. Depreciation on intangible assets, plant
and equipment............................. 541,953.91 1,293,460.17 1,278,506.50
6. Other operating expenses................... 143,319.11 272,743.31 340,551.85
7. Other interest and similar income.......... 6.50 68.86 1,627.52
-- thereof from affiliated companies:
DM 0.00 (1993: DM 1,606.91)
8. Interest and similar expenses.............. 658,565.01 1,876,962.78 2,225,839.66
-- thereof to affiliated companies:
DM 1,264,774.27 (1993: DM
1,524,878.29)
----------- ------------- -------------
9. Result from ordinary operations............ (782,573.99) (1,665,754.17) (2,218,770.33)
----------- ------------- -------------
10. Other taxes................................ (11,744.44) (38,890.79) 97,394.15
----------- ------------- -------------
11. Net loss................................... 794,318.43 1,704,644.96 2,121,376.18
=========== ============= =============
</TABLE>
F-88
<PAGE> 220
EXHIBIT III
WIEDMANN-DETTWILER ST. GEORGEN GMBH, ST. GEORGEN
NOTES TO FINANCIAL STATEMENTS FOR THE YEAR 1994
INFORMATION PERTAINING TO THE FIVE MONTHS ENDED MAY 31, 1995 IS UNAUDITED
I. GENERAL COMMENTS
The financial statements for the year ended December 31, 1994 have been
prepared in accordance with the German Commercial Code (HGB).
ACCOUNTING METHODS
The financial statements do contain all assets, debts, deferred charges,
expenses and income as far as not legally prescribed otherwise.
Property, current assets, net equity, debts and deferred charges have been
separately stated in the balance sheet.
VALUATION METHODS
The valuation assumes the Company is a going concern.
Assets and debts are valued separately at closing date. Concerning the
valuation of primary network ("Ortsverkabelungen") and residential unit
distribution systems ("Hausverteilanlagen") we refer to our comments to this
item.
The valuation has been performed in a prudent way. All foreseeable risks
and losses which have occurred up to balance sheet date have been considered.
The valuation methods applied for prior year's financial statement are
principally still valid.
In particular the following valuation methods have been applied:
Assets are stated at acquisition or manufacturing costs less normal
depreciation. Depreciation is calculated under the straight line method over the
expected useful life of the assets. Extraordinary depreciation has been
considered as far as lower values on account of probably permanent impairments
of value are appropriate at the balance sheet date.
Receivables and other assets are capitalized at nominal value. Forseeable
risks are considered by declines in value.
Accruals are stated at the amount required based on sound business
judgement in the amount of the possible financial obligation, in order to comply
with the concept of prudence.
Liabilities are shown at repayment value. Liabilities in foreign currency
are stated at historic value or the respective higher value valid as of balance
sheet date.
II. EXPLANATORY NOTES TO THE BALANCE SHEET
ASSETS
Movements in fixed assets during the financial year can be drawn from the
analysis of fixed assets (see page 5).
Technical equipment primarily consists of primary network
("Ortsverkabelungen") for the respective locations (cable level 3), residential
unit distribution systems ("Hausverteilanlagen") (cable level 4) in the
respective locations and two head-ends ("Kopfstationen"). The named cable levels
3 and 4 are regarded as independent assets as usual in this industry. Valuating
cable levels 3 and 4, all expenses incurred from third
F-89
<PAGE> 221
WIEDMANN-DETTWILER ST. GEORGEN GMBH, ST. GEORGEN
NOTES TO FINANCIAL STATEMENTS FOR THE YEAR 1994 -- (CONTINUED)
INFORMATION PERTAINING TO THE FIVE MONTHS ENDED MAY 31, 1995 IS UNAUDITED
parties for installation have been capitalized as late acquisition expenses for
the respective cable levels 3 or 4. Depreciation is performed on the basis of
the remaining useful life of the respective asset. For the determination of
depreciation for cable levels 3 and 4 the company assumes an overall useful life
of 20 years.
Receivables are due within one year.
LIABILITIES
The capital deficit is stated separately on the asset side, according to
sec.268 sect. 3 HGB (German Commercial Code).
<TABLE>
<CAPTION>
DM
--------------
<S> <C>
Capital subscribed...................................................... 10,000,000.00
Paid-in surplus......................................................... 2,138,000.00
Accumulated deficit, beginning of year.................................. (19,561,234.13)
Net loss................................................................ (1,704,644.96)
--------------
Capital deficit......................................................... (9,127,879.09)
==============
</TABLE>
The paid-in surplus contains additional payments from the shareholders
according to sec.272 sect. 2 no. 4 HGB (German Commercial Code).
In order to avoid an overindebtedness situation, a letter of subordination
has been issued by a creditor.
The split-up and due dates for liabilities are shown in the following
liability analysis.
To guarantee the liabilities due to Commerzbank AG, Frankfurt am Main, the
Company has ceded all future rights and claims against network clients and home
owners resulting from network installation agreements by means of general
assignment. head-ends and cable networks of block units have been ceded by means
of chattel mortgage. In addition, a credit order of Tele Columbus GmbH
guarantees these liabilities.
The liabilities due to Volksbank e.G., St. Georgen, and to Sparkasse St.
Georgen are guaranteed in the context of a security-pool-agreement
("Sicherheiten-Poolvertrag") by means of land charge amounting to KDM 1,200 as
well as by a cession of subscriber fees ("Abonnementgebuhren") and connection
fees ("AnschluSSgebuhren"), suretyships of Tele Columbus GmbH each in the amount
of KDM 2,100 combined with a letter of comfort of Motor Columbus AG, Baden,
Switzerland, and the cession of purchase price and compensation claims
respectively, due from the Town of St. Georgen in case of early dissolution of
contract.
F-90
<PAGE> 222
WIEDMANN-DETTWILER ST. GEORGEN GMBH, ST. GEORGEN
NOTES TO FINANCIAL STATEMENTS FOR THE YEAR 1994 -- (CONTINUED)
INFORMATION PERTAINING TO THE FIVE MONTHS ENDED MAY 31, 1995 IS UNAUDITED
Subscription and connection fees as well as claims for purchase price and
refunds respectively have been ceded by means of junior security to Commerzbank
AG, Frankfurt/Main.
<TABLE>
<CAPTION>
TOTAL AMOUNTS
AS OF DUE WITHIN DUE BETWEEN ONE
BALANCE SHEET DATE ONE YEAR AND FIVE YEARS
------------------ ------------- ---------------
<S> <C> <C> <C>
DM DM DM
Liabilities due to banks............... 6,717,830.62 1,194,821.63 4,923,008.99
(7,856,933.87) (1,139,103.25) (5,186,010.21)
Accounts payable, trade................ 97,109.28 97,109.28 0.00
(84,035.47) (84,035.47) (0.00)
Accounts due to affiliated companies... 19,795,638.64 19,795,638.64 0.00
(18,090,320.34) (18,090,320.34) (0.00)
Other liabilities...................... 15,647.37 15,647.37 0.00
(17,030.74) (17,030.74) (0.00)
-------------- -------------- -------------
26,626,225.91 21,103,216.92 4,923,008.99
(26,048,320.42) (19,330,489.80) (5,186,010.21)
============== ============== =============
</TABLE>
- ---------------
(prior year's figures in brackets)
III. EXPLANATORY NOTES TO THE STATEMENT OF OPERATIONS
SALES
This item primarily contains current and once-off fees of subscribers.
OTHER TAXES
Other taxes contain splitted municipal trade tax on capital amounting to DM
30,127.95 charged from the organic unit.
IV. OTHER NOTES
NUMBER OF EMPLOYEES
During the financial year the average number of employees was four.
GENERAL MANAGER
Herbert Leifker, Hildesheim
PARENT COMPANY
100% of the share capital is held by Tele Columbus GmbH, Hannover, which
itself is an affiliated company of VEBA AG, Dusseldorf/Berlin.
The parent company, VEBA AG, Dusseldorf/Berlin, composes consolidated
financial statements including the most important circle of group companies.
The consolidated financial statements of VEBA AG, Dusseldorf/Berlin, will
be published in "Bundesanzeiger" (Federal Bulletin) and the publication will be
issued to country court Dusseldorf for trade register purposes.
F-91
<PAGE> 223
WIEDMANN-DETTWILER ST. GEORGEN GMBH, ST. GEORGEN
NOTES TO FINANCIAL STATEMENTS FOR THE YEAR 1994 -- (CONTINUED)
INFORMATION PERTAINING TO THE FIVE MONTHS ENDED MAY 31, 1995 IS UNAUDITED
CONTINGENCIES AND OTHER FINANCIAL COMMITMENTS
Contingencies and other financial commitments to be indicated have not
occurred up to balance sheet date.
PROPOSED APPROPRIATION OF YEAR END RESULT
General Management proposes, to carry forward the loss.
St. Georgen, February 22, 1995
Herbert Leifker
General Manager
F-92
<PAGE> 224
WIEDMANN-DETTWILER ST. GEORGEN GMBH, ST. GEORGEN
MOVEMENTS IN FIXED ASSETS AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
ACQUISITION COSTS ACCUMULATED DEPRECIATION
------------------------------------------------------ ---------------------------
JAN 1, 1994 ADDITIONS DISPOSITIONS DEC 31, 1994 JAN 1, 1994 ADDITIONS
----------- --------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
DM DM DM DM DM DM
I. INTANGIBLE ASSETS
Software............................. 5,863.06 0.00 0.00 5,863.06 3,613.99 1,018.34
------------- ---------- --------- ------------- ------------- ------------
II. PROPERTY, PLANT AND EQUIPMENT
1. Land.............................. 49,747.85 0.00 0.00 49,747.85 10,282.04 3,595.62
2. Technical equipment, plant and
machinery.......................... 35,016,840.92 283,932.23 16,365.99 35,284,407.16 16,494,089.20 1,261,248.16
3. Other equipment, operational and
office equipment................... 204,506.77 2,844.72 15,730.38 191,621.11 99,643.55 24,598.05
4. Construction in progress.......... 0.00 20,000.00 0.00 20,000.00 0.00 0.00
------------- ---------- --------- ------------- ------------- ------------
35,271,095.54 306,776.95 32,096.37 35,545,776.12 16,604,014.79 1,289,441.83
------------- ---------- --------- ------------- ------------- ------------
III. FINANCIAL ASSETS
Investments.......................... 20,000.00 0.00 20,000.00 0.00 0.00 3,000.00
------------- ---------- --------- ------------- ------------- ------------
35,296,958.60 306,776.95 52,096.37 35,551,639.18 16,607,628.78 1,293,460.17
============= ========== ========= ============= ============= ============
<CAPTION>
NET BOOK VALUE
----------------------------
DISPOSITIONS DEC 31, 1994 DEC 31, 1994 DEC 31, 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
DM DM DM DM
I. INTANGIBLE ASSETS
Software............................. 0.00 4,632.33 1,230.73 2,249.07
--------- ------------- ------------- -------------
II. PROPERTY, PLANT AND EQUIPMENT
1. Land.............................. 0.00 13,877.66 35,870.19 39,465.81
2. Technical equipment, plant and
machinery.......................... 9,323.77 17,746,013.59 17,538,393.57 18,522,751.72
3. Other equipment, operational and
office equipment................... 7,847.86 116,393.74 75,227.37 104,863.22
4. Construction in progress.......... 0.00 0.00 20,000.00 0.00
--------- ------------- ------------- -------------
17,171.63 17,876,284.99 17,669,491.13 18,667,080.75
--------- ------------- ------------- -------------
III. FINANCIAL ASSETS
Investments.......................... 3,000.00 0.00 0.00 20,000.00
--------- ------------- ------------- -------------
20,171.63 17,880,917.32 17,670,721.86 18,689,329.82
========= ============= ============= =============
</TABLE>
F-93
<PAGE> 225
EXHIBIT IV
WIEDMANN-DETTWILER ST. GEORGEN GMBH
ST. GEORGEN
MANAGEMENT REPORT
AS OF DECEMBER 31, 1994
RESULTS OF OPERATIONS
To improve the efficiency activities to increase the acceptance rate have
been reinforced.
As a result, the acceptance rate increased from 64.84% (1993) to 66.43% in
1994. Sales from current and once-off fees of 9,600 households amounted to KDM
2,561 in 1994.
FINANCIAL SITUATION OF THE COMPANY
The net loss for the year 1994 amounts to KDM 1,705. The interest burden
was relieved due to restructuring payments in the amount of KDM 2,138 received
from Tele Columbus GmbH in 1993.
The company's capital deficit amounts to KDM 9,128. A letter of
subordination has been issued by Tele Columbus GmbH, Hannover.
OUTLOOK
A loss is expected again for the financial year 1995.
In 1995 the sale of shares is intended. Negotiations thereupon are
currently being held.
St. Georgen, February 22, 1995
Herbert Leifker
F-94
<PAGE> 226
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
WIEDMANN-DETTWILER ST. GEORGEN GMBH, ST. GEORGEN
We have audited the accompanying balance sheet of Wiedmann-Dettwiler St.
Georgen GmbH, St. Georgen, as of December 31, 1993 and the related statement of
operations for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audit in accordance with auditing standards generally
accepted in Germany and in the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Wiedmann-Dettwiler St.
Georgen GmbH, St. Georgen, at December 31, 1993 and the results of its
operations for the year then ended in conformity with accounting principles
generally accepted in Germany.
Generally accepted accounting principles in Germany vary in certain
respects from generally accepted accounting principles in the United States of
America. Application of generally accepted accounting principles in the United
States of America would have effected results of operations for the period ended
December 31, 1993, and shareholders' equity as of December 31, 1993, and the
financial position of the Company.
The main differences between Generally Accepted Accounting Principles in
Germany (in the following referred to as "German-GAAP") and Generally Accepted
Accounting Principles in the United States (in the following referred to as
"US-GAAP") are as follows:
- - DEPRECIATION OF TECHNICAL EQUIPMENT
The Company depreciates its technical equipment over 20 years using the
straight line method. According to US-GAAP the special regulations from SFAS No.
51 have to be used.
- - CAPITALIZATION OF INTEREST COST
The Company has not capitalized any interest expenses which relate to the
construction of the nets. According to US-GAAP the application of SFAS No. 51
and SFAS No. 34 requires that certain interest cost have to be capitalized and
added to the acquisition cost of assets which require a certain time to get
ready for their intended use.
- - ACCRUALS AND PROVISIONS
According to German-GAAP, accruals or provisions can be recorded for
uncertain liabilities and to cover expenditures within the year for known
obligations. Application of the prudence principle under German-GAAP may require
the set-up of accruals when the occurrence of a future event is reasonably
possible which may only require disclosure under US-GAAP.
- - CASH FLOW STATEMENTS
Statements of cash flows are required to be presented under US-GAAP. Cash
flow statements are not required by German-GAAP.
F-95
<PAGE> 227
- - INCOME TAX
In accordance with German-GAAP, the Company is not allowed to book deferred
tax assets for the tax loss carry forward. The application of SFAS No. 109 might
result in different results.
- - CASH FLOW STATEMENTS
Statements of cash flows are required to be presented under US-GAAP. Cash
flow statements are not required by German-GAAP.
The accompanying financial statements have been translated into English
language for the convenience of readers in the United States of America.
ARTHUR ANDERSEN
Wirtschaftsprufungsgesellschaft
Steuerberatungsgesellschaft mbH
<TABLE>
<S> <C>
von Sperber Hentschel
Wirtschaftsprufer Wirtschaftsprufer
Hannover, Germany
February 17, 1994
</TABLE>
F-96
<PAGE> 228
EXHIBIT I
WIEDMANN-DETTWILER ST. GEORGEN GMBH, ST. GEORGEN
BALANCE SHEET AS OF DECEMBER 31, 1993
<TABLE>
<CAPTION>
1993 1992
------------ ------------
DM DM
<S> <C> <C>
ASSETS
FIXED ASSETS
Intangible assets
Software........................................................ 2,249.07 3,377.69
------------- -------------
2,249.07 3,377.69
------------- -------------
Property, plant and equipment
Land............................................................ 39,465.81 43,061.44
Technical equipment, plant and machinery........................ 18,522,751.72 19,312,790.38
Other equipment, operational and office equipment............... 104,863.22 71,265.80
------------- -------------
18,667,080.75 19,427,117.62
------------- -------------
Financial assets
Investments..................................................... 20,000.00 0.00
------------- -------------
18,689,329.82 19,430,495.31
------------- -------------
CURRENT ASSETS
Inventories
Stock........................................................... 0.00 10,483.03
------------- -------------
Accounts receivable and other assets
Accounts receivable, trade...................................... 69,037.88 107,142.88
Accounts due from affiliated companies.......................... 35,597.04 24,354.31
-- thereof due from shareholders: DM 34,597.04 (1992: DM
0.00)
Other assets.................................................... 54,175.12 748.59
------------- -------------
158,810.04 132,245.78
------------- -------------
Cash on hand and in Federal Bank.................................. 9,786.53 9,599.81
------------- -------------
168,596.57 152,328.62
------------- -------------
DEFERRED CHARGES AND PREPAID EXPENSES............................. 0.00 755.70
------------- -------------
CAPITAL DEFICIT................................................... 7,423,234.13 7,439,857.95
------------- -------------
26,281,160.52 27,023,437.58
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
SHAREHOLDERS' EQUITY
Capital subscribed................................................ 10,000,000.00 10,000,000.00
Paid-in surplus................................................... 2,138,000.00 0.00
Accumulated deficit, beginning of year............................ 17,439,857.95 4,536,901.01
Net loss.......................................................... 2,121,376.18 12,902,956.94
Capital deficit................................................... 7,423,234.13 7,439,857.95
------------ ------------
0.00 0.00
------------ ------------
RESERVES AND ACCRUED LIABILITIES
Accrued taxes..................................................... 0.00 180,250.00
Other reserves and accrued liabilities............................ 232,840.10 181,945.10
------------ ------------
232,840.10 362,195.10
------------ ------------
LIABILITIES
Liabilities due to banks.......................................... 7,856,933.87 8,632,865.56
Accounts payable, trade........................................... 84,035.47 106,201.54
Accounts due to affiliated companies.............................. 18,090,320.34 17,918,896.30
-- thereof against shareholders DM 1,801,221.42 (1992: DM
967,917.86)
Other liabilities................................................. 17,030.74 3,279.08
-- thereof for taxes: DM 2,439.60 (1992: DM 0.00)
-- thereof for social security: DM 5,685.66 (1992: DM 0.00).....
------------ ------------
26,048,320.42 26,661,242.48
------------ ------------
26,281,160.52 27,023,437.58
============ ============
</TABLE>
F-97
<PAGE> 229
EXHIBIT II
WIEDMANN-DETTWILER ST. GEORGEN GMBH, ST. GEORGEN
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
1993 1992
------------- -------------
<S> <C> <C>
DM DM
1. Sales................................................... 2,470,895.34 2,640,826.21
2. Production for own plant and equipment capitalised...... 0.00 14,876.60
3. Other operating income.................................. 44,419.08 180,127.17
4. Cost of materials:
Cost of raw materials, supplies and trading stock..... 10,473.83 25,562.43
Cost of purchased services............................ 613,860.69 434,850.39
5. Personnel expenses
Wages and salaries.................................... 226,834.99 343,913.28
Social security....................................... 39,644.75 66,598.59
6. Depreciation on intangible assets, plant and
equipment............................................... 1,278,506.50 11,884,775.92
7. Other operating expenses................................ 340,551.85 495,845.67
8. Other interest and similar income....................... 1,627.52 10,740.67
-- thereof from affiliated companies: DM 1,606.91 (1992:
DM 8,563.57)
9. Interest and similar expenses........................... 2,225,839.66 2,400,087.14
-- thereof to affiliated companies DM 1,524,878.29
(1992: DM 1,666,193.43)
------------- --------------
10. Result from ordinary operations......................... (2,218,770.33) (12,805,062.77)
------------- --------------
11. Taxes on income......................................... 0.00 96,390.00
12. Other taxes............................................. 97,394.15 (194,284.17)
------------- --------------
13. Net loss................................................ (2,121,376.18) (12,902,956.94)
============= ==============
</TABLE>
F-98
<PAGE> 230
EXHIBIT III
WIEDMANN-DETTWILER ST. GEORGEN GMBH, ST. GEORGEN
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR 1993
I. GENERAL COMMENTS
The financial statements for the year ended December 31, 1994 have been
prepared in accordance with the German Commercial Code (HGB).
ACCOUNTING METHODS
The financial statements do contain all assets, debts, deferred charges,
expenses and income as far as not legally prescribed otherwise.
Property, current assets, net equity, debts and deferred charges have been
separately stated in the balance sheet.
VALUATION METHODS
The valuation assumes the Company is a going concern.
Assets and debts are valued separately at closing date. Concerning the
valuation of primary network ("Ortsverkabelungen") and residential unit
distribution systems ("Hausverteilanlagen") we refer to our comments to this
item.
The valuation has been performed in a prudent way. All foreseeable risks
and losses which have occurred up to balance sheet date have been considered.
The valuation methods applied for prior year's financial statement are
principally still valid.
In particular the following valuation methods have been applied:
Assets are stated at acquisition or manufacturing costs less normal
depreciation. Depreciation is calculated under the straight line method over the
expected useful life of the assets. Extraordinary depreciation has been
considered as far as lower values on account of probably permanent impairments
of value are appropriate at the balance sheet date.
Receivables and other assets are capitalized at nominal value. Forseeable
risks are considered by declines in value.
Accruals are stated at the amount required based on sound business
judgement in the amount of the possible financial obligation, in order to comply
with the concept of prudence.
Liabilities are shown at repayment value.
II. EXPLANATORY NOTES TO THE BALANCE SHEET AND THE INCOME STATEMENT
ASSETS
Movements in fixed assets during the financial year can be drawn from the
analysis of fixed assets (see page 5).
Technical equipment primarily consists of primary network
("Ortsverkabelungen") for the respective locations (cable level 3), residential
unit distribution systems ("Hausverteilanlagen") (cable level 4) in the
respective locations and two head-ends ("Kopfstationen"). The named cable levels
3 and 4 are regarded as independent assets as usual in this industry. Valuating
cable levels 3 and 4, all expenses incurred from third parties for installation
have been capitalized as late acquisition expenses for the respective cable
levels 3 or 4.
F-99
<PAGE> 231
WIEDMANN-DETTWILER ST. GEORGEN GMBH, ST. GEORGEN
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation is performed on the basis of the remaining useful life of the
respective asset. For the determination of depreciation for cable levels 3 and 4
the company assumes an overall useful life of 20 years.
Receivables are due within one year.
LIABILITIES
The capital deficit is stated separately on the asset side, according to
sec. 268 sect. 3 HGB (German Commercial Code).
<TABLE>
<CAPTION>
DM
-------------
<S> <C>
Capital subscribed.................................................. 10.000.000,00
Paid-in surplus..................................................... 2.138.000,00
Accumulated deficit, beginning of year.............................. (17.439.857,95)
Net loss............................................................ (2.121.376,18)
--------------
(7.423.234,13)
==============
</TABLE>
The Paid-in surplus contains additional payments from the shareholders
according to sec. 272 sect. 2 no. 4 HGB (German Commercial Code) carried out in
the business year 1993.
In order to avoid an overindebtedness situation, a letter of subordination
has been issued by a creditor.
The split-up and due dates for liabilities are shown in the following
liability analysis.
To guarantee the liabilities due to Commerzbank AG, Frankfurt am Main, the
Company has ceded all future rights and claims against network clients and home
owners resulting from network installation agreements by means of general
assignment. head-ends and cable networks of block units have been ceded by means
of chattel mortgage. In addition, a credit order of Tele Columbus GmbH
guarantees these liabilities.
The liabilities due to Volksbank e.G., St. Georgen, and to Sparkasse St.
Georgen are guaranteed in the context of a security-pool-agreement
("Sicherheiten-Poolvertrag") by means of a land charge amounting to DM
1.200.000,00 as well as by a cession of subscriber fees ("Abonnementgebuhren")
and connection fees ("AnschluSSgebuhren"), suretyships of Tele Columbus GmbH
each in the amount of DM 2.100.000,00 combined with a letter of comfort of Motor
Columbus AG, Baden, Switzerland, and the cession of purchase price and
compensation claims respectively, due from the Town of St. Georgen in case of
early dissolution of contract.
F-100
<PAGE> 232
WIEDMANN-DETTWILER ST. GEORGEN GMBH, ST. GEORGEN
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Subscription and connection fees as well as claims for purchase price and
refunds respectively have been ceded by means of junior security to Commerzbank
AG, Frankfurt/Main.
<TABLE>
<CAPTION>
THEREOF DUE
TOTAL AMOUNTS ---------------------------------------------------
AS OF BETWEEN ONE
BALANCE SHEET DATE WITHIN ONE YEAR AND FIVE YEARS AFTER FIVE YEARS
------------------ --------------- -------------- ----------------
DM DM DM DM
<S> <C> <C> <C> <C>
Liabilities due to banks............ 7,856,933.87 1,139,103.25 5,186,010.21 1,531,820.41
(8,632,865.56) (866,198.56) (5,066,667.00) (2,700,000.00)
Accounts payable, trade............. 84,035.47 84,035.47 0.00 0.00
(106,201.54) (106,201.54) (0.00) (0.00)
Accounts due to affiliated
companies......................... 18,090,320.34 18,090,320.34 0.00 0.00
(17,918,896.30) (17,918,896.30) (0.00) (0.00)
Other liabilities................... 17,030.74 17,030.74 0.00 0.00
(3,279.08) (3,279.08) (0.00) (0.00)
-------------- -------------- ------------- -------------
26,048,320.42 19,330,489.80 5,186,010.21 1,531,820.41
(26,661,242.48) (18,894,575.48) (5,066,667.00) (2,700,000.00)
============== ============== ============= =============
</TABLE>
- ---------------
(prior year's figures in brackets)
STATEMENT OF OPERATIONS
Sales
This item primarily contains current and once-off fees of subscribers.
III. OTHER NOTES
NUMBER OF EMPLOYEES
During the financial year the average number of employees was four.
GENERAL MANAGEMENT
<TABLE>
<S> <C>
Ulrich Mannes, Pfaffenweiler......... (until February 26, 1993)
Herbert Leifker, Hildesheim.......... (since February 26, 1993)
</TABLE>
PARENT COMPANY
The company is included in the consolidated financial statements of Motor
Columbus AG, Baden/Switzerland.
CONTINGENCIES AND OTHER FINANCIAL COMMITMENTS
Contingencies and other financial commitments to be indicated have not
occurred at the balance sheet date.
F-101
<PAGE> 233
WIEDMANN-DETTWILER ST. GEORGEN GMBH, ST. GEORGEN
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
PROPOSED APPROPRIATION OF LOSS
General Management proposes, to carry forward the loss for the year.
St. Georgen, February 16, 1994
Herbert Leifker
General Manager
F-102
<PAGE> 234
EXHIBIT III
WIEDMANN-DETTWILER ST. GEORGEN GMBH, ST. GEORGEN
MOVEMENTS IN FIXES ASSETS AS OF DECEMBER 31, 1993
<TABLE>
<CAPTION>
ACQUISITION COSTS ACCUMULATED DEPRECIATION
------------------------------------------------------- -----------------------------------------
JAN. 1, 1993 ADDITIONS DISPOSITIONS DEC. 31, 1993 JAN. 1, 1993 ADDITIONS DISPOSITIONS
------------ --------- ------------ ------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
DM DM DM DM DM DM DM
I. INTANGIBLE ASSETS
Software.............. 5,863.06 0.00 0.00 5,863,06 2,485.37 1,128.62 0.00
------------ --------- ---------- ------------ ------------ ----------- ----------
II. PROPERTY, PLANT AND
EQUIPMENT
1. Land............... 49,747.85 0.00 0.00 49,747.85 6,686.41 3,595.63 0.00
2. Technical
equipment, plant
and machinery...... 34,562,667.01 454,173.91 0.00 35,016,840.92 15,249,876.63 1,244,212.57 0.00
3. Other equipment,
operational and
office equipment... 153,344.74 71,075.04 19,913.01 204,506.77 82,078.94 29,569.68 12,005.07
------------ --------- ---------- ------------- ------------ ----------- -----------
34,765,759.60 525,248.95 19,913.01 35,271,095.54 15,338,641.98 1,277,377.88 12,005.07
------------- ---------- ---------- ------------- ------------- ------------ ----------
III. FINANCIAL ASSETS
Investments........... 0.00 20,000.00 0.00 20,000.00 0.00 0.00 0.00
------------ --------- ---------- ----------- ------------ ----------- ----------
34,771,622.66 545,248.95 19,913.01 35,296,958.60 15,341,127.35 1,278,506.50 12,005.07
============= ========== ========== ============= ============= ============ ==========
<CAPTION>
NET BOOK VALUE
-----------------------------
DEC. 31, 1993 DEC. 31, 1993 DEC. 31, 1992
------------- ------------- -------------
<S> <C> <C> <C>
DM DM DM
I. INTANGIBLE ASSETS
Software.............. 3,613.99 2,249.07 3,377.69
------------ ------------ ------------
II. PROPERTY, PLANT AND
EQUIPMENT
1. Land............... 10,282.04 39,465.81 43,061.44
2. Technical
equipment, plant
and machinery...... 16,494,089.20 18,522,751.72 19,312,790.38
3. Other equipment,
operational and
office equipment... 99,643.55 104,863.22 71,265.80
------------ ------------- -------------
6,604,014.79 18,667,080.75 19,427,117.62
------------ ------------- -------------
III. FINANCIAL ASSETS
Investments........... 0.00 20,000.00 0.00
------------- ------------- -------------
16,607,628.78 18,689,329.82 19,430,495.31
============= ============= =============
</TABLE>
F-103
<PAGE> 235
EXHIBIT IV
WIEDMANN-DETTWILER ST. GEORGEN GMBH
ST. GEORGEN
MANAGEMENT REPORT
AS OF DECEMBER 31, 1993
RESULTS OF OPERATIONS
To improve the efficiency of Kesselberg's primary network, activities to
increase the acceptance rate in that location have been continued.
The activities concentrated on the improvement of selling and subscriber's
administration.
As a result, the acceptance rate increased from 60.99% (1992) to 64.87% in
1993. Sales from current and once-off fees of 9.600 households amounted to DM
2,470,000.00 in 1993.
FINANCIAL SITUATION OF THE COMPANY
The net loss for the year 1993 amounts to DM 2,121,376.18. The interest
burden was relieved this year due to restructuring payments in the amount of DM
2,138,000 received from Tele Columbus GmbH.
The company's capital deficit amounts to KDM 7,423. A letter of
subordination in the amount of KDM 15,829 has been issued by an affiliated
company of the Motor-Columbus group.
OUTLOOK
A loss is expected again for the financial year 1994.
St. Georgen, February 16,1994
Herbert Leifker
F-104
<PAGE> 236
INDEPENDENT AUDITORS REPORT
To the Board of Directors,
TELECable Betriebsgesellschaft Halle mbH
We have audited the accompanying balance sheet of TELECable
Betriebsgesellschaft Halle mbH as of December 31, 1994, and the related
statements of operations, shareholders' deficiency and cash flows for the eight
months ended August 31, 1995 and for each of the two years in the period ended
December 31, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of TELECable
Betriebsgesellschaft Halle mbH as of December 31, 1994 and the results of its
operations and its cash flows for the eight months ended August 31, 1995 and for
each of the two years in the period ended December 31, 1994, in conformity with
accounting principles generally accepted in the United States of America.
Ernst & Young GmbH
Frankfurt, Germany
January 5, 1996
F-105
<PAGE> 237
TELECABLE BETRIEBSGESELLSCHAFT HALLE MBH
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-----------------
<S> <C>
DM
(IN THOUSANDS)
ASSETS
Cash.......................................................................... 9
Accounts receivable -- net (see Note 2)....................................... 223
Property and equipment -- net (see Note 3).................................... 34,357
Other assets (see Note 4)..................................................... 3,129
Deferred income taxes (see Note 6)............................................ 3,961
-------
TOTAL ASSETS.................................................................. 41,679
=======
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Accounts payable.............................................................. 803
Accrued expenses.............................................................. 217
Deferred revenue.............................................................. 382
Deferred income taxes (see Note 6)............................................ 9,671
Debt, including shareholder loans (see Note 5)................................ 33,031
-------
TOTAL LIABILITIES............................................................. 44,104
SHAREHOLDERS' DEFICIENCY
Registered Capital (See Note 8)............................................. 50
Capital contribution........................................................ 2,400
Accumulated deficit......................................................... (4,875)
-------
TOTAL SHAREHOLDERS' DEFICIENCY................................................ (2,425)
-------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIENCY................................ 41,679
=======
</TABLE>
See accompanying notes to financial statements.
F-106
<PAGE> 238
TELECABLE BETRIEBSGESELLSCHAFT HALLE MBH
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
EIGHT MONTHS
YEARS ENDED ENDED
DECEMBER 31, AUGUST 31,
----------------- ------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
DM DM DM
(IN THOUSANDS)
Revenues................................................... 5,801 8,215 5,428
Operating costs and expenses:
Operations............................................... 744 1,147 862
Selling, general and administrative...................... 1,673 2,027 1,399
Depreciation and amortization............................ 1,879 3,194 2,407
------ ------ ------
Total operating costs and expenses......................... 4,296 6,368 4,668
------ ------ ------
Operating income........................................... 1,505 1,847 760
Interest and other income.................................. 158 19 116
Interest expense........................................... 728 1,085 1,683
------ ------ ------
Income (loss) before income taxes.......................... 935 781 (807)
Income tax expense (benefit)............................... 604 503 (372)
------ ------ -------
Net income (loss).......................................... 331 278 (435)
====== ====== =======
</TABLE>
See accompanying notes to financial statements.
F-107
<PAGE> 239
TELECABLE BETRIEBSGESELLSCHAFT HALLE MBH
STATEMENTS OF SHAREHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
REGISTERED CAPITAL ACCUMULATED
CAPITAL CONTRIBUTIONS DEFICIT TOTAL
---------- ------------- ----------- -------
<S> <C> <C> <C> <C>
DM DM DM DM
(IN THOUSANDS)
Balance at December 31, 1992................ 50 2,400 (1,871) 579
Net income.................................. -- -- 331 331
Utilization of net operating losses by
silent partners........................... -- -- (1,741) (1,741)
---- ------- ------- ------
Balance at December 31, 1993................ 50 2,400 (3,281) (831)
Net income.................................. -- -- 278 278
Utilization of net operating losses by
silent partners........................... -- -- (1,872) (1,872)
---- ------- ------- -------
Balance at December 31, 1994................ 50 2,400 (4,875) (2,425)
Net loss.................................... -- -- (435) (435)
Purchase of stock........................... -- (2,400) (19,600) (22,000)
---- ------- ------- -------
Balance at August 31, 1995.................. 50 -- (24,910) (24,860)
====== ======= ======= =======
</TABLE>
See accompanying notes to financial statements
F-108
<PAGE> 240
TELECABLE BETRIEBSGESELLSCHAFT HALLE MBH
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
EIGHT MONTHS
YEARS ENDED ENDED
DECEMBER 31, AUGUST 31,
------------------ ------------
1993 1994 1995
------- ------ ------------
<S> <C> <C> <C>
DM DM DM
(IN THOUSANDS)
OPERATING ACTIVITIES
Net income (loss)......................................... 331 278 (435)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization........................... 1,879 3,194 2,407
Deferred income taxes................................... 604 503 (372)
(Gains) losses on disposal of fixed assets.............. -- 33 (5)
Changes in assets and liabilities:
Accounts receivable..................................... (166) 8 58
Other assets............................................ (1,890) 333 1,668
Accounts payable........................................ 227 (1,628) (173)
Accrued expenses........................................ (845) 121 651
Deferred revenue........................................ 415 (399) (76)
------- ------ ------
Net cash provided by operating activities................. 555 2,443 3,723
INVESTING ACTIVITIES
Purchases of property and equipment..................... (17,497) (9,593) (3,571)
Proceeds from sale of property and equipment............ -- 2 10
------- ------ ------
Net cash used for investing activities.................... (17,497) (9,591) (3,561)
FINANCING ACTIVITIES
Proceeds from long-term bank borrowings................... 18,000 6,000 2,000
Net change in other borrowings............................ (2,040) 281 (2,165)
------- ------ ------------
Net cash provided by (used in) financing activities....... 15,960 6,281 (165)
Net increase (decrease) in cash........................... (982) (867) (3)
Cash at beginning of period............................... 1,858 876 9
------- ------ ------------
Cash at end of period..................................... 876 9 6
======= ====== ==========
</TABLE>
See accompanying notes to financial statements.
F-109
<PAGE> 241
TELECABLE BETRIEBSGESELLSCHAFT HALLE MBH
NOTES TO THE FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
TELECable Betriebsgesellschaft Halle mbH (the "Company") has the exclusive
rights to operate communication and information networks primarily for the
distribution of radio and television programming, in several areas in eastern
Germany. The Company began operations in 1990.
Effective September 1, 1995, the shares of the Company were sold to Beta
Asset Management GmbH ("Beta"), a wholly-owned subsidiary of Kablemedia Holding
GmbH. The sales price of approximately DM 68,000,000 was based on the number of
subscribers as of August 31, 1995, adjusted for certain assets and the
assumption of liabilities.
The financial statements have been prepared in accordance with United
States generally accepted accounting principles ("U.S. GAAP") including those
principles specific to the cable television industry. The Company maintains its
financial records in accordance with the German Commercial Code, which
represents generally accepted accounting principles in Germany ("German GAAP").
Generally accepted accounting principles in Germany vary in certain significant
respects from U.S. GAAP. Accordingly, the Company has recorded certain
adjustments in order that these financial statements be in accordance with U.S.
GAAP.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrated
credit risks consist primarily of accounts receivable. Credit risk on accounts
receivable is minimized as a result of the large and diverse nature of the
Company's customer base.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are comprised principally of
assets used in the development and operation of cable television systems. These
assets are depreciated or amortized in accordance with the United States
Statement of Financial Accounting Standards No. 51, "Financial Reporting by
Cable Television Companies".
Depreciation is provided using the straight-line method over estimated
useful lives as follows:
<TABLE>
<S> <C>
Cable networks................................................................. 10 to 15 years
Equipment and fixtures......................................................... 4 to 6 years
</TABLE>
Interest on bank indebtedness of DM 874,200 and DM 1,042,100 was
capitalized on cable networks during the years ended December 31, 1993 and
December 31, 1994. No interest was capitalized during the eight months ended
August 31, 1995.
INVESTMENT GRANTS
Investment grants received from the government for certain acquisitions of
property and equipment are recognized by the Company when estimable and
realizable. The basis of property and equipment is reduced by investment grants
and depreciated over the useful life of the acquired property. During the years
ended December 31, 1993 and 1994 and the eight months ended August 31, 1995,
property and equipment was reduced by DM 1,442,500, DM 723,900 and DM 169,400,
respectively, relating to the recording of investment grants.
Investment grants are subject to government review. Management does not
anticipate any significant adjustment to the amount of investment grants
recorded.
F-110
<PAGE> 242
TELECABLE BETRIEBSGESELLSCHAFT HALLE MBH
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
REVENUE RECOGNITION
Revenue is derived from the sale of cable television services to
subscribers in several areas of eastern Germany and from the construction and
management of its cable television systems. Revenue is recognized at the time
services are provided.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes", which has
been applied for all periods presented. Deferred income tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss carryforwards.
Deferred income tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect of a change in
tax rates on deferred tax assets and liabilities is recognized in the period
that includes the enactment date.
2. ACCOUNTS RECEIVABLES -- NET
Accounts receivables are stated net of allowances for doubtful accounts of
DM 141,000 at December 31, 1994.
3. PROPERTY AND EQUIPMENT
The components of property and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1994
--------------
<S> <C>
DM
(IN THOUSANDS)
Cable Networks, including networks under construction of DM 3,480 at December
31, 1994...................................................................... 39,569
Equipment and Fixtures.......................................................... 726
-------
Total........................................................................... 40,295
Less accumulated depreciation................................................... 5,938
-------
Property and Equipment -- net................................................... 34,357
=======
</TABLE>
Depreciation expense totalled DM 1,879,300, DM 3,194,300 and DM 2,407,200
for the years ended December 31, 1993, December 31, 1994 and for the eight month
period ended August 31, 1995, respectively.
4. OTHER ASSETS
Other assets consist primarily of receivables from the German government
related to grants for capital expenditures in former East Germany. Investment
grant receivables totalled DM 2,167,700 as of December 31, 1994.
F-111
<PAGE> 243
TELECABLE BETRIEBSGESELLSCHAFT HALLE MBH
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
5. BANK DEBT
Total bank debt outstanding is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1994
--------------
<S> <C>
DM
(IN THOUSANDS)
Bank indebtedness............................................................... 26,701
Loans from shareholders......................................................... 6,330
-------
Total........................................................................... 33,031
=======
</TABLE>
BANK INDEBTEDNESS
The terms of the loans are shown below:
<TABLE>
<CAPTION>
DECEMBER 31,
1994
--------------
DM
<S> <C>
(IN THOUSANDS)
6 1/4% unsecured note, principal due semiannually from 1995 to 2003............. 6,500
7 2/5% unsecured note, principal due quarterly from 1995 to 2003................ 2,500
6.15% unsecured note, principal due 1997........................................ 4,000
Other........................................................................... 13,701
-------
26,701
=======
</TABLE>
Included in other debt are bank overdrafts of DM 2,701,100 at December 31,
1994. Bank overdrafts represent a short term financing method commonly used in
Germany. Interest rates ranging from 9.75% to 13.0% are generally charged on
such balances.
Other debt, excluding bank overdrafts, consists of various bank borrowings
with maturity dates ranging from 1995 to 2003. Interest rates on these
borrowings range from 6% to 9%.
In connection with the change in ownership of the Company effective
September 1, 1995, the outstanding balances of the bank loans were paid in full.
Maturities of bank indebtedness for the five years succeeding December 31,
1994 are as follows:
<TABLE>
<CAPTION>
DM
(IN THOUSANDS)
--------------
<S> <C>
1995............................................................................ 7,326
1996............................................................................ 4,250
1997............................................................................ 4,250
1998............................................................................ 5,250
1999............................................................................ 1,250
2000............................................................................ 1,250
</TABLE>
The above notes include various restrictions, none of which are presently
significant to the Company. However, approximately DM 22,000,000 are secured by
a personal guarantee by a shareholder.
The loans from shareholders outstanding at December 31, 1994 represent
demand notes with interest rates ranging from 8% to 10%.
F-112
<PAGE> 244
TELECABLE BETRIEBSGESELLSCHAFT HALLE MBH
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Prior to the acquisition of the Company's shares effective September 1,
1995 by Beta, the Company repurchased its shares held by silent partners for
approximately DM 28,000,000. The Company issued demand notes in 1995 bearing 6%
interest to finance the re-acquisition of the shares. Interest expense on these
borrowings totalled DM 728,300, DM 531,900 and DM 634,600 for the years ended
December 31, 1993, December 31, 1994, and the eight month period ended August
31, 1995, respectively.
Interest paid totalled DM 1,602,500, DM 2,127,538 and DM 1,403,700 for the
years ended December 31, 1993, December 31, 1994 and the eight month period
ended August 31, 1995, respectively.
The weighted average interest rate on other debt outstanding at December
31, 1994 approximated 6.8%.
6. INCOME TAXES
The Company files a separate tax return in accordance with German tax laws.
Under German corporate tax law, taxes on income are comprised of corporate taxes
and trade taxes.
Provision for income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
<S> <C> <C> <C>
DM DM DM
(IN THOUSANDS)
Year ended December 31, 1993.................................... -- 604 604
Year ended December 31, 1994.................................... -- 503 503
Eight months ended August 31, 1995.............................. -- (372) (372)
</TABLE>
Provision for income taxes differed from the amounts computed by applying
the German corporate statutory tax rate to pretax income (loss) as a result of
the following:
<TABLE>
<CAPTION>
EIGHT MONTHS
YEARS ENDED ENDED
DECEMBER 31, AUGUST 31,
------------- -------------
1993 1994 1995
---- ---- -------------
<S> <C> <C> <C>
DM DM DM
(IN THOUSANDS)
Income (loss) before taxes.................................... 935 781 (807)
Tax expense (benefit) at German corporate statutory rate of
50% in 1993 and 45% in 1994 and 1995........................ 467 351 (363)
Trade tax on income, net of corporate tax benefit............. 130 166 3
Other......................................................... 7 (14) (12)
---- ---- -----
Income tax expense (benefit).................................. 604 503 (372)
==== ==== ======
</TABLE>
F-113
<PAGE> 245
TELECABLE BETRIEBSGESELLSCHAFT HALLE MBH
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
DECEMBER 31,
1994
---------------
<S> <C>
DM
(IN THOUSANDS)
Deferred tax assets:...........................................................
Net operating loss carryforwards............................................. 3,594
Other assets................................................................. 367
-------
Net deferred tax assets...................................................... 3,961
=======
Deferred tax liabilities:
Fixed assets................................................................. 9,671
=======
Total net deferred tax liabilities........................................... 5,710
=======
</TABLE>
At December 31, 1994, the Company has net operating loss carryforwards
available to reduce future taxable income of approximately DM 6,900,000. These
net operating loss carryforwards have an unlimited carryforward period.
7. OPERATING LEASES
The Company has certain noncancelable lease arrangements principally for
the rental of office space. For the years ended December 31, 1993 and 1994 and
the eight months ended August 31, 1995, rental expenses for all leases totalled
DM 101,600, DM 97,600 and DM 71,400, respectively.
At December 31, 1994, commitments under noncancelable lease agreements were
as follows:
<TABLE>
<CAPTION>
DM
-------
<S> <C>
1995............................................................................... 121,800
1996............................................................................... 151,100
1997............................................................................... 145,000
1998............................................................................... 142,000
1999............................................................................... 141,000
Thereafter......................................................................... 152,400
</TABLE>
8. REGISTERED CAPITAL
The Company is a limited liability company (hereafter "GmbH") under German
law. Shareholders are generally not liable for the Company's obligations, except
to the extent of their capital investment. Registered capital of a GmbH is not
in the form of shares and does not represent negotiable securities. The minimum
capital requirement for a GmbH is DM 50,000.
Capital contributions represent additional contributions made by the
shareholders in the form of cash or conversion of debt.
F-114
<PAGE> 246
TELECABLE BETRIEBSGESELLSCHAFT HALLE MBH
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
9. RELATED PARTY TRANSACTIONS
The Company was party to an agreement with INFORMAT Kommunikations-Service
GmbH, which is owned by a shareholder, for management services. Management fees
paid to Informat under this agreement totalled DM 270,000, DM 273,000 and DM
313,400 for the years ended December 31, 1993 and 1994 and the eight months
ended August 31, 1995, respectively. The expenses of DM 313,400 for the eight
months ended August 31, 1995 include a one-time contract termination payment of
DM 175,000.
Additionally, the Company has borrowings from shareholders as discussed in
Note 5.
F-115
<PAGE> 247
INDEPENDENT AUDITORS REPORT
To the Board of Directors,
BFR Group
We have audited the accompanying combined balance sheet of the BFR Group
(Osnabruck and Angelbachtal operations) as of December 31, 1994, and the related
combined statements of operations, shareholders' equity (deficiency) and cash
flows for the nine months ended September 30, 1995 and for each of the two years
in the period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of the BFR Group
(Osnabruck and Angelbachtal operations) as of December 31, 1994 and the combined
results of its operations and its cash flows for the nine months ended September
30, 1995 and for each of the two years in the period ended December 31, 1994, in
conformity with accounting principles generally accepted in the United States of
America.
Ernst & Young GmbH
Frankfurt, Germany
February, 28 1996
F-116
<PAGE> 248
BFR GROUP
(OSNABRUK AND ANGELBACHTAL OPERATIONS)
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
DM
(IN THOUSANDS)
ASSETS
Cash....................................................................... 195
Accounts receivable -- net (Note 3)........................................ 446
Inventory.................................................................. 321
Prepaid expenses........................................................... 150
Property, plant and equipment -- net (Note 4).............................. 55,541
Goodwill and other intangible assets -- net (Note 5)....................... 2,287
Other assets............................................................... 222
-------
TOTAL ASSETS............................................................... 59,162
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Bank debt (Note 6)......................................................... 29,907
Other debt with related parties (Note 7)................................... 2,545
Accounts payable........................................................... 2,286
Payables to related parties (Note 8)....................................... 5,988
Accrued expenses........................................................... 968
Deferred revenue........................................................... 4,498
Deferred income taxes (Note 9)............................................. 2,137
-------
TOTAL LIABILITIES.......................................................... 48,329
Minority Interest (Note 10)................................................ 1,674
Registered Capital (Note 11)............................................... 21,638
Additional Paid in Capital................................................. 810
Accumulated Deficit........................................................ (13,289)
-------
TOTAL STOCKHOLDERS' EQUITY................................................. 9,159
-------
TOTAL LIABILITIES, MINORITY INTEREST, AND STOCKHOLDERS' EQUITY............. 59,162
=======
</TABLE>
See accompanying notes to the combined financial statements
F-117
<PAGE> 249
BFR GROUP
(OSNABRUCK AND ANGELBACHTAL OPERATIONS)
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, 9 MONTHS TO
------------------ SEPTEMBER 30
1993 1994 1995
------ ------- ------------
<S> <C> <C> <C>
DM DM DM
(IN THOUSANDS)
Revenues.................................................. 9,361 10,663 8,511
Operating costs and expenses
Operating expenses........................................ (2,251) (3,248) (3,226)
Selling, general and administrative....................... (4,012) (4,585) (3,082)
Depreciation and amortization............................. (3,318) (3,826) (3,460)
------ ------- ------
Total operating costs and expenses........................ (9,581) (11,659) (9,768)
------ ------- ------
Operating loss............................................ (220) (996) (1,257)
Other income.............................................. 1,618 1,250 293
Interest expense.......................................... (3,110) (3,180) (2,682)
Minority interest......................................... (188) (183) (5)
------ ------- ------
Loss before income taxes.................................. (1,900) (3,109) (3,651)
Provision for income taxes (Note 10)...................... (24) (2,143) 2,128
------ ------- ------
Net loss.................................................. (1,924) (5,252) (1,523)
====== ======= ======
</TABLE>
See accompanying notes to the combined financial statements
F-118
<PAGE> 250
BFR GROUP
(OSNABRUCK AND ANGELBACHTAL OPERATIONS)
COMBINED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
ADDITIONAL
REGISTERED PAID IN ACCUMULATED
CAPITAL CAPITAL DEFICIT TOTAL
---------- ---------- ----------- ------
<S> <C> <C> <C> <C>
DM DM DM DM
(IN THOUSANDS)
Balance at December 31, 1992................... 6,488 128 (6,050) 566
Net loss for the year 1993..................... -- -- (1,924) (1,924)
Forgiveness of interest payable to
shareholder.................................. -- 682 -- 682
Dividends...................................... -- -- (10) (10)
Increase in registered capital................. 100 -- -- 100
------ --- ------- ------
Balance, December 31, 1993..................... 6,588 810 (7,984) (586)
Acquisition of additional ownership in Kabelcom
GmbH & Co KG................................. 50 -- (47) 3
Net loss for the year 1994..................... -- -- (5,252) (5,252)
Dividends...................................... -- -- (6) (6)
Increase in registered capital................. 2,200 -- -- 2,200
Contribution in kind (Note 8).................. 12,800 -- -- 12,800
------ --- ------- ------
Balance, December 31, 1994..................... 21,638 810 (13,289) 9,159
Net loss for the nine month period September
30, 1995..................................... -- -- (1,523) (1,523)
Dividends...................................... -- -- (6) (6)
------ --- ------- ------
Balance, September 30, 1995.................... 21,638 810 (14,818) 7,630
====== ==== ======= ======
</TABLE>
See accompanying notes to the combined financial statements
F-119
<PAGE> 251
BFR GROUP
(OSNABRUCK AND ANGELBACHTAL OPERATIONS)
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, 9 MONTHS ENDED
------------------- SEPTEMBER 30
1993 1994 1995
------- ------- --------------
<S> <C> <C> <C>
DM DM DM
(IN THOUSANDS)
Operating activities:
Net loss............................................... (1,924) (5,252) (1,523)
Adjustments to reconcile net loss to net cash provided
by
(used for) operating activities:
Depreciation and amortization.......................... 3,268 3,826 3,460
Deferred income taxes.................................. -- 2,137 (2,137)
(Gain)/Loss on disposal of property, plant and
equipment............................................ -- (5) --
Write down of financial assets......................... 50 -- --
Minority interest...................................... 188 183 5
Changes in assets and liabilities:
Accounts receivable.................................... (50) 84 266
Inventory.............................................. 242 (262) (481)
Other assets........................................... (588) 1,108 164
Accounts payable....................................... (5,257) (882) (308)
Accrued expenses....................................... 1,982 (590) (186)
Deferred revenue....................................... 1,205 (581) (1,014)
------- ------- -------
Net cash used in operating activities.................. (884) (234) (1,754)
Investing activities:
Purchase of property, plant and equipment.............. (8,333) (30,665) (1,034)
Proceeds from disposal of property, plant and
equipment............................................ 12 19 --
Increase in investment in affiliate.................... (2,255) -- --
Reduction in investment in affiliate................... 39 -- --
------- ------- -------
Net cash used in investing activities.................. (10,537) (30,646) (1,034)
Financing activities:
Net proceeds from (payments to) related parties........ 7,135 13,820 959
Increase in registered capital......................... 100 2,200 --
Proceeds from bank debt................................ 937 27,306 2,553
Payments on bank debt.................................. (1,956) (25,269) (4,232)
Net change in bank overdrafts.......................... (2,638) 10,193 3,820
Net change in other debt............................... 2,491 54 (232)
Dividends paid......................................... (10) (6) (6)
Forgiveness of interest payable to shareholder......... 682 -- --
------- ------- -------
Net cash provided by financing activities.............. 6,741 28,298 2,862
------- ------- -------
Net (decrease)/increase in cash and cash equivalents... (4,680) (2,582) 74
Cash and cash equivalents at beginning of year......... 7,457 2,777 195
------- ------- -------
Cash and cash equivalents at end of period............. 2,777 195 269
======= ======= =======
</TABLE>
See accompanying notes to the combined financial statements
F-120
<PAGE> 252
BFR GROUP
(OSNABRUCK AND ANGELBACHTAL OPERATIONS)
NOTES TO THE COMBINED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
On October 18, 1995 (effective September 30, 1995), the companies listed
below ("BFR Group"), were purchased by Kabelmedia Projektmanagement
Kommunikationsnetze Verwaltungs GmbH ("Kabelmedia") from PKO Osmo GmbH ("PKO").
