<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 4, 1997
REGISTRATION NO. 333-20307
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------
POLAND COMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
NEW YORK 4825 06-1070447
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
ONE COMMERCIAL PLAZA
HARTFORD, CT 06103-3585
(860) 549-1674
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
ROBERT E. FOWLER, III
POLAND COMMUNICATIONS, INC.
ONE COMMERCIAL PLAZA
HARTFORD, CT 06103-3585
(860)-549-1674
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
MARC R. PAUL, ESQ.
BAKER & MCKENZIE
815 CONNECTICUT AVE, N.W.
WASHINGTON, D.C. 20006
(202) 452-7000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If the Securities registered on this Form are to be offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ ]
------------------------
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 THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE> 2
POLAND COMMUNICATIONS, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 404(a) AND ITEM 501(b) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM AND HEADING ON FORM S-4 HEADING OR LOCATION IN PROSPECTUS
--------------------------------------------- ---------------------------------------------
<C> <S> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus..... Cover Pages of Registration Statement and
Prospectus; Cross Reference Sheet
2. Inside Front and Outside Back Cover Pages of
Prospectus................................. Inside Front and Outside Back Cover Pages of
Prospectus
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information.............. Prospectus Summary; Summary Consolidated
Financial Data; Risk Factors
4. Terms of the Transaction..................... Prospectus Summary; The Exchange Offer;
Income Tax Considerations; Description of the
Notes
5. Pro Forma Financial Information.............. Not Applicable
6. Material Contracts with the Company Being
Acquired................................... Not Applicable
7. Additional Information Required for
Reoffering by Persons and Parties Deemed to
be Underwriters............................ Not Applicable
8. Interests of Named Experts and Counsel....... Not Applicable
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ Not Applicable
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3
Registrants................................ Available Information; Prospectus Summary;
Risk Factors; Use of Proceeds
11. Incorporation of Certain Information By
Reference.................................. Not Applicable
12. Information with Respect to S-2 or S-3
Registrants................................ Not Applicable
13. Incorporation of Certain Information by
Reference.................................. Not Applicable
14. Information with Respect to Registrants Other
Than S-3 or S-2 Registrants................ Not Applicable
C. INFORMATION ABOUT THE COMPANY
BEING ACQUIRED
15. Information with Respect to S-3 Companies.... Not Applicable
16. Information with Respect to S-2 or S-3
Companies.................................. Not Applicable
17. Information with Respect to Companies Other
Than S-3 or S-2 Companies.................. Not Applicable
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations are to be Solicited......... Not Applicable
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or
in an Exchange Offer....................... Prospectus Summary; The Exchange Offer; Use
of Proceeds
</TABLE>
<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 JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH JURISDICTION.
SUBJECT TO COMPLETION, DATED APRIL 4, 1997
POLAND COMMUNICATIONS, INC.
OFFER TO EXCHANGE
9 7/8% SERIES B SENIOR NOTES DUE 2003 FOR ANY AND ALL
OF ITS OUTSTANDING 9 7/8% SENIOR NOTES DUE 2003
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1997, UNLESS EXTENDED; PROVIDED IT MAY NOT BE EXTENDED BEYOND
, 1997.
Poland Communications, Inc., a New York corporation ("PCI" or the
"Issuer"), hereby offers, upon the terms and subject to the conditions set forth
in this Prospectus and the accompanying Letter of Transmittal (which together
constitute the "Exchange Offer"), to exchange $1,000 principal amount of its
9 7/8% Series B Senior Notes due 2003 (the "Exchange Notes") for each $1,000
principal amount of its outstanding 9 7/8% Senior Notes due 2003 (the "Old
Notes") of which $130.0 million in aggregate principal amount are outstanding as
of the date hereof, which exchange has been registered under the Securities Act
of 1933, as amended (the "Securities Act"), pursuant to a registration statement
of which this Prospectus is a part (the "Registration Statement"). The form and
terms of the Exchange Notes are the same as the form and terms of the Old Notes
except that (i) the exchange will have been registered under the Securities Act
and therefore the Exchange Notes will not bear legends restricting the transfer
thereof and (ii) holders of the Exchange Notes will not be entitled to certain
rights of holders of the Old Notes under the Registration Rights Agreement (as
defined herein), which rights with respect to Old Notes will terminate upon the
consummation of the Exchange Offer. See "Description of the Notes -- Exchange
Offer; Registration Rights." The Exchange Notes will evidence the same debt as
the Old Notes (which they replace) and will be entitled to the benefits of an
indenture dated as of October 31, 1996 governing the Old Notes and the Exchange
Notes (the "Indenture"), such that both series will be treated as a single class
of debt securities under the Indenture. The Old Notes and the Exchange Notes are
sometimes referred to herein collectively as the "Notes." See "The Exchange
Offer" and "Description of the Notes."
The Issuer will accept for exchange any and all validly tendered Old Notes
not withdrawn prior to 5:00 p.m., New York City time, on , 1997
("Expiration Date"); provided, however, that if the Issuer, in its sole
discretion, has extended the period of time for which the Exchange Offer is
open, the term "Expiration Date" means the latest time and date to which the
Exchange Offer is extended; provided further, that in no event will the Exchange
Offer be extended beyond , 1997. Tenders of Old Notes may be
withdrawn at any time prior to the Expiration Date. The Exchange Offer is
subject to certain customary conditions. Old Notes may be tendered only in
integral multiples of $1,000. See "The Exchange Offer -- Certain Conditions to
the Exchange Offer."
The Exchange Notes will mature on November 1, 2003. Upon a Change of
Control (as defined herein), each holder of the Exchange Notes may require the
Issuer to repurchase all or a portion of such holder's Exchange Notes at 101% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the
date of such purchase. In addition, the Issuer may be required to use the net
cash proceeds of certain Asset Sales (as defined herein) to make an offer to
purchase the Exchange Notes at a purchase price equal to 100% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the date of
purchase. At any time prior to November 1, 1999, the Issuer may redeem up to 33%
of the aggregate principal amount of the Notes originally issued with the net
cash proceeds of one or more Public Equity Offerings (as defined herein) at
109.875% of the principal amount thereof, plus accrued and unpaid interest, if
any, to the date of redemption; provided that not less than $87 million
aggregate principal amount of Notes would remain outstanding immediately after
giving effect to any such redemption.
The Exchange Notes are senior obligations of the Issuer ranking pari passu
in right of payment with all other existing and future unsubordinated
obligations of the Issuer. The Issuer is a holding company with limited assets
of its own that conducts substantially all of its business through subsidiaries.
The Issuer has pledged to the Trustee (as hereinafter defined), for the benefit
of the holders of the Notes, intercompany notes (the "Pledged Debt") issued by
Poland Cablevision (Netherlands) B.V. ("PCBV"), a subsidiary of the Issuer. The
assets of PCBV consist principally of capital stock of its subsidiaries and
intercompany notes from such subsidiaries. The Exchange Notes will be
effectively subordinated to all indebtedness for money borrowed by the
subsidiaries of the Issuer (other than the Pledged Debt). As of December 31,
1996, the Issuer's subsidiaries had no outstanding indebtedness for money
borrowed other than intercompany indebtedness and approximately $3.2 million of
trade payables.
SEE "RISK FACTORS" FROM PAGES 14 TO 23 FOR A DISCUSSION OF CERTAIN FACTORS TO BE
CONSIDERED BY HOLDERS WHO TENDER THEIR OLD NOTES IN THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is , 1997.
<PAGE> 4
(continued from previous page)
The Old Notes were sold by the Issuer on October 31, 1996 to Merrill,
Lynch, Pierce, Fenner & Smith Incorporated (the "Initial Purchaser") pursuant to
a Purchase Agreement dated October 24, 1996 by and among the Issuer and the
Initial Purchaser (the "Purchase Agreement"). Pursuant to the Purchase
Agreement, the Issuer and the Initial Purchaser entered into a Registration
Rights Agreement dated as of October 31, 1996 ("Registration Rights Agreement")
which granted the holders of the Old Notes certain exchange and registration
rights. The Exchange Offer is being made to satisfy certain of the Issuer's
obligations under the Registration Rights Agreement.
Based upon no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission") to third parties, the Issuer believes
that the Exchange Notes issued pursuant to the Exchange Offer in exchange for
Old Notes may be offered for resale, resold or otherwise transferred by a holder
thereof (other than any holder which is an "affiliate" of the Issuer within the
meaning of Rule 405 under the Securities Act or a holder that is a broker-dealer
who acquires Exchange Notes to resell pursuant to Rule 144A or any other
available exemption under the Securities Act), without compliance with the
registration and prospectus delivery provisions of the Securities Act; provided
that such Exchange Notes are acquired in the ordinary course of such holders'
business and such holder is not participating, does not intent to participate,
and has no arrangement with any person to participate in the distribution of
such Exchange Notes. However, the Commission has not considered the Exchange
Offer in the context of a no-action letter and there can be no assurance that
the staff of the Commission would make a similar determination with respect to
the Exchange Offer as in such other circumstances. Holders of Old Notes wishing
to accept the Exchange Offer must represent to the Issuer that such conditions
have been met. Each broker-dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer, where it acquired the Old Notes
exchanged for such Exchange Notes for its own account as a result of
market-making or other trading activities, must acknowledge that it will deliver
a prospectus in connection with the resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Issuer has agreed that, for a period
of 180 days after the Expiration Date, it will make this Prospectus available to
any broker-dealer for use in connection with any such resale. See "The Exchange
Offer -- Resale of the Exchange Notes" and "Plan of Distribution."
The Issuer will not receive any proceeds from the Exchange Offer and will
pay all of its expenses incident thereto. Tenders of Old Notes pursuant to the
Exchange Offer may be withdrawn at any time prior to the Expiration Date. In the
event that the Issuer terminates the Exchange Offer and does not accept for
exchange any Old Notes, the Issuer will promptly return the Old Notes to the
holders thereof. See "The Exchange Offer."
Prior to this Exchange Offer, there has been no public market for the
Notes. The Issuer does not intend to list the Exchange Notes on any securities
exchange or to seek approval for quotation through any automated quotation
system. There can be no assurance that an active market for the Exchange Notes
will develop. To the extent that market for the Exchange Notes does develop, the
market value of the Exchange Notes will depend on market conditions, such as
yields on alternative investments, general economic conditions, the Issuer's
financial condition and other conditions. Such conditions might cause the
Exchange Notes, to the extent that they are actively traded, to trade at a
significant discount from face value. See "Risk Factors -- Absence of Public
Market."
The Exchange Notes will bear interest at the same rate and on the same
terms as the Old Notes. Consequently, interest on the Exchange Notes will be
payable semi-annually in cash in arrears on May 1 and November 1 of each year,
commencing May 1, 1997, at the rate of 9 7/8% per annum. The Exchange Notes
issued in exchange for Old Notes will accrue interest from the later of October
31, 1996, the date of the issuance of the Old Notes (the "Issue Date"), or the
last day interest was paid on the Old Notes. Holders
2
<PAGE> 5
whose Old Notes are accepted for exchange will be deemed to have waived the
right to receive any accrued but unpaid interest on the Old Notes.
The Issuer is organized under the laws of the State of New York. Although
investors in the Exchange Notes will be able to effect service of process in the
United States upon the Issuer and may be able to effect service of process upon
its directors, due to the fact that the Issuer is primarily a holding company
which holds stock in various entities in Poland and the Netherlands, all or a
substantial portion of the assets of the Company (as defined herein) are located
outside the United States. As a result, it may not be possible for investors to
enforce against the Company's assets judgments of U.S. courts predicated upon
the civil liability provisions of U.S. laws.
The Issuer has been advised by its counsel, Baker & McKenzie, that there is
doubt as to the enforceability in Poland, in original actions or in actions for
enforcement of judgments of U.S. courts, of civil liabilities predicated solely
upon the laws of the United States. In addition, awards of punitive damages in
actions brought in the United States or elsewhere may be unenforceable in
Poland.
The Issuer also has been advised by its counsel, Baker & McKenzie, that a
final and conclusive judgment duly obtained in actions brought in the United
States will not be recognized and enforced by a Netherlands court and it will be
necessary to bring the matter before the competent Netherlands court. The
claimants may, in the course of these proceedings, submit the judgment rendered
by the court in the United States. If and to the extent that the Netherlands
court is of the opinion that fairness and good faith so require, it will give
binding effect to such foreign judgment, unless such foreign judgment
contravenes Netherlands principles of public policy.
------------------------
In this Prospectus, references to "U.S. Dollars" or "$" are to United
States currency, and references to "zloty" or "PLN" are to Polish currency. The
Issuer has presented its primary consolidated financial statements in accordance
with generally accepted accounting principles in the United States ("U.S. GAAP")
in U.S. Dollars. Amounts originally measured in zloty for all periods presented
have been translated into U.S. Dollars in accordance with the methodology set
forth in Statement of Financial Accounting Standards No. 52 ("SFAS No. 52"). For
the convenience of the reader, this Prospectus contains translations of certain
zloty amounts into U.S. Dollars which should not be construed as a
representation that such zloty 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 U.S. Dollar
amounts have been derived by converting from zloty to U.S. Dollars at the rate
of PLN 2.875 = $1.00, the exchange rate quoted by the National Bank of Poland
("NBP") at noon on December 31, 1996. This rate may differ from the actual rates
in effect during the periods covered by the financial information discussed
herein. The Federal Reserve Bank of New York does not certify for customs
purposes a noon buying rate for zloty. See "Exchange Rate Data."
------------------------
Amounts and percentages appearing in this Prospectus may not total due to
rounding.
------------------------
This Prospectus contains statements which constitute forward looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. These statements appear in a number of places in this Prospectus and
include statements regarding the intent, belief or current expectations of the
Issuer or its officers with respect to, among other things, (i) the Issuer's
financing plans, (ii) trends affecting the Issuer's financial condition or
results of operations, (iii) the impact of competition, (iv) the start up of
certain operations, and (v) acquisition opportunities.
Prospective investors are cautioned that any such forward looking
statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those in the
forward looking statements as a result of various factors. The accompanying
information contained in this Prospectus, including, without limitation, the
information under "Risk Factors", "Management's Discussion and Analysis of
Financial Condition and Results of Operations", "The Industry" and "Business",
identifies important factors that could cause such differences.
3
<PAGE> 6
AVAILABLE INFORMATION
The Issuer has filed with the Commission a Registration Statement on Form
S-4 under the Securities Act with respect to the Exchange Notes being offered by
this Prospectus. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement, certain items of which are contained in exhibits and schedules to the
Registration Statement as permitted by the rules and regulations of the
Commission. For further information with respect to the Issuer and the Exchange
Notes offered hereby, reference is made to the Registration Statement, including
the exhibits thereto, and the financial statements and notes filed as a part
thereof. Statements made in this Prospectus concerning the contents of any
contract, agreement or other document filed with the Commission as an exhibit
are not necessarily complete. With respect to each such contract, agreement or
other document filed with the Commission as an exhibit, reference is made to the
exhibit for a more complete description of the matter involved, and each such
statement shall be deemed qualified in its entirety by such reference. The
Registration Statement and the exhibits may be inspected and copied at the
public reference facilities maintained by the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional
Offices at 7 World Trade Center, New York, New York 10048 and the Northwestern
Atrium Center, 500 West Madison Street, Room 1400, Chicago, Illinois 60661.
Copies of such material can be obtained at prescribed rates from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding issuers that file electronically with the
Commission.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE ISSUER ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
4
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified by, and should be read in conjunction
with, the more detailed information and consolidated financial statements and
notes thereto appearing elsewhere in this Prospectus. Poland Communications,
Inc. ("PCI" or the "Issuer") is the parent company of a group of subsidiaries
which develop, construct and operate cable television networks and conduct
related activities in Poland under the trade name Polska Telewizja Kablowa or
PTK. As used in this Prospectus, references to the "Company" mean PCI and its
subsidiaries, including Poltelkab Sp. z o.o. ("Poltelkab"), a company in which
PCI holds a 49% interest, and its subsidiaries, and Polska Telewizja
Kablowa-Ryntronik S.A., a company in which the Company owns a 49% interest and
has signed an agreement to purchase the remaining shares. For the convenience of
the reader, amounts in this Prospectus are expressed solely in U.S. Dollars.
Unless otherwise noted, data regarding the Company's subscribers are as of
December 31,1996, but include approximately 15,000 subscribers and approximately
27,000 homes passed attributable to a cable system recently acquired by the
Company which the Company took control of after such date and prior to the date
hereof. Certain terms used in this Prospectus are defined in the Glossary
included herein as Annex A. Prospective participants in the Exchange Offer
should carefully consider the information set forth under "Risk Factors."
THE COMPANY
GENERAL
The Company is the largest provider of multi-channel television services in
Poland. With over 1,088,000 homes passed and approximately 534,000 total
subscribers (of which approximately 461,000 are basic subscribers), the Company
estimates that it has approximately twice the number of subscribers as the next
largest cable operator in Poland. As one of the first Western-style cable
television operators in Poland, the Company's objective since commencement of
its operations in 1990 has been to rapidly increase its coverage areas and
provide a caliber of service comparable to that of world-class cable operators,
including modern, reliable technical plant, a broad selection of quality
programming, and professional customer service. The Company currently owns and
operates fiber-optic cable networks in seven regional clusters encompassing
seven of the ten largest cities in Poland, including cities which the Company
believes are among those with the strongest economies and most favorable
demographics for cable television in the country. The Company believes that it
has established a reputation in Poland as a high-quality cable system operator,
and that the strong awareness of PTK as a quality operator attracts subscribers
seeking its programming and customer service. PCI owns a 33% interest in a
programming company, ProCable Sp. z o.o. ("ProCable"), which was formed to
develop proprietary Polish-language programming. ProCable holds broadcast
licenses for two Polish-language channels which are currently distributed
exclusively over the Company's cable networks.
Since it began the construction of its first cable network in Gdansk in
1990, the Company has grown aggressively through acquisitions, generally of
smaller, poorly capitalized operators, and through the build-out of its own
cable networks. The Company's total subscribers have grown from approximately
45,000 as of December 31, 1992 to approximately 534,000 as of December 31, 1996.
Approximately 55% of this increase in subscribers has been achieved organically
through the build-out of the Company's existing cable networks. The Company's
results of operations have reflected the growth in its subscribers. For the
three-year period ended December 31, 1996, the Company generated growth in
revenues and EBITDA (as defined) at average annual rates of approximately 60%
and 130%, respectively.
The Company has invested more than $80 million to construct fiber-optic
cable networks which it believes are among the most technologically advanced in
Poland and are comparable to modern cable networks in the United States. All of
the Company's networks (other than networks it has acquired from others and not
yet rebuilt to its standards) have bandwidths of at least 550 MHz, with one
network as high as 1 GHz, and in most cases the networks have the capability to
be cost-effectively reconfigured to offer additional services such as telephony
and data transmission. The networks constructed by the Company also provide
substantial excess channel capacity and are designed to maximize reliability. It
is the Company's policy to upgrade substandard networks that it has acquired as
rapidly as practicable. PCI's principal executive
5
<PAGE> 8
office is located at One Commercial Plaza, Hartford, Connecticut 06103-3585 and
its telephone number is (860) 549-1674.
Subsequent to the Exchange Offer, PCI intends to merge with and into a
wholly owned Delaware subsidiary. The purpose of the merger will be to change
its state of incorporation from New York to Delaware.
PENDING ACQUISITIONS
The Company intends to acquire all or a substantial portion of the capital
stock or assets of four cable television systems in Poland (the "Pending
Acquisitions"). The aggregate consideration to be paid by the Company in
connection with the Pending Acquisitions (including amounts for shareholder
loans) is expected to be approximately $24.7 million. The cable systems expected
to be acquired in the Pending Acquisitions serve approximately 99,000 total
subscribers and pass approximately 181,000 homes. The consummation of the
Pending Acquisitions will result in the expansion of the Company's operations
within its existing regional clusters and the establishment of one new regional
cluster in southwest Poland. The Company intends to use a portion of the net
proceeds of the offering of the Old Notes to consummate certain of the Pending
Acquisitions. The Company believes that it is required to obtain, and it has
applied for, or is in the process of preparing applications for, approval of the
Polish Office for Protection of Competition and Consumers ("Anti-Monopoly
Office") for certain of the Pending Acquisitions, and it may be required to
obtain the Anti-Monopoly Office's approval for certain of its future
acquisitions as well. There can be no assurance as to the timing of closing of
any of the Pending Acquisitions or as to whether or on what terms any of the
Pending Acquisitions will actually be consummated.
PRINCIPAL SHAREHOLDERS
PCI's common equity is beneficially owned on a fully diluted basis by two
principal shareholders: David T. Chase and certain members of his family and
family trusts (hereafter referred to as the "Chase Family"), which owns
approximately 40%, and ECO Holdings III Limited Partnership ("ECO"), which owns
approximately 37%. The general partner of ECO is Advent International
Corporation ("Advent"). As of December 31, 1996, the two principal shareholders
had invested approximately $86 million in the Company. The Chase Family has
provided the Company with significant management resources and technical support
in the early stages of its operations, and both shareholders currently provide
the Company with ongoing access to their extensive television and media
expertise. See "Management."
CORPORATE ORGANIZATIONAL STRUCTURE
The chart on the following page outlines the current organizational
structure of the Company without giving effect to the use of proceeds from the
offering of the Old Notes, the Pending Acquisitions or the Exchange Offer,
except where noted.
6
<PAGE> 9
[CHART DEPICTING OWNERSHIP PERCENTAGES]
7
<PAGE> 10
[Chart shows Poland Communications, Inc. ("PCI" or the "Issuer") owns 92.3%
(see note (a)) of Poland Cablevision (Netherlands) B.V., 49.0% of Poltelkab Sp.
z o.o. ("Poltelkalb"), 100.0% of PCI Programming Inc. ("PCIP") (see note (b)),
33.0% of ProCable Sp. z o.o. ("ProCable") (see note (b)), 49.0% of TV KABEL Sp.
z o.o. ("TV KABEL"), 49.0% of Polska Telewizja Kablowa - Szczecin Sp. z o.o.
("PTK-Szczecin"), 100.0% of Telkat Sp. z o.o. ("Telkat"). PCBV owns 100.0% of
Polska Telewizja Kablowa S.A. ("PTK, S.A.") (see note (c)), 100.0% of Polska
Telewizja Kablowa-Warszawa S.A. ("PTK-Warsaw") (see note (e)), 100.0% of Polska
Telewizja Kablowa-Krakow S.A. ("PTK-Krakow") (see note (e)) and 95.5% of Polska
Telewizja Kablowa-Ryntronik S.A. ("PTK-Ryntronik") (see note (d)).]
[Poltelkab owns 100% of Polska Telewizja Kablowa-Lublin S.A.
("PTK-Lublin"), 100.0% of TV-SAT Ursus Sp. z o.o., 2.0% of TV KABEL, and 51.0%
of PTK-Szczecin. PTK-Szczecin owns 1.4% of Szczecinska TK Sp. z o.o. and 50.0%
of Otwocka TK Sp. z o.o. PTK-Warsaw owns 100.0% of ETV Sp. z o.o. ("ETV").
PTK-Ryntronik owns 75.1% of Opolskie TT S.A., and 100% of Czestochowska TK Sp. z
o.o. PCIP owns 45.0% of Ground Zero Media Sp. z o.o. ("GZM"). ProCable owns
22.0% of Polske Media S.A. ("Polskie Media").]
- ---------------
(a) The minority shareholders of PCBV have a claim against 7.7% of the profits
and equity of PCI's subsidiaries that compete with PCBV and PCI has agreed
to share the profits of such subsidiaries with the minority PCBV
shareholders on a pro rata basis. In addition, PCI has made an offer to buy
the outstanding shares of PCBV held by the minority PCBV shareholders. See
"Certain Relationships and Related Transactions -- PCBV Shareholders'
Agreement."
(b) Represents companies that are not subject to the restrictive covenants in
the Indenture.
(c) Currently, PCBV owns 97.9% of the shares of PTK, S.A. PCI has entered into
an agreement to purchase the remaining shares of PTK, S.A. held by
Poltelkab.
(d) Currently PCBV owns 46.8% and Poltelkab owns 4.5% of the shares of
PTK-Ryntronik and PCBV holds convertible debt that, if converted, would
bring its total ownership of PTK-Ryntronik to approximately 76.0% as of
December 31, 1996. The Company has signed agreements to purchase the
remaining shares of capital stock of PTK-Ryntronik which sale agreements are
subject to certain conditions. See "Certain Relationships and Related
Transactions -- Ryntronik."
(e) PTK-Krakow has transfered, and PTK-Warsaw intends to transfer, their cable
television assets to PTK, S.A.
8
<PAGE> 11
THE EXCHANGE OFFER
The Exchange Offer......... The Issuer is offering to exchange $1,000 principal
amount of Exchange Notes for each $1,000 principal
amount of Old Notes that is properly tendered and
accepted. The form and terms of the Exchange Notes
are the same as the form and terms of the Old Notes
except that (i) the exchange will have been
registered under the Securities Act and therefore
the Exchange Notes will not bear legends
restricting the transfer thereof and (ii) holders
of the Exchange Notes will not be entitled to
certain rights of holders of the Old Notes under
the Registration Rights Agreement (as defined
herein), which rights with respect to Old Notes
will terminate upon the consummation of the
Exchange Offer. See "-- Summary Description of
Exchange Notes." The issuance of the Exchange Notes
is intended to satisfy certain obligations of the
Issuer contained in the Registration Rights
Agreement. Subject to certain conditions, a holder
who wishes to tender must transmit a properly
completed and duly executed Letter of Transmittal
to State Street Bank and Trust Company (the
"Exchange Agent") on or prior to the Expiration
Date. For procedures for tendering, see "The
Exchange Offer."
Based upon no-action letters issued by the staff of
the Commission to third parties, the Issuer
believes that the Exchange Notes issued pursuant to
the Exchange Offer in exchange for Old Notes may be
offered for resale, resold or otherwise transferred
by a holder thereof (other than any holder which is
an "affiliate" of the Issuer within the meaning of
Rule 405 under the Securities Act or a holder that
is a broker-dealer who acquires Exchange Notes to
resell pursuant to Rule 144A or any other available
exemption under the Securities Act), without
compliance with the registration and prospectus
delivery provisions of the Securities Act; provided
that such Exchange Notes are acquired in the
ordinary course of such holders' business and such
holder is not participating, does not intend to
participate, and has no arrangement with any person
to participate in the distribution of such Exchange
Notes. However, the Commission has not considered
the Exchange Offer in the context of a no-action
letter and there can be no assurance that the staff
of the Commission would make a similar
determination with respect to the Exchange Offer as
in such other circumstances. Holders of Old Notes
wishing to accept the Exchange Offer must represent
to the Issuer that such conditions have been met.