The sales price of DM 43,200,000, subject to post-closing adjustments, was based
on the number of subscribers as of the closing date adjusted for certain
liabilities and assets. The purchase price is expected to be finalised in 1996.
<TABLE>
<CAPTION>
BFR GROUP COMPANIES ACQUIRED % ACQUIRED BY PKG
---------------------------- -----------------
<S> <C>
BFR Beteiligungsgesellschaft mbH ("BFR").......... 100.0
Kabelcom GmbH..................................... 66.0
Kabelcom GmbH & Co KG............................. 64.4
</TABLE>
Each of the companies in the BFR Group is engaged in the operation and
management of cable television systems. The BFR Group operates cable television
systems in numerous locations in Germany. The combined financial statements
include only the operations of the cable television systems of BFR located in
the Angelbachtal area and Kabelcom GmbH and Kabelcom GmbH & Co KG whose
operations are located in the Osnabruck area ("the Group"). The combined
financial statements have been prepared in accordance with United States
generally accepted accounting principles including those principles specific to
the cable television industry. The BFR Group maintains its financial records in
accordance with the German Commercial Code, which represents generally accepted
accounting principles in Germany ("German GAAP"). German GAAP varies in certain
significant respects from generally accepted accounting principles in the United
States ("US GAAP") and, therefore, the BFR Group has recorded certain
adjustments in order that these financial statements be in accordance with US
GAAP.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
COMBINATION
The Group financial statements represent the combined accounts of the cable
television systems of BFR located in the Angelbachtal area and Kabelcom GmbH and
Kabelcom GmbH & Co KG. All significant intercompany accounts and transactions
have been eliminated in the combination.
CONCENTRATION OF CREDIT RISK
The Group's only significant credit risk consists of trade receivables.
Credit risk on trade receivables is minimized as a result of the large and
diverse nature of the Group's customer base.
REVENUE RECOGNITION
Sales revenue comprises revenue earned (net of refunds, discounts and
allowances) from fees for subscription and installation of services. Sales
revenue is recognized at the time services are provided to customers except for
one-time connection fees. That part of one-time fees in excess of DM 200 is
deferred and released to income over a period of 8 years, a full year's income
being recognised in the year the customer contract becomes effective.
INVENTORIES
Inventories are recorded at cost and valued under the first-in first-out
method. Inventories consist primarily of supplies used in repairs and
maintenance as well as inventory used in the construction of cable networks.
F-121
<PAGE> 253
BFR GROUP
(OSNABRUCK AND ANGELBACHTAL OPERATIONS)
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and are comprised
principally of assets used in the development and operation of cable television
systems. These assets are depreciated or amortized in accordance with United
States Statement of Financial Accounting Standards ("FAS") No. 51, "Financial
Reporting by Cable Television Companies."
Reception and distribution facilities are depreciated over an estimated
useful life of 15 years using the straight line method. Equipment and fixtures
are depreciated over an estimated useful life of 4 years, using the straight
line method.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets consist primarily of franchise costs
and goodwill recorded in various acquisitions. Such amounts are generally
amortized over eight years. Management evaluates the amortization periods and
the recoverability of the net carrying value of the intangible assets by
reviewing the performance of the underlying operations, and in particular, the
future undiscounted operating cash flows of the acquired entities.
INCOME TAXES
Income taxes have been accounted for in accordance with FAS 109,
"Accounting for Income Taxes" which has been applied for all periods presented.
Deferred taxes and liabilities are recognized for future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and to operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using the effective tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to reverse or be
settled. The effect of a change in tax rates on deferred tax assets and
liabilities is recognized in the period in which the enactment date falls.
3. ACCOUNTS RECEIVABLE
Accounts receivable are presented net of allowances for doubtful accounts
for the following periods:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
(DM IN THOUSANDS)
Allowance for doubtful accounts................... 101
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
(DM IN THOUSANDS)
Reception and distribution facilities............. 64,715
Equipment and fixtures............................ 476
-------
Total............................................. 65,191
Less: accumulated depreciation.................... 9,650
-------
Net property, plant and equipment................. 55,541
=======
</TABLE>
F-122
<PAGE> 254
BFR GROUP
(OSNABRUCK AND ANGELBACHTAL OPERATIONS)
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Interest has been capitalized as prescribed by FAS 34, "Capitalization of
Interest Cost". Interest capitalized is summarised as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER
31, 9 MONTHS TO
----------- SEPTEMBER 30,
1993 1994 1995
--- --- -------------
<S> <C> <C> <C>
(DM IN THOUSANDS)
Interest Capitalized.................... 634 299 0
</TABLE>
5. GOODWILL AND OTHER INTANGIBLE ASSETS
Accumulated amortization for goodwill and other intangible assets was DM
2,254,000 at December 31, 1994.
6. BANK DEBT
Details of bank debt are as follows
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
(DM IN THOUSANDS)
Long term note, due 2003, interest rate of 9.75%... 12,400
Long term note, due 2002, interest rate of 9.10%... 3,345
Long term note, due 2004, interest rate of 9.75%... 2,960
Long term note, due 2001, interest rate of 8%...... 2,139
Long term note, due 2002, interest rate of 9.75%... 1,180
Long term note, due 1999, interest rate of 7.30%... 900
Other.............................................. 628
-------
Total.............................................. 23,552
=======
</TABLE>
In addition to the preceding bank debt the Group has short-term overdraft
facilities at December 31, 1994 totaling DM 5,050,000. Overdrafts at December 31
1994 were DM 6,355,000. All loans and overdrafts have been collateralized by the
assets of the BFR Group.
Aggregate principal payments on bank debt (excluding overdraft facilities)
for the next five years subsequent to December 31, 1994 are as follows:
<TABLE>
<CAPTION>
DATE
----
<S> <C>
1995................................................. 2,642
1996................................................. 2,768
1997................................................. 2,846
1998................................................. 2,820
1999................................................. 2,506
Thereafter........................................... 9,970
-------
Total................................................ 23,552
=======
</TABLE>
Interest paid on bank debt and overdrafts for the years ended December 31,
1993 and December 31, 1994, and for the period ended September 30, 1995
approximated DM 2,994,000, DM 2,700,000, and
F-123
<PAGE> 255
BFR GROUP
(OSNABRUCK AND ANGELBACHTAL OPERATIONS)
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
DM 2,206,000, respectively. The weighted average interest rate on overdraft
borrowings outstanding as of December 31, 1994 was 9.6%.
7. OTHER DEBT
Other debt represents amounts owed to former shareholders. The interest
rate on the loans is 9.75% and the loans are due in three annual installments
beginning December 31, 1994. Interest paid in 1994 amounted to approximately DM
263,000.
8. RELATED PARTY TRANSACTIONS
Payables to related parties consist of amounts owed by the Group to its
former parent, PKO or related parties of PKO.
<TABLE>
<CAPTION>
ACCOUNTS
LOANS PAYABLE TOTAL
----- -------- -----
(DM IN THOUSANDS)
<S> <C> <C> <C>
December 31, 1994................................................ 637 5,351 5,988
</TABLE>
The loans from PKO to the Group were financed at an interest rate of 2%
over the German Bundesbank preferred rate (6.5% at December 31, 1994). In 1993
the shareholders of the Group made a contribution in kind through interest
forgiveness amounting to DM682 which was credited to additional paid in capital.
The BFR Group provides PKO with marketing and cable maintenance services.
Revenues earned by the Group from providing these services in 1993 were DM
885,000. In 1994, this arrangement was formalized in a contract between BFR
Group and PKO whereby the Group received a minimum of DM 75,000 per month for
services rendered. Total revenues earned from this contract in 1994 amounted to
DM 900,000. This income is included in revenues. This contract was terminated as
a result of the sale of the BFR Group and replaced in 1995 with a new
arrangement between PKO and the BFR Group whereby PKO provides the BFR Group
with services and maintenance of cables until March 1996 for a one time fee of
DM 600,000. PKO and the BFR Group entered into a contract on April 21, 1995
which requires the BFR Group to engage PKO as technical consultants in the event
that the BFR Group plans to expand services offered over the cable network. This
contract was not terminated in connection with the sale of the BFR Group and
therefore continues to remain in effect.
ISIT GmbH ("ISIT"), which has also been acquired by Kabelmedia at October
8, 1995, provides the BFR Group with cash pooling and administrative services
for cable networks in the vicinity of Berlin. The BFR Group entered into a
service contract with ISIT at December 31, 1994 whereby ISIT receives a fixed
fee for maintaining the cable networks and providing customer service. For the
nine month period ended September 30, 1995, the Group recorded DM 130,000
expense as a result of the service contract.
9. INCOME TAXES
The BFR Group does not file a consolidated tax return. All entities
included in the BFR Group file separate tax returns.
As of September 30, 1995, the Group has available cumulative tax loss
carry-forwards of approximately DM 7,247,000 for corporation income tax and DM
4,183,000 for trade tax on income. Under German tax law there is no expiration
date.
F-124
<PAGE> 256
BFR GROUP
(OSNABRUCK AND ANGELBACHTAL OPERATIONS)
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of the Group's deferred tax liabilities and assets
as of December 31, 1994 are as follows:
<TABLE>
<CAPTION>
(DM IN THOUSANDS)
-----------------
<S> <C>
Deferred tax assets:
Goodwill depreciation........................... 613
Tax loss carry forward.......................... 2,185
-------
2,798
Deferred tax liability:
Fixed asset depreciation........................ 4,935
-------
Net deferred tax liability...................... (2,137)
=======
</TABLE>
The deferred tax assets arise from timing differences on the amortization
of goodwill, and tax loss carryforwards. The deferred tax liability arises from
timing differences on depreciation of fixed assets (including interest
capitalization).
The components of the (provision) benefit for income taxes are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, 9 MONTHS TO
--------------- SEPTEMBER 30,
1993 1994 1995
---- ------ -------------
<S> <C> <C> <C>
(DM IN THOUSANDS)
Current...................................................... (24) (6) (9)
Deferred..................................................... -- (2,137) 2,137
--- ------ ------
(24) (2,143) 2,128
=== ====== ======
</TABLE>
A reconciliation of the German statutory tax rate of 57.5% to the actual
rate is as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, 9 MONTHS TO
----------------- SEPTEMBER 30,
1993 1994 1995
------ ------ -------------
<S> <C> <C> <C>
(DM IN THOUSANDS)
Results before taxes....................................... (1,900) (3,109) (3,651)
Expected benefit........................................... 1,092 1,787 2,099
Reduction in loss carryforwards (net of valuation
allowance) due to reorganization......................... -- (4,105) --
Increase in valuation allowance............................ (1,146) -- (358)
Other...................................................... 30 175 387
------ ------ ------
Actual (provision) benefit................................. (24) (2,143) 2,128
====== ====== ======
</TABLE>
F-125
<PAGE> 257
BFR GROUP
(OSNABRUCK AND ANGELBACHTAL OPERATIONS)
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
10. MINORITY INTEREST
Minority interest represents 35.6% of the limited partners' equity interest
in Kabelcom GmbH & Co KG and the 34.0% separate ownership of Kabelcom GmbH.
Movements in the minority interest were as follows:
<TABLE>
<CAPTION>
MINORITY INTEREST
IN KABLECOM MINORITY INTEREST
GMBH & CO KG IN KABELCOM GMBH TOTAL
----------------- ----------------- -----
<S> <C> <C> <C>
(IN THOUSANDS)
Balance, December 31, 1992.......................... 1,275 31 1,306
Net income attributable to minority interest........ 182 6 188
--
------ -----
Balance, December 31, 1993.......................... 1,457 37 1,494
Net income attributable to minority interest........ 177 6 183
Buy out of a limited partner........................ (3) (3)
--
------ -----
Balance, December 31, 1994.......................... 1,631 43 1,674
Net income attributable to minority interest........ 4 1 5
--
------ -----
Balance, September 30, 1995......................... 1,635 44 1,679
====== === =====
</TABLE>
11. REGISTERED CAPITAL
The Group is comprised of limited liability companies (GmbH) and a limited
stock partnership (GmbH & Co KG). As of December 31, 1994, the registered
capital of the Group amounted to DM 21,638,000.
The registered capital of the Group was held by PKO at December 31, 1994.
The contribution in kind represents a forgiveness of amounts due to PKO on
November 11, 1994.
12. PENSION AND RETIREMENT PLANS
The Group provides no pension, post-retirement or post-employment benefits
to their employees or retirees.
13. SUBSEQUENT EVENT
On October 18, 1995, (effective September 30, 1995) the BFR Group was sold
to Kabelmedia for a sales price of DM 43,200,000, subject to closing
adjustments.
F-126
<PAGE> 258
INDEPENDENT AUDITORS REPORT
To the Board of Directors,
BFR Group
We have audited the accompanying statements of operations, and cash flows
of the BFR Group (Berlin and Bielefeld operations) for the nine months ended
September 30, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows for the nine
months ended September 30, 1995 of the BFR Group (Berlin and Bielefeld
operations) in conformity with accounting principles generally accepted in the
United States of America.
Ernst & Young GmbH
Frankfurt am Main, Germany
February 28, 1996
F-127
<PAGE> 259
BFR GROUP
(BERLIN AND BIELEFELD OPERATIONS)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
9 MONTHS TO
SEPTEMBER 30,
1995
-----------------
(DM IN THOUSANDS)
<S> <C>
Revenues..................................................................... 4,200
Operating costs and expenses
Operating expenses (Note 3).................................................. (1,487)
Selling, general and administrative (Note 4)................................. (700)
Depreciation................................................................. (1,715)
-------
Total operating costs and expenses........................................... (3,902)
Operating income............................................................. 298
Interest expense (Note 5).................................................... (901)
-------
Loss before income taxes..................................................... (603)
Provision for income taxes................................................... --
-------
Net loss..................................................................... (603)
=======
</TABLE>
See accompanying notes to financial statements
F-128
<PAGE> 260
BFR GROUP
(BERLIN AND BIELEFELD OPERATIONS)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
9 MONTHS TO
SEPTEMBER 30, 1995
------------------
DM
<S> <C>
Operating activities:
Net loss..................................................................... (603)
Adjustments to reconcile net loss to net cash provided by (used for)
operating activities:
Depreciation................................................................. 1,715
Changes in assets and liabilities:
Accounts receivable.......................................................... (770)
Prepaid expenses............................................................. 24
Accounts payable............................................................. 251
Other liabilities............................................................ (102)
------
Net cash provided by operating activities.................................... 515
------
Investing activities:
Purchase of property, plant and equipment.................................... (868)
------
Net cash used in investing activities........................................ (868)
------
Financing activities:
Proceeds from bank debt...................................................... 500
Payment on bank debt......................................................... (388)
Net change in overdrafts..................................................... 241
------
Net cash provided by financing activities.................................... 353
------
Net increase in cash and cash equivalents.................................... --
Cash and cash equivalents at beginning of period............................. --
------
Cash and cash equivalents at end of period................................... --
======
</TABLE>
See accompanying notes to financial statements
F-129
<PAGE> 261
BFR GROUP
(BERLIN AND BIELEFELD OPERATIONS)
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
On October 18, 1995 (effective September 30, 1995), the companies listed
below ("BFR Group"), were purchased by Kabelmedia Projektmanagement
Kommunikationsnetze Verwaltungs GmbH ("Kabelmedia") from PKO Osmo GmbH ("PKO").
The sales price of DM 43,200,000, subject to post-closing adjustments, was based
on the number of subscribers as of the closing date adjusted for certain
liabilities and assets. The purchase price is expected to be finalised in 1996.
<TABLE>
<CAPTION>
BFR GROUP COMPANIES ACQUIRED % ACQUIRED BY PKG
---------------------------- -----------------
<S> <C>
BFR Beteiligungsgesellschaft mbH ("BFR")................ 100.0
Kabelcom GmbH........................................... 66.0
Kabelcom GmbH & Co KG................................... 64.4
</TABLE>
Each of the companies in the BFR Group is engaged in the operation and
management of cable television systems. The BFR Group operates cable television
systems in numerous locations in Germany. The financial statements include only
the operations of the cable television systems of BFR located in the Berlin and
Bielefeld areas ("the Group"). The financial statements have been prepared in
accordance with United States generally accepted accounting principles including
those principles specific to the cable television industry. The BFR Group
maintains its financial records in accordance with the German Commercial Code,
which represents generally accepted accounting principles in Germany ("German
GAAP"). German GAAP varies in certain significant respects from generally
accepted accounting principles in the United States ("US GAAP") and, therefore,
the BFR Group has recorded certain adjustments in order that these financial
statements be in accordance with US GAAP.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Sales revenue comprises revenue earned (net of refunds, discounts and
allowances) from fees for subscription and installation of services. Sales
revenue is recognised at the time services are provided to customers except for
one-time connection fees. That part of one time fees in excess of DM 200 is
deferred and released to income over a period of 8 years, a full year's income
being recognised in the year the customer contract becomes effective.
DEPRECIATION
Depreciation is calculated in accordance with United States Statement of
Financial Accounting Standards ("FAS") No. 51, "Financial Reporting by Cable
Television Companies." Cable television systems are depreciated over an
estimated useful life of 15 years using the straight line method.
INCOME TAXES
The Group does not file a tax return, as these operations are included in
the tax return of the BFR Group.
3. RELATED PARTY TRANSACTIONS
ISIT GmbH ("ISIT"), which has also been acquired by Kabelmedia at October
8, 1995, provides the Group with cash pooling and administrative services for
cable networks in the vicinity of Berlin. The BFR Group entered into a service
contract with ISIT at December 31, 1994 whereby ISIT receives a fixed fee for
F-130
<PAGE> 262
BFR GROUP
(BERLIN AND BIELEFELD OPERATIONS)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
maintaining the cable networks and providing customer service for the Group. For
the nine month period ended September 30, 1995 the Group recorded DM 700,000
expense as a result of the service contract.
4. LEASE COMMITMENTS
ISIT leases from third parties certain cable equipment used by the Group
under agreements which expire at various dates. The Group reimburses ISIT for
leasing costs incurred. Certain leases contain renewal provisions. Lease expense
for the first 9 months of 1995 for the Group amounted to DM 612,000. Future
minimum lease payments required under operating leases as of September 30, 1995
are as follows:
<TABLE>
<CAPTION>
ANNUAL LEASE
PAYMENT
-----------------
<S> <C>
(DM IN THOUSANDS)
4th quarter 1995....................................... 195
1996................................................. 840
1997................................................. 840
1998................................................. 840
1999................................................. 771
2000................................................. 127
------
Total.................................................. 3,613
======
</TABLE>
5. BANK DEBT
Interest paid on bank debt and overdrafts of the nine month period ended
September 30, 1995 approximated DM 901,000.
6. INCOME TAXES
The BFR Group does not file a consolidated tax return. All entities in the
BFR Group file separate tax returns. The Group's results are included in the BFR
tax return.
The Group's tax expense has been calculated as if it had not been included
in the BFR tax return. On this basis no tax benefit has been recorded as a
result of a 100% valuation allowance recorded against deferred tax assets.
Deferred tax assets principally relate to tax-loss carryforwards and
depreciation.
7. PENSION AND RETIREMENT PLANS
The Group provides no pension, post-retirement or post-employment benefits
to their employees or retirees.
8. SUBSEQUENT EVENTS
On October 18, 1995, (effective September 30, 1995) the BFR Group was sold
to Kabelmedia for a sales price of DM 43,200,000 subject to closing adjustments.
F-131
<PAGE> 263
INDEPENDENT AUDITORS REPORT
To the Board of Directors,
KSW GmbH & Co. KG Kabel- und Satellitenempfangsanlagen fur Wohngebiete und
Kommunen
We have audited the accompanying balance sheets of KSW GmbH & Co. KG Kabel-
und Satellitenempfangsanlagen fur Wohngebiete und Kommunen as of December 31,
1994 and 1993, and the related statements of operations for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Germany and in the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also include assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of KSW GmbH & Co. KG Kabel- und
Satellitenempfangsanlagen fur Wohngebiete und Kommunen at December 31, 1994 and
1993 and the results of their operations for the years then ended, in conformity
with accounting principles generally accepted in Germany.
Accounting principles generally accepted in Germany vary in certain
respects from generally accepted accounting principles in the United States of
America. Application of generally accepted accounting principles in the United
States of America would have affected results of operations for each of the two
years in the period ended December 31, 1994, and partners' equity as of December
31, 1994 and 1993, as summarised in Note G to the financial statements.
Ernst & Young GmbH
Frankfurt, Germany
September 20, 1995
F-132
<PAGE> 264
KSW GMBH & CO. KG KABEL- UND SATELLITENEMPFANGSANLAGEN FUR WOHNGEBIETE UND
KOMMUNEN
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1994 1993
------------------ -------
<S> <C> <C> <C> <C>
DM DM DM
(IN THOUSANDS)
ASSETS
A. FIXED ASSETS
I. Intangible Assets
Franchises, trade marks, and similar rights and
licenses.................................................. 1 5
------- -------
1 5
II. Property, Plant, and Equipment
1. Cable networks......................................... 11,500 17,190
2. Operational and office equipment....................... 7 12
3. Construction in progress............................... -- 3,970
------- -------
11,507 21,172
B. CURRENT ASSETS
I. Inventories
1. Raw materials.......................................... 84 63
2. Incomplete services.................................... 356 270
II. Accounts Receivable and Other Assets
1. Trade accounts receivable.............................. 155 194
2. Other assets........................................... 30 --
III. Cash on Hand.............................................. 1 --
------- -------
626 527
C. PARTNERS' SPECIAL DEFICIT ACCOUNT......................... 16,505 6,254
------- -------
28,639 27,958
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
A. PARTNERS' CAPITAL CONTRIBUTION............................ 2,250 2,250
B. COMPLEMENTARY PARTNERS' CLEARING ACCOUNT.................. 294 348
C. CONSTRUCTION COST GRANTS.................................. 5,653 5,801
D. ACCRUALS
1. Tax accruals........................................... -- 6
2. Other accruals......................................... 130 82
------- -------
130 88
E. LIABILITIES
1. Liabilities due to banks/credit inst. of which DM
14,306 have a remaining term up to one year............ 18,711 18,400
2. Advance payments received with a remaining term up to
one year............................................... 523 523
3. Trade accounts payable with a remaining term up to one
year................................................... 334 340
4. Accounts due to affiliated companies with a remaining
term up to one year.................................... 715 149
5. Other liabilities with a remaining term up to one year
of which DM 6 are for taxes (prior year DM 40) and
DM 13 are for social security (prior year DM 9)........ 21 50
------- -------
20,304 19,462
F. DEFERRED INCOME/ACCRUED EXPENSES.......................... 8 9
------- -------
28,639 27,958
====== ======
</TABLE>
F-133
<PAGE> 265
KSW GMBH & CO. KG KABEL- UND SATELLITENEMPFANGSANLAGEN FUR WOHNGEBIETE UND
KOMMUNEN
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
UNAUDITED
NINE MONTHS
ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
------------- ------------------
1995 1994 1993
------------- ------- ------
<S> <C> <C> <C>
DM DM DM
(IN THOUSANDS)
1. Sales................................................ 1,901 2,392 2,191
2. (Decrease) increase in incomplete services........... (357) 87 0
3. Production for own plant and equipment capitalized... -- 13 36
4. Other operating income............................... 615 101 115
------ ------- ------
2,159 2,593 2,342
5. Costs of materials
a) Cost of raw material, supplies, and trading
stock........................................... 143 102 44
b) Cost of purchased services....................... 126 160 149
------ ------- ------
269 262 193
6. Personnel expenses
a) Wages and salaries............................... 211 402 431
b) Social security, pension and other benefit costs
of which DM 1, DM 15 and DM 25 are for
pensions........................................ 57 96 100
------ ------- ------
268 498 531
7. Depreciation on
a) Intangible assets................................ 1 4 8
b) Property, plant, and equipment................... 652 1,471 1,188
------ ------- ------
653 1,475 1,196
8. Other operating expenses............................. 315 647 383
9. Other interest and similar income.................... 561 367 258
10. Interest and similar expenses........................ 1,255 1,768 2,013
------ ------- ------
694 1,401 1,755
------ ------- ------
11. Results from normal business activities.............. (40) (1,690) (1,716)
12. Extraordinary depreciation on cable networks......... -- 8,484 --
13. Other taxes.......................................... 20 77 49
------ ------- ------
14. Annual net loss...................................... (60) (10,251) (1,765)
====== ======= ======
</TABLE>
F-134
<PAGE> 266
KSW GMBH & CO. KG KABEL- UND SATELLITENEMPFANGSANLAGEN FUR
WOHNGEBIETE UND KOMMUNEN
NOTES TO THE FINANCIAL STATEMENTS
(IN THOUSANDS)
INFORMATION PERTAINING TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1995 IS UNAUDITED
A. GENERAL REMARKS
The financial statements of KSW GmbH & Co. KG Kabel- und
Satellitenempfangsanlagen fur Wohngebiete und Kommunen (hereafter referred to as
"KSW GmbH & Co. KG" or the "Company") were prepared under the regulations set
forth for small companies in the German Commercial Code (HGB) and in compliance
with amending regulations of the Articles of Association ("German GAAP"). The
classification used in the Statements of Operations was prepared under the total
cost method and in accordance with sec.275 Par. 2 HGB.
The statements of operations for the nine months ended September 30, 1995
are unaudited but, in the opinion of management, include all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of
results for this period.
B. SHAREHOLDERS
The limited partner (Dommanditist) is Richard Hirschmann GmbH & Co.,
Esslingen. The capital contribution from the limited partner amounted to DM
2,250. As of December 31, 1994 and 1993 the accumulated losses of the limited
partner amounted to DM 16,505 and DM 6,254, respectively.
The unlimited partner is KSW Beteiligungsgesellschaft mbH, Esslingen. The
unlimited partner has the exclusive authorization to represent and manage the
Company.
C. ACCOUNTING AND VALUATION POLICIES
The accounting and valuation methods are applied in a manner consistent
with prior year.
Intangible assets are capitalized at acquisition cost and amortized
straight-line over their respective useful lives (three years).
Tangible assets are recorded at acquisition and manufacturing costs, net of
accumulated depreciation. Fixed assets are depreciated over their expected
useful lives. The term of depreciation is 8 years (network level II and parts of
network level III), the term of depreciation for cables in the street sector is
20 years (network level III). House installations are depreciated over 12 years.
In accordance with tax regulations, the straight-line or the declining
balance methods of depreciation are used, whereby additions of office furniture
and equipment in the first half of the year are depreciated at the full annual
rate and additions in the second half of the year are depreciated at half the
annual rate.
Low value assets (assets with a cost of less than DM .8) are fully
depreciated in the year of acquisition.
In addition to the normal depreciation of DM 1,462, extraordinary
depreciation of DM 8,484 was recorded in 1994.
Inventories are valued at the lower of cost or market.
Receivables and other assets are presented at their nominal value, net of
necessary reserves and allowances for uncollectable amounts.
Accruals have been estimated for all known risks and obligations and are
based on the amount of expected claims.
F-135
<PAGE> 267
KSW GMBH & CO. KG KABEL- UND SATELLITENEMPFANGSANLAGEN FUR
WOHNGEBIETE UND KOMMUNEN
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
INFORMATION PERTAINING TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1995 IS UNAUDITED -- (CONTINUED)
Liabilities have been presented at the repayment amount.
According to the regulations of the Articles of Association, the capital
accounts of the partners are fixed. Profit and loss shares are recorded to
clearing accounts, whereby a special loss account is maintained for the limited
partner. The annual interest rate applied on this account is 6%.
The expenses incurred by the unlimited partner are reimbursed by KSW GmbH &
Co. KG. Therefore, management remuneration was treated directly as an expense by
the Company.
The unlimited partner receives DM 5 annually for the assumption of the
liability. This amount is also payable during deficit years. The remaining
profit or loss is distributed exclusively to the limited partner.
D. COMMENTARY TO THE BALANCE SHEET
D.I INTANGIBLE AND TANGIBLE ASSETS
A rollforward of the individual fixed asset items is provided below.
<TABLE>
<CAPTION>
COST ACCUMULATED DEPRECIATION BOOK VALUE
------------------------------------------------- --------------------------------------- ---------------------
1/1/1994 ADDITIONS DISPOSALS TRANSFERS 12/31/1994 1/1/1994 ADDITIONS DISPOSALS 12/31/1994 12/31/1994 12/31/1993
DM DM DM DM DM DM DM DM DM DM DM
-------- -------- -------- -------- --------- ------- -------- --------- --------- --------- ----------
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
I. Intangible
Assets
Franchises,
trade
marks,
and
similar
rights
and
licenses... 16 -- 12 -- 4 11 4 12 3 1 5
------ --- --- ------ ------ ----- ----- --- ------ ------ ------
II. Property,
Plant,
and
Equipment
1. Cable
networks... 19,628 215 -- 4,041 23,884 2,438 9,946(a) -- 12,384 11,500 17,190
2. Operational
and
office
equip.... 96 3 2 -- 97 83 9 2 90 7 12
3. Construction
in
progress... 3,970 71 -- (4,041) -- -- -- -- -- -- 3,970
------ --- --- ------ ------ ----- ----- --- ------ ------ ------
23,694 289 2 -- 23,981 2,521 9,955 2 12,474 11,507 21,172
------ --- --- ------ ------ ----- ----- --- ------ ------ ------
23,710 289 14 -- 23,985 2,532 9,959 14 12,477 11,508 21,177
====== === === ====== ====== ===== ===== === ====== ====== ======
</TABLE>
- ---------------
(a) includes DM 8,484 in extraordinary depreciation.
D.II RECEIVABLES AND OTHER ASSETS
Receivables and other assets are due within one year.
D.III SHAREHOLDERS' EQUITY AND ACCUMULATED DEFICIT
With the special deficit account of the limited liability partner amounting
to DM 16,505 the financial statements disclose a negative equity of DM 7,594.
Included in the determination of the negative equity amount is the partners'
capital contribution, the clearing account of the unlimited partner and DM 5,653
in construction grants, as well as DM 714 in liabilities considered as capital
replacing loans towards affiliated companies.
In connection with the draft agreement regarding the sale of shares in KSW
GmbH & Co. KG, the limited partner, Richard Hirschmann GmbH & Co., Esslingen,
has agreed to take over a partial amount of the
F-136
<PAGE> 268
KSW GMBH & CO. KG KABEL- UND SATELLITENEMPFANGSANLAGEN FUR
WOHNGEBIETE UND KOMMUNEN
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
INFORMATION PERTAINING TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1995 IS UNAUDITED -- (CONTINUED)
existing liabilities due to the Commerzbank AG, Esslingen, insofar as this
partial amount exceeds the sales price of the cable networks.
Taking into account the assumption of debt, thus benefitting the Company's
equity position, a state of over-indebtedness did not exist as of December 31,
1994 and 1993.
A rollforward of the special loss account of the limited partner is
presented below:
<TABLE>
<CAPTION>
DM
------
<S> <C>
Balance as of January, 1 1993....................................................... 4,489
Loss 1993........................................................................... 1,765
------
Balance as of December 31, 1993..................................................... 6,254
Loss 1994........................................................................... 10,251
------
Balance as of December 31, 1994..................................................... 16,505
Loss for the nine months ended September 30, 1995 (unaudited)....................... 40
------
Balance as of September 30, 1995 (unaudited)........................................ 16,545
======
</TABLE>
D.IV CONSTRUCTION COST GRANTS
Construction cost grants for home connections are released in accordance
with the term of the contractual permit with the communities.
D.V LIABILITIES
The liabilities due to banks are secured by the mortgage of goods from the
broadband cable devices (net level 4) and the assignment of subscriber fees.
Liabilities due to affiliated companies are all due to Richard Hirschmann
GmbH & Co., Esslingen, the limited partner of the Company.
D.VI CONTINGENT LIABILITIES AND OTHER COMMITMENTS
There are no contingent liabilities according to sec.251 HGB.
Annual commitments under leasing and rental agreements in the amount of DM
61 exist as of December 31, 1994.
E. COMMENTARY TO THE STATEMENTS OF OPERATIONS
Sales result primarily from providing cable service to private households
in Germany and the partial release of the construction cost grants.
Other operational income includes primarily maintenance fees and costs
charged on to subscribers.
Other interest and similar income include DM 501 and DM 366 interest from
the unlimited partner's clearing account for the nine months ended September 30,
1995 (unaudited) and year ended December 31, 1994, respectively.
Interest and similar expenses include DM 17 and DM 19 interest on the
clearing account of the limited partner, Richard Hirschmann GmbH & Co.,
Esslingen for the nine months ended September 30, 1995 (unaudited) and year
ended December 31, 1994, respectively.
F. OTHER DISCLOSURES
The annual financial statements of the Company are included in the
consolidated financial statements of Richard Hirschmann GmbH & Co.
F-137
<PAGE> 269
KSW GMBH & CO. KG KABEL- UND SATELLITENEMPFANGSANLAGEN FUR
WOHNGEBIETE UND KOMMUNEN
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
INFORMATION PERTAINING TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1995 IS UNAUDITED -- (CONTINUED)
The unlimited partner is KSW Beteiligungsgesellschaft mbH, Esslingen. The
unlimited partner has the exclusive authorization to represent and manage the
company. Dieter Mann, Esslingen, was the solitary authorized General Manager of
this company.
G. SIGNIFICANT DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN
GERMANY AND THE UNITED STATES OF AMERICA
Generally accepted accounting principles in Germany ("German GAAP") vary in
certain respects from generally accepted accounting principles in the United
States of America ("US GAAP"). Application of US GAAP would have affected the
reported results of operations for the nine month period ended September 30,
1995 (unaudited) for each of the two years in the period ended December 31,
1994, and the reported partners' equity for each of the two years ended December
31, 1994. The significant differences between the accounting principles applied
and those which would be applied under US GAAP are summarised below:
CASH FLOW STATEMENTS
Statements of cash flows are required to be presented under US GAAP. Cash
flow statements are not required by German GAAP.
SPECIAL ACCELERATED DEPRECIATION
Special accelerated depreciation for tax purposes has been recorded in the
accounts and deducted from the book value of fixed assets. Under US GAAP,
accelerated depreciation would not be recorded in the financial statements.
REGULAR DEPRECIATION
Under US GAAP, cable networks are depreciated in accordance with the
Statements of Financial Accounting Standards ("SFAS") No. 51 "Financial
Reporting by Cable Television Companies." German GAAP has no similar
pronouncements or rules. Accordingly, cable networks have been depreciated for
German GAAP using the methods described in note C to the financial statements.
CAPITALIZATION OF INTEREST COSTS
Under US GAAP, interest cost for the construction of nets should be
capitalized if material in accordance with SFAS No. 34 "Capitalization of
Interest Cost" and amortized over the useful life of the cable networks. German
GAAP does not allow for the capitalization of interest related to constructed
assets.
CONSTRUCTION COST GRANTS
Construction cost grants represent connection fees received which are being
amortized into income in accordance with the terms of the contracts. Under
German GAAP the construction cost grants have been classified under the
shareholders' equity section of the balance sheet. Under US GAAP the
construction cost grants would be classified as deferred income within the
balance sheet.
F-138
<PAGE> 270
KSW GMBH & CO. KG KABEL- UND SATELLITENEMPFANGSANLAGEN FUR
WOHNGEBIETE UND KOMMUNEN
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
INFORMATION PERTAINING TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1995 IS UNAUDITED -- (CONTINUED)
PARTNERS' SPECIAL DEFICIT ACCOUNT
The partners' special deficit account is reflected within the assets
section of the accompanying balance sheets as required by German GAAP and
represents the accumulated losses of the Company. Under US GAAP, such
accumulated losses would be classified in an accumulated deficit account within
the shareholders' equity (deficit) section of the balance sheets.
Esslingen, September 1995
The management
KSW GmbH & Co. KG Kabel- und Satellitenempfangsanlagen fur Wohngebiete und
Kommunen, Esslingen.
F-139
<PAGE> 271
INDEPENDENT AUDITORS REPORT
To the Board of Directors,
BTV Group
We have audited the accompanying combined balance sheets of
Niersberger-Tecom GmbH & Co. KG, Niersberger-Tecom Verwaltungs GmbH and BTV Jena
GmbH, (hereafter referred to as the "BTV Group") as of December 31, 1995 and
1994, and the related combined statements of operations for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Germany and in the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the BTV
Group at December 31, 1995 and 1994 and the combined results of their operations
for the years then ended, in conformity with accounting principles generally
accepted in Germany.
Accounting principles generally accepted in Germany vary in certain
respects from generally accepted accounting principles in the United States of
America. Application of generally accepted accounting principles in the United
States of America would have affected results of operations for each of the two
years in the period ended December 31, 1995, and shareholders' equity as of
December 31, 1995 and 1994, as summarized in Note G to the combined financial
statements.
Ernst & Young GmbH
Frankfurt, Germany
March 22, 1996
F-140
<PAGE> 272
BTV GROUP
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994
--------------- -----
<S> <C> <C> <C> <C>
DM DM DM
(IN THOUSANDS)
ASSETS
A. FIXED ASSETS..................................................
I. Intangible Assets.............................................
1. EDP software............................................. 31 4
----- -----
31 4
II. Tangible assets
1. Nets..................................................... 1,988 1,572
2. Office furniture and fixtures............................ 70 57
----- -----
2,058 1,629
B. CURRENT ASSETS
I. Receivables and Other Assets
1. Trade accounts receivable................................ 93 147
2. Other assets............................................. 272 135
----- -----
365 282
II. Cash Held in Banks............................................ 532 180
C. PREPAID EXPENSES.............................................. 7 5
----- -----
2,993 2,100
===== =====
SHAREHOLDERS' EQUITY AND LIABILITIES
A. SHAREHOLDERS' EQUITY
I. Registered Capital............................................ 4,100 4,100
II. Accumulated deficit........................................... 3,512 2,941
----- -----
588 1,159
B. ACCRUALS
1. Tax accruals............................................. 32 26
2. Other accruals........................................... 601 226
----- -----
633 252
C. LIABILITIES
1. Liabilities due to banks................................. -- 38
2. Trade accounts payable................................... 470 448
3. Other liabilities thereof DM 63 (1994: DM 23) and social
security DM 13 (1994: DM 4).............................. 1,302 202
----- -----
1,772 688
D. DEFERRED REVENUES............................................. -- 1
----- -----
2,993 2,100
===== =====
</TABLE>
F-141
<PAGE> 273
BTV GROUP
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1994
----------------- ------
<S> <C> <C> <C> <C>
DM DM DM
(IN THOUSANDS)
1. Sales...................................................... 2,751 1,526
2. Other operational income................................... 864 124
------ ------
3,615 1,650
3. Personal costs
(a) Wages and salaries..................................... 931 434
(b) Social security........................................ 65 41
4. Amortization and depreciation.............................. 2,253 2,511
5. Other operational expenses................................. 859 509
------ ------
4,108 3,495
------ ------
(493) (1,845)
6. Other interest and similar income.......................... 3 1
7. Interest and similar expenses.............................. 71 5
------ ------
8. Results of ordinary business operations.................... (561) (1,849)
9. Extraordinary expenses..................................... -- 1,050
10. Income taxes............................................... 9 26
11. Other taxes................................................ 1 1
------ ------
12. Net loss................................................... (571) (2,926)
====== ======
</TABLE>
F-142
<PAGE> 274
BTV GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS)
A. GENERAL REMARKS
The accompanying financial statements represent the combined operations of
Niersberger-Tecom GmbH & Co. KG, Niersberger-Tecom Verwaltungs GmbH, and BTV
Jena GmbH, (hereafter referred to as the "BTV Group" or the "Combined Group").
The combined financial statements were prepared under the regulations set
forth for small companies in the German Commercial Code (HGB) and the laws for
German limited liability Corporations (HGB). The classification used in the
Statements of Operations was prepared under the total cost method and in
accordance with sec.275 Par. 2 HGB.
The combined financial statements were prepared voluntarily in 1995 and
1994 and represent the first combined financial statements of the BTV Group.
Transactions and balances between the companies have been eliminated for the
purposes of the combination. All of the entities included in the combination are
German companies whose operational currency is the German Mark. No foreign
currency translations were necessary in the combination.
The fiscal year end for all companies included in the combined financial
statements is December 31.
B. SHAREHOLDERS' INTERESTS IN THE BTV GROUP
NIERSBERGER-TECOM GMBH & CO. KG
Niersberger-Tecom GmbH & Co. KG ("Niersberger KG") was established under
the laws of the Federal Republic of Germany as a limited partnership
("Kommanditgesellschaft") by Partnership Articles dated December 12, 1993.
Niersberger KG has its registered office in Jena and is registered in the
Commercial Register maintained with the local court of Gera under reg. No. HRA
851. The contributed capital of Niersberger KG is as follows as of December 31:
<TABLE>
<CAPTION>
1995 1994
--------------- ---------------
% DM % DM
<S> <C> <C> <C> <C>
Robert Niersberger........................................ 50.0 2,000 50.0 2,000
Rainer Dippold............................................ 50.0 2,000 -- --
Bernd Bessel-Lorck........................................ -- -- 12.5 500
Rolf Bargel............................................... -- -- 12.5 500
TECOM Telecommunications-Leasing GmbH..................... -- -- 25.0 1,000
----- ----- ----- -----
100.0 4,000 100.0 4,000
===== ===== ===== =====
</TABLE>
F-143
<PAGE> 275
BTV GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
NIERSBERGER-TECOM VERWALTUNGS GMBH
Niersberger-Tecom Verwaltungs GmbH ("Niersberger GmbH") was established as
a limited liability company under the laws of the Federal Republic of Germany by
notarial deed No. 3181/1993 of notary public Horst Peter Regler, Nurnberg, dated
December 2, 1993. Niersberger GmbH has its registered office in Jena and is
registered with the Commercial Register maintained with the local court of Gera
under reg. No. HRB 4439. The share capital of Niersberger GmbH is as follows as
of December 31:
<TABLE>
<CAPTION>
1995 1994
------------- -------------
% DM % DM
<S> <C> <C> <C> <C>
Robert Niersberger........................................... 50.0 25 50.0 25
Rainer Dippold............................................... 50.0 25 -- --
Bernd Bessel-Lorck........................................... -- -- 12.5 7
Rolf Bargel.................................................. -- -- 12.5 7
TECOM Telecommunications-Leasing GmbH........................ -- -- 25.0 11
----- --- ----- ---
100.0 50 100.0 50
===== === ===== ===
</TABLE>
BTV JENA GMBH
BTV Jena GmbH was established as a limited liability company under the laws
of the Federal Republic of Germany by notarial deed No. 3179/1993 of notary
public Horst Peter Regler, Nurnberg, dated December 2, 1993. The share capital
of BTV Jana GmbH is as follows as of December 31:
<TABLE>
<CAPTION>
1995 1994
--------------- ---------------
% DM % DM
<S> <C> <C> <C> <C>
Robert Niersberger........................................ 45.0 22.5 45.0 22.5
Rainer Dippold............................................ 45.0 22.5 -- --
Wohnungsbaugenossenschaft "Carl Zeiss" e.G................ 10.0 5 10.0 5
TECOM Telecommunications-Leasing GmbH..................... -- -- 45.0 22.5
----- ----- ----- -----
100.0 50 100.0 50
===== ===== ===== =====
</TABLE>
C. ACCOUNTING AND VALUATION POLICIES
The accounting and the valuation methods used in the combined financial
statements are applied by all of the individual group companies in a consistent
manner and consistent with the prior year.
Acquired intangible assets are capitalized at cost and amortized over their
respective useful lives.
Tangible assets are presented at acquisition costs, net of accumulated
deprecation. Nets are depreciated principally under the straight line method
over a period of 6 to 8 years. Office furniture and equipment are depreciated
principally under the straight line method over a period of 4 to 6 years.
Special accelerated depreciation under sec.4 of the Fodergebietsgesetz has
been recorded as a charge in the Statements of Operations and as a reduction in
the book value of fixed assets to the amount of DM 1,328 in 1995 and DM 2,035 in
1994. This represents accelerated depreciation allowed for tax purposes as an
investment incentive in the new Federal States of the Republic of Germany.
Low value assets (assets with a cost less than DM .8) are fully depreciated
in the year of acquisition.
Receivables and other assets are presented at their nominal value, net of
necessary reserves and allowances for uncollectible amounts.
F-144
<PAGE> 276
BTV GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
Accruals have been estimated for all known risks and obligations and are
based on the amount of expected claims.
Liabilities have been presented at the repayment amount.
One time connection fees are treated as other operating income at the date
of connection.
D. COMMENTARY TO THE COMBINED BALANCE SHEETS
D.I. INTANGIBLE AND TANGIBLE ASSETS
A roll forward of the individual fixed asset categories has been provided
below:
<TABLE>
<CAPTION>
COST ACCUMULATED DEPRECIATION BOOK VALUE
----------------------------------------- ------------------------------------------ ----------------------
1/1/1995 ADDITIONS DISPOSALS 12/31/1995 1/1/1995 ADDITIONS DISPOSALS 12/31/1995 12/31/1995 12/31/1994
DM DM DM DM DM DM DM DM DM DM
-------- --------- --------- ---------- -------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
C. Fixed
Assets
I. Intangible
Assets
1. EDP
software... 7 33 -- 40 2 7 -- 9 31 4
----- ----- --- ----- ----- ----- --- ----- ---- -----
7 33 -- 40 2 7 -- 9 31 4
----- ----- --- ----- ----- ----- --- ----- ---- -----
II. Tangible
Assets
1. Nets... 4,051 2,589 -- 6,640 2,479 2,173 -- 4,652 1,988 1,572
2. Office
furniture
and
fixtures... 96 97 12 181 40 73 2 111 70 57
----- ----- --- ----- ----- ----- --- ----- ----- -----
4,147 2,686 12 6,821 2,519 2,246 2 4,763 2,058 1,629
----- ----- --- ----- ----- ----- --- ----- ----- -----
4,154 2,719 12 6,861 2,521 2,253 2 4,772 2,089 1,633
===== ===== === ===== ===== ===== === ===== ===== =====
</TABLE>
D.II. RECEIVABLES AND OTHER ASSETS
Receivables and other assets are due within one year.
D.III SHAREHOLDERS' EQUITY AND ACCUMULATED DEFICIT
The paid in capital of the Combined Group as of December 31, 1995 and 1994
is comprised as follows:
<TABLE>
<CAPTION>
DM
-----
<S> <C>
Niersberger-Tecom GmbH & Co. KG............................ 4,000
Niersberger-Tecom Verwaltungs GmbH......................... 50
BTV Jena GmbH.............................................. 50
-----
4,100
=====
</TABLE>
A roll forward of the accumulated deficit is presented below:
<TABLE>
<CAPTION>
DM
-----
<S> <C>
Accumulated deficit as of January 1, 1994.................. 15
Net loss 1994.............................................. 2,926
-----
Accumulated deficit as of December 31, 1994................ 2,941
Net loss 1995.............................................. 571
-----
Accumulated deficit as of December 31, 1995................ 3,512
=====
</TABLE>
F-145
<PAGE> 277
BTV GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
D.IV. OTHER ACCRUALS
Other accruals include amounts for all known risks and obligations of the
Combined Group. As of December 31, 1995 and 1994 the balance is comprised of
accruals for taxation, professional fees, outstanding invoices and management
bonuses.
D.V. LIABILITIES
Liabilities are all due within one year and are not secured.
Included in other liabilities are tax liabilities amounting to DM 63 (1994:
DM 23) and liabilities in relation to social security of DM 13 (1994: DM 4).
Other liabilities include an unsecured loan from Heizung, Luftung, Sanitar
Haustechnik Jena GmbH & Co. KG of DM 1,221 (1994: TDM Nil), a related party to
certain shareholders of the companies within the Combined Group. This loan is at
a fixed interest rate of 8%.
D.VI. OTHER FINANCIAL COMMITMENTS
Commitments under leasing and rental agreements amount to DM 77 as of
December 31, 1995 (1994: DM 94).
Total capital expenditure commitments amount to DM 179 at December 31,
1995.
E. COMMENTARY TO THE COMBINED STATEMENTS OF OPERATIONS
Sales of the Combined Group relate principally from providing cable service
to private households in Germany and similar services.
Other operating income includes investment grants of DM 245 (1994: Nil).
Thereof DM 242 is included in other assets at December 31, 1995.
Other operational expenses include repair and maintenance DM 267 (1994: DM
83), legal and professional charges DM 78 (1994: DM 209), property rent DM 48
(1994: DM 39) and advertising DM 75 (1994: DM 26). The extraordinary expense of
DM 1,050 in 1994 represents costs incurred by Niersberger-Tecom GmbH & Co. KG
under an agreement with third parties which enabled the company to secure its
rights under signal supply permission contracts with housing associations who
had previously granted exclusive permission agreements to those third parties.
F. OTHER DISCLOSURES
The average number of employees of the Combined Group is 6 (1994: 5).
Niersberger-Tecom GmbH & Co. KG and Niersberger-Tecom Verwaltungs GmbH had no
employees during the fiscal years 1995 and 1994.
DIRECTORS
1995 and 1994
BTV Jena GmbH
-- Rainer Dippold, Pommersfelden
-- Heinz Fedrowitz, Bad Kosen
Niersberger-Tecom GmbH & Co. KG
-- Rainer Dippold, Pommersfelden
-- Bernd Bessel-Lorck, Koln
F-146
<PAGE> 278
BTV GROUP
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
Niersberger-Tecom Verwaltungs GmbH
-- Rainer Dippold, Pommersfelden
-- Bernd Bessel-Lorck, Koln
Salary and bonus expenses amounted to DM 617 and DM 250 in 1995 and 1994,
respectively.
G. SIGNIFICANT DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN
GERMANY AND THE UNITED STATES OF AMERICA
Generally accepted accounting principles in Germany ("German GAAP") vary in
certain respects from generally accepted accounting principles in the United
States of America ("US GAAP"). Application of US GAAP would have affected the
reported results of operations for each of the two years in the period ended
December 31, 1995 and the reported shareholders' equity as of December 31, 1995
and 1994. The significant differences between the accounting principles applied
and those which would be applied under US GAAP are summarized below:
CASH FLOW STATEMENTS
Statements of cash flows are required to be presented under US GAAP. Cash
flow statements are not required by German GAAP.
SPECIAL ACCELERATED DEPRECIATION
Special accelerated depreciation for tax purposes has been recorded in the
accounts and deducted from the book value of fixed assets. Under US GAAP this
depreciation would not be recorded in the combined financial statements.
REGULAR DEPRECIATION
Under US GAAP, cable networks are depreciated in accordance with the
Statements of Financial Accounting Standards ("SFAS") No. 51 "Financial
Reporting by Cable Television Companies." German GAAP has no similar
pronouncements or rules. Accordingly, cable networks have been depreciated for
German GAAP using the methods described in note C to the financial statements.
INVESTMENT GRANTS
The Company has credited to other operating income Federal investment
grants relating to fixed assets acquired during 1993 and 1994 by Niersberger
GmbH & Co. KG and acquired during 1994 and 1995 by BTV Jena GmbH. Under US GAAP
the investment grants, when estimated and realizable, would be deducted from the
acquisition cost of the fixed assets acquired and depreciated over the useful
life of the acquired fixed assets.