Each broker-dealer that receives Exchange Notes for
its own account pursuant to the Exchange Offer,
where it acquired the Old Notes exchanged for such
Exchange Notes for its own account as a result of
market-making or other trading activities, must
acknowledge that it will deliver a prospectus in
connection with the resale of such Exchange Notes.
See "The Exchange Offer -- Resale of the Exchange
Notes" and "Plan of Distribution."
Registration Rights
Agreement.................. The Old Notes were sold by the Issuer on October
31, 1996 to the Initial Purchaser pursuant to the
Purchase Agreement. Pursuant to the Purchase
Agreement, the Issuer and the Initial Purchaser
entered into the Registration Rights Agreement.
This Exchange Offer is intended to satisfy certain
rights under the Registration Rights Agreement,
which terminate upon the consummation of the
Exchange Offer. The holders of the Exchange Notes
are not entitled to any exchange or registration
rights with respect to the Exchange Notes. The Old
Notes are subject to
9
<PAGE> 12
the payment of additional interest under certain
circumstances if the Issuer is not in compliance
with its obligations under the Registration Rights
Agreement. See "Description of the
Notes -- Exchange Offer; Registration Rights."
Expiration Date;
Withdrawal................. The Exchange Offer will expire at 5:00 p.m., New
York City time, on the "Expiration Date." As used
herein, the term "Expiration Date" means 5:00 p.m.,
New York City time, on [ ], 1997;
provided, however, that if the Issuer, in its sole
discretion, has extended the period of time for
which the Exchange Offer is to remain open, the
term "Expiration Date" means the latest time and
date to which the Exchange Offer is extended;
provided further that in no event will the Exchange
Offer be extended beyond [ ], 1997.
The tender of Old Notes pursuant to the Exchange
Offer may be withdrawn at any time prior to the
Expiration Date by sending a written notice of
withdrawal to the Exchange Agent. Any Old Notes so
withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange
Offer. Any Old Notes not accepted for exchange for
any reason will be returned without expense to the
tendering holder thereof as promptly as practicable
after the expiration or termination of the Exchange
Offer. See "The Exchange Offer -- Terms of the
Exchange Offer; Period for Tendering Old Notes."
Certain Conditions to the
Exchange Offer........... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Issuer. See
"The Exchange Offer -- Certain Conditions to the
Exchange Offer."
Federal Income Tax
Consequences............. For Federal income tax purposes, the exchange
pursuant to the Exchange Offer will not result in
any income, gain or loss to the holders or the
Issuer. See "Income Tax Considerations."
Use of Proceeds............ There will be no proceeds to the Issuer from the
exchange pursuant to the Exchange Offer.
Exchange Agent............. State Street Bank and Trust Company is serving as
Exchange Agent in connection with the Exchange
Offer.
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legends thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. Accordingly, such Old Notes may be resold
only (i) to a person whom the seller reasonably believes is a qualified
institutional buyer (as defined in Rule 144A under the Securities Act) in a
transaction meeting the requirements of Rule 144A, (ii) in a transaction meeting
the requirements of Rule 144 under the Securities Act, (iii) outside the United
States to a foreign person in a transaction meeting the requirements of Rule 904
under the Securities Act or (iv) in accordance with another exemption from the
registration requirements of the Securities Act (and based upon an opinion of
counsel if the Issuer so requests), (v) to the Issuer or (vi) pursuant to an
effective registration statement, and, in each case, in accordance with any
applicable securities laws of any state of the United States or any other
applicable jurisdiction. The Issuer does not currently anticipate that it will
register the Old Notes under the Securities Act. See "Risk Factors --
10
<PAGE> 13
Consequences of Failure to Exchange Old Notes" and "The Exchange
Offer -- Consequences of Exchanging Old Notes; Consequences of Failure to
Exchange."
SUMMARY DESCRIPTION OF THE EXCHANGE NOTES
The form and terms of the Exchange Notes are the same as the form and terms
of the Old Notes except that (i) the exchange will have been registered under
the Securities Act and therefore the Exchange Notes will not bear legends
restricting the transfer thereof and (ii) holders of the Exchange Notes will not
be entitled to certain rights of holders of the Old Notes under the Registration
Rights Agreement, which rights with respect to Old Notes will terminate upon the
consummation of the Exchange Offer. See "Description of the Notes -- Exchange
Offer; Registration Rights." The Exchange Notes will evidence the same debt as
the Old Notes (which they replace) and will be issued under, and be entitled to
the benefits of, the Indenture, which also authorized the issuance of the Old
Notes, such that both series will be treated as a single class of debt
securities under the Indenture. See "Description of the Notes" for further
information and for definitions of certain capitalized terms used below.
In the Exchange Offer, the holders of Old Notes will receive Exchange Notes
with the same interest rate. The Exchange Notes issued in exchange for Old Notes
will accrue interest from the later of October 31, 1996, the Issue Date, or the
last day interest was paid on the Old Notes. Holders whose Old Notes are
accepted for exchange will be deemed to have waived the right to receive any
accrued but unpaid interest on the Old Notes.
Maturity Date.............. November 1, 2003.
Interest Payment Dates..... May 1 and November 1 of each year, commencing May
1, 1997.
Redemption................. Prior to November 1, 1999, the Issuer may redeem up
to a maximum of 33% of the initially outstanding
aggregate principal amount of the Notes with some
or all of the net proceeds of one or more Public
Equity Offerings (as defined in "Description of the
Notes -- Certain Definitions") at a redemption
price equal to 109.875% of the principal amount
thereof, plus accrued and unpaid interest, if any,
to the date of redemption; provided that
immediately after giving effect to such redemption,
at least $87 million aggregate principal amount of
the Notes remains outstanding. See "Description of
the Notes -- Redemption."
Change of Control.......... Upon the occurrence of a Change of Control (as
defined in "Description of the Notes -- Certain
Definitions"), each holder of Exchange Notes has
the right to require that the Issuer purchase such
holder's Exchange Notes, in whole or in part in
integral multiples of $1,000, at a purchase price
in cash in an amount equal to 101% of the principal
amount thereof, plus accrued and unpaid interest,
if any, to the date of purchase. See "Description
of the Notes -- Certain Covenants -- Purchase of
Notes upon a Change of Control."
Asset Sale................. The Issuer may be required to use the net cash
proceeds of certain Asset Sales (as defined in
"Description of the Notes -- Certain Definitions")
to make an offer to purchase all or a portion of
the outstanding Exchange Notes at a price of 100%
of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of redemption.
See "Description of the Notes -- Certain
Covenants -- Limitation on Sale of Assets."
Ranking.................... The Exchange Notes rank senior in right of payment
to all indebtedness of the Issuer subordinated to
the Exchange Notes and pari passu in right of
payment with all other existing and future
unsubordinated indebtedness of the Issuer
including, without limitation, the Old Notes. The
Issuer is a holding company with limited assets and
no business opera-
11
<PAGE> 14
tions of its own that conducts substantially all of
its business through subsidiaries. The Issuer has
pledged to the Trustee for the benefit of the
holders of the Notes the Pledged Debt issued by
PCBV, of a minimum aggregate principal amount,
together with cash and cash equivalents of the
Issuer, equal to at least 110% of the outstanding
principal amount of the Notes and that, in the
aggregate, provide cash collateral or bear interest
and provide for principal repayments, as the case
may be, in amounts sufficient to pay interest on
the Notes. The assets of PCBV consist principally
of capital stock of its subsidiaries and
intercompany notes from such subsidiaries. The
Pledged Debt may not be amended or pledged to any
person other than the Trustee for the benefit of
the holders of the Notes. The Indenture, however,
does not contain any specific covenant prohibiting
the Issuer or PCBV from amending, waiving any
rights under, pledging or terminating any
intercompany notes other than the Pledged Debt. The
Notes are effectively subordinated to all existing
and future indebtedness for money borrowed of
subsidiaries of the Issuer (other than the Pledged
Debt). As of December 31, 1996, the Issuer's
subsidiaries had no indebtedness other than
intercompany indebtedness and approximately $3.2
million of trade payables. Subject to certain
limitations, the Issuer and its subsidiaries may
incur additional indebtedness in the future. See
"Risk Factors -- Holding Company Structure,"
"-- Substantial Leverage; Ability to Service Debt"
and "Description of the Notes -- Ranking" and
"-- Certain Covenants -- Limitation on Additional
Indebtedness."
Certain Covenants.......... The Indenture contains certain covenants,
including, without limitation, covenants with
respect to the following matters: (i) limitation on
additional indebtedness; (ii) limitation on
restricted payments; (iii) limitation on issuances
and sales of capital stock of subsidiaries; (iv)
limitation on transactions with affiliates; (v)
limitation on liens; (vi) limitation on guarantees
of indebtedness by subsidiaries; (vii) purchase of
Notes upon a change of control; (viii) limitation
on sale of assets; (ix) limitation on dividends and
other payment restrictions affecting subsidiaries;
(x) limitation on investments in unrestricted
subsidiaries; (xi) limitation on lines of business;
and (xii) provision of financial statements and
reports. See "Description of the Notes -- Certain
Covenants."
RISK FACTORS
Prospective participants in the Exchange Offer should consider all the
information contained in this Prospectus in connection with the Exchange Offer.
In particular, prospective participants should consider the factors set forth
herein under "Risk Factors."
12
<PAGE> 15
SUMMARY CONSOLIDATED FINANCIAL DATA
The summary consolidated financial data set forth below as of and for the
three years ended December 31, 1996 have been derived from the consolidated
financial statements of the Company included elsewhere in this Prospectus, which
have been audited by KPMG Peat Marwick LLP, independent auditors. Acquisitions
of cable television systems during the periods for which summary consolidated
financial data are presented below materially affect the comparability of such
data from one period to another. The summary consolidated financial data should
be read in conjunction with the Company's consolidated financial statements and
notes therein and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------------
1994 1995 1996
------- ------- --------
(IN THOUSANDS OF DOLLARS, EXCEPT
RATIOS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Cable television revenue................................... $ 8,776 $18,557 $ 24,923
Depreciation and amortization.............................. (3,459) (5,199) (11,354)
Operating income (loss).................................... 380 3,545 (2,913)
Interest expense(a)........................................ (2,327) (4,373) (4,834)
Net loss................................................... (2,383) (1,289) (6,617)
OTHER DATA:
EBITDA(b).................................................. $ 3,839 $ 8,744 8,441
Expenditures for construction of cable television
systems(c).............................................. 11,695 16,014 $ 25,372
RATIOS:
EBITDA to interest expense................................. 1.71x 2.08x 1.75x
Earnings to fixed charges(d)............................... 0.37x 0.86x 0.25x
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets............................................... $47,376 $68,058 $217,537
Total debt................................................. 35,988 59,405 130,074
Total stockholders' equity................................. 1,479 190 29,738
</TABLE>
- ---------------
(a) Interest expense for the year ended December 31, 1996 would have been
$12,837,000 had the Exchange Notes been in place since January 1, 1996,
replacing other debt.
(b) EBITDA consists of net income (loss) as measured by U.S. GAAP adjusted for
depreciation and amortization, interest expense, foreign currency
translation gains and losses, income taxes, extraordinary items,
non-recurring items, gains and losses from the sale of assets other than in
the normal course of business and minority interest in subsidiary income and
loss. EBITDA is not intended to represent cash flow from operations under
U.S. GAAP and should not be considered as an alternative to net income
(loss) as an indicator of the Company's operating performance or to cash
flows from operations as a measure of liquidity. EBITDA does not include
full year results for 1996 from TV Kabel Sp. z o.o ("TV KABEL") in the
Bydgoszcz regional cluster which was acquired in December 1996 and does not
include results from the Pending Acquisitions.
(c) Expenditures for the construction of cable television systems represent
payments made by the Company during the period for construction of its cable
television systems within Poland, and excludes costs of acquiring cable
systems.
(d) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of earnings before income taxes and fixed charges. Fixed charges
consist of interest on all indebtedness, amortization of deferred financing
costs and that portion of operating lease expense deemed to be interest
expense.
13
<PAGE> 16
SUMMARY OPERATING DATA
(UNAUDITED)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------
1994 1995 1996
------- ------- ---------
<S> <C> <C> <C>
Homes passed(a)........................................ 298,316 711,545 1,088,540
Basic subscribers...................................... 112,534 262,077 460,625
Basic penetration(b)................................... 37.7% 36.8% 42.32%
EBITDA margin(c)....................................... 43.7% 47.1% 33.87%
Annual churn rates..................................... 9.1% 9.2% 7.8%
</TABLE>
- ---------------
(a) The Company counts as homes passed only those homes for which it has an
active signal and, in the case of MDU homes, only those homes for which the
Company has an agreement with the cooperative authority.
(b) Basic subscribers as a percentage of homes passed.
(c) Represents EBITDA as a percentage of revenues.
14
<PAGE> 17
RISK FACTORS
Holders of Old Notes should consider carefully all the information
contained in this Prospectus (including the financial statements and notes
thereto), before tendering their Old Notes in the Exchange Offer. Such holders
should consider the lack of a public market for the Exchange Notes and the high
leverage of the Issuer. Many of the statements in this Prospectus are
forward-looking in nature and, accordingly, whether they prove to be accurate is
subject to many risks and uncertainties. The actual results that the Issuer
achieves may differ materially from any forward-looking statements in this
Prospectus. Factors that could cause or contribute to such differences include,
but are not limited to, those discussed below and those contained elsewhere in
this Prospectus.
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
The Exchange Notes will be issued in exchange for Old Notes only after
timely receipt by the Exchange Agent of such Old Notes, a properly completed and
duly executed Letter of Transmittal and all other required documents. Therefore,
holders of Old Notes desiring to tender such Old Notes in exchange for Exchange
Notes should allow sufficient time to ensure timely delivery. Neither the
Exchange Agent nor the Issuer is under any duty to give notification of defects
or irregularities with respect to tenders of Old Notes for exchange. Holders of
Old Notes who do not exchange their Old Notes for Exchange Notes pursuant to the
Exchange Offer will continue to be subject to the restrictions on transfer of
such Old Notes as set forth in the legends thereon as a consequence of the
issuance of the Old Notes pursuant to exemption from, or in transactions not
subject to, the registration requirements of the Securities Act and applicable
state securities laws. In general, the Old Notes may not be offered or sold,
unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
securities laws of states and other jurisdictions. In addition, any holder of
Old Notes who tenders in the Exchange Offer for the purpose of participating in
a distribution of the Exchange Notes will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Old Notes, where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or any other trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. See
"Plan of Distribution," "Description of the Notes -- Exchange Offer;
Registration Rights," and "The Exchange Offer -- Consequences of Failure to
Exchange."
ABSENCE OF PUBLIC MARKET
The Exchange Notes are being offered to the holders of the Old Notes. The
Old Notes were resold by the Initial Purchaser to qualified institutional buyers
as defined in Rule 144A of the Securities Act, to institutional accredited
investors within the meaning of Rule 501(a) (1), (2), (3) or (7) of the
Securities Act and to non-U.S. persons pursuant to Regulation S under the
Securities Act, and are trading in the Private Offering, Resale and Trading
through Automated Linkages (PORTAL) Market, the National Association of
Securities Dealers' screen based, automated market for trading of securities
eligible for resale under Rule 144A. The Exchange Notes are new securities for
which there currently is no market. Although the Initial Purchaser is making a
market in the Old Notes and has advised the Issuer that it currently intends to
make a market in the Exchange Notes, it is not obligated to do so and may
discontinue such market making at any time without notice. The Issuer does not
currently intend to list the Notes on a national securities exchange or to seek
the admission thereof to trading in the National Association of Securities
Dealers Automated Quotation System. Accordingly, no assurance can be given that
an active market will develop for any of the Notes or as to the liquidity of the
trading market for any of the Notes. If a trading market does not develop or is
not maintained, holders of the Notes may experience difficulty in reselling such
Notes or may be unable to sell them at all. If a market for the Notes develops,
any such market may be discontinued at any time. If a trading market develops
for the Notes, future trading prices of such Notes will depend on many factors,
including, among other things, prevailing interest rates, the Issuer's results
of operations and the market for similar securities. Depending on prevailing
interest rates, the market for similar securities and other factors, including
the financial condition of the Issuer, the Notes may trade at a discount from
their principal amount.
15
<PAGE> 18
HOLDING COMPANY STRUCTURE
The Issuer is a holding company with limited assets of its own that
conducts substantially all of its business through subsidiaries. The ability of
the Issuer's creditors, including holders of the Notes, to participate in the
assets of any of the Issuer's subsidiaries upon any liquidation or
administration of any such subsidiary will be subject to the prior claims of the
subsidiary's creditors, including the holders of any indebtedness for money
borrowed, trade creditors of such subsidiaries and other persons granted
priority claim rights under the Polish Code of Civil Procedure. The Issuer will
pledge to the Trustee for the benefit of the holders of the Notes, the Pledged
Debt issued by PCBV of a minimum aggregate principal amount, together with cash
and cash equivalents of the Issuer, equal to at least 110% of the outstanding
principal amount of the Notes and that, in the aggregate, provide cash
collateral or bear interest and provide for principal repayments, as the case
may be, in amounts sufficient to pay interest on the Notes. The assets of PCBV
consist principally of capital stock of its subsidiaries and intercompany notes
from such subsidiaries. The Pledged Debt may not be amended or pledged to any
person other than the Trustee for the benefit of holders of the Notes. The
Indenture, however, does not contain any specific covenant prohibiting the
Issuer or PCBV from amending, waiving any rights under, pledging, or terminating
any intercompany notes other than the Pledged Debt. In addition, the ability of
the Issuer's creditors, including the holders of the Notes, to participate in
distributions of assets of the Issuer's subsidiaries will be limited to the
extent that the outstanding shares of any of its subsidiaries are either pledged
to secure other creditors of the Issuer or are not owned by the Issuer. The
Indenture limits, but does not prohibit, the incurrence of additional
indebtedness by the Issuer's subsidiaries. The Company in the future may enter
into an agreement with one or more banks to provide a liquidity facility. Such
indebtedness may be secured by assets of the Issuer's subsidiaries.
The Notes are obligations solely of the Issuer. The ability of the Issuer
to pay interest (or premium, if any) on the Notes or to repay the Notes at
maturity or otherwise will be dependent upon either the cash flows of its
subsidiaries and the payment of funds by those subsidiaries to the Issuer in the
form of repayment of loans, dividends or otherwise or the Issuer's ability to
otherwise realize economic benefits from its equity interests in its
subsidiaries. The Issuer's subsidiaries have no obligation, contingent or
otherwise, to pay amounts due pursuant to the Notes or, other than obligations
under the Pledged Debt, to make funds available therefor, whether in the form of
loans, dividends or otherwise. The ability of these subsidiaries to make
payments to the Issuer will be subject to, among other things, the availability
of funds and the terms of such subsidiaries' indebtedness, as well as various
business considerations. Further, the Issuer currently does not own, directly or
indirectly, a majority interest in certain subsidiaries, and may not have
operating control of entities in which it may in the future acquire interests.
In such cases, the Issuer may be unable, without the consent of the relevant
partners, to cause such entities to pay dividends or implement business
strategies that the Issuer may favor. In addition, provisions of applicable
Polish law limit the amount of dividends which may be paid by the Issuer's
subsidiaries to the extent they do not have profits available for distribution
(of which the Issuer's subsidiaries had no material amounts as of December 31,
1996), and other statutory and general law obligations may affect the ability of
the Issuer's subsidiaries to declare or pay dividends or the ability of the
Issuer's subsidiaries to make payments to the Issuer on account of intercompany
loans. Moreover, the transfer of equity interests of the Issuer in its
subsidiaries may be limited, due in part to regulatory and contractual
restrictions. There can thus be no assurance of the Issuer's ability to realize
economic benefits through the sale of these equity interests. Accordingly, there
can be no assurances that the Issuer will receive timely payments from its
subsidiaries, if at all, or other economic benefits from its equity interests in
its subsidiaries, in order to make payments on its indebtedness, including the
Notes, or to otherwise satisfy its cash flow needs.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE DEBT
The Company is highly leveraged. As of December 31, 1996, the Company had,
on a consolidated basis, approximately $130.1 million in principal amount of
indebtedness outstanding. The Company's ratio of earnings to fixed charges was
0.37x, 0.86x and 0.25x in 1994, 1995 and 1996, respectively. The ratio of
earnings to fixed charges decreased in 1996 due to an increase in amortization
of $1.6 million resulting from the prepayment of the loan from the Overseas
Private Investment Corporation ("OPIC"). The Indenture limits, but does not
prohibit, the incurrence of additional indebtedness by the Company, and the
Company in
16
<PAGE> 19
the future may enter into an agreement with one or more banks to provide a
liquidity facility. Currently, the Indenture does not permit the Company to
incur additional indebtedness (other than Permitted Indebtedness as defined in
the Indenture). See "Description of the Notes -- Certain Covenants -- Limitation
on Additional Indebtedness." The Company anticipates that, in light of the
amount of its existing indebtedness and the possible incurrence of additional
indebtedness to finance acquisitions and expand its operations, it will continue
to have substantial leverage for the foreseeable future. Such 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 or access sufficient additional
financing to service the Notes and its other 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 all or part of certain of the
Company's future borrowings (if any) may be at variable rates of interest,
higher interest expenses could result in the event of increases in interest
rates.
The ability of the Company to meet its debt service obligations will depend
on the future operating performance and financial results of the Company or its
ability to obtain additional financing, or both, either of which will be subject
in part to factors beyond the control of the Company, such as prevailing
economic conditions and financial, business and other factors. There can be no
assurance, however, that the Company's business will generate cash flow at the
necessary levels that, together with available additional financing, will allow
the Company to meet its anticipated requirements for working capital, capital
expenditures, interest payments and scheduled principal payments. If the Company
is unable to generate sufficient cash flow from operations in the future it may
be required to reduce the scope of its presently anticipated expansion of its
operations, reduce capital expenditures (including expenditures related to
acquisitions), refinance all or a portion of its existing indebtedness
(including the Notes), or obtain additional financing. The Company expects that
it may require additional financing to consummate future acquisitions and
expects that it will be necessary to refinance all or a portion of the Notes at
maturity. The Company also may undertake a refinancing of some or all of its
other indebtedness sometime prior to its maturity. While it is the Company's
intention to enter only into refinancings that it considers advantageous, there
can be no assurances that the Company will be able to refinance its indebtedness
on satisfactory terms, if at all. In the event the Company obtains any future
refinancing on less than favorable terms, the Company might be forced to operate
under terms that would restrict its operations and reduce its cash flow. In such
event, the holders of the Notes could experience increased credit risk and could
experience a decrease in the market value of their investment because the
Company might be forced to operate under terms that would restrict its
operations and might find its cash flow reduced. Furthermore, if the Company is
not able to refinance its indebtedness, including the Notes, the Company may not
be able to service its indebtedness and could fail to meet its obligations under
the Notes. There can be no assurance that any such refinancing would be
possible. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
A failure by the Company to comply with the covenants and other provisions
of financing documents to which the Company is a party, 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 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 shareholders and affiliates, issue capital stock of
subsidiaries, create liens, sell assets and engage in mergers and
consolidations.
DEPENDENCE ON KEY PERSONNEL
The Company's future success depends in large part on the continued service
of its key management personnel. The Company is particularly dependent upon the
skills and contributions of several key individuals, including Robert E. Fowler,
III, Chief Executive Officer of PCI, George Makowski, Chief Operating Officer
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of PCI, John S. Frelas, Chief Financial Officer and Treasurer of PCI, Przemyslaw
Szmyt, General Counsel and Vice President of PCI, Gilbert Tash, Vice President
of PCI, Andrzej Muras, Executive Vice President of PTK-Warsaw, and Michael
Houlehan, Chief Executive Officer of PCIP. The departure of any of these persons
could have a material adverse effect on the Company's business. In addition,
given the Company's early stage of development, the Company's success will
depend in part on its ability to hire, train, and retain high-quality personnel.
The Company has entered into employment agreements with Messrs. Fowler,
Makowski, Frelas, Szmyt, Tash, Muras and Houlehan. Mr. Fowler's employment
agreement expires December 31, 1999, and is terminable without cause upon three
months written notice by Mr. Fowler or upon one month written notice by the
Company. Mr. Makowski's employment agreement with PCI expires January 21, 2002,
and is terminable without cause upon six months written notice by either party.
Mr. Frelas' employment agreement with PCI expires on September 1, 2001, and is
terminable without cause upon six months written notice by either party. Mr.
Szmyt's employment agreement with PCI expires on January 1, 2000, and is
terminable upon four months written notice by either party. Mr. Tash's
employment agreement is for an indeterminate period of time and may be
terminated without cause upon three months written notice by either party. Mr.
Muras's employment agreement with PTK-Warsaw expires on January 1, 1998, and is
terminable without cause upon three months written notice by Mr. Muras. Mr.
Houlehan's employment agreement with PCBV was assigned to PCI in 1996 and may be
terminated by either party at any time with or without cause. See "Management."
REGULATION OF THE POLISH CABLE TELEVISION INDUSTRY
The operation of a cable television system in Poland is regulated by
various governmental bodies, including the Minister of Communications (the
"MOC") and the State Agency of Radiocommunications ("PAR") under the
Communications Act of 1990, as amended (the "Communications Act"), and the
National Radio and Television Council (the "Council") under the Radio and
Television Act of 1992, as amended (the "Television Act"). Cable television
operators in Poland also are subject to the intellectual property rights
protections contained in the Law on Copyright and Neighboring Rights of 1994
(the "Copyright Act"). Cable television services in Poland may be offered only
by cable television operators that have received permits ("Permits") from PAR to
operate and construct cable television networks in specified areas in Poland.
The Communications Act and the Permits set forth the terms and conditions for
providing cable television services, including the term of the Permits, the area
covered by the Permits, technological requirements for the network of the cable
television operator and the restrictions on foreign ownership of cable
television operators. See "-- Limitations on Foreign Ownership of Cable
Television Operators and Broadcasters" and "Regulation -- The Communications
Act -- Foreign Ownership Restrictions." If a cable television operator breaches
the terms of its Permits or the Communications Act, or fails to acquire Permits
covering areas serviced by its networks, PAR can impose penalties on such
operator, including fines, the revocation of all Permits covering the cable
networks where such breach occurred or the forfeiture of the operator's cable
networks.
Although the Company has received approximately 48 permits from PAR, the
Company does not have valid Permits covering certain of the areas in which it
operates cable networks. Of the approximately 239,000 basic subscribers as of
February 24, 1997 located in the areas for which the Company does not currently
have valid Permits, approximately 15.5% are located in areas serviced by
recently acquired cable networks for which Permit applications cannot be made
until all Permit requirements are satisfied (including the obtaining of
agreements with the co-op authorities, the upgrade of the acquired networks to
meet technical standards where necessary and the satisfaction of foreign
ownership limitations), approximately 37.3% are located in areas serviced by
recently acquired or constructed networks in Warsaw, Krakow and the areas
surrounding these cities, which the Company plans to transfer to PTK, S.A. in
order to more efficiently comply with foreign ownership restrictions, and
approximately 47.2% are located in areas serviced by networks for which the
Company has Permit applications pending. There can be no assurance that PAR will
issue any or all of the Permits to the Company or that PAR will not take action
against the Company for operating cable television networks in areas not covered
by valid Permits, including assessing fines, revoking Permits held by the
Company and seizing the Company's cable networks. Furthermore, there can be no
assurance that the Company will be able to receive Permits in the future
permitting it to operate any other networks that it may acquire. Any action by
PAR to restrict or revoke the Company's Permits, or similar action by PAR, would
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have a material adverse effect on the Company's business, financial condition
and results of operations. See "Regulation -- The Communications Act."
Under the Television Act, cable television operators must register each
channel and the programs to be transmitted thereon ("programming") with the
Chairman of the Council prior to transmitting it over their cable networks. The
Chairman of the Council has the authority to reject applications to register
programming if the programming violates any provision of the Television Act. See
"Regulation -- Television Act." The Company has registered most of the
programming that it transmits on its cable networks, except programming
transmitted on networks for which it does not have Permits. There can be no
assurance that the Council will not revoke the registration of any of the
Company's programming, or that the Chairman of the Council will register all
additional programming that the Company desires to transmit over its networks,
or that the Council will not take action regarding unregistered programming the
Company transmits over its cable networks which do not have Permits. Such
actions could include the levy of monetary fines against the Company and the
seizure of Company equipment involved in transmitting such unregistered
programming as well as criminal sanctions against Company management. Any such
action could have a material adverse effect on the Company's business, financial
condition and results of operations.
Cable television operators in Poland are also subject to the provisions of
the Copyright Act, which governs enforcement of intellectual property rights of
Polish authors and producers of programming and requires that the Company reach
agreements with, and make payments to, such authors and producers of programming
that is transmitted over the Company's networks. The Communications Act requires
that operators of cable television systems comply with copyright laws. The
rights of copyright holders are generally enforced by rights organizations for
collective copyright administration and protection. The Company currently is
negotiating an extension for its expired contract with one of these rights
organizations. In addition, Poland has adopted the Agreement on Trade Related
Aspects of Intellectual Property Rights ("TRIPS"), which provides some copyright
protection to foreign producers of programming, and Poland has ratified the Rome
Convention, which will result in the intellectual property rights of non-Polish
programming producers being protected in Poland to the same extent that such
rights of Polish producers are protected. See "Regulation -- Copyright
Protection." The Company is not able to predict the effect of TRIPS or of the
adoption of the Rome Convention on the Polish cable television industry, and
there can be no assurance that either will not result in the Company paying
additional fees to broadcasters for programming or being unable to obtain
certain commercially desirable programming. See "Regulation -- Copyright Act."
In addition, the Communications Act, the Television Act and the Copyright
Act are relatively new statutes, and thus have not been fully interpreted by
applicable regulatory authorities. There can be no assurance that changes in
laws or regulations, in the interpretation of existing laws or regulations or in
the enforcement activities of the applicable regulating authorities affecting
the Company, its competitors or the cable television industry in Poland
generally will not occur that could have a material adverse effect on the
Company's business, financial condition or results of operations. See
"Regulation."
Competition in Poland is governed by the Anti-Monopoly Act of 1990, as
amended (the "Anti-Monopoly Act"), which established the Anti-Monopoly Office to
regulate monopolistic and other anti-competitive practices. The current Polish
anti-monopoly body of law with respect to the cable television industry is not
well-established, and the Anti-Monopoly Office has not articulated comprehensive
standards that may be applied in an antitrust review in the cable television
industry. However, as a general rule, companies that obtain control of 40% or
more of their market face greater scrutiny from the Anti-Monopoly Office. The
relevant markets for cable television services have not been defined by the
Anti-Monopoly Office. Furthermore, the Company believes that it is required to
obtain, and it has applied for, or is in the process of preparing applications
for, approval of the Anti-Monopoly Office for certain of the Pending
Acquisitions, and it may be required to obtain the Anti-Monopoly Office's
approval for certain of its future acquisitions as well. In addition, the
Anti-Monopoly Office can review a company's past and present activities for
potential anti-competitive behavior. There can be no assurance that the
Anti-Monopoly Office will approve the Pending Acquisitions or the Company's
future acquisitions and dispositions or that a review of the Company's past,
present or future operations, if undertaken by the Anti-Monopoly Office, will
not otherwise adversely impact
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the Company's business, strategy, financial condition or results of operations.
See "Regulation -- Anti-Monopoly Act."
LIMITATIONS ON FOREIGN OWNERSHIP OF CABLE TELEVISION OPERATORS AND BROADCASTERS
Under the Communications Act and applicable Polish regulatory restrictions,
Permits may only be issued to and held by Polish individuals or companies in
which foreign persons hold no more than 49% of the share capital. These
restrictions do not apply to any Permits issued prior to July 7, 1995, to
Permits issued at any time pursuant to certain licenses obtained under prior
regulations or to renewals of any such Permits ("Grandfathered Permits"). See
"Regulation -- The Communications Act". As of February 28, 1997, approximately
45% of the Company's basic subscribers were covered by Permits that are not
subject to foreign ownership restrictions. To comply with foreign ownership
requirements for areas not covered by Grandfathered Permits, the Company has
entered into contractual arrangements with the Polish entity Poltelkab. The
Company owns 49% of Poltelkab and five Polish executives of the Company or
Poltelkab own the remaining 51%. In the case of the acquisition or construction
of cable networks not covered by Grandfathered Permits, either the Company will
own all of the cable network assets and will lease the assets to Poltelkab, or
Poltelkab will own and operate the networks. In the Company's current leasing
arrangements with Poltelkab, Poltelkab holds the Permits to operate the cable
networks, receives all of the revenues from subscribers, pays all operating
expenses relating to the operation of the networks, and through the lease
arrangements pays the Company rent equal to substantially all of the cash flow
generated by the networks. The Company believes that this ownership and
operating structure are not in contradiction with the technical requirements of
Polish law. PAR has recently granted Poltelkab two Permits for networks using
the ownership and operating structure described above. There can be no assurance
that Polish regulatory authorities will not determine that all or part of this
ownership and operating structure, or any other ownership and operating
structure that may be utilized by the Company, violates Polish regulatory
restrictions on foreign ownership or that such restrictions will not be amended
or interpreted in a different manner in the future, including the restrictions
applicable to Grandfathered Permits. Any such adverse determination or any such
amendment or interpretation could adversely affect the Company's ability to
acquire Permits to operate cable television systems and could result in the loss
of Permits held by the Company, which could have a material adverse effect on
the Company's business, results of operations and financial condition. See
"Regulation -- The Communications Act -- Foreign Ownership Restrictions".
The Television Act provides that programming may be broadcast in Poland
only by Polish entities in which foreign persons hold no more than 33% of the
share capital. The Company owns a 33% interest in a programming company,
ProCable, which was formed to develop Polish-language programming for the
Company. ProCable currently holds broadcast licenses to distribute PTK1 and PTK2
over all of the Company's networks that carry these channels, except for one
network for which ProCable has an application pending with the Council and one
network for which the Company is currently awaiting the grant of a Permit from
PAR before ProCable can file with the Council for a license. The Company has
established PCIP as a wholly-owned U.S. subsidiary engaged in the development
and production of Polish language thematic television programming outside of
Poland. The Company plans to distribute all of PCIP's programming throughout
Poland via satellite systems from abroad. The Company believes that the
ownership structure of ProCable and PCIP's distribution system satisfy Poland's
regulatory restrictions on foreign ownership of broadcasters. However, there can
be no assurance that Polish regulatory authorities will not determine that all
or part of this ownership or distribution structure violates Polish regulatory
restrictions on foreign ownership of broadcasters. If the ownership of ProCable
or the distribution by PCIP of programming in Poland via satellite is found not
to be in compliance with Poland's regulatory restrictions on foreign ownership
of broadcasters, the Company could be forced to incur significant costs to bring
its ownership structure or distribution system into compliance with the
regulations; it might be forced to dispose of its ownership interests in
ProCable or PCIP; or ProCable could lose its broadcasting licenses. These
regulatory restrictions may materially adversely affect the Company's ability to
enter into relationships with ProCable or PCIP, as well as any other company
that produces, broadcasts and distributes programming in Poland, which could
have a material adverse effect on the Company's business, results of operations
and financial condition. See "Regulation -- Television Act".
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RISKS ASSOCIATED WITH CABLE NETWORKS; AGREEMENTS WITH TPSA
The Company's ability to build-out its existing networks and to integrate
acquired systems into its cable networks will depend on, among other things, the
Company's continued ability to design and obtain access to network routes, and
secure other construction resources, all at reasonable costs and on satisfactory
terms and conditions. Many of such factors are beyond the control of the
Company. In addition, as of December 31, 1996, approximately 66% of the
Company's plant had been constructed utilizing pre-existing conduits of the
Polish national telephone company ("TPSA"). A substantial portion of the
Company's contracts with TPSA for the use of such conduits permit termination by
TPSA without penalty at any time either immediately upon the occurrence of
certain conditions or upon provision of three to six months notice without
cause. Any termination by TPSA of such contracts could result in the Company
losing its Permits, the termination of agreements with co-op authorities and
programmers, and an inability to service customers with respect to the areas
where its networks utilize the conduits that were the subject of such contracts.
Any such terminations by TPSA would have a material adverse effect on the
Company unless the Company could on commercially reasonable terms find an
alternative to the TPSA conduits or build its own conduits. In addition, the
Company would be forced to incur significant costs if it were forced to build
its own conduits. There can be no assurance that the Company would be able to
replace, or locate a substitute for, such conduits.
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 the Company's existing systems or are large enough to serve as the
basis for new regional clusters. There can be no assurance that the Company will
be able to identify and acquire such systems on satisfactory terms, if at all,
or that it will be able to finance significant acquisitions in the future. The
Company encounters competition for the acquisition of cable systems from
existing cable television operators and also from financial investors. See
"Business -- Business Strategy" and "Business -- Competition."
The Company searches for appropriate candidates for acquisition on an
ongoing basis. The Company has entered into negotiations or agreements, as the
case may be, to consummate the Pending Acquisitions. The systems to be acquired
in the Pending Acquisitions serve approximately 99,000 total subscribers and
pass approximately 181,000 homes. There can be no assurance as to the timing of
closing of any of the Pending Acquisitions or as to whether or on what terms any
of such Pending Acquisitions will actually be consummated. See
"Business -- Pending Acquisitions".
MANAGEMENT OF GROWTH; INTEGRATION OF ACQUIRED BUSINESSES
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 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, ability to attract and retain qualified management personnel and the
training of new personnel. The Company intends to hire additional personnel in
order to manage its growth and meet its strategic objectives. Failure to manage
its rapid growth and development successfully could have a material adverse
effect on the Company's business, results of operations and financial condition.
Since its inception, the Company has acquired numerous cable television
networks. The Company's 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). Furthermore, the Company may experience
increased capital expenditure costs as the acquired systems are rebuilt if
necessary to upgrade the networks to the Company's standards. In the event that
the Company underestimates the costs of integrating and upgrading acquired
networks, such activities could have a material adverse effect on the Company's
financial condition and operating results. The integration of acquired systems
may also lead to diversion of
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management attention from other ongoing business concerns. The costs of
integration for certain acquisitions have had an adverse impact on the Company's
short-term operating results. Any or all of these risks related to integration
may have a material adverse effect on the Company's operations in the future.
In addition, the Company is evaluating the viability and financial returns
associated with entering into certain businesses, some of which may be capital
intensive and in which it has limited experience, such as telephony. There can
be no assurance that the Company can profitably exploit these new areas of
endeavor.
RISKS ASSOCIATED WITH INVESTMENTS IN POLAND AND EMERGING MARKETS
Poland has undergone significant political and economic change since 1989.
Changes in political, economic, social and other developments in Poland may in
the future have material adverse effect on the Company's business. In
particular, changes in laws or regulations (or in the interpretation of existing
laws or regulations), whether caused by change in the government of Poland or
otherwise, could materially adversely affect the Company's operations and
business. Currently there are no limitations on the repatriation of profits from
Poland, but there can be no assurance that foreign exchange control
restrictions, taxes or limitations will not be imposed or increased in the
future with regard to repatriation of earnings and investments from Poland. If
such exchange control restrictions, taxes or limitations are imposed, the
ability of the Issuer to receive dividends or other payments from its
subsidiaries could be reduced, which may have a material adverse effect on the
Company.
Due to the many formalities required for compliance with the laws in
Poland's regulated economy, the rapid changes that Polish laws have undergone in
the 1990s or otherwise, the Company may from time to time have violated, may be
violating and may in the future violate, the requirements of certain Polish
laws, including provisions of labor, foreign exchange, customs, tax and
corporate laws. The Company does not believe that any such violations will have
a material adverse effect upon the Company's business, results of operation or
financial condition, but there can be no assurance that such will be the case.
Poland is generally considered by international investors to be an emerging
market. There can be no assurance that political, economic, social and other
developments in other emerging markets will not have an adverse effect on the
market value and liquidity of the Notes. In general, investing in the securities
of issuers with substantial operations in markets such as Poland involves a
higher degree of risk than investing in the securities of issuers with
substantial operations in the United States and other similar jurisdictions.
ASSET ENCUMBRANCES
The Company has entered into an agreement with the American Bank in Poland,
S.A. ("AmerBank") which provides for a credit facility of $6.5 million. As of
December 31, 1996, there was $550,000 outstanding under this facility and, as of
the date hereof, there is no amount outstanding under this facility. The Company
will be able to utilize this facility for future borrowings (subject to the
limitations in the Indenture with regard to incurrance of additional
indebtedness). In addition, the Company in the future may enter into an
agreement with one or more banks to provide a liquidity facility. The Company's
existing facilities are secured, and certain of the Company's future
indebtedness, including the possible liquidity facility described above, may be
secured, which could have material consequences to holders of the Notes. Such
security includes, and is expected in the future to include, the fixed assets of
PCI's subsidiaries as well as the capital stock and intercompany indebtedness of
PCI's subsidiaries (other than the Pledged Debt). The principal fixed assets of
PCI's subsidiaries consist of cable television headends, cable television plant
and subscriber equipment. The value of a substantial portion of the Company's
fixed assets is derived from the employment of such assets in a cable television
business. These assets are highly specialized and, taken individually, can be
expected to have limited marketability. Consequently, in the event of a
realization by the Company's secured creditors on the collateral securing the
Company's secured debt, creditors would likely seek to sell the business as a
going concern through a sale of pledged capital stock of subsidiaries, either in
its entirety, or by regional cluster or other business unit, in order to
maximize the proceeds realized. The price obtained upon any such sale could be
adversely affected by the need to comply with applicable governmental
regulations and laws, including foreign ownership limitations and foreign
exchange controls. The amounts (and the timing of the receipt of
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any amounts) available to satisfy PCI's obligations on the Notes after any such
sale may be adversely affected by procedural and substantive provisions of U.S.
and Polish insolvency, bankruptcy and administrative laws favoring secured
creditors and limiting the rights of unsecured creditors.
INFLATION; CURRENCY RISK
Since the fall of Communist rule in 1989, Poland has experienced high
levels of inflation and significant fluctuation in the exchange rate for the
zloty. The Polish government has adopted policies that slowed the annual rate of
inflation from approximately 250% in 1990 to approximately 26.8% in 1995 and to
approximately 19.9% in 1996. In addition, the exchange rate for the zloty has
stabilized and the rate of devaluation of the zloty has decreased since 1991.
However, inflation and currency exchange fluctuations have had, and may continue
to have, an effect on the financial condition and results of operations of the
Company.
Substantially all of the Company's debt obligations and certain of the
Company's operating expenses and capital expenditures are, and are expected to
continue to be, denominated in or indexed to U.S. Dollars. By contrast,
substantially all of the Company's revenues are denominated in zloty. Any
devaluation of the zloty against the U.S. Dollar that the Company is unable to
offset through price adjustments will require the Company to use a larger
portion of its revenues to service its U.S. Dollar-denomination obligations.
While the Company may consider entering into transactions to hedge the risk of
exchange rate fluctuations, it is unlikely that the Company will be able to
obtain hedging arrangements on commercially satisfactory terms. Accordingly,
shifts in currency exchange rates may have an adverse effect on the ability of
the Company to service its U.S. Dollar-denomination obligations and, thus, on
the Company's financial condition and results of operations.
COMPETITION IN THE CABLE TELEVISION INDUSTRY
The multi-channel television industry in Poland has been, and is expected
to remain, competitive. The Company competes with other cable television
operators as well as with companies employing numerous other methods of
delivering television signals to the home. The Company believes that competition
in the cable television industry is primarily based upon price, program
offerings, customer service and quality and reliability of cable networks. Small
SMATV operators are active throughout Poland, and they pose a competitive threat
to the Company because they often incur lower capital expenditures and operating
costs and therefore have the ability to charge lower fees to subscribers than
does the Company. While such operators often do not attempt to meet the
technical standards for cable systems under Polish law, enforcement of
regulations governing such technical standards has historically been poor.
Although Polish regulatory authorities have recently attempted to improve the
enforcement of such laws and regulations, there can be no assurance that they
will be enforced. If such laws and regulations are not enforced, these SMATV
operators will be able to continue operating with a lower cost structure than
that of the Company and thus charge lower fees to subscribers, which may have an
adverse effect on the Company's business, results of operations and financial
condition. Certain of the Company's competitors or their affiliates have greater
experience in the cable television industry and have greater resources
(including financial resources and access to international programming sources)
than the Company.
The Company's cable television systems also compete with companies
employing other methods of delivering television signals to the home, such as
terrestrial broadcast television signals and DTH satellite-delivered television
services, and may in the future compete with MMDS systems. The extent to which
the Company's cable television services are competitive with alternative
delivery systems depends, in part, upon the Company's ability to provide a
greater variety of programming at a reasonable price than the programming and
prices available through alternative delivery systems. In addition, 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
television industry in Poland. See "The Industry -- The Polish Multi-Channel
Television Industry" and "Regulation".
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AVAILABILITY OF PROGRAMMING OFFERINGS
The success of the Company's business is and will continue to be, to a
large degree, dependent on its ability to obtain at commercially reasonably
costs programming that is appealing to subscribers. In addition, there is a
strong demand for Polish-language television programming in Poland. A majority
of the Company's current programming is offered in English or German. To the
extent that the Company's competitors are able to produce or obtain
Polish-language programming at commercially reasonable costs and the Company is
not able to do so, the viability or competitiveness of the Company's networks or
services could be adversely effected.
INFLUENCE OF PRINCIPAL SHAREHOLDERS
PCI and each of its existing shareholders (except for its option holders
and one shareholder that owns approximately 3% of the outstanding common stock
on a fully diluted basis) have entered into a Shareholders' Agreement pursuant
to which the parties thereto have agreed to the composition of the Board of
Directors, certain transfer restrictions (including rights of first refusal,
tag-along rights and a buy-sell provision) and the manner by which such
shareholders may realize their investments in the capital stock of PCI. See
"Certain Relationships and Related Transactions -- Shareholders' Agreement."
There may be conflicts of interest between the shareholders of PCI or their
representatives on the one hand, and the holders of the 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 Notes. No
procedures are being adopted to resolve any conflicts of interest that may arise
between the shareholders or their representatives on the Board of Directors and
the holders of the Notes.
LIMITED INSURANCE COVERAGE
While PCI carries general liability insurance on its properties and that of
its subsidiaries, like many other operators of cable television systems 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.
PERSONAL HOLDING COMPANY TAX MATTER
If PCI were determined to be a "personal holding company" ("PHC") for U.S.
federal income tax purposes, PCI would be subject to a U.S. excise tax equal to
39.6% of its undistributed personal holding company net income. Based on the
ownership of the outstanding shares and the types of income derived by and
expected to be derived by PCI, PCI does not believe that it is a PHC.
Nevertheless, because there will be restrictions on PCI's ability to distribute
earnings while the Notes are outstanding, if PCI is deemed to be a PHC, it would
become subject to the 39.6% excise tax. There can be no assurance that PCI will
not be deemed a PHC.
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Old Notes were sold by the Issuer on October 31, 1996 to the Initial
Purchaser pursuant to the Purchase Agreement. The Initial Purchaser subsequently
placed the Old Notes with qualified institutional buyers in reliance on Rule
144A under the Securities Act, institutional accredited investors (as defined in
Rule 501(a) (1), (2), (3) or (7) under the Securities Act) and non-U.S. persons
pursuant to Regulation S under the Securities Act. As a condition to the sale of
the Old Notes, the Issuer and the Initial Purchaser entered into the
Registration Rights Agreement as of October 31, 1996. Pursuant to the
Registration Rights Agreement, the Issuer agreed that, unless the Exchange Offer
is not permitted by applicable law or Commission policy, it would (i) use its
best efforts to file with the Commission a Registration Statement under the
Securities Act with respect to the Exchange Notes by January 29, 1997; (ii) use
its best efforts to cause such Registration Statement to become effective under
the Securities Act by May 29, 1997; and (iii) upon effectiveness of the
Registration Statement, use its best efforts to commence the Exchange Offer and
maintain the effectiveness of the Registration Statement and keep the Exchange
Offer open for at least 30 business days. A copy of the Registration Rights
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. The Registration Statement of which this Prospectus
is a part is intended to satisfy certain of the Issuer's obligations under the
Registration Rights Agreement and the Purchase Agreement.
RESALE OF THE EXCHANGE NOTES
Based upon no-action letters issued by the staff of the Commission to third
parties, the Issuer believes that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold or
otherwise transferred by a holder thereof (other than any holder which is an
"affiliate" of the Issuer within the meaning of Rule 405 under the Securities
Act or a holder that is a broker-dealer who acquires Exchange Notes to resell
pursuant to Rule 144A or any other available exemption under the Securities
Act), without compliance with the registration and prospectus delivery
provisions of the Securities Act; provided that such Exchange Notes are acquired
in the ordinary course of such holders' business and such holder is not
participating, does not intent to participate, and has no arrangement with any
person to participate in the distribution of such Exchange Notes. However, the
Commission has not considered the Exchange Offer in the context of a no-action
letter and there can be no assurance that the staff of the Commission would make
a similar determination with respect to the Exchange Offer as in such other
circumstances. Holders of Old Notes wishing to accept the Exchange Offer must
represent to the Issuer that such conditions have been met. Each broker-dealer
that receives Exchange Notes for its own account pursuant to the Exchange Offer,
where it acquired the Old Notes exchanged for such Exchange Notes for its own
account as a result of market-making or other trading activities, must
acknowledge that it will deliver a prospectus in connection with the resale of
such Exchange Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Old Notes where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities. The Issuer
has agreed that, for a period of 180 days after the Expiration Date, it will
make this Prospectus available to any broker-dealer for use in connection with
any such resale. See "Plan of Distribution."
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Issuer will accept for exchange any and all Old Notes which
are properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. The Issuer will issue $1,000 principal amount of Exchange Notes
in exchange for each $1,000 principal
25
<PAGE> 28
amount of outstanding Old Notes surrendered pursuant to the Exchange Offer. Old
Notes may be tendered only in integral multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Old Notes except that (i) the exchange will be registered under the
Securities Act and hence the Exchange Notes will not bear legends restricting
their transfer and (ii) holders of the Exchange Notes will not be entitled to
certain rights of holders of Old Notes under the Registration Rights Agreement,
which rights with respect to Old Notes will terminate upon the consummation of
the Exchange Offer. The Exchange Notes will evidence the same debt as the Old
Notes (which they replace) and will be issued under, and be entitled to the
benefits of, the Indenture, which also authorized the issuance of the Old Notes,
such that both series will be treated as a single class of debt securities under
the Indenture.
As of the date of this Prospectus, an aggregate of $130.0 million in
principal amount of the Old Notes is outstanding. This Prospectus, together with
the Letter of Transmittal, is first being sent on or about [ ], 1997,
to all holders of Old Notes known to the Issuer. The Issuer's obligation to
accept Old Notes for exchange pursuant to the Exchange Offer is subject to
certain conditions as set forth under "-- Certain Conditions to the Exchange
Offer" below.
Holders of the Old Notes do not have any appraisal or dissenters' rights
under the Indenture in connection with the Exchange Offer. The Issuer intends to
conduct the Exchange Offer in accordance with the provisions of the Registration
Rights Agreement and the applicable requirements of the Securities Act, the
Exchange Act and the rules and regulations of the Commission thereunder. See
"Description of the Notes -- Exchange Offer; Registration Rights."
The Issuer expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any Old Notes, by giving written notice
of such extension to the holders thereof as described below. During any such
extension, all Old Notes previously tendered will remain subject to the Exchange
Offer and may be accepted for exchange by the Issuer. Any Old Notes not accepted
for exchange for any reason will be returned without expense to the tendering
holder thereof as promptly as practicable after the expiration or termination of
the Exchange Offer.
The Issuer expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted for
exchange, upon the occurrence of any of the conditions of the Exchange Offer
specified below under "-- Certain Conditions to the Exchange Offer." The Issuer
will give written notice of any extension, amendment, nonacceptance or
termination to the holders of the Old Notes as promptly as practicable, such
notice in the case of any extension to be issued by means of a press release or
other public announcement no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date.
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Issuer of Old Notes by a holder thereof as set forth
below and the acceptance thereof by the Issuer will constitute a binding
agreement between the tendering holder and the Issuer upon the terms and subject
to the conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal. Except as set forth below, a holder who wishes to tender Old Notes
for exchange pursuant to the Exchange Offer must transmit a properly completed
and duly executed Letter of Transmittal, including all other documents required
by such Letter of Transmittal, to the Exchange Agent at one of the addresses set
forth below under "Exchange Agent" on or prior to the Expiration Date. In
addition, either (i) certificates for such Old Notes must be received by the
Exchange Agent along with the Letter of Transmittal, or (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old
Notes, if such procedure is available, into the Exchange Agent's account at The
Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the
procedure for book-entry transfer described below, must be received by the
Exchange Agent prior to the Expiration Date, or (iii) the holder must comply
with the guaranteed delivery procedures described below.