EXTRAORDINARY EXPENSE
The Combined Group has classified in the accompanying combined financial
statement costs associated with securing its rights under signal supply
permission contracts with housing authority as extraordinary expense. Under US
GAAP these costs could be capitalized and amortized over the useful life of the
related permission contracts.
Jena, March 1996
BTV Group
F-147
<PAGE> 279
APPENDIX A
GLOSSARY
Addressable technology: A technology which enables a cable television
operator to activate or deactivate, from the head-end site or another central
location, the cable television services delivered to each customer.
Buildout: The process of digging, filling and covering underground trenches
in the streets which pass by the homes in a franchise, constructing wiring ducts
within the trenches, laying cable in the ducts and installing and connecting the
necessary electronic equipment.
Churn: Cable television subscriber termination rates expressed by
calculating the total number of disconnected cable television customers over a
period as a percentage of the total number of cable television customers.
Customers: A home with one or more television sets connected to a cable
system is counted as one customer. Bulk accounts are included on a customer
equivalent billing unit basis in which the total monthly bill for the account is
divided by the basic monthly charge for a single outlet in the area.
Dish: An antenna shaped like a dish used to receive television signals from
a satellite.
DTH (Direct-to-home): The DTH market is single dwellings, each served by a
single satellite dish, as distinct from a cable or SMATV system.
Equity subscribers: The number of subscribers within franchises owned by a
company multiplied by such company's effective equity interest in such
franchises.
Head-end: Collection of satellite hardware, typically including dish,
satellite receivers, modulators and amplifiers. Signals, when processed, are
then combined for distribution within the cable network.
Homes: The Company's estimate of the number of homes within its concession
areas.
Homes passed: A home becomes "passed" when it can be connected to the cable
television distribution system without any further extension of principal
transmission lines.
MMDS (Multi-Channel, Multi-Point Distribution Services): A television
delivery system to multiple dwelling units that utilizes low power microwave
frequencies.
New German States: The German states that comprised the former East Germany
(the German Democratic Republic).
Old German States: The German states that comprised the former West Germany
(the Federal Republic of Germany).
Overbuild: Operation of a cable system in an area where competing cable
service or services exist.
Pay-per-view: Payment made for individual television programs as opposed to
a monthly subscription for a whole channel or group of channels.
Penetration: The measurement of the take-up of cable services. As of any
date, the penetration rate for cable television is calculated by dividing the
number of customers on such date by the total number of homes passed on that
date, expressed as a percentage.
Premium service: Cable programming service available only for additional
subscription over and above the basic service.
SMATV (Satellite Master Antenna Television): A television delivery system
to multiple dwelling units that utilizes one or more satellite dishes and a
small distribution network.
Star architecture: A design of cable plant in a cable television system
providing an independent path from an individual subscriber to the system
head-end or another central control point, facilitating the provision and
charging for separate tiers of programming, disconnecting non-paying customers
and addressability.
A-1
<PAGE> 280
LOGO
<PAGE> 281
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following sets forth the estimated expenses and costs (other than
underwriting discounts and commissions) expected to be incurred in connection
with the issuance and distribution of the securities registered hereby:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee...................... $ 34,500
NASD filing fee.......................................................... 10,500
Rating agency fees....................................................... 65,000
Printing and engraving costs............................................. 250,000
Legal fees and expenses.................................................. 950,000
Accounting fees and expenses............................................. 1,000,000
Blue Sky fees and expenses............................................... 25,000
Trustee's fees........................................................... 25,000
Miscellaneous............................................................ 190,000
---------
Total.................................................................... $2,550,000
=========
</TABLE>
- ---------------
* To be furnished by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
There are currently no arrangements under which any controlling person,
director or officer of the Registrant is insured or indemnified in any manner
against liability which he may incur in his capacity as such.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following sets forth information as of June 14, 1996 regarding all
sales of unregistered securities of the Registrant during the past three years.
All such shares were deemed exempt from registration under the Securities Act of
1933 (the "Securities Act") by reason of Section 4(2) or 3(b) of the Securities
Act. In connection with each of these transactions, the securities were sold to
a limited number of persons and constituted either capital contributions by
existing shareholders by way of the conversion or assignment of shareholder
loans to capital surplus, thereby increasing the capital of Kabelvision
Beteiligungs GmbH, which has now been merged with and into the Registrant (in
relation to contributions by ECO I, as defined below) or of the Registrant (in
relation to contributions by ECO II, as defined below), in each case without the
issuance of additional shares, or the initial subscription payment of DM50,000
to the nominal capital of Kabelvision Beteiligungs GmbH on December 28, 1994 and
the DM125,400 increase to the nominal capital of the Registrant on July 15,
1996, for each of which the subscribers received shares in the nominal amounts
reflected below, such persons were provided access to all relevant information
regarding the Registrant and/or represented to the Registrant that they were
"sophisticated" investors, and such persons represented to the Registrant that
the shares were purchased for investment purposes only and not with a view
toward distribution. No underwriting discounts or commissions were paid in
connection with such transactions.
<TABLE>
<CAPTION>
AMOUNT OF CAPITAL CONTRIBUTION
DATE SUBSCRIBER OR SUBSCRIPTION
- ----------------------- ---------------------------------------------- ------------------------------
<S> <C> <C>
July 19, 1994.......... ECO Holdings Limited Partnership ("ECO I").... DM 8,000,000
November 21, 1994...... ECO I......................................... DM 6,787,101
December 28, 1994...... ECO II Holdings Limited Partnership ("ECO II")
(DM 45,000) and Ben Bartel (DM 5,000)......... DM 50,000
January 1, 1995........ ECO I......................................... DM 3,000,000
June 14, 1996.......... ECO I (DM52,961,000) and
ECO II (DM138,166,000)........................ DM 191,127,000
July 15, 1996.......... ECO I (DM 39,060), ECO II (DM 79,300),
Charlotte Cable Holdings, Inc. (DM 540), Ben
Bartel (DM 2,000), Paul Thomason (DM 2,500)
and Ernst Uhlig (DM 2,000).................... DM 125,400
</TABLE>
II-1
<PAGE> 282
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement for the Senior Discount Notes
3.1 Articles of Association of the Registrant (English translation) (German version
included in Exhibit 10.5)
4.1 Form of Indenture between the Registrant and The Bank of New York, as Trustee
4.3 Form of Senior Discount Note (included in Exhibit 4.1)
5 Opinion of Baker & McKenzie with respect to the legality of the securities being
registered
8 Form of opinion of Baker & McKenzie with respect to tax matters
10.1 Form of Bank Credit Agreement
10.2 Form of Employment Agreement for Ben Bartel
10.3 Form of Employment Agreement and Share Transfer and Option Agreement for Paul
Thomason
10.4 Employment Agreement and Share Transfer and Option Agreement for Ernst Uhlig
10.5 Shareholder Agreement
10.6 Merger Agreement (English translation) (German version included in Exhibit 10.5)
10.7 Registration Rights Agreement
10.8 Cooperation Agreement between Deutsche Bundespost Telekom and KABELCOM Osnabruck
Gesellschaft fur Breitbandkabel-Kommuikation mbH & Co KG dated January 29, 1993
as amended by Supplemental Agreement to B1-Cooperation Agreement between Deutsche
Telekom AG and KABELCOM Osnabruck Gesellschaft fur Breitbandkabe-Kommuikation mbH
& Co KG dated February 1, 1995 and English translation thereof
10.9 Signal Supply Agreement between Deutsche Bundespost TELEKOM and Kabelfernsehen
Plauen GmbH dated October 10, 1991 and English translation thereof
10.10 Signal Supply Agreement between Deutsche Bundespost TELEKOM and PKG
Projektmanagement Kommunikationsnetze GmbH & Co KG dated August 11, 1994 and
English translation thereof
10.11 Master Signal Supply Agreement between Deutsche Bundespost TELEKOM and
Projektmanagement Kommunikationsnetze Gesellschaft mbH dated August 28, 1991 and
English translation thereof
10.12 Signal Supply Agreement between Deutsche Bundespost TELEKOM and Kabelfernsehen
Leipzig and Hafi GmbH dated December 20, 1994 and English translation thereof
10.13 Signal Supply Agreement between Deutsche Bundespost TELEKOM and Telecable
Betriebsgesellschaft Halle dated November 4, 1992 and English translation thereof
10.14 Signal Supply Agreement (Supplement) between Deutsche Bundespost Telekom and
Telecable dated November 4, 1992 and English translation thereof
10.15 Connection Agreement between Wohnungsgesellschaft Hoyerswerda and PKG
Kabelbetriebsgesellschaft mbH Hoyerswerda dated February 5, 1992 and English
translation thereof
12 Statement of deficiency of earnings to fixed charges
21 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young GmbH
23.2 Consent of Arthur Andersen GmbH
23.3 Consent of Wollert-Elmendorff Deutsche Industrie-Treuhand GmbH
23.4 Consents of Baker & McKenzie (included in Exhibits 5 and 8)
25 Statement of Eligibility of Trustee (bound separately)
</TABLE>
- ---------------
(B) FINANCIAL STATEMENT SCHEDULE
Schedule III -- Condensed Financial Information of Registrant.
II-2
<PAGE> 283
REPORT OF INDEPENDENT AUDITORS
AS TO FINANCIAL STATEMENT SCHEDULE
To the Board of Directors,
Kabelmedia Holding GmbH
We have audited the consolidated financial statements of Kabelmedia Holding
GmbH and subsidiaries as of December 31, 1995 and 1994, and for each of the
three years in the period ended December 31, 1995, and have issued our report
thereon dated February 28, 1996 (included elsewhere in this Registration
Statement). Our audits also included the financial statement schedule listed in
Item 16(b) of this Registration Statement. This schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects the information set forth therein.
Ernst & Young GmbH
Frankfurt, Germany
February 28, 1996
except for note 1, as to which the date is May 21, 1996.
II-3
<PAGE> 284
KABELMEDIA HOLDING GMBH
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1994 1995 1995
------ ------- -------
<S> <C> <C> <C>
DM DM U.S.$
(IN THOUSANDS)
ASSETS
Cash........................................................... 58 76 51
Investment in and amounts due from subsidiaries (Notes 1 and
4)........................................................... 7,551 96,653 65,456
Property, plant and equipment -- net........................... 427 -- --
Investment advance............................................. 34,000 -- --
Other assets................................................... 249 2,976 2,015
------ ------- -------
TOTAL ASSETS................................................... 42,285 99,705 67,522
====== ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Subordinated Shareholder Loans (Note 2)........................ 34,000 122,403 82,894
Other liabilities.............................................. 615 4,914 3,327
------ ------- -------
TOTAL LIABILITIES.............................................. 34,615 127,317 86,221
SHAREHOLDERS' EQUITY (DEFICIENCY)
Registered capital............................................. 100 100 68
Capital contributions.......................................... 15,187 18,187 12,317
Accumulated deficit............................................ (7,617) (45,899) (31,084)
------ ------- -------
TOTAL SHAREHOLDERS' EQUITY (DEFICIENCY)........................ 7,670 (27,612) (18,699)
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIENCY)............................................ 42,285 99,705 67,522
====== ======= =======
</TABLE>
See accompanying notes to condensed financial statements
II-4
<PAGE> 285
KABELMEDIA HOLDING GMBH
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1993 1994 1995 1995
------ ------ ------- -------
<S> <C> <C> <C> <C>
DM DM DM U.S.$
(IN THOUSANDS)
Revenues.............................................. -- 33 6 4
Operating costs and expenses
Operations.......................................... -- 32 6 4
Selling, general and administrative................. 30 288 831 563
Depreciation and amortization....................... -- 74 -- --
------ ------ ------- -------
Total................................................. 30 394 837 567
------ ------ ------- -------
Operating loss........................................ (30) (361) (831) (563)
Interest income from
subsidiaries........................................ -- 181 2,850 1,930
Interest expense from Subordinated Shareholder
Loans............................................... -- -- 6,872 4,654
------ ------ ------- -------
Loss before income taxes and equity in net loss of
subsidiaries........................................ (30) (180) (4,853) (3,287)
Income taxes.......................................... -- -- -- --
------ ------ ------- -------
Loss before equity in net loss of subsidiaries........ (30) (180) (4,853) (3,287)
Equity in net loss of subsidiaries.................... (1,471) (5,936) (33,429) (22,639)
------ ------ ------- -------
Net loss.............................................. (1,501) (6,116) (38,282) (25,926)
====== ====== ======= =======
</TABLE>
See accompanying notes to condensed financial statements
II-5
<PAGE> 286
KABELMEDIA HOLDING GMBH
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1993 1994 1995 1996
------ ------- ------- -------
DM DM DM U.S.$
<S> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities......................................... 670 (50) 16,313 11,047
INVESTING ACTIVITIES
Acquisitions of shares in subsidiaries............... (921) (1,200) (7,509) (5,085)
Issuance of loans to subsidiaries.................... -- -- (90,318) (61,166)
Prepayments for investment advance................... -- (34,000) -- --
Purchases of property, plant and equipment........... (141) (800) -- --
------ ------- ------- -------
Net cash used for investing activities............... (1,062) (36,000) (97,827) (66,251)
FINANCING ACTIVITIES
Contributions to capital............................. 400 2,050 -- --
Proceeds from Subordinated Shareholder Loans......... -- 34,000 81,532 55,216
------ ------- ------- -------
Net cash provided by financing activities............ 400 36,050 81,532 55,216
Net increase in cash................................. 8 -- 18 12
Cash at beginning of year............................ 50 58 58 39
------ ------- ------- -------
Cash at end of year.................................. 58 58 76 51
====== ======= ======= =======
</TABLE>
See accompanying notes to condensed financial statements
II-6
<PAGE> 287
KABELMEDIA HOLDING GMBH
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. FORMATION OF BUSINESS AND BASIS OF PRESENTATION
Kabelmedia Holding GmbH, formerly Kabelmedia Beteiligungs GmbH (the
"Company" or "Kabelmedia"), was formed in December 1994 to acquire, own and
operate cable television systems serving communities throughout Germany. On May
21, 1996 the shareholders of Kabelvision Beteiligungs GmbH ("Kabelvision"), a
company controlled by certain shareholders of Kabelmedia, and the shareholders
of Kabelmedia proposed that Kabelvision be merged with and into the Company.
Furthermore, it was proposed that the Subordinated Shareholder Loans (including
accrued interest) be contributed to the capital of Kabelmedia. Kabelvision was
founded in 1992 to acquire, own and operate cable television systems serving
communities throughout Germany. Kabelvision began operations in 1993 when their
first cable system was acquired. The accompanying parent company-only condensed
financial statements have been prepared as if the merger occurred January 1,
1993, using the historical costs of each entity as if the merger were a pooling
of interests.
In the parent company-only condensed financial statements, the Company's
investment in subsidiaries is stated at cost plus equity in undistributed
earnings of subsidiaries since the date of acquisition. The Company's share of
net income of its unconsolidated subsidiaries is included in consolidated income
(loss) using the equity method. The parent company-only financial statements
should be read in conjunction with the Company's consolidated financial
statements.
The condensed financial statements have been prepared in accordance with
United States generally accepted accounting principles. The Company maintains
its financial records in accordance with German Commercial Code, which
represents generally accepted accounting principles in Germany (German GAAP).
Generally accepted accounting principles in Germany vary in certain significant
respects from generally accepted accounting principles in the United States (US
GAAP). Accordingly, the Company has recorded certain adjustments in order that
these financial statements be in accordance with United States generally
accepted accounting principles.
Solely for the convenience of the reader, the accompanying condensed
financial statements as of and for the year ended December 31, 1995 have been
translated into United States dollars (U.S. $) at the rate of DM 1.4766 per
$1.00. The translations should not be construed as a representation that the
amounts shown could have been, or could be, converted into U.S. dollars at that
or any other rate.
2. SUBORDINATED SHAREHOLDER LOANS
Subordinated Shareholder Loans represent principal and accrued interest for
separate issuances of subordinated debt to the Company from its majority
shareholder on December 28, 1994, August 31, 1995 and October 6, 1995. These
loans are subject to annual interest rates of 12% for the periods presented. The
interest accrues and is payable with principal in one installment on December
31, 2003.
3. GUARANTEES AND ASSET RESTRICTIONS
Bank obligations existing on the subsidiaries books have been guaranteed by
the Company and are secured through first ranking security interests on all
assets and revenues of the Company and its subsidiaries. The ability of the
Company to access its investment in and amounts due from subsidiaries is
restricted by the terms of these bank obligations.
II-7
<PAGE> 288
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4), or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each posteffective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-8
<PAGE> 289
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Plauen, The Federal
Republic of Germany, on the 23rd day of July, 1996.
Kabelmedia Holding GmbH
By: /s/ BEN BARTEL
Ben Bartel,
Chief Executive Officer and Managing
Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/ BEN BARTEL
Ben Bartel
Chief Executive Officer and Managing
Director
July 23, 1996
/s/ PAUL THOMASON
Paul Thomason
Chief Financial Officer and Controller
July 23, 1996
/s/ PAUL THOMASON
Paul Thomason
Authorized United States
Representative
July 23, 1996
II-9
<PAGE> 290
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------- ---------------------------------------------------------------------------- ------
<C> <S> <C>
1.1 Form of Underwriting Agreement for the Senior Discount Notes................
3.1 Articles of Association of the Registrant (English translation) (German
version included in Exhibit 10.5)...........................................
4.1 Form of Indenture between the Registrant and The Bank of New York, as
Trustee.....................................................................
4.3 Form of Senior Discount Note (included in Exhibit 4.1)......................
5 Opinion of Baker & McKenzie with respect to the legality of the securities
being registered
8 Form of opinion of Baker & McKenzie with respect to tax matters.............
10.1 Form of Bank Credit Agreement...............................................
10.2 Form of Employment Agreement for Ben Bartel.................................
10.3 Form of Employment Agreement and Share Transfer and Option Agreement for
Paul Thomason...............................................................
10.4 Employment Agreement and Share Transfer and Option Agreement for Ernst
Uhlig.......................................................................
10.5 Shareholder Agreement.......................................................
10.6 Merger Agreement (English translation) (German version included in Exhibit
10.5).......................................................................
10.7 Registration Rights Agreement...............................................
10.8 Cooperation Agreement between Deutsche Bundespost Telekom and KABELCOM
Osnabruck Gesellschaft fur Breitbandkabel-Kommuikation mbH & Co KG dated
January 29, 1993 as amended by Supplemental Agreement to B1-Cooperation
Agreement between Deutsche Telekom AG and KABELCOM Osnabruck Gesellschaft
fur Breitbandkabe-Kommuikation mbH & Co KG dated February 1, 1995 and
English translation thereof.................................................
10.9 Signal Supply Agreement between Deutsche Bundespost TELEKOM and
Kabelfernsehen Plauen GmbH dated October 10, 1991 and English translation
thereof.....................................................................
10.10 Signal Supply Agreement between Deutsche Bundespost TELEKOM and PKG
Projektmanagement Kommunikationsnetze GmbH & Co KG dated August 11, 1994 and
English translation thereof.................................................
10.11 Master Signal Supply Agreement between Deutsche Bundespost TELEKOM and
Projektmanagement Kommunikationsnetze Gesellschaft mbH dated August 28, 1991
and English translation thereof.............................................
10.12 Signal Supply Agreement between Deutsche Bundespost TELEKOM and
Kabelfernsehen Leipzig and Hafi GmbH dated December 20, 1994 and English
translation thereof.........................................................
10.13 Signal Supply Agreement between Deutsche Bundespost TELEKOM and Telecable
Betriebsgesellschaft Halle dated November 4, 1992 and English translation
thereof.....................................................................
10.14 Signal Supply Agreement (Supplement) between Deutsche Bundespost Telekom and
Telecable dated November 4, 1992 and English translation thereof............
10.15 Connection Agreement between Wohnungsgesellschaft Hoyerswerda and PKG
Kabelbetriebsgesellschaft mbH Hoyerswerda dated February 5, 1992 and English
translation thereof.........................................................
12 Statement of deficiency of earnings to fixed charges........................
21 Subsidiaries of the Registrant..............................................
23.1 Consent of Ernst & Young GmbH...............................................
23.2 Consent of Arthur Andersen GmbH.............................................
23.3 Consent of Wollert-Elmendorff Deutsche Industrie-Treuhand GmbH..............
23.4 Consents of Baker & McKenzie (included in Exhibits 5 and 8)
25 Statement of Eligibility of Trustee.........................................
</TABLE>
- ---------------
<PAGE> 1
EXHIBIT 1.1
EXECUTION COPY
KABELMEDIA HOLDING GMBH
$______ PRINCIPAL AMOUNT AT MATURITY
OF ___ % SENIOR DISCOUNT NOTES DUE 2006
UNDERWRITING AGREEMENT
July 23, 1996
<PAGE> 2
July 23, 1996
Morgan Stanley & Co.
Incorporated
Chase Securities Inc.
c/o Morgan Stanley & Co.
Incorporated
1585 Broadway
New York, New York 10040
Dear Sirs:
KABELMEDIA HOLDING GMBH (the "Company"), a limited liability company
formed under the laws of the Federal Republic of Germany ("Germany"), proposes
to issue and sell to the several Underwriters named in Schedule I hereto (the
"Underwriters") $ ______ principal amount at maturity of its _____ % Senior
Discount Notes due 2006 (the "Discount Notes") to be issued pursuant to the
provisions of an Indenture dated as of July 23, 1996 (the "Indenture") between
the Company and The Bank of New York, as Trustee (the "Trustee"). The Discount
Notes will be represented by a single global security in registered form (the
"Global Note"), which will be issued by the Company and deposited with The Bank
of New York, as custodian for The Depository Trust Company ("DTC"). Under
certain circumstances as provided for in the Indenture, the Company shall issue
definitive registered Discount Notes in exchange for part or all of the Global
Note. References herein to the "Discount Notes" shall, unless the context
otherwise requires, include the Global Note and the interests therein.
Prior to the date hereof, Kabelvision Beteiligungs GmbH was merged with
and into Kabelmedia Beteiligungs GmbH (the "Merger") pursuant to the terms of a
merger agreement dated June 19, 1996 (the "Merger Agreement") and the name of
the surviving company was changed to Kabelmedia Holding GmbH.
The Company has filed with the Securities and Exchange Commission
(the "Commission") a registration statement, including a prospectus,
relating to the Discount Notes. The registration statement as amended
at the time it becomes effective, including the information (if any)
deemed to be part of the registration statement at the time of
effectiveness pursuant to Rule 430A under the Securities Act of 1933, as
amended (the "Securities Act"), is hereinafter referred to as the
"Registration Statement"; the prospectus in the form first used to
confirm sales of Discount Notes is hereinafter referred to as the
"Prospectus". If the Company files a registration statement to register
a portion of the Discount Notes and relies on Rule 462(b) for such
registration statement to become effective upon filing with the
Commission (the "Rule 462 Registration Statement"), then any reference
to the "Registration Statement" shall be deemed to refer to both the
registration statement referred to above (Commission File No. 333-5094)
and the Rule 462 Registration Statement, in each case as amended from
time to time.
2
<PAGE> 3
I.
The Company represents and warrants to each of the Underwriters that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or threatened by
the Commission.
(b)(i) Each part of the Registration Statement, when such part
became effective, did not contain and each such part, as amended or
supplemented, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, (ii)
the Registration Statement and the Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material respects with
the Securities Act and the applicable rules and regulations of the
Commission thereunder and (iii) the Registration Statement and the
Prospectus do not contain and, as amended or supplemented, if applicable,
will not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, except that
the representations and warranties set forth in this paragraph I(b) do
not apply (A) to statements or omissions in the Registration Statement
or the Prospectus based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you
expressly for use therein or (B) to that part of the Registration
Statement that constitutes the Statement of Eligibility and Qualification
(Form T-1) under the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"), of the Trustee.
(c) The Company has been duly organized, is validly existing as a
limited liability company (Gesellschaft mit beschr@nkter Haftung) under
the laws of Germany, duly registered with the Commercial Register
(Handelsregister) in Frankfurt under HRB 39585, has the corporate power
and authority to own its property and to conduct its business as set
forth under the corporate purpose clause (Unternehmensgegenstand) in its
articles of association (Gesellschaftsvertrag) and as described in the
Prospectus and is duly authorized to transact business in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such authorization, except to the extent
that the failure to be so authorized would not have a material adverse
effect on the Company and its a subsidiaries, taken as a whole.
(d) Each subsidiary of the Company has been duly organized,
is validly existing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its
property and to conduct its business as described in the
Prospectus and is duly authorized to transact business in each
jurisdiction in which the conduct of its business or its ownership
or leasing of property requires such
3
<PAGE> 4
authorization, except to the extent that the failure to be so authorized
would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(e) This Agreement has been duly authorized, executed and delivered
by the Company.
(f) The Indenture has been duly qualified under the Trust Indenture
Act and has been duly authorized, executed and delivered by the Company
and is a valid and binding agreement of the Company, enforceable in
accordance with its terms except as (i) the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws affecting creditors'
rights generally and (ii) rights of acceleration, if applicable, and the
availability of equitable remedies may be limited by equitable principles
of general applicability.
(g) The Discount Notes have been duly authorized and, when the
Global Note is executed and authenticated in accordance with the
provisions of the Indenture and delivered to and paid for by the
Underwriters in accordance with the terms of this Agreement, will be
entitled to the benefits of the Indenture, and will (x) be valid and
binding obligations of the Company, enforceable in accordance with their
terms except as (i) the enforceability thereof may be limited by
bankruptcy, insolvency or similar laws affecting creditors' rights
generally and (ii) rights of acceleration, if any, and the availability
of equitable remedies may be limited by equitable principles of general
applicability.
(h) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement, the
Merger Agreement, the Indenture and the Discount Notes will not
contravene, constitute a default under or violate any provision of
applicable law or the articles of association (Gesellschaftsvertrag) of
the Company or any agreement or other instrument binding upon the Company
or any of its subsidiaries (including the DM 400,000,000 Bank Facility
dated July 23 , 1996 (the "Bank Facility")) that is material to the
Company and its subsidiaries, taken as a whole, or any judgment, order or
decree of any governmental body, agency or court having jurisdiction over
the Company or any subsidiary, and no consent, approval, authorization or
order of, or qualification with, any governmental body or agency is
required for the performance by the Company of its obligations under this
Agreement, the Merger Agreement, the Indenture or the Discount Notes,
except such as may be required by the securities or Blue Sky laws of the
various U.S. states in connection with the offer and sale of the Discount
Notes or such filings, consents or approvals as may be required to be
made or obtained in Germany in connection with the Merger.
(i) There has not occurred any material adverse change, or
any development involving a prospective material adverse change,
in the condition, financial or otherwise, or in the earnings,
business or operations of the Company and its subsidiaries, taken
as a whole, from that set forth in the Prospectus.
4
<PAGE> 5
(j) There are no legal or governmental proceedings pending or
threatened to which the Company or any of its subsidiaries is a party or
to which any of the properties of the Company or any of its subsidiaries
is subject that are required to be described in the Registration
Statement or the Prospectus and are not so described or any statutes,
regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be filed
as exhibits to the Registration Statement that are not described or filed
or incorporated by reference as required.
(k) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or
filed pursuant to Rule 424 or Rule 462 under the Securities Act, complied
when so filed in all material respects with the Securities Act and the
rules and regulations of the commission thereunder.
(l) The Company is not an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the
Investment Company Act of 1940, as amended.
(m) The Company and its subsidiaries are (i) in compliance with all
applicable foreign, federal, state and local laws and regulations in
Germany relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits,
licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are
in compliance with all terms and conditions of any such permit, license
or approval, except where such noncompliance with Environmental Laws,
failure to receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such permits, licenses
or approvals would not, singly or in the aggregate, have a material
adverse effect on the Company and its subsidiaries, taken as a whole.
(n) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, the Company and
its subsidiaries have not incurred any material liability or obligation,
direct or contingent, nor entered into any material transaction not in
the ordinary course of business, other than with respect to the Pending
Acquisitions (as defined in the Prospectus).
(o) The Company and its subsidiaries have good and marketable
title to all real property and good and marketable title to all
personal property owned by them which is material to the business
of the Company and its subsidiaries, in each case free and clear
of all liens, encumbrances and defects except such as are
described in the Prospectus or such as do not materially affect
the value of such property and do not interfere with the use made
and proposed to be made of such property by the Company and its
subsidiaries; and any real property and buildings held under lease by the
Company and its subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such
5
<PAGE> 6
property and buildings by the Company and its subsidiaries, in
each case except as described in or contemplated by the
Prospectus.
(p) No material labor dispute with the employees of the Company or
any of its subsidiaries exists, except as described in or contemplated by
the Prospectus, or, to the knowledge of the Company, is imminent; and the
Company is not aware of any existing, threatened or imminent labor
disturbance by the employees of any of its principal suppliers,
manufacturers or contractors that could result in any material adverse
change in the condition, financial or otherwise, or in the earnings,
business or operations of the Company and its subsidiaries, taken as a
whole.
(q) The Company and each of its subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and
in such amounts as are prudent and customary in the businesses in which
they are engaged; neither the Company nor any such subsidiary has been
refused any insurance coverage sought or applied for; and neither the
company nor any such subsidiary has any reason to believe that it will
not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurance as
may be necessary to continue its business at a cost that would not
materially and adversely affect the condition, financial or otherwise, or
the earnings, business or operations of the Company and its subsidiaries,
taken as a whole, except as described in or contemplated by the
Prospectus.
(r) Each of the signal delivery contracts with Deutsche Telekom AG
(the "Signal Delivery Contracts") has been duly authorized by the Company
or its subsidiaries, has been duly executed and is in full force and
effect, except for such contracts, which if not in full force and effect,
would not singly or in the aggregate have a material adverse effect on
the Company and its subsidiaries, taken as a whole.
(s) The Company and each of its subsidiaries possess all
licenses, concessions, franchises, certificates, authorizations,
permits, approvals and orders issued by the appropriate federal,
state or foreign regulatory authorities (in Germany and in all
other relevant countries) necessary to conduct their respective
businesses (including all necessary concession agreements with
local government authorities, franchise agreements with local
housing authorities and any licenses and permits required by the
Bundesamt fur Post und Telekommunikation (the "BAPT") and the
Bundesministerium fur Post und Telekommunikation (the "BMPT") to
own or operate each of the Company's cable television systems),
except where the failure to have any such license, concession,
franchise, certificate, authorization, permit, approval or order
would not, singly or in the aggregate, have a material adverse
effect on the Company and its subsidiaries, taken as a whole, and
neither the Company nor any such subsidiary has received any
notice of proceedings relating to the revocation or modification
of any such license, concession, franchise, certificate,
authorization, permit, approval or order which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or
finding, would result in a
6
<PAGE> 7
material adverse change in the condition, financial or otherwise, or in
the earnings, business or operations of the Company and its subsidiaries,
taken as a whole, except as described in or contemplated by the
Prospectus.
(t) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance
that (1) transactions are executed in accordance with management's
general or specific authorizations; (2) transactions are recorded as
necessary to permit preparation of financial statements in conformity
with generally accepted accounting principles and to maintain asset
accountability; (3) access to assets is permitted only in accordance with
management's general or specific authorization; and (4) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(u) Other than as set forth in the Prospectus, no outstanding
indebtedness of the Company or of any of its subsidiaries has become
payable before its stated maturity by reason of default by the Company or
any of its subsidiaries, as the case may be, (and in respect of which
default a waiver has not being obtained from the lender) and no event has
occurred or is, to the best of the Company's knowledge, impending, which
with the lapse of time or the giving of notice or the compliance with any
other formality may result in any such indebtedness becoming so repayable
and which, in either case, is not the subject of a waiver obtained from
the lender.
(v) Ernst & Young GmbH, Arthur Andersen GmbH and Wollert-Elmendorff
Deutsche Industrie-Treuhand GmbH (collectively, the "Accountants"), who
have certified certain financial statements of the Company and its
subsidiaries, are independent public accountants within the meaning of
the Securities Act; the consolidated financial statements of the Company,
the financial statements of the Company's subsidiaries and the other
financial data of the Company and its subsidiaries set forth in the
Registration Statement and the Prospectus fairly present the financial
condition of the entities to which they relate as of the dates indicated,
subject, in the case of any interim statements, to year-end audit
adjustments; the Prospectus contains all pro forma financial statements
and other pro forma financial information required to be included therein
and such information present fairly, in all material respects, the
information shown therein, have been prepared in accordance with the
Commission's rules and guidelines with respect to pro forma financial
statements, have been properly compiled on the pro forma bases described
therein, and, in the opinion of the Company, the assumptions used in the
preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions or circumstances referred
to therein;
(w) The Company has complied with all provisions of section 517.075,
Florida Statutes (Chapter 92-198, Laws of Florida).
7
<PAGE> 8
(x) The Merger Agreement and related documentation was filed with
the Commercial Register in Frankfurt on June 20, 1996 and the Merger was
effective as of June 27, 1996; a certificate of dissolution will be filed
in the State of Delaware as soon as practicable after the Merger and the
dissolutions of ECO Holdings Limited Partnership and ECO Holdings II
Limited Partnership (the "Dissolutions") will be effective on or about
the Closing Date; the Merger was and the Dissolutions will be completed
in compliance with all applicable laws, regulations and directives.
(y) The Merger and the execution, delivery and performance of the
Merger Agreement have been duly and validly authorized by it and all
corporate action necessary to approve the Merger has been accomplished
and all the necessary governmental filings, consents and approvals in
connection with the Merger will have been obtained or made prior to the
Closing Date; and on the Closing Date, the Merger will be effective and
all such approvals and consents will be in full force and effect.
(z) The Discount Notes will rank pari passu in right of payment with
any unsubordinated and unsecured indebtedness which may be incurred by
the Company in the future and senior in right of payment to all
subordinated indebtedness of the Company, including all Deeply
Subordinated Shareholder Loans (as defined in the Indenture).
(aa) Neither the Company nor any of its subsidiaries has been to
date assessed by any copyright fee collection agency or similar agency in
Germany any copyright or royalty license fees for programming captured on
Company-owned head-ends by any copyright fee collection agency or any
other federal agency or society in Germany.
II.
The Company hereby agrees to sell to the several Underwriters, and the
Underwriters, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, agree, severally
and not jointly, to purchase from the Company the respective principal amounts
of Discount Notes set forth in Schedule I hereto opposite their names at ____ %
of their principal amount at maturity -- the Discount Note purchase price --
plus accrued original issue discount, if any, from ________, 2001 to the date
of payment and delivery.
8
<PAGE> 9
III.
The Company is advised by you that the Underwriters propose to make a
public offering of their respective portions of the Discount Notes as soon
after the Registration Statement and this Agreement have become effective as in
your judgment is advisable. The Company is further advised by you that the
Discount Notes are to be offered initially to investors at ____% of the
principal amount at maturity -- the Discount Notes public offering price -- and
to certain dealers selected by you at a price that represents a concession not
in excess of ____% of their principal amount at maturity under the Discount
Notes public offering price, and that any Underwriter may allow, and such
dealers may reallow, a concession, not in excess of ___% of their principal
amount at maturity, to any Underwriter or to certain other dealers.
IV.
Payment for the Discount Notes shall be made to the Company in Federal or
other funds immediately available in New York City against delivery of such
Discount Notes for the respective accounts of the Underwriters at 10:00 A.M.,
New York City time, on ________, 1996 or at such other time on the same or such
other date, not later than ______ 1996, as shall be designated in writing by
you. The time and date of such payment are hereinafter referred to as the
"Closing Date".
Delivery on the Closing Date of Discount Notes shall be effected by
delivery of the Global Note to The Bank of New York, as custodian for DTC.
Interests in the Discount Notes will be registered in the name of Cede & Co.,
as nominee of DTC on behalf of the Underwriters, for credit to the respective
participant accounts of the Underwriters unless otherwise directed by the
Underwriters.
V.
The obligations of the Company and the several obligations of the
Underwriters hereunder are subject to the condition that the Registration
Statement shall have become effective not later than the date hereof.
The several obligations of the Underwriters hereunder are subject to the
following further conditions:
(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date,
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<PAGE> 10
(i) there shall not have occurred any downgrading, nor shall
any notice have been given of any intended or potential downgrading
or of any review for a possible change, in the rating accorded any
of the Company's securities by any "nationally recognized
statistical rating organization," as such term is defined for
purposes of Rule 436(g)(2) under the Securities Act; and
(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business or operations
of the Company and its subsidiaries, taken as a whole, from that
set forth in the Registration Statement, that, in your judgment, is
material and adverse and that makes it, in your judgment,
impracticable to market the Discount Notes on the terms and in the
manner contemplated in the Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer of
the Company, to the effect set forth in clause (a)(i) above and to the
effect that the representations and warranties of the Company contained
in this Agreement are true and correct as of the Closing Date and that
the Company has complied with all of the agreements and satisfied all of
the conditions on its part to be performed or satisfied on or before the
Closing Date.
The officer signing and delivering such certificate may rely upon the best
of his knowledge as to proceedings threatened.
(c) You shall have received on the Closing Date an opinion of Baker
& McKenzie, German counsel for the Company, dated the Closing Date, to
the effect that:
(i) the Company validly exists as a limited liability company
(Gesellschaft mit beschr@nkter Haftung) under the laws of Germany
duly registered with the Commercial Register (Handelsregister) in
Frankfurt under HRB 39585, has the corporate power and authority
to own its property and to conduct its business as set forth under
the corporate purpose clause (Unternehmensgegenstand) in its
articles of association (Gesellschaftsvertrag) and as described in
the Prospectus and, to the best of such counsel's knowledge, is
duly authorized to transact business in each jurisdiction in which
the conduct of its business or its ownership or leasing of property
requires such authorization, except to the extent that the failure
to be so authorized would not have a material adverse effect on the
Company and its subsidiaries, taken as a whole;
(ii) each of the subsidiaries of the Company validly exists
pursuant to its respective entry in the Commercial Register
(Handelsregister), has the corporate power and authority to own its
property and to conduct its business as described in the Prospectus
and, to the best of such counsel's knowledge, is duly authorized to
transact business in each jurisdiction in which the conduct of its
10
<PAGE> 11
business or its ownership or leasing of property requires such
authorization, except to the extent that the failure to be so
authorized would not have a material adverse effect on the Company
and its subsidiaries, taken as a whole;
(iii) this Agreement and the Indenture have been duly
authorized, executed and delivered by the Company;
(iv) the Discount Notes have been duly authorized and, when
the Global Note is executed and authenticated in accordance with
the provisions of the Indenture, it will be duly executed and
delivered by the Company;
(v) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this
Agreement, the Merger Agreement, the Discount Notes and the
Indenture will not contravene, constitute a default under or
violate any provision of applicable law or the articles of
association (Gesellschaftsvertrag) of the Company or, to the best
of such counsel's knowledge, any agreement or other instrument
binding upon the Company or any of its subsidiaries (including the
Bank Facility) that is material to the Company and its
subsidiaries, taken as a whole, or, to the best of such counsel's
knowledge, any judgment, order or decree of any governmental body,
agency or court of Germany (or any political subdivision thereof)
having jurisdiction over the Company or any subsidiary, and no
consent, approval, authorization or order of or qualification with
any governmental body or agency of Germany (or any political
subdivision thereof) is required for the performance by the Company
of its obligations under this Agreement, the Merger Agreement, the
Discount Notes or the Indenture except such filings, consents or
approvals as have been made or obtained in Germany in connection
with the Merger;
(vi) to the best of such counsel's knowledge, the Company and
each of its subsidiaries possess all licenses, concessions,
franchises, certificates, authorizations, permits, approvals and
orders issued by the appropriate federal, state or foreign
regulatory authorities of Germany (or any political subdivision
thereof) necessary to conduct their respective businesses
(including all necessary concession agreements with local
government authorities, franchise agreements with local housing
authorities and any licenses and permits required by the BAPT and
the BMPT to own or operate each of the Company's cable television
systems), except where the failure to have any such license,
concession, franchise, certificate, authorization, permit, approval
or order would not, singly or in the aggregate, have a material
adverse effect on the Company and its subsidiaries, taken as a
whole; and, to the best of such counsel's knowledge, neither the
Company nor any such subsidiary has received any notice of
proceedings relating to the revocation or modification of any such
license, concession, franchise, certificate, authorization,
permit, approval or order which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or
11
<PAGE> 12
finding, would have a material adverse effect on the Company
and its subsidiaries, taken as a whole, except as described
in or contemplated by the Prospectus.
(vii) to the best of such counsel's knowledge, no legal or
governmental proceedings are pending or threatened to which the
Company or any of its subsidiaries is a party or to which any of
the properties of the Company or any of its subsidiaries is subject
that, singly or in the aggregate if the subject of an unfavorable
ruling or finding, would have a material adverse effect on the
Company and its subsidiaries taken as a whole except as described
in or contemplated by the Prospectus;
(viii) to the best of such counsel's knowledge, the Company is
(i) in compliance with all applicable Environmental Laws, (ii) has
received all permits, licenses or other approvals required of it
under applicable Environmental Laws to conduct its business and
(iii) is in compliance with all terms and conditions of any such
permit, license or approval, except where such noncompliance with
Environmental Laws, failure to receive required permits, licenses
or other approvals or failure to comply with the terms and
conditions of such permits, licenses or approvals would not, singly
or in the aggregate, have a material adverse effect on the Company;
(ix) the statements in the Prospectus under the captions
"Industry", "Business", "Certain Regulatory Matters", "Management",
"Certain Related Party Transactions", "Principal Shareholders",
"Risk Factors - Extensive Government Regulation of the Cable
Television Industry", " - Access to and Cost of Programming" and "
- Copyright Royalty Fees", "Certain Income Tax Considerations -
German Income Tax Considerations" and "Enforceability of Certain
Civil Liabilities", in each case insofar as such statements
constitute summaries of the legal matters, documents and
proceedings governed by German law referred to therein, fairly
present the information called for with respect to such legal
matters, documents and proceedings and fairly summarize the matters
referred to therein;
(x) no specific governmental authorization of or with any
governmental agency is required in Germany for the issuance and
delivery outside of Germany of the Discount Notes by the Company or
for the sale of the Discount Notes to the Underwriters and the
consummation by the Company of the transactions contemplated by
this Agreement, save for generally required banking or business
licenses and permits;
(xi) the Company's agreement as to choice of forum and
submission to jurisdiction set forth in Article X of this Agreement
is valid under German law and will be recognized by the courts of
Germany;
12
<PAGE> 13
(xii) the choice of New York law as the law governing this
Agreement, the Discount Notes and the Indenture is valid under
German law and will be recognized by the courts of Germany, except
to the extent that (i) any of the terms of this Agreement, the
Discount Notes or the Indenture or instruments or any of the
provisions of New York law applicable to such agreements or
instruments are irreconcilable with important principles of German
law or (ii) there are mandatory provisions of German law which must
be applied to the transactions covered by this Agreement, the
Discount Notes and the Indenture irrespective of the law which
governs such agreement or instrument or, (iii) all elements of the
transactions covered by this Agreement, the Discount Notes and the
Indenture other than choice of law, are connected with only one
country applicable to such transactions. None of the terms of this
Agreement, the Discount Notes and the Indenture is (a)
irreconcilable with important principles of German law, (b) there
are no mandatory provisions of German law which must be applied to
the transactions covered by this Agreement, the Discount Notes and
the Indenture and (c) the transactions covered by this Agreement,
the Discount Notes and the Indenture were not connected with only
one country at the time of the choice of law. German courts will
always apply German procedural rules.
(xiii) no stamp or other issuance or transfer taxes or duties
are payable by or on behalf of the Underwriters to Germany or to
any political subdivision or taxing authority thereof or therein in
connection with (i) the sale and delivery outside of Germany by the
Company of the Discount Notes to the Underwriters or (ii) the sale
and delivery outside of Germany by the Underwriters of the Discount
Notes to the initial purchasers thereof in the manner contemplated
in this Agreement;
(xiv) any final and conclusive judgment for a definite sum
obtained for the recovery of amounts due and unpaid by the Company
under this Agreement by a United States Federal or New York State
court sitting in the Borough of Manhattan will be held enforceable
against the Company in the appropriate courts of Germany without
re-examination or re-litigation of the matter adjudicated, except
that such judgment will not be so enforceable if any of the reasons
for excluding enforceability set forth in Section 328 para. 1 of
the German Code of Civil Procedure (ZPO) is present, if (A) under
German law, United States Federal or New York State courts do not
have jurisdiction, (B) the Company has not been served with process
in a proper fashion or has not been served with process in a timely
fashion so as to enable it to defend itself against the claim and
it has not defended itself against the claim in court asserting
such improper or untimely service, (C) the judgment conflicts with
a prior judgment of a German court or a prior judgment of a
foreign court which is to be recognized in Germany, or the
litigation resulting in the judgment to be enforced conflicts with
litigation previously commenced in Germany, (D) recognition of the
judgment would clearly be contrary to basic principles of German
law, in particular, contrary to
13
<PAGE> 14
the civil rights (Grundrechte) set forth in the German
Federal Constitution (Grundgesetz) or (E) reciprocity is
not ensured;
(xv) to the best of such counsel's knowledge, each of the
Company's Signal Delivery Contracts, Franchise Agreements and
Concession Agreements described in the Prospectus that is material
to the Company and its subsidiaries, taken as a whole, has been
duly authorized by the Company and is in full force and effect;
(xvi) the Merger and the execution, delivery and performance
of the Merger Agreement have been duly and validly authorized by
the Company and pursuant to the recording thereof in the Commercial
Register (Handelsregister) on June 27, 1996, the Merger has full
force and effect.
(d) You shall have received on the Closing Date an opinion of Baker
& McKenzie, United States counsel for the Company, dated the Closing
Date, to the effect that :
(i) the Indenture has been duly qualified under the Trust
Indenture Act and is a valid and binding agreement of the Company,
enforceable in accordance with its terms except as (a) the
enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally and (b) rights
of acceleration and the availability of equitable remedies may be
limited by equitable principles of general applicability;
(ii) when the Global Note is executed and authenticated in
accordance with the provisions of the Indenture and delivered to
and paid for by the Underwriters in accordance with the terms of
this Agreement, the Discount Notes will be entitled to the benefits
of the Indenture and will be a valid and binding obligation of the
Company, enforceable in accordance with its terms except as (a) the
enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally and (b) rights
of acceleration and the availability of equitable remedies may be
limited by equitable principles of general applicability;
(iii) the execution and delivery by the Company of, and
the performance by the Company of its obligations under,
this Agreement, the Merger Agreement, the Discount Notes and
the Indenture will not contravene, constitute a default
under or violate any provision of any agreement or other
instrument binding upon the Company or any of its
subsidiaries (including the Bank Facility) that is material
to the Company and its subsidiaries, taken as a whole, or,
to the best of such counsel's knowledge, any judgment, order
or decree of any governmental body, agency or court of the
United States (or any political subdivision thereof) having
jurisdiction over the Company or any subsidiary, and
14
<PAGE> 15
no consent, approval, authorization or order of or
qualification with any governmental body or agency of the
United States (or any political subdivision thereof is
required for the performance by the Company of its
obligations under this Agreement, the Merger Agreement, the
Discount Notes or the Indenture, except such as may be
required by the securities or Blue Sky laws of the various
U.S. states in connection with the offer and sale of the
Discount Notes;
(iv) the statements (1) in the Prospectus under the captions
"Certain Related Party Transactions", "Description of Certain
Indebtedness", "Description of the Discount Notes", "Certain Income
Tax Considerations - U.S. Federal Income Tax Considerations" and
"Underwriting" and (2) in the Registration Statement under Items 14
and 15, in each case insofar as such statements constitute
summaries of the legal matters, documents and proceedings referred
to therein, fairly present the information called for with respect
to such legal matters, documents and proceedings and fairly
summarize the matters referred to therein;
(v) the Company is not an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined
in the Investment Company Act of 1940, as amended;
(vi) under the laws of the State of New York relating to
submission of jurisdiction, the Company has validly and irrevocably
submitted to the jurisdiction of any federal or state court located
in the State of New York, has validly and irrevocably waived any
objection to the venue of a proceeding in any such court, has
validly and irrevocably appointed CT Corporation System as the
authorized agent of the Company for the purpose described in
Article X of this Agreement, and service of process effected in the
manner set forth in Article X of this Agreement will be effective
to confer valid personal jurisdiction over the Company;
(vii) such counsel (1) is of the opinion that the
Registration Statement and Prospectus (except for financial
statements and schedules and other financial or statistical
data included therein as to which such counsel need not
express any opinion) comply as to form in all material
respects with the Securities Act and the rules and
regulations of the Commission thereunder, (2) believes that
(except for financial statements and schedules and other
financial or statistical data as to which such counsel need
not express any belief and except for that part of the
Registration Statement that constitutes the Form T-1
heretofore referred to) the Registration Statement and the
Prospectus included therein at the time the Registration
Statement became effective did not contain any untrue
statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading and (3) believes that
(except for financial statements and schedules and other
financial or statistical
15
<PAGE> 16
data as to which such counsel need not express any belief)
the Prospectus as of the Closing Date does not contain an
untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading.
(e) You shall have received on the Closing Date an opinion of
Shearman & Sterling, counsel for the Underwriters, dated the Closing
Date, covering the matters referred to in subparagraphs (iii) and (iv) of
paragraph (c) above and subparagraphs (i), (ii), (iv) (but only as to the
statements in the Prospectus under "Description of the Securities",
"Certain Income Tax Considerations" and "Underwriting"), (vi) and (vii)
of paragraph (d) above.
With respect to subparagraph (ix) of paragraph (d) above, Baker &
McKenzie and Shearman & Sterling may state that their opinion and belief
are based upon their participation in the preparation of the Registration
Statement and Prospectus and any amendments of supplements thereto and
review and discussion of the contents thereof, but are without
independent check or verification except as specified.
The opinions of Baker & McKenzie described in paragraphs (c) and (d)
above shall be rendered to you at the request of the Company and shall so
state therein.
(f) You shall have received, on each of the date hereof and the
Closing Date, a letter dated the date hereof or the Closing Date, as the
case may be, substantially in the form received by you, from each of the
Accountants, containing statements and information of the type ordinarily
included in accountants' "comfort letters" and "bring-down comfort
letters", respectively, to underwriters, with respect to the financial
statements and certain financial information contained in the
Registration Statement and the Prospectus.
(g) The Merger shall be effective and shall have been completed in
compliance with all applicable laws, regulations and directives.
(h) The Registration Rights Agreement shall have been duly executed
and delivered by the Company.
(i) The Bank Facility shall have been duly executed and delivered by
the Company.
(j) A customary Letter of Representations shall have been delivered
to DTC by the Trustee.
16
<PAGE> 17
VI.
In further consideration of the agreements of the Underwriters herein
contained, the Company covenants as follows:
(a) To furnish to you, without charge, three signed copies of the
Registration Statement (including exhibits thereto) and for delivery to
each other Underwriter a conformed copy of the Registration Statement
(without exhibits thereto) and, during the period mentioned in paragraph
(c) below, as many copies of the Prospectus and any supplements and
amendments thereto or to the Registration Statement as you may reasonably
request. In the case of the Prospectus, to furnish copies of the
Prospectus in New York City prior to 5:00 p.m. on the business day
following the date of this Agreement and in London as soon as practicable
on or after such date, in such quantities as you reasonably request.
(b) Before amending or supplementing the Registration Statement or
the Prospectus, to furnish to you a copy of each such proposed amendment
or supplement and not to file any such proposed amendment or supplement
to which you reasonably object.
(c) If, during such period after the first date of the public
offering of the Discount Notes as in the opinion of your counsel the
Prospectus is required by law to be delivered in connection with sales by
an Underwriter or dealer, any event shall occur or condition exist as a
result of which it is necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances
when the Prospectus is delivered to a purchaser, not misleading, or if,
in the opinion of your counsel, it is necessary to amend or supplement
the Prospectus to comply with law, forthwith to prepare, file with the
Commission and furnish, at its own expenses, to the Underwriters and to
the dealers (whose names and addresses you will furnish to the Company)
to which Discount Notes may have been sold by you on behalf of the
Underwriters and to any other dealers upon request, either amendments or
supplements to the Prospectus so that the statements in the Prospectus as
so amended or supplemented will not, in the light of the circumstances
when the Prospectus is delivered to a purchaser, be misleading or so that
the Prospectus, as amended or supplemented, will comply with law.
(d) To endeavor to qualify the Discount Notes for offer and sale
under the securities or Blue Sky laws of such jurisdictions as you shall
reasonably request and to pay all expenses (including fees and
disbursements of counsel) in connection with such qualification and in
connection with (i) the determination of the eligibility of the Discount
Notes for investment under the laws of such jurisdictions as you may
designate and (ii) any review of the offering of the Discount Notes by
the National Association of Securities Dealers, Inc.
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<PAGE> 18
(e) To make generally available to the Company's security holders
and to you as soon as practicable (ii) an earnings statement covering a
period of at least twelve months beginning with the first fiscal quarter
after the effective date of the Registration Statement that satisfies the
provisions of Section 11(a) of the Securities Act and the rules and
regulations of the Commission thereunder and (ii) all other periodic
reports and other information required by the Securities Exchange Act of
1934, as amended (the "Exchange Act") and the rules and regulations
thereunder.
(f) During the period beginning on the date hereof and continuing
for a period of 90 days from such date, not to offer, sell, contract to
sell or otherwise dispose of any debt securities of the Company or
warrants to purchase debt securities of the Company substantially similar
to the Discount Notes (other than (i) the Discount Notes and (ii)
commercial paper issued in the ordinary course of business), without your
prior written consent.
(g) Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, to pay
or cause to be paid the following: (i) the fees, disbursements
and expenses of the Company's counsel and the Company's
accountants in connection with the registration and delivery of
the Discount Notes under the Securities Act and all other fees or
expenses in connection with the preparation and filing of the
Registration Statement, any preliminary prospectus, the Prospectus
and amendments and supplements to any of the foregoing, including
all printing costs associated therewith, and the mailing and
delivering of copies thereof to the Underwriters and dealers, in
the quantities hereinabove specified, (ii) all costs and expenses
related to the transfer and delivery of the Discount Notes to the
Underwriters, including any transfer or other taxes payable
thereon, (iii) the cost of printing or producing any Blue Sky or
Legal Investment memorandum in connection with the offer and sale
of the Discount Notes under state securities laws and all expenses
in connection with the qualification of the Discount Notes for
offer and sale under state securities laws as provided in
paragraph (d) of this Article VI, including filing fees and the
reasonable fees and disbursements of counsel for the Underwriters
in connection with such qualification and in connection with the
Blue Sky or Legal Investment memorandum, (iv) all filing fees and
disbursements of counsel to the Underwriters incurred in
connection with the review and qualification of the offering by
the National Association of Securities Dealers Inc., including any
counsel fees incurred on behalf of or disbursements by Morgan
Stanley & Co. Incorporated ("Morgan Stanley") in its capacity as
"qualified independent underwriter", (v) the cost of printing
certificates representing the Discount Notes, if any, (vi) the
costs and charges of any transfer agent, registrar or depositary,
(vii) the costs and expenses of the Company relating to the
investor presentations on any "road show" undertaken in connection
with the marketing of the offering, including, without limitation,
expenses associated with the production of road show slides and
graphics, fees and expenses of any consultants engaged in
connection with the road show presentations with the prior
approval of the Company, travel and lodging expense of the
representatives and officers of the Company and any such
consultants, and the cost of any aircraft
18
<PAGE> 19
chartered in connection with the road show and (viii) all other
costs and expenses incident to the performance of the obligations
of the Company hereunder for which provision is not otherwise made
in this Section. It is understood, however, that except as
provided in this Article VI and the third paragraph of Article IX
below, the Underwriters will pay all of their costs and expenses,
including fees and disbursements of their counsel, stock transfer
taxes payable on resale of any of the Discount Notes by them, and
any advertising expenses connected with any offer they may make.
(h) To use the net proceeds received by it from the sale of the
Discount Notes in the manner specified in the Prospectus under "Use of
Proceeds".
(i) To use its best efforts to obtain any outstanding licenses,
concessions, franchises, certificates, authorizations, permits, approvals
and orders from federal, state or foreign regulatory authorities in
Germany and elsewhere and any Signal Delivery Contracts, which are
necessary to conduct its businesses and own and operate each of its cable
television systems (including all necessary concession agreements with
local governmental authorities, franchise agreements with local housing
authorities, and any licenses and permits required by the BAPT and the
BMPT) unless the failure to so obtain any such licenses, concessions,
franchises, certificates, authorizations, permits, approvals and orders
would not materially affect the Company's results of operations or
financial condition or the Company's ability to perform under the terms
of the Discount Notes.
VII.
The Company agrees to indemnify and hold harmless each Underwriter
and each person, if any, who controls such Underwriter within the
meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act, from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred by any Underwriter or any such controlling person in
connection with defending or investigating any such action or claim)
caused by any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement or any amendment thereof,
any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto), or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue
statement or omission or alleged untrue statement or omission based upon
and in conformity with information relating to any Underwriter furnished
to the Company in writing by such Underwriter through you expressly for
use therein.
The Company also agrees to indemnify and hold harmless Morgan Stanley and
each person, if any, who controls Morgan Stanley within the meaning of either
Section 15 of the Securities Act, or Section 20 of the Exchange Act, from and
against any and all losses,
19
<PAGE> 20
claims, damages, liabilities and judgments incurred as a result of
Morgan Stanley's participation as a "qualified independent underwriter"
within the meaning of Schedule E of the By-Laws of the National
Association of Securities Dealers, Inc. in connection with the offering
of the Discount Notes, except for any losses, claims, damages,
liabilities and judgments resulting from Morgan Stanley's or such
controlling person's, willful misconduct or gross negligence.
Each Underwriter agrees, severally and not jointly, to indemnify and hold
harmless the Company, its directors, its officers (including any officer who
signs the Registration Statement in the capacity as U.S. Representative of the
Company) who sign the Registration Statement and each person, if any, who
controls the Company within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act to the same extent as the foregoing
indemnity from the Company to such Underwriter, but only with reference to
information relating to such Underwriter furnished to the Company in writing by
such Underwriter through you expressly for use in the Registration Statement,
any preliminary prospectus, the Prospectus or any amendments or supplements
thereto.
In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity
may be sought pursuant to either of the two preceding paragraphs, such
person (the "indemnified party") shall promptly notify the person
against whom such indemnity may be sought (the "indemnifying party") in
writing and the indemnifying party, upon request of the indemnified
party, shall retain counsel reasonably satisfactory to the indemnified
party to represent the indemnified party and any others the indemnifying
party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the
expense of such indemnified party unless (i) the indemnifying party and
the indemnified party shall have mutually agreed to the retention of
such counsel or (ii) the named parties to any such proceeding (including
any impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests
between them. It is understood that the indemnifying party shall not,
in respect of the legal expenses of any indemnified party in connection
with any proceeding or related proceedings in the same jurisdiction, be
liable for the fees and expenses of more than one separate firm (in
addition to any local counsel) for all such indemnified parties and that
all such fees and expenses shall be reimbursed as they are incurred.
Such firm shall be designated in writing by Morgan Stanley, in the case
of parties indemnified pursuant to the second preceding paragraph, and
by the Company, in the case of parties indemnified pursuant to the first
preceding paragraph. The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent, but
if settled with such consent or if there shall be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of
such settlement or judgment. Notwithstanding the foregoing sentence, if
at any time an indemnified party shall have requested an indemnifying
party to reimburse the indemnified party for fees and expenses of
counsel as contemplated by the second and third sentences of this
paragraph, the indemnifying party agrees that it shall be liable for any
settlement of any proceeding effected
20
<PAGE> 21
without its written consent if (i) such settlement is entered into more
than 30 days after receipt by such indemnifying party of the aforesaid
request and (ii) such indemnifying party shall not have reimbursed the
indemnified party in accordance with such request prior to the date of
such settlement. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending
or threatened proceeding in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder
by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on
claims that are the subject matter of such proceeding.Notwithstanding
anything contained herein to the contrary, if indemnity may be sought
pursuant to the second paragraph of this Article VII in respect of such
action or proceeding, then in addition to such separate firm for the
indemnified parties the indemnifying party shall be liable for the
reasonable fees and expenses of not more than one separate firm (in
addition to any local counsel) for Morgan Stanley in its capacity as a
"qualified independent underwriter" and all persons, if any, who control
Morgan Stanley within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act.
If the indemnification provided for in the first or second
paragraph of this Article VII is unavailable to an indemnified party or
insufficient in respect of any losses, claims, damages or liabilities
referred to therein, then each indemnifying party under such paragraph,
in lieu of indemnifying such Indemnified part thereunder, shall
contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (i) in such
proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and the Underwriters on the other hand
from the offering of the Discount Notes or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the
Company on the one hand and of the Underwriters on the other hand in
connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The relative benefits received by the Company
on the one hand and the Underwriters on the other hand in connection
with the offering of the Discount Notes shall be deemed to be in the
same respective proportions as the net proceeds from the offering of the
Discount Notes (before deducting expenses) received by the Company and
the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover of the
Prospectus, bear to the aggregate public offering price of the Discount
Notes. The relative fault of the Company on the one hand and of the
Underwriters on the other hand shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material
fact relates to information supplied by the Company or by the
Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. The Underwriters' respective obligations to contribute
pursuant to this Article VII are several in proportion to the respective
principal amounts of Discount Notes they have purchased hereunder, and
not joint.
The Company and the Underwriters agree that it would not be just or
equitable if contribution pursuant to this Article VII were determined by pro
rata allocation (even if the
21
<PAGE> 22
Underwriters were treated as one entity for such purpose) or by any
other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an indemnified party as a result of the
losses, claims, damage, and liabilities referred to in the immediately
preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of
this Article VII, no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the
Discount Notes underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages that such
Underwriter has otherwise been required to pay by reason of such untrue
or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The
remedies provided for in this Article VII are not exclusive and shall
not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
The indemnity and contribution provisions contained in this Article VII
and the representations and warranties of the Company contained in this
Agreement shall remain operative and in full force and effect regardless of (i)
any termination of this Agreement, (ii) any investigation made by or on behalf
of any Underwriter or any person controlling any Underwriter or by or on behalf
of the Company, its officers or directors or any person controlling the Company
and (iii) acceptance of and payment for any of the Discount Notes.
VIII.
This Agreement shall be subject to termination by notice given by
you to the Company, if (a) after the execution and delivery of this
Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any
of the New York Stock Exchange, the American Stock Exchange, the
National Association of Securities Dealers Automated Quotation System,
the Chicago Board of Options Exchange, the Chicago Mercantile Exchange,
the Chicago Board of Trade or the Frankfurt Stock Exchange, (ii) trading
of any securities of the Company shall have been suspended on any
exchange or in any over-the-counter market, (iii) a general moratorium
on commercial banking activities in New York, London or Frankfurt shall
have been declared by either Federal, New York State or German
authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or
crisis that, in your judgment, is material and adverse and (b) in the
case of any of the events specified in clauses (a)(i) through (iv), such
event singly or together with any other such event makes it, in your
judgment,
22
<PAGE> 23
impracticable to market the Discount Notes on the terms and in the manner
contemplated in the Prospectus.
IX.
This Agreement shall become effective upon the later of (x) execution and
delivery hereof by the parties hereto and (y) release of notification of the
effectiveness of the Registration Statement by the Commission.
If, on the Closing Date, any one or more of the Underwriters shall fail or
refuse to purchase Discount Notes that it or they have agreed to purchase
hereunder on such date, and the aggregate principal amount of Discount Notes
which such defaulting Underwriter or Underwriters agreed but failed or refused
to purchase is not more than one-tenth of the aggregate principal amount of the
Discount Notes to be purchased on such date, the other Underwriters shall be
obligated severally in the proportions that the principal amount of Discount
Notes set forth opposite their respective names in Schedule I bears to the
principal amount of Discount Notes set forth opposite the names of all such
non-defaulting Underwriters, or in such other proportions as you may specify,
to purchase the Discount Notes which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date; provided
that in no event shall the principal amount of Discount Notes that any
Underwriter has agreed to purchase pursuant to Article II be increased pursuant
to this Article IX by an amount in excess of one-ninth of such principal amount
of Discount Notes without the written consent of such Underwriter. If, on the
Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase
Discount Notes and the aggregate principal amount of Discount Notes with
respect to which such default occurs is more than one-tenth of the aggregate
principal amount of Discount Notes to be purchased on such date, and
arrangements satisfactory to you and the Company for the purchase of such
Discount Notes are not made within 36 hours after such default, this Agreement
shall terminate without liability on the part of any non-defaulting Underwriter
or the Company. In any such case either you or the Company shall have the
right to postpone the Closing Date but in no event for longer then seven days,
in order that the required changes, if any, in the Registration Statement and
in the Prospectus or in any other documents or arrangements may be effected.
Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
If this Agreement shall be terminated by the Underwriters, or any
of them, because of any failure or refusal on the part of the Company to
comply with the terms or to fulfill any of the conditions of this
Agreement, or if for any reason the Company shall be unable to perform
its obligations under this Agreement, the Company will reimburse the
Underwriters or such Underwriters as have so terminated this Agreement
with respect to themselves, severally, for all out-of-pocket expenses
(including the fees and disbursements of their counsel)
23
<PAGE> 24
reasonably incurred by such Underwriters in connection with this Agreement
or the offering contemplated hereunder.
X.
The Company and you irrevocably agree that any legal suit, action or
proceeding brought by any Underwriter or by any person who controls any
Underwriter arising out of or relating to this Agreement or the transactions
contemplated hereby may be instituted in any federal or state court in the
Borough of Manhattan, The City of New York, New York, and irrevocably waives
any objection which it may now or hereafter have to the laying of the venue of
any such suit, action or proceeding and any claim that any such proceeding
brought in such a court has been brought in an inconvenient forum, and
irrevocably submits to the exclusive jurisdiction of any such court in any such
suit, action or proceeding. The Company acknowledges that a final judgment in
any such suit, action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other manner provided by
law in accordance with applicable law. The Company hereby irrevocably waives
any right to invoke jurisdiction it may have to any court by virtue of law.
The Company has appointed CT Corporation System, 1633 Broadway, New York,
NY 10019 (the "Process Agent") for a period of one year from the date hereof,
as its agent to receive on its behalf service of copies of the summons and
complaints and any other process which may be served in any suit, action or
proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby brought in such New York State or federal court sitting in
The City of New York. Such service may be made by delivering a copy of such
process to the Company in care of the Process Agent at the address specified
above for the Process Agent and obtaining a receipt therefor, and the Company
hereby irrevocably authorizes and directs such Process Agent to accept such
service on its behalf. The Company represents and warrants that the Process
Agent has agreed to act as said agent for service of process, and agrees that
service of process in such manner upon the Process Agent shall be deemed in
every respect effective service of process upon the Company in any such suit,
action or proceeding.
If for the purposes of obtaining judgment in any court it is
necessary to convert a sum due hereunder into any currency other than
United States dollars, the parties hereto agree, to the fullest extent
that they may effectively do so, that the rate of exchange used shall be
the rate at which in accordance with normal banking procedures Morgan
Stanley could purchase United States dollars with such other currency in
The City of New York on the business day preceding that on which final
judgment is given. The obligation of the Company in respect of any sum
due from it to any Underwriter shall, notwithstanding any judgment in a
currency other than United States dollars, not be discharged until the
first business day, following receipt by such Underwriter of any sum
adjudged to be so due in such other currency, on which (and only to the
extent that such Underwriter may in accordance with normal banking
procedures purchase
24
<PAGE> 25
United States dollars with such other currency; if the United States dollars so
purchased are less than the sum originally due to such Underwriter hereunder,
the Company agrees, as a separate obligation and notwithstanding any such
judgment, to indemnify such Underwriter against such loss. If the United States
dollars so purchased are greater than the sum originally due to such
Underwriter hereunder, such Underwriter agrees to pay to the Company an amount
equal to the excess of the dollars so purchased over the sum originally due to
such Underwriter hereunder.
This Agreement may be signed in two or more counterparts, each of which
shall be an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York.
Very truly yours,
KABELMEDIA HOLDING GMBH
By ___________________________
Name: Ben Bartel
Title: Gesch@ftsfhhrer
25
<PAGE> 26
Accepted, July 23, 1996
Morgan Stanley & Co. Incorporated
Chase Securities Inc.
Acting severally on behalf of themselves
By Morgan Stanley & Co. Incorporated
By _____________________________
Name:
Title:
<PAGE> 27
SCHEDULE I
Securities to be Purchased
<TABLE>
<CAPTION>
Principal Amount
at Maturity of
Underwriter Discount Notes
- ----------- --------------
<S> <C>
Morgan Stanley & Co. Incorporated $
Chase Securities Inc.
--------------------
Total........................... $
====================
</TABLE>
<PAGE> 1
Exhibit 5 & 23.4
BAKER & McKENZIE
SOLICITORS
<TABLE>
<CAPTION>
EUROPE ASIA NORTH AND
MIDDLE EAST PACIFIC SOUTH AMERICA
<S> <C> <C> <C> <C> <C> <C>
ALMATY MADRID BANGKOK BOGOTA MEXICO CITY SAN FRANCISCO
AMSTERDAM MILAN BEIJING 100 NEW BRIDGE STREET BRASILIA MIAMI SANTIAGO
BARCELONA MOSCOW HANOI LONDON EC4V 6JA BUENOS AIRES MONTERREY SAO PAULO
BERLIN PARIS HO CHI MINH CITY TELEPHONE 0171-919 1000 CARACAS NEW YORK TIJUANA
BRUSSELS PRAGUE HONG KONG TELEX 25660 DX No 233 CHICAGO PALO ALTO TORONTO
BUDAPEST RIYADH MANILA FAX 0171-919 1999 DALLAS RIO DE JANEIRO VALENCIA
CAIRO ROME MELBOURNE JUAREZ SAN DIEGO WASHINGTON, D.C.
FRANKFURT ST. PETERSBURG SINGAPORE
GENEVA STOCKHOLM SYDNEY
KIEV WARSAW TAIPEI
LAUSANNE ZURICH TOKYO
LONDON
</TABLE>
OUR REF: TLP/jeb DIRECT LINE 0171-919 1841
YOUR REF:
Kabelmedia Holding GmbH 23 JULY 1996
Oberer Steinwey 10
08523 Plauen
Germany
Dear Sirs
We have acted as United States counsel to Kabelmedia Holding GmbH (the
"Company") in connection with the preparation and filing with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933,
as amended (the "Securities Act"), of the registration statement on Form S-1
(No. 333-5094) of the Company (the "Registration Statement") relating to the
offering of the Company's Discount Notes as described in the Registration
Statement (the "Securities"). The Securities are to be issued in accordance
with the provisions of an indenture (the "Indenture") to be executed by the
Company and The Bank of New York, as trustee, the form of which is being
filed as an exhibit to the Registration Statement.
We have examined and relied on the Registration Statement and the forms of the
Indenture and the Securities being filed with the Commission as exhibits to
the Registration Statement. In addition, we have examined and relied on the
originals or copies certified or otherwise identified to our satisfaction of
all such corporate records of the Company and such other instruments and other
certificates of public officials, officers and representatives of the Company
and such other persons, and we have made such investigations of law, as we have
deemed appropriate as a basis for the opinions expressed herein.
Based on the foregoing, it is our opinion that when the Indenture has been duly
authorized, executed and delivered by the parties thereto, the Securities have
been duly authorized by the Company and such Securities have been duly executed
and authenticated in accordance with the provisions of the Indenture, and duly
delivered to and paid for by the purchasers thereof pursuant to a sale in the
manner described in the Registration Statement, the Securities will constitute
legal, valid, binding and enforceable obligations of the Company.
The opinions expressed above are subject to (i) applicable bankruptcy,
insolvency and similar laws affecting creditors' rights generally and to
general principles of equity (whether considered in a proceeding in equity or
at law) and (ii) the effect of judicial application of foreign laws or foreign
governmental actions affecting creditors' rights.
We express no opinion as to the subject matter jurisdiction of the federal
courts of the United States of America over an action between two parties
neither of which is a "citizen" of any State for purposes of 28 U.S.C.
Section 1332.
We express no opinion other than as to the law of the State of New York.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the Prospectus that forms part of the Registration
Statement without admitting that we are "experts" under the Securities Act
or the rules and regulations of the Commission issued thereunder with respect
to any part of the Registration Statement, including this exhibit.
Very truly yours,
BAKER & McKENZIE
<PAGE> 1
Exhibit 8 and 23.4
BAKER & McKENZIE
ATTORNEYS AT LAW
<TABLE>
<CAPTION>
EUROPE ASIA NORTH AND
MIDDLE EAST PACIFIC SOUTH AMERICA
<S> <C> <C> <C> <C> <C> <C>
ALMATY MADRID BANGKOK BOGOTA MEXICO CITY SAN FRANCISCO
AMSTERDAM MILAN BEIJING 815 CONNECTICUT AVENUE N.W. BRASILIA MIAMI SANTIAGO
BARCELONA MOSCOW HANOI WASHINGTON D.C. 80006-4078 BUENOS AIRES MONTERREY SAO PAULO
BERLIN PARIS HO CHI MINH CITY TELEPHONE (202) 452-7000 CARACAS NEW YORK TIJUANA
BRUSSELS PRAGUE HONG KONG CABLE ABOGADO TELEX 59552 CHICAGO PALO ALTO TORONTO
BUDAPEST RIYADH MANILA FACSIMILE (202) 452-7074 DALLAS RIO DE JANEIRO VALENCIA
CAIRO ROME MELBOURNE JUAREZ SAN DIEGO WASHINGTON, D.C.
FRANKFURT ST. PETERSBURG SINGAPORE
GENEVA STOCKHOLM SYDNEY
KIEV WARSAW TAIPEI
LAUSANNE ZURICH TOKYO
LONDON
</TABLE>
July 23, 1996
Kabelmedia Holding GmbH
Oberer Steinweg 10
08523 Plauen, Germany
Dear Sirs:
We have acted as special United States federal income tax counsel to
Kabelmedia Holding GmbH (the "Company") in connection with the issuance of
$100,000,000 Senior Discount Notes due 2006 (the "Discount Notes") as described
in the Prospectus dated July 23, 1996, relating to the initial offering and
sale of the Discount Notes (the "Prospectus").
As special United States federal income tax counsel to the Company we have
examined the Prospectus and such other documents and records as we deemed
necessary and relevant for rendering our opinion as to the principal United
States federal income tax consequences of the purchase, ownership and
disposition of the Discount Notes. Unless otherwise defined herein, all
capitalized terms shall have the meanings assigned to them in the Prospectus.
On the basis of the foregoing, and assuming that all relevant documents
have been, or will be, validly authorized, executed, delivered and performed by
all of the relevant parties, the statements in the Prospectus under the caption
"Certain Income Tax Considerations--U.S. Federal Income Tax Consequences," are
our opinion of the material United States Federal income tax consequences of
the ownership and disposition of Discount Notes.
<PAGE> 2
BAKER & McKENZIE
Kabelmedia Holding GmbH
July 23, 1996
Page 2
The foregoing is based on the United States Internal Revenue Code of 1986,
as amended, the regulations, rulings, and administrative pronouncements
thereunder and judicial decisions as the date hereof. Subsequent developments in
these areas could have a material effect on this opinion.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Certain Income Tax Considerations--U.S. Federal Income Tax Consequences" in the
Prospectus that forms part of the Registration Statement without admitting that
we are "experts" under the Securities Act or the rules and regulations of the
Commission issued thereunder with respect to any part of the Registration
Statement, including this exhibit.
Very truly yours,
BAKER & McKENZIE
<PAGE> 1
EXHIBIT 10.1
DM400,000,000
FACILITY AGREEMENT
between
ERSTE KABELVISION MANAGEMENT BETEILIGUNGS GMBH & CO. KG
ZWEITE KABELVISION MANAGEMENT BETEILIGUNGS GMBH & CO. KG
DRITTE KABELVISION MANAGEMENT BETEILIGUNGS GMBH & CO. KG
KABELVISION DELITZSCH GMBH & CO. KG
KFP KABELFERNSEHEN PLAUEN GMBH & CO. KG
KABELMEDIA PROJEKTMANAGEMENT KOMMUNIKATIONSNETZE
GMBH & CO. KG KABELBETRIEBSGESELLSCHAFT
KABEL-FERNSEHEN LEIPZIG GMBH
as original borrowers
and
KABELMEDIA HOLDING HANNOVER GMBH
KABELVISION MANAGEMENT GMBH
AND OTHERS
as original guarantors
CHASE INVESTMENT BANK LIMITED
as arranger
CHASE MANHATTAN BANK AG
as agent and security trustee
and
OTHERS
Clifford Chance
London
<PAGE> 2
CONTENTS
CLAUSE PAGE
PART 1
INTERPRETATION
1. Interpretation................................................. 1
PART 2
THE FACILITIES
2. The Facilities................................................. 23
3. Purpose........................................................ 23
4. Conditions Precedent........................................... 24
5. Nature of Banks' and Borrowers' Obligations.................... 24
PART 3
UTILISATION OF THE REVOLVING CREDIT FACILITY, TRANCHE C FACILITY
AND THE OVERDRAFT FACILITY
6. Utilisation of the Revolving Credit Facility and the Tranche C
Facility....................................................... 25
7. Conversion of Revolving Credit Facility to Term Loan........... 31
8. Interest....................................................... 32
9. Market Disruption and Alternative Interest Rates............... 33
PART 5
REPAYMENT, CANCELLATION AND PREPAYMENT
10. Repayment...................................................... 35
11. Cancellation and Prepayment.................................... 35
12. Mandatory Prepayment........................................... 36
PART 6
CHANGES IN CIRCUMSTANCES
13. Taxes.......................................................... 38
14. Tax Receipts................................................... 38
15. Increased Costs................................................ 39
16. Illegality..................................................... 40
17. Mitigation..................................................... 41
<PAGE> 3
PART 7
REPRESENTATIONS, COVENANTS AND EVENTS OF DEFAULT
18. Representations ............................................... 42
19. Information.................................................... 47
20. Financial Condition............................................ 49
21. Covenants...................................................... 51
22. Events of Default.............................................. 59
PART 8
DEFAULT INTEREST AND INDEMNITY
23. Default Interest and Indemnity................................. 64
PART 9
PAYMENTS
24. Currency of Account and Payment................................ 66
25. Payments....................................................... 66
26. Set-Off........................................................ 67
27. Redistribution of Payments..................................... 67
PART 10
FEES, COSTS AND EXPENSES
28. Fees........................................................... 69
29. Costs and Expenses............................................. 69
PART 11
GUARANTEE
30. Guarantee...................................................... 71
31. Preservation of Rights......................................... 71
PART 12
AGENCY PROVISIONS
32. The Agent, the Arranger and the Banks.......................... 74
<PAGE> 4
PART 13
ASSIGNMENTS AND TRANSFERS
33. Benefit of Agreement........................................... 78
34. Assignments and Transfers by the Borrowers..................... 78
35. Assignments and Transfers by Banks............................. 78
36. Disclosure of Information...................................... 79
37. Sub-participation.............................................. 79
PART 14
MISCELLANEOUS
38. Calculations and Evidence of Debt.............................. 81
39. Remedies and Waivers........................................... 81
40. Partial Invalidity............................................. 81
41. Notices........................................................ 82
42. Counterparts................................................... 82
43. Group Structure Changes and Permissions........................ 82
44. Amendments, Consents........................................... 86
PART 15
LAW AND JURISDICTION
45. Law............................................................ 88
46. Jurisdiction................................................... 88
THE FIRST SCHEDULE
The Banks........................................................ 89
THE SECOND SCHEDULE
Form of Transfer Certificate..................................... 91
THE THIRD SCHEDULE
Condition Precedent Documents.................................... 94
THE FOURTH SCHEDULE
Notice of Drawdown............................................... 96
THE FIFTH SCHEDULE
Form of Compliance Certificate................................... 99
THE SIXTH SCHEDULE
Form of Subscriber Certificate
Part I
Acquisition Subscriber Certificate............................... 101
<PAGE> 5
THE SIXTH SCHEDULE
Form of Subscriber Certificate
Part II
Quarterly Subscriber Certificate..................................103
THE SEVENTH SCHEDULE
Form of Borrower Accession Memorandum.............................104
THE EIGHTH SCHEDULE
Documents to Accompany Borrower Accession Memorandum..............106
THE NINTH SCHEDULE
Form of Borrower Secession Memorandum.............................107
THE TENTH SCHEDULE
Form of Guarantor Accession Memorandum............................108
THE ELEVENTH SCHEDULE
Documents to Accompany Guarantor Accession Memorandum.............110
THE TWELFTH SCHEDULE
Corporate Structure...............................................111
THE THIRTEENTH SCHEDULE
General Business Conditions.......................................112
THE FOURTEENTH SCHEDULE
Form of Historical Expense Adjustment Notice......................113
THE FIFTEENTH SCHEDULE
Acquisition Due Diligence Procedure...............................114
<PAGE> 6
THIS AGREEMENT is made the 23rd day of July 1996
BETWEEN
(1) EACH OF THE PERSON SPECIFIED IN THE SIGNATURE PAGES HEREOF AS BORROWER
(each an "ORIGINAL BORROWER" and jointly the "ORIGINAL BORROWERS");
(2) EACH OF THE PERSONS SPECIFIED IN THE SIGNATURE PAGES HEREOF AS ORIGINAL
GUARANTORS (each an "ORIGINAL GUARANTOR" and jointly the "ORIGINAL
GUARANTORS");
(3) CHASE INVESTMENT BANK LIMITED as arranger (the "ARRANGER");
(4) CHASE MANHATTAN BANK AG as agent (the "AGENT") and as security trustee
(the "SECURITY TRUSTEE");
(5) CHASE MANHATTAN BANK AG as overdraft bank (the "OVERDRAFT BANK"); and
(6) THE FINANCIAL INSTITUTIONS named in the First Schedule (together with
the Overdraft Bank, the "BANKS").
NOW IT IS HEREBY AGREED as follows:
PART 1
INTERPRETATION
1. INTERPRETATION
1.1 In this Agreement:
"ACCOUNT PLEDGES" means each of the account pledge agreements over the bank
accounts held by members of the Group;
"ACQUISITION EBITDA" means, in relation to any person which it is proposed be
acquired by any member of the Financial Group or any member of the Financial
Group which has not, as of (and including) the date on which such determination
is made, been a member of the Financial Group on at least two consecutive
Quarter Days, and in respect of any three month period, Net Revenues generated
by such person during such period multiplied by the Acquisition EBITDA Margin of
such person;
"ACQUISITION EBITDA MARGIN" means, in relation to any person which it is
proposed be acquired by any member of the Financial Group, or any member of the
Financial Group which has not, as of (and including) the date on which such
determination is made, been a member of the Financial Group on at least two
consecutive Quarter Days, the lower of:
(i) the EBITDA Margin of the Financial Group; and
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(ii) the Pro Forma EBITDA Margin of such person;
each as calculated on the date on which the Incurrence Provisions are or were
tested in relation to the proposed Acquisition or the Acquisition of such member
of the Financial Group Provided that if the Actual EBITDA Margin of such person
is higher than the EBITDA Margin of the Financial Group on such date then the
Acquisition EBITDA Margin of such person shall be equal to its Actual EBITDA
Margin (and for the avoidance of doubt, the Acquisition EBITDA Margin of any
member of the Financial Group so determined shall apply to such member of the
Financial Group until (and including) the second Quarter Day on which such
member of the Financial Group has been a member of the Financial Group);
"ACQUISITION DUE DILIGENCE REPORT" means in relation to a proposed Acquisition,
a due diligence report, substantially in the form agreed between the Management
Company and the Agent prior to the date hereof, comprising written reports of a
major international legal and accounting firm acceptable to the Agent;
"ACQUISITIONS" means acquisitions by members of the Group of Systems in Germany,
whether by way of an asset acquisition or a share acquisition of all issued
share capital;
"ACTUAL EBITDA MARGIN" means, in relation to any person which it is proposed be
acquired by any member of the Financial Group, the percentage of Net Revenues
generated by such person during the most recently ended financial year of such
person or, if audited financial statements are not available in respect of such
financial year, the previous financial year of such person (as evidenced by the
audited financial statements of such person for the relevant financial year), as
is represented by an amount equal to such Net Revenues after deducting all
operating expenses incurred during such financial year;
"ADDITIONAL BORROWER" means any company which has executed and delivered a
Borrower Accession Memorandum, and which has not subsequently ceased to be an
Additional Borrower pursuant to Clause 43;
"ADDITIONAL GUARANTOR" means any company which has executed and delivered a
Guarantor Accession Memorandum pursuant to Clause 43.1(i)(a);
"ADVANCE" means a Revolving Advance, a Tranche C Advance and/or a Term Advance;
"AGREED DUE DILIGENCE PROCEDURE" means the due dilligence procedure in relation
to Acquisitions an outline of which is set out in the Fifteenth Schedule hereto;
"ANNUALISED EBITDA" means, at any time, Consolidated EBITDA for the three month
period ending on the last day of the most recently ended calendar month,
multiplied by four;
"APA" means APA Basic Beteiligungs GmbH;
"ASSET DISPOSAL" means any disposal of any System or Systems by any member of
the Group after the date of this Agreement or any disposal of the shares in any
member of the Group (other than to another member of the Group);
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<PAGE> 8
"AVAILABLE COMMITMENT" means, in relation to a Bank at any time and save as
otherwise provided herein the aggregate of such Bank's Available Tranche A
Revolving Commitment, such Bank's Available Tranche B Revolving Commitment and
such Bank's Available Tranche C Commitment;
"AVAILABLE FACILITY" means, at any time, the aggregate of the Available Tranche
A Revolving Facility, the Available Tranche B Revolving Facility and the
Available Tranche C Facility;
"AVAILABLE TRANCHE A REVOLVING COMMITMENT" means, in relation to a Bank at any
time and save as otherwise provided herein, such Bank's Tranche A Revolving
Commitment at such time, less the amount of such Bank's participation in any
Tranche A Revolving Advance outstanding hereunder;
"AVAILABLE TRANCHE A REVOLVING FACILITY" means, at any time, the aggregate of
the Available Tranche A Revolving Commitments of the Banks at such time less the
amount of any Deferred Consideration incurred and not then paid or to be
incurred Provided that if a Revolving Advance is drawn for the purpose of
funding any Deferred Consideration then the amount of such Deferred
Consideration shall be added back;
"AVAILABLE TRANCHE B REVOLVING COMMITMENT" means, in relation to a Bank at any
time and save as otherwise provided herein, such Bank's Tranche B Revolving
Commitment at such time less the amount of such Bank's participation in any
Tranche B Revolving Advance outstanding hereunder;
"AVAILABLE TRANCHE B REVOLVING FACILITY" means, at any time, the aggregate of
the Available Tranche B Commitments of the Banks at such time;
"AVAILABLE TRANCHE C COMMITMENT" means, in relation to a Bank at any time and
save as otherwise provided herein, such Bank's Tranche C Commitment at such
time, less the amount of such Bank's participation in any Tranche C Advance
outstanding hereunder.
"AVAILABLE TRANCHE C FACILITY" means, at any time, the aggregate of the
Available Tranche C Commitments of the Banks at such time;
"BAPT" means the Federal Authority for Post and Telecommunications (Bundesamt
fur Post und Telekommunikation);
"BENEFICIARIES" shall have the meaning ascribed thereto in the Intercreditor
Agreement;
"BORROWERS" means the Original Borrowers and any Additional Borrower (other than
a Borrower which has previously been the subject of a Borrower Secession
Memorandum) and "BORROWER" means any of them;
"BORROWER ACCESSION MEMORANDUM" means a memorandum to be delivered pursuant to
Clause 43.3 by the Relevant Management Company and any Additional Borrower to
the Agent substantially in the form set out in the Seventh Schedule;
"BORROWER SECESSION MEMORANDUM" means a memorandum to be delivered pursuant to
Clause 43.5 to the Agent substantially in the form set out in the Ninth
Schedule;
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<PAGE> 9
"BUSINESS PLAN" means, at any time, the consolidated business plan of the Group
most recently delivered pursuant to Clause 19.1(vi);
"CASH COLLATERAL ACCOUNT" means the collateral account with the Agent which is
pledged in favour of the Banks pursuant to an Account Pledge;
"CASH INTEREST EXPENSE" means in relation to any Quarterly Period the aggregate
of all interest (excluding capitalised interest), accrued (whether or not paid
or payable) during such Quarterly Period in respect of indebtedness for borrowed
money of members of the Financial Group (other than indebtedness for borrowed
money owed by one member of the Financial Group to another member of the
Financial Group);
"CHARGED ACCOUNT" means a collateral account with the Overdraft Bank in the name
of the Obligor making an Asset Disposal as referred to in Clause 12.3 which is
pledged in favour of the Banks pursuant to an Account Pledge;
"CLOSING DATE" means the date of this Agreement;
"COMPLIANCE CERTIFICATE" means the certificate substantially in the form set out
in the Fifth Schedule;
"CONSIDERATION" means, at any time, the value of cash or cash equivalent assets
actually paid or to be paid by any member of the Group in respect of any
Acquisition (including any escrow deposits) together with all indebtedness and
liabilities to any person repaid, any contingent payments (whether related to
future earnings, operations or otherwise) payable in the future (determined in
accordance with the reasonable estimate of the Relevant Management Company which
estimate shall be agreed by an Instructing Group (such agreement not to be
unreasonably withheld or delayed)) plus any incidental or consequential costs
(including any redundancy payments, restructuring expenses or any other
rationalisation costs and whether accounted for as a capitalised expense or
through the raising of a provision) likely to be incurred by the Group arising
in connection with or as a result of the Acquisition as notified to the Agent by
the Relevant Management Company (if such costs exceed 1 per cent. of the
Consideration);
"CONSOLIDATED EBITDA" means, at any time and in respect of any three month
period, the EBITDA of the Financial Group (excluding any member of the Financial
Group which has not, as of (and including) the date on which such determination
is made, been a member of the Financial Group on at least two consecutive
Quarter Days) for such period plus the Acquisition EBITDA of any member of the
Financial Group which has not, as of (and including) the date on which such
determination is made, been a member of the Financial Group on at least two
consecutive Quarter Days, plus, for the purposes of Clauses 6.3 and 6.4 the
Acquisition EBITDA of the person which it is proposed be acquired, for such
period;
"CONTRIBUTED EQUITY" means at any time the aggregate amount contributed by the
Holding Company and/or by any Shareholder by way of capital contribution to any
member of the Group (provided in the case of any capital contribution to any
member of the Group other than the Management Company that such capital
contribution is made in accordance with paragraph 272(2) No. 4 of the German
Commercial Code) or, without double counting, by Subordinated Debt lent to any
member of the Group by the Holding Company and/or by any Shareholder;
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<PAGE> 10
"DEFERRED CONSIDERATION" means any amounts paid or payable or which will be paid
or payable as part of the Consideration for an Acquisition after the date of
completion of the Acquisition;
"DISPOSAL CONSIDERATION" means at any time, the value of cash or cash equivalent
assets received by any member of the Group in respect of any Asset Disposal,
together with all indebtedness and liabilities to any member of the Group
repaid, any contingent payments (whether related to future earnings, operations
or otherwise) payable in the future and the value of any pre-completion
dividends paid to any member of the Group by any company whose shares are the
subject of an Asset Disposal which is effected as part of an arrangement for, or
in contemplation of, a disposal of that company;
"EBITDA" means, in relation to the Financial Group (or any part thereof) or any
person which it is proposed be acquired by any member of the Financial Group and
in respect of any period, Net Revenues of the Financial Group (or such part
thereof) or, as the case may be, such person less all operating expenses before
the deduction of depreciation, amortisation, other non cash charges,
extraordinary items, Net Interest and taxation as prepared in accordance with
U.S. GAAP and consistently applied;
"EBITDA MARGIN" means, at any time, in relation to the Financial Group the
percentage of Net Revenues generated by the Financial Group during the three
month period ending on the last day of the most recently ended calendar month as
is represented by EBITDA in respect of such period;
"ENVIRONMENT" means:
(i) any land including, without limitation, surface land and
sub-surface strata, sea bed or river bed under any water (as
defined below) and any natural or man-made structures;
(ii) water including, without limitation, coastal and inland
waters, surface waters, ground waters and water in drains and
sewers; and
(iii) air including, without limitation, air within buildings and
other natural or man-made structures above or below ground;
"ENVIRONMENTAL CLAIM" means any claim, notice of violation, prosecution, demand,
action, official warning, abatement or other order (conditional or otherwise),
relating to Environmental Matters and any notification or order requiring
compliance with the terms of any Environmental Licence or Environmental Law;
"ENVIRONMENTAL LAWS" includes all or any laws, statutes, regulations, treaties,
and judgments of any governmental authority or agency or any regulatory body in
any jurisdiction in which any member of the Group is formed or carries on
business or the European Community relating to Environmental Matters applicable
to any member of the Group and/or the construction, installation and operation
of cable television and telecommunications systems in the areas covered by the
Licences and/or any other activities from time to time carried on by any member
of the Group and/or the occupation or use of any property owned, leased or
occupied by any member of the Group;
"ENVIRONMENTAL LICENCE" means any permit, licence, authorisation, consent or
other approval required at any time by any Environmental Law for the
construction, installation and operation of
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<PAGE> 11
cable television and telecommunications systems in the franchise areas and/or
any other activities from time to time carried on by any member of the Group;
"ENVIRONMENTAL MATTERS" means (i) any generation, deposit, disposal, keeping,
treatment, transportation, transmission, handling or manufacture of any waste or
any Relevant Substance; (ii) nuisance, noise, defective premises, health and
safety at work or elsewhere; and (iii) the pollution, conservation or protection
of the Environment or of man or of any living organisms supported by the
Environment;
"EQUIVALENT SUBSCRIBERS" means at any time in relation to any System or Systems
(including any System to be acquired out of the proceeds of the making of a
Revolving Advance hereunder) the aggregate of Net Revenues for the latest
calendar month referable to such System or Systems divided, in the case of
Systems located in the former East Germany by an average monthly rate (exclusive
of VAT) of DM11 and, in the case of Systems located in the former West Germany,
by an average monthly rate (exclusive of VAT) of DM22;
"EVENT OF DEFAULT" means any of those events specified in Clause 22.1;
"EXCESS CASH FLOW" means, in relation to the Financial Group and for any
financial year of the Financial Group, EBITDA of the Financial Group for such
financial year less (a) Fixed Charges for that period (b) an amount equal to any
amount prepaid pursuant to Clause 11.2, and (c) DM3,000,000;
"EXISTING INDEBTEDNESS" means all indebtedness outstanding pursuant to:
(i) the DM110,000,000 facility agreement dated 28 June 1995
between KabelVision Management GmbH as original borrower,
KabelVision Beteiligungs GmbH and others as original
guarantors, Chase Investment Bank Limited and Samuel Montagu &
Co. Limited as joint arrangers, Chase Manhattan Bank AG as
agent and security trustee and others; and
(ii) the DM185,000,000 facility agreement dated 18 August 1995
between Kabelmedia Holding Hannover GmbH (formerly known as
PKG Holding GmbH) as original borrower, Kabelmedia
Beteiligungs GmbH and others as original guarantors, Chase
Investment Bank Limited and Samuel Montagu & Co. Limited as
joint arrangers, Chase Manhattan Bank AG as agent and security
trustee and others;
"FACILITY" means the loan facility of up to DM400,000,000 granted by the Banks
to the Borrowers hereunder;
"FACILITY DOCUMENTS" means this Agreement, the Security Documents, the
Intercreditor Agreement, the Negative Pledge Undertakings, the Overdraft Letter
and any other agreement, document, letter, deed, notice or certificate entered
into or executed and delivered by all or any of the Obligors or Kabelmedia
Holding GmbH, as the case may be, pursuant to the terms hereof or thereof or
otherwise in connection herewith or therewith, together with all amendments of,
and supplements to, any of the foregoing and "FACILITY DOCUMENT" shall be
construed accordingly;
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<PAGE> 12
"FACILITY OFFICE" means, in relation to the Agent or any Bank, the office
identified with its signature below (or, in the case of a Transferee, at the end
of the Transfer Certificate to which it is a party as Transferee) or such other
office as it may from time to time select;
"FINANCIAL GROUP" means the Holding Company and each of its subsidiaries from
time to time Provided that none of KabelMedia Erste Fernsehkabelbeteiligungs
Verwaltungs GmbH, KabelMedia Erste Fernsehkabelbeteiligungs GmbH & Co. KG,
Kabelcom Osnabruck Beteiligungs Gesellschaft fur Breitbandkabelkommunikation
mbH, Kabelcom Osnabruck Gesellschaft fur Breitbandkabelkommunikation mbH & Co.
KG and KSW Beteiligungsgesellschaft mbH shall be included in this definition
until the Holding Company has transferred its shareholding in KabelMedia Erste
Fernsehkabelbeteiligungs Verwaltungs GmbH and KabelMedia Erste
Fernsehkabelbeteiligungs GmbH & Co. KG to an Obligor;
"FINAL MATURITY DATE" means 30 June 2004 (or, if such day is not a business day,
the next succeeding business day);
"FIXED CHARGES" means in respect of any period the sum of Cash Interest Expense
and capital expenditure, taxes and all scheduled payments of principal during
that period (each calculated on a consolidated basis);
"GmbH SHARE PLEDGE" means each of the share pledge agreements over the shares of
Erste Kabelvision Management Beteiligungs Verwaltungs GmbH, Zweite Kabelvision
Management Beteiligungs Verwaltungs GmbH, Dritte Kabelvision Management
Beteiligungs Verwaltungs GmbH, Kabelfernsehen Plauen GmbH, Kabelvision Delitzsch
Verwaltungs GmbH, Kabel-fernsehen Leipzig GmbH and Kabelmedia Projektmanagement
Kommunikationsnetze Verwaltungs GmbH;
"GROUP" means the Management Company and each of its subsidiaries from time to
time;
"GUARANTORS" means each of the Original Guarantors and any Additional Guarantor
and "GUARANTOR" means any of them;
"GUARANTOR ACCESSION MEMORANDUM" means a memorandum to be delivered by any
Additional Guarantor to the Agent substantially in the form set out in the Tenth
Schedule pursuant to Clause 43.1(i)(a);
"HISTORICAL EXPENSE ADJUSTMENT NOTICE" means a notice substantially in the form
set out in the Fourteenth Schedule;
"HOLDING COMPANY" means Kabelmedia Holding GmbH;
"HOLDING COMPANY MANAGEMENT EXPENSES" means the reasonable expenses of the
Holding Company properly incurred which shall not exceed a maximum amount per
annum of DM1,000,000 or its equivalent;
"INCURRENCE PROVISIONS" means the provisions specified in Clause 6.3;
"INSTRUCTING GROUP" means:
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<PAGE> 13
(i) whilst no Revolving Advances are outstanding hereunder, a
group of Banks whose Available Commitments (including in
respect of the Overdraft Bank, the amount of the Overdraft
Facility) amount (or, if each Bank's Available Commitment has
been reduced to zero, did immediately before such reduction to
zero, amount) in aggregate to more than sixty six and two
thirds of one per cent. (66 2/3%) of the aggregate amount of
the Available Facility and the amount of the Overdraft
Facility; and
(ii) thereafter, a group of Banks to whom in aggregate more than
sixty six and two thirds of one per cent. (66 2/3%) of the
aggregate amount of the Loan and the Overdraft Amount is (or,
immediately prior to repayment of such amounts, was then)
owed;
"INTELLECTUAL PROPERTY RIGHTS" means any patent, trade mark, service mark,
registered design, trade name or copyright required to carry on the business of
constructing, maintaining, using or operating cable television and
telecommunications systems;
"INTERCREDITOR AGREEMENT" means the intercreditor agreement entered into or to
be entered into between the Arranger, the Agent, the Banks, the Holding Company,
the Obligors and the Security Trustee;
"INTEREST PAYMENT DATE" means the last day of an Interest Period, and if the
Interest Period is for more than six months, in addition the date falling six
months after the first day of such Interest Period;
"INTEREST PERIOD" means, save as otherwise provided herein:
(i) in relation to any Revolving Advance and any Tranche C
Advance, a period equal to the Term of such Advance; and
(ii) in relation to any Term Advance, any of those periods
mentioned in Clause 8.4 of one, two, three or six months (or
such other period as the Banks and the relevant Borrower may
agree) selected in accordance with Clause 8.5;
"KG SHARE PLEDGE" means each of the share pledge agreements over the shares of
Erste Kabelvision Management Beteiligungs GmbH & Co. KG, Zweite Kabelvision
Management Beteiligungs GmbH & Co. KG, Dritte Kabelvision Management
Beteiligungs GmbH & Co. KG, KFP Kabelfernsehen Plauen GmbH & Co. KG, Kabelvision
Delitzsch GmbH & Co. KG and Kabelmedia Projektmanagement Kommunikationsnetze
GmbH & Co. KG Kabelbetriebgesellschaft;
"KM HOLDING" means Kabelmedia Holding Hannover GmbH;
"KV MANAGEMENT" means KabelVision Management GmbH;
"LEVEL 1 MERGER" means the merger of KabelVision Beteiligungs GmbH and
Kabelmedia Beteiligungs GmbH;
"LEVEL 2 MERGER" means the merger of KV Management and KM Holding;
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<PAGE> 14
"LEVEL 1 MERGER DATE" means the date on which the Level 1 Merger has been
completed, registered and is effective under German law;
"LEVEL 2 MERGER DATE" means the date on which the Level 2 Merger has been
completed, registered and is effective under German law;
"LIBOR" means, in relation to any Advance or unpaid sum, the rate per annum
determined by the Agent to be equal to the arithmetic mean (rounded upwards, if
not already such a multiple, to the nearest whole multiple of one-thirty second
of one per cent.) of the rates (as notified to the Agent) at which each of the
Reference Banks was offering to prime banks in the London Interbank Market
deposits in Deutschmarks and for such specified period at or about 11.00 a.m.