26
<PAGE> 29
THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY
IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD
BE SENT TO THE COMPANY.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trustee or other nominee and who wishes to
tender should contact such registered holder of Old Notes promptly and instruct
such registered holder of Old Notes to tender on behalf of the beneficial owner.
If such beneficial owner wishes to tender on its own behalf, such beneficial
owner must, prior to completing and executing the Letter of Transmittal and
delivering its Old Notes, either make appropriate arrangements to register
ownership of the Old Notes in such beneficial owner's name or obtain a properly
completed power of attorney from the registered holder of Old Notes. The
transfer of record ownership may take considerable time. If the Letter of
Transmittal is signed by a person or persons other than the registered holder or
holders of Old Notes, such Old Notes must be endorsed or accompanied by
appropriate powers of attorney, in either case signed exactly as the name or
names of the registered holder or holders that appear on the Old Notes.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered holder of the Old Notes who
has not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined herein below). In the event that signatures
on a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantees must be by a firm which is a member
of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trustee
having an office or correspondent in the United States (collectively, "Eligible
Institutions"). If Old Notes are registered in the name of a person other than a
signer of the Letter of Transmittal, the Old Notes surrendered for exchange must
be endorsed by, or be accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by the Issuer in its
sole discretion, duly executed by the registered holder with the signature
thereon guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Issuer in its sole discretion, which determination shall be final and
binding. The Issuer reserves the absolute right to reject any and all tenders of
any particular Old Notes not properly tendered or to not accept any particular
Old Notes whose acceptance might, in the judgment of the Issuer or its counsel,
be unlawful. The Issuer also reserves the absolute right to waive any defects or
irregularities or conditions of the Exchange Offer as to any particular Old
Notes either before or after the Expiration Date (including the right to waive
the ineligibility of any holder who seeks to tender Old Notes in the Exchange
Offer). The interpretation of the terms and conditions of the Exchange Offer as
to any particular Old Notes either before or after the Expiration Date
(including the Letter of Transmittal and the instructions thereto) by the Issuer
shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes for exchange must be
cured within such reasonable period of time as the Issuer shall determine.
Neither the Issuer, the Exchange Agent nor any other person shall be under any
duty to give notification of any defect or irregularity with respect to any
tender of Old Notes for exchange, nor shall any of them incur any liability for
failure to give such notification.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Issuer, proper evidence satisfactory to the Issuer of their authority to so
act must be submitted.
By tendering, each holder will represent to the Issuer that, among other
things, (i) the Exchange Notes to be acquired by the holder of the Old Notes in
connection with the Exchange Offer are being acquired by the holder in the
ordinary course of business of the holder, (ii) the holder has no arrangement or
understanding with any person to participate in the distribution of Exchange
Notes, (iii) the holder acknowledges and agrees that any person who is a
broker-dealer registered under the Exchange Act or is participating in the
Exchange Offer for the purposes of distributing the Exchange Notes must comply
with the registration and prospectus
27
<PAGE> 30
delivery requirements of the Securities Act in connection with a secondary
resale transaction of the Exchange Notes acquired by such person and cannot rely
on the position of the staff of the Commission set forth in certain no-action
letters, (iv) the holder understands that a secondary resale transaction
described in clause (iii) above and any resales of Exchange Notes obtained by
such holder in exchange for Old Notes acquired by such holder directly from the
Issuer should be covered by an effective registration statement containing the
selling security holder information required by Item 507 or Item 508, as
applicable, of Regulation S-K of the Commission, and (v) the holder is not an
"affiliate," as defined in Rule 405 of the Securities Act, of the Issuer. If the
holder is a broker-dealer that will receive Exchange Notes for its own account
in exchange for Old Notes that were acquired as a result of market-making
activities or other trading activities, the holder is required to acknowledge in
the Letter of Transmittal that it will deliver a prospectus in connection with
any resale of such Exchange Notes; however, by so acknowledging and by
delivering a prospectus, the holder will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Issuer will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the Exchange Notes promptly after acceptance of
the Old Notes. See "-- Certain Conditions to the Exchange Offer" below. For
purposes of the Exchange Offer, the Issuer shall be deemed to have accepted
properly tendered Old Notes for exchange when, as and if the Issuer has given
oral or written notice thereof to the Exchange Agent, with written confirmation
of any oral notice to be given promptly thereafter.
The Exchange Notes will bear interest at a rate equal to 9 7/8% per annum.
Interest on the Exchange Notes is payable semiannually on each May 1 and
November 1, commencing on May 1, 1997. Holders of Exchange Notes will receive
interest on May 1, 1997 from the date of initial issuance of the Exchange Notes,
plus an amount equal to the accrued interest on the Old Notes from October 31,
1996, to the date of exchange thereof for Exchange Notes. Holders of Old Notes
that are accepted for exchange for Exchange Notes will be deemed to have waived
the right to receive any interest accrued on the Old Notes.
In all cases, the issuance of Exchange Notes for Old Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of certificates for such Old Notes or a
timely Book-Entry Confirmation of such Old Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility, a properly completed and duly
executed Letter of Transmittal and all other required documents. If any tendered
Old Notes are not accepted for any reason set forth in the terms and conditions
of the Exchange Offer, or if Old Notes are submitted for a greater amount than
the holder desires to exchange, such unaccepted or non-exchanged Old Notes will
be returned without expense to the tendering holder thereof (or, in the case of
Old Notes tendered by book-entry procedures described below, such non exchanged
Old Notes will be credited to an account maintained with such Book-Entry
Transfer Facility) designated by the tendering holder as promptly as practicable
after the expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Facility to transfer such Old Notes into the Exchange Agent's account
at the Book-Entry Transfer Facility in accordance with such Book-Entry Transfer
Facility's procedures for transfer. However, although delivery of Old Notes may
be effected through book-entry transfer at the Book-Entry Transfer Facility, the
Letter of Transmittal or facsimile thereof, with any required signature
guarantees and any other required documents, must, in any case, be transmitted
to and received by the Exchange Agent at one of the addresses set forth below
under "-- Exchange Agent" on or prior to the Expiration Date or the guaranteed
delivery procedures described below must be complied with.
28
<PAGE> 31
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes
and the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange
Agent has received from such Eligible Institution a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Issuer (by telegram, telex,
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of the Old Notes and the amount of Old Notes, stating that
the tender is being made thereby and guaranteeing that within five New York
Stock Exchange ("NYSE") trading days after the date of execution of the Notice
of Guaranteed Delivery, the certificates for all physically tendered Old Notes,
in proper form for transfer, or a Book-Entry Confirmation, as the case may be,
and any other documents required by the Letter of Transmittal will be deposited
by the Eligible Institution with the Exchange Agent, and (iii) the certificates
for all physically tendered Old Notes, in proper form for transfer, or a
Book-Entry Confirmation, as the case may be, and all other documents required by
the Letter of Transmittal, are received by the Exchange Agent within five NYSE
trading days after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under
" -- Exchange Agent." Any such notice of withdrawal must specify the name of the
person having tendered the Old Notes to be withdrawn, identify the Old Notes to
be withdrawn (including the amount of such Old Notes), and (where certificates
for Old Notes have been transmitted) specify the name in which such Old Notes
are registered, if different from that of the withdrawing holder. If
certificates for Old Notes have been delivered or otherwise identified to the
Exchange Agent, then, prior to the release of such certificates the withdrawing
holder must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such holder is an Eligible Institution. If Old Notes
have been tendered pursuant to the procedure for book-entry transfer described
above, any notice of withdrawal must specify the name and number of the account
at the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes
and otherwise comply with the procedures of such facility. All questions as to
the validity, form and eligibility (including time of receipt) of such notices
will be determined by the Issuer whose determination shall be final and binding
on all parties. Any Old Notes so withdrawn will be deemed not to have been
validly tendered for exchange for purposes of the Exchange Offer. Any Old Notes
which have been tendered for exchange but which are not exchanged for any reason
will be returned to the holder thereof without cost to such holder (or, in the
case of Old Notes tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described above, such Old Notes will be credited to an account with
such Book-Entry Transfer Facility specified by the holder) as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn Old Notes may be retendered by following one of the
procedures described under "-- Procedures for Tendering Old Notes" above at any
time on or prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Issuer shall
not be required to accept for exchange, or to issue Exchange Notes in exchange
for, any Old Notes and may terminate or amend the Exchange Offer, if at any time
before the acceptance of such Old Notes for exchange or the exchange of the
Exchange Notes for such Notes, any of the following events shall occur:
(a) there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order or decree shall have been
issued by, any court or governmental agency or other
29
<PAGE> 32
governmental regulatory or administrative agency or commission, (i) seeking
to restrain or prohibit the making or consummation of the Exchange Offer or
any other transaction contemplated by the Exchange Offer, or assessing or
seeking any damages as a result thereof, or (ii) resulting in a material
delay in the ability of the Issuer to accept for exchange or exchange some
or all of the Old Notes tendered pursuant to the Exchange Offer; or any
statute, rule, regulation, order or injunction shall be sought, proposed,
introduced, enacted, promulgated or deemed applicable to the Exchange Offer
or any other transactions contemplated by the Exchange Offer by any
government or governmental authority, domestic or foreign, or any action
shall have been taken, proposed or threatened, by any government,
governmental authority, agency or court, domestic or foreign, that in the
sole judgment of the Issuer might directly or indirectly result in any of
the consequences referred to in clauses (i) or (ii) above or, in the sole
judgment of the Issuer, might result in the holders of Exchange Notes
having obligations with respect to resales and transfers to Exchange Notes
which are greater than those described in the interpretation of the
Commission referred to on the cover page of this Prospectus, or would
otherwise make it inadvisable to proceed with the Exchange Offer; or
(b) there shall have occurred (i) any general suspension of or general
limitation on prices for, or trading in, securities on any national
securities exchange or in the over-the-counter market, (ii) any limitation
by any governmental agency or authority which may adversely affect the
ability of the Issuer to complete the transactions contemplated by the
Exchange Offer, (iii) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States or any
limitation by any governmental agency or authority which adversely affects
the extension of credit or (iv) a commencement of a war, armed hostilities
or other similar international calamity directly or indirectly involving
the United States, or, in the case of any of the foregoing existing at the
time of the commencement of the Exchange Offer, a material acceleration or
worsening thereof; or
(c) any change (or any development involving a prospective change)
shall have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects of the Issuer and its subsidiaries taken as a whole that, in the
sole judgment of the Issuer, is or may be adverse to the Issuer, or the
Issuer shall have become aware of facts that, in the sole judgment of the
Issuer have or may have adverse significance with respect to the value of
the Old Notes or the Exchange Notes; which, in the sole judgment of the
Issuer in any case, and regardless of the circumstances (including any
action by the Issuer) giving rise to any such condition, makes it
inadvisable to proceed with the Exchange Offer and/or with such acceptance
for exchange or with such exchange.
To the Issuer's knowledge, as of the date of this Prospectus, none of the
foregoing events has occurred.
In addition, the Issuer will not accept for exchange any Old Notes
tendered, and no Exchange Notes will be issued in exchange for any such Old
Notes, if at such time any stop order shall be threatened or in effect with
respect to the Registration Statement of which this Prospectus constitutes a
part.
The foregoing conditions are for the sole benefit of the Issuer and may be
asserted by the Issuer regardless of the circumstances giving rise to any such
condition or may be waived by the Issuer in whole or in part at any time and
from time to time in its sole discretion. The failure by the Issuer at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
30
<PAGE> 33
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as the Exchange
Agent for the Exchange Offer. All executed Letters of Transmittal should be
directed to the Exchange Agent at the addresses set forth below. Questions and
requests for assistance, requests for additional copies of this Prospectus or of
the Letter of Transmittal and requests for Notices of Guaranteed Delivery should
be directed to the Exchange Agent addressed as follows:
Delivery To: State Street Bank and Trust Company, Exchange Agent
By Mail or By Hand:
State Street Bank and Trust Company
Corporate Trust Department
Two International Place
Fourth Floor
Boston, MA 02110
Attention: Henry Seemore
Telephone: 617-664-5601
By Facsimile: 617-664-5365
DELIVERY OF A LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
The Issuer will not make any payment to brokers, dealers or others
soliciting acceptances of the Exchange Offer.
The estimated cash expenses to be incurred in connection with the Exchange
Offer of approximately $1,500 (plus any out-of-pocket expenses, including
without limitation, legal fees and expenses incurred by the Exchange Agent) will
be paid by the Issuer.
ACCOUNTING TREATMENT
For accounting purposes, the Issuer will recognize no gain or loss as a
result of the Exchange Offer. The expenses of the Exchange Offer will be
amortized over the term of the Exchange Notes.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who instruct
the Issuer to register Exchange Notes in the name of, or request that Old Notes
not tendered or not accepted in the Exchange Offer be returned to, a person
other than the registered tendering holder will be responsible for the payment
of any applicable transfer tax thereon.
REGULATORY MATTERS
The Issuer is not aware of any governmental or regulatory approvals that
are required in order to consummate the Exchange Offer.
CONSEQUENCE OF FAILURE TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Old Notes
are urged to consult their financial and tax advisors in making their own
decisions on what action to take. See "Income Tax Considerations."
31
<PAGE> 34
The Old Notes which are not exchanged for the Exchange Notes pursuant to
the Exchange Offer will remain restricted securities. Accordingly, such Old
Notes may be resold only (i) to a person whom the seller reasonably believes is
a qualified institutional buyer (as defined in Rule 144A under the Securities
Act) in a transaction meeting the requirements of Rule 144A, (ii) in a
transaction meeting the requirements of Rule 144 under the Securities Act, (iii)
outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act or (iv) in accordance with
another exemption from the registration requirements of the Securities Act (and
based upon an opinion of counsel if the Issuer so requests), (v) to the Issuer
or (vi) pursuant to an effective registration statement and, in each case, in
accordance with any applicable securities laws of any state of the United States
or any other applicable jurisdiction. Under certain circumstances, the Issuer is
required to file a Shelf Registration Statement. See "Description of
Notes -- Exchange Offer; Registration Rights."
PAYMENT OF ADDITIONAL INTEREST UPON REGISTRATION DEFAULT
In the event of a Registration Default (as hereinafter defined), the
interest rate borne by the Notes shall be increased by an amount equal to
one-half of one percent (0.5%) per annum, with respect to the first 90-day
period following such Registration Default. The amount of such additional
interest will increase by an additional one-half of one percent (0.5%) per annum
for each subsequent 90-day period until such Registration Default has been
cured, up to a maximum of one and one-half percent (1.5%) per annum. Upon the
cure of all applicable Registration Defaults, such additional interest will
cease to accrue. See "The Exchange Offer -- Exchange Offer; Registration
Rights."
EXCHANGE RATE DATA
The following table sets forth, for the periods indicated, the noon
exchange rate quoted by the NBP. Such rates are set forth as zloty per U.S.
Dollar. On December 31, 1996, such rate was PLN 2.875 = $1.00, and on March 28,
1997, such rate was PLN 3.076 = $1.00. The Federal Reserve Bank of New York does
not certify for customs purposes a noon buying rate for zloty.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR
ENDED DECEMBER 31,
----------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Exchange rate at end of period............................. 2.44 2.47 2.87
Average exchange rate during period(a)..................... 2.27 2.43 2.71
Highest exchange rate during period........................ 2.45 2.54 2.89
Lowest exchange rate during period......................... 2.32 2.47 2.49
</TABLE>
- ---------------
(a) The average of the exchange rates on the last day of each month during
the applicable period.
USE OF PROCEEDS
The Issuer will not receive any proceeds from the issuance of the Exchange
Notes or the consummation of the Exchange Offer or any sale of Exchange Notes to
any broker-dealer.
32
<PAGE> 35
CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of December 31, 1996.
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
<S> <C>
Cash and cash equivalents(a)................................. $ 68,483
========
Investment securities(a)..................................... $ 25,115
========
Long-term debt:
Notes payable.............................................. $ 130,074
Notes offered hereby.......................................
--------
Minority interest............................................ 5,255
Redeemable preferred stock................................... 36,265
Stockholders' equity:
Common stock............................................... 1
Paid-in capital............................................ 53,012
Cumulative translation adjustment.......................... (162)
Accumulated deficit........................................ (23,113)
--------
Total stockholders' equity.............................. 29,738
Total capitalization............................... $ 196,077
========
</TABLE>
- ---------------
(a) A portion of the net proceeds from the offering of the Old Notes was
invested in cash and cash equivalents and in investment securities.
33
<PAGE> 36
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below as of and for the
three years ended December 31, 1996 have been derived from the consolidated
financial statements of the Company included elsewhere in this Prospectus, which
have been audited by KPMG Peat Marwick LLP, independent auditors. Consolidated
financial data as of and for the year ended December 31, 1992, have been derived
from unaudited financial statements of the Company. In the opinion of management
of the Company, such unaudited financial statements contains all adjustments
necessary for a fair presentation of the financial position of the Company as of
such date and the results of operations for such period. Acquisitions of cable
television systems during the periods for which selected consolidated 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
therein and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED
DECEMBER 31,
--------------------------------------------------------
1993 1994 1995 1996
1992 ------- ------- ------- --------
-----------
(UNAUDITED)
(IN THOUSANDS OF DOLLARS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Cable television revenue.................. $ 4,490 $ 6,562 $ 8,776 $18,557 $ 24,923
Operating expenses:
Direct operating expenses............... (1,099) (1,481) (2,119) (5,129) (7,193)
Selling, general and administrative..... (6,418) (4,029) (2,818) (4,684) (9,289)
Depreciation and amortization........... (1,618) (2,257) (3,459) (5,199) (11,354)
------- ------- ------- ------- -------
Operating income (loss).............. (4,645) (1,205) 380 3,545 (2,913)
Interest expense........................ -- (116) (2,327) (4,373) (4,834)
Interest and investment income.......... 7 65 78 174 1,274
Foreign currency translation (loss)
gain................................. 406 (315) (27) (17) (761)
------- ------- ------- ------- -------
Loss before income taxes and minority
interest ............................ (4,232) (1,571) (1,896) (671) (7,234)
Income tax expense...................... (920) (976) (803) (600) (1,273)
Minority interest in subsidiary (income)
loss................................. 650 205 316 (18) 1,890
------- ------- ------- ------- -------
Net Loss............................. $(4,502) $(2,342) $(2,383) $(1,289) $ (6,617)
======= ======= ======= ======= =======
OTHER DATA:
EBITDA(a)............................... $(3,027) $ 1,052 $ 3,839 $ 8,744 $ 8,441
Expenditures for construction of cable
television systems(b) ............... 3,476 5,490 11,695 16,014 25,372
RATIOS:
EBITDA to interest expense.............. NM NM 1.71x 2.08x 1.75x
Earnings to cover fixed charges(c)...... NM NM 0.37x 0.86x 0.25x
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets............................ $28,857 $34,165 $47,376 $68,058 $217,537
Total debt.............................. 13,832 20,073 35,988 59,405 130,074
Total stockholders' equity.............. 5,592 3,250 1,479 190 29,738
</TABLE>
Footnotes appear on following page
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- ---------------
(a) Interest expense for the year ended December 31, 1996 would have been
$12,837,000 had the Exchange Notes been in place since January 1, 1996.
(b) EBITDA consists of net income (loss) as measured by U.S. GAAP adjusted for
depreciation and amortization, interest expense, foreign currency
translation gains and losses, income taxes, extraordinary items,
non-recurring items, gains and losses from the sale of assets other than in
the normal course of business and minority interest in subsidiary income and
loss. EBITDA is not intended to represent cash flow from operations under
U.S. GAAP and should not be considered as an alternative to net income
(loss) as an indicator of the Company's operating performance or to cash
flows from operations as a measure of liquidity. EBITDA does not include
full year results for 1996 from TV KABEL in the Bydgoszcz regional cluster
which was acquired in December 1996 and does not include results from the
Pending Acquisitions.
(c) Expenditures for the construction of cable television systems represent
payments made by the Company during the period for construction of its cable
television systems within Poland, and excludes costs of acquiring cable
systems.
(d) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of earnings before income taxes and fixed charges. Fixed charges
consist of interest on all indebtedness, amortization of deferred financing
costs and that portion of operating lease expense deemed to be interest
expense. For the years ended December 31, 1992 and 1993, earnings were
insufficient to cover fixed charges by $3,602,000 and $1,140,000,
respectively.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the consolidated financial statements of the Company, including the notes
thereto, included elsewhere in this Prospectus. The following discussion
contains certain forward-looking statements that involve risks and
uncertainties. The Company's actual future results could differ materially from
those discussed herein. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in "Risk Factors,"
"The Industry" and "Business."
OVERVIEW
The Company is the largest provider of multi-channel cable television
services in Poland. Following the commencement of its operations in 1990, the
Company focused initially upon the build-out of its Gdansk network in order to
demonstrate the feasibility of constructing and operating Western-style cable
television networks in Poland, and shortly thereafter began construction of its
cable television networks in Warsaw, Krakow and Katowice. Since that time, the
Company has continued the build-out of its original networks, commenced
construction of cable television networks in several new cities and completed 30
acquisitions. The Company currently owns and operates fiber-optic cable
television networks in seven regional clusters encompassing seven of the ten
largest cities in Poland and had a subscriber base as of December 31, 1996 of
approximately 534,000 total subscribers. Approximately 55% of the Company's
increase in subscribers since December 31, 1992 has been achieved organically
through the build-out of the Company's existing cable networks.
A key element of the Company's business strategy is to continue to expand
the coverage areas of its regional clusters aggressively, both organically and
through acquisitions. The Company intends to pursue organic growth primarily in
areas where it can fill-in existing regional clusters or expand into cities and
towns adjacent to its regional clusters through the continued build-out of its
existing networks. The Company also plans to expand its regional clusters
through the continued acquisition of smaller cable television operators. In
addition, in markets where the Company has established operations, it intends to
selectively over-build certain weaker competitors in an effort to encourage
consolidation of the markets. By implementing this strategy for expanding its
regional clusters, the Company believes it can limit its per-subscriber build
costs and realize significant synergies from leveraging its existing
infrastructure and asset base, both in terms of personnel and in terms of
capital costs. Because the Company has most of its management structure and
operating systems in place in each of its regional clusters, it is able to
realize significant cash flow margins from each dollar of incremental MDU
subscriber revenue generated through the addition of subscribers to its existing
regional clusters.
Substantially all of the Company's revenues are derived from monthly
subscription fees for cable television services, and one-time installation fees
for connection to its cable television networks. The Company charges subscribers
fixed monthly fees for their choice of service tiers and for other services,
such as premium channels, tuner rentals and additional outlets, all of which are
included in monthly subscription fees. The Company currently offers broadcast,
intermediate (in limited areas) and basic tiers of service. As of December 31,
1996, approximately 86% of the Company's subscribers received basic service. In
1996, approximately 87% of the Company's revenues were derived from monthly
subscription fees. Revenue from installation fees is deferred to the extent it
exceeds direct selling costs and the deferred revenue is credited to revenue
over two years.
When the Company began operations in 1990, revenues from installation fees
exceeded revenues from monthly subscription fees because of the significant
number of new installations and the high amount of the installation fees
relative to the small existing subscriber base. As the Company's subscriber base
has grown, aggregate monthly subscription revenue has increased and installation
fees, while currently increasing on an aggregate basis, have declined as a
percentage of total revenue. The Company expects that installation fees will
continue to constitute a declining portion of the Company's revenue.
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<PAGE> 39
The Company has experienced low churn rates during all years of its
operations. The Company's annual churn rates for 1994, 1995 and 1996 were 9.1%,
9.2% and 7.8%, respectively. The Company believes that its churn rates are low
because of the Company's customer care program, the high technical quality of
its networks and desirable program offerings. In addition, the Company benefits
from a shortage of housing in Poland that results in low move-related churn.
There can be no assurance that the Company will be able to maintain these low
churn rates.
The Company divides operating expenses into (i) direct operating expenses,
(ii) selling, general and administration expenses and (iii) depreciation and
amortization expenses. Direct operating expenses consist of programming
expenses, maintenance and related expenses necessary to service, maintain and
operate the Company's cable systems, billing and collection expenses and
customer service expenses. Selling, general and administrative expenses consist
principally of administrative costs including office related expenses,
professional fees and salaries, wages and benefits of nontechnical employees;
advertising and marketing expenses; and accounting costs consisting of bank fees
and bad debt expense. Depreciation and amortization expenses consist of
depreciation of property, plant and equipment and amortization of intangible
assets.
Cable television operators typically experience losses and negative cash
flow in their initial years of operation due to the large capital investments
required for the construction or acquisition of their cable networks and the
administrative costs incurred in connection with commencing operations.
Consistent with this pattern, the Company incurred operating losses of $6.1
million, $4.6 million and $1.2 million in 1991, 1992 and 1993, respectively. The
Company generated operating income of $0.4 million and $3.5 million in 1994 and
1995, respectively, but had an operating loss of $2.9 million for 1996 primarily
due to the increased levels of acquisitions and related costs in 1996.
In addition to other operating statistics, the Company measures its
financial performance by EBITDA. The Company defines EBITDA to be net income
(loss) as measured by U.S. GAAP adjusted for depreciation and amortization,
interest expense, foreign currency translation gains and losses, income taxes,
extraordinary items, non recurring items, and gains and losses from the sale of
assets other than in the normal course of business and minority interest in
subsidiary income and loss. The Company believes that EBITDA and related
measures of cash flow from operating activities serve as important financial
indicators in measuring and comparing the operating performance of cable
television companies. 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.
Historically, the cable networks the Company has acquired have had lower
EBITDA margins than the Company's existing operations. Upon consummation of an
acquisition, the Company seeks to achieve operating efficiencies and reduce
operating costs by rationalizing the number of headends and reducing head count,
among other things. The Company generally has been able to manage its acquired
cable television networks with experienced personnel from one of its existing
regional clusters and reduce the technical personnel necessary to operate
acquired networks after connecting the networks to the Company's existing
headends, or if required, rebuilding the acquired networks to the required
technical standards. In part due to these efforts, the Company has generally
been able to increase the operating margins in its acquired systems, although
there can be no assurance that it will be able to continue to do so.