London time on the Quotation Date for such specified period and, for the
purposes of this definition, "SPECIFIED PERIOD" means the Interest Period of
such Advance or, as the case may be, the relevant period in respect of which
LIBOR falls to be determined in relation to such unpaid sum;
"LICENCEHOLDER" means any member of the Group granted a Licence or Permission
for the operation of a System;
"LICENCES" means any public law permits for operation of Systems from BAPT and
any relevant townships together with any other public law or administrative law
consents, concessions, licences or public law permits required for the
construction, maintenance, use and operation of the Project, the Systems or any
part thereof (including planning consents and licences);
"LOAN" means the aggregate principal amount for the time being outstanding
hereunder;
"MANAGEMENT COMPANY" means, at any time prior to the Level 2 Merger Date, KV
Management and KM Holding and, thereafter, the company formed upon the merger of
KV Management and KM Holding;
"MARGIN" means the rate per annum calculated in accordance with Clause 8.3;
"MATERIAL ADVERSE EFFECT" means a material adverse effect on any of:
(a) the business, financial condition or prospects of the Group
taken as a whole; or
(b) the ability of any Borrower, any Material Group Company or the
Group taken as a whole to comply with any of its obligations
under the Facility Documents;
"MATERIAL ENVIRONMENTAL CLAIM" means any Environmental Claim likely to have a
material adverse effect upon the business, financial condition, prospects, real
property or Systems of any Obligor;
"MATERIAL GROUP COMPANY" means any subsidiary of the Management Company which
is:
(i) a company, corporation or partnership which is a holding
company of a Material Group Company; or
(ii) a company, corporation or partnership whose Net Revenues or,
in the case of a company which itself has subsidiaries, whose
consolidated Net Revenues,
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<PAGE> 15
exceed 5% of the consolidated Net Revenues of the Group as
calculated by reference to the latest quarterly financial
statements (consolidated or unconsolidated, as the case may
be) of such subsidiary Provided that:
(a) in the case of a subsidiary acquired after the end of
the Quarterly Period to which the latest relevant
quarterly financial statements relate, the reference
to the latest financial statements for the purposes
of the calculation above shall, until the financial
statements for the Quarterly Period in which the
acquisition is made are prepared, be deemed to be a
reference to such first-mentioned accounts as if such
subsidiary had been shown in such accounts by
reference to its own latest financial statements,
adjusted as deemed appropriate by the auditors of the
Relevant Management Company; and
(b) if, in the case of any subsidiary which itself has
subsidiaries, no consolidated accounts are prepared,
its consolidated Net Revenues shall be determined on
the basis of pro forma consolidated accounts of the
relevant subsidiary and its subsidiaries prepared for
this purpose by the auditors of the Relevant
Management Company or the auditors for the time being
of the relevant subsidiary; or
(iii) a company, corporation or partnership not falling within
sub-paragraph (ii) above but which, as a result of any
intra-group transfer or re-organisation would, adopting any of
the tests referred to in sub-paragraph (ii) above and as if
the accounts referred to in such sub-paragraph had been drawn
up immediately following such transfer or re-organisation, be
a Material Group Company Provided that such subsidiary shall
only become a Material Group Company upon the completion of
such transfer or re-organisation;
"NECESSARY AUTHORISATIONS" means all approvals, authorisations and licences
from, all rights granted by and all filings, registrations and agreements with
any person including, without limitation, any government or other regulatory
authority (including, without limitation, the Licences and the Permissions)
necessary or required for the construction, maintenance, administration and
operation of the Project and such other business permitted by the terms of this
Agreement;
"NEGATIVE PLEDGE UNDERTAKINGS" means the negative pledge undertaking given or to
be given by each of the Holding Company and APA Basic Beteiligungsgeselschaft
mbH in favour of the Arranger, the Agent, the Banks and the Security Trustee;
"NET INTEREST" means, in relation to any period the aggregate of all interest
(including capitalised interest), accrued (whether or not paid or payable)
during such period in respect of indebtedness for borrowed money of members of
the Financial Group (other than indebtedness for borrowed money owed by one
member of the Financial Group to another member of the Financial Group) less the
aggregate amount of all interest income received by any member of the Financial
Group during such period;
"NET REVENUES" means in relation to the Group (or any part thereof) or any
person which has been or is to be acquired or is to be acquired by any member of
the Group and for any period, all revenues
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<PAGE> 16
(including all installation revenues) from use of or generated by the Systems
(exclusive of VAT) whatsoever payable to the Group (or such part thereof) or, as
the case may be, such person, which arise during such period;
"NOTICE OF DRAWDOWN" means a notice substantially in the form set out in the
Fourth Schedule;
"OBLIGORS" means the Borrowers, the Guarantors and any other member of the Group
which provides security or guarantees at any time in respect of the obligations
of any Obligor under any of the Facility Documents and "Obligor" means any of
them;
"OPERATING COMPANY" means each member of the Group involved in the construction,
installation and/or operations of Systems;
"ORIGINAL FINANCIAL STATEMENTS" means the audited consolidated financial
statements for the year ended 31 December 1995 of each of Kabelmedia Holding
Hannover GmbH, KabelVision Management GmbH and Kabelmedia Holding GmbH;
"OVERDRAFT AMOUNT" means, at any time, the principal amount by way of loan
overdraft or guarantee outstanding under the Overdraft Facility at that time;
"OVERDRAFT FACILITY" means the overdraft facility in an amount of DM5,000,000
provided or to be provided to Kablemedia Projektmanagement Kommunikationsnetze
GmbH & Co. KG Kabelbetriebsgesellschaft by the Overdraft Bank pursuant to the
terms of the Overdraft Letter and this Agreement;
"OVERDRAFT LETTER" means the General Terms and Conditions of Business
(Allgemeine Geschaftsbedingungen) of Chase Manhattan Bank AG (as amended or
varied from time to time in accordance with Clause 6.7) to be entered into
between the Overdraft Bank and Kablemedia Projektmanagement Kommunikationsnetze
GmbH & Co. KG Kabelbetriebsgesellschaft in respect of the Overdraft Facility;
"PAYMENT DATE" means each of the dates falling 3, 6, 9, 12, 15, 18, 21, 24, 27,
30, 33, 36, 39, 42, 45, 48, 51, 54, 57, 60, 63, 66, 69, 72 and 75 months after
the Revolving Facility Term Date;
"PERMISSION" means any contractual permission from building owners, or
concession agreements (Gestattungsvertrage) with building owners (including bulk
and access contracts), together with the signal delivery contracts or other
arrangements with Deutsche Telekom, any other private law consents, concessions,
contractual licences or permits required for the construction, maintenance, use
and operation of the Project, the Systems or any part thereof;
"PERMISSION GRANTOR" means the person which is the grantor of, or the other
party to, each Permission of which any member of the Group is the grantee
thereof or to which it is party;
"PERMISSION NOTICE" means a notice in a form approved by the Agent, whereby the
relevant Obligor party to, or grantee of, a Permission notifies the relevant
Permission Grantor of its intention to perfect an assignment of such Permission
to the Security Trustee (subject to any consents required from the Permission
Grantor pursuant to the terms of the relevant Permission) and requesting the
Permission Grantor concerned, by way of acknowledgement of the Permission
Notice:
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<PAGE> 17
(i) to agree to (a) the granting of such an assignment to
the Security Trustee and (b) in the event that the
Security Trustee subsequently seeks to enforce its
rights under such assignment, permit the Security
Trustee to transfer the Permission to a third party
satisfying the criteria (if any) set out in the
Permission following the occurrence of an Event of
Default; and
(ii) to confirm that (x) the Permission concerned is in
full force and effect and (y) it has received no
notice of any prior encumbrance having been granted
by the Obligor concerned over the Permission the
subject of such Permission Notice;
"PERMITTED DISPOSAL EXPENSES" means:
(i) all title and registration expenses and expenses of
professional advisers, incidental to, incurred on and
fairly attributable to, any Asset Disposal;
(ii) with the prior consent of an Instructing Group,
estimated income tax or trade tax referable to each
Asset Disposal may be deducted; and
(iii) with the prior consent of an Instructing Group, any
other costs or expenses;
"PERMITTED MANAGEMENT EXPENSES" means, in relation to the Group (or any part
thereof) and in respect of any period prior to the Revolving Facility Term Date,
2% of Net Revenues generated by the Group (or such part thereof) during such
period;
"POTENTIAL EVENT OF DEFAULT" means any event which would become (with the
passage of time, the giving of notice, the making of any determination hereunder
or any combination thereof) an Event of Default;
"PRO FORMA DEBT SERVICE" means, at any time, estimated Cash Interest Expense
plus scheduled principal payments in relation to the Facility and other
permitted indebtedness of any member of the Financial Group for the four
Quarterly Periods subsequent to such time of determination; provided that such
Cash Interest Expense shall be estimated by applying the weighted average
interest rate on existing indebtedness (excluding the Senior Discount Notes) at
such time of determination to the average outstanding indebtedness for borrowed
money to be outstanding over the four Quarterly Periods in accordance with the
provisions of this Agreement and adding the aggregate amount of interest
scheduled to become payable on the Senior Discount Notes during such period;
"PRO FORMA EBITDA MARGIN" means, in relation to any person which it is proposed
be acquired by any member of the Financial Group, the percentage of Net Revenues
generated by such person during the three month period ending on the last day of
the most recently ended calendar month as is represented by an amount equal to
such Net Revenues after deducting all operating expenses incurred during such
three month period as adjusted in accordance with the Historical Expense
Adjustment Notice delivered by the relevant Borrower in connection with such
proposed acquisition;
"PRO FORMA SENIOR DEBT" means, at any time, an amount equal to the aggregate
amount of all Senior Debt and for the purposes of Clause 6.3, in connection with
any proposed Acquisition, the aggregate of:
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<PAGE> 18
(i) all Senior Debt;
(ii) the amount of the Advance requested in connection
with such proposed Acquisition; and
(iii) the amount of any Deferred Consideration relating to
such proposed Acquisition;
"PRO FORMA TOTAL DEBT" means, at any time, the sum of:
(i) Pro Forma Senior Debt at such time; and
(ii) the principal amount of the Senior Discount Notes
(including the amount of any accretions thereto
relating to accrued interest);
"PROJECT" means the business of the design, construction, maintenance, use,
marketing, operation and administration of the Systems;
"PROJECT DOCUMENTS" means at any time any of the following which are in force at
such time:
(i) Licences;
(ii) the Shareholders Agreement;
(iii) Relevant Contracts; and
(iv) Permissions;
"PROJECT FACILITIES" means all or any part of a person's business, undertaking,
property, assets and revenues wherever situated which are owned, leased,
licensed or otherwise acquired or used by any member of the Group for the
purposes of fulfilling its obligations under the Licences or otherwise for the
Project;
"PROJECT OBLIGOR" means each party to the Project Documents;
"PROPORTION" means, in relation to a Bank:
(i) whilst no Revolving Advances are outstanding
hereunder, the proportion borne by its Available
Commitment to the Available Facility (or, if the
Available Facility is then zero, by its Available
Commitment to the Available Facility immediately
prior to its reduction to zero); or
(ii) thereafter, the proportion borne by its share of the
Loan to the Loan;
"QUARTER DAYS" means 31 March, 30 June, 30 September and 31 December in any
year;
"QUARTERLY PERIOD" means each successive period of approximately three months
commencing on the day after a Quarter Day and ending on the next following
Quarter Day;
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<PAGE> 19
"QUOTATION DATE" means, in relation to any period for which an interest rate is
to be determined hereunder, the day on which quotations would ordinarily be
given by prime banks in the London Interbank Market for deposits in Deutschmarks
for delivery on the first day of that period Provided that, if for any such
period quotations would ordinarily be given on more than one date, the Quotation
Date for that period shall be the last of those dates;
"REFERENCE BANKS" means the principal London offices of The Chase Manhattan
Bank, N.A., Dresdner Bank AG and Banque Paribas (Deutschland) oHG or such other
bank or banks as may from time to time be agreed between the Management Company
and an Instructing Group;
"RELATED TRANSACTIONS" means in respect of any two or more separate
Acquisitions, Acquisitions which:
(i) are purchased from the same vendor or from vendors
which are affiliates of each other;
(ii) comprise assets relating to a single System; and
(iii) are completed within the same three month period;
"RELEVANT CONTRACTS" means any agreements or contracts entered into by members
of the Group in connection with the building, installation, operation and
maintenance of Systems, including housing authority and association contracts,
programming contracts, signal supply contracts and customer contracts;
"RELEVANT JURISDICTION" means in respect of any person the jurisdiction of its
place of incorporation or, in the case of a partnership, its place of
establishment and, if different, the place in which it has its principal place
of business;
"RELEVANT MANAGEMENT COMPANY" means, at any time prior to the Level 2 Merger
Date, in relation to any subsidiary of KV Management, KV Management, and in
relation to any subsidiary of KM Holding, KM Holding, and at any time after the
Level 2 Merger Date, the company formed by the merger of KV Management and KM
Holding;
"RELEVANT SUBSTANCE" means (i) any radioactive emissions, (ii) electricity and
any electrical or electromagnetic emissions and (iii) any substance whatsoever,
(whether in solid or liquid form or in the form of a gas or vapour and whether
alone or in combination with any other substance) which is capable of causing
harm to man or any other living organism supported by the environment (both
natural and built), or damaging the environment (both natural and built) or
public health or welfare;
"REVOLVING ADVANCE" means a Tranche A Revolving Advance and/or a Tranche B
Revolving Advance;
"REVOLVING CREDIT FACILITY" means the revolving credit facility granted to the
Borrowers by the Banks pursuant to Clause 2.1;
"REVOLVING FACILITY TERM DATE" means the earlier of (i) 31 December 1997 (or, if
such day is not a business day, the next succeeding business day), and (ii) the
date on which the Available Tranche
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<PAGE> 20
A Revolving Commitments and the Available Tranche B Revolving Commitments of the
Banks are reduced to zero pursuant hereto (save, for the avoidance of doubt, by
the funding of Revolving Advances in accordance with the terms of this
Agreement);
"REVOLVING LOAN" means the aggregate principal amount for the time being
outstanding under the Revolving Credit Facility.
"REVOLVING PERIOD" means the period commencing on the date hereof and ending on
the Revolving Facility Term Date;
"SECURITY ASSIGNMENTS" (Globalabtretung) means each of the global assignments of
subscriber receivables and, if applicable, collections and servicing fees
executed or to be executed by each Operating Company pursuant hereto;
"SECURITY ASSIGNMENT OF LOANS" (Sicherungsabtretung) means each of the
assignments of loans (whether existing or future) between members of the Group
executed or to be executed by each of them pursuant hereto;
"SECURITY ASSIGNMENT OF PERMISSIONS" means each of the assignments of
Permissions executed or to be executed by each Operating Company pursuant
hereto;
"SECURITY DOCUMENTS" means each of the following:
(i) the Security Trust Agreement;
(ii) the Share Pledges;
(iii) the Security Assignments;
(iv) the Security Assignment of Loans;
(v) the Security Assignments of Permissions;
(vi) the Security Transfers; and
(vii) the Account Pledges,
and any other agreement, deed or document from time to time executed in favour
of the Security Trustee for the Agent, the Arranger, the Security Trustee and
the Banks or in favour of each of such parties individually for the purpose of
securing all or any of the obligations of any Obligor under the Facility
Documents or any of them together with all amendments of, and supplements to any
of the foregoing and "SECURITY DOCUMENT" shall be construed accordingly;
"SECURITY TRANSFERS" (Sicherungsubereignung) means each of the security
transfers of head ends, cable networks and other fixed assets executed or to be
executed by each Operating Company pursuant hereto;
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<PAGE> 21
"SECURITY TRUST AGREEMENT" means the security trust agreement entered or to be
entered into between, the Security Trustee, the Obligors, the Agent and the
Banks;
"SENIOR DEBT" means, at any time, the aggregate at such time of all indebtedness
for borrowed money of the Financial Group excluding (i) any indebtedness for
borrowed money owed by one member of the Financial Group to another member of
the Group, (ii) any Subordinated Debt permitted hereunder and (iii) the
principal amount (including the amount of any accretions thereto relating to
accrued interest) of the Senior Discount Notes plus the net mark to market
exposure of the Group as calculated by the Agent under derivative transactions
to the extent such exposure exceeds DM30,000,000 or is to any bank or financial
institution which is not a Bank;
"SENIOR DISCOUNT NOTES" means the senior discount notes issued or to be issued
under the Senior Discount Notes Indenture and any notes or similar instrument
issued in refinancing such notes;
"SENIOR DISCOUNT NOTES INDENTURE" means the indenture between Bank of New York
and the Holding Company;
"SENIOR DISCOUNT NOTES ISSUE DATE" means the date of issue of the Senior
Discount Notes;
"SHAREHOLDERS" means Advent ECO LLC, Kabelgate L.L.C., Advent International
Investors II Limited Partnership, Advent International Investors III Limited
Partnership, Advent Partners Limited Partnership, Global Private Equity II
Limited Partnership, European Special Situations Fund Limited Partnership,
Advent Crown Fund CV, Morgan Stanley Capital Partners III LP, MSCP III 892
Investors LP, Morgan Stanley Capital Investors LP, Charlotte Cable Holdings,
Inc., Ben Bartel, Chestnut Hill Media, Inc., ECO Holdings II (Cayman) Limited,
KPN Kabel B.V., Willard Holdings Inc., Woodward Holdings Inc., Allstate
Insurance Company, Plauen Cable, Inc. and any other person which, from time to
time, holds any shares in Kabelmedia Holding GmbH;
"SHAREHOLDERS AGREEMENT" means agreement between the Holding Company and the
Shareholders dated 16 June 1996;
"SHARE PLEDGES" means each of the GmbH Share Pledges and the KG Share Pledges
and "SHARE PLEDGE" shall mean a GmbH Share Pledge or a KG Share Pledge;
"SUBORDINATED DEBT" means any loan provided by the Holding Company or any
Shareholder to any Obligor which has been subordinated to the Loan in accordance
with the Intercreditor Agreement;
"SUBSCRIBER" means a person who has entered into an agreement with any member of
the Group to be provided with cable television services (whether alone or on the
basis of an umbrella agreement);
"SUBSCRIBER AGREEMENT" means an agreement for the provision by any member of the
Group to a Subscriber of cable television services by means of a System;
"SUCCESSOR" in relation to a party means an assignee or successor in title to
such party or any person who, under the law of its jurisdiction of incorporation
or domicile, has assumed the rights and obligations of such party hereunder or
to which under such laws the same has been transferred;
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<PAGE> 22
"SUBSCRIBER CERTIFICATE" means in respect of a certificate delivered pursuant to
Clause 6 a certificate substantially in the form set out in Part I of the Sixth
Schedule and in respect of a certificate delivered pursuant to Clause 19 a
certificate substantially in the form set out in Part II of the Sixth Schedule;
"SYSTEM ASSETS" means in relation to any System each of the Licenses,
Permissions, Relevant Contracts, head ends, cable networks and other assets
subject to an encumbrance in favour of the Security Trustee in respect of that
System;
"SYSTEM" means each standalone cable and fixed wire telecommunications network
for the delivery of television to be operated, managed, administered and, where
necessary, installed by a member or members of the Group Provided that such
member shall be a wholly owned subsidiary of another member of the Group other
than those Systems in relation to Osnabruck, Heidenau and Neuruppin;
"TELECOMMUNICATIONS AND CABLE LAWS" means the Telephonic Installations Act
(Fernmeldeanlagengesetz), the approval rules for reception installations
(Genehmigungsrechtliche Regelung fur Rundfunksempfangsanlagen) (as published in
the BAPT Official Journal of January 1994 and in the annex thereto) and all
other federal and state laws, statutes, regulations and judgments relating to
the building, installation, management or operation of systems for
telecommunications or cable television applicable to any member of the Group
and/or business carried on by any member of the Group;
"TERM" means, save as otherwise provided herein, in relation to any Advance, the
period for which such advance is borrowed as specified in the Notice of Drawdown
relating thereto;
"TERM ADVANCE" means, subject as provided herein, an advance which arises on the
conversion of a Revolving Advance on the Revolving Facility Term Date by the
operation of Clause 7;
"TERM LOAN" means the principal amount outstanding from the Borrowers to the
Banks from time to time under the Term Loan Facility;
"TERM LOAN FACILITY" means the term loan facility to be provided to the
Borrowers on the Revolving Facility Term Date pursuant to the terms hereof;
"TOTAL DEBT" means, at any time, the aggregate at such time of the aggregate
amount of Senior Debt and the principal amount (including the amount of any
accretions thereto relating to accrued interest) of the Senior Discount Notes;
"TRANCHE A REVOLVING ADVANCE" means, subject as provided herein, an advance made
or to be made by the Banks under the DM270,000,000 tranche of the Revolving
Credit Facility;
"TRANCHE A REVOLVING COMMITMENT" means, in relation to any Bank at any time and
save as otherwise provided herein, the amount set opposite its name in Part IA
of the First Schedule;
"TRANCHE B REVOLVING ADVANCE" means, subject as provided herein, an advance made
or to be made by the Banks under the DM105,000,000 tranche of the Revolving
Credit Facility;
"TRANCHE B REVOLVING COMMITMENT" means, in relation to any Bank at any time and
save as otherwise provided herein, the amount set opposite its name in Part IB
of the First Schedule;
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<PAGE> 23
"TRANCHE C ADVANCE" means, subject as provided herein, an advance made or to be
made by the Banks under the Tranche C Facility.
"TRANCHE C COMMITMENT" means, in relation to any Bank at any time and save as
otherwise provided herein, the amount set opposite its name in Part II of the
First Schedule.
"TRANCHE C FACILITY" means the general capital facility granted to the Borrowers
by the Banks pursuant to Clause 2.2;
"TRANSFER CERTIFICATE" means a certificate substantially in the form set out in
the Second Schedule signed by a Bank and a Transferee whereby:
(i) such Bank seeks to procure the transfer to such
Transferee of all or a part of such Bank's rights and
obligations hereunder upon and subject to the terms
and conditions set out in Clause 35; and
(ii) such Transferee undertakes to perform the obligations
it will assume as a result of delivery of such
certificate to the Agent as is contemplated in Clause
35.3;
"TRANSFER DATE" means, in relation to any Transfer Certificate, the date for the
making of the transfer as specified in the schedule to such Transfer
Certificate;
"TRANSFEREE" means a bank or other financial institution to which a Bank seeks
to transfer all or part of such Bank's rights and obligations hereunder;
"YEAR ONE PAYMENT DATES" means the dates falling 3, 6, 9 and 12 months after the
Revolving Facility Term Date;
"YEAR TWO PAYMENT DATES" means the dates falling 15, 18, 21 and 24 months after
the Revolving Facility Term Date.
"YEAR THREE PAYMENT DATES" means the dates falling 27, 30, 33 and 36 months
after the Revolving Facility Term Date;
"YEAR FOUR PAYMENT DATES" means the dates falling 39, 42, 45 and 48 months after
the Revolving Facility Term Date;
"YEAR FIVE PAYMENT DATES" means the dates falling 51, 54, 57 and 60 months after
the Revolving Facility Term Date;
"YEAR SIX PAYMENT DATES" means the dates falling 63, 66, 69 and 72 months after
the Revolving Facility Term Date; and
"YEAR SEVEN PAYMENT DATE" means the date falling 75 months after the Revolving
Facility Term Date;
1.2 Any reference in this Agreement to:
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<PAGE> 24
an "AFFILIATE" of any person means any subsidiary or holding company of that
person or any subsidiary of any such holding company, or any other person in
which that person or any such person or subsidiary owns at least 20 per cent. of
the equity share capital (or the like);
the "AGENT", the "ARRANGER", any "BANK", any "BENEFICIARY", the "SECURITY
TRUSTEE" or the "OVERDRAFT BANK" shall be construed so as to include their
respective Successors and any Successor of such Successor in accordance with
their respective interests;
a "BUSINESS DAY" shall be construed as a reference to a day (other than a
Saturday or Sunday) on which banks generally are open for business in London and
Frankfurt am Main;
a "CLAUSE" shall, subject to any contrary indication, be construed as a
reference to a clause hereof;
"DERIVATIVE TRANSACTION" includes any rate swap transaction, basis swap, forward
rate transaction, commodity swap, commodity option, equity or equity index swap,
equity or equity index option, bond option, interest rate option, foreign
exchange transaction, cap transaction, floor transaction, collar transaction,
currency swap transaction, cross-currency rate swap transaction, currency option
or any other similar transaction (including any option with respect thereto and
any combination in respect thereof);
an "ENCUMBRANCE" shall be construed as a reference to a mortgage, charge,
pledge, lien or other encumbrance securing any obligation of any person or any
other type of preferential arrangement (including, without limitation, title
transfer and retention arrangements) having a similar effect;
a "FINANCIAL STATEMENT" shall be construed as a reference to the balance sheet,
profit and loss account and cash flow statement of any person;
a "GUARANTEE" includes a guarantee, an indemnity and any other form of legally
binding assurance against (or other arrangement intended to prevent or limit)
loss in respect of any indebtedness for borrowed money of any person;
a "HOLDING COMPANY" of a person shall be construed as a reference to any person
of which the first-mentioned person is a subsidiary;
"INDEBTEDNESS" shall be construed so as to include any obligation (whether
incurred as principal or as surety) for the payment or repayment of money,
whether present or future, actual or contingent;
"INDEBTEDNESS FOR BORROWED MONEY" shall be construed as a reference to any
indebtedness of any person for or in respect of:
(i) moneys borrowed (other than the Subordinated Debt);
(ii) liabilities under any standby letter of credit,
guarantees, acceptance credit, bills discounting
facility or any receivables purchase, factoring or
discounting arrangements;
(iii) amounts raised pursuant to any note purchase facility
or the issue of bonds, notes, debentures, loan stock
or similar instruments;
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<PAGE> 25
(iv) the amount of any liability in respect of leases or
hire purchase contracts which would, in accordance
with generally accepted accounting standards in
Germany, be treated as finance or capital leases;
(v) the amount of any Deferred Consideration;
(vi) the amount of any liability in respect of any
purchase price for assets or services (other than in
connection with an Acquisition) the payment of which
is deferred for a period in excess of 120 days;
(vii) amounts raised under any other transaction
(including, without limitation, any sale and
repurchase agreement or forward sale or purchase
agreement) having the commercial effect of a
borrowing (excluding any derivative transactions of
the nature described in paragraph (viii) below); and
(viii) (for the purposes of Clause 22.1(vi) only) interest
rate or currency swaps, caps, floors, collars,
forward sale or purchase contracts, contracts for
differences or any option transactions, or any other
treasury transactions or any other transaction
entered into in connection with the management of
risk related to indebtedness (and the amount of
indebtedness for borrowed money in relation to any
such transaction shall be the net amount not paid by
the relevant member of the Financial Group);
a "MONTH" is a reference to a period starting on one day in a calendar month and
ending on the numerically corresponding day in the next succeeding calendar
month save that, where any such period would otherwise end on a day which is not
a business day, it shall end on the next succeeding business day, unless that
day falls in the calendar month succeeding that in which it would otherwise have
ended, in which case it shall end on the immediately preceding business day
Provided that, if a period starts on the last business day in a calendar month
or if there is no numerically corresponding day in the month in which that
period ends, that period shall end on the last business day in that later month
(and references to "months" shall be construed accordingly);
"OPERATING EXPENSES" shall be construed to include all operating expenses
(including, management expenses) incurred in relation to the operation of the
Systems operated by the Group and the servicing of its Subscribers;
a "PART" shall, subject to any contrary indication, be construed as a reference
to a part hereof;
a "PERSON" shall be construed as a reference to any person, firm, company,
corporation, government, state or agency of a state or any association or
partnership (whether or not having separate legal personality) of two or more of
the foregoing;
a "SCHEDULE" shall, subject to any contrary indication, be construed as a
reference to a schedule hereto;
a "SISTER COMPANY" of a person shall be construed as a reference to any company,
corporation or partnership which is a subsidiary of a holding company of such
person;
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<PAGE> 26
a "SUBSIDIARY" of a company, corporation or partnership shall be construed as a
reference to any company, corporation or partnership:
(i) which is controlled, directly or indirectly, by the
first-mentioned company or corporation or
partnership;
(ii) more than half the issued share capital or
partnership share of which is beneficially owned,
directly or indirectly, by the first-mentioned
company, corporation or partnership; or
(iii) which is a subsidiary of another subsidiary of the
first-mentioned company or corporation or
partnership,
and, for these purposes, a company, corporation or partnership shall be treated
as being controlled by another if that other company, corporation or partnership
is able to direct its affairs and/or to control the composition of its board of
directors or equivalent body and/or to appoint or dismiss the general partner
thereof;
"TAX" shall be construed so as to include any tax, levy, impost, duty or other
charge of a similar nature (including, without limitation, any penalty or
interest payable in connection with any failure to pay or any delay in paying
any of the same);
"VAT" shall be construed as a reference to value added tax including any similar
tax which may be imposed in place thereof from time to time; and
the "WINDING-UP", "DISSOLUTION" or "ADMINISTRATION" of a person shall be
construed so as to include any equivalent or analogous proceedings under the law
of the jurisdiction in which such person is incorporated or registered or any
jurisdiction in which such person carries on business including the seeking of
liquidation, winding-up, reorganisation, dissolution, administration,
arrangement, adjustment, protection or relief of debtors.
1.3 "DM" and "DEUTSCHMARKS" denote lawful currency of Germany.
1.4 Save where the contrary is indicated, any reference in this Agreement
to:
(i) any licence, consent, agreement or document shall be
construed as a reference to such licence, consent,
agreement or document as the same may have been, or
may from time to time be, amended, varied, reissued,
replaced, novated or supplemented;
(ii) a statute shall be construed as a reference to such
statute as the same may have been, or may from time
to time be, amended or re-enacted; and
(iii) a time of day shall unless otherwise specified be
construed as a reference to Frankfurt am Main time.
1.5 Clause, Part and Schedule headings are for ease of reference only.
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<PAGE> 27
1.6 Financial terms not specifically defined herein shall be construed in
accordance with U.S. GAAP.
- 22 -
<PAGE> 28
PART 2
THE FACILITIES
2. THE FACILITIES
2.1 The Banks hereby grant to the Borrowers, upon the terms and subject to
the conditions hereof, a Deutschmark revolving credit facility for the Revolving
Period in an aggregate amount of up to DM375,000,000 which shall be divided into
two tranches of DM270,000,000 and DM105,000,000 respectively, and thereafter a
Deutschmark term loan facility, in an aggregate amount of up to DM375,000,000.
2.2 The Banks hereby grant to the Borrowers, upon the terms and subject to
the conditions hereof, a Deutschmark working capital facility in an aggregate
amount of up to DM20,000,000.
2.3 The Overdraft Bank hereby grants to Kablemedia Projektmanagement
Kommunikations netze GmbH & Co: KG Kabelbetriebsgesellschaft upon the terms and
subject to the conditions of the Overdraft Letter and this Agreement, a
Deutschmark overdraft facility in an aggregate amount of up to DM5,000,000.
3. PURPOSE
3.1 The Revolving Credit Facility shall be used for the following purposes:
(i) to refinance all Existing Indebtedness;
(ii) to finance Acquisitions (including related costs,
fees, charges and expenses) and to refinance any
indebtedness for borrowed money thereby acquired
and/or the discharge of indebtedness secured by any
encumbrance attaching to any asset thereby acquired;
and
(iii) to finance the capital expenditure of the Group and
any costs, fees, charges and expenses incurred by the
Group in connection with the implementation of the
Facility or otherwise under the Facility Documents
(for the avoidance of doubt, excluding interest).
3.2 The Tranche C Facility shall be used for general corporate purposes.
3.3 The Overdraft Facility is to be used for the day-to-day liquidity
requirements of the Group.
3.4 The Term Loan Facility is to be used for the purpose of refinancing the
Revolving Credit Facility on the Revolving Facility Term Date.
3.5 Each of the Borrowers shall apply all amounts raised by it hereunder
exclusively in or towards satisfaction of the above purposes.
- 23 -
<PAGE> 29
3.6 Without prejudice to the obligations of the Borrowers under Clauses
3.1, 3.2, 3.3 and 3.4 above neither the Agent, the Arranger and the Banks nor
any of them shall be obliged to concern themselves with the application of
amounts raised by the Borrowers hereunder.
3.7 The Advances which are made on the date of first drawdown under this
Agreement shall be applied to refinance all Existing Indebtedness and to pay all
costs, fees and expenses incurred in connection with the implementation of the
Facility.
4. CONDITIONS PRECEDENT
Save as the Banks may otherwise agree, no Borrower may deliver the
first Notice of Drawdown to the Agent unless the Agent has confirmed to the
Banks that it has received all of the documents listed in the Third Schedule and
that such documents are in form and substance satisfactory to an Instructing
Group.
5. NATURE OF BANKS' AND BORROWERS' OBLIGATIONS
5.1 The obligations of each Bank hereunder are several and not joint.
5.2 The failure by a Bank to perform its obligations hereunder shall not
affect the obligations of the Borrowers towards any other party hereto nor shall
any other party be liable for the failure by such Bank to perform its
obligations hereunder.
5.3 The amounts outstanding at any time hereunder from each of the Obligors
to any of the other parties hereto shall be a separate and independent debt and
each such party shall be entitled to protect and enforce its individual rights
arising out of this Agreement independently of any other party and it shall not
be necessary for any party hereto to be joined as an additional party in any
proceedings for this purpose.
5.4 If any Bank defaults in the performance of any of its obligations
hereunder, the Agent shall endeavour to consult with the Management Company with
a view to assisting the Management Company in deciding the appropriate action to
be taken by the Management Company in order to replace the Bank concerned with
an alternative reputable bank or financial institution.
- 24 -
<PAGE> 30
PART 3
UTILISATION OF THE REVOLVING CREDIT FACILITY, TRANCHE C FACILITY
AND THE OVERDRAFT FACILITY
6. UTILISATION OF THE REVOLVING CREDIT FACILITY AND THE TRANCHE C FACILITY
6.1 Save as otherwise provided herein, a Tranche A Revolving Advance, a
Tranche B Revolving Advance or a Tranche C Advance will be made by the Banks to
a Borrower if:
(i) by not later than 10.00 a.m. London time on a day
which is not more than ten nor less than three
business days before the proposed date for the making
of such Advance, the Agent has received from the
relevant Borrower a Notice of Drawdown therefor,
receipt of which shall oblige that Borrower to borrow
the amount therein requested on the date therein
stated upon the terms and subject to the conditions
contained herein;
(ii) the Incurrence Provisions are at such time being
complied with, as evidenced by the execution by the
Management Company of a certificate in the form
attached to the Notice of Drawdown and, in the case
of a Revolving Advance to be made for any of the
purposes described in Clause 3.1(ii), the Borrower
concerned has complied with the requirements of
Clause 6.4 below;
(iii) the proposed date for the making of such Advance is a
business day falling, in the case of a Revolving
Advance, one month or more before the Revolving
Facility Term Date and, in the case of a Tranche C
Advance, one month or more before the Final Maturity
Date;
(iv) the proposed date for the making of such Advance is
not less than five business days after the date upon
which the previous Advance (if any) was made
hereunder (provided that, subject to paragraph (vi)
below the Borrowers shall be permitted to draw more
than one Advance on the same day);
(v) subject to the provisions of this Agreement regarding
availability:
(a) if such Advance is a Tranche A Revolving
Advance the proposed amount of such Tranche
A Revolving Advance is (when aggregated with
all other Tranche A Revolving Advances, if
any, to be drawn by such Borrower on the
proposed date for the making of such Tranche
A Revolving Advance) (x) a minimum amount of
DM2,500,000 which, if greater, is an
integral multiple of DM500,000 and is less
than the amount of the Available Tranche A
Revolving Facility as at the relevant date
of drawdown or (y) equal to the amount of
the Available Tranche A Revolving Facility
as at the relevant date of drawdown; or
(b) if such Advance is a Tranche B Revolving
Advance the proposed amount of such Tranche
B Revolving Advance is (when aggregated
- 25 -
<PAGE> 31
with all other Tranche B Revolving Advances,
if any, to be drawn by such Borrower on the
proposed date for the making of such Tranche
B Revolving Advance) (x) a minimum amount of
DM2,500,000 which, if greater, is an
integral multiple of DM500,000 and is less
than the amount of the Available Tranche B
Revolving Facility as at the relevant date
of drawdown or (y) equal to the amount of
the Available Tranche B Revolving Facility
as at the relevant date of drawdown;
(c) if such Advance is a Tranche C Advance the
proposed amount of such Tranche C Advance is
(when aggregated with all other Tranche C
Advances, if any, to be drawn by such
Borrower on the proposed date for the making
of such Tranche C Advance) (x) a minimum
amount of DM2,500,000 which, if greater, is
an integral multiple of DM500,000 and is
less than the amount of the Available
Tranche C Facility as at the relevant date
of drawdown or (y) equal to the amount of
the Available Tranche C Facility as at the
relevant date of drawdown;
(vi) if the proposed date for the making of such Advance
falls before the Revolving Facility Term Date, there
would not, immediately after the making of such
Advance, be more than eight Advances outstanding
hereunder and, if the proposed date for the making of
such Advance falls after the Revolving Facility Term
Date there would not, immediately after the making of
such Tranche C Advance be more than five Tranche C
Advances outstanding hereunder;
(vii) the proposed Term of such Advance is a period of one,
two, three or six months or such other period as is
agreed by all the Banks;
(viii) none of the events mentioned in Clause 9 shall have
occurred; and
(ix) either:
(a) no Event of Default or Potential Event of
Default has occurred; and
(b) the representations set out in Clause 18 are
true on and as of the proposed date for the
making of such Advance,
or each of the Banks agrees (notwithstanding any
matter mentioned at (a) or (b) above) to participate
in the making of such Advance.
6.2 No Borrower may deliver a Notice of Drawdown in relation to a Tranche B
Revolving Advance unless:
(i) Senior Discount Notes in an aggregate principal
amount of no less than $100,000,000 have been issued
by the Holding Company; and
- 26 -
<PAGE> 32
(ii) no less than $100,000,000 (less fees, costs and
expenses) has been made available by the Holding
Company to the Group in the form of Contributed
Equity.
6.3 No Borrower shall be entitled to deliver a Notice of Drawdown to the
Agent unless it has demonstrated to the satisfaction of an Instructing Group
that, on the last day of the three month period ending on the last day of the
most recently ended calendar month, or, if monthly financial statements have not
been delivered to the Banks (and the Holding Company is in compliance with
Clause 19.1(ii)), the previous calendar month in respect of which monthly
statements have most recently been delivered, the financial condition of the
Financial Group was such that the Financial Group was then in compliance with
both of the financial tests set out below:
(i) the ratio of Pro Forma Senior Debt to Annualised
EBITDA on such date did not exceed the ratios set
alongside the period below in which the relevant date
for the testing of the covenant falls:
<TABLE>
<CAPTION>
PERIOD RATIO
<S> <C>
Closing Date - 31 December 1996 6.50:1
1 January 1997 - 30 June 1997 6.25:1
1 July 1997 - 31 December 1997 5.75:1
1 January 1998 - 30 June 1998 5.25:1
1 July 1998 - 31 December 1998 4.75:1
1 January 1999 - 30 June 1999 4.00:1
1 July 1999 - 31 December 1999 3.75:1
and, thereafter 3.25:1
</TABLE>
(ii) if such date is prior to the Senior Discount Notes
Issue Date the ratio of Pro Forma Senior Debt to
Contributed Equity shall not exceed 65:35 and if such
date is thereafter, the ratio of Pro Forma Senior
Debt to Contributed Equity shall not exceed 55:45.
6.4 If any Borrower wishes to utilise any part of the Revolving Credit
Facility for any of the purposes described in Clause 3.1(ii) it shall only be
entitled to deliver a Notice of Drawdown for such purposes if, in addition to
satisfying the requirements of Clause 6.3:
(i) either:
(a) the ratio of Pro Forma Senior Debt to Annualised
EBITDA on the relevant test date referred to in
Clause 6.3 is less than 4.50:1 and, no later than
five business days before the proposed date for the
making of the Advance requested in such Notice of
Drawdown, such Borrower has delivered to the Agent
(for and on behalf of the Banks) an Acquisition Due
Diligence Report relating to the relevant proposed
acquisition; or
- 27 -
<PAGE> 33
(b) if the ratio of Pro Forma Senior Debt to Annualised
EBITDA on the relevant test date referred to in
Clause 6.3 is equal to or greater than 4.50:1, and
either:
1. the Consideration for such Acquisition in
any single transaction or Related
Transactions is equal to or less than
DM20,000,000 and:
(i) the Consideration for such
Acquisition in any single
transaction or Related Transactions
does not exceed DM1,250 per
Equivalent Subscriber to be acquired
or, if
(x) the average monthly Net Revenues
per Subscriber to be acquired is
DM18 or more, and
(y) the Consideration for such
Acquisition is equal to or less than
8 times Net Revenues times 12 for
the latest calendar month referable
to the System or Systems to be
acquired,
DM1,650 per Equivalent Subscriber to
be acquired; and
(ii) Pro Forma Total Debt for the Group
shall not exceed DM850 per
Equivalent Subscriber for the Group
as a whole (including Equivalent
Subscribers to be acquired as a
result of the Acquisition); and
(iii) no later than fourteen business days
before the proposed date for the
making of the Advance requested in
such Notice of Drawdown, such
Borrower has delivered to the
Agent (for and on behalf of the
Banks) a Subscriber Certificate
setting out the relevant
calculations in relation to the
tests referred to in paragraphs
(i)(b)1.(i) and (ii) of this Clause
6.4 and containing a description of
the proposed Acquisition including
details of homes passed,
subscribers, revenues, rates,
operating cashflow, and technical
specifications and a breakdown of
any costs, fees, charges and
expenses incurred or to be incurred
in connection therewith and a
breakdown of the Consideration for
such Acquisition identifying the
purchase price and incidental costs,
capitalised expenses and provisions
raised in respect of future
rationalisation measures together
with an Acquisition Due Diligence
Report relating to such proposed
Acquisition, each of which shall, in
form and substance, be satisfactory
to an Instructing Group, provided
that to the extent that any of the
foregoing are not available at such
time, they shall be delivered to the
Agent as soon as they become
available and, in any event, before
the delivery of the Notice of
Drawdown; and
- 28 -
<PAGE> 34
(iv) completion of a due diligence report
to the satisfaction of legal counsel
to the Banks in accordance with the
Agreed Due Diligence Procedure; or
2. the Consideration for such Acquisition in
any single transaction or Related
Transactions is greater than DM20,000,000
and less than or equal to DM50,000,000 and:
(i) an Instructing Group has given its
consent to the delivery of such
Notice of Drawdown; and
(ii) the provisions of paragraphs
(i)(b)1.(iii) and (iv) of this
Clause 6.4 are satisfied;
(ii) it has delivered to the Agent (on behalf of the
Banks) a duly completed Historical Expense Adjustment
Notice; and
(iii) no Event of Default or Potential Event of Default
exists or arises, and no Event of Default may arise,
as a result of the proposed Acquisition and a
certificate executed by the managing director
(Geschaftsfuhrer) of the Management Company has been
delivered to such effect.
Provided that, if any Borrower wishes to utilize any part of
the Revolving Credit Facility for the purpose of funding any
Deferred Consideration relating to an Acquisition, then the
tests set out in Clause 6.3(i) and (ii) and Clause 6.4(i)
shall be treated as being satisfied provided that they were
satisfied at the time of drawdown of the Advance which funded
the balance of the consideration relating to such Acquisition.
6.5 Each Bank will participate through its Facility Office in each Tranche
A Revolving Advance made pursuant to Clause 6.1 in the proportion borne by its
Available Tranche A Revolving Commitment to the Available Tranche A Revolving
Facility immediately prior to the making of that Tranche A Revolving Advance, in
each Tranche B Revolving Advance made pursuant to Clause 6.1 in the proportion
borne by its Available Tranche B Revolving Commitment to the Available Tranche B
Revolving Facility immediately prior to the making of that Tranche B Revolving
Advance, and in each Tranche C Advance made pursuant to Clause 6.1 in the
proportion borne by its Available Tranche C Commitment to the Available Tranche
C Facility immediately prior to the making of that Tranche C Advance.
6.6 If a Bank's Tranche A Revolving Commitment, Tranche B Revolving
Commitment or Tranche C Commitment is reduced in accordance with the terms
hereof after the Agent has received the Notice of Drawdown for a Tranche A
Revolving Advance, a Tranche B Revolving Advance or, as the case may be, a
Tranche C Advance then the amount of that Advance shall be reduced accordingly.
6.7 If the conditions of Clauses 6.1, 6.3 and/or 6.4 are not satisfied and
in relation to any Acquisition in excess of DM50,000,000 in relation to the
making of any Advance requested by any Borrower hereunder, such Advance may
nevertheless be made if all the Banks so agree.
- 29 -
<PAGE> 35
6.8 Subject to Clause 6.9 the Overdraft Bank and relevant Borrower(s) agree
that no amendment shall be made to the terms of the Overdraft Letter unless such
amendments have been agreed by an Instructing Group.
6.9 The interest rate or guarantee commission which shall be applied to the
loan outstandings and liabilities in respect of guarantees forming part of the
Overdraft Amount pursuant to the Overdraft Letter shall be the Overdraft Bank's
normal overdraft rate or normal guarantee commission respectively applicable to
a facility and obligor comparable with the Overdraft Facility from time to time.
6.10 The Overdraft Bank shall not, without the prior written consent of an
Instructing Group, terminate or make demand under the Overdraft Facility or call
for cash collateral in respect of guarantees issued by it thereunder at any time
before the Final Maturity Date Provided that no such termination or demand shall
be made prior to an Event of Default.
6.11 Subject to Clause 6.10, if the Overdraft Facility is with the prior
written consent of an Instructing Group terminated or demanded prior to the
Final Maturity Date, the Overdraft Amount at such time (including for the
avoidance of doubt, any amount equal to the unmatured contingent liabilities of
the Overdraft Bank in respect of guarantees issued by it thereunder) shall be
converted to form part of the Revolving Facility or, as the case may be, the
Term Facility in accordance with the principles set out in Clause 6.12.
6.12 Upon termination or demand of the Overdraft Facility:
(i) the Overdraft Amount at such time (including, for the
avoidance of doubt, any amount equal to the unmatured
contingent liabilities of the Overdraft Bank in
respect of guarantees issued by it thereunder) shall
become part of the Loan and shall be added to and
allocated amongst each Advance then outstanding
hereunder pro rata;
(ii) each Bank's participation in each Advance shall be
adjusted to ensure that each Bank participates in
each Advance in the proportion which its Commitment
bears to the aggregate amount of the Commitments of
all the Banks (provided that for these purposes the
amount of the Commitment of the Overdraft Bank shall
be increased by the amount of the Overdraft
Facility); and
(iii) such transfers as are necessary to give effect to
this Clause 6.12 shall be entered into by the Banks
and the Agent shall, in consultation with the
Management Company, be entitled to agree such other
amendments to the Facility Documentation as may be
necessary to give effect to the principles set out in
this Clause 6.12 or to ensure that the conversion
takes place in an administratively convenient manner.
6.13 The Overdraft Bank shall, from time to time, immediately upon the
request of the Agent, notify the Agent of the Overdraft Amount.
- 30 -
<PAGE> 36
6.14 Any part of the Revolving Credit Facility or the Term Loan Facility
arising by way of the conversion from any amount equal to the unmatured
contingent liabilities of the Overdraft Bank in respect of guarantees issued by
it under the Overdraft Facility in accordance with Clauses 6.10 or 6.11 above
shall be made available by way of the cash collateralisation in favour of the
Overdraft Bank of its unmatured contingent liabilities under such guarantee.
7. CONVERSION OF REVOLVING CREDIT FACILITY TO TERM LOAN
On the Revolving Facility Term Date, the Revolving Credit Facility
shall convert to a term loan facility so that each Revolving Advance then
outstanding by way of loan shall be converted into a Term Advance and shall be
consolidated so that no more than five Term Advances remain at any time
outstanding.
- 31 -
<PAGE> 37
PART 4
INTEREST
8. INTEREST
8.1 On each Interest Payment Date, the Borrowers agree to pay accrued
interest on each Advance in respect of each Interest Period relating thereto.
8.2 The rate of interest applicable to each Advance from time to time
during an Interest Period relating thereto shall be the rate per annum which is
the sum of the Margin and LIBOR on the Quotation Date therefor.
8.3 The Margin applicable to each Advance shall be two per cent. (2.00%)
per annum Provided that if on the Quotation Date for an Interest Period the
Borrowers can demonstrate that as at the end of the most recent Quarterly Period
for which financial statements have been provided in accordance with Clause
19.1(iii) to the reasonable satisfaction of the Agent that the ratio of Pro
Forma Senior Debt to Annualised Operating Cash Flow for the Group is less than
the ratio specified in Column 1 below by reference to the most recent quarterly
financial statements delivered to the Agent pursuant hereto, then the Margin for
that Interest Period shall reduce to the percentage figure set alongside that
ratio in Column 2 below:
<TABLE>
<CAPTION>
COLUMN 1 COLUMN 2
<S> <C>
5.50:1 1.75%
4.00:1 1.25%
</TABLE>
Provided always (a) that there shall not occur any reduction in the Margin at
any time while a Potential Event of Default or Event of Default has occurred and
is continuing and (b) upon the occurrence of an Event of Default and for so long
as such Event of Default is continuing the Margin shall revert to two per cent.
(2%) per annum.
8.4 The period for which each Term Advance is outstanding shall be divided
into successive periods each of which (other than the first) shall start on the
last day of the preceding such period and, in the case of the first period of
such Term Advance, the last day of the Interest Period applicable to the
Revolving Advance outstanding on the Revolving Facility Term Date which was
converted into the Term Advance concerned.
8.5 The duration of each Interest Period for each Term Advance shall, save
as otherwise provided herein, be one, three or six months (or such other period
as the Banks and the relevant Borrower may agree), in each case as the relevant
Borrower may by prior written notice given not later than 10 a.m. on the third
business day prior to the first day of the relevant Interest Period to the Agent
select Provided that:
(i) if the relevant Borrower fails to give such notice of
its selection in relation to an Interest Period, the
duration of that Interest Period shall, subject to
(ii) below, be three months; and
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<PAGE> 38
(ii) each Borrower shall select the duration of Interest
Periods so as to ensure that each Payment Date is
also the last day of an Interest Period for Term
Advances, the aggregate amount of which is not less
than the amount of the Loan to be repaid on such
Payment Date and, to the extent that a Borrower does
not do so, the Agent is authorised to select or amend
the selection of an Interest Period in respect of any
Term Advance and shall thereafter give such Borrower
written notice thereof; and
(iii) for the purposes of paragraph (ii) above, the Agent
may shorten any Interest Period.
8.6 If two or more Interest Periods relating to Term Advances end at the
same time then, on the last day of those Interest Periods, the Term Advances to
which they relate shall be consolidated into (and thereafter treated in all
respects as) a single Term Advance.
8.7 The Borrowers shall ensure that no more than five Term Advances are at
any time outstanding under this Agreement.
9. MARKET DISRUPTION AND ALTERNATIVE INTEREST RATES
If, in relation to any Advance:
(i) the Agent determines that at or about 11.00 a.m. on
the Quotation Date for an Interest Period in respect
of such Advance none of the Reference Banks was
offering to prime banks in the London Interbank
Market deposits in Deutschmarks for the proposed
duration of such Interest Period; or
(ii) before the close of business in London on the
Quotation Date for an Interest Period in respect of
any Advance the Agent has been notified by a Bank or
each of a group of Banks to which in aggregate forty
per cent. or more of the Loan is (or, if a Revolving
Advance were then made, would be) owed that the rate
at which such deposits were being so offered does not
accurately reflect the cost to it of obtaining such
deposits; or
(iii) by reason of circumstances affecting the London
Interbank Market during any period of three
consecutive business days, none of the Reference
Banks offers deposits in Deutschmarks to prime banks
in the London Interbank Market,
then, notwithstanding the provisions of Clause 8:
(a) the Agent shall notify the Borrower and the Banks of such
event;
(b) if the Advance concerned is a Revolving Advance or a Tranche C
Advance which is not made to refinance an Advance maturing on
the proposed date of drawdown for such Advance, such Advance
shall not be made;
- 33 -
<PAGE> 39
(c) if the Advance concerned is a Term Advance, a Revolving
Advance or Tranche C Advance to which Clause 9(b) above does
not apply, the duration of the Interest Period in respect of
the Advance shall be one month or, if less, such that it shall
end on the next succeeding Interest Payment Date for that
Advance;
(d) if the Advance concerned is a Term Advance, a Revolving
Advance or Tranche C Advance to which Clause 9(b) above does
not apply, the rate of interest applicable to such Advance
from time to time during the Interest Period in respect of
such Advance shall be the rate per annum which is the sum of
the Margin and the rate per annum determined by the Agent to
be the arithmetic mean (rounded upwards, if not already such a
multiple, to the nearest whole multiple of one-sixteenth of
one per cent.) of the rates notified by each Bank to the Agent
before the last day of such Interest Period to be those which
express as a percentage rate per annum the cost to each Bank
of funding from whatever sources it may reasonably select its
portion of such Advance during such Interest Period;
(e) if the Agent or the Management Company so requires, within
five days of notification by the Agent pursuant to Clause 9(a)
above the Agent and the Management Company shall enter into
negotiations with a view to agreeing a substitute basis for
determining the rates of interest which may be applicable to
Advances in the future and/or the terms upon which any Advance
shall be maintained in the future (whether in Deutschmarks or
another currency) and any such substitute basis that is agreed
shall take effect in accordance with its terms and be binding
on each party hereto Provided that the Agent may not agree any
such substitute basis without the prior consent of each Bank;
and
(f) if the Agent and the Management Company have entered into such
negotiations as contemplated by Clause 9(e) above, the Agent
may declare (any such declaration to be binding on the
Borrowers) that the relevant Advance which is the subject of
such negotiations shall become due and payable on the last day
of its then current Interest Period unless by then a
substitute basis has been agreed upon in relation thereto.
- 34 -
<PAGE> 40
PART 5
REPAYMENT, CANCELLATION AND PREPAYMENT
10. REPAYMENT
10.1 From the date hereof to the Revolving Facility Term Date, each Borrower
shall repay each Revolving Advance made to it in full on the last day of the
Term relating thereto.
10.2 From the date hereof to the Final Maturity Date, each Borrower shall
repay each Tranche C Advance made to it in full on the last date of the Term
relating thereto.
10.3 The Borrowers shall not repay all or any part of any Revolving Advance
or Tranche C Advance outstanding hereunder except at the times and in the manner
expressly provided herein but, subject to the terms and conditions hereof, shall
be entitled to reborrow any Revolving Advance or Tranche C Advance repaid or
part thereof.
10.4 Each Borrower shall repay the Term Advances made to it by payment on
each Payment Date save for the Year Seven Payment Date, of an amount equal to
that percentage of the Term Loan made available to such Borrower which is one
quarter of the percentage set against that Payment Date in Column 2 below and on
the Year Seven Payment Date of an amount equal to that percentage of the Term
Loan made available to such Borrower indicated in Column 2 below:
<TABLE>
<CAPTION>
COLUMN 1 COLUMN 2
<S> <C>
Payment Date Percentage of the Term Loan outstanding
as at close of business in Frankfurt on
the Revolving Facility Term Date to be
repaid
each Year One Payment Date 5.00%
each Year Two Payment Date 10.00%
each Year Three Payment Date 15.00%
each Year Four Payment Date 17.50%
each Year Five Payment Date 20.00%
each Year Six Payment Date 20.00%
the Year Seven Payment Date 12.50%
</TABLE>
10.5 The Borrowers shall not be entitled to reborrow any Term Loan or part
thereof repaid in accordance with Clause 10.4.
11. CANCELLATION AND PREPAYMENT
11.1 The Management Company may, by giving to the Agent not less than thirty
days' prior written notice to that effect, at any time during the Revolving
Period, cancel the whole or any part (being DM5,000,000 or any larger sum which
is an integral multiple of DM500,000) of the Available Tranche A Revolving
Facility or the Available Tranche B Revolving Facility and may, at any time
prior to the Final Maturity Date, cancel the whole or any part (being
DM5,000,000 or any larger sum
- 35 -
<PAGE> 41
which is an integral multiple of DM500,000) of the Available Tranche C Facility.
Any such cancellation shall reduce the Available Tranche A Revolving Commitment,
Available Tranche B Revolving Commitment or, as the case may be, the Available
Tranche C Commitment of each Bank rateably on a pro rata basis.
11.2 After the Revolving Facility Term Date, any Borrower may, if it has
given to the Agent not less than thirty days' prior written notice to that
effect, prepay the whole or any part (being DM5,000,000 or any larger sum which
is an integral multiple of DM500,000) of the Term Loan advanced to it, without
premium or penalty, on any Interest Payment Date relating thereto.
11.3 Any prepayment made pursuant to Clause 11.2 shall satisfy such
Borrower's obligations under Clause 10.4 pro rata between each twelve month
period specified therein.
11.4 Any notice of cancellation or prepayment given by a Borrower pursuant
to Clause 11.1 or 11.2 shall be irrevocable, shall specify the date upon which
such cancellation or prepayment is to be made and the amount of such
cancellation or prepayment and, in the case of a notice of prepayment, shall
oblige the relevant Borrower to make such prepayment on such date.
11.5 If, at any time prior to the Revolving Facility Term Date, any payment
is required to be increased under Clause 13 or any Bank claims indemnification
from any Borrower under Clause 15.1, the Management Company may, within thirty
days thereafter and by not less than fifteen days' prior notice to the Agent
(which notice shall be irrevocable), cancel such Bank's Available Commitment
whereupon such Bank shall cease to be obliged to participate in further
Revolving Advances or Tranche C Advances and its Available Tranche A Revolving
Commitment, Available Tranche B Revolving Commitment and Available Tranche C
Commitment shall be reduced to zero.
11.6 If, after the Revolving Facility Term Date, any payment is required to
be increased under Clause 13 or any Bank claims indemnification from any
Borrower under Clause 15.1 and within thirty days thereafter the Agent receives
from the Management Company at least fifteen days' prior notice (which shall be
irrevocable) of its intention to repay such Bank's share of the Advances, each
Borrower shall on the last day of each of the then current Interest Period repay
such Bank's portion of any outstanding Advance made to it to which such Interest
Period relates. Any repayment so made after the Revolving Facility Term Date
shall reduce rateably the remaining obligations of the Borrowers under Clause
10.4.
11.7 The Borrowers shall not repay all or any part of the Term Loan except
at the times and in the manner expressly provided for in this Agreement and
shall not be entitled to reborrow any amount repaid.
12. MANDATORY PREPAYMENT
12.1 If the Financial Group at any time after the Revolving Facility Term
Date achieves any Excess Cash Flow during any financial year ending after the
Revolving Facility Term Date (calculated by reference to the audited
consolidated financial statements of the Financial Group for the relevant
financial year), the Management Company shall, within one hundred and twenty
(120) days of the end of such financial year notify the Agent of the amount of
such Excess Cash Flow and ensure that the Borrowers, between them, prepay an
amount equal to 50% of such Excess Cash Flow by payment of such amount on the
next succeeding Interest Payment Date for a Term Advance (and, if such
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amount exceeds the amount of such Term Advance by payment of such balance on
each succeeding Interest Payment Date until the full amount has been paid). The
Management Company will notify the Agent promptly of the respective amounts to
be prepaid by each Borrower under this Clause 12.1.
12.2 The Management Company will procure the application of an amount equal
to (a) any Disposal Consideration received by any member of the Group from any
Asset Disposal less any Permitted Disposal Expenses and (b) any excess of
estimated corporation tax or trade tax referable to an Asset Disposal over the
amounts of such tax actually payable in prepayment of amounts outstanding under
the Loan by payment of such amount on the next succeeding Interest Payment Date
for an Advance falling after such Asset Disposal or payment of tax (as
appropriate) (and, if such amount exceeds the amount of such Advance by payment
of such balance on each succeeding Interest Payment Date until the full amount
has been paid).
12.3 The Disposal Consideration from any Asset Disposal will be placed
immediately to the credit of a Charged Account denominated in the currency of
the Disposal Consideration with Permitted Disposal Expenses being netted or
withdrawn (as appropriate) pending application in prepayment.
12.4 Any prepayment pursuant to Clause 12.1 shall be applied in satisfaction
pro tanto of the relevant Borrowers' obligations under Clause 10.4 in inverse
order of maturity and any such amount prepaid may not be reborrowed.
12.5 Any amount prepaid pursuant to Clause 12.2 after the Revolving Facility
Term Date shall be applied to satisfy the Borrowers' obligations under Clause
10.4 pro rata between each Payment Date. No prepayment made pursuant to Clause
12.2 may be reborrowed.
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PART 6
CHANGES IN CIRCUMSTANCES
13. TAXES
All payments to be made by any Obligor to any person under any Facility
Document shall be made free and clear of and without deduction for or on account
of tax unless such Obligor is required to make such a payment subject to the
deduction or withholding of tax, in which case the sum payable by such Obligor
in respect of which such deduction or withholding is required to be made shall
be increased to the extent necessary to ensure that, after the making of the
required deduction or withholding, such person receives and retains (free from
any liability in respect of any such deduction or withholding) a net sum equal
to the sum which it would have received and so retained had no such deduction or
withholding been made or required to be made.
14. TAX RECEIPTS
14.1 If, at any time, any Obligor is required by law to make any deduction
or withholding from any sum payable by it under any Facility Document (or if
thereafter there is any change in the rates at which or the manner in which such
deductions or withholdings are calculated), such Obligor shall promptly notify
the Agent.
14.2 If any Obligor makes any payment under any Facility Document in respect
of which it is required to make any deduction or withholding, it shall pay the
full amount required to be deducted or withheld to the relevant taxation or
other authority within the time allowed for such payment under applicable law
and shall deliver to the Agent for each Bank, within thirty days after it has
made such payment to the applicable authority, an original receipt (or a
certified copy thereof) issued by such authority evidencing the payment to such
authority of all amounts so required to be deducted or withheld in respect of
that Bank's share of such payment.
14.3 If any Obligor makes a payment under Clause 13 or 15.1 for account of
any person and such person, in its sole opinion, determines that it has received
or been granted a credit against or relief or remission for, or repayment of tax
paid or payable by it in respect of or calculated with reference to the
deduction or withholding giving rise to such payment, such person shall, to the
extent that it can in its sole discretion do so, without prejudice to the
retention of the amount of such credit, relief, remission or repayment pay to
such Obligor such amount as such person shall, in its sole opinion, have
calculated to be attributable to such tax. If an Event of Default or Potential
Event of Default has occurred and is continuing, any such payment may be paid to
such interest bearing account as the Agent may in its absolute discretion select
and be held as security for the performance of the obligations of such Obligor
under the Facility Documents. Any payment by a person under this Clause shall be
prima facie evidence of the amount due to the relevant Obligor hereunder and
shall be accepted by such Obligor in full and final settlement of its rights of
reimbursement hereunder in respect of the relevant deduction or withholding.
Nothing herein contained shall interfere with the right of a person to arrange
its tax affairs in whatever manner it thinks fit and, in particular, no person
shall be under any obligation to claim credit, relief, remission or repayment
from or against its corporate profits or similar tax liability in respect of the
amount of such deduction or withholding or payment on account of tax in priority
to any other claims, reliefs, credits or deductions available
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<PAGE> 44
to it, nor oblige any person to disclose any information relating to its tax
affairs or any of its tax computations.
15. INCREASED COSTS
15.1 If, by reason of (i) any change in law or in its interpretation or
administration of which a Bank is not aware at the date hereof or arising on or
after the date hereof and/or (ii) compliance with any request from or
requirement of any central bank or other fiscal, monetary or other authority of
which a Bank is not aware at the date hereof or arising on or after the date
hereof (including, without limitation, a request or requirement which affects
the manner in which a Bank or any holding company of such Bank is required to or
does maintain capital resources having regard to such Bank's obligations
hereunder and to amounts owing to it hereunder):
(a) a Bank or any holding company of such Bank incurs a cost as a
result of such Bank's having entered into and/or performing
its obligations under this Agreement and/or assuming or
maintaining a commitment under this Agreement and/or making
one or more advances hereunder;
(b) a Bank or any holding company of such Bank is unable to obtain
the rate of return on its overall capital (save that in the
case of any such holding company the relevant rate shall be
determined on a consolidated basis) which it would have been
able to obtain but for such Bank's having entered into and/or
performing its obligations and/or assuming or maintaining a
commitment under this Agreement;
(c) there is any increase in the cost to a Bank or any holding
company of such Bank of funding or maintaining all or any of
the advances comprised in a class of advances formed by or
including the advances made or to be made by such Bank
hereunder; or
(d) a Bank or any holding company of such Bank or the Agent on its
behalf becomes liable to make any payment on account of tax or
otherwise (not being a tax imposed on the net income of such
Bank's Facility Office by the jurisdiction in which it is
incorporated or in which its Facility Office is located) on or
calculated by reference to the amount of the advances made or
to be made by such Bank hereunder and/or to any sum received
or receivable by it or the Agent on its behalf hereunder
(including under this Clause 15.1);
then the Borrowers shall, from time to time on demand of the Agent, promptly pay
to the Agent for the account of that Bank amounts sufficient to indemnify that
Bank or any such holding company against, as the case may be, (1) such cost, (2)
such reduction in such rate of return (or such proportion of such reduction as
is, in the reasonable opinion of that Bank, attributable to its obligations
hereunder), (3) such increased cost (or such proportion of such increased cost
as is, in the reasonable opinion of that Bank, attributable to its funding or
maintaining advances hereunder) or (4) such liability (together with any
interest, penalties and expenses payable or incurred in connection therewith)
(except in the case of a holding company to the extent that the Bank has been
indemnified in respect of the same cost, reduction in rate of return, increased
cost or liability).
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15.2 A Bank intending to make a claim pursuant to Clause 15.1 shall notify
the Agent of the event by reason of which it is entitled to do so within 60 days
of the date upon which such Bank's Facility Office became aware of its
entitlement to make such a claim and the amount thereof, whereupon the Agent
shall notify the Borrowers thereof (giving reasonable details of how such cost,
reduction in rate of return, increased cost or liability has been calculated)
Provided that nothing herein shall require such Bank to disclose any
confidential information relating to the organisation of its affairs.
15.3 No Borrower shall be obliged to indemnify any person for any part of
any cost, reduction in rate of return, increased cost or liability under Clause
15.1 which would otherwise be payable if such amount was incurred solely by
reason of an unreasonable delay in the relevant Bank notifying the Agent of the
event by which it is entitled to be so indemnified after the relevant person has
become aware of the occurrence of such event and can compute a reasonable
estimate of the amount of such cost, reduction in rate of return, increased cost
or liability.
15.4 Notwithstanding Clause 15.1 above, no Borrower shall be obliged to make
any payment pursuant thereto to the extent that the relevant cost, reduction in
rate of return, increased cost or liability:
(a) is incurred in consequence of the implementation of the
capital adequacy rules set out in the report of the Basle
Committee on Banking Regulations and Supervisory Practices
dated July 1988 and entitled "International Convergence of
Capital Measurement and Capital Standards" as amended in
November 1991; or
(b) results from compliance with a relevant request or requirement
not having the force of law unless compliance therewith is
customary on the part of financial institutions in the
position of the Bank concerned; or
(c) to the extent that such cost, reduction in rate of return,
increased cost or liability is compensated under any other
provision of this Agreement; or
(d) results from the relevant Bank having exceeded a limit, or
failed to comply with an obligation, in effect at the date
hereof, by reason of having agreed to the terms hereof.
16. ILLEGALITY
If, at any time, it is unlawful for a Bank to make, fund or allow to remain
outstanding all or any of the Advances made or to be made by it hereunder, then
that Bank shall, promptly after becoming aware of the same, deliver to the
Management Company through the Agent a certificate to that effect and, unless
such illegality is avoided in accordance with Clause 17:
(i) such Bank shall not thereafter be obliged to make
advances hereunder and the amount of its Available
Tranche A Revolving Commitment, Available Tranche B
Revolving Commitment and Tranche C Commitment shall
be immediately reduced to zero; and
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<PAGE> 46
(ii) if the Agent on behalf of such Bank so requires, the
relevant Borrower shall on the latest date as is, in
the Bank's sole opinion, the latest date permitted by
law or, if such date cannot be ascertained by the
Bank, upon such date as the Agent shall have
reasonably specified on the instructions of such Bank
repay such Bank's share of any outstanding Revolving
Advances, Tranche C Advances or, as the case may be,
Term Advances together with accrued interest thereon
and all other amounts owing to such Bank hereunder.
17. MITIGATION
If, in respect of any Bank, circumstances arise which would or would upon the
giving of notice result in:
(i) the reduction of its Available Commitment to zero
pursuant to Clause 16(i); or
(ii) a requirement to make an additional payment under
Clause 13 or a claim for indemnification pursuant to
Clause 15,
then, without in any way limiting, reducing or otherwise qualifying the rights
of such Bank or the obligations of the Borrowers under either of the Clauses
referred to in (i) or (ii) above such Bank shall promptly upon its Facility
Office becoming aware of the same notify the Agent thereof and, take such steps
as such Bank considers at its sole discretion appropriate to mitigate the
effects of such circumstances including the transfer of its Facility Office to
another jurisdiction or the transfer of its rights and obligations hereunder to
another financial institution willing to participate in the Facility Provided
that such Bank shall be under no obligation to take any such action if, in the
opinion of such Bank at its sole discretion, to do so might have any adverse
effect upon its business, operations, financial condition or tax affairs.
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PART 7
REPRESENTATIONS, COVENANTS AND EVENTS OF DEFAULT
18. REPRESENTATIONS
18.1 Each Obligor party hereto acknowledges that each of the Banks has or
will have entered into this Agreement and participated in the Facilities (which
are syndicated on an international basis) in full reliance on the
representations in this Clause 18 which are made and given without prejudice to
the applicability of the General Business Conditions of Chase Manhattan Bank AG
referred to in Clause 45.2.
18.2 Each Obligor party hereto represents that:
(i) it is a limited company (Gesellschaft mit
beschrankter Haftung) or, as the case may be, a
limited partnership duly formed, registered and
validly existing under the laws of its Relevant
Jurisdiction;
(ii) it has the power and authority to own its own
property and to conduct its business as it is now
being conducted and is hereafter proposed to be
conducted and to enter into the Facility Documents
and the Project Documents and to exercise its rights
and perform its obligations thereunder;
(iii) all action required to authorise the execution,
delivery and performance of the Facility Documents
and the Project Documents by each of the Obligors,
the Holding Company and APA Basic
Beteiligungsgeselschaft mbH and the Project Obligors
has been duly taken;
(iv) under the laws of its Relevant Jurisdiction in force
at the date hereof, it will not be required to make
any deduction or withholding from any payment it may
make under any of the Facility Documents;
(v) under the laws of its Relevant Jurisdiction in force
at the date hereof, the claims of each of the Agent,
the Arranger and the Banks against it under the
Facility Documents will rank at least pari passu with
the claims of all its other unsecured creditors save
those whose claims are preferred solely by any
bankruptcy, insolvency, liquidation or other similar
laws of general application;
(vi) in any proceedings taken in its Relevant Jurisdiction
in relation to any of the Facility Documents, it will
not be entitled to claim for itself or any of its
assets immunity from suit, execution, attachment or
other legal process;
(vii) in any proceedings taken in its Relevant Jurisdiction
in relation to any of the Facility Documents, the
choice of German law as the governing law of the
Facility Documents and any judgment obtained in
Germany will be recognised and enforced;
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<PAGE> 48
(viii) all acts, conditions and things required to be done,
fulfilled and performed in order (a) to enable it
lawfully to enter into, exercise its rights under and
perform and comply with the obligations expressed to
be assumed by it in the Facility Documents and the
Project Documents, (b) to ensure that the obligations
expressed to be assumed by it in the Facility
Documents and the Project Documents are legal, valid
and binding and (c) to make the Facility Documents
and the Project Documents admissible in evidence in
its Relevant Jurisdiction have been done, fulfilled
and performed;
(ix) under the laws of its Relevant Jurisdiction in force
at the date hereof, it is not necessary that any of
the Facility Documents or the Project Documents be
filed, recorded or enrolled with any court or other
authority in such jurisdiction or that any stamp,
registration or similar tax be paid on or in relation
to any of the Facility Documents or the Project
Documents, save for the notarisation in Germany of
the Share Pledges; and
(x) the obligations expressed to be assumed by it in the
Facility Documents and the Project Documents are
legal and valid obligations binding on it in
accordance with the terms thereof, subject to any
qualifications as to matters of law in the legal
opinions to be delivered in connection herewith.
18.3 The Management Company further represents that (in the case of Clauses
18.3(vii)(b), (xi), (xii), (xiii) and (xv), to the best of its knowledge and
belief having made all reasonable enquiries):
(i) no member of the Group has taken any corporate action
nor have any other steps been taken or legal
proceedings been started or threatened against it for
its winding-up, dissolution, administration or
re-organisation, as the case may be, or for the
appointment of a receiver, trustee or similar officer
of it or them or of any or all of its or their assets
or revenues (other than a solvent reorganisation on
terms and conditions approved by an Instructing
Group);
(ii) no member of the Group is in breach of or in default
under any agreement to which it is a party or which
is binding on it or any of its assets to an extent or
in a manner which would be likely to have a Material
Adverse Effect;
(iii) no action, arbitration proceeding or administrative
proceeding of or before any court or agency has been
started or threatened which has a reasonable prospect
of success and which, if it succeeded, would be
likely to have a Material Adverse Effect;
(iv) the Original Financial Statements were prepared in
accordance with accounting principles generally
accepted in the Relevant Jurisdiction and
consistently applied and give (in conjunction with
the notes thereto) a true and fair view of the
financial condition of the member of the Group or
group to which they relate during the financial year
then ended;
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<PAGE> 49
(v) since publication of the Original Financial
Statements there has been no material adverse change
in the business or financial condition of any member
of the Group;
(vi) as at the date as of which the Original Financial
Statements were prepared no member of the Group had
any material liabilities (contingent or otherwise)
which were not disclosed thereby (or by notes
thereto) or reserved against therein nor any material
unrealised or anticipated losses arising from
commitments entered into by it which were not so
disclosed or reserved against;
(vii) (a) all of the written information supplied by or on
behalf of any member of the Group and its advisers to
the Agent, the Arranger and the Banks or any of them
or their advisers in connection with any Facility
Document on or prior to the date hereof and relating
to any member of the Group and/or the Project is
true, complete and accurate in all material respects
and (b) it is not aware of any material facts or
circumstances that have not been disclosed to the
Agent, the Arranger and the Banks or any of them;
(viii) the execution by each of the Obligors of the Facility
Documents and the Project Documents and the exercise
by such Obligor of its rights and performance of its
obligations thereunder will not result in the
existence of nor oblige any member of the Group to
create any encumbrance over all or any of its present
or future revenues or assets (other than those under
the Security Documents) save for:
(a) any contractors' liens arising by operation
of law in the ordinary course of business;
(b) encumbrances which may arise as a result of
retention of title provisions arising in the
ordinary course of business; and
(c) encumbrances which may arise as a result of
any title transfer laws applicable to the
cables and other equipment forming part of a
System by which ownership of elements
permanently built into real property may
pass to the owner of that real property;
(ix) the execution by each of the Obligors of the Facility
Documents and the Project Documents and its exercise
of its rights and performance of its obligations
thereunder do not and will not:
(a) conflict with any agreement, mortgage, bond
or other instrument or treaty to which any
member of the Group is a party or which is
binding upon them or any of their assets;
(b) conflict with the constitutive documents and
rules and regulations of any member of the
Group; or
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<PAGE> 50
(c) conflict with any applicable law, regulation
or official or judicial order;
(x) the execution by each of the Obligors of the Facility
Documents and the Project Documents constitutes, and
its exercise of its rights and performance of its
obligations hereunder or thereunder will constitute,
private and commercial acts done and performed for
private and commercial purposes;
(xi) each member of the Group has (a) at all times
complied with all Environmental Laws and
Environmental Licences and (b) obtained and
maintained in full force and effect all Environmental
Licences, save to the extent that the same would not
be likely to have a Material Adverse Effect, and
there are no facts or circumstances entitling any
such Environmental Licences to be revoked, suspended,
amended, varied, withdrawn or not renewed in
circumstances which would be likely to give rise to a
Material Adverse Effect;
(xii) no Material Environmental Claim is pending or has
been made or threatened against any member of the
Group or any occupier of any property owned or leased
by any member of the Group;
(xiii) no Relevant Substance has been deposited, disposed
of, kept, treated, imported, exported, transported,
processed, manufactured, used, collected, sorted or
produced at any time or is present in the Environment
(whether or not on property owned, leased, occupied
or controlled by any member of the Group) in
circumstances which are likely to result in a
Material Environmental Claim against any member of
the Group;
(xiv) full details have been given to the Agent of any
inspections, investigations, studies, audits, tests,
reviews or other analysis in relation to
Environmental Matters relating to any member of the
Group;
(xv) the Intellectual Property Rights owned by the members
of the Group are free from any encumbrance (save for
those created or to be created by or pursuant to the
Security Documents) and any other rights or interests
in favour of third parties;
(xvi) the Intellectual Property Rights owned by or licensed
to the members of the Group are all the Intellectual
Property Rights required by them in order to carry
out, maintain and operate their respective
businesses, properties and assets and no member of
the Group in carrying on its respective businesses,
infringes any Intellectual Property Rights of any
third party to any extent which would be likely to
have a Material Adverse Effect;
(xvii) no Intellectual Property Rights owned by the members
of the Group are being infringed, nor is there any
threatened infringement of any such Intellectual
Property Rights which would be likely to have a
Material Adverse Effect;
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<PAGE> 51
(xviii) save to an extent which is not likely to have a
Material Adverse Effect the Project Documents are in
full force and effect;
(xix) no Project Obligor is in breach of the terms of any
of the Project Documents, nor is there any material
dispute subsisting between the parties thereto, which
in either case would be likely to have a Material
Adverse Effect;
(xx) none of the Necessary Authorisations are the subject
of any pending or threatened challenge, revocation,
suspension or withdrawal nor are any sanctions
pending or threatened thereunder to the extent which
would be likely to have a Material Adverse Effect;
(xxi) no Event of Default or Potential Event of Default has
occurred and is continuing;
(xxii) each member of the Group complies and at all times
has complied with all Telecommunications and Cable
Laws save to the extent that any non-compliance would
not be likely to have a Material Adverse Effect;
(xxiii) it is a direct wholly owned subsidiary of the Holding
Company;
(xxiv) documentation to effect the merger of each of BFR
Beteiligungsgesellschaft fur
Fernseh-und-Rundfunkkommunikation GmbH, Telecable
Beteiligungsgesellschaft mbH and ISIT
Ingenieurgesellschaft fur Satelliten-Informations
und Telekommunikationstechnik mbH with Kabelmedia
Projektmanagement Kommunikationsnetze GmbH & Co. KG
Kabelbetriebsgesellschaft has been lodged (and not
withdrawn) with the commercial register at the
relevant court(s);
(xxv) the assests of and liabilities of KSW
Beteiligungsgesellschaft GmbH & Co. KG Kabel und
Satellitenempfangslangen fur Wohngebiete und Kommunen
have accrued to Kabelmedia Projektmanagement
Kommunikationsnetze GmbH & Co.
Kabelbetriebsgesellschaft and the former company has
ceased to exist by operation of law; and
(xxvi) the Group Structure at the date hereof is as set out
in the Twelfth Schedule.
18.4 Each of the representations referred to in Clause 18.2 and 18.3 above
(other than those contained in Clauses 18.2(iii), (iv), (v) and (ix) and Clauses
18.3(i), (v), (vii)(a), (xviii), (xx) and (xxiv)) shall be repeated on the date
of making of any Notice of Drawdown hereunder and the first day of each Interest
Period and Term hereunder, by reference to the facts and circumstances then
existing but as if references to the Original Financial Statements were
references to the audited (and, where relevant, consolidated and consolidating)
financial statements of the Management Company most recently delivered to the
Agent pursuant hereto.
18.5 Each of the representations referred to in Clauses 18.2(ii), (iii),
(viii), (ix) and (x) and 18.3(viii), (ix), (x), (xviii) and (xix) shall, to the
extent that such representations relate to the Project Documents be repeated as
at the date of any new Project Document entered into after the date hereof
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<PAGE> 52
in relation to such Project Document Provided that, to the extent that they
relate to Relevant Contracts a representation will not be regarded being
incorrect or misleading unless such breach would have a Material Adverse Effect.
19. INFORMATION
19.1 The Management Company shall:
(i) as soon as the same become available, but in any
event within 120 days after the end of each of its
financial years, deliver to the Agent the audited
annual financial statements of each Obligor prepared
in accordance with accounting principles of such
Obligor's Relevant Jurisdiction and the audited
annual consolidated and consolidating financial
statements of the Financial Group prepared in
accordance with U.S. GAAP;
(ii) as soon as practicable but in any event within 45
days after the end of each calendar month, deliver to
the Agent the consolidated and consolidating monthly
financial statements of the Financial Group prepared
in accordance with U.S. GAAP and certified by the
chief financial officer of the Management Company;
(iii) deliver to the Agent as soon as practicable but in
any event within 45 days after the end of each
Quarterly Period, the consolidated quarterly
financial statements of the Financial Group prepared
in accordance with U.S. GAAP together with a
Compliance Certificate and a Subscriber Certificate
in each case certified by the managing director
(Geschaftsfuhrer) of the Management Company;
(iv) within 45 days of the completion of each Acquisition,
deliver to the Agent a business plan (in a format
acceptable to the Banks) including projected profit
and loss accounts, balance sheets and cash flow
statements for such newly acquired member of the
Financial Group for each calendar month during the
period of 12 calendar months commencing with the
month during which such Acquisition was completed,
and for each financial year thereafter (until the
Final Maturity Date);
(v) within 30 days of the end of each of its financial
years, deliver a revised consolidated business plan
(in a format acceptable to the Banks) for the
Financial Group including projected profit and loss
accounts, balance sheets and cash flow statements for
each calendar month during the 12 month period
commencing immediately after the end of the such
financial year, and for each financial year
thereafter (until the Final Maturity Date), together
with a reconciliation statement reconciling the
performance of the Financial Group during the
previous financial year with the business plan
delivered in respect of the Financial Group for such
previous financial year and an explanation (in
reasonable detail) of such reconciliation; and
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<PAGE> 53
(vi) from time to time on the request of the Agent,
furnish the Agent with such other information
concerning it or any member of the Group as the Agent
may reasonably require.
19.2 The Management Company shall ensure that:
(i) each set of financial statements delivered by it
pursuant to Clause 19.1(i) is prepared on the same
basis as was used in the preparation of its Original
Financial Statements and in accordance with
accounting principles generally accepted in the
Relevant Jurisdiction or, as the case may be, U.S.
GAAP and consistently applied;
(ii) each set of financial statements delivered by it
pursuant to Clause 19.1(i) is certified by a duly
authorised officer of the relevant Obligor as giving
a true and fair view of the financial condition of
such Obligor, or, in the case of the consolidated and
consolidating account of the Management Company, of
the relevant group, as at the end of the period to
which those financial statements relate and of the
results of the operations of such Obligor, or, as
appropriate, such group during such period;
(iii) each set of financial statements delivered by it
pursuant to Clause 19.1(i) has been audited by a
generally recognised international firm of auditors
acceptable to the Agent;
(iv) each set of financial statements delivered under each
of Clauses 19.1(i), (ii) and (iii) is prepared on a
consistent basis to the financial statements
previously delivered thereunder, save to the extent
good practice or law requires otherwise;
(v) the managing director (Geschaftsfuhrer) of each
Obligor certifies that such Obligor is not unable to
meet its debts as they fall due (zahlungsunfahig) at
the same time that the Compliance Certificate is
delivered to the Agent pursuant to Clause 19.1(iv)
above; and
(vi) each set of financial statements of the Management
Company delivered under Clause 19.1(i) is accompanied
by a reconciliation statement which shall be prepared
by the Management Company and commented on by a
generally recognised international firm of auditors
acceptable to the Agent reconciling such financial
statements with the financial statements delivered
pursuant to Clauses 19.1(ii) and (iii) in respect of
such period.
19.3 The Management Company shall ensure that all written information
supplied by or on behalf of any member of the Group and its advisers to the
Agent, the Arranger and the Banks or any of them or their advisers in connection
herewith after the date hereof which relates to any member of the Group and/or
the Project is true, complete and accurate in all material respects at the time
it is delivered.
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<PAGE> 54
19.4 The Management Company shall ensure that in the event that any
financial statements are delivered which are not prepared on a consistent basis
to financial statements previously delivered hereunder, such financial
statements are accompanied by an explanation of any changes to accounting bases
used with a reconciliation of any of the covenants in Clause 20.1 to the extent
requested by an Instructing Group.
19.5 The Management Company shall ensure that there is delivered to the
Agent in connection with each Acquisition which is not funded by a drawing under
Clause 6 a description of such Acquisition including such details of homes
passed, subscribers, revenues, rates, operating cashflow, and technical
specifications as are available and such legal, tax, technical and accounting
due diligence reports as are prepared for the Group in connection therewith and
a breakdown of any costs, fees, charges and expenses incurred or to be incurred
in connection therewith.
19.6 This Clause 19 shall be subject to the financial information agreement
specified at item 18 of the Third Schedule.
20. FINANCIAL CONDITION
20.1 The consolidated financial condition of the Financial Group as
evidenced by the then most recent consolidated financial statements delivered
pursuant to Clauses 19.1(i), (ii) and (iii) (adjusted as an Instructing Group
may reasonably consider appropriate, to take account of any changes in the basis
on which such statements were prepared or in generally accepted applicable
accounting principles) shall be such that in relation to the Financial Group:
(i) as at the end of each Quarterly Period which ends
during each of the periods specified below the ratio
of Senior Debt to Annualised EBITDA shall not exceed
the ratio set alongside such period:
<TABLE>
<CAPTION>
PERIOD RATIO
<S> <C>
Closing Date to 31 December 1996 6.50:1
1 January 1997 - 30 June 1997 6.25:1
1 July 1997 - 31 December 1997 5.75:1
1 January 1998 - 30 June 1998 5.25:1
1 July 1998 - 31 December 1998 4.75:1
1 January 1999 - 30 June 1999 4.00:1
1 July 1999 - 31 December 1999 3.75:1
and, thereafter 3.25:1
</TABLE>
(ii) as at the end of each Quarterly Period which ends
during each of the periods specified below the ratio
of Total Debt to Annualised EBITDA shall not exceed
the ratio set alongside such period:
<TABLE>
<CAPTION>
PERIOD RATIO
<S> <C>
Closing Date to 31 December 1997 8.00:1
1 January 1998 - 30 June 1998 7.50:1
1 July 1998 - 31 December 1998 7.25:1
</TABLE>
- 49 -
<PAGE> 55
<TABLE>
<S> <C>
1 January 1999 - 31 December 1999 6.25:1
1 January 2000 - 31 December 2000 5.50:1
1 January 2001 - 31 December 2001 4.75:1
and, thereafter 4.50:1
</TABLE>
(iii) for each Quarterly Period which ends during each of
the periods set out below:
(a) if each of the conditions set out in
paragraph (i) and (ii) of Clause 6.2 have
been satisfied, the ratio of EBITDA of the
Financial Group to Cash Interest Expense
shall not be less than the ratio set
alongside such period:
PERIOD RATIO
Closing Date to 31 December 1996 2.75:1
1 January 1997 - 31 December 1997 3.00:1
1 January 1998 - 31 December 1998 3.25:1
1 January 1999 - 31 December 1999 3.75:1
1 January 2000 - 31 December 2000 4.75:1
1 January 2001 - 31 December 2001 2.00:1
1 January 2002 - 31 December 2002 2.25:1
and, thereafter 2.50:1; and
(b) if either of the conditions set out in
paragraph (i) and (ii) of Clause 6.2 has not
been satisfied the ratio of EBITDA of the
Financial Group to Cash Interest Expense
shall not be less than the ratio, set
alongside such period:
PERIOD RATIO
Closing Date to 31 December 1996 2.00:1
1 January 1997 - 31 December 1997 2.25:1
1 January 1998 - 31 December 1998 2.50:1
and, thereafter 2.75:1
(iv) on the last day of each Quarterly Period which ends
during each of the periods specified below the ratio
of Annualised EBITDA to Pro Forma Debt Service shall
not be less than the ratio set alongside such period:
PERIOD RATIO
1 January 1997 - 31 December 1999 1.00:1
1 January 2000 - 31 December 2000 1.05:1
and, thereafter 1.10:1
(v) in respect of each financial year of the Financial
Group commencing after the Revolving Facility Term
Date and tested by reference to the audited
- 50 -
<PAGE> 56
consolidated financial statements of the Financial
Group for such financial year, the ratio of the sum
of (a) EBITDA of the Financial Group for such
financial year and (b) the amount of the Available
Tranche C Facility on the last day of such financial
year to Fixed Charges for such financial year shall
not be less than 1.00:1.
20.2 The Management Company shall ensure that at all times prior to the
Senior Discount Notes Issue Date the ratio of Pro Forma Senior Debt to
Contributed Equity shall not exceed 65:35 and that at all times thereafter the
ratio of Senior Debt to Contributed Equity shall not exceed 55.45.
21. COVENANTS
21.1 POSITIVE COVENANTS
The Management Company undertakes that it shall, and shall procure that
its subsidiaries shall:
(i) obtain, comply with the terms of and do all that is
necessary to maintain in full force and effect all
authorisations, approvals, licences and consents
required in or by the laws and regulations of the
Relevant Jurisdiction to enable it lawfully to enter
into and perform its obligations under the Facility
Documents or to ensure the legality, validity,
enforceability or admissibility in evidence in the
Relevant Jurisdiction of the Facility Documents;
(ii) maintain, insurances on and in relation to its
business and assets with reputable underwriters or
insurance companies against such risks and to such
extent as is usual for companies and partnerships
carrying on a business such as that carried on by it;
(iii) (in the case of the Management Company only) promptly
inform the Agent of the occurrence of any Event of
Default or Potential Event of Default and, upon
receipt of a written request to that effect from the
Agent, confirm to the Agent that, save as previously
notified to the Agent or as notified in such
confirmation, no Event of Default or Potential Event
of Default has occurred;
(iv) ensure that at all times the claims of the Agent, the
Arranger, the Security Trustee and the Banks against
it under the Facility Documents rank at least pari
passu with the claims of all their other unsecured
creditors save those whose claims are preferred by
any bankruptcy, insolvency, liquidation or other
similar laws of general application;
(v) (in the case of the Management Company only) after
the delivery of any Notice of Drawdown and before the
proposed making of the Revolving Advance requested
therein, notify the Agent of the occurrence of any
event which results in or may reasonably be expected
to result in any of the representations contained in
Clause 18 being untrue at or before the time of the
making of such Revolving Advance;
- 51 -
<PAGE> 57
(vi) procure that the Project is designed, constructed,
completed, tested, commissioned, equipped, operated
and maintained in all respects in accordance with:
(a) the Project Documents;
(b) all applicable laws and regulations; and
(c) good practice in the cable network
construction, television, cable television
and telecommunications industry,
save to the extent that any failure to so do would be
unlikely to have a Material Adverse Effect;
(vii) comply with the terms of the Project Documents and do
all that is necessary to maintain all Project
Documents in full force and effect save to the extent
that any such non-compliance or failure to maintain a
Project Document in full force and effect would not
be likely to have a Material Adverse Effect;
(viii) procure that the Project Facilities are operated in
an efficient and businesslike manner and are kept in
or restored to good and sufficient operating
condition and that any material defect, imperfection
or other fault is promptly remedied and made good and
that repairs, renewals, replacements, additions and
improvements thereto required to such end are
promptly made;
(ix) acquire and preserve all such property, rights and
interests as are necessary for the performance by
each member of the Group of its obligations under the
Project Documents and ensure that all such property
and interests are free of any leases, restrictions,
covenants, wayleaves or other rights or encumbrances
as may hinder or delay the performance of each member
of the Group's obligations under the Project
Documents;
(x) ensure that at reasonable times, on reasonable prior
notice by the Agent, any representative of the Agent
(with any professional adviser of the Agent) be
afforded access to, and be permitted to inspect or
observe, all or any part of System;
(xi) to the extent requested by the Agent, procure that
any representative or professional adviser to the
Agent may have access to and be provided with copies
of books, records, accounts, documents, computer
programmes, data or other information in the
possession of or available to it, save to the extent
that the provision of such copies would either result
in a breach of any applicable law or would be
contrary to any agreement which the member of the
Group concerned has at the date of this Agreement
entered into with any third party (in which case the
Management Company and the Agent will enter into
discussion concerning the extent of the disclosure
which is allowable in the circumstances);
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<PAGE> 58
(xii) maintain and protect its rights and interests in the
Intellectual Property Rights, the Project Facilities
and the Project Documents and shall:
(a) promptly pay all and any registration,
renewal and licence fees and any fees and
other additional payments payable under the
Licences and/or the Environmental Licences;
(b) procure that all notices and registrations
necessary for the protection by them of
their respective rights and interest therein
are promptly given and/or made in the
appropriate forms; and
(c) promptly take such action as may be
reasonably required to protect the same from
infringement;
(xiii) conduct its business in all material respects in
accordance with the general parameters specified in
the Business Plan most recently delivered pursuant to
Clause 19.1(vi) Provided that:
(a) this Clause 21.1(xiii) shall not of itself
oblige any Obligor to comply with any
particular financial targets or projections
which may be included in such Business Plan;
and
(b) this Clause 21.1(xiii) shall not of itself
restrict any Obligor from making any
Acquisition or Asset Disposal or expanding
or altering any System;
(xiv) comply with the terms and conditions of all laws,
regulations, agreements, licences and concessions
including, without limitation, all Environmental Laws
and all Environmental Licences, all
Telecommunications and Cable Laws and all Licences
and Permissions, save to the extent that any
non-compliance therewith would not be likely to have
a Material Adverse Effect;
(xv) notify the Agent promptly upon becoming aware of any
Relevant Substance at or brought on to any property
owned, leased or occupied by any member of the Group
which is likely to give rise to a Material
Environmental Claim and take or procure the taking of
all necessary action to deal with, remedy or remove
from such property or prevent the incursion of, (as
the case may be) the Relevant Substance in order to
prevent such Environmental Claim and in a manner that
complies with all requirements of Environmental Law;
(xvi) file or cause to be filed all tax returns required to
be filed in all jurisdictions in which it is situated
or carries on business or otherwise subject to pay
tax and will promptly pay all taxes shown to be due
and payable on such returns or any assessment made
against it (other than where the same is being
contested in good faith and against which it is
maintaining adequate reserves);
- 53 -
<PAGE> 59
(xvii) deliver to the relevant addressee all information
required to be given to such addressee pursuant to
the terms of the Licences;
(xviii) notify the Agent forthwith upon receipt by it of any
notice from the government, court or any regulatory
authority or agency or any Project Obligor which is
likely to give rise to the enforcement, revocation,
termination, material amendment, suspension or
withdrawal of any Project Document where the same
would be likely to have a Material Adverse Effect;
(xix) ensure that none of the Necessary Authorisations are
subject to a pending or threatened challenge,
revocation, suspension or withdrawal to any extent
which would be likely to have a Material Adverse
Effect;
(xx) ensure that each member of the Group which has
borrowed Subordinated Debt maintains a shareholders'
debt to equity ratio such that any interest paid to
the Holding Company or any Shareholder in relation to
any Subordinated Debt is not recharacterised as
dividends for German tax purposes;
(xxi) ensure that, within 90 days from the date of this
Agreement, the Borrowers have entered into, on terms
acceptable to the Banks such interest rate hedging
arrangements as are necessary to hedge, for a period
of at least 3 years from the date of implementation
of such arrangements, the Borrowers' exposure to
interest rate fluctuations in relation to a notional
principal amount of no less than an amount equal to
fifty per cent. (50%) of the aggregate indebtedness
for borrowed money of the Financial Group from time
to time; and
(xxii) ensure that, at all times, key man life assurance is
in place in respect of Ben Bartel in an amount of at
least DM 2,500,000 for the benefit of the Group.
21.2 NEGATIVE COVENANTS
The Management Company shall ensure that no member of the Group shall:
(i) permit or agree to any amendment, waiver, termination
or assignment to or of any of the terms and
conditions of any Project Document if such amendment,
waiver, termination or assignment would be likely to
have a Material Adverse Effect;
(ii) create, assume, incur or otherwise permit to be
outstanding any indebtedness for borrowed money other
than:
(a) any indebtedness for borrowed money created
under this Agreement;
(b) the Subordinated Debt;
(c) any indebtedness for borrowed money
outstanding between the Management Company
and any of its subsidiaries;
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<PAGE> 60
(d) any Deferred Consideration relating to any
Acquisition provided that the amount of such
Deferred Consideration does not exceed the
Available Facility at such time;
(e) any indebtedness arising under a derivative
transaction entered into in accordance with
Clause 21.1(xxi) or 21.3(vii);
(f) any other indebtedness for borrowed money
(including capital leases) of the Group
outstanding at any time up to a maximum
aggregate amount of DM7,500,000; or
(g) any indebtedness under any guarantees at any
time up to a maximum aggregate amount of
DM5,000,000 for the Group;
(iii) create or permit to subsist any encumbrance over all
or any of its present or future revenues or assets
other than:
(a) encumbrances created pursuant to the
Security Documents;
(b) any encumbrance which arises in respect of
goods sold to any Obligor in the ordinary
course of its business by virtue of
retention of title provisions contained in
the relevant seller's standard conditions of
sale;
(c) any lien arising by operation of law in the
ordinary course of business;
(d) any rights of set-off or netting
arrangements which may be exercisable in
respect of any amounts standing to the
credit of any bank account held by any
Obligor against any debit balances of any
bank account held by itself or any other
Obligor which either arise by operation of
law or are contained in the account holding
bank's standard documentation;
(e) any encumbrance over or affecting any asset
acquired by an Obligor after the date hereof
and subject to which such asset is acquired
Provided that:
(i) such encumbrance was not created in
contemplation of the acquisition of
such asset by an Obligor; and
(ii) the amount hereby secured has not
been increased at, in contemplation
of, or since the date of, the
acquisition of such asset by an
Obligor; and
(iii) the aggregate amount of
indebtedness secured by such
encumbrances shall not exceed
DM1,500,000 for the Group at any
time;
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<PAGE> 61
(f) any encumbrance created after the date
hereof over any asset of an Obligor solely
for the purpose of securing indebtedness for
borrowed money incurred to (a) acquire any
such asset after the date hereof and/or (b)
repair, alter, construct, develop or improve
any such asset provided that the amount
thereby secured does not exceed the purchase
price of such asset acquired or, as the case
may be, the lower of book value and market
value of any such asset repaired, altered,
constructed, developed or improved after
such repair, alteration, construction,
development or improvement at the time such
encumbrance was created Provided that the
aggregate amount of indebtedness secured by
any such encumbrances shall not exceed
DM1,500,000 for the Group at any time; and
(g) the title transfer and retention of title
arrangements arising in the ordinary course
of the installation or operation of a System
specified in Clause 18.3(viii)(a), (b) and
(c) above;
(iv) make any loans, grant any credit or give any
guarantee or indemnity (except as required hereby to
or for the benefit of any person) or otherwise
voluntarily assume any liability, whether actual or
contingent, in respect of any obligation of any other
person other than:
(a) loans made, or credit granted, by the
Management Company to any of its
subsidiaries (or vice versa);
(b) credit granted by any Operating Company in
the ordinary course of its business
consistent with good practice in the cable
television industry; and
(c) make investments in the ordinary course of
business of the Group either by way of loan
or purchase of equity up to a maximum
aggregate amount of DM5,000,000 for the
Group; or
(v) (disregarding sales of stock in trade in the ordinary
course of business) sell, lease, transfer or
otherwise dispose of, by one or more transactions or
series of transactions (whether related or not), the
whole or any part of its revenues or its assets other
than the disposal on arms length terms for full
market value of any asset where (a) the value (which
shall either be its net book value or the amount of
proceeds from such disposal, whichever is the higher)
of such asset (when aggregated with the value of all
other assets of the Group, calculated on a similar
basis, disposed of during the previous twelve month
period) does not exceed an amount equal to five per
cent. (5%) of the total assets of the Group (as at
the date of such determination) and (b) the Net
Revenues generated by such assets (when aggregated
with the Net Revenues generated by all other assets
of the Group, calculated on a similar basis, disposed
of during such twelve month period) does not exceed
five per cent. (5%) of the consolidated Net Revenues
of the Group taken as a whole for such period.
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<PAGE> 62
21.3 The Management Company shall give the Agent no less than twenty (20)
business days' prior written notice of any member of the Group's intention to:
(i) merge or consolidate with any other company or person
unless the resulting entity will assume all the
obligations of the relevant member of the Group
concerned under the Facility Documents and Project
Documents to which it is a party to the reasonable
satisfaction of the Agent and will be of at least an
equivalent creditworthiness to the relevant member of
the Group to the satisfaction of all the Banks;
(ii) create or acquire any new subsidiaries or enter into
any partnerships unless the relevant new subsidiary
or partnership executes a Guarantor Accession
Memorandum and delivers the required accompanying
documents in accordance with Clause 43.1(i) below;
(iii) issue any further shares (save for (a) issues of
shares by any members of the Group to its holding
company and (b) issues of equity share capital by the
Management Company as consideration for the
investment of Contributed Equity by the Holding
Company) or alter any rights attaching to its issued
shares in existence at the date hereof;
(iv) cause, permit or suffer the suspension or the
abandonment or termination of the implementation or
operation of the Project or any part thereof which
would be likely to have an Material Adverse Effect;
(v) open or permit to subsist any bank account with any
person other than a Bank, except for any bank
accounts held by any person whose share capital or
limited partnership interest (as appropriate) is
acquired by any member of the Group after the date
hereof and which shall within 1 month of the date of
such acquisition have been transferred to a Bank
Provided that no further credits may be made to any
bank account to be transferred to a Bank within the
exception above after the date hereof or after the
date of acquisition of the person concerned, as
appropriate;
(vi) change its financial year end from 31 December; and
(vii) enter into any derivative transaction (of the nature
described in paragraph (viii) of the construction of
the term "indebtedness for borrowed money") with any
person other than a Bank Provided that the Group may
enter into derivative transactions provided that (a)
the net mark to market exposure of the Group (as
calculated by the Agent) under all such derivative
transactions entered into by any member of the Group
(including, for the avoidance of doubt, any contracts
entered into pursuant to Clause 21.1(xxi) at no time
exceeds DM42,500,000, and (b) such net mark to market
exposure of the Group to banks or financial other
than the Banks at no time exceeds DM12,500,000.
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<PAGE> 63
The Agent shall be entitled within ten (10) business days of receipt of such
notice to request the Management Company to supply to the Agent any relevant
information in connection with the proposed action set out in such notice.
The Agent shall notify the Management Company, within ten (10) business days of
receipt of such notice, or if additional information has been requested by the
Agent within the prescribed time, within ten (10) business days' of receipt of
such information, whether the proposed action is or is, in the reasonable
opinion of an Instructing Group likely to have a material adverse effect on the
risk position of the Banks.
If the proposed action is so considered to have a material adverse effect and
the relevant member of the Group nevertheless takes such action, the Agent shall
be entitled to make (and, if so instructed by an Instructing Group, shall make)
the declaration set out in Clause 22.1(a) and/or (b) and call for repayment of
the Advances and exercise the other rights in accordance with Clause 22.2.
21.4 The Management Company shall not pay, make or declare any dividend, pay
any interest or other distribution to its shareholder provided that if, in
respect of any Quarterly Period, the ratio of Senior Debt to Annualised EBITDA
is less than 4.50:1 and that no Event of Default or Potential Event of Default
has occurred or would arise as a result thereof, then the Management Company may
pay, make and declare dividends, pay any interest or other distribution to the
Holding Company solely for the purpose of meeting its interest payment
obligations in respect of the Senior Discount Notes and Provided further that
the Management Company may pay, make and declare dividends, pay any interest or
make other distribution to the Holding Company in order for the Holding Company
to pay Holding Company Management Expenses.
21.5 The Management Company shall ensure that, unless it is agreed otherwise
by an Instructing Group in consultation with the Management Company taking into
account the specific circumstances applicable to any particular System or member
of the Group concerned:
(i) no System Assets are transferred by any member of the
Group to any person (whether by intra-group transfer,
change in legal status or otherwise) unless all
System Assets forming part of the System concerned
are transferred at or above book value on arms'
length terms to the same transferee at the same time;
(ii) all System Assets relating to each System are owned
and operated by the same person being a subsidiary of
the Management Company, except for System Assets
owned by the Management Company in the course of
transfer to a limited partnership in accordance with
Clause 21.5(iv) below;
(iii) each member of the Group which is a company is a
wholly owned subsidiary of its direct holding company
and each member of the Group which is a limited
partnership has the Management Company as its sole
limited partner and a directly owned subsidiary of
the Management Company as its general partner, which
has no assets other than its general partnership
interest in the limited partnership concerned (save
that intermediate structures reasonably acceptable to
the Banks may be in place for no more than 28 days
while the
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<PAGE> 64
Group is implementing a structure in conformity with
this paragraph (iii)); and
(iv) as soon as reasonably practicable, the assets of each
Operating Company are transferred to a limited
partnership whose general partner is the Operating
Company and whose sole limited partner is the
Management Company, subject to any material tax
considerations arising in connection with such
transfer.
21.6 The Management Company shall ensure that there is provided to the
Security Trustee within 30 days of the date of this Agreement such detail of all
Subscriber receivables, head ends, assets, concession agreements as is available
to the relevant Obligor and all other matters reasonably required for the
completion of the security documents, taking into account any practical
constraints on the obtaining of such information. Provided that to the extent
that such information has already been received by the Security Trustee at the
date hereof the Management Company shall be deemed to have satisfied its
obligations under this Clause 21.6.