EBITDA for 1993, 1994, 1995 and 1996 was $1.1 million, $3.8 million, $8.7
million and $8.4 million, respectively. The Company expects EBITDA to increase
as it fully integrates acquired networks into its regional clusters and
consummates the Pending Acquisitions. In addition, the operating results of
several recent acquisitions consummated during 1996 are not yet fully reflected
in the Company's operating results, and the operating results of the Pending
Acquisitions will not be reflected in the Company's results of operations until
their respective dates of acquisition. There can be no assurance, however, that
the Company will continue to generate positive EBITDA in the future. EBITDA is
not intended to represent cash flow from operations under U.S. GAAP and should
not be considered as an alternative to net income (loss) as an indicator of the
Company's operating performance or to cash flows from operations as a measure of
liquidity.
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PENDING ACQUISITIONS
The Company intends to acquire all or a substantial portion of the capital
stock or assets of four cable television systems in Poland. The aggregate
consideration to be paid by the Company in connection with the Pending
Acquisitions (including amounts for shareholder loans) is expected to be
approximately $24.7 million. The cable systems expected to be acquired in the
Pending Acquisitions serve approximately 99,000 total subscribers and pass
approximately 181,000 homes. The consummation of the Pending Acquisitions will
result in the expansion of the Company's operations within its existing regional
clusters and the establishment of one new regional cluster in southwest Poland.
The Company intends to use a portion of the net proceeds of the offering of the
Old Notes to consummate certain of the Pending Acquisitions although there can
be no assurance as to the timing of closing of any of the Pending Acquisitions
or as to whether or on what terms any of such Pending Acquisitions will actually
be consummated. See "Business -- Pending Acquisitions."
1996 COMPARED TO 1995
Cable Television Revenues. Revenues increased $6.4 million, or 34.3%, from
$18.6 million in 1995 to $24.9 million in 1996. This increase was primarily
attributable to a 70% increase in the number of basic subscribers from
approximately 262,000 as of December 31, 1995 to approximately 446,000 as of
December 31, 1996. (Such subscriber numbers do not include approximately 15,000
subscribers served by a cable system the Company acquired on January 1, 1997.)
Approximately 44.6% of this increase in basic subscribers was due to build-out
of the Company's existing cable networks and the remainder was the result of
acquisitions. Revenue from monthly subscription fees represented approximately
87.2% of cable television revenues in 1996. Installation fee revenue increased
by 28.0% from $2.5 million in 1995 to approximately $3.2 million in 1996
primarily as a result of several remarketing campaigns implemented throughout
1996, which led to increased penetration. In addition, the Company experienced
an increase in subscriber installations as a result of the continued build-out
of the Company's networks.
Direct Operating Expenses. Direct operating expenses increased $2.1
million, or 40.2%, from $5.1 million in 1995 to $7.2 million in 1996 principally
as a result of higher levels of technical personnel and increased maintenance
expenses associated with recently acquired networks as well as the increased
size of the Company's cable television systems. Programming expense grew from
$2.2 million in 1995 to $2.8 million in 1996, primarily reflecting the increased
number of subscribers partially offset by more favorable per subscriber
programming rates. Direct operating expenses increased from 27.6% of revenues in
1995 to 28.9% of revenues in 1996.
Selling, General and Administrative. Selling, general and administrative
expenses increased $4.6 million, or 99.3%, from $4.7 million in 1995 to $9.3
million in 1996 primarily as a result of an increase in sales and marketing
expenses incurred in newly acquired networks, the introduction of several
remarketing campaigns throughout the areas covered by the Company's networks,
and increased compensation and 1996 bonuses. Selling, general and administrative
expenses increased from 25.2% of revenue in 1995 to 37.5% of revenue in 1996.
Depreciation and Amortization. Depreciation and amortization expenses rose
$6.2 million, or 118.4%, from $5.2 million in 1995 to $11.4 million in 1996
principally as a result of depreciation of additional cable television assets
acquired in connection with the build-out of the Company's network and
acquisitions and $1.6 million of additional amortization due to the prepayment
of the OPIC loan. Also, during 1996, all of the prematurity periods expired and
therefore the entire balance of investment in cable television system assets was
subject to depreciation. Depreciation and amortization expenses as a percentage
of revenues increased from 28.0% in 1995 to 45.6% in 1996.
Interest and Investment Income. Interest and investment income increased
by $1.1 million from $0.2 million in 1995 to $1.3 million in 1996. This increase
is primarily attributable to a positive cash position in 1996 resulting from the
issuance of shares and the Old Notes.
Interest Expense. Interest expense increased $0.4 million, or 10.5%, from
$4.4 million in 1995 to $4.8 million in 1996 primarily due to increased interest
expense resulting from the issuance of $130 million Old
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<PAGE> 41
Notes partially offset by a reduction in interest expense as a result of the
repayment of $55 million of indebtedness with a portion of the proceeds from
PCI's sale of equity securities in March 1996.
Foreign Currency Translation Loss. Foreign currency translation loss
increased from $17,000 in 1995 to $761,000 in 1996 primarily due to increased
assets subject to translation during the year resulting from the growth of the
Company.
Minority Interest in Subsidiary Loss. Minority interest in subsidiary loss
was $1.9 million in 1996 resulting from losses incurred in two minority-owned
subsidiaries compared to minority interest in subsidiary income of $18,000 in
1995. During 1996 the Company completed partial acquisitions which gave rise to
the increase in minority interest in subsidiary losses.
Net Loss. Net loss increased from a loss of $(1.3) million in 1995 to a
loss of $(6.6) million in 1996 as a result of the factors discussed above.
EBITDA. EBITDA decreased $0.3 million, or 3.5%, from $8.7 million in 1995
to $8.4 million in 1996. EBITDA does not include full year results for 1996 from
TV Kabel in the Bydgoszcz regional cluster which was acquired in December 1996
and does not include results from the Pending Acquisitions. The Company's EBITDA
margin decreased from 47.1% in 1995 to 33.9% in 1996 over such period.
1995 COMPARED TO 1994
Cable Television Revenues. Revenues increased $9.8 million, or 111.5%,
from $8.8 million in 1994 to $18.6 million in 1995. This increase was primarily
attributable to a 132.9% increase in the number of basic subscribers from
approximately 113,000 as of December 31, 1994 to approximately 262,000 as of
December 31, 1995. Approximately 67.8% of this increase in basic subscribers was
due to acquisitions and the remainder resulted from build-out of the Company's
existing cable networks. Primarily as a result of this increase in subscribers,
monthly subscription revenues increased approximately $8.8 million, or 117.8%,
from $7.5 million in 1994 to $16.2 million in 1995. Revenue from monthly
subscription fees represented approximately 87.5% of cable television revenue in
1995. Installation fee revenue increased approximately $1.0 million, or 76.0%,
from $1.3 million in 1994 to $2.3 million in 1995 primarily as a result of
continued build-out of the Company's networks.
Direct Operating Expenses. Direct operating expenses increased $3.0
million, or 142.0%, from $2.1 million in 1994 to $5.1 million in 1995
principally as a result of higher levels of technical personnel and increased
maintenance expenses associated with certain of the acquired systems and the
growth of the Company's cable television system. Programming expenses accounted
for $1.0 million of direct operating expenses in 1994 and $2.2 million in 1995.
The increase in programming expenses in 1995 over 1994 was primarily due to the
increase in the number of subscribers. As a result of these expense increases,
direct operating expenses as a percentage of revenues increased from 24.1% to
27.6% over this period.
Selling, General and Administrative. Selling, general and administrative
expenses increased $1.9 million, or 66.2%, from $2.8 million in 1994 to $4.7
million in 1995 principally as a result of an increase in administrative costs
resulting from the addition of acquired systems, and an increase in sales and
marketing expenses. As a percentage of revenue, selling, general and
administrative expenses declined from 32.1% to 25.2%, primarily reflecting
economies of scale from the Company's increased subscriber levels and the
elimination by the Company of duplicative personnel, office locations and
administrative functions as part of the Company's acquisition integration
strategy.
Depreciation and Amortization. Depreciation and amortization expenses
increased $1.7 million, or 50.3%, from $3.5 million in 1994 to $5.2 million in
1995, primarily as a result of depreciation of additional cable television
assets obtained in connection with the build-out of the Company's networks and
acquisitions. Depreciation and amortization expenses as a percentage of revenues
decreased from 39.4% in 1994 to 28.0% in 1995.
Interest and Investment Income. Interest and investment income increased
$0.1 million from $0.1 million in 1994 to $0.2 million in 1995 due to increased
cash balances.
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<PAGE> 42
Interest Expense. Interest expense increased $2.0 million, or 87.9%, from
$2.3 million in 1994 to $4.4 million in 1995. This change primarily resulted
from an increase in the Company's indebtedness during 1995.
Minority Interest in Subsidiary Loss. Minority interest in subsidiary
income of $18,000 in 1995 compared to minority interest in subsidiary loss of
$0.3 million in 1994.
Net Loss. The Company's net loss decreased from $(2.4) million for 1994 to
$(1.3) million for 1995 as a result of the factors discussed above.
EBITDA. EBITDA increased $4.9 million, or 127.8%, from $3.8 million in
1994 to $8.7 million in 1995. The Company's EBITDA margin improved from 43.7% to
47.1% over such period.
LIQUIDITY AND CAPITAL RESOURCES
The Company has met its cash requirements in recent years primarily with
(i) capital contributions and loans from equity investors, (ii) borrowings under
available credit facilities and (iii) cash flow from operations. In addition, in
1996, the Issuer sold the Old Notes. The Company had positive cash flow from
operating activities in 1994, 1995 and 1996 of $1.6 million, $3.8 million and
$6.1 million, respectively, primarily due to the increase of cash received from
subscribers and the deferral of the payment of interest expense.
During 1996, the Company issued common and preferred stock to its
shareholders of approximately $90 million. On March 29, 1996, PCI consummated a
transaction in which ECO purchased shares of stock of PCI for a price of $65.0
million. See "Certain Relationships and Related Transactions -- Capital
Contributions and Shareholder Loans." On March 29, 1996, the Chase Family
purchased additional shares of preferred and common stock of PCI for an
aggregate purchase price of approximately $17 million. PCI applied approximately
$55 million of the proceeds of these transactions to repay indebtedness owed to
Chase American Corporation, which is beneficially owned by the Chase Family, and
approximately $8.5 million to redeem preferred stock held by Polish Investments
Holding L.P. ("PIH"), which is beneficially owned by the Chase Family.
Since the commencement of its operations in 1990, the Company has required
external funds to finance the build-out of its existing networks and to finance
acquisitions of new cable television networks. The Company has relied on the
equity investments described above, as well as loans from shareholders and their
affiliates and borrowings under available credit facilities to provide the
funding for these activities. Cash used for the build-out of the Company's cable
television networks was $11.7 million, $16.0 million and $25.4 million in 1994,
1995 and 1996, respectively. Cash used for acquisition of cable networks, net of
cash received, was $4.1 million in 1995 and $13.8 million in 1996.
In January 1994, PTK, S.A. entered into a financing agreement with OPIC
providing for a loan facility which permitted PTK, S.A. to draw down funds
through December 31, 1995. PTK, S.A. requested and received three loan
disbursements under such loan facility, totaling $8.6 million in aggregate
principal amount. Loans under the facility bore interest at the floating 91-day
U.S. Treasury bill yield (compounded annually). The OPIC loan facility was
secured by the pledge of all PTK, S.A. shares owned by PCBV and Poltelkab, an
escrow of approximately $1 million and springing liens on certain agreements
with PTK, S.A., including PTK, S.A. agreements with certain program providers.
Certain affiliates of PTK, S.A. also entered into a share retention agreement
with OPIC. The Company used approximately $7.6 million of the proceeds of the
offering of the Old Notes to repay the outstanding balance of the loans under
such financing agreement, including a prepayment penalty of approximately
$149,000.
On October 31, 1996, $130 million aggregate principal amount of Old Notes
were sold by the Issuer to the Initial Purchaser pursuant to the Purchase
Agreement. The Initial Purchaser subsequently completed a private placement of
the Old Notes. In connection with their acquisition of the Old Notes, the
Initial Purchaser and its direct and indirect transferees became entitled to the
benefits of the Registration Rights Agreement.
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<PAGE> 43
The Company believes that the proceeds from the offering of the Old Notes,
together with cash generated from operations, existing cash balances and
borrowings under available and possible credit facilities will be sufficient to
meet the Company's requirements for working capital, capital expenditures and to
fund the Company's acquisition activities, including the Pending Acquisitions,
for at least the next three years. There may be circumstances, however, that
would accelerate the Company's use of cash. If this occurs, the Company
anticipates that it would fund any cash needs through additional indebtedness or
the issuance of equity securities in either private or public transactions.
There can be no assurances that the Company will be able to borrow funds under
any credit facilities or that suitable debt or equity financing will be
available to the Company on acceptable terms, if at all, or that the Company
will generate sufficient cash flow in the future.
The Company has entered into an agreement with AmerBank which provides for
a credit facility of approximately $6.5 million. As of the date hereof, there is
no amount outstanding under this facility. The Company will be able to utilize
this facility for future borrowings. In addition, the Company in the future may
enter into an agreement with one or more banks to provide a liquidity facility.
The Company is highly leveraged. As of December 31, 1996, the Company had,
on a consolidated basis, approximately $130.1 million in principal amount of
indebtedness outstanding. The Company's ratio of earnings to fixed charges was
0.37x, 0.86x and 0.25x in 1994, 1995 and 1996, respectively. The ratio of
earnings to fixed charges decreased in 1996 due to an increase in amortization
of $1.6 million resulting from the prepayment of the OPIC loan. Currently, the
Indenture does not permit the Company to incur additional indebtedness (other
than Permitted Indebtedness as defined in the Indenture). See "Capitalization"
and "Risk Factors -- Substantial Leverage; Ability to Service Debt" and
"Description of the Notes -- Certain Covenants -- Limitation on Additional
Indebtedness."
INFLATION AND CURRENCY EXCHANGE FLUCTUATIONS
Since the fall of Communist rule in 1989, Poland has experienced high
levels of inflation and significant fluctuation in the exchange rate for the
zloty. The Polish government has adopted policies that slowed the annual rate of
inflation from approximately 250% in 1990 to approximately 20% in 1996. A
substantial portion of the Company's operating expenses and capital expenditures
are, and are expected to be, denominated in zloty and tend to increase with
inflation. In addition, the exchange rate for the zloty has stabilized and the
rate of devaluation of the zloty has decreased since 1991. However, inflation
and currency exchange fluctuations have had, and may continue to have, an effect
on the financial condition and results of operations of the Company.
Substantially all of the Company's debt obligations and certain of the
Company's operating expenses and capital expenditures are, and are expected to
continue to be, denominated in or indexed to U.S. Dollars. By contrast,
substantially all of the Company's revenues are denominated in zloty. Any
devaluation of the zloty against the U.S. Dollar that the Company is unable to
offset through price adjustments will require the Company to use a larger
portion of its revenues to service its U.S. Dollar-denomination obligations.
While the Company may consider entering into transactions to hedge the risk of
exchange rate fluctuations, it is unlikely that the Company will be able to
obtain hedging arrangements on commercially satisfactory terms. Accordingly,
shifts in currency exchange rates may have an adverse effect on the ability of
the Company to service its U.S. Dollar-denomination obligations and, thus, on
the Company's financial condition and results of operations.
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THE INDUSTRY
GENERAL
The Company conducts its operations exclusively in Poland. With
approximately 39 million people and 12.3 million television households, the
Company believes that Poland represents a highly attractive, dynamic market for
cable television providers such as itself.
THE POLISH ECONOMY
Poland has experienced significant growth in its economy in recent years.
Poland's real gross domestic product grew at annual rates of 5.2%, 7.0% and 5.5%
in 1994, 1995 and 1996, respectively, which were the highest growth rates in
Europe for 1994 and 1995 and one of the highest in Europe for 1996. In recent
years, the government has encouraged foreign private investment which has risen
from $0.1 billion in 1990 to $2.8 billion in 1995 and was approximately $6.1
billion for 1996. Poland has also successfully reduced its annual inflation rate
from approximately 250% in 1990 to approximately 26.8% in 1995 and 19.9% in
1996, and following a period of rising unemployment, unemployment in Poland
recently declined to 13.6% as of December 31, 1996. In part due to these
factors, the sovereign credit rating of the country was upgraded in early 1996
to investment grade by Moody's Investor Service (Baa3) and Standard & Poor's
Corporation (BBB-). The Company believes that the growth and stability in the
economy have led to recent increases in disposable income levels in Poland which
grew at annual rates of 9% and 7% in 1995 and 1996, respectively. Furthermore,
in certain urban markets where the Company operates, including Warsaw, Krakow
and Katowice, disposable income levels are significantly higher and unemployment
is significantly lower than the national average. For example, unemployment in
Warsaw was approximately 4.6% as of September 1996.
THE POLISH MULTI-CHANNEL TELEVISION INDUSTRY
Development of the Polish Cable Industry
Prior to 1989, during the Communist political regime in Poland, the Polish
government controlled and regulated the television industry and all frequency
usage in Poland, and channel offerings were limited primarily to government
broadcast programs. During this period, MDUs were required by law to provide
master antenna systems to all of their residents to ensure reception of such
government programs. In the early years of the post-Communist era, there was no
effective regulatory authority, which the Company believes led to the
proliferation of small cable operators that often capitalized on the lack of
viewing alternatives and the unregulated market. These operators built low-cost,
poorly constructed cable systems in densely populated urban areas of Poland,
often by modifying the existing master antenna systems in MDUs to deliver
satellite programs. Primarily targeting MDUs in order to secure access to a
significant number of potential subscribers with minimal capital commitment,
these operators often charged relatively high installation fees which were used
to finance the build-out of their systems. Currently, there are over 400 small
cable operators in Poland, and they are generally characterized by small
subscriber bases, poor quality signals, failure to comply with technical
standards, lack of customer service and limited channel capacity and programming
offerings that are often obtained from satellites without paying full copyright
fees to the program producers.
As part of the Polish government's efforts to encourage rapid
infrastructure and economic development, it has begun to establish a regulatory
framework for the cable television industry that is similar, in many respects,
to that of the United States and other Western countries, but without any
regulation of prices charged to subscribers. In 1993, to improve the quality of
the country's cable television systems, Poland began to implement technical and
licensing standards for cable operators that established requirements for such
items as signal quality and radio frequency leakage. In the same year, the
Polish government began to monitor compliance with regulations requiring all
cable operators to obtain government permits and, more recently, has begun to
enforce such regulations. In 1994, Poland expanded its copyright laws to protect
the copyrights of Polish program producers and has taken steps toward adopting
the Rome Convention, which will extend copyright protection to programs of
foreign producers as well. Poland ratified the Rome Convention on December 31,
1996, and will become bound by its terms on the date that is three months from
the date of
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<PAGE> 45
filing the necessary documents with the Secretary General of the United Nations.
See "Regulation." The Company believes that the enforcement of technical
standards and the further evolution of copyright laws in Poland will require
cable television operators to rebuild or upgrade their systems as necessary to
comply with technical standards and to pay for programming that is currently
being obtained free of charge. The Company believes that this will improve its
competitive position by forcing poorly capitalized competitors to either sell
their systems to better capitalized operators which have the resources to comply
with such standards and laws or to cease operations altogether.
Since 1990, due in part to the growth in the economy and to the development
of cable industry regulations which have helped attract quality programming to
Poland, the cable industry has developed rapidly, and has included the entry of
well capitalized Western-style cable operators such as the Company that have
constructed high-quality cable systems with numerous channel offerings. The
following chart illustrates the growth of the Polish cable market in terms of
homes passed and basic subscribers since 1990:
[CHART SHOWS NUMBER OF SUBSCRIBERS PLOTTED AGAINST THE NUMBER OF HOMES
PASSED DEMONSTRATING GROWTH IN POLISH CABLE TELEVISION INDUSTRY FROM 1990 TO
1996 FROM APPROXIMATELY 100 SUBSCRIBERS AND 500 HOMES PASSED TO APPROXIMATELY
1,500 SUBSCRIBERS AND 2,700 HOMES PASSED.]
- ---------------
Source: Baskerville Communications Corp., TV International Sourcebook 1997.
Despite the strong recent growth in the cable television industry, only 20%
of the television households in Poland were passed by cable as of December 31,
1995, which the Company believes provides a substantial market opportunity for
cable operators. The Company believes that there are a considerable number of
homes remaining in Poland, particularly in urban areas, that would be suitable
for the construction of cable television and the provision of cable television
services.
Polish Cable Market Consolidation
The cable industry in Poland has experienced significant consolidation in
recent years, and the Company believes that this consolidation will continue as
small SMATV operators face the burden of compliance with the recently enacted
regulations that set minimum technical standards for cable television networks
and require payment for programming produced by others. As Poland's economy has
grown and become more stable, certain well-capitalized cable television
operators have acquired numerous cable television operators in
43
<PAGE> 46
Poland in order to build systems and acquire a critical mass of subscribers. The
Company also has actively pursued acquisitions, acquiring 30 cable television
operators since 1992. These acquisitions have added approximately 218,000 of the
Company's present total subscribers.
The Polish DTH Market
The only primary multi-channel distribution method in Poland other than
cable is DTH satellite services, which are widely available in Poland. The DTH
market in Poland developed rapidly following the repeal in 1989 of legislation
that required residents of Poland to acquire special permits in order to own
satellite dishes. Subsequent to this repeal, demand for DTH satellite services
was driven primarily by the widespread availability of high-quality, unencrypted
programming that could be obtained without charge from various European
satellites, including the Astra and Eutelsat satellites. The absence of
alternative high-quality distribution sources such as fiber-optic cable
television networks also contributed to the growth of DTH satellite services.
In the mid 1990s, programmers began compressing and encrypting the signals
transmitted over European satellites and moving their programming to a variety
of satellites. These actions had the effects of (i) limiting access to satellite
programming to those subscribers willing to pay for programming, and (ii)
reducing the quality of reception due to the location of the new satellites. In
order to receive a similar array of channel offerings and clear reception,
Polish consumers were forced to subscribe to a DTH service and purchase more
expensive, motorized satellite dishes and related equipment.
During this same time period, the Polish market also experienced the
introduction and growth, predominantly in urban areas, of Western-style cable
operators that offered the Polish consumer a high-quality multi-channel
alternative to DTH at an attractive price. As a result, the Company believes
that the attractiveness of DTH has been significantly reduced, which has
contributed to a slowdown in growth of DTH penetration.
In addition, as the cable market has grown, DTH has continued to lose
market share to cable. The Company believes that this trend will continue
particularly in urban markets because of DTH's poor signal quality relative to
cable television, limited channel offerings, expensive equipment and short dish
life as well as an increasing reluctance by cooperative housing authorities
("co-op authorities") to permit the use of satellite dishes. While the Company
believes that DTH satellite service is expected to be favored in certain rural
areas of Poland where cable television is not available, it also believes that
cable provides a more attractive option in those markets where it is available.
The Company, however, also believes that DTH satellite services may become more
competitive in the future if digital compression technology is implemented by
the industry such that DTH satellite services can provide more programming
alternatives and direct specific programming to particular subscribers at a
competitive cost.
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The following chart outlines the relative market shares of DTH and cable in
Poland as measured by the number of subscribers for the years 1991 through 1995:
<TABLE>
<S> <C> <C>
1991 100 400
1992 200 760
1993 600 1000
1994 1000 1200
1995 1320 1320
</TABLE>
Source: Baskerville Communications Corp. TV International Sourcebook 1997. As of
March 31, 1997, the latest edition of this source did not include 1996 or 1997
figures.
[CHART SHOWS THE MARKET SHARE OF CABLE OPERATORS VERSUS DTH PROVIDERS IN
POLAND FROM 1991 TO 1995 DEMONSTRATING THAT THE MARKET SHARE OF CABLE OPERATORS
(AGAINST DTH PROVIDERS) HAS GROWN FROM A 20/80% RATIO IN 1991 TO A 50/50% RATIO
IN 1995 AS MEASURED BY THE NUMBER OF SUBSCRIBERS.]
Polish Cable Market Characteristics
Poland is Europe's fifth largest cable television market with approximately
12.3 million television households. Poland is also the largest single language
market in Central Europe. The Company believes that there are several primary
factors, which are highly favorable for the provision of multi-channel services,
and which distinguish the Polish cable market from other cable markets, as
outlined below:
Viewer Demand. Viewing television is a significant leisure activity in
Poland and in 1995, Poland had one of the highest television viewing rates in
the world, despite generally poor quality reception and limited programming
alternatives available over broadcast television channels. In 1995, Polish
families watched an average of approximately 279 minutes (over four and a half
hours) of television per day per household, as compared with averages of the 263
minutes and 177 minutes of television viewing per day per household for the
United States and western Germany, respectively. The Company believes that
several factors contribute to such high television viewership and indicate the
Polish consumers' willingness to allocate disposable income for cable
television. These factors include limited entertainment alternatives, a strong
demand for Western culture, a long generally cold winter season and a low
telephone penetration rate of approximately 13 telephones per 100 persons.
The Company also believes that, as the largest cable operator in Poland,
its subscriber penetration rates and relatively low churn rates are further
indicators of the potential demand for cable television services in Poland.
There is a relatively low percentage of television homes for which cable service
is available in Poland (approximately 20% as of December 31, 1995), which the
Company believes provides a substantial market opportunity for cable operators.
Once homes are passed by cable, the Company has generally experienced
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<PAGE> 48
strong take-up rates, with an average basic penetration rate as of December 31,
1996 of approximately 42% for the Company as a whole, and approximately 46% in
one of its regional clusters. In addition, the Company has experienced
historical annual churn rates of approximately 10% or less, which compares
favorably to the United States and the United Kingdom average churn rates of
approximately 20% and 30%, respectively.
The following table compares a number of cable market characteristics in
Poland with certain industrialized countries and certain developing countries in
Central Europe. All data in the following table are as of December 31, 1995
unless otherwise noted.
<TABLE>
<CAPTION>
HOMES
NUMBER OF AVERAGE TV PASSED
TELEVISION VIEWING AS A % OF
HOUSEHOLDS MINUTES COLOR TV VCR TELEVISION ANNUALIZED
(IN MILLIONS) PER DAY PENETRATION PENETRATION(a) HOUSEHOLDS CHURN
------------- ---------- ----------- -------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Poland...................... 11.8 279 83% 48% 20% 10%(b)
United States............... 95.4 263 98 83 96 20
United Kingdom.............. 22.5 215 97 84 26 30
Germany..................... 32.5 177 98 60 73 NA
Czech Republic.............. 3.7 203 87 33 55 NA
Hungary..................... 3.8 172 76 35 45 NA
</TABLE>
- ---------------
(a) VCR households as a percentage of TV households.