22. EVENTS OF DEFAULT
22.1 If:
(i) any Obligor fails to pay any sum due from them under
any of the Facility Documents within two business
days of the due date therefor, in the currency and in
the manner specified herein; or
(ii) any representation, warranty or statement made by any
Obligor in any Facility Document or in any notice or
other document, certificate or statement delivered by
it pursuant thereto or in connection therewith is or
proves to have been incorrect or misleading when made
or deemed repeated; or
(iii) any Obligor fails duly to perform or comply with any
of the obligations expressed to be assumed by it in
Clauses 19, 21 or 43 (other than in Clauses 21.1(i),
(ii), (iv), (vi), (viii), (x), (xiii), (xiv), (xvi)
and (xviii)); or
(iv) the financial covenants set out in Clause 20 are not
complied with; or
(v) any Obligor, the Holding Company or APA Basic
Beteiligungsgesellschaft mbH fails duly to perform or
comply with any other obligation expressed to be
assumed by it in any Facility Document and such
failure is not remedied within twenty one days after
the Agent has given notice thereof to the relevant
defaulting party; or
(vi) any indebtedness for borrowed money of the Group or
of the Holding Company (or, prior to the Level 1
Merger Date, of KabelVision Beteiligungs GmbH or
Kabelmedia Beteiligungs GmbH) exceeding DM1,500,000
in aggregate is not paid when due, is declared to be
or otherwise becomes due and payable prior to its
specified maturity or any creditor or creditors of
any
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<PAGE> 65
member of the Group or of the Holding Company (or,
prior to the Level 1 Merger Date, of KabelVision
Beteiligungs GmbH or Kabelmedia Beteiligungs GmbH)
becomes entitled to declare any such indebtedness for
borrowed money due and payable prior to its specified
maturity; or
(vii) any of the events of default specified in the Senior
Discount Notes Indenture occurs;
(viii) any Obligor, any Material Group Company or the
Holding Company (or, prior to the Level 1 Merger
Date, KabelVision Beteiligungs GmbH or Kabelmedia
Beteiligungs GmbH) is unable to pay its debts as they
fall due (zahlungsunfahig) or is over-indebted
(uberschuldet), commences negotiations with any one
or more of its creditors with a view to any
arrangement for the general readjustment or
rescheduling of its indebtedness or a general
assignment for the benefit of or a composition with
its creditors or a moratorium in respect of all or
any class of debts of any Obligor, any Material Group
Company or the Holding Company (or, prior to the
Level 1 Merger Date, KabelVision Beteiligungs GmbH or
Kabelmedia Beteiligungs GmbH) is applied for, ordered
or declared; or
(ix) any Obligor, any Material Group Company or the
Holding Company (or, prior to the Level 1 Merger
Date, KabelVision Beteiligungs GmbH or Kabelmedia
Beteiligungs GmbH) takes any action or other steps
are taken or legal proceedings are started for its
winding-up, dissolution or re-organisation or for the
appointment of a receiver, administrator,
administrative receiver, trustee or similar officer
of it or of any or all of its revenues and assets
(other than a solvent re-organisation on terms and
conditions approved by an Instructing Group); or
(x) any event shall occur which gives grounds for belief,
in the reasonable opinion of an Instructing Group,
that any of the Project Documents may be amended,
suspended, cancelled, revoked, surrendered or
terminated (whether is whole or in part) or any
consent, licence, approval, authorisation,
registration or permit required or obtained by any of
the Project Obligors for the execution, delivery and
performance of any Project Document or the
undertaking of the Project may be suspended,
cancelled, revoked, surrendered or terminated if such
event is likely to give rise to a Material Adverse
Effect; or
(xi) there occurs, in relation to any Obligor or any
Material Group Company, in any country or territory
in which any of them carries on business or to the
jurisdiction of whose courts any part of their
respective assets is subject, any event which, in the
opinion of an Instructing Group appears in that
country or territory equivalent or similar to, any of
those mentioned in Clause 22.1(vi) or (vii) or any
Obligor or any Material Group Company otherwise
becomes subject in any such country or territory, to
the operation of any law relating to insolvency,
bankruptcy or liquidation; or
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<PAGE> 66
(xii) any execution, distress, attachment or legal process
is levied, made or taken against, or an encumbrancer
takes possession of, the whole or any part of, the
property, undertaking or assets of any Obligor or any
Material Group Company, including the Project
Facilities, and is not discharged within 10 days; or
(xiii) by or under the authority of any government the
managing director of any Obligor or any Material
Group Company is wholly or partially displaced or the
authority of the managing director (Geschaftsfuhrer)
of any Obligor or any Material Group Company in the
conduct of the business of such Obligor or Material
Group Company is wholly or partially curtailed; or
(xiv) any of the events set out in Clauses 22.1(vi), (vii),
(ix), (x) or (xi) shall occur in relation to any
member of the Group which is neither a Material Group
Company nor an Obligor where such event would be
likely to have a Material Adverse Effect; or
(xv) at any time it is or becomes unlawful for any
Obligor, Project Obligor, the Holding Company or APA
Basic Beteiligungsgesellschaft mbH to perform or
comply with any or all of its obligations under the
Facility Documents or the Project Documents to which
they are party or any of the obligations of any of
them thereunder are not or cease to be legal, valid
and binding and such would be likely to have a
Material Adverse Effect; or
(xvi) any person or persons which, as at the Closing Date,
is not a Shareholder or an affiliate of a Shareholder
acquires directly or indirectly more than 24.9% of
the share capital of the Holding Company (or, prior
to the Level 1 Merger Date, more than 24.9% of either
of KabelVision Beteiligungs GmbH or Kabelmedia
Beteiligungs GmbH);
(xvii) the Holding Company (or, prior to the Level 1 Merger
Date KabelVision Beteiligungs GmbH and Kabelmedia
Beteiligungs GmbH) cease to own the entire issued
share capital of the Management Company;
(xviii) any member of the Group ceases to carry on the
business it carries on at the date hereof or enters
into any unrelated business (other than as a result
of an Acquisition permitted by the terms of this
Agreement); or
(xix) any Obligor, Project Obligor, the Holding Company or
APA Basic Beteiligungsgesellschaft mbH repudiates any
of the Facility Documents or any of the Project
Documents to which it is party and which an
Instructing Group considers to be material to the
Project; or
(xx) any change occurs in the regulatory environment
relating to, or in stated government policy towards,
the cable television and/or telecommunications
industry in Germany (excluding any changes in the
public domain at the date hereof) which, in the
reasonable opinion of an Instructing Group, might
have a material adverse effect upon the business or
financial condition of any
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member of the Group and the Management Company has
not provided to the Banks within 60 days of being
requested to do so by the Agent proposals for dealing
with such a change which are satisfactory to an
Instructing Group; or
(xxi) any amount is paid by any member of the Group to the
Holding Company which is not permitted by the
Intercreditor Agreement; or
(xxii) Ben Bartel ceases to be involved as a full time
manager of the Group or to devote his full time and
attention to the operations of the Group or dies or
becomes unable adequately to perform his function as
a full time manager of the Group and a replacement
approved by an Instructing Group shall not have been
appointed within two months thereof on terms approved
by an Instructing Group; or
(xxiii) any amendment is made to the Senior Discount Notes
Indenture in the form of such document delivered to
the Agent in accordance with Clause 4 and paragraph
17 of the Third Schedule, which is materially adverse
to the interests of the Banks hereunder; or
(xxiv) any other event occurs or circumstances arise which
is likely to affect materially and adversely the
ability of any Obligor to perform any of its
obligations under or otherwise to comply with the
terms of any of the Facility Documents; or
(xxv) the Holding Company fails to perform or comply with
any of its obligations under the financial
information agreement specified at item 18 of the
Third Schedule,
then, and in any such case and at any time thereafter, the Agent may (and, if so
instructed by an Instructing Group, shall) by written notice to the Borrowers:
(a) declare the Advances to be immediately due and payable
(whereupon the same shall become so payable together with
accrued interest thereon and any other sums then owed by the
Borrowers under the Facility Documents) or declare the
Advances to be due and payable on demand of the Agent; and/or
(b) declare that the Facility shall be cancelled, whereupon the
same shall be cancelled and the Available Tranche A Revolving
Commitment, Available Tranche B Revolving Commitment and
Available Tranche C Commitment of each Bank shall be reduced
to zero.
22.2 If, pursuant to Clause 21.3 or 22.1, the Agent declares the Advances to
be due and payable on demand of the Agent, then, and at any time thereafter, the
Agent may (and, if so instructed by an Instructing Group, shall) by written
notice to the Borrowers:
(a) call for repayment of the Advances on such date as it may
specify in such notice (whereupon the same shall become due
and payable on such date together with accrued interest
thereon and any other sums then owed by the Borrowers) or
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withdraw its declaration with effect from such date as it may
specify in such notice; and
(b) select as the duration of any Interest Period which begins
whilst such declaration remains in effect a period of six
months or less.
22.3 If, pursuant to Clause 22.1(a), the Agent declares the Advances to be
due and payable on demand, the Interest Period in respect of any such Advance
shall, if the Agent subsequently demands payment before the scheduled Interest
Payment Date in respect of such Advance be deemed (except for the purposes of
Clause 23.4) to be of such length that it ends on the date that such demand is
made.
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PART 8
DEFAULT INTEREST AND INDEMNITY
23. DEFAULT INTEREST AND INDEMNITY
23.1 If any sum due and payable by any Obligor hereunder is not paid on the
due date therefor in accordance with the provisions of Clause 25 or if any sum
due and payable by any Obligor under any judgment of any court in connection
herewith is not paid on the date of such judgment, the period beginning on such
due date or, as the case may be, the date of such judgment and ending on the
date upon which the obligation of such Obligor to pay such sum (the balance
thereof for the time being unpaid being herein referred to as an "unpaid sum")
is discharged shall be divided into successive periods, each of which (other
than the first) shall start on the last day of the preceding such period and the
duration of each of which shall (except as otherwise provided in this Clause 23)
be selected by the Agent.
23.2 During each such period relating thereto as is mentioned in Clause 23.1
an unpaid sum (other than interest) shall bear interest at the rate per annum
which is the sum from time to time of two and a half per cent., the Margin at
such time and LIBOR on the Quotation Date therefor Provided that:
(i) if, for any such period, LIBOR cannot be determined,
the rate of interest applicable to such unpaid sum
shall be the sum from time to time of two and a half
per cent., the Margin at such time and the rate per
annum determined by the Agent to be the arithmetic
mean (rounded upwards, if not already such a
multiple, to the nearest whole multiple of one-thirty
second of one per cent.) of the rates notified by
each Reference Bank to the Agent before the last day
of such period to be those which express as a
percentage rate per annum the cost to it of funding
from whatever sources it may reasonably select its
portion of such unpaid sum for such period; and
(ii) if such unpaid sum is all or part of an Advance which
became due and payable on a day other than the last
day of an Interest Period relating thereto, the first
such period applicable thereto shall be of a duration
equal to the unexpired portion of that Interest
Period and the rate of interest applicable thereto
from time to time during such period shall be that
which exceeds by two and a half per cent. the rate
which would have been applicable to it had it not so
fallen due.
23.3 Any interest which shall have accrued under Clause 23.2 in respect of
an unpaid sum shall be due and payable and shall be paid by the relevant Obligor
at the end of the period by reference to which it is calculated or on such other
date or dates as the Agent may specify by written notice to such Obligor.
23.4 If any Bank or the Agent on its behalf receives or recovers all or any
part of such Bank's share of an Advance otherwise than on the last day of an
Interest Period relating thereto, the Borrowers shall pay to the Agent on demand
for account of such Bank an amount equal to the amount (if any) by which (i) the
additional interest which would have been payable on the amount so received or
recovered had it been received or recovered on the last day of that Interest
Period thereof exceeds
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(ii) the amount of interest which in the opinion of the Agent would have been
payable to the Agent on the last day of that Interest Period in respect of a
Deutschmark deposit equal to the amount so received or recovered placed by it
with a prime bank in London for a period starting on the third business day
following the date of such receipt or recovery and ending on the last day of
that Interest Period.
23.5 Each Borrower undertakes to indemnify:
(i) each of the Agent, the Arranger, the Overdraft Bank,
the Security Trustee and the Banks against any cost,
claim, loss, expense (including, without limitation,
legal fees) or liability together with any VAT
thereon, which any of them may sustain or incur as a
consequence of the occurrence of any Event of Default
or any default by any Obligor, the Holding Company or
APA Basic Beteiligungsgesellschaft mbH in the
performance of any of its obligations expressed to be
assumed by it in any of the Facility Documents or
Project Documents to which it is party;
(ii) each of the Agent, the Arranger, the Overdraft Bank,
the Security Trustee and the Banks and their
respective officers, employees, agents and delegates
(together the "Indemnified Parties"), without
prejudice to any of their other rights under this
Agreement, against any loss, liability, action,
claim, demand, cost, expense, fine or other outgoing
whatsoever whether in contract, tort or otherwise and
whether arising at common law, in equity or by
statute which the Indemnified Party may sustain or
incur as a consequence of, or relating to, or arising
directly or indirectly out of, an Environmental Claim
made or asserted against such Indemnified Party; and
(iii) each Bank against any loss it may suffer as a result
of its funding its portion of a Revolving Advance or
Tranche C Advance requested by a Borrower hereunder
but not made by reason of the operation of any one or
more of the provisions hereof.
23.6 Any unpaid sum shall (for the purposes of this Clause 23 and Clause
15.1) be treated as an advance and accordingly in this Clause 23 and Clause 15
the term "Revolving Advance", "Advance" and "advance" includes any unpaid sum
and "Interest Period", in relation to an unpaid sum, includes each such period
relating thereto as is mentioned in Clause 23.1.
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PART 9
PAYMENTS
24. CURRENCY OF ACCOUNT AND PAYMENT
24.1 The Deutschmark is the currency of account and payment for each and
every sum at any time due from the Borrowers and the Guarantors hereunder
Provided that:
(i) each payment in respect of costs and expenses shall
be made in the currency in which the same were
incurred; and
(ii) each payment pursuant to Clause 15.1 shall be made in
the currency specified by the party claiming
thereunder.
24.2 If any sum due from any Obligor under any of the Facility Documents or
any order or judgment given or made in relation hereto has to be converted from
the currency (the "first currency") in which the same is payable hereunder or
under such order or judgment into another currency (the "second currency") for
the purpose of (i) making or filing a claim or proof against such Obligor, (ii)
obtaining an order or judgment in any court or other tribunal or (iii) enforcing
any order or judgment given or made in relation hereto, each of the Obligors
shall indemnify and hold harmless each of the persons to whom such sum is due
from and against any loss suffered as a result of any discrepancy between (a)
the rate of exchange used for such purpose to convert the sum in question from
the first currency into the second currency and (b) the rate or rates of
exchange at which such person may in the ordinary course of business purchase
the first currency with the second currency upon receipt of a sum paid to it in
satisfaction, in whole or in part, of any such order, judgment, claim or proof.
25. PAYMENTS
25.1 On each date on which this Agreement requires an amount denominated in
Deutschmarks to be paid by any Obligor or any of the Banks hereunder, such
Obligor, or as the case may be, such Bank shall make the same available to the
Agent by payment in Deutschmarks and in immediately available, freely
transferable, cleared funds to the Agent's account number 50110800 with
Landeszentralbank, Frankfurt favour Chase Manhattan Bank AG, attention Reinhard
Kropp (Facility Agreement dated [ ] July 1996) (or such other account or bank as
the Agent may have specified for this purpose).
25.2 If, at any time, it shall become impracticable (by reason of any action
of any governmental authority or any change in law, exchange control regulations
or any similar event) for any of the Obligors to make any payments hereunder in
the manner specified in Clause 25.1, then such Obligor may agree with each or
any of the Banks alternative arrangements for the payment direct to such Bank of
amounts due to such Bank hereunder. Provided that, in the absence of any such
agreement with any Bank, such Obligor shall be obliged to make all payments due
to such Bank in the manner specified herein. Upon reaching such agreement such
Obligor and such Bank shall immediately notify the Agent thereof and shall
thereafter promptly notify the Agent of all payments made direct to such Bank.
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25.3 Save as otherwise provided herein, each payment received by the Agent for
the account of another person pursuant to Clause 25.1 shall:
(i) in the case of a payment received for the account of
a Borrower, be made available by the Agent to such
Borrower by application:
(a) first, in or towards payment the same day of
any amount then due from such Borrower
hereunder to the person from whom the amount
was so received; and
(b) secondly, in or towards payment the same day
to the account of such Borrower with such
Bank in Frankfurt as such Borrower shall
have previously notified to the Agent for
this purpose; and
(ii) in the case of any other payment, be made available
by the Agent to the person for whose account such
payment was received (in the case of a Bank, for the
account of the Facility Office) for value the same
day by transfer to such account of such person with
such bank in Frankfurt as such person shall have
previously notified to the Agent.
25.4 All payments required to be made by the Obligors hereunder shall be
calculated without reference to any set-off or counterclaim and shall be made
free and clear of and without any deduction for or on account of any set-off or
counterclaim.
25.5 Where a sum is to be paid hereunder to the Agent for account of another
person, the Agent shall not be obliged to make the same available to that other
person until it has been able to establish to its satisfaction that it has
actually received such sum, but if it does so and it proves to be the case that
it had not actually received such sum, then the person to whom such sum was so
made available shall on request refund the same to the Agent together with an
amount sufficient to indemnify the Agent against any cost or loss it may have
suffered or incurred by reason of its having paid out such sum prior to its
having received such sum.
26. SET-OFF
Each of the Obligors authorises each Bank and the Overdraft Bank to
apply any credit balance to which such Obligor is entitled on any account held
by such Obligor with that Bank or the Overdraft Bank in satisfaction of any sum
due and payable from that Obligor to such Bank or the Overdraft Bank but unpaid;
for this purpose, each Bank and the Overdraft Bank is authorised to purchase at
prevailing rates of exchange with the moneys standing to the credit of any such
account such other currencies as may be necessary to effect such application. No
Bank or the Overdraft Bank shall be obliged to exercise any right given to it by
this Clause 26. Any Banks or the Overdraft Bank exercising such rights will
promptly notify the relevant Obligor of such application.
27. REDISTRIBUTION OF PAYMENTS
27.1 If, at any time, the proportion which any Bank (a "Recovering Bank")
has received or recovered (whether by payment, the exercise of a right of
set-off or combination of accounts or otherwise) in respect of its portion of
any payment (a "relevant payment") to be made under any
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<PAGE> 72
Facility Document by any Obligor for account of such Recovering Bank and one or
more other Banks is greater (the portion of such receipt or recovery giving rise
to such excess proportion being herein called an "excess amount") than the
proportion thereof so received or recovered by the Bank or Banks so receiving or
recovering the smallest proportion thereof, then:
(i) such Recovering Bank shall pay to the Agent an amount
equal to such excess amount;
(ii) there shall thereupon fall due from such Obligor to
such Recovering Bank an amount equal to the amount
paid out by such Recovering Bank pursuant to
paragraph (i) above, the amount so due being, for the
purposes hereof, treated as if it were an unpaid part
of such Recovering Bank's portion of such relevant
payment; and
(iii) the Agent shall treat the amount received by it from
such Recovering Bank pursuant to paragraph (i) above
as if such amount had been received by it from such
Obligor in respect of such relevant payment and shall
pay the same to the persons entitled thereto
(including such Recovering Bank) pro rata to their
respective entitlements thereto,
Provided that to the extent that any excess amount is attributable to a payment
to a Bank pursuant to Clause 25.3(i)(a) such portion of such excess amount as is
so attributable shall not be required to be shared pursuant hereto.
27.2 If any sum (a "relevant sum") received or recovered by a Recovering
Bank in respect of any amount owing to it by any Obligor becomes repayable and
is repaid by such Recovering Bank, then:
(i) each Bank which has received a share of such relevant
sum by reason of the implementation of Clause 27.1
shall, upon request of the Agent, pay to the Agent
for account of such Recovering Bank an amount equal
to its share of such relevant sum; and
(ii) there shall thereupon fall due from such Obligor to
each such Bank an amount equal to the amount paid out
by it pursuant to paragraph (i) above, the amount so
due being, for the purposes hereof, treated as if it
were the sum payable to such Bank against which such
Bank's share of such relevant sum was applied.
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PART 10
FEES, COSTS AND EXPENSES
28. FEES
28.1 The Management Company shall pay to the Agent for account of each Bank
or, as the case may be, the Overdraft Bank a commitment commission on the amount
of such Bank's Available Commitment or, as the case may be, on the unutilised
portion of the Overdraft Facility from day to day during the period beginning on
the date hereof and ending on the Final Maturity Date, such commitment
commission to be calculated at the rate of 0.50 per cent. per annum and payable
in arrears on the last day of each successive period of three months which ends
during such period and on the Final Maturity Date.
28.2 The Management Company shall pay to the Arranger the fees specified in
the letter of even date herewith from the Arranger to the Management Company at
the times, and in the amounts, specified in such letter.
28.3 The Management Company shall pay to the Agent for its own account the
agency fees specified in the letter of even date herewith from the Agent to the
Management Company at the times, and in the amounts, specified in such letter.
29. COSTS AND EXPENSES
29.1 The Borrowers shall, from time to time on demand of the Agent,
reimburse each of the Agent and the Arranger for all reasonable costs and
expenses (including, without limitation, legal fees as agreed) together with any
VAT thereon incurred by it in connection with the negotiation, syndication,
preparation and execution of the Facility Documents (including, without limiting
the generality of the foregoing, in connection with any amendments, supplements,
waivers and consents requested by any party thereto) and the completion of the
transactions therein contemplated (including the accession and/or secession of
Obligors). Any claims by the Agent or the Arranger made upon the Borrowers
pursuant to this Clause shall be accompanied by appropriate invoices.
29.2 The Borrowers shall, from time to time on demand of the Agent,
reimburse the Agent, the Arranger and the Banks for all costs and expenses
(including, without limitation, legal fees) together with any VAT thereon
incurred in or in connection with the preservation and/or enforcement of any of
the rights of the Agent, the Arranger and Banks under the Facility Documents
including, without limitation any such costs and expenses incurred as a result
of the implementation or operation of Clause 43.
29.3 The Borrowers shall pay all stamp, registration and other taxes to
which the Facility Documents or any judgment given in connection therewith is or
at any time may be subject and shall, from time to time on demand of the Agent,
indemnify the Agent, the Arranger and the Banks against any liabilities, costs,
claims and expenses resulting from any failure to pay or any delay in paying any
such tax.
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29.4 If any of the Borrowers fails to perform any of its obligations under
this Clause 29, each Bank shall, in its Proportion, indemnify each of the Agent
and the Arranger against any loss incurred by any of them as a result of such
failure and each of the Borrowers shall forthwith reimburse each Bank for any
payment made by it pursuant to this Clause 29.4.
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PART 11
GUARANTEE
30. GUARANTEE
30.1 Each of the Guarantors hereby irrevocably and unconditionally:
(i) guarantees to the Agent, the Arranger, the Security
Trustee, the Overdraft Bank and the Banks the due and
punctual observance and performance of all the terms,
conditions and covenants on the part of the other
Obligors contained in the Facility Documents and
agrees to pay to the Agent from time to time on
demand any and every sum or sums of money which the
other Obligors shall at any time be liable to pay to
the Agent, the Arranger, the Security Trustee, the
Overdraft Bank and the Banks or any of them under or
pursuant to the Facility Documents and which shall
not have been paid at the time such demand is made;
and
(ii) agrees as a primary obligation to indemnify the
Agent, the Arranger, the Security Trustee, the
Overdraft Bank and the Banks from time to time on
demand by the Agent from and against any loss
incurred by the Agent, the Arranger, the Security
Trustee, the Overdraft Bank and the Banks or any of
them as a result of any of the obligations of any of
the other Obligors under or pursuant to the Facility
Documents being or becoming void, voidable,
unenforceable or ineffective as against such Obligors
for any reason whatsoever, whether or not known to
the Agent, the Arranger, the Security Trustee, the
Overdraft Bank and the Banks or any of them or any
other person, the amount of such loss being the
amount which the person or persons suffering it would
otherwise have been entitled to recover from such
Obligors.
30.2 The guarantee extended hereunder by each of the Guarantors shall be
construed as a Garantie and not as a Burgschaft.
30.3 The liability of each Guarantor under this Clause 30 in respect of the
performance by it of the obligations of its holding company or any sister
company or any holding company or sister company of such first mentioned holding
company under the Facility Documents shall at all times be limited so that its
liability under this Clause 30 shall at no time require the payment of any
monies which are needed to maintain its registered share capital (Stammkapital)
or a limited partner's fixed capital (Kommanditeinlage) to the extent that this
is protected by Sections 30 and 31 of the German Limited Liability Company Act
(GmbH-Gesetz) and Section 172 subsection 4 HGB.
31. PRESERVATION OF RIGHTS
31.1 The obligations of each of the Guarantors herein contained shall be in
addition to and independent of every other security which the Agent, the
Arranger, the Security Trustee, the Overdraft Bank and the Banks or any of them
may at any time hold in respect of any of the obligations of any other Obligor
under the Facility Documents to which it is party.
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31.2 The obligations of the Guarantors herein contained shall constitute and
be continuing obligations notwithstanding any settlement of account or other
matter or thing whatsoever, and in particular but without limitation, shall not
be considered satisfied by any intermediate payment or satisfaction of all or
any of the obligations of the Obligors under the Facility Documents and shall
continue in full force and effect until final payment in full of all amounts
owing by the Obligors thereunder and total satisfaction of all the Obligors'
actual and contingent obligations thereunder.
31.3 Neither the obligations of the Guarantors herein contained nor the
rights, powers and remedies conferred in respect of the Guarantors upon the
Agent, the Arranger, the Security Trustee, the Overdraft Bank and the Banks or
any of them by the Facility Documents or by law shall be discharged, impaired or
otherwise affected by:
(i) the winding-up, dissolution, administration or
re-organisation of any Obligor or any other person or
any change in its status, function, control or
ownership;
(ii) any of the obligations of any of the Obligors under
the Facility Documents or under any other security
taken in respect of any of its obligations thereunder
being or becoming illegal, invalid, unenforceable or
ineffective in any respect;
(iii) time or other indulgence being granted or agreed to
be granted to any of the Obligors in respect of their
respective obligations under any Facility Document;
(iv) any amendment to, or any variation, waiver or release
of, any obligation of any of the Obligors under any
Facility Document;
(v) any failure to take, or fully to take, any security
contemplated hereby or otherwise agreed to be taken
in respect of any of the Obligors' obligations under
any Facility Document;
(vi) any failure to realise or fully to realise the value
of, or any release, discharge, exchange or
substitution of, any encumbrance taken in respect of
any of the Obligors' obligations under any Facility
Document; or
(vii) any other act, event or omission which, but for this
Clause 31.3, might operate to discharge, impair or
otherwise affect any of the obligations of any of the
Guarantors herein contained or any of the rights,
powers or remedies conferred upon the Agent, the
Arranger, the Security Trustee, the Overdraft Bank
and the Banks or any of them by the Facility
Documents or any of them or by law.
31.4 Any settlement or discharge between the Guarantors or any of them and
the Agent, the Arranger, the Security Trustee, the Overdraft Bank and the Banks
or any of them shall be conditional upon no security or payment to the Agent,
the Arranger, the Security Trustee, the Overdraft Bank and the Banks or any of
them by the Obligors or any of them or any other person on behalf of the
Obligors or any of them being avoided or reduced by virtue of any provisions or
enactments relating
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to bankruptcy, insolvency, liquidation or similar laws of general application
for the time being in force and, if any such security or payment is so avoided
or reduced, the Agent, the Arranger, the Security Trustee, the Overdraft Bank
and the Banks shall each be entitled to recover the value or amount of such
security or payment from the Guarantors subsequently as if such settlement or
discharge had not occurred.
31.5 Neither the Agent, the Arranger, the Security Trustee, the Overdraft
Bank and the Banks nor any of them shall be obliged before exercising any of the
rights, powers or remedies conferred upon them in respect of the Guarantors or
any of them by any of the Facility Documents or by law:
(i) to make any demand of the other Obligors or any of
them;
(ii) to take any action or obtain judgment in any court
against the other Obligors or any of them;
(iii) to make or file any claim or proof in a winding-up or
dissolution of the other Obligors or any of them; or
(iv) to enforce or seek to enforce any other security
taken in respect of any of the obligations of the
other Obligors or any of them under any Facility
Document.
31.6 Each of the Guarantors agrees that, so long as any amounts are or may
be owed by the Obligors or any of them under any Facility Document or the
Obligors or any of them are under any actual or contingent obligations under any
Facility Document it shall not exercise any rights which it may at any time have
by reason of the performance by it of its obligations under the Facility
Documents:
(i) to be indemnified by any other Obligor; and/or
(ii) to claim any contribution from any other guarantor of
the Obligors' obligations thereunder; and/or
(iii) to take the benefit (in whole or in part and whether
by way of subrogation or otherwise) of any rights of
the Agent, the Arranger, the Security Trustee, the
Overdraft Bank and the Banks under the Facility
Documents or any of them or of any other security
taken pursuant to, or in connection with the Facility
Documents or any of them by all or any of the Agent,
the Arranger, the Security Trustee, the Overdraft
Bank and the Banks.
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PART 12
AGENCY PROVISIONS
32. THE AGENT, THE ARRANGER AND THE BANKS
32.1 The Arranger, the Overdraft Bank and each of the Banks hereby appoint
the Agent to act as its agent in connection with the Facility Documents and
hereby acknowledges that the Security Trustee will act for it and on its behalf
in connection with the Security Documents in accordance with the terms of the
Security Trust Agreement and authorises the Agent to exercise such rights,
powers, authorities and discretions as are specifically delegated to the Agent
by the terms hereof together with all such rights, powers, authorities and
discretions as are reasonably incidental thereto.
32.2 The Agent may:
(i) assume that:
(a) any representation made by any Obligor in
connection with any of the Facility
Documents is true;
(b) no Event of Default or Potential Event of
Default has occurred;
(c) no Obligor is in breach of or default under
its obligations under any of the Facility
Documents and no Project Obligor is in
breach of or default under its obligations
under any of the Project Documents; and
(d) any right, power, authority or discretion
vested herein upon an Instructing Group, the
Banks or any other person or group of
persons has not been exercised,
unless it has, in its capacity as agent for the
Banks, received notice to the contrary from any other
party hereto;
(ii) assume that the Facility Office of each Bank is that
identified with its signature below (or, in the case
of a Transferee, at the end of the Transfer
Certificate to which it is a party as Transferee)
until it has received from such Bank a notice
designating some other office of such Bank to replace
its Facility Office and act upon any such notice
until the same is superseded by a further such
notice;
(iii) engage and pay for the advice or services of any
lawyers, accountants, surveyors or other experts
whose advice or services may to it seem necessary,
expedient or desirable and rely upon any advice so
obtained;
(iv) rely as to any matters of fact which might reasonably
be expected to be within the knowledge of any of the
Obligors upon a certificate signed by or on behalf of
such Obligor;
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(v) rely upon any communication or document believed by
it to be genuine;
(vi) refrain from exercising any right, power or
discretion vested in it as agent under any of the
Facility Documents unless and until instructed by an
Instructing Group as to whether or not such right,
power or discretion is to be exercised and, if it is
to be exercised, as to the manner in which it should
be exercised; and
(vii) refrain from acting in accordance with any
instructions of an Instructing Group to begin any
legal action or proceeding arising out of or in
connection with any of the Facility Documents until
it shall have received such security as it may
require (whether by way of payment in advance or
otherwise) for all costs, claims, losses, expenses
(including, without limitation, legal fees) and
liabilities together with any VAT thereon which it
will or may expend or incur in complying with such
instructions.
32.3 The Agent shall:
(i) promptly inform each Bank, the Overdraft Bank and the
Security Trustee of the contents of any notice or
document received by it in its capacity as Agent from
any member of the Group under any of the Facility
Documents;
(ii) promptly notify each Bank, the Overdraft Bank and the
Security Trustee of the occurrence of any Event of
Default or any default by any of the Obligors in the
due performance of or compliance with its obligations
under any of the Facility Documents of which the
Agent has notice from any other party hereto;
(iii) save as otherwise provided herein, act as agent under
the Facility Documents in accordance with any
instructions given to it by an Instructing Group,
which instructions shall be binding on the Arranger,
the Overdraft Bank and all of the Banks; and
(iv) if so instructed by an Instructing Group, refrain
from exercising any right, power or discretion vested
in it as agent under the Facility Documents.
32.4 Notwithstanding anything to the contrary expressed or implied herein,
neither the Agent nor the Arranger shall:
(i) be bound to enquire as to:
(a) whether or not any representation made by
any of the Obligors in connection with any
of the Facility Documents is true;
(b) the occurrence or otherwise of any Event of
Default or Potential Event of Default;
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(c) the performance by any of the Obligors of
its obligations under any of the Facility
Documents; or
(d) any breach of or default by any of the
Obligors of its obligations under any of the
Facility Documents;
(ii) be bound to account to any Bank or to the Overdraft
Bank for any sum or the profit element of any sum
received by it for its own account;
(iii) be bound to disclose to any other person any
information relating to any of the Group if such
disclosure would or might in its opinion constitute a
breach of any law or regulation or be otherwise
actionable at the suit of any person; or
(iv) be under any obligations other than those for which
express provision is made in the Facility Documents
to which it is party.
32.5 Each Bank shall, in its Proportion, from time to time on demand by the
Agent, indemnify the Agent and the Arranger against any and all costs, claims,
losses, expenses (including, without limitation, legal fees) and liabilities
(save to the extent that such costs, claims, losses, expenses or liabilities are
recovered to the satisfaction of the Agent from the Borrowers) together with any
VAT thereon which any of them may incur, otherwise than by reason of its own
gross negligence or wilful misconduct, in acting in their respective capacities
as agent, or joint arranger under any of the Facility Documents.
32.6 None of the Agent or the Arranger nor any of them accepts any
responsibility for the accuracy and/or completeness of any information supplied
by any member of the Group in connection with the Facility Documents or the
Project Documents or for the legality, validity, effectiveness, adequacy or
enforceability of any of the Facility Documents or the Project Documents and
none of the Agent or the Arranger nor any of them shall be under any liability
as a result of taking or omitting to take any action in relation to any of the
Facility Documents, save in the case of gross negligence or wilful misconduct.
32.7 Each of the Banks and the Overdraft Bank agrees that it will not assert
or seek to assert against any director, officer or employee of the Agent or
either of the Arranger any claim it might have against any of them in respect of
the matters referred to in Clause 32.6.
32.8 The Agent and each of the Arranger may accept deposits from, lend money
to and generally engage in any kind of banking or other business with any member
of the Group.
32.9 An Instructing Group may remove the Agent from its appointment
hereunder as agent at any time by giving not less than thirty days prior written
notice to that effect to each of the other parties hereto, or the Agent may
resign its appointment hereunder at any time without assigning any reason
therefor by giving not less than thirty days' prior written notice to that
effect to each of the other parties hereto Provided that no such the removal or
resignation shall be effective until a successor for the Agent is appointed in
accordance with the succeeding provisions of this Clause 32.
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<PAGE> 81
32.10 If an Instructing Group removes the Agent as agent or the Agent gives
notice of its resignation in either case pursuant to Clause 32.9, then any
reputable and experienced bank or other financial institution may be appointed
as a successor to the Agent by an Instructing Group with the consent of the
Management Company (such consent not to be unreasonably withheld or delayed)
during the period of such notice but, if no such successor is so appointed, the
Agent may appoint such a successor itself.
32.11 If a successor to the Agent is appointed under the provisions of Clause
32.10, then (i) the retiring Agent shall be discharged from any further
obligation under the Facility Documents but shall remain entitled to the benefit
of the provisions of this Clause 32 and (ii) its successor and each of the other
parties hereto shall have the same rights and obligations amongst themselves as
they would have had if such successor had been a party to the Facility
Documents.
32.12 It is understood and agreed by each Bank and the Overdraft Bank that it
has itself been, and will continue to be, solely responsible for making its own
independent appraisal of and investigations into the financial condition,
creditworthiness, condition, affairs, status and nature of each member of the
Group and each proposed Acquisition and, accordingly, each Bank and the
Overdraft Bank warrants to the Agent and the Arranger that it has not relied on
and will not hereafter rely on the Agent and the Arranger nor any of them:
(i) to check or enquire on its behalf into the adequacy,
accuracy or completeness of any information provided
by any member of the Group in connection with the
Facility Documents or the transactions therein
contemplated (whether or not such information has
been or is hereafter circulated to such Bank or the
Overdraft Bank by the Agent and the Arranger or any
of them) or in connection with any proposed
Acquisition; or
(ii) to assess or keep under review on its behalf the
financial condition, creditworthiness, condition,
affairs, status or nature of any member of the Group.
32.13 In acting as Agent for the Arranger, the Overdraft Bank and the Banks,
the agency division of the Agent shall be treated as a separate entity from any
other of its divisions or departments and, notwithstanding the foregoing
provisions of this Clause 32, in the event that the Agent should act for any
member of the Group in any capacity in relation to any other matter, any
information given by any member of the Group to the Agent in such other capacity
may be treated as confidential by the Agent.
32.14 The Agent may delegate to any subsidiary of The Chase Manhattan
Corporation or its successor from time to time all or any of the rights, powers,
authorities and discretions vested in it hereunder and the performance of its
duties in accordance with, and such delegation may be made upon such terms and
subject to, such conditions (including the power to sub-delegate) and subject to
such regulations as the Agent may think fit and any reference in Clause 23.5,
29, 30, 31 or 32 to the Agent shall be deemed also to refer to any such
subsidiary or its successor.
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PART 13
ASSIGNMENTS AND TRANSFERS
33. BENEFIT OF AGREEMENT
This Agreement shall be binding upon and enure to the benefit of each
party hereto and its or any subsequent successors, Transferees and permitted
assigns.
34. ASSIGNMENTS AND TRANSFERS BY THE BORROWERS
None of the Borrowers or the Guarantors shall be entitled to assign or
transfer all or any of its rights, benefits and obligations under the Facility
Documents.
35. ASSIGNMENTS AND TRANSFERS BY BANKS
35.1 Any Bank may, at any time, assign all or any of its rights and benefits
under the Facility Documents or transfer in accordance with Clause 35.3 all or
any of its rights, benefits and obligations under the Facility Documents.
35.2 If any Bank assigns all or any of its rights and benefits under the
Facility Documents in accordance with Clause 35.1, then, unless and until the
assignee has agreed with the Agent, the Arranger, the Security Trustee, the
Overdraft Bank and the other Banks that it shall be under the same obligations
towards each of them as it would have been under if it had been an original
party thereto as a Bank, the Agent, the Arranger, the Security Trustee, the
Overdraft Bank and the other Banks shall not be obliged to recognise such
assignee as having the rights against each of them which it would have had if it
had been such a party thereto.
35.3 If any Bank wishes to transfer all or any of its rights, benefits
and/or obligations under the Facility Documents as contemplated in Clause 35.1,
then such transfer may be effected by the delivery to the Agent of a duly
completed and duly executed Transfer Certificate in which event, on the later of
the Transfer Date specified in such Transfer Certificate and the fifth business
day after (or such earlier business day endorsed by the Agent on such Transfer
Certificate falling on or after) the date of delivery of such Transfer
Certificate to the Agent:
(i) to the extent that in such Transfer Certificate the
Bank party thereto seeks to transfer its rights under
the Facility Documents to the Transferee they shall
be so assigned;
(ii) to the extent that in such Transfer Certificate the
Bank party thereto seeks to transfer its obligations
under or in respect of the Facility Documents, each
Obligor and such Bank shall be released from further
obligations to each other under or in respect of the
Facility Documents (such obligations being referred
to in this Clause 35 as "discharged obligations");
(iii) each of the Obligors and the Transferee party thereto
shall assume obligations towards one another and/or
acquire rights against one another which differ from
such discharged rights and obligations only insofar
as the Obligors and
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such Transferee have assumed and/or acquired the same
in place of the Obligors and such Bank; and
(iv) the Agent, the Arranger, the Security Trustee, the
Overdraft Bank, such Transferee and the other Banks
shall acquire the same rights and benefits and assume
the same obligations between themselves as they would
have acquired and assumed had such Transferee been an
original party to any of the Facility Documents as a
Bank or as a beneficiary thereof with the rights
assigned to it and/or obligations assumed by it as a
result of such assignment and transfer including, by
the execution of such Transfer Certificate, the
Security Trust Agreement and the Security Documents.
35.4 On the date upon which a transfer takes effect pursuant to Clause 35.3, the
Transferee in respect of such transfer shall pay to the Agent for its own
account a transfer fee of DM 1500.
35.5 The rights conferred on the Banks by this Clause 35 shall be subject to
the following provisos:
(i) any assignee or Transferee shall be a bank or other
financial institution;
(ii) no Obligor shall be obliged by reason of any such
assignment or transfer to make any payment hereunder
otherwise than in accordance with Clause 25.1; and
(iii) an assignee or Transferee shall not be entitled to
receive any payment under Clause 13 or 15.1 save to
the extent that, at the time of such assignment or
transfer, an amount would have been payable hereunder
to the relevant assignor or Transferor in respect of
that part of its rights and benefits assigned or
transferred.
36. DISCLOSURE OF INFORMATION
Any Bank may disclose to any actual or potential assignee or Transferee
or to any person who may otherwise enter into contractual relations with such
Bank in relation to this Agreement such information about members of the Group
as such Bank shall consider appropriate subject to, where such information is
confidential or of a proprietary nature, obtaining confirmation, by obtaining an
appropriate confidentiality undertaking from such person, that such person will
hold, subject to the provisions hereof, such information on a confidential
basis.
37. SUB-PARTICIPATION
Each Bank may enter into sub-participation arrangements in relation to
all or any part of its rights and obligations under the Facility Documents or
any of them with any person (a "Sub-Participant") without the consent of any
party provided that following the entering into of such sub-participation
arrangements such Bank continues to exercise its rights and obligations under
the Facility Documents without reference to the Sub-Participant save in the case
of
(i) any proposed waiver of an Event of Default arising as
a result of the late payment of any sum under this
Agreement;
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<PAGE> 84
(ii) any proposed extension of the due date for payment of
any sum under this Agreement;
(iii) any proposed reduction in the Margin or commitment
fee; and
(iv) any proposed release of any encumbrance created
pursuant to any Security Document.
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PART 14
MISCELLANEOUS
38. CALCULATIONS AND EVIDENCE OF DEBT
38.1 Interest and commitment commission shall accrue from day to day and
shall be calculated on the basis of a year of 360 days and the actual number of
days elapsed.
38.2 If on any occasion a Reference Bank or Bank fails to supply the Agent
with a quotation required of it under the foregoing provisions of this
Agreement, the rate for which such quotation was required shall be determined
from those quotations which are supplied to the Agent.
38.3 Each Bank and the Overdraft Bank shall maintain in accordance with its
usual practice accounts evidencing the amounts from time to time lent by and
owing to it hereunder.
38.4 The Agent shall maintain on its books a control account or accounts in
which shall be recorded (i) the amount of any Advance made or arising hereunder
and each Bank's share therein, (ii) the amount of all principal, interest and
other sums due or to become due from any of the Borrowers to any of the Banks
hereunder and each Bank's share therein and (iii) the amount of any sum received
or recovered by the Agent hereunder and each Bank's share therein.
38.5 In any legal action or proceeding arising out of or in connection with
this Agreement, the entries made in the accounts maintained pursuant to Clauses
38.3 and 38.4 shall be prima facie evidence of the existence and amounts of the
obligations of the Borrowers therein recorded.
38.6 A certificate of a Bank or the Overdraft Bank as to (i) the amount by
which a sum payable to it hereunder is to be increased under Clause 13 or (ii)
the amount for the time being required to indemnify it against any such cost,
payment or liability as is mentioned in Clause 15.1 shall be prima facie
evidence for the purposes of this Agreement.
39. REMEDIES AND WAIVERS
No failure to exercise, nor any delay in exercising, on the part of the
Agent, the Arranger, the Overdraft Bank and the Banks or any of them, any right
or remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any right or remedy prevent any further or other exercise
thereof or the exercise of any other right or remedy. The rights and remedies
herein provided are cumulative and not exclusive of any rights or remedies
provided by law.
40. PARTIAL INVALIDITY
If, at any time, any provision hereof is or becomes illegal, invalid or
unenforceable in any respect under the law of any jurisdiction, neither the
legality, validity or enforceability of the remaining provisions hereof nor the
legality, validity or enforceability of such provision under the law of any
other jurisdiction shall in any way be affected or impaired thereby.
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41. NOTICES
41.1 Each communication to be made hereunder shall, unless otherwise stated,
be made in writing by telefax or letter.
41.2 Any communication or document be made or to the extent practicable
delivered by one person to another pursuant to this Agreement shall (unless that
other person has by fifteen days' written notice to the Agent specified another
address) be made or delivered to that other person at the address identified
with its signature below (or, in the case of a Transferee, at the end of the
Transfer Certificate to which it is a party as Transferee) and shall be deemed
to have been made or delivered when despatched (in the case of any communication
made by telefax with appropriate acknowledgement of message transfer received by
the sender) or (in the case of any communication made by letter) when left at
that address or (as the case may be) ten days after being deposited in the post
postage prepaid in an envelope addressed to it at that address Provided that any
communication or document to be made or delivered to the Agent shall be
effective only when received by the Agent and then only if the same is expressly
marked for the attention of the department or officer identified with the
Agent's signature below (or such other department or officer as the Agent shall
from time to time specify for this purpose).
41.3 Each communication and document made or delivered by one party to
another pursuant to this Agreement shall be in the English language or
accompanied by a translation thereof into English certified (by an officer of
the person making or delivering the same) as being a true and accurate
translation thereof.
42. COUNTERPARTS
This Agreement may be executed in any number of counterparts and by
different parties hereto on separate counterparts each of which, when executed
and delivered, shall constitute an original, but all the counterparts shall
together constitute but one and the same instrument.
43. GROUP STRUCTURE CHANGES AND PERMISSIONS
43.1 Without prejudice to the requirements of any other provision of any
Facility Document:
(i) if any person becomes a member of the Group, the
Management Company shall:
(a) procure that within 14 days of such person
becoming a Group member such Group member
delivers to the Agent a Guarantor Accession
Memorandum duly executed by such person
together with the documents set out in the
Eleventh Schedule all in form and substance
satisfactory to the Agent; and
(b) procure that within 14 days of such person
becoming a Group member a shareholders
resolution is passed to appoint a new
managing director (Geschaftsfuhrer)
acceptable to the shareholders or, where
relevant, the partners and all necessary
applications for registration are made;
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(ii) if any member of the Group acquires (whether pursuant
to an Acquisition or an intra-Group transfer) any
shares or a partnership interest in any person or any
assets then the Management Company shall procure that
such member of the Group shall execute encumbrances
on identical terms to the Share Pledges or, as the
case may be, to the relevant Security Documents, and
provide the Agent with such documents and evidence
(including legal opinions) as it may require that
such have been duly executed and delivered by such
person and are legal, valid, binding and enforceable
in accordance with their terms. Provided that in the
case of an Acquisition which fulfils the criteria set
out in Clause 6.4(i)(b)(1) the Management Company
shall procure either that documentation to effect the
merger of such company with an Original Borrower has
been lodged with the commercial register at the
relevant court(s) within 3 months (and not withdrawn)
or that the Group Company acquiring such new Group
Member shall execute an encumbrance on identical
terms to the Share Pledges within 3 months of the
date of the Acquisition.; and
(iii) the Management Company shall ensure that all relevant
Project Documents and Necessary Authorisations are,
as the case may be, obtained by the new Group member
or remain in full force and effect in respect of all
relevant assets (save, in relation to the Relevant
Contracts, to any extent which is not likely to have
a Material Adverse Effect) and the relevant
transferee, successor or assignee of any shares,
partnership interest or asset and shall provide such
evidence regarding such matters to the Agent as the
Agent may reasonably require.
43.2 The Management Company shall procure that:
(a) any member of the Group which is not an Operating Company
which becomes an Operating Company and any company which
becomes a member of the Group and is an Operating Company
promptly executes encumbrances on substantially identical
terms to the Security Assignments, the Security Assignments of
Loans, the Security Assignments of Permissions and the
Security Transfers;
(b) any asset acquired by any Obligor which is not subject to any
encumbrance in favour of the Security Trustee shall be
promptly made subject to any encumbrance in favour of the
Security Trustee by the execution of an encumbrance by the
Obligor concerned on substantially identical terms to the
Security Assignments, the Security Assignments of Loans, the
Security Assignments of Permissions and the Security Transfer
(as appropriate);
(c) any Obligor which opens a bank account permitted by the terms
of this Agreement after the date hereof, and any person which
becomes an Obligor which has bank accounts in existence at the
date of becoming an Obligor promptly executes encumbrances on
substantially identical terms to the Account Pledges over such
bank account; and
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(d) any Obligor which acquires real estate, and any person which
becomes an Obligor which owns real estate, promptly executes a
first priority real estate mortgage (Grundschuld) over such
real property in form and substance acceptable to an
Instructing Group,
and shall promptly provide the Agent with such documents and evidence (including
legal opinions) as it may require that such has been duly executed and delivered
by such person and is legal, valid, binding and enforceable in accordance with
its terms and that, in the case of (a) above, all relevant Project Documents and
Necessary Authorisations have been entered into.
43.3 If the Agent has confirmed to the Management Company that the
conditions set forth in the Third Schedule have been satisfied, the Management
Company may request that any Guarantor (save for the Management Company) becomes
an Additional Borrower for the purposes of utilising the Facility by delivering,
or procuring the delivery to, the Agent of a Borrower Accession Memorandum duly
executed by each of the Obligors and such Guarantor.
43.4 Upon delivery of a Borrower Accession Memorandum, the Additional
Borrower shall, subject to the terms and conditions of this Agreement, acquire
all the rights and assume all the obligations of a Borrower hereunder Provided
that:
(i) the Agent has notified the Relevant Management
Company that each of the Banks agrees to the choice
of such Borrower; and
(ii) the Agent has confirmed to the Relevant Management
Company that it has received, in a form satisfactory
to it, all the documents set out in the Eighth
Schedule.
43.5 If at any time a Borrower (other than the Management Company) is under
no actual or contingent obligation under or pursuant to any Facility Document,
the Management Company may declare that such Borrower shall cease to be a
Borrower hereunder by delivering to the Agent a Borrower Secession Memorandum to
that effect in which event such Borrower shall forthwith cease to be a Borrower
upon receipt by the Agent of such notice.
43.6 In the case of each Permission, the following provisions shall apply:
(i) if at any time any Permission is to be replaced,
amended or renegotiated the relevant Obligor party
to, or grantee of, such Permission shall to the
extent commerically practicable, use all reasonable
endeavours to ensure that such Permission as
replaced, amended or renegotiated, expressly permits
and acknowledges the security assignment of such
Permission in favour of the Security Trustee and the
terms of the Permission Notice;
(ii) the relevant Obligor party to, or grantee of, each
Permission agrees that (a) at any time after the
occurrence of an Event of Default the Security
Trustee may consult with the Management Company
regarding the Security Trustee contacting and
dealing directly with the Permission Grantor
concerned, either alone or jointly with the Obligor
concerned, with a view to obtaining the agreement of
the Permission Grantor concerned to the terms and
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conditions of the Permission Notice and, following
such consultation (but only thereafter), the
Security Trustee may contact and deal with the
Permission Grantor directly and (b) at any time
after the Security Trustee is entitled to enforce
any encumbrance pursuant to any Facility Document
such Obligor will, on the request of the Security
Trustee, forthwith assign the relevant Permission to
any person who in the sole opinion of the Security
Trustee is entitled under the terms of such
Permission to take an assignment if at such time the
relevant Permission has not been effectively
assigned to the Security Trustee pursuant to a
Security Assignment of Permissions;
(iii) following notice from the Agent (acting on the
instructions of an Instructing Group) the relevant
Obligor shall forthwith submit Permission Notices to
the relevant Permission Grantors and use best
endeavours to procure that such Permission Grantor
complies with the terms of such Permission Notice;
(iv) the relevant Obligor party to, or grantee of, each
Permission agrees that at any time after the
occurrence of an Event of Default the Security
Trustee may instruct the Obligor concerned to
exercise any option to extend such Permission; and
(v) the Management Company shall on the request of the
Security Trustee meet with the Security Trustee to
review compliance by the members of the Group with
this Clause 43.6 and shall provide the Security
Trustee with details of all actions and things done
towards the satisfaction of this Clause 43.6;
(vi) so far as any Permission does not include an express
severability clause, the relevant Obligor shall use
its best endeavours to ensure that an amendment to
such Permission is agreed without undue delay with
the grantor thereof and/or other parties thereto to
adopt such a provision and where such provision
exists in the terms of a Permission no Obligor shall
waive, terminate or amend it (or agree to do any of
the foregoing).
43.7 The Management Company shall, within ten days after the end of each
calendar month falling after the date hereof, deliver to the Agent:
(i) a list of Permission Notices given to Permission
Grantors, indicating which Permission Grantors have
agreed to the terms and conditions of the Permission
Notice;
(ii) certified true copies of any Permission Notices
agreed to by Permission Grantors during such month;
and
(iii) the originals of any Permission entered into or
granted during such month.
Provided that the Security Trustee shall deliver the original of any Permission
to the Management Company upon the reasonable request of the Management Company
on reasonable notice if the Security Trustee agrees, acting reasonably, that to
do so is in the interests of the Group and if it is
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satisfied that such delivery does not materially prejudice the interests of the
Banks under the Facility Documents, subject to such undertakings and indemnities
as the Security Trustee may consider appropriate in the circumstances.
43.8 In the event of any Obligor becoming party to, or receiving the grant
of, a Permission or any company which is an Operating Company becoming a member
of the Group as contemplated by Clause 43.2 above, the Management Company will
deliver to the Security Trustee a list of each Permission concerned indicating
which of Clause 43.6 is applicable to such Permission and Clause 43.6 and 43.7
shall apply to such Permission with respect to such Obligor and the Permission
Grantor concerned, save that references therein to "the date hereof" shall be
references to the date upon which the Obligor concerned becomes party to, or
receives the grant of, the Permission concerned or upon which the company
concerned becomes a member of the Group.
43.9 Each Obligor shall from time to time, at the request of the Security
Trustee, do any act or execute in favour of the Security Trustee or as it may
direct such further or other legal or other assignments or transfers, or such
other documents as in each case the Security Trustee shall stipulate, in such
form as the Security Trustee may require, for the perfection of the assignments
or security contemplated by this Clause 43.
43.10 Each Obligor irrevocably appoints the Security Trustee to be the
attorney or attorneys of such Obligor and in its name and otherwise on its
behalf and as its act and deed to sign, seal, execute, deliver, perfect and do
all deeds, instruments, acts and things which may be required or which the
attorney shall consider desirable for carrying out any obligation imposed on
such Obligor by or pursuant to this Clause 43 with which the Obligor concerned
fails to comply. Such appointment is irrevocable, because it is granted as
security to the Security Trustee for the benefit of the Beneficiaries.
43.11 The Banks hereby approve the Level 1 Merger and the Level 2 Merger.
43.12 In the event that one or more of the mergers of BFR
Beteiligungsgesellschaft fur Fernseh-und-Rundfunkkommunikation GmbH, Telecable
Beteiligungsgesellschaft mbH or ISIT Ingenieurgesellschaft fur Satelliten
Informations und Telekommunikationstechnik mbH is not registered or does not
become effective under German law within 3 months of the date hereof the
Management Company shall procure that encumbrances on identical terms to the
Share Pledges in respect of shares in such company shall be executed.
43.13 The Management Company shall procure that within 3 months of the date
on which KabelMedia Erste Fernsehkabelbeteiligungs GmbH & Co. KG owns all the
issued share capital of Kabelcom Osnabruck Gesellschaft fur
Betriebondkabelkommunikation mbH such company shall either execute a Share
Pledge of such shares in Kabelcom Osnabruck Gesellschaft fur
Betriebondkabelkommunikation mbH or lodge documentation with the commercial
register at the relevant court(s) to effect the merger of it with an Original
Borrower.