(b) Represents the Company's historical annual average, as published churn data
is unavailable for Poland.
Sources: Baskerville Communications Corp., TV International Sourcebook 1997 and
Zenith Media, European Market and Media Fact (1996). As of March 31, 1997, the
1997 edition of these sources did not include 1996 or 1997 figures for all of
the countries indicated.
Housing Densities. Poland is one of the most densely populated countries
in Central Europe. The housing market in Poland's urban areas is characterized
by MDUs which are typically owned or controlled by co-op authorities. These
co-op authorities often control more than 2,000 apartments each, and in the
Company's experience, individual apartments often house multiple generations of
families and multiple wage earners. In many of the Company's markets, housing
densities exceed 400 homes per kilometer of cable plant, which results in
extremely low build costs per subscriber, and significantly exceeds the average
in the United States of 48 homes per kilometer of cable plant. Such densities
provide significant advantages for cable operators including extremely low
build-out costs per subscriber. From its existing infrastructure base, the
Company's incremental build costs to add an adjacent MDU or additional MDU
subscribers to existing networks average less than $200 per MDU subscriber (MDU
subscribers represent more than 95% of the Company's total subscribers). In
addition, the number and density of MDUs offer marketing and other cost benefits
in terms of targeting, attracting and servicing customers, including
subscription fee collection.
Co-Operative Housing Franchise Process. The franchise process in Poland is
unique in that the right to build a cable system is typically achieved by
reaching an agreement with individual co-op authorities and is not dependent
upon issuance of a franchise for a particular region by a governmental
authority. Reaching an agreement with the co-op authority provides the cable
operator with the right to connect its system to dwellings within the co-op
authority's jurisdiction. The Company's agreements with co-op authorities
generally have terms ranging from ten to 20 years and have optional renewal
periods of five years, though certain of the contracts may be terminated by
either party on relatively short notice.
Although contracts with co-op authorities usually do not provide
exclusivity for the cable operator, the access granted to every dwelling unit
does provide significant benefit to the first cable operator reaching an
agreement with the co-op authority. The Company owns all of its network plant in
the ground and, in almost all cases, in the buildings of the co-op authorities
with which it has contracts. Therefore, any potential competitor would be
required to build an entire network in parallel to that of the Company in order
to compete with it during or after the term of such contracts. Accordingly, the
Company believes that it would be difficult for competitors to successfully
overbuild it in MDUs with which it has contracts due to the cost of parallel
46
<PAGE> 49
construction, pricing discounts likely to be necessary to attract the Company's
subscribers and the low likelihood of achieving significant penetration levels.
Although the economics generally do not favor overbuilding large operators,
the lack of exclusivity in agreements between co-op authorities and cable
operators does provide an opportunity for well-capitalized operators to
overbuild weaker competitors. In situations where a smaller, poor-quality
operator has a contract with a co-op authority, the co-op authority will often
encourage a large, high-quality operator such as the Company to overbuild in
order to improve the quality of service to its residents. In these
circumstances, overbuilding can be a cost effective means of achieving growth
because of the high probability of attracting a significant number of
subscribers from the existing operator.
47
<PAGE> 50
BUSINESS
GENERAL
The Company is the largest provider of multi-channel television services in
Poland. With over 1,088,000 homes passed and approximately 534,000 total
subscribers (of which approximately 461,000 are basic subscribers), the Company
estimates that it has approximately twice the number of subscribers as the next
largest cable operator in Poland. Following the commencement of its operations
in 1990 as one of the first Western-style cable television operators in Poland,
the Company's objective has been to rapidly increase its coverage areas and
provide a caliber of service comparable to that of world-class cable operators,
including modern, reliable technical plant, a broad selection of quality
programming, and professional customer service. The Company currently owns and
operates fiber-optic cable networks in seven regional clusters encompassing
seven of the ten largest cities in Poland, including cities which the Company
believes are among those with the strongest economies and most favorable
demographics for cable television in the country. The Company believes that it
has established a reputation in Poland as a high-quality cable system operator,
and that the strong awareness of PTK as a quality operator attracts subscribers
seeking its competitive programming and customer service. PCI owns a 33%
interest in a programming company, ProCable, which was formed to develop
proprietary Polish-language programming. ProCable holds broadcast licenses for
two Polish-language channels which are currently distributed exclusively over
the Company's cable networks.
Since it began the construction of its first cable network in Gdansk in
1990, the Company has grown aggressively through acquisitions, generally of
smaller, poorly capitalized operators, and through the build-out of its own
cable networks. The Company's total subscribers have grown from approximately
45,000 as of December 31, 1992 to approximately 534,000 as of December 31, 1996.
Approximately 55% of this increase in subscribers has been achieved organically
through the build-out of the Company's existing cable networks. The Company's
results of operations have reflected the growth in its subscribers. For the
three-year period ended December 31, 1996, the Company generated growth in
revenues and EBITDA at average annual rates of approximately 60% and 130%,
respectively.
OPERATING STRENGTHS
The Company has certain strengths that position it well to compete in the
Polish cable television market and allow it to benefit from increasing demand
for cable television and related services. These strengths include the
following:
Leading Market Position. The Company is the largest multi-channel
television operator in Poland and estimates that its total subscriber base
of approximately 534,000 subscribers is approximately twice the number of
subscribers as the next largest cable operator in Poland. The Company has
established seven regional clusters encompassing seven of the country's ten
largest cities, which provide the Company with a significant presence in
Poland. In addition, the Company has significant market shares in all of
its operating markets, including a market share estimated by the Company to
be over 70% of cable subscribers in the Gdansk regional cluster, the
Company's most mature market. The Company believes that its size and market
share give it a competitive advantage by creating economies of scale,
including reduced build-out and operating costs per subscriber and volume
price discounts for programming and construction expenditures. These
factors have helped the Company to achieve an EBITDA margin of
approximately 34% for the Company as a whole and approximately 64% in its
Gdansk regional cluster for 1996. In addition, the Company believes the
size of its subscriber base will enable it to cost effectively pursue
additional revenue sources such as national advertising, Polish-language
program development and premium programming.
Attractive Programming Arrangements; Proprietary Polish-Language
Programming. The Company has contracts securing a broad range of popular
programs to offer its subscribers, including Discovery, CNN, MTV, Home Box
Office ("HBO"), and the Polish-language edition of Eurosport. The Company
believes its programming arrangements will increasingly become a
competitive advantage relative to small SMATV operators as additional
copyright protections become enforceable under Polish
48
<PAGE> 51
law and as more channels distributed over satellites are encrypted or are
digitally compressed. Furthermore, the Company believes that the size of
its subscriber base has enabled it to obtain favorable agreements with
programmers, including volume discounts. The Company currently offers
Polish language programming on at least 11 channels in all of its major
markets, and believes that its development of additional quality
Polish-language programming will be a significant factor in attracting new
subscribers. The Company expects that as the number of cable subscribers in
the Polish market grows, program providers will increasingly develop
programming in Polish and that its networks will be an attractive means of
distribution for these providers. Through its interest in ProCable, the
Company will continue to develop proprietary Polish-language programs.
ProCable has been granted broadcast licenses for two Polish-language cable
channels, PTK1 and PTK2, which are currently distributed exclusively over
the Company's networks. The Company has experienced strong viewership from
these channels and expects to increase the number of hours of programming
offered by these channels. The Company has established PCIP as a wholly
owned U.S. subsidiary engaged in the development and production of Polish
language thematic television programming outside of Poland. The Company
plans to distribute all of PCIP's programming via satellite systems from
abroad.
PTK1 and PTK2 also serve as a potential means to create additional
revenue sources for the Company from advertising and from the distribution
of the Company's proprietary programming over other cable operators'
networks.
Well-Positioned to Increase Growth Through Acquisition. The Company
expects the Polish cable television industry to continue to consolidate as
a result of recent regulatory enactments. As relevant Polish authorities
implement these regulations, cable operators will be required by law to
make network upgrades to satisfy technical quality requirements, and when
Polish cable operators become subject to the terms of the Rome Convention,
they will be required to pay for programming that is currently being
obtained free of charge. The Company believes that, as such regulations are
enforced, those operators who cannot or will not make upgrades to satisfy
these technical quality requirements or pay for programming that is
currently being obtained free of charge will have to choose between selling
their operations to better capitalized operators that have the resources to
comply with the new regulations or ceasing operations altogether. The
Company believes it is well positioned to benefit from these opportunities
for a number of reasons. Because of its leading market position, strong
reputation and geographic presence, the Company believes it is generally
sought out by competitors that desire to sell their systems outright or
that prefer to become part of the PTK system. In addition, the Company
utilizes local management in its seven regional clusters to identify
potential acquisitions and initiate discussions. Due to the clustering of
the Company's networks, once an acquisition is consummated the Company is
generally able to leverage its local management team, corporate
infrastructure and physical plant to quickly integrate the acquired network
into its own system and to realize economies of scale from such
integration. Moreover, the Company believes its significant equity
capitalization and strong shareholder base provide it with the ability to
quickly access any necessary financing to acquire, upgrade and build-out
new networks.
Advanced Networks. The Company believes the fiber-optic cable
networks that it has constructed, which serve approximately 60% of its
homes passed, are among the most technically advanced in Poland and are
comparable to modern cable networks in the United States. All of the
networks which have been constructed by the Company have bandwidths of at
least 550 MHZ, with one network as high as 1 GHz. The cable networks that
the Company has constructed meet or exceed the technical standards
established by Polish regulatory authorities and it is the Company's policy
to upgrade substandard acquired networks to meet technical requirements as
rapidly as practicable. The Company believes that the technical quality of
its networks provides it with a substantial competitive advantage
particularly in relation to the small SMATV operators whose signal quality
is generally poor and whose systems frequently experience outages. In
addition, the Company's networks have substantial excess channel capacity,
while SMATV systems generally are capacity constrained. The Company
believes that the reliability and signal quality of its networks often are
primary factors which lead co-op authorities to establish contracts with
the Company, particularly when they are faced with significant subscriber
complaints stemming from the
49
<PAGE> 52
poor quality of existing SMATV systems. Furthermore, in most cases, the
networks that the Company has constructed have the flexibility and capacity
to be cost-effectively reconfigured to offer an array of interactive and
integrated entertainment, telecommunications and information services
should the Company decide to pursue such ancillary sources of revenue in
the future.
Low Additional Build-Out Costs. The Company estimates that at the end
of 1996, it had over 2,200 kilometers of cable plant constructed and that
the fiber-optic backbone of its networks will be substantially complete.
Other than a rebuild of one of the Company's acquired cable systems in the
Katowice region for a cost of approximately $10 million, the Company
estimates that its future capital expenditures will consist primarily of
capital needed for the incremental addition of new MDUs and subscribers to
its existing networks and for the build-out or rebuild associated with the
acquisition of new cable systems. From its existing infrastructure base,
the Company's incremental build costs to add an adjacent MDU or additional
MDU subscribers to existing networks average less than $200 per MDU
subscriber (MDU subscribers represent more than 95% of the Company's total
subscribers). The Company believes that several primary factors contribute
to its favorable cost structure. The significant density of homes per
kilometer of cable plant in the Company's core markets substantially
reduces its build costs. The Company has also entered into agreements with
TPSA to use its existing underground telephone conduits for many of the
Company's cable networks, thereby saving the time and cost associated with
constructing new underground conduits. As of December 31, 1996,
approximately 66% of the Company's cable plant utilized preexisting
conduits. Moreover, the Company believes that the size of its construction
program allows it to negotiate attractive construction labor contracts and
discounts on materials.
Experienced Management; Strong Local Management. The Company's
shareholders and its senior management team have extensive experience in
the cable television industry. The Company capitalizes on this experience
by applying Western management policies and techniques throughout its cable
system in areas such as financial accounting, system construction, system
maintenance, marketing and customer service, while training Polish managers
to adapt such techniques and policies to the Polish market. The Company
believes this management strategy has contributed to its success in
attracting and retaining subscribers. The Company employs several key
Polish corporate executives with significant experience in the Polish
programming and broadcasting industries as well as strong relationships in
the business and regulatory community. The Company also employs Polish
managers in each of its regional clusters, which it believes provide local
knowledge and facilitate communication with subscribers, co-op authorities
and regulatory authorities.
BUSINESS STRATEGY
With the fall of communist rule in 1989, the Company believed that
significant market advantages could be gained by becoming one of the first cable
operators to establish a high-quality cable television system in Poland. The
Company believes that it has achieved its initial goals of rapidly increasing
its coverage areas, establishing its business reputation, and providing a
high-quality signal, wide channel offerings and quality of service comparable to
that provided by world-class cable operators.
Having established itself as the leading cable television services provider
in Poland, the Company's current strategic objective is to increase cash flow
and enhance the value of its systems. To accomplish this objective, the
Company's business and operating strategy is to (i) continue to expand its
regional clusters, (ii) increase subscriber penetration, (iii) realize
additional operating efficiencies, (iv) develop additional proprietary
Polish-language programming and (v) leverage its experience, business reputation
and infrastructure to pursue additional sources of revenue.
Expand Regional Clusters. The Company's strategy is to continue to expand
the coverage areas of its regional clusters aggressively, both organically and
through acquisition. The Company intends to pursue organic growth primarily in
areas where it can fill-in existing regional clusters or expand into cities and
towns adjacent to its regional clusters through the continued build-out of its
existing networks. The Company also plans to expand its regional clusters
through the continued acquisition of smaller cable television operators. In
50
<PAGE> 53
addition, in markets where the Company has established operations, it intends to
selectively overbuild certain weaker competitors in an effort to encourage
consolidation of the market. By implementing this strategy for expanding its
regional clusters, the Company believes it can limit its per-subscriber build
costs and realize significant synergies from leveraging its existing
infrastructure and asset base, both in terms of personnel and in terms of
capital costs. Because the Company has the management structure and operating
systems in place in each of its regional clusters, it is able to realize
significant cash flow margins from each dollar of incremental MDU subscriber
revenue generated through the addition of subscribers to its existing regional
clusters.
Increase Subscriber Penetration. The Company believes the most profitable
means of expanding its business is to leverage its investment in its cable
networks by increasing subscriber penetration in its regional clusters. Once an
MDU building is passed by the Company's networks, the Company can add basic
subscribers who generate average annual subscription fees of approximately $67
in return for an average capital investment of approximately $15 per MDU
subscriber. The Company plans to increase subscriber penetration by (i)
executing an aggressive sales, marketing and promotional strategy using the
Company's highly trained and commissioned Polish sales force, with particular
emphasis on Company-wide quarterly remarketing campaigns, (ii) continuing to
enhance the Company's program offerings, particularly through the development of
additional Polish-language programming at a competitive price, and (iii)
applying prompt, courteous and professional customer service standards.
Realize Additional Operating Efficiencies. The Company aggressively seeks
to realize operating efficiencies. Upon consummation of an acquisition by the
Company, the operating costs of most acquired cable television systems are
significantly reduced by such actions as rationalizing headends, combining
customer service offices and reducing administrative personnel. For example,
following the recent acquisition of several cable systems in Katowice, the
Company eliminated approximately 365 jobs and reduced the number of headends
from 69 to 46. The Company generally has been able to eliminate personnel in its
acquired cable television systems by managing the systems with experienced
personnel from one of its existing regional clusters. The Company can also
generally reduce the technical personnel necessary to operate acquired systems
after connecting them to the Company's existing headends or, if required,
rebuilding them to the Company's standards. The Company also uses Western
management techniques and training to improve employee productivity and reduce
operating expenses. The Company believes that relatively simple techniques,
including monthly generation of detailed management financial information, a
budgeting process, employee productivity standards and employee bonus plans have
reduced the number of employees per subscriber necessary to operate its
networks. In 1997, the Company plans to install an integrated management
information system for both its billing and accounting systems, which should
further improve employee productivity and customer service. Finally, the Company
believes that its size and market share give it a competitive advantage by
creating economies of scale, including reduced build-out and operating costs per
subscriber and volume price discounts for programming and construction
expenditures. The Company's size also provides it with the operating leverage to
spread certain expenses (such as promotional materials, advertisements, local
programming and sales materials) over its large number of subscribers.
Develop Polish-Language Programming. The Company intends to develop and
distribute additional Polish-language programming in order to (i) increase
subscriber penetration, (ii) create ancillary revenue sources and a viable,
potentially lucrative profit center and (iii) control as much of the programming
content distributed over its networks as possible. The Company believes it is
uniquely positioned to accomplish these objectives because of its access to a
large base of demographically attractive subscribers in many of the most
attractive advertising markets in Poland and its ability to spread its
programming costs over a large subscriber base. Moreover, the market for
Polish-language programming, especially with respect to terrestrial broadcast
channels, is currently in an early state of development with limited programming
selections and no dominant privately owned channels. The Company plans to
capitalize on relationships with international program providers to
cost-effectively develop high-quality Polish-language programs. The Company
intends to use ProCable's proprietary cable channels, principally PTK2, to test
the popular appeal of the Polish-language programs it develops and to determine
their financial viability prior to launching them as separate channels over the
Company's networks. In addition, through PCIP the Company intends to package and
deliver over
51
<PAGE> 54
satellite its proprietary programming such as Atomic TV to other cable operators
and possibly to DTH providers. See "Business -- Programming."
Pursue Additional Sources of Revenue. The Company believes that
significant opportunities exist to capitalize on its experience, business
reputation and infrastructure in Poland, to pursue additional sources of revenue
in the future. In the near term, the Company plans to focus on opportunities
that have the potential to generate revenues and cash flow with a relatively
modest capital investment, such as advertising, bill inserts and rental of
excess capacity on its fiber-optic network. In the longer term, the Company may
consider ancillary sources of revenue, which the Company believes it can pursue
cost effectively, but which would require larger capital expenditures. For
example, because of its access to the homes of a significant number of
subscribers, its advanced networks and its strong relationship with TPSA, the
Company believes it is well positioned to be able to offer telephony, data
transmission and Internet access if and when it becomes economically, legally
and commercially feasible.
FEES AND SERVICES
The Company charges subscribers an initial installation fee and fixed
monthly fees for their choice of service tiers and for other services such as
premium channels and rental of remote control devices. The Company currently
offers three tiers of service: broadcast and intermediate tiers in limited areas
and a basic tier throughout the Company's system. The broadcast tier offers four
to six terrestrial broadcast channels with clear reception for monthly fees of
up to approximately $0.86. Receiving a high-quality signal over the air is a
problem in Poland since many subscribers depend on antenna broadcast reception,
which tends to have poor signal quality and considerable outages caused by
neglect and equipment age. The broadcast tier is often used by the Company to
establish a relationship with a new co-op authority. In some cases, the Company
will offer the broadcast tier at a nominal monthly charge to all residents
within a co-op authority's jurisdiction in return for a long-term exclusive
contract to provide cable services. In such cases, the broadcast tier is
utilized as a marketing vehicle to attract subscribers to the Company's system
and subsequently to convert them to higher tier subscribers. The intermediate
tier offers approximately 17 to 24 channels for monthly fees of approximately
$1.32 to $3.40. The intermediate tier is designed to compete with SMATV
operators on a cost competitive basis using a limited programming offering. The
basic tier includes approximately 27 to 42 channels of high-quality, popular
programming for monthly fees of approximately $2.59 to $5.89. As of December 31,
1996, approximately 82% of the Company's subscribers received the basic tier, 4%
received the intermediate tier and approximately 14% received the broadcast tier
of service. For an additional monthly charge, certain PTK systems also offer
premium television channels to customers on a per-channel basis. See
"-- Programming -- Premium Television Channels." Other optional services include
additional outlets and stereo service, which enables a subscriber to receive 12
or more radio channels in stereo. Subscribers who require the use of a tuner to
receive certain of the Company's services are charged an additional fee of
approximately $1.10 per month. Installation fees vary according to the type of
connection required by a subscriber. The standard initial installation fee is
approximately $28.00 to $46.00 in MDUs and approximately $91.00 to $132.00 for
single family dwellings.
The Company's current pricing strategy is to keep its profit margin
relatively constant in U.S. Dollar terms in more mature systems and to increase
rates in more recently acquired or rebuilt systems. The Company has historically
been able to pass on the effects of inflation through price increases. The
Company generally receives a premium for its services over the prices charged by
its competitors, particularly poor-quality SMATV operators. Despite its
generally higher price levels, the Company has achieved significant growth in
penetration and market share while maintaining relatively low annual churn rates
of less than 10%. The Company believes its ability to successfully command
higher prices reflects its higher levels of customer service, broader selection
of quality programming and the greater technical quality of its networks.
Although poor-quality SMATV operators often offer services at lower prices than
the Company, the Company believes that the enforcement of technical standards
and the further evolution of copyright laws in Poland will require such
operators to rebuild or upgrade their systems as necessary to comply with
technical standards and pay for programming that is currently being obtained
free of charge. The Company believes that these trends will
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improve its competitive position by forcing poorly capitalized competitors to
sell their networks to better capitalized competitors such as the Company or
cease operations altogether.
Subscribers are billed in advance and, as is customary in Poland, most of
the Company's customers pay their bills monthly through their local post office
or bank. The Company has strict enforcement policies to encourage timely
payment. Such policies include notices of late payment, visits from service
personnel, and ultimately, disconnection for nonpaying customers following 60
days of a past due bill. The Company's system architecture enables it to
promptly shut off service to nonpaying customers and is designed to reduce
fraudulent use of the system. The Company does not consider bad debt to be
material to its operations. While the Company's bad debt expense was 1.8% of
revenues in 1996, the Company's bad debt expense has historically averaged 1.25%
of revenues.
PROGRAMMING
General. The company believes that quality programming is a critical
component in building successful multi-channel television systems. The Company
currently delivers approximately 27 to 42 channels on its basic tier which
generally include all Polish terrestrial broadcast channels, most major European
satellite programming legally available in Poland, regional and local
programming and, on most of its networks, its two proprietary Polish-language
channels, PTK1 and PTK2. The channels currently offered by the Company vary by
location and in most of the Company's major markets include 9 Polish-language
channels (including PTK1 and PTK2), 9 English-language channels, nine
German-language channels, two French-language channels, two Spanish-language
channels, one Italian-language channel and one Russian-language channel, as
follows:
<TABLE>
<CAPTION>
CHANNEL DESCRIPTION LANGUAGE
- -------------------- ------------------------------------------------ -----------------
<S> <C> <C>
Polonia 1 Satellite general entertainment Polish
PTK1(a) Cable information Polish
PTK2(a) Cable general entertainment Polish
TVP 1 State-owned terrestrial general entertainment Polish
TVP2 State-owned terrestrial general entertainment Polish
TV POLONIA State-owned satellite general entertainment Polish
Polsat Terrestrial and satellite general entertainment Polish
Atomic (b) Cable music Polish
RTL7 Satellite general entertainment Polish
Canal+ Satellite premium entertainment Polish
HBO Satellite premium entertainment Polish(c)
Eurosport Satellite sports English/Polish(d)
Discovery(e) Satellite documentaries English/Polish(f)
TNT/Cartoon Network Satellite general entertainment and cartoons English
MTV(e) Satellite music English
NBC/Super channel Satellite news and entertainment English
CNN Satellite news and information English
CMT-Europe(e) Satellite country music English
Euronews Satellite news English
BBC World Satellite news and information English
ARD 1 Satellite general entertainment German
SAT 1 Satellite general entertainment German
RTL 2 Satellite general entertainment German
3SAT Satellite general entertainment German
PRO 7 Satellite general entertainment German
n-TV Satellite news and information German
Deutsche Welle Satellite news and information German
DSF Satellite sports German
VIVA Satellite general entertainment German
M6 Satellite general entertainment French
</TABLE>
53
<PAGE> 56
<TABLE>
<CAPTION>
CHANNEL DESCRIPTION LANGUAGE
- -------------------- ------------------------------------------------ -----------------
<S> <C> <C>
TV 5 Satellite general entertainment French
Galavision Satellite general entertainment Spanish
TVE Satellite general entertainment Spanish
RAI UNO Satellite general entertainment Italian
Ostankino Satellite general entertainment Russian
</TABLE>
- ---------------
(a) Proprietary channels produced by ProCable.
(b) Atomic is currently carried on PTK2 for two hours per day. It is expected to
become a separate satellite delivered channel in the second quarter of 1997.
(c) On March 13, 1997, the Company entered into an agreement with Polska
Programming, B.V. to distribute the Polish language version of HBO
throughout its cable networks. The Company intends to start distribution of
the HBO service in Warsaw in April 1997 and to roll out such service to the
Company's remaining systems by the end of 1997.
(d) Limited amount (at least three hours per day) of Polish-language commentary,
with audio encryptions.
(e) Encrypted signal.
(f) Limited amounts of Polish sub-titles.
The Company sources its programming through government, local and foreign
program providers. The Company broadcasts all state-owned channels available in
its service areas, and these channels and other local terrestrial channels are
generally received over the air. For a number of popular foreign programs, the
Company has contracts up to five years in length and pricing is often based on
the number of the subscribers serviced by the Company's networks. As the
Company's subscriber base has grown it has generally been able to achieve volume
pricing discounts under these types of contracts. The Company generally makes
payments to programmers requiring such payments, unlike many of the SMATV
competitors operating in its markets. Recently a number of channels that are
transmitted via satellite have been encrypted, and thus are available only to
legal operators who have entered into contracts with the program providers. The
Company believes that as regulation surrounding copyright laws is enforced and
as program providers increasingly encrypt their channels, the breadth of the
Company's channel offerings will become an increasing competitive advantage.
Premium Television Channels. The Company is in the process of introducing
Polish-language versions of premium movie channels to its subscribers for an
additional monthly fee. Currently, two movie channels are available in Poland,
Canal+ and HBO. Both feature movies and also carry, or will carry, live sports
and other entertainment. The Company has distributed Canal+ on its networks
since entering into a preliminary distribution agreement with Canal+ in October
1995. On December 16, 1996, Canal+ completed the acquisition of MultiChoice
which until such date had operated the FilmNet channel in Poland. Since such
time, Canal+ has converted FilmNet subscribers to the Canal+ services. The
Company currently has approximately 4,800 subscribers to the Canal+ services.
On March 13, 1997, the Company entered into an agreement with Polska
Programming, B.V., a subsidiary of HBO, to distribute the Polish language
version of HBO throughout its cable networks. HBO launched its Polish language
service in September 1996. The HBO service will be priced at a promotional rate
of $5.00 per month for a period of six months from the inception of the service
in a given market. Thereafter, the service will be priced at $6.00 per month.
The Company believes that the service will generate significant subscriber
interest at this price level. The Company intends to start distribution of the
HBO service in Warsaw in April 1997 and to roll out such service to the
Company's remaining systems by the end of 1997.
Proprietary Polish-Language Programming. The Company believes the
provision of Polish-language programming, with local cultural content and
themes, will increase subscriber penetration of its cable systems and generate
programming and advertising revenues. The Company owns a 33% interest in a
programming company, ProCable, which was formed to develop proprietary
Polish-language programming. ProCable currently holds broadcast licenses to
distribute PTK1 and PTK2 over all of the Company's networks that carry these
channels, except for one network for which ProCable has an application pending
with the Council and
54
<PAGE> 57
one network for which the Company is currently awaiting the grant of a Permit
from PAR before ProCable can file with the Council for a license. PTK1, which
was introduced in 1994, offers general local information, program scheduling,
and local advertising and began offering more expansive local news, weather and
other information in the fall of 1996 in some areas. PTK2, which was introduced
in the spring of 1995, offers general entertainment in Polish (or with
voice-overs in Polish), including full-length feature films, music, children's
programs and documentaries.
The Company uses PTK1 and PTK2 as vehicles to introduce programs to the
Polish market and to test their popular appeal with its subscribers. The Company
intends that programs which generate significant consumer and advertising appeal
will be given their own channels on the Company's networks. For example, Atomic
TV, which debuted on PTK2 in the spring of 1996, has generated substantial
viewer and advertising interest and the Company intends to offer it as a
separate channel in early 1997. The Company expects to significantly expand and
enhance the quality of programming on PTK1 and PTK2, and also to increase the
number of proprietary channels on its networks. Additional programs and channels
under consideration by the Company for development include family entertainment,
sports and children's channels, among others.
PTK1 and PTK2 also serve as a means to create additional revenue sources
for the Company from advertising and potentially from the distribution of such
channels via satellite to other cable operators' networks. ProCable began
selling local and national advertising on its channels in 1996 and expects that
as the demand for its proprietary channels increases and Poland's advertising
market for cable television matures, advertising may become a significant source
of revenue for the Company. ProCable currently distributes its programs via
tape, but due in part to the Company's critical mass of subscribers, ProCable
believes it can cost-effectively begin to distribute its programs via satellite
to the Company's networks. This will also allow ProCable to offer its programs
as a package to other cable operators and possibly to DTH operators to create
additional revenues from programming fees and advertising. In the second quarter
of 1997, ProCable plans to begin distributing PTK2 and Atomic TV over satellite
to other cable system operators.
The Company has established PCIP as a wholly-owned U.S. subsidiary engaged
in the development and production of Polish language thematic television
channels programming outside of Poland. PCIP plans to develop programming
designed to generate both advertising revenue and subscription fees from PTK and
other cable operators. In December, 1996 PCIP acquired 45% of Ground Zero Media
Sp. z o.o. ("GZM"), a joint venture with Polygram, the recording company; three
shareholders of Atomic Entertainment, a Warsaw night club; and Planet 24
Production Limited, an independent production company. GZM's only business is
the development and production of Atomic TV, a Polish-language music television
channel aimed at the 15-29 year old audience. Atomic TV is expected to begin to
be delivered via satellite in the second quarter of 1997. The Company plans to
distribute all of PCIP's programming throughout Poland via satellite systems
from abroad assuming that negotiations for suitable satellite transponder time
can be concluded on satisfactory terms. There can be no assurance that the
Company will be able to secure suitable satellite transponders on acceptable
terms or at all.
ProCable also owns 22% of Polskie Media which was granted a terrestrial
television license for central Poland in March 1997. Polskie Media is in process
of developing a new advertising supported television channel, Nasza Telewizja,
which Polskie Media expects to introduce to the market in late 1997.
Sales and Marketing Strategy
As an early entrant in the post-Communist market in Poland, the Company has
had over six years of experience in introducing, developing, and refining
marketing, sales and customer service practices in a diverse and rapidly
developing Polish economy, which it believes is a competitive advantage in
attracting and retaining subscribers. The Company's sales and marketing process
is divided into four segments: operating area development, new market sales,
remarketing sales and customer service.
Operating Area Development. The operating area development process in
Poland is very different from that in Western cable television markets, because
a Polish cable operator's geographic build is dependent on reaching agreements
with individual co-op authorities rather than upon the issuance of an operating
area development region by the government. The co-op authorities make decisions
on behalf of the residents, including decisions as to the carriers of cable
television. The Company's operating area development process
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begins with targeting an MDU followed by negotiations with the relevant co-op
authority, and ultimately involves reaching an agreement with the co-op
authority to allow construction and installation of the cable television
network. The Company's strategy is to identify those geographic areas and
housing estates with the most favorable demographic characteristics, highest
population densities and lowest levels of competition from other cable
operators.
New Market Sales. After an agreement with a co-op authority has been
reached and construction of the cable network infrastructure has been completed,
the Company focuses its efforts on direct, door-to-door sales to individual
households. While the Company utilizes advertising in a variety of media
(including television, radio, newspapers, magazines, co-op and association
publications, billboards, bus shelter posters, and taxi placards) to build
general awareness and recognition of the advantages of its cable television
services, direct sales is the primary focus of the Company's marketing efforts.
The distribution of promotional materials (via direct mail, leaflets and door
hangers) begins several days in advance of the arrival of the Company's sales
force. The materials provide for telephone and mail response, but are designed
so that the potential customer expects a direct sales visit. The Company's sales
force consists of native Poles who are trained in professional sales skills,
personal interaction, product knowledge and appearance. All sales persons are
compensated by direct sales commissions and incentive bonuses, and they are
hired, trained and managed by Company managers whose incentive compensation is
tied directly to sales results. New market sales tend to be highly seasonal,
with the fourth calendar quarter being the most active sales period.
Remarketing Sales. After new areas have been marketed, Company remarketing
efforts focus on attracting new subscribers and selling additional products and
services, such as premium channels and stereo services, to existing subscribers.
Direct door-to-door remarketing sales are enhanced through advertising on PTK1
and PTK2, the Company's proprietary cable channels, bill inserts, door hangers,
coupons, prizes and contests, as well as advertising in other media accessible
to the general public. Company-wide remarketing campaigns are conducted
quarterly and seasonal promotions coincide with holidays and cultural events.
Sales persons are entitled to additional incentive commissions for remarketing
sales.
Customer Service. By implementing a Western-style customer care program
that includes such features as courteous customer service representatives,
prompt responses to service calls, and overall reliability, the Company has
introduced a quality of service generally not found in Polish consumer markets.
Customer service representatives are assigned to each cable system at a location
easily accessible to subscribers in order to manage installation and service
calls and to provide telephone sales service support. The Company guarantees
service within 24 hours of a subscriber request. The Company believes that its
customer care program gives it a distinct competitive advantage over other cable
providers in the Polish market, has contributed to the Company's low churn rate
and has been a primary motivation for consumers to select the Company as their
cable television provider when provided with a choice.
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<PAGE> 59
REGIONAL CLUSTERS
The Company has established seven regional clusters encompassing seven of
the ten largest cities in Poland, including cities which the Company believes
are among those with the strongest economies and most favorable demographics for
cable television in the country. The following table illustrates certain
operating data of each of the Company's existing regional clusters:
OVERVIEW OF THE COMPANY'S EXISTING SYSTEMS(A)
<TABLE>
<CAPTION>
AVERAGE
MONTHLY
SUBSCRIPTION
TOTAL HOMES TOTAL SUBSCRIBERS BASIC REVENUE PER EBITDA
REGION HOMES PASSED SUBSCRIBERS(B) (B)(C) PENETRATION(C) SUBSCRIBER(D) MARGINS
- -------------------- --------- --------- -------------- ----------- -------------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Gdansk.............. 250,000 208,090 106,583 97,072 46.65% $ 7.06 63.9%
Katowice............ 1,200,000 394,658 157,572 153,240 38.83 5.26 35.2
Warsaw.............. 800,000 188,284 93,339 79,636 42.30 4.78 21.6
Krakow.............. 300,000 134,194 67,506 60,235 44.89 4.63(e) 22.8
Lublin.............. 120,000 57,994 52,508 24,702 42.59 5.55 34.0
Szczecin............ 160,000 25,490 19,445 9,083 35.63 4.84 (57.7)
Bydgoszcz........... 134,000 79,830 36,657 36,657 45.92 4.50(f) NA(f)
--------- ------- ------- ------- ---- ----- ----
Total...... 2,944,000 1,088,540 533,610 460,625 42.32% $ 5.62(f) 33.9(f)
========= ======= ======= ======= ==== ===== ====
</TABLE>
- ---------------
<TABLE>
<S> <C>
(a) All data as of December 31, 1996. Includes approximately 15,000 subscribers and
approximately 27,000 homes passed attributable to cable systems recently acquired by
the Company which the Company took control of after such date and prior to the date
hereof, except where indicated.
(b) Average of beginning of and end of period subscribers for the year ended December 31,
1996.
(c) Includes basic and intermediate tiers.
(d) Includes revenue from additional sources such as additional outlets, stereo, converters
and premium channels.
(e) Does not include results attributable to the recently acquired subscribers referenced
in note a.
(f) The Bydgoszcz regional cluster was acquired in December 1996. Average monthly
subscription revenue per subscriber calculated based on the annual revenues for the
cluster, including the period prior to acquisition by the Company.
(g) Represents a weighted average for the Company based on the total number of basic
subscribers during the year. Does not include results for the Bydgoszcz regional
cluster or results attributable to the recently acquired subscribers referenced in note
a.
</TABLE>
The following provides certain information regarding the regional clusters
in which the Company operates. Population figures presented herein are for the
primary counties in each of the Company's seven regional clusters. The Company's
regional clusters may extend into more than one county or may not cover all of
the population in the primary county. Population figures are provided for
illustrative purposes only and may not be representative of the actual
population the Company intends to service with its cable networks.
Gdansk
The Gdansk regional cluster is located primarily in the county of Gdansk on
the north coast of Poland. The population of the county of Gdansk is
approximately 1.45 million. The Gdansk regional cluster has historically been
the primary revenue generator for the Company, and accounted for approximately
38% of the Company's revenues and 51% of its EBITDA in 1995, and 33% and 54%,
respectively, for 1996. The Gdansk regional cluster is characterized by small,
highly fragmented SMATV systems, many of which the Company expects to either
acquire or overbuild in time. The Company believes that the Gdansk system, which
was first constructed in 1990 and is the oldest and most mature of the Company's
systems, illustrates the significant operating margins available in clustered
operating systems in Poland.
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<PAGE> 60
The Company is expanding in the Gdansk regional cluster primarily through
the continued build-out of MDUs and single family households, and into
contiguous areas. The Company is focusing its marketing efforts in the Gdansk
regional cluster on increasing penetration through remarketing campaigns. The
Gdansk system possesses a number of exclusive agreements with co-op authorities,
and the Company expects to expand the number of such agreements through the
development of its broadcast tier, which the Company often offers on favorable
terms in exchange for an exclusive agreement with co-op authorities to provide
cable services to their residents.
Katowice
The Katowice regional cluster is located primarily in the county of
Katowice in the south of Poland. The population of the county of Katowice is
approximately 3.9 million. The Katowice regional cluster accounted for
approximately 35% of the Company's revenues and 33% of its EBITDA in 1995, and
accounted for 35% and 31%, respectively, for 1996. The Katowice regional cluster
is characterized by numerous cities and towns with significant populations and
high density housing. There are many small and medium size operators throughout
the region, creating an opportunity to expand by acquisition. The Company began
operations in Katowice in 1991, and in January 1995 tripled its number of basic
subscribers in the Katowice region by merging its operations with those of a
competitor, PPHEI-Ryntronik.
The Katowice regional cluster, with a housing density of over 500 homes per
kilometer of cable plant in some areas, is the most densely populated region of
Poland. The Company believes that, as one of the largest potential multi-channel
television markets in Poland, the Katowice regional cluster offers the Company
significant growth prospects. A desire to access this large potential market was
the motivation behind the merger that created PTK-Ryntronik.
In March, 1996, the Company commenced a comprehensive training and
rationalization program to integrate acquired networks into its operations and
to rebuild a considerable portion of the such networks to meet the Company's
standards. The Company expects that this rebuild program will be completed in
1998 and will cost approximately $10 million.
Warsaw
The Warsaw regional cluster is located primarily in the county of Warsaw in
the center of Poland. The population of the county of Warsaw is approximately
2.4 million. The Warsaw regional cluster accounted for approximately 15% of the
Company's revenues and 12% of its EBITDA in 1995, and approximately 15% and 8%,
respectively, for 1996. The Company began operations in the Warsaw regional
cluster in 1991.
Warsaw is the most competitive operating environment in Poland because of
its size and population density. The Warsaw market is characterized by several
large cable television operators and several small operators. The Company, which
currently is one of the three largest cable television operators in Warsaw based
on number of subscribers, has operating clusters in Warsaw that are located in
what the Company believes are the most demographically desirable parts of the
city (the southeast and the northwest sectors). The Company intends to grow its
Warsaw system by building-out single family housing areas in Warsaw, extending
its network into the suburbs and surrounding towns and by continuing to
overbuild a weaker competitor's system in several MDU areas that are adjacent to
the Company's operating areas.
Krakow
The Krakow regional cluster is located primarily in the county of Krakow in
the south of Poland. The population of the county of Krakow is approximately 1.2
million. The Company commenced operations in Krakow in late 1993. The Krakow
market currently contains only one significant competitor which the Company
believes has technical deficiencies and is experiencing problems in its
relationships with co-op authorities.
The Company believes that the majority of the MDUs in the city of Krakow
have been built-out by the Company and other cable system operators.
Accordingly, the Company believes that future expansion in the
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<PAGE> 61
Krakow regional cluster will consist of build-out of (i) newly constructed,
single family homes, (ii) historical preservation areas (which are subject to a
more extensive permit process) and (iii) towns surrounding the city of Krakow,
and (iv) over-building the systems of competitors.
Lublin
The Lublin regional cluster is primarily located in the county of Lublin in
the east of Poland. The population of the county of Lublin is approximately 1.0
million. The Lublin regional cluster is characterized by a few small,
cooperative-owned SMATV systems. The Company commenced operations in the Lublin
regional cluster in mid 1995 with the acquisition of several agreements with
co-op authorities related to approximately 50,000 homes passed. In the Lublin
regional cluster, the Company has constructed a cable system that has a
bandwidth of 1GHz to allow the Company to experiment with offering telephony
services.
In its agreements with co-op authorities in the Lublin regional cluster the
Company is obligated to provide broadcast tier service to every home in an MDU
in exchange for the MDU paying a fixed monthly fee of approximately $.40 to the
Company for each apartment. The customer relationships created by nearly all
homes in the market receiving broadcast tier service from the Company provide a
marketing opportunity to encourage customers to upgrade their service. In
addition, although the agreements with co-op authorities in Lublin generally do
not provide for exclusivity, the Company believes that the customer
relationships created by its broadcast tier arrangements will discourage
competitors from entering the Lublin regional cluster.
Szczecin
The Szczecin regional cluster is primarily located in the county of
Szczecin in the northwest corner of Poland. The population of the county of
Szczecin is approximately 1.0 million. There is currently no significant
competition in the Szczecin market other than several co-op authority owned
systems. The Company commenced operations in the Szczecin regional cluster in
1995 with the acquisition of a cable system with approximately 4,200 subscribers
and the exclusive right to build-out approximately 55,000 apartments in MDUs
owned by the Szczecin municipal authorities.
Bydgoszcz
The Bydgoszcz regional cluster is located primarily in the county of
Bydgoszcz in the northwest of the center of Poland. The population of the county
of Bydgoszcz is approximately 1.1 million. The Company commenced operations in
the Bydgoszcz regional cluster in December 1996 with the acquisition of a 51%
interest in a cable system with approximately 37,000 subscribers. There are
currently only a few competitors in the Bydgoszcz market, including several
co-op authority owned systems and a local operator.
By acquiring a controlling interest in the market's largest cable operator,
the Company has gained access to an additional market which has a number of
build-out and acquisition opportunities. The Company believes that through the
implementation of its operating procedures and programming agreements it may be
able to further strengthen its position in the Bydgoszcz market.
PENDING ACQUISITIONS
The Company intends to acquire all or a substantial portion of the capital
stock or assets of four cable television systems in Poland. The aggregate
consideration to be paid by the Company in connection with the Pending
Acquisitions (including amounts for shareholder loans) is expected to be
approximately $24.7 million. The cable systems expected to be acquired in the
Pending Acquisitions serve approximately 99,000 total subscribers and pass
approximately 181,000 homes. The consummation of the Pending Acquisitions will
result in the expansion of the Company's operations within its existing regional
clusters and the establishment of one new regional cluster in southwest Poland.
The Company intends to use a portion of the net proceeds of the offering of the
Old Notes to consummate certain of the Pending Acquisitions. The Company
believes that it is required to obtain, and it has applied for, or is in the
process of preparing applications for, the Anti-Monopoly Office's approval for
all of the Pending Acquisitions (other than the acquisition of VEGA Sp. z o.o.
("Vega")), and it may be required to obtain the Anti-Monopoly Office's approval
for certain of its future
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<PAGE> 62
acquisitions as well. There can be no assurance as to the timing of closing of
any of the Pending Acquisitions or as to whether or on what terms any of the
Pending Acquisitions will actually be consummated.
In particular, the Company entered into a share purchase agreement with the
shareholders of KOLOR-SAT Sp. z o.o ("Kolor-Sat") on December 20, 1996.
Kolor-Sat's networks, which are located in Opale (in southwest Poland), serve
approximately 12,300 subscribers and pass approximately 22,000 homes. Pursuant
to the share purchase agreement, the Company will acquire 100% of the shares of
Kolor-Sat.
The Company has also entered into a purchase agreement with Vega pursuant
to which it will acquire all of the cable television assets of Vega. Vega's
networks, which are located in Wroclaw (in southwest Poland), serve
approximately 2,500 subscribers and pass approximately 5,000 homes. Title to the
assets will pass to PTK-Ryntronik upon the payment of the purchase price which
is expected to occur in April 1997.
The Company has signed a commitment agreement with Telewizja Kablowa
GOSAT-Service Sp. z o.o ("GOSAT") and its shareholders which provides for the
Company to purchase approximately 65% of the issued shares of a company that
operates cable television networks located in several cities and towns in
western Poland, serving approximately 65,000 subscribers and passing
approximately 135,400 homes. The consummation of this acquisition is currently
expected to occur in the second quarter of 1997. In connection with this
transaction, the Company will make shareholder loans to GOSAT and has already
loaned $200,000 to GOSAT to finance construction of new cable television
networks in two cities. After consummation of the acquisition, the Company
expects to establish a new regional cluster centered in southwest Poland.
The Company is negotiating to purchase from two co-op authorities
approximately 94% of the shares in a company operating cable television networks
that serve approximately 19,500 subscribers and pass the same number of homes in
a city in which the Company currently operates cable networks. The preliminary
terms of this transaction have been approved by members of the supervisory board
of each of the co-op authorities, and the Company expects the transaction will
close in 1997. The consummation of this acquisition will increase the Company's
ownership interest in the target company from 1.4% to approximately 95%. The
Company intends to integrate the acquired networks into its existing regional
cluster.
THE NETWORKS
The Company believes the fiber-optic cable networks that it has
constructed, which serve approximately 60% of its homes passed, are among the
most technologically advanced in Poland and are comparable to modern cable
networks in the United States. All of the Company's networks that have been
constructed by the Company have bandwidths of at least 550 MHZ, with one network
as high as 1 GHz. New portions of the networks which are currently being
constructed are being designed to have minimum bandwidths of 750 MHZ. The
Company's goal is to upgrade any portions of its networks that have bandwidths
below 550 MHZ (generally acquired from other entities) to at least 750 MHZ in an
effort to reduce the number of headends and parts inventory required in the
networks. The Company uses fiber-optic and coaxial cables, electronic components
and connectors supplied by leading Western firms in its networks.
The Company's networks, in most cases, use a fiber-to-the-feeder, 2,000
home node design. The Company uses a switched-star configuration for its
networks by installing a discreet drop cable which runs from a secure lockbox to
each home (as opposed to a loop system which feeds multiple homes from a single
cable), allowing the Company to more efficiently disconnect non-paying clients,
add or remove service options to individual homes and audit its systems to
detect theft of signal. Where required, high-quality tuners are used in
subscriber homes.
The Company's networks were constructed with the flexibility and capacity
to be cost-effectively reconfigured to offer an array of interactive and
integrated entertainment, telecommunications and information services, including
combined telephone and cable services and digital data transmission, if the
Company decides to pursue such ancillary sources of revenue in the future. The
Company's systems provide substantial excess channel capacity and are designed
to maximize reliability. The Company operates its systems at approximately 49%
to 69% of channel/bandwidth capacity. Two-way capability can be added to most of
the Company's systems at limited cost to provide addressable and interactive
services in the future. The networks
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<PAGE> 63
constructed by the Company meet or exceed the technical standards established by
Polish regulatory authorities, and the Company's policy is to upgrade
sub-standard networks obtained in acquisitions as rapidly as practicable.
Because the Company has entered into a general cooperation agreement with
TPSA, the Polish national telephone company, and agreements with local TPSA
branches which permit the Company to use TPSA's conduit infrastructure for
periods up to twenty years, it has been able to avoid constructing its own
underground conduit in certain areas. The Company also has agreements to
undertake joint construction with TPSA and other utilities for new conduits in
certain areas. These agreements represent a major advantage to the Company since
they permit the Company to minimize the costly and time-consuming process of
building new conduit infrastructure where TPSA conduit infrastructure exists and
provide for joint construction with TPSA and other utilities of conduit
infrastructure where none currently exists. As of December 31, 1996,
approximately 66% of the Company's plant had been constructed utilizing
pre-existing conduits of TPSA. A substantial portion of the Company's contracts
with TPSA for the use of such conduits permit termination by TPSA without
penalty at any time either immediately upon the occurrence of certain conditions
or upon provision of three to six months notice without cause. Any termination
by TPSA of such contracts could result in the Company losing its Permits, the
termination of agreements with co-op authorities and programmers, and an
inability to service customers with respect to the areas where its networks
utilize the conduits that were the subject of such contracts. See "Risk
Factors -- Risks Associated with Cable Networks; Agreements with TPSA" and
"Business -- Properties."
The Company estimates that at the end of 1996 it had over 2,200 kilometers
of cable plant constructed and that the fiber-optic backbone of its networks
will be substantially complete. Other than a rebuild of one of the Company's
acquired cable systems in the Katowice region for a cost of approximately $10
million, the Company estimates that its future capital expenditures will consist
primarily of capital needed for the incremental addition of new MDUs and
subscribers to its existing networks and for the build-out or rebuilding
associated with the acquisition of new cable systems. From its existing
infrastructure base, the Company's incremental build cost to add an adjacent MDU
or additional MDU subscribers to existing networks averages less than $200 per
MDU subscriber. (MDU subscribers represent more than 95% of the Company's total
subscribers.) The Company believes that several primary factors contribute to
its favorable cost structure. The significant density of homes per kilometer of
cable plant in the Company's core markets and the Company's conduit agreements
substantially reduce its build costs. Moreover, the Company believes that the
size of its construction program allows it to negotiate attractive construction
labor contracts and discounts on materials.
COMPETITION
The multi-channel television industry in Poland has been, and is expected
to remain, competitive. The Company competes with other cable television
operators as well as with companies employing numerous other methods of
delivering television signals to the home. The Company believes that competition
in the cable television industry is primarily based upon price, program
offerings, customer service, quality and reliability of cable networks. Small
SMATV operators are active throughout Poland, and they pose a competitive threat
to the Company because they often incur lower capital expenditures and operating
costs and therefore have the ability to charge lower fees to subscribers than
does the Company. While such operators often do not meet the technical standards
for cable systems under Polish law, enforcement of regulations governing
technical standards has historically been poor. Although Polish regulatory
authorities have recently attempted to improve the enforcement of such laws and
regulations, there can be no assurance that they will be enforced. If such laws
and regulations are not enforced, these SMATV operators will be able to continue
operating with a lower cost structure than that of the Company and thus charge
lower fees to subscribers, which may have an adverse effect on the Company's
business, results of operations and financial condition. See "Regulation."
Regardless of the enforcement of these laws and regulations, the Company expects
that SMATV operators will continue to remain a competitive force in Poland.
Certain of the Company's competitors or their affiliates have greater experience
in the cable television industry and have greater resources (including financial
resources and access to international programming sources) than the Company. The
largest competitors of the Company in Poland include Aster City, a joint venture
between certain Polish persons (with an aggregate 51%
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ownership interest) and Bresnan Communications and TCI Communications Inc. (with
an aggregate 49% ownership interest) with an estimated 140,000 subscribers,
Vectra, a Polish entity, with an estimated 130,000 subscribers, and Porion, a
Polish entity, with an estimated 80,000 subscribers. Aster City and Porion have
recently announced their plan to merge to form a single cable television system
in Warsaw.
The Company's cable television systems also compete with companies
employing other methods of delivering television signals to the home, such as
terrestrial broadcast television signals and DTH satellite-delivered television
services, and may in the future compete with MMDS systems. The extent to which
the Company's cable television services are competitive with alternative
delivery systems depends, in part, upon the Company's ability to provide a
greater variety of programming at a reasonable price than the programming and
prices available through alternative delivery systems. In addition, 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
television industry in Poland. See "The Industry -- The Polish Multi-Channel
Television Industry."
Cable television systems also face competition from a variety of other
sources of news, information and entertainment such as newspapers, cinemas, live
sporting events, interactive computer programs and home video products such as
video cassette recorders. The extent of such competition depends upon, among
other things, the price, variety and quality of programming offered by cable
television, and the popularity of television itself.
PROPERTIES
As of December 31, 1996, the Company owned equipment, including 94
headends, and approximately 2,200 kilometers of cable plant. The Company has
approximately 49 lease agreements for offices, storage spaces and land adjacent
to the buildings. The total area leased amounts to approximately 26,000 square
meters (most of which is land adjacent to buildings). The areas leased by the
Company range from approximately 10 square meters up to more than 12,500 square
meters. The agreements are for specified and unspecified periods of time and may
be terminated with relatively short notice periods by either party, usually
three months. The Company does not own any real property.