44. AMENDMENTS, CONSENTS
Subject to the proviso below, the Agent (acting on the instructions of
an Instructing Group) may grant waivers or consents or, subject to the agreement
of the Management Company, amend or vary the terms of this Agreement. Any such
waiver, consent, variation or amendment shall be made
- 86 -
<PAGE> 91
in writing and shall be binding on all the parties hereto and the Agent shall be
under no liability whatsoever in respect of any such waiver, consent, variation
or amendment Provided that:
(a) except with the prior written consent of all the Banks, no
waiver may be granted in respect of and the Agent may not
vary or amend the terms of this Agreement so as to:
(i) alter the date on which any repayment is to
be made hereunder; or
(ii) alter the amount or currency of any Advance
or any payment;
(iii) alter the Margin, the rate of interest or
its method of calculation;
(iv) alter this Clause;
(v) alter the definition of "Instructing Group";
(vi) alter any provision of this Agreement
referring to a requirement for the agreement
or consent of all the Banks; and
(vii) alter the form of any guarantee given by the
Guarantor(s).
(b) any waiver, consent, variation or amendment which directly
affects the rights and/or obligations of the Agent, the
Arranger, the Security Trustee (or any of them) shall
require its agreement also.
Any waiver, consent or variation authorised and effected by the Agent pursuant
to Clause 44(a) shall be binding on each of the Banks, each Obligor, the
Arranger and the Overdraft Bank upon written notification thereof to such
persons and the Agent shall be under no liability whatsoever in respect of any
such waiver, consent or variation.
- 87 -
<PAGE> 92
PART 15
LAW AND JURISDICTION
45. LAW
45.1 This Agreement shall be governed by, and shall be construed in
accordance with, German law.
45.2 In addition to the provisions of this Agreement, the General
Business Conditions of Chase Manhattan Bank AG in the form set out in the
Thirteenth Schedule (as amended from time to time and notified to the
Management Company) shall be applicable, and, for the purposes thereof,
references therein to customer (Kunde) shall apply, mutatis mutandis, to each
Obligor and to bank (Bank) shall apply, mutatis mutandis, to each Bank. For
the avoidance of doubt, both the German and English versions of the General
Business Conditions are set out in the Thirteenth Schedule. However, the
German version shall at all times prevail.
46. JURISDICTION
46.1 Each of the Obligors irrevocably agrees for the benefit of each of the
Agent, the Arranger, the Security Trustee, the Overdraft Bank and the Banks
that the District Court (Landgericht) Frankfurt am Main shall have jurisdiction
to hear and determine any suit, action or proceeding, and to settle any
disputes, which may arise out of or in connection with this Agreement and, for
such purposes, irrevocably submits to the jurisdiction of such courts. Place
of performance is Frankfurt am Main.
46.2 The submission to the jurisdiction of the courts referred to
in Clause 46.1 shall not (and shall not be construed so as to) limit the right
of the Agent, the Arranger, the Security Trustee, the Overdraft Bank and the
Banks or any of them to take proceedings against the Borrowers in any other
court of competent jurisdiction nor shall the taking of proceedings in any one
or more jurisdictions preclude the taking of proceedings in any other
jurisdiction (whether concurrently or not) if and to the extent permitted by
applicable law.
46.3 Each of the Obligors agrees that the process by which any suit, action
or proceeding is begun may be served on it by being delivered to the Management
Company at the address identified with its signature below.
AS WITNESS the hands of the duly authorised representatives of the parties
hereto the day and year first before written.
- 88 -
<PAGE> 93
THE FIRST SCHEDULE
THE BANKS
PART IA
REVOLVING FACILITY TRANCHE A
<TABLE>
<CAPTION>
Bank Tranche A Revolving
Commitment (DM)
<S> <C> <C>
Banque Paribas (Deutschland) OHG 23,400,000
Dresdner Bank AG in Dresden 23,400,000
ING Bank N.V. 23,400,000
Landesbank Berlin 23,400,000
MeesPierson N.V. 23,400,000
Rabobank Deutschland AG 23,400,000
Vereins-und Westbank AG 23,400,000
Chase Manhattan Bank AG 19,980,000
The Fuji Bank, Limited, Dusseldorf Branch 18,180,000
HSBC Investment Bank plc 18,180,000
Creditanstalt-Bankverein, London Branch 18,180,000
Bayerische Landesbank Girozentrale 11,520,000
The Bank of Nova Scotia 10,080,000
NationsBank, N.A. 10,080,000
</TABLE>
PART IB
REVOLVING FACILITY TRANCHE B
<TABLE>
<CAPTION>
Bank Tranche B Revolving
Commitment (DM)
<S> <C> <C>
Banque Paribas (Deutschland) OHG 9,100,000
Dresdner Bank AG in Dresden 9,100,000
ING Bank N.V. 9,100,000
Landesbank Berlin 9,100,000
MeesPierson N.V. 9,100,000
Rabobank Deutschland AG 9,100,000
Vereins-und Westbank AG 9,100,000
Chase Manhattan Bank AG 7,770,000
The Fuji Bank, Limited, Dusseldorf Branch 7,070,000
HSBC Investment Bank plc 7,070,000
Creditanstalt-Bankverein, London Branch 7,070,000
Bayerische Landesbank Girozentrale 4,480,000
The Bank of Nova Scotia 3,920,000
NationsBank, N.A. 3,920,000
</TABLE>
- 89 -
<PAGE> 94
PART II
TRANCHE C FACILITY
<TABLE>
<CAPTION>
Bank Tranche C Commitment (DM)
<S> <C> <C>
Banque Paribas (Deutschland) OHG 1,650,000
Dresdner Bank AG in Dresden 1,650,000
ING Bank N.V. 1,650,000
Landesbank Berlin 1,650,000
MeesPierson N.V. 1,650,000
Rabobank Deutschland AG 1,650,000
Vereins-und Westbank AG 1,650,000
Chase Manhattan Bank AG 1,650,000
The Fuji Bank, Limited 1,350,000
HSBC Investment Bank plc 1,350,000
Creditanstalt-Bankverein, London Branch 1,350,000
Bayerische Landesbank Girozentrale 1,250,000
The Bank of Nova Scotia 750,000
NationsBank, N.A. 750,000
</TABLE>
- 90 -
<PAGE> 95
THE SECOND SCHEDULE
FORM OF TRANSFER CERTIFICATE
To: Chase Manhattan Bank AG
TRANSFER CERTIFICATE
relating to the agreement (as from time to time amended, varied, novated or
supplemented, the "Facility Agreement") dated [ ] July 1996 whereby a loan
facility comprising a DM375,000,000 revolving credit facility and a
DM20,000,000 general capital facility were made available to the Original
Borrowers (as defined therein) and others as borrowers by a group of banks on
whose behalf Chase Manhattan Bank AG acted as agent and security trustee in
connection therewith.
1. Terms defined in the Facility Agreement shall, subject to any contrary
indication, have the same meanings herein. The terms "BANK" and "TRANSFEREE"
are defined in the schedule hereto.
2. The Bank (i) confirms that the details in the schedule hereto under
the heading "BANK'S COMMITMENT", "REVOLVING ADVANCE(S)" or "TERM ADVANCE(S)"
accurately summarises its participation in, and the Interest Period and
Interest Payment Date of, one or more existing Revolving Advances or Term
Advance(s), as the case may be, and (ii) requests the Transferee to accept and
procure the assignment and transfer to the Transferee of the portion specified
in the schedule hereto to be the portion transferred of its Commitment, its
participation in such Revolving Advance(s) or Term Advance(s), as the case may
be, by counter-signing and delivering this Transfer Certificate to the Agent at
its address for the service of notices specified in the Facility Agreement.
3. The Transferee hereby requests the Agent (on behalf of itself and all
other parties to the Agreement) to accept this Transfer Certificate as being
delivered to the Agent pursuant to and for the purposes of Clause 35.3 of the
Facility Agreement so as to take effect in accordance with the terms thereof on
the Transfer Date or on such later date as may be determined in accordance with
the terms thereof.
4. The Transferee warrants that it has received a copy of each of the
Facility Documents together with such other information as it has required in
connection with this transaction and that it has not relied and will not
hereafter rely on the Bank to check or enquire on its behalf into the legality,
validity, effectiveness, adequacy, accuracy or completeness of any such
information and further agrees that it has not relied and will not rely on the
Bank to assess or keep under review on its behalf the financial condition,
creditworthiness, condition, affairs, status or nature of any member of the
Group.
5. The Transferee hereby undertakes and agrees with the Bank and each of
the other parties to the Facility Documents that it will perform in accordance
with their terms all those obligations which by the terms of the Facility
Documents will be assumed by it and that it will be bound by the terms of the
Facility Documents as if it were an original party thereto after delivery of
this Transfer Certificate to the Agent and satisfaction of the conditions (if
any) subject to which this Transfer Certificate is expressed to take effect.
- 91 -
<PAGE> 96
6. The Bank makes no representation or warranty and assumes no
responsibility with respect to the legality, validity, effectiveness, adequacy
or enforceability of the Facility Documents and assumes no responsibility for
the financial condition of any member of the Group or for the performance and
observance by any Obligor of any of its obligations under the Facility
Documents and any and all such conditions and warranties, whether express or
implied by law or otherwise, are hereby excluded.
7. The Bank hereby gives notice that nothing in the Facility Documents
shall oblige the Bank to (i) accept a re-transfer or re-assignment from the
Transferee of the whole or any part of its rights, benefits and/or obligations
under the Facility Documents transferred or assigned pursuant hereto or (ii)
support any losses directly or indirectly sustained or incurred by the
Transferee for any reason whatsoever including, without limitation, the
non-performance by any of the Obligors of its obligations under any of the
Facility Documents. The Transferee hereby acknowledges the absence of any such
obligation as is referred to in (i) or (ii) above.
8. This Transfer Certificate and the rights and obligations of the
parties hereunder shall be governed by and construed in accordance with German
law.
<TABLE>
<CAPTION>
<S> <C> <C>
THE SCHEDULE
1. Bank:
2. Transferee:
3. Transfer Date:
4. Commitment:
Bank's Commitment Portion Transferred
5. Tranche A Revolving Advance(s):
Amount of Interest Period and Bank's
Participation Interest Payment Date Portion Transferred
6. Tranche B Revolving Advance(s):
Amount of Interest Period and Bank's
Participation Interest Payment Date Portion Transferred
</TABLE>
- 92 -
<PAGE> 97
<TABLE>
<CAPTION>
<S> <C> <C>
7. Tranche C Revolving Advance(s)
Amount of Interest Period and Bank's
Participation Interest Payment Date Portion Transferred
8. Term Advance(s):
Amount of Interest Period and Bank's
Participation Interest Payment Date Portion Transferred
[Transferor Bank] [Transferee Bank]
By: By:
Date: Date:
</TABLE>
ADMINISTRATIVE DETAILS OF TRANSFEREE
Address:
Contact Name:
Account for Payments:
Telex:
Telephone:
- 93 -
<PAGE> 98
THE THIRD SCHEDULE
CONDITION PRECEDENT DOCUMENTS
1. A copy of the constitutional documents of each Obligor and the Holding
Company, certified a true copy by a duly authorised officer of such
Obligor or the Holding Company, as the case may be, including in the
case of each Obligor incorporated in Germany, its Commercial Register
extract and Articles of Incorporation (Gesellschaftvertrag) and any
shareholder resolutions previously passed but not registered or, in
the case of each Obligor which is a limited partnership, its
partnership agreement.
2. A copy certified a true copy by a duly authorised officer of each
Obligor of the board minutes or shareholder resolution (as the case
may be) approving the execution, delivery and performance of each of
the Facility Documents to which it is party, and the terms and
conditions thereof and authorising a named person or persons to sign
the Facility Documents to which it is party.
3. A copy, certified a true complete and up to date copy of the
Shareholders Agreement.
4. A duly executed original of each of the Facility Documents, together
with any agreements, documents or notices required to be delivered
pursuant thereto.
5. A legal opinion of Clifford Chance, Frankfurt counsel to the Agent.
6. Copies of each of the Project Documents and/or a list thereof.
7. Duly executed originals of each of the fees letters referred to in
Clauses 28.2 and 28.3 of this Agreement.
8. Certified copies of each of the Original Financial Statements.
9. Evidence that the insurances required by the terms of the Facility
Documents to be maintained by the Group or on its behalf are in full
force and effect and giving details of all such insurances.
10. Evidence satisfactory to the Agent regarding the refinancing of the
Existing Indebtedness out of the proceeds of the Advances to be made
hereunder on the first drawdown date and the release as soon
thereafter as is reasonably practicable (and in any event within seven
business days) of any guarantees and encumbrance granted by any member
of the Group in respect of all or any part of the Existing
Indebtedness.
11. Confirmation that the Group Structure is as set out in the Twelfth
Schedule.
12. Certificates from the managing director of each member of the Group
dated the date hereof and the date upon which the Security Documents
are executed that such member of the Group is not insolvent on a
balance sheet test (uberschuldet) and is not unable to meet its debts
as they fall due (zahlungsunfahig) and stating (in the case of any
Group member in respect of
- 94 -
<PAGE> 99
which a Commercial Register extract has not been delivered) the
capitalisation of each such member of the Group on such dates.
13. Evidence that all arrangement and agency fees due from the Obligors in
connection with the Facility Documents shall be paid out of the
proceeds of first drawdown.
14. Evidence that the key man life assurance on Ben Bartel in amount of at
least DM2,500,000 is in full force and effect for the benefit of the
Group.
15. The business plan including projected profit and loss accounts,
balance sheets and cash flow statements for the Group for each
calendar month commencing June 1996 and ending May 1997 and thereafter
annually.
16. An irrevocable power of attorney in due notaries form free from the
restrictions contained in Section 181 of the German Civil Code
empowering a representative of the Beneficiaries to execute share
pledges (which shall be in the same form as the other share pledges
executed in connection herewith) in favour of the Security Trustee,
with power to delegate such power.
17. A copy of the Senior Discount Notes Indenture or, if such document has
not yet been issued by the Holding Company, the most recent draft of
such document.
18. A certified copy of the financial information agreement between the
Holding Company and the Agent in a form and substance satisfactory to
the Agent in relation to the provision of financial information under
Clause 19 hereof.
19. Evidence satisfactory to the Agent that DM184,700,000 of Contributed
Equity has been subscribed for or, as the case may be, lent as
Subordinated Debt to Group Companies.
20. Certified copy of a resolution of the Executive Committee or the
Shareholders (both as defined in the Shareholders Agreement) pursuant
to Clause 6.2 of the Shareholders Agreement.
- 95 -
<PAGE> 100
THE FOURTH SCHEDULE
NOTICE OF DRAWDOWN
From: [
]
and
[
]
To: Chase Manhattan Bank AG
Dated:
Dear Sirs
1. We refer to the agreement (as from time to time amended, varied,
novated or supplemented, the "FACILITY AGREEMENT") dated [
] and made between us and others as original borrowers, the original
guarantors named therein, Chase Investment Bank Limited as arranger,
Chase Manhattan Bank AG as agent, security trustee and overdraft bank
and the financial institutions named therein as banks. Terms defined
in the Facility Agreement shall have the same meaning in this notice.
2. We hereby give you notice that, pursuant to the Facility Agreement and
upon the terms and subject to the conditions contained therein, we
wish a [Revolving Advance/Tranche C Advance]
* to be made to us under [Tranche A of the Revolving Credit Facility/Tranche B
of the Revolving Credit Facility/the Tranche C Facility]
* as
follows:
(i) Amount:
(ii) Drawdown Date:
(iii) Term/Interest Period:
(iv) Purpose:
3. We confirm that, at the date hereof, the representations set out in
Clause 18 of the Facility Agreement are true and no Event of Default
or Potential Event of Default has occurred.
4. We attach to this notice a certificate and confirm that the matters
stated therein are true, accurate and up- to-date as of the date of
this notice.
* Delete where appropriate.
- 96 -
<PAGE> 101
5. The proceeds of this drawdown should be credited to [insert
account details].
Yours faithfully
............................................
by [ ]
.............................................
by [ ]
- 97 -
<PAGE> 102
CERTIFICATE
(to be attached to Notice of Drawdown)
To: Chase Manhattan Bank AG
From: [ ]
Dated:
Dear Sirs,
1. Terms defined in the Facility Agreement described in the Notice of
Drawdown attached to this certificate shall have the same meanings in
this certificate.
2. In respect of a [Tranche A Revolving Advance/Tranche B Revolving
Advance/Tranche C Advance]** to be drawn down under the Facility,
I [ ], managing director of [Relevant Management Company] confirm
that:
(i) Pro Forma Senior Debt for the period from [ ]
and ending on [ ] was DM[ ]. Annualised
EBITDA for the period from [ ] and ending on
[ ] was DM[ ]. The ratio of Pro Forma
Senior Debt to Annualised EBITDA was [ ].
Required Covenant:
Compliance: Yes/No
(ii) Pro Forma Senior Debt as at [ ] was DM[ ].
Contributed Equity as at [ ] was DM[ ].
The ratio of Pro Forma Senior Debt to Contributed
Equity was [ ] as at [ ].
Required Covenant:
Compliance: Yes/No
3. Detailed calculations of Pro Forma Senior Debt, Annualised EBITDA and
Contributed Equity are attached.
Yours faithfully
....................................
For and on behalf of
[ ]
- -------------------------------------------------------------------------------
** Delete as appropriate.
- 98 -
<PAGE> 103
THE FIFTH SCHEDULE
FORM OF COMPLIANCE CERTIFICATE
To: Chase Manhattan Bank AG [Date]
RE: FACILITY AGREEMENT (THE "FACILITY AGREEMENT") DATED [ ]
1996 BETWEEN (1) THE ORIGINAL BORROWERS NAMED THEREIN, (2) THE
ORIGINAL GUARANTORS NAMED THEREIN, (3) CHASE INVESTMENT BANK LIMITED
AS JOINT ARRANGER, (4) CHASE MANHATTAN BANK AG AS AGENT AND SECURITY
TRUSTEE, (5) CHASE MANHATTAN BANK AG, AS OVERDRAFT BANK AND (6) THE
FINANCIAL INSTITUTIONS DEFINED THEREIN AS BANKS.
------------------------------------------------------
1. Terms defined in the Facility Agreement have the same meaning when
used in this certificate.
2. [I/We], managing director(s) of the Management Company, hereby certify
that in respect of the Quarterly Period ending on [ ]:
(i) As at the end of such Quarterly Period Senior Debt was
DM[ ].
As at the end of such Quarterly Period Annualised EBITDA
was DM[ ].
As at the end of such Quarterly Period the ratio of Senior
Debt to Annualised EBITDA was [ ].
Required Covenant:
Compliance: Yes/No
(ii) As at the end of such Quarterly Period Total Debt was
DM [ ].
As at the end of such Quarterly Period Annualised
EBITDA was DM [ ].
As at the end of such Quarterly Period the ratio of
Total as Debt to Annualised EBITDA was [ ].
Required Covenant:
Compliance: Yes/No
(iii) EBITDA for such Quarterly Period was DM[ ]
and Cash Interest Expense for such Quarterly Period
was [DM ].
As at the end of such Quarterly Period the ratio of
EBITDA to Cash Interest Expense was [ ].
Required Covenant:
Compliance: Yes/No
- 99 -
<PAGE> 104
(iv) As at the end of such Quarterly Period Annualised EBITDA
was DM[ ].
As at the end of such Quarterly Period Pro Forma Debt
Service was DM [ ].
As at the end of such Quarterly Period the ratio of
Annualised EBITDA to Pro Forma Debt Service was [ ].
Required Covenant:
Compliance: Yes/No
(v) Fixed Charges for the relevant financial year was DM[ ].
EBITDA for the relevant financial year was DM[ ].
Available Tranche C Facility on the last day of the
relevant financial year was DM [ ].
The ratio of EBITDA plus Available Tranche C Facility
to Fixed Charges for such period was [ ].
Required Covenant:
Compliance: Yes/No]
(vi) At the date hereof the amount of Pro Forma Senior
Debt was DM[ ] and Contributed Equity was DM[ ].
The ratio of Pro Forma Senior Debt to Contributed
Equity was [ ].
Required Covenant:
Compliance: Yes/No
Detailed calculations of Pro Forma Senior Debt, Annualised EBITDA, Interest,
Pro Form Debt Service and Fixed Charges are attached.
[I/We] confirm that having made due enquiry that no Event of Default or
Potential Event of Default has occurred, the Borrowers were in compliance with
the covenants contained in Clauses 20.1(i), (ii), (iii), (iv) and (v) and
Clause 20.2 of the Facility Agreement as at [ ].
Yours faithfully,
..................................
Managing Director of
[ ]
- 100 -
<PAGE> 105
THE SIXTH SCHEDULE
FORM OF SUBSCRIBER CERTIFICATE
PART I
ACQUISITION SUBSCRIBER CERTIFICATE
To: Chase Manhattan Bank AG [Date]
RE: FACILITY AGREEMENT (THE "FACILITY AGREEMENT") DATED [ ]
1996 BETWEEN (1) THE ORIGINAL BORROWERS NAMED THEREIN, (2) THE
ORIGINAL GUARANTORS NAMED THEREIN, (3) CHASE INVESTMENT BANK LIMITED
AS ARRANGER, (4) CHASE MANHATTAN BANK AG AS AGENT AND SECURITY
TRUSTEE, (5) CHASE MANHATTAN BANK AG AS THE OVERDRAFT BANK AND (6) THE
FINANCIAL INSTITUTIONS DEFINED THEREIN AS BANKS,
1. Terms defined in the Facility Agreement have the same meaning when
used in this Certificate.
2. I, managing director of [Relevant Management Company], hereby certify
that, in order to finance the Acquisition details of which are set out
below, as at the date hereof and the date of completion of the
Acquisition, namely [ ]:
(i) the Consideration for the Acquisition is [ ];
(ii) the Equivalent Subscribers to be acquired as a result
of the Acquisition are [ ].
The Consideration per Equivalent Subscribers is [ ];
(iii) the Pro Forma Total Debt for the Group is [ ].
The Equivalent Subscribers for the Group as a
whole (including Equivalent Subscribers to be
acquired as a result of the Acquisition) is [ ].
The Pro Forma Total Debt for the Group per Equivalent
Subscribers for the Group is [ ].
Detailed breakdown of Consideration, Revenues, Pro
Forma Total Debt and Annualised Operating Cash Flow
(including detailed breakdowns of Deferred
Consideration payable in connection with the
Acquisitions, incidental or consequential costs
relating thereto (including redundancy costs), and
any adjustments to Operating Cash Flow or Annualised
Operating Cash Flow (in respect of management charges
or Forecasts Operating Cash Flow Margin)) to be
attached.
- 101 -
<PAGE> 106
2.1 Details of the Acquisition are as follows:
[ ]
3. Details of any Related Transactions are as follows:
[ ]
4. I confirm that having made due enquiry no Event of Default or
Potential Event of Default exists, or will arise, and no Event of
Default may arise, as a result of the Acquisition.
Yours faithfully
.............................
Managing Director of
[ ]
- 102 -
<PAGE> 107
THE SIXTH SCHEDULE
FORM OF SUBSCRIBER CERTIFICATE
PART II
QUARTERLY SUBSCRIBER CERTIFICATE
<TABLE>
<CAPTION>
REGION Homes Subscribers Penetration Quarterly Quarterly Quarterly Revenue/ EBIDTA
Passed Churn Revenue EBITDA Sub/Month Sub/Month
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Plauen
Leipzig
Berlin
Dresden
Stuttgart
Osnabruck
Other (including
corporate expenses)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL 0 0 0.00% 0.00% 0 0 0.00 0.00
EXISTING
GROUP
- -----------------------------------------------------------------------------------------------------------------------------------
Acquisitions During
Period
----------------------------------------------------------------------------------------------------------------------------------
TOTAL GROUP 0 0 0.00% 0.00% 0 0 0.00 0.00
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- 103 -
<PAGE> 108
THE SEVENTH SCHEDULE
FORM OF BORROWER ACCESSION MEMORANDUM
To: Chase Manhattan Bank AG
From: [Subsidiary]
Dated:
Dear Sirs,
1. We refer to an agreement (the "Facility Agreement") dated [ ] 1996
and made between (1) the original borrowers named therein, (2) the original
guarantors named therein, (3) Chase Investment Bank Limited as arranger, (4)
Chase Manhattan Bank AG as agent and security trustee, (5) Chase Manhattan Bank
AG as overdraft bank and (6) the financial institutions defined therein as
Banks.
2. Terms defined in the Facility Agreement shall bear the same meaning
herein.
3. [Relevant Management Company] hereby requests that [Subsidiary] become
an Additional Borrower pursuant to Clause 43.1 of the Facility Agreement.
4. [Subsidiary] undertakes to deliver the documents listed in the Eighth
Schedule to the Facility Agreement.
5. [Subsidiary] hereby agrees to such request and accordingly undertakes,
upon its becoming a Borrower, to perform all the obligations expressed to be
undertaken under the Facility Agreement by a Borrower in all respects as if it
had been an original party thereto as an Original Borrower.
6. Each Obligor confirms that it will guarantee in accordance with Clause
30 of the Facility Agreement all the obligations of [Subsidiary] under the
Facility Documents in all respects in accordance with the terms of the Facility
Agreement.
7. Each Obligor:
(i) hereby makes, for the benefit of the Agent and each
of the Banks, each of the representations set out in
Clause 18 of the Facility Agreement; and
(ii) confirms that no Event of Default or Potential Event
of Default has occurred and is continuing.
- 104 -
<PAGE> 109
7.1 [Subsidiary's] administrative details as follows:
Address:
Telephone No.:
Telex No.:
Telefax No.:
8. This memorandum shall be governed by and construed in all respects in
accordance with German law.
9. [Subsidiary] hereto irrevocably agrees for the benefit of each of the
Agent and the Banks that the District Court (Landgericht) Frankfurt am Main
shall have jurisdiction to hear and determine any suit, action or proceeding
and to settle any disputes which may arise out of or in connection with the
Facility Documents and, for such purposes, irrevocably submits to the
non-exclusive jurisdiction of such courts.
[List Obligors] [Subsidiary]
By: ..................... By: .....................
- 105 -
<PAGE> 110
THE EIGHTH SCHEDULE
DOCUMENTS TO ACCOMPANY BORROWER ACCESSION MEMORANDUM
1. A copy, certified a true copy by a duly authorised officer of the
proposed Borrower, of the constitutive documents of such proposed Borrower,
including in the case of a proposed Borrower incorporated in Germany, its
Commercial Register extract and Articles of Incorporation (Gesellschaftvertrag)
and any shareholders resolutions previously passed but not registered or, where
the proposed Borrower is a partnership, its partnership agreement.
2. A copy, certified a true copy by a duly authorised officer of the
proposed Borrower, of a board or shareholder resolution (as the case may be) of
such proposed Borrower approving the execution and delivery of a Borrower
Accession Memorandum, the accession of such proposed Borrower to the Facility
Agreement and the performance of its obligations under the Facility Documents
and authorising a person or persons (specified by name or office) on behalf of
such proposed Borrower to sign such Borrower Accession Memorandum, any other
Facility Document and any other documents to be delivered by such proposed
Borrower pursuant thereto.
3. A certificate of a duly authorised officer of the proposed Borrower
setting out the names and signatures of the person or persons mentioned in the
resolution referred to in paragraph 2 above.
4. A certificate addressed to the Agent signed by two directors of the
proposed Borrower stating that the execution by such proposed Borrower of the
Facility Documents and the performance by such proposed Borrower of its
obligations thereunder are within its corporate powers, have been duly approved
by all necessary corporate action and will not cause any limit or restriction
on any of its powers (whether imposed by law, decree, rule, regulation, its
constitutive documents or agreement or otherwise) or on the right or ability of
its directors to execute such powers, to be exceeded or breached.
5. A copy of its latest financial statements.
6. Such legal opinions as may be reasonably required by the Agent in a
form satisfactory to the Agent.
- 106 -
<PAGE> 111
THE NINTH SCHEDULE
FORM OF BORROWER SECESSION MEMORANDUM
To: Chase Manhattan Bank AG
From: [Relevant Management Company]
Dated:
Dear Sirs,
1. We refer to an agreement (the "Facility Agreement") dated [ ]
1996 and made between (1) ourselves and others as original borrowers, (2) the
original guarantors named therein, (3) Chase Investment Bank Limited as
arranger, (4) Chase Manhattan Bank AG as agent and security trustee, (5) Chase
Manhattan Bank AG as overdraft bank and (6) the financial institutions defined
therein as Banks.
2. Terms defined in the Facility Agreement shall bear the same meaning
herein.
3. We hereby declare that [name of seceding borrower] is under no actual
or contingent obligation under or pursuant to any Facility Document in its
capacity as a Borrower. [Name of seceding borrower] has authorised us to give
the following declaration on its behalf.
4. Accordingly, pursuant to Clause 43.5 of the Facility Agreement and
with effect from receipt of this notice, [name of seceding borrower] shall
cease to be a Borrower under the Facility Agreement.
Yours faithfully
For and on behalf of
[RELEVANT MANAGEMENT COMPANY]
- 107 -
<PAGE> 112
THE TENTH SCHEDULE
FORM OF GUARANTOR ACCESSION MEMORANDUM
To: Chase Manhattan Bank AG
From: [Subsidiary]
Dated:
Dear Sirs,
1. We refer to an agreement (the "Facility Agreement") dated [
] 1996 and made between (1) the original borrowers named therein, (2) the
original guarantors named therein, (3) Chase Investment Bank Limited as
arranger (4) Chase Manhattan Bank AG as agent and security trustee, (5) Chase
Manhattan Bank AG as overdraft bank and (6) the financial institutions defined
therein as Banks.
2. Terms defined in the Facility Agreement shall bear the same meaning
herein.
3. [Subsidiary] hereby agrees to be a Guarantor pursuant to Clause
43.1(i) of the Facility Agreement and accordingly undertakes henceforth to
perform all the obligations expressed to be undertaken under the Facility
Agreement by a Guarantor in all respects as if it had been an original party
thereto as an Original Guarantor.
4. The Subsidiary and each Obligor hereby makes, for the benefit of the
Agent and each of the Banks, each of the representations set out in Clause 18
of the Facility Agreement.
5. [Subsidiary's] administrative details are as follows:
Address:
Telephone No:
Telex No:
Telefax No:
6. This notice shall be governed by and construed in all respects in
accordance with German law.
7. The Guarantor hereto irrevocably agrees for the benefit of each of the
Agent and the Banks that the District Court (Landgericht) Frankfurt am Main
shall have jurisdiction to hear and determine any suit,
- 108 -
<PAGE> 113
action or proceeding and to settle any disputes which may arise out of or in
connection with the Facility Documents and, for such purposes, irrevocably
submits to the non-exclusive jurisdiction of such courts.
[Subsidiary] [List Obligors]
By: By:
- 109 -
<PAGE> 114
THE ELEVENTH SCHEDULE
DOCUMENTS TO ACCOMPANY GUARANTOR ACCESSION MEMORANDUM
1. A copy, certified a true copy by a duly authorised officer of the
proposed Guarantor, of the constitutive documents of such proposed Guarantor,
including in the case of a proposed Guarantor incorporated in Germany, its
Commercial Register extract and Articles of Incorporation
(Gesellschaftsvertrag) and any shareholders resolutions previously passed but
not registered or, where the proposed Guarantor is a partnership, its
partnership agreement.
2. A copy, certified a true copy by a duly authorised officer of the
proposed Guarantor, of a board or shareholder resolution (as the case may be)
of such proposed Guarantor approving the execution and delivery of a Guarantor
Accession Memorandum, the accession of such proposed Guarantor to this
Agreement and the performance of its obligations under the Facility Documents
and authorising a person or persons (specified by name or office) on behalf of
such proposed Guarantor to sign such Guarantor Accession Memorandum, any other
Facility Document and any other documents to be delivered by such proposed
Guarantor pursuant thereto.
3. A certificate of a duly authorised officer of the proposed Guarantor
setting out the names and signatures of the person or persons mentioned in the
resolution referred to in paragraph 2 above.
4. A certificate addressed to the Agent signed by two directors of the
proposed Guarantor stating that the execution by such proposed Guarantor of the
Facility Documents and the performance by such proposed Guarantor of its
obligations thereunder are within its corporate powers, have been duly approved
by all necessary corporate action and will not cause any limit or restriction
on any of its powers (whether imposed by law, decree, rule, regulation, its
constitutive documents or agreement or otherwise) or on the right or ability of
its directors to execute such powers, to be exceeded or breached.
5. Such Security Documents as the Agent may reasonably require, executed
by the proposed Guarantor on equivalent terms to those previously executed by
the Obligors (if any) originally party to the Facility Agreement which are the
same type of legal entity as the proposed Guarantor with the same type of
assets.
6. A copy of its latest financial statements.
7. Such legal opinions as may be reasonably required by the Agent in a
form satisfactory to the Agent.
- 110 -
<PAGE> 115
THE TWELFTH SCHEDULE
CORPORATE STRUCTURE
- 111 -
<PAGE> 116
THE THIRTEENTH SCHEDULE
GENERAL BUSINESS CONDITIONS
- 112 -
<PAGE> 117
THE FOURTEENTH SCHEDULE
FORM OF HISTORICAL EXPENSE ADJUSTMENT NOTICE
HISTORICAL DATA ADJUSTMENTS PROFORMA
REVENUES
Subscription Revenues
Installation Revenues
Other
Total Net Revenues
INTEREST
Personnel
G & A
Technical
Marketing
Other
Total Interest
Operating Cash Flow
Operating Cash Flow Margin
- 113 -
<PAGE> 118
THE FIFTEENTH SCHEDULE
ACQUISITION DUE DILIGENCE PROCEDURE
This schedule summarises the key concerns for the Banks in connection with the
legal due diligence to be undertaken by the Group's legal advisors and
indicates an outline procedure designed to streamline the process in the period
prior to funding an acquisition and documenting the additional security.
A. AREAS OF CONCERN FOR LEGAL DUE DILIGENCE
The Banks would expect the legal due diligence report supplied to them to cover
at least the following areas satisfactorily:
1. CORPORATE STRUCTURE
This will include clear identification of the legal entities and/or
assets being acquired, the structure and manner of acquisition and
clarification of the corporate history of the target group.
2. CONCESSION AGREEMENTS (AND EQUIVALENTS)
This will include information as to the contract parties, term of
contract, assignability, exclusivity clauses, savings clauses, unusual
payment arrangements and other material details. Where possible, the
information will be provided in the form of an agreed form chart.
3. SIGNAL DELIVERY CONTRACTS.
Where these are present, this information will cover the parties,
length of contract, payment terms, exclusivity etc. and other material
terms. To the extent possible, this information will also be provided
in the form of an agreed form chart.
4. BAPT PERMITS
To the extent individual permits are necessary, information should be
provided on the status of these, in particular reconciling the number
of households (Wohneinheiten] covered, passed and actual subscribers.
Efforts should also be made to reconcile these numbers to concession
agreements and equivalent figures in other due diligence reports.
5. CUSTOMER RECEIVABLES, BULK CONTRACTS, INKARSO ETC.
This will include information as to the contracting party (other than
the subscriber) and assignability and future price increases. In the
case of bulk contracts or inkarso arrangements, the relevant material
details should also be addressed.
- 114 -
<PAGE> 119
6. THIRD PARTY INDEBTEDNESS
This will include information on the extent of any third party
indebtedness in the target companies, including, in particular,
amounts outstanding, repayment terms (including prepayment fees or
penalties) and security granted.
7. OTHER MATERIAL ITEMS
This should include such other information as is material and relevant
in the context of the individual transaction.
It is the intention that the information provided in the Acquisition Due
Diligence Report from the Group's legal counsel should, so far as possible, be
in a form such that it can be adopted for inclusion in the Security Documents
as necessary.
B. SECURITY DOCUMENTS AND PROCEDURE
This section outlines in skeleton form the procedural steps envisaged to
streamline the process as much as possible, whilst recognising that individual
transactions may require variations from this approach.
x - 40 delivery of Acquisition Due Diligence Report and draft Sale
and Purchase Agreement (which will already include material
comments from Seller)
x - 28 delivery of revised version Sale and Purchase Agreement
x - 25 meeting between Banks' legal counsel and Group's legal
counsel to discuss and clarify any outstanding issues
x - 20 Sale and Purchase Agreement notarised
x - 15 provision of final outstanding information to complete
drafting of Security Documents
x - 5 receipt of conditional releases of security
x - 4 Draw-down Notice served
x Acquisition funded
x + 1 moneys received in Seller's account, title transfers and
Guarantor Accession Memorandum, Security Documents (and
other documents as necessary) executed
x + 2 confirmation received that all target third party debts has
been repaid
- 115 -
<PAGE> 120
THE ORIGINAL BORROWERS
ERSTE KABELVISION MANAGEMENT BETEILIGUNGS GMBH & CO. KG
By:
ZWEITE KABELVISION MANAGEMENT BETEILIGUNGS GMBH & CO. KG
By:
DRITTE KABELVISION MANAGEMENT BETEILIGUNGS GMBH & CO. KG
By:
KABELVISION DELITZSCH GMBH & CO. KG
By:
KFP KABELFERNSEHEN PLAUEN GMBH & CO. KG
By:
KABELMEDIA PROJEKTMANAGEMENT KOMMUNIKATIONSNETZE GMBH & CO. KG
KABELBETRIEBSGESELLSCHAFT
By:
KABEL-FERNSEHEN LEIPZIG GMBH
By:
- 116 -
<PAGE> 121
THE ORIGINAL GUARANTORS
KABELVISION MANAGEMENT GMBH
By:
KABELMEDIA HOLDING HANNOVER GMBH
By:
ERSTE KABELVISION MANAGEMENT BETEILIGUNGS GMBH & CO. KG
By:
ZWEITE KABELVISION MANAGEMENT BETEILIGUNGS GMBH & CO. KG
By:
DRITTE KABELVISION MANAGEMENT BETEILIGUNGS GMBH & CO. KG
By:
KABELVISION DELITZSCH GMBH & CO. KG
By:
KFP KABELFERNSEHEN PLAUEN GMBH & CO. KG
By:
KABELMEDIA PROJEKTMANAGEMENT KOMMUNIKATIONSNETZE GMBH & CO. KG
KABELBETRIEBSGESELLSCHAFT
By:
KABEL-FERNSEHEN LEIPZIG GMBH
By:
KABELVISION WIEDMAN - DETTWILER ST. GEORGEN VERWALTUNGS GMBH
By:
- 117 -
<PAGE> 122
KABELVISION WIEDMANN - DETTWILER ST. GEORGEN GMBH & CO. K.G.
By:
KABEL FERNSEHEN PLAUEN GMBH
By:
KABELVISION DELITZSCH VERWALTUNGS GMBH
By:
TKB TELEKABEL BETRIEBGESELLSCHAFT MBH
By:
INFO-SAT GMBH ASCHERLEBEN
By:
ERSTE KABELVISION MANAGEMENT BETEILIGUNGS VERWALTUNGS GMBH
By:
ZWEITE KABELVISION MANAGEMENT BETEILIGUNGS VERWALTUNGS GMBH
By:
DRITTE KABELVISION MANAGEMENT BETEILIGUNGS VERWALTUNGS GMBH
By:
KABELMEDIA PROJEKTMANAGEMENT KOMMUNIKATIONSNETZE VERWALTUNGS GMBH
By:
KABELMEDIA PROJEKTMANAGEMENT GMBH
By:
- 118 -
<PAGE> 123
TELECABLE BETEILIGUNGSGESELLSCHAFT GMBH
By:
ISIT INGENIEURGESELLSCHAFT FCR SATELLITEN - INFORMATIONS - UND
TELEKOMMUNIKATIONSTECHNIK MBH
By:
BFR BETEILIGUNGSGELLSCHAFT FCR FERNSEH UND RUNDFUNK KOMMUNIKATION GMBH
By:
Address: Oberer Steinweg 10
08523 Plauen
Germany
Telefax: 49 3741 22 3078
All communications to be copied to:
Dorser Amereller Noack
Bethmannstrasse 50-54
60311 Frankfurt
Germany
Telefax: 49 69 2990 8108
Attention: Christian Broderson
CHASE INVESTMENT BANK LIMITED
as Arranger
By:
Address: 125 London Wall
London EC4B 6JA
Telefax: 0171 777 4759
Telex: 895 101-CML TD-G
Attention: Christoph Auer
Telefax: 0171 777 4759
- 119 -
<PAGE> 124
CHASE MANHATTAN BANK AG
as Agent, Security Trustee, Overdraft Bank and Bank
By:
Address: Ulmenstr. 30
60326 Frankfurt/Main
Germany
Telefax: 49 69 71582 557
Attention: Robert Dickler/Project Finance
THE BANK OF NOVA SCOTIA
as Bank
By:
Address: Scotia House
33 Finsbury Square
London
United Kingdom
EC2A 1BB
Telefax: 0171 826 5857
Attention: Administration Contact
Paul Branwhite
0171 826 5645
Jackie Gilligan
0171 826 5807
Credit Contact
John Leftley
0171 826 5780
Paul Franklin
0171 826 5751
- 120 -
<PAGE> 125
BANQUE PARIBAS (DEUTSCHLAND) OHG
as Bank
By:
Address: Gruneburgweg 14
60322 Frankfurt
Germany
Telefax: 49 69 15205 330
Attention: Mr. W.D. Grafe
Tel: 49 69 15205-276
Fax: 49 69 15205-337
BAYERISCHE LANDESBANK GIROZENTRALE
as Bank
By:
Address: Brienner Strasse 20
80333
Munich
Germany
Telefax: 49 89 2171 2549
Attention: Christian Kreiss
Tel: 49 89 2171 2656
Fax: 49 89 21 71 2549
- 121 -
<PAGE> 126
CREDITANSTALT - BANKVEREIN, LONDON BRANCH
as Bank
By:
Address: 125 London Wall
London EC2Y 5DD
Telefax: 0171 417 4803/4804
Telex: 894612
Attention: Loans Adminstration
Tel: 0171 417 4848
Fax: 0171 417 4803/4804
Telex: 894612
DRESDNER BANK AG IN DRESDEN
as Bank
By:
Address: Dr.-Kueizring 10
01067 Dresden
Germany
Telefax: 49 351 489 1352
Attention: Horst Klein
Tel: 0351 489 1002
Fax: 0351 489 1352
Administration Office:
Herr Waltermann
Tel: 0351 489 1213
Telefax: 0351 489 1350
Copies of Communications to:
Dresdner Bank AG
GB Firmen und Internationales Geschaft
- Spezialfinazierungen -
Weserstr. 43
60301 Frankfurt
Germany
Tel: 49 69 263 10236
Telefax: 49 69 263 5506
Attention: Dr. Andreas Leimbach/Klaus Rosenfeld
- 122 -
<PAGE> 127
THE FUJI BANK, LIMITED DCSSELDORF BRANCH
as Bank
By:
Address: Immermannstrasse 3
40210 Dusseldorf Branch
Germany
Telefax: 49 211 1789150
Telex: 858 73889 FJBKD
Attention: Ken Ashida/Katsunori Takata
Telex: 858 7388/9 FJBKD
Fax: 49 211 1789150
Tel: 49 211 1693112
HSBC INVESTMENT BANK PLC
as Bank
By:
Address: Thames Exchange
10 Queen Street Place
London EC4R 1BL
Telefax: 0171 336 9293
Attention: J. Causton
Loans Administration Dept.
Tel: 0171 336 9294/9287
Fax: 0171 336 9293
- 123 -
<PAGE> 128
ING BANK N.V.
as Bank
By:
Address: Telecom Finance HE 0201
Bijlmerplein 888
1102 MG Amsterdam
P.O. Box 1800
1000 BV Amsterdam
The Netherlands
Telefax: 31 20 563 5505/5164
Attention: Joe Kutz/Tim Henssen
Tel: 31 20 563 5084/5419
Fax: 31 20 563 5505/5164
Adminstrative details
Dennis Pho
Tel: 31 20 563 5305
Fax: 31 20 563 5239
Telex: 11402 INGB NL
Swift: INGB NL 2A
LANDESBANK BERLIN
as Bank
By:
Address: Bundesallee 171
10889
Berlin - Wilmersdorf
Germany
Attention: Michael Lipczynski (Ext. 3331)
Andreas Sielemann (Ext. 4384)
Tel: 30 869 4393
Fax: 30 869 3050
Telex: 183805 Ibb d
- 124 -
<PAGE> 129
MEESPIERSON N.V.
as Bank
By:
Address: Corporate Banking
P.O. Box 293
NL - 1000 AG Amsterdam
The Netherlands
Telefax: 31 10 401 61 18
Telex: 21231
Attention: Mr. W.P. de Heer
Tel: 31 10 401 63 04
Fax: 31 10 401 61 18
Telex: 21231
NATIONSBANK, N.A.
as Bank
By:
Address: New Broad Street House
35 New Broad Street
London EC2M 1NH
United Kingdom
Fax: 0171 628 8692
Telex: 883181 NCNB G
Attention: Tim Martin
Tel: 0171 860 3734/3740
Fax: 0171 628 8692
Telex: 883181 NCNB G
- 125 -
<PAGE> 130
RABOBANK DEUTSCHLAND AG
as Bank
By:
Address: Somsstra#e 2-26
D-60447 Frankfurt am Main
Germany
Telefax: 49 69 7077183
Telex: 4-114630
Attention: Mr. Uwe R. Opitz/Julian Ostheim
Tel: 49 69 79206428
Fax: 49 69 7077183
Telex: 4-114630
Copies of Communications to:
Rabobank Nederland
Att. Head of Project Finance
UC-G455
P.O. Box 17100
3500 HG Utrecht
The Netherlands
Fax: 31 30 2191949
VEREINSBANK - UND WESTBANK AG
as Bank
By:
Address: Alter Wall 22
20457 Hamburg
Germany
Telefax: 49 40 3692-3766
Telex: 4-114630
Attention: Mr. Uwe Ottenberg
Tel: 49 40 3692 3147
Mrs. Birgit Gotthardt-Senk
Tel: 49 40 3692 2372
Fax: 49 40 3692 3766
- 126 -
<PAGE> 131
Copies of Communcation to:
Bayerische Vereinsbank AG
BEB/GFK
Dr. Stefan Freber
Leibnitzstra#e 100
10625 Berlin
Germany
Tel: 49 30 34004 486
Fax: 49 30 34004 482
- 127 -
<PAGE> 1
EXHIBIT 12
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES
STATEMENT OF DEFICIENCY OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------
THREE MONTHS
ENDED
1993 1994 1995 MARCH 31,
------- ------- ------- ------------
<S> <C> <C> <C> <C>
DM DM DM DM
Loss before income taxes........................... (1,501) (6,116) (36,528) (11,267)
Minority interest.................................. -- -- (118) (27)
Extraordinary item................................. -- -- (2,670) --
Add fixed charges.................................. 1,055 3,860 25,343 8,601
------- ------- ------- -------
Total earnings..................................... (446) (2,256) (13,973) (2,693)
======= ======= ======= =======
Fixed charges:
Total interest expense including capitalized
interest......................................... 1,055 3,544 24,828 8,418
Amortization of loan financing fees................ -- 316 515 183
------- ------- ------- -------
Total fixed charges................................ 1,055 3,860 25,343 8,601
======= ======= ======= =======
Deficiency of earnings to fixed charges............ (1,501) (6,116) (39,316) (11,294)
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
--------------------------------------------------------------------
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, 1995 MARCH 31, 1996
-------------------------------------------- --------------------
FOR THE RECENT FOR THE INFOSAT
FOR THE RECENT ACQUISITIONS, THE ACQUISITION, THE
ACQUISITIONS, THE SHAREHOLDER DEBT SHAREHOLDER DEBT
SHAREHOLDER DEBT CONVERSION, THE CONVERSION, THE
CONVERSION AND THE OFFERING AND THE OFFERING AND THE
OFFERING PENDING ACQUISITIONS PENDING ACQUISITIONS
-------------------- -------------------- --------------------
<S> <C> <C> <C>
DM DM DM
Loss before income taxes............... (35,038) (40,583) (10,343)
Minority interest...................... (113) (113) (27)
Extraordinary item..................... (2,670) (2,670) --
Add fixed charges...................... 25,645 28,871 7,072
------- ------- -------
Total earnings......................... (12,176) (14,495) (3,298)
======= ======= =======
Fixed charges:
Total interest expense including
capitalized interest................. 24,227 27,453 6,718
Amortization of loan financing fees.... 1,418 1,418 354
------- ------- -------
Total fixed charges.................... 25,645 28,871 7,072
======= ======= =======
Deficiency of earnings to fixed
charges.............................. (37,821) (43,366) (10,370)
======= ======= =======
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our reports dated
February 28, 1996 (except for note 1, as to which the date is May 21, 1996) with
respect to the consolidated financial statements and financial statement
schedule of Kabelmedia Holding GmbH; November 23, 1995 with respect to the
financial statements of Antech Gesellschaft fur Vermietung und Vertrieb von
Satelliten-und Kabelfernsehempfangsanlagen mbH; July 28, 1995 with respect to
the financial statements of PKG Holding GmbH; December 13, 1995 with respect to
the financial statements of PKG Mature Networks; January 5, 1996 with respect to
the financial statements of TELECable Betriebsgesellschaft Halle mbH; February
28, 1996 with respect to the financial statements of BFR Group (Osnabruk and
Angelbachtal Operations); February 28, 1996 with respect the financial
statements of BFR Group (Berlin and Bielefeld Operations); September 20, 1995
with respect to the financial statements of KSW GmbH & Co. KG Kabel- und
Satellitenempfangsanlagen fur Wohngebiete und Kommunen; and March 22, 1996 with
respect to the financial statements of BTV Group in Amendment No. 1 to the
Registration Statement (Form S-1 No 333-5094) and related Prospectus of
Kabelmedia Holding GmbH.
ERNST & YOUNG GMBH
Frankfurt, Germany
July 18, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
As independent public accountants, we hereby consent to the reference to
our firm under the caption "Experts" and to the use of our reports dated
- 29 June 1994 with the respect to the consolidated financial statements
and schedules of PKG Holding GmbH, Hannover,
- 17 February 1994 with the respect to the financial statements and
schedules of Wiedmann-Dettwiler St. Georgen GmbH, St. Georgen
- 17 February 1994 with the respect to the financial statements and
schedules of Kabel Plus Gesellschaft fur Kabel- und Satellitenfernsehen
mbH, Hofheim am Taunus
- 22 February 1995 with the respect to the financial statements and
schedules of Wiedmann-Dettwiler St. Georgen GmbH, St. Georgen
- 22 February 1995 with the respect to the financial statements and
schedules of Kabel Plus Gesellschaft fur Kabel- und Satellitenfernsehen
mbH, Hofheim am Taunus
included in Amendment No. 1 to the Registration Statement (Form S-1 No.
333-5094) and related Prospectus of Kabelmedia Holding GmbH, Plauen.
ARTHUR ANDERSEN
Wirtschaftsprufungsgesellschaft
Steuerberatungsgesellschaft mbH
Michael von Sperber
Hannover, 18 July 1996
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in Amendment No. 1 to the Registration Statement of
Kabelmedia Holding GmbH on Form S-1 of our report dated June 28, 1994, appearing
in the Prospectus, which is part of this Registration Statement. We also consent
to the reference to us under the heading "Experts" in such Prospectus.
Wollert-Elmendorff
Deutsche Industrie - Treuhand GmbH
Berlin, Germany
July 18, 1996
<PAGE> 1
EXHIBIT 25
FORM T-1
<PAGE> 2
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) / /
---------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
---------------
KABELMEDIA HOLDING GMBH
(Exact name of obligor as specified in its charter)
Federal Republic of Germany Not Applicable
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
Oberer Steinweg 10
08523 Plauen, Germany (###-##-####) 26060
(Address of principal executive offices) (Zip code)
---------------
% Senior Discount Notes due 2006
(Title of the indenture securities)
================================================================================
<PAGE> 3
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH
IT IS SUBJECT.
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y.
12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None. (See Note on page 3.)
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION, ARE
INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO RULE
7a-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND RULE 24 OF THE
COMMISSION'S RULES OF PRACTICE.
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1 filed
with Registration Statement No. 33-6215, Exhibits 1a and 1b to Form T-1
filed with Registration Statement No. 33-21672 and Exhibit 1 to Form T-1
filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
-2-
<PAGE> 4
6. The consent of the Trustee required by Section 321(b) of the
Act. (Exhibit 6 to Form T-1 filed with Registration Statement
No. 33-44051.)
7. A copy of the latest report of condition of the Trustee
published pursuant to law or to the requirements of its
supervising or examining authority.
NOTE
Inasmuch as this Form T-1 is filed prior to the ascertainment by the
Trustee of all facts on which to base a responsive answer to Item 2, the answer
to said Item is based on incomplete information.
Item 2 may, however, be considered as correct unless amended by an
amendment to this Form T-1.
- 3 -
<PAGE> 5
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York, and
State of New York, on the 29th day of March, 1996.
THE BANK OF NEW YORK
By: /s/ LLOYD A. MCKENZIE
-----------------------------------
Name: LLOYD A. MCKENZIE
Title: ASSISTANT VICE PRESIDENT