The Company has entered into conduit leases with TPSA (and, in certain
cases, with other entities). The majority of the TPSA leases require the Company
to bear the costs of the maintenance of the cable. The Company may not sublease
the conduit or cables or allow a third party to use the conduits or cables free
of charge without TPSA's consent. The rental charge for the conduit is usually
determined on each 100 meters of conduit occupied. The agreements also contain
indexation clauses for rent adjustment purposes (based on the change of U.S.
Dollar exchange rates or on the increase of real maintenance costs). A
substantial portion of the Company's contracts with TPSA for the use of such
conduits permit termination by TPSA without penalty at any time either
immediately upon the occurrence of certain conditions or upon provision of three
to six months notice without cause. Any termination by TPSA of such contracts
could result in the Company losing its Permits, the termination of agreements
with co-op authorities and programmers, and an inability to service customers
with respect to the areas where its networks utilize the conduits that were the
subject of such TPSA contracts. See "Risk Factors -- Risks Associated with Cable
Networks; Agreements with TPSA."
The Company believes that its lease agreements and conduit agreements are
adequate for purposes of the Company's operations, although additional space and
conduits will be needed in the future if the Company consummates the
acquisitions it currently has planned.
PTK TRADEMARK
The Company has not registered the PTK trademark. In 1992, the Polish
patent office rejected the Company's application for registration of the PTK
trademark because PTK was deemed to be generic rather than descriptive. The
Company reapplied for registration of the trademark in August 1996. There can be
no assurance as to when the PTK trademark will be accepted for registration, if
at all. If the PTK trademark is not accepted for registration, the Company will
consider applying for registration of a different trademark.
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EMPLOYEES
As of December 31, 1996, the Company had approximately 645 permanent
full-time employees and approximately 83 part-time employees. In addition, as of
such date the Company employed approximately 65 salesmen who received both
commissions and a nominal salary, and from time to time the Company employs
additional salesmen on an as needed, commission only basis. These numbers do not
include approximately 23 permanent full-time employees of ProCable. None of the
Company's employees are unionized. The Company believes that its relations with
its employees are good.
LEGAL PROCEEDINGS
The Company is involved in litigation from time to time in the ordinary
course of business. In management's opinion, the litigation in which the Company
is currently involved, individually and in the aggregate, is not material to the
Company's financial condition or results of operations.
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REGULATION
GENERAL
The operation of cable television systems in Poland is regulated under the
Communications Act by the MOC and PAR and under the Television Act by the
Council. Cable television operators in Poland are required to obtain Permits
from PAR to operate cable television networks and must register certain
programming that they transmit over their networks with the Council. In contrast
to cable television regulatory schemes in the United States and in certain other
Western nations, neither the MOC nor PAR currently has the authority to regulate
the rates charged by operators for cable television services. Cable television
operators in Poland also are subject to the Copyright Act, which provides
intellectual property rights protection to Polish authors and producers of
programming. Broadcasters in Poland are regulated by the Council under the
Television Act and must obtain a broadcasting license from the Council.
THE COMMUNICATIONS ACT
General. From the fall of the communist government in 1989 through 1992,
the Polish cable television industry was essentially unregulated. Although the
Communications Act was enacted in 1990, the MOC and PAR did not begin
promulgating and enforcing regulations implementing the Communications Act until
1992. In 1993, to improve the quality of Poland's cable television systems, the
MOC and PAR began to implement technical and licensing standards for cable
operators that established requirements for such items as signal quality and
radio frequency leakage. In the same year, the MOC and PAR began to monitor
compliance with regulations requiring all cable operators to obtain Permits and,
more recently, has begun to enforce such requirements. In 1995, the
Communications Act was amended to create restrictions on foreign ownership
within the cable television industry.
Permits. The Communications Act and the Permits set forth the terms and
conditions for providing cable television services. A Permit authorizes the
construction and operation of a single cable television network in a specified
geographic area. Permits do not give exclusive rights to construct and operate a
cable network within an area, and usually do not include build-out milestone
requirements.
To obtain a Permit, an operator has to file an application with PAR. A
Permit application must be accompanied by evidence demonstrating that the
applicant's network will be constructed of components approved by, and meeting
the technical specifications set forth by, PAR and the MOC, and that co-op
authorities or other property owners in the area that the Permit will cover have
agreed to allow the applicant access to their property to install the cable
network. PAR will refuse to grant a Permit if the applicant fails to submit the
evidence described above or if the applicant's cable network fails to comply
with technical requirements established by PAR and the MOC including minimum
standards for signal quality and radio frequency leakage.
Permits have an initial term of one year, and thereafter, if renewed, are
generally renewed for a term of up to five years. Renewal applications must be
submitted to PAR at least one month prior to the end of a Permit's term. If a
renewal decision from PAR is pending at the expiration of a Permit's term, as is
usually the case, the term is deemed to be extended until the renewal decision
is made. PAR generally renews Permits as a matter of course if the terms and
conditions of the Permit and the requirements of the Communications Act,
including the technical requirements for cable networks established by PAR and
the MOC, have been met by the holder of the Permit. The Communications Act also
requires that operators of cable television systems comply with copyright laws.
See "-- Copyright Protection."
If a cable television operator breaches the terms or conditions of its
Permits or the Communications Act, or fails to acquire Permits covering areas
serviced by its networks, PAR can impose penalties on such operator, including
fines, the revocation of all Permits covering the cable networks where the
breach occurred or the forfeiture of the operator's cable networks. In addition,
the Communications Act provides that PAR may not grant a new Permit to, or renew
an expiring Permit held by, any applicant that has had, or that is controlled by
an entity that has had, a Permit revoked within the previous five years. In
many, though not all, instances,
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where a violation of the terms or conditions of a Permit or the Communications
Act have occurred, PAR is required by law to give the cable television operator
an opportunity to rectify the violation.
Permits are not transferable. Accordingly, a cable television operator who
acquires a cable network from another operator must apply for a Permit covering
the area in which the acquired network is located, unless the acquiring operator
already has a valid Permit covering the area. However, subject to the
restrictions on foreign ownership of cable television operators described below
and to any restrictions contained in a specific Permit, shares of cable
television operators holding Permits are freely transferrable.
Foreign Ownership Restrictions. The Communications Act and applicable
Polish regulatory restrictions provide that Permits may only be issued to and
held by Polish individuals, corporations that have their registered offices in
Poland or other companies formed under the laws of Poland in which foreign
persons hold no more than 49% of the share capital, ownership interests and
voting rights. In addition, the Communications Act and applicable Polish
regulatory restrictions provide that the majority of the management and
supervisory board of any cable television operator holding Permits be comprised
of Polish citizens residing in Poland. These restrictions do not apply to any
Permits issued prior to July 7, 1995, to Permits issued at any time pursuant to
certain licenses obtained under the Commercial Activity Act described below or
to renewals of any such Permits ("Grandfathered Permits"). As of February 27,
1997, approximately 45% of the Company's basic subscribers were covered by
Permits that are not subject to foreign ownership restrictions.
Enforcement of Poland's regulatory restrictions on foreign ownership of
cable television operators is performed by PAR. Applications for Permits, and
for renewals thereof, require disclosure of the applicant's ownership structure,
shareholders and management and supervisory boards. A violation of these
regulatory restrictions constitutes a violation of the Communications Act, and
can lead to revocation of all Permits held by the entity committing the
violation. See "-- Permits."
Prior to the creation of PAR and the Permit system, PTK, S.A. received a
license to operate cable television systems in Warsaw, Krakow and the areas
surrounding these cities (as described in the license) under the Commercial
Activity with Participation of Foreign Parties Act of 1988, as amended (the
"Commercial Activity Act"). Although the Commercial Activity Act has been
repealed, the MOC has recently confirmed to the Company that this license
enables the Company to acquire Permits covering areas in Warsaw, Krakow and the
surrounding areas without regard to the regulatory restrictions on foreign
ownership described above. The Company plans to transfer cable networks that it
acquired or constructed after July 7, 1995 in the Warsaw and Krakow license
areas to PTK, S.A., which will apply for Permits covering such systems.
To comply with foreign ownership requirements for Permits for networks not
covered by Grandfathered Permits, the Company has entered into contractual
arrangements with the Polish entity Poltelkab. The Company owns 49% of Poltelkab
and five Polish executives of the Company or Poltelkab own the remaining 51%. In
the case of the acquisition or construction of cable networks not covered by
Grandfathered Permits, either the Company will own all of the cable network
assets and will lease the assets to Poltelkab, or Poltelkab will own and operate
the networks. In the Company's current leasing arrangements with Poltelkab,
Poltelkab holds the Permits to operate the new cable networks, receives all of
the revenues from subscribers, pays all operating expenses relating to the
operation of the networks, and through the lease arrangements pays the Company
rent equal to substantially all of the cash flow generated by the networks. The
Company believes that this ownership and operating structure are not in
contradiction with the technical requirements of Polish law. PAR has recently
granted Poltelkab two Permits for networks using the ownership and operating
structure described above. There can be no assurance that Polish regulatory
authorities will not determine that all or part of this ownership and operating
structure, or any other ownership and operating structure that may be utilized
by the Company, violates Polish regulatory restrictions on foreign ownership or
that such restrictions will not be amended or interpreted in a different manner
in the future, including the restrictions applicable to Grandfathered Permits.
Any such adverse determination or any such amendment or interpretation could
adversely affect the Company's ability to acquire Permits to operate cable
television systems and could result in the loss of Permits held by the Company,
which could have a material adverse effect on the Company's business, results of
operations and financial condition.
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The Company's Permits. The Company has received approximately 48 Permits
from PAR, covering approximately 239,000 of the Company's approximately 461,000
basic subscribers as of December 31, 1996 (excluding subscribers of networks
which the Company has contracted to purchase, but which the Company had not
taken control of as of such date), including approximately 91,000 subscribers
for whom the Company's Permits are deemed extended under Polish law pending
PAR's response to the Company's Permit renewal applications (collectively,
"Valid Permits"). However, the Company does not have Valid Permits covering
certain of the areas in which it operates cable networks. Of the approximately
222,000 basic subscribers as of February 24, 1997 located in areas for which the
Company does not currently have Valid Permits, approximately 15.5% are located
in areas serviced by recently acquired cable networks for which Permit
applications cannot be made until all Permit requirements are satisfied
(including obtaining agreements with co-op authorities and the upgrade of the
acquired network to meet technical standards where necessary), approximately
37.3% are located in areas serviced by recently acquired or constructed networks
in Warsaw, Krakow and the areas surrounding these cities, which the Company
plans to transfer to PTK, S.A. in order to more efficiently comply with foreign
ownership restrictions, and approximately 47.2% are located in areas serviced by
networks for which the Company has Permit applications pending. There can be no
assurance that PAR will issue any or all of the Permits for which the Company
has applied.
There can be no assurance that PAR will not take action against the Company
for operating cable television networks in areas not covered by valid Permits,
including assessing fines, revoking Permits held by the Company or seizing the
Company's cable networks. Furthermore, there can be no assurance that the
Company will be able to receive Permits in the future permitting it to operate
any other networks that it may acquire. Any such action would have a material
adverse effect on the Company's business, financial condition and results of
operations.
TELEVISION ACT
The Council. The Council, an independent agency of the Polish government,
was created under the Television Act to regulate broadcasting in Poland. The
Council has regulatory authority over both the programming that cable television
operators transmit over their networks and the broadcasting operations of
broadcasters. Cable television operators generally are not considered
broadcasters under the Television Act unless they make modifications, such as
inserting commercials, to programming transmitted over their networks or fail to
retransmit programming simultaneously with their receipt thereof.
Registration of Programming. Under the Television Act, cable television
operators must register each channel and the programming with the Chairman of
the Council prior to transmitting it over their cable networks. An exception to
this registration requirement exists for (i) programming that is broadcast by
public broadcasters, and (ii) programming that is broadcast by other domestic
broadcasters and is generally available over the air for receipt by the public
in the area where the network is located.
The application to register programming with the Chairman of the Council
must include (i) specification of the programming to be transmitted and the
broadcaster of the programming and (ii) evidence that the applicant has a Permit
covering the cable networks on which the programming will be transmitted.
Registration of programming occurs automatically if the Chairman of the Council
does not reject an application within two months of its submission.
In general, the Chairman of the Council will refuse registration of
programming if (i) the applicant is not legally entitled to use the cable
network over which the programming will be distributed (i.e., does not have a
Permit covering the network), (ii) the broadcasting of the programming in Poland
would violate Polish law, including provisions of the Television Act governing
sponsorship, advertising and minimum Polish content requirements for programming
broadcast by Polish broadcasters or (iii) the transmission of the programming
over the cable network would violate Polish law, including the Television Act.
Once programming is registered with the Chairman of the Council by a cable
television operator, it remains registered with respect to such operator until
the term, if any, requested in the application for registration expires or until
the Chairman of the Council revokes the registration. Applications to renew the
registration of programming are usually filed two months prior to the end of the
term of the registration thereof
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and will usually only be rejected for the reasons described above. The Chairman
of the Council is authorized to revoke registration if a program for any of the
same reasons for which it is entitled to refuse to register programming, or if
the cable television operator violates the "must carry" provisions of the
Television Act that require cable operators to transmit programming broadcast by
public broadcasters nationwide or regionally.
The Company has registered with the Chairman of the Council most of the
programming that it transmits on its cable networks, except programming
distributed on networks for which it does not have Permits. There can be no
assurance that the Chairman of the Council will not revoke the registration of
any of the Company's programming, or that the Chairman of the Council will
register all additional programming that the Company desires to transmit over
its networks, or that the Council will not take action regarding unregistered
programming the Company transmits over its cable networks which do not have
Permits. Such actions could include the levy of monetary fines against the
Company and the seizure of Company equipment involved in transmitting such
unregistered programming as well as criminal sanctions against Company
management.
Broadcasting Licenses. Companies that engage in broadcasting in Poland
must receive a broadcasting license from the Chairman of the Council under the
Television Act. Broadcasting is defined under the Television Act to include (i)
the wireless emission of a program for the purpose of simultaneous and general
reception and (ii) the introduction of a program or channel into a cable
television network. In determining whether to grant a broadcasting license, the
Council considers factors including whether the planned broadcasting activity by
the applicant will serve to provide information, facilitate access to culture
and art or provide entertainment and whether the applicant will be able to
secure the required investments and financing for the planned broadcasting
operations.
Broadcasting licenses, unless revoked by the Council, have a term of
between three and ten years. Applications to renew broadcasting licenses are
considered by the Council based upon the same factors considered in determining
whether to grant a broadcasting license. The Council may revoke a broadcasting
license for, among other things, violations of the Television Act, of the terms
the broadcasting license or of the restrictions on foreign ownership of
broadcasters described below. See "-- Restrictions on Foreign Ownership of
Broadcasters."
Restrictions on Foreign Ownership of Broadcasters. Under the Television
Act and applicable regulations, a broadcasting license may be granted only to
Polish citizens domiciled in Poland or to Polish companies in which foreign
persons hold no more than 33% of the issued capital stock and no more than 33%
of the votes at general meetings of their shareholders.
While the Company is not a broadcaster under the Television Act, it owns a
33% interest in ProCable, which broadcasts PTK1 and PTK2 over the Company's
networks. The other shareholders of ProCable are its president, a Polish citizen
who owns a 40% interest, and a Polish children's charitable trust. ProCable
currently holds broadcasts licenses to distribute PTK1 and PTK2 over all the
Company's networks that carry these channels, except for one network for which
ProCable has an application pending with the Council and one network for which
the Company is currently awaiting the grant of a Permit from PAR before ProCable
can file with the Council for a license. The Company has established PCIP as a
wholly-owned U.S. subsidiary engaged in the development and production of Polish
language thematic television programming outside of Poland. The Company plans to
distribute all of PCIP's programming throughout Poland via satellite systems
from abroad. The Company believes that the ownership structure of ProCable and
PCIP's distribution system satisfy Poland's regulatory restrictions on foreign
ownership of broadcasters. However, there can be no assurance that Polish
regulatory authorities will not determine that all or part of this ownership or
distribution structure violates Polish regulatory restrictions on foreign
ownership of broadcasters. Further, there can be no assurance that Polish
regulators will not revoke any of ProCable's licenses for broadcasting over a
cable network for which it does not have a valid license or otherwise. Any such
action could have a material adverse effect on the Company's business, financial
condition and results of operations.
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COPYRIGHT PROTECTION
Protection of Rights of Polish Authors and Producers of Programming. Cable
television operators in Poland are subject to the provisions of the Copyright
Act, which governs enforcement of intellectual property rights of Polish
citizens and companies in programming. Polish copyright law distinguishes
between authors, who are the creators of programming, and producers, who acquire
intellectual property rights in programs created by others. In general, the
holder of a Polish copyright for a program transmitted over the cable networks
of a cable television operator has a right to receive compensation from such
operator or to prevent transmission of the program.
The rights of Polish copyright holders are generally enforced by
organizations for collective copyright administration and protection such as
Zwiazek Autorow i Kompozytorow Scenicznych ("ZAIKS") and Zwiazek Artystow Scen
Polskich ("ZASP") (collectively, "Rights Organizations"), and can be enforced by
the holders themselves. In practice, the compensation paid to the holder of a
Polish copyright on programming that is transmitted over a cable television
system is usually set by contract between a Rights Organization and the
individual cable television operator. The Company is operating under a contract
with ZASP, and is currently in the process of negotiating an extension of its
expired contract with ZAIKS. There can be no assurance that the Company will be
able to obtain such extension. In the event that a cable television operator
transmits programming in violation of a Polish copyright, the Rights
Organization or the copyright holder may sue the operator for an injunction
preventing further violations or an accounting for profits or damages, which may
include, in certain circumstances, a sum equal to three times the amount of
compensation the copyright holder could have obtained if it had entered into a
contract with the operator. In addition, a violation of the Copyright Act by a
cable television operator would also constitute a violation of the
Communications Act and the operator's Permits. See "-- The Communications
Act -- Permits."
Protection of Rights of Foreign Authors and Producers of Programming.
Except as described below, the Copyright Act protects only Polish citizens and
Polish companies. Foreign authors of programming, however, may receive
protection under the Copyright Act for programing that is either (i) originally
published in Poland or is originally published simultaneously in Poland and
abroad or (ii) originally published in Polish-language form. In addition,
foreign authors of programming receive Polish copyright protection under the
terms of the Berne Convention of 1971 (the "Berne Convention"), which was
adopted by Poland in 1994. Foreign producers of programming who satisfy
certain criteria are entitled to receive some copyright protection under TRIPS,
which was recently adopted by Poland. While foreign producers of programming are
entitled to receive some copyright protection in Poland under TRIPS, the amount
of protection provided is uncertain because TRIPS was only recently adopted and
its terms do not clearly specify the protection granted. In addition, foreign
programming producers will receive Polish copyright protection under the Rome
Convention when Polish cable operators become subject to the terms of the Rome
Convention.
Under the Berne Convention, authors of programming located in other
signatory countries must be extended the same copyright protection over their
programming that Polish authors receive under the Copyright Act. Polish cable
television operators must thus make copyright payments to foreign authors
holding copyrights in programming that is transmitted over the cable networks of
such operators. See "-- Protection of Rights of Polish Authors and Producers of
Programming". The Berne Convention, however, does not grant any protection to
foreign producers of programming.
Poland has taken steps toward adopting the Rome Convention, which will
extend copyright protection to programs of foreign producers. Poland ratified
the Rome Convention on December 31, 1996, and will become bound by its terms on
the date that is three months from the date of filing the necessary documents
with the Secretary General of the United Nations. The Company currently makes
copyright payments to the foreign programmers requiring such payments, such as
CNN, Eurosport and Cartoon Network, even though such payments are not mandated
by Polish copyright law. The Company is not able to predict the effect of TRIPS
or of the adoption of the Rome Convention on the Polish cable television
industry, and there can be no assurance that either will not result in the
Company paying additional fees to broadcasters for programming or being unable
to obtain certain commercially desirable programming.
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ANTI-MONOPOLY ACT
Competition in Poland is governed by the Anti-Monopoly Act which
established the Anti-Monopoly Office to regulate monopolistic and other
anti-competitive practices. The current Polish anti-monopoly body of law with
respect to the cable television industry is not well-established, and the
Anti-Monopoly Office has not articulated comprehensive standards that may be
applied in an antitrust review in the cable television industry. However, as a
general rule, companies that obtain control of 40% or more of their market face
greater scrutiny from the Anti-Monopoly Office. The relevant markets for cable
television services have not been defined by the Anti-Monopoly Office.
Furthermore, the Company believes that it is required to obtain, and it intends
to apply for, the Anti-Monopoly Office's approval of certain of the Pending
Acquisitions, and it may be required to obtain the Anti-Monopoly Office's
approval for certain future acquisitions as well. In addition, the Anti-Monopoly
Office can review a company's past and present activities for potential anti-
competitive behavior.
There can be no assurance that the Anti-Monopoly Office will approve the
Pending Acquisitions or Company's future acquisitions and dispositions or that a
review of the Company's past, present or future operations, if undertaken by the
Anti-Monopoly Office, will not otherwise adversely impact the Company's
business, strategy, financial condition or results of operations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The current directors and executive officers of the Company are:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------------- ---- -------------------------------------------
<S> <C> <C>
David T. Chase(a)............................ 67 Chairman of the Board of Directors
Robert E. Fowler, III(a)(b).................. 38 Director and Chief Executive Officer
Arnold L. Chase(a)........................... 45 Director
Scott A. Lanphere(c)......................... 31 Director
Jerzy Z. Swirski(c).......................... 40 Director
Richard B. Steele............................ 36 President
George Makowski.............................. 42 Chief Operating Officer
Cheryl Anne Chase............................ 43 Executive Vice President and Secretary
John S. Frelas............................... 46 Chief Financial Officer and Treasurer
Przemyslaw Szmyt............................. 34 General Counsel and Vice President
Marek Sowa................................... 34 Director of Corporate Development
Gilbert L. Tash.............................. 60 Vice President
John P. Redding.............................. 38 Vice President
Andrzej Muras................................ 58 Executive Vice President of Corporate
Development of PTK, S.A.
Michael J. Houlehan.......................... 37 Chief Executive Officer of PCI Programming
</TABLE>
- ---------------
(a) Appointed as a director by the Chase Group (as hereinafter defined) under
the Shareholders' Agreement (as hereinafter defined). See "Certain
Relationships and Related Transactions -- Shareholders' Agreement."
(b) Appointed as Chief Executive Officer by the Chase Group and accepted as such
by the ECO Group (as hereinafter defined) under the Shareholders' Agreement
pursuant to which the Chief Executive Officer is also appointed as a
director. See "Certain Relationships and Related Transactions --
Shareholders' Agreement."
(c) Appointed as a director by the ECO Group under the Shareholders' Agreement.
See "Certain Relationships and Related Transactions -- Shareholders'
Agreement."
CERTAIN INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS
Information with respect to the business experience and affiliations for
the past five years of the current directors and executive officers of the
Company is set forth below.
DAVID T. CHASE has served as Chairman of the Board of Directors of PCI
since March 1996. Since January 1990, Mr. Chase has been a Director and
President of David T. Chase Enterprises, Inc., a diversified conglomerate with
extensive holdings in real estate and previously in media. Mr. Chase has also
been on the Supervisory Boards of PTK, S.A., PTK-Warsaw and PTK-Krakow since
December 1992, October 1993, and October 1993, respectively. Mr. Chase also
serves as a Director and President of DNI Corp. ("DNI"), a general partner in
Chase Financial Limited Partnership. He is also a Director of ACCEL
International Corporation ("ACCEL"), an insurance holding company.
ROBERT E. FOWLER, III has served as Chief Executive Officer of PCI since
December 1996 and has served as a Director of PCI since March 1996. Mr. Fowler
served as Vice President of PCI from August 1993 to December 1996 and its
Treasurer from April 1991 to December 1996. Since December 1993, he has served
as Vice President of D.T. Chase Enterprises, Inc. Mr. Fowler has served as
Director of PCI Programming since July 1996. From July 1996 to December 1996,
Mr. Fowler also served as Vice President and Treasurer of PCI Programming. Since
December 1996, he has served as Chairman of the Board of Directors of PCI
Programming. He is also a Director of ACCEL.
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<PAGE> 73
ARNOLD L. CHASE has served PCI as a Director since December 1996. Mr. Chase
has also served as President of the Managing Board of PTK-Warsaw, PTK-Krakow and
PTK-Ryntronik since October 1993. Mr. Chase has also served as Director and
Executive Vice President and as Treasurer of D.T. Chase Enterprises, Inc. since
December 1990 and October 1992, respectively. Arnold Chase served PCI as Co-
Chairman of the Board of Directors from April 1991 to March 1996 and as its
President from October 1992 to March 1996. Mr. Chase was Managing Director of
PCBV from March 1990 to May 1996 and President of the Managing Board of PTK,
S.A., from December 1992 to August 1996. He previously served as Chairman of the
Supervisory Board of PTK, S.A. from August 1990 to December 1992. From April
1991 to October 1992, Mr. Chase served as Executive Vice President of PCI. Mr.
Chase has been a Director, Executive Vice President and Treasurer of DNI, since
June 1994 and has been a Director of First National Bank of Connecticut since
1992.
SCOTT A. LANPHERE has served as a Director of PCI since March 1996 and as a
Managing Director of PCBV since May 1996. Mr. Lanphere has been a Director of
Advent since December 1994, and from May 1991 to December 1994 served as an
Investment Manager of Advent.
JERZY Z. SWIRSKI has served as a Director of PCI since October 1996. Mr.
Swirski has served as a Director of Advent since July 1995. From January 1995 to
July 1995, Mr. Swirski was a consultant to Enterprise Investors, a Polish equity
firm. From 1991 to 1994, he was an officer of E. Wedel S.A. ("Wedel"), a Polish
subsidiary of PepsiCo Foods, International, and General Manager of Frito-Lay,
Poland.
RICHARD B. STEELE has served as President of PCI since December 1996. Mr.
Steele served as a Director and the Chief Executive Officer of PCI from March
1996 until December 1996 and served as Vice President of PCI from May 1992 to
March 1996. Mr. Steele served as a Director and the Chief Executive Officer of
PCI Programming from July 1996 to December 1996, and was the Senior Vice
President and served as Chief Financial Officer of David T. Chase Enterprises,
Inc. from December 1990 to 1994. He has been a Managing Director of PCBV since
December 1992, on the Supervisory Board of PTK-Warsaw since October 1993 and on
the Management Boards of PTK, S.A., PTK-Krakow, PTK-Ryntronik and PTK-Lublin
since August 1996, May 1996, July 1996, and July 1996, respectively. He is also
the managing member of Steele LLC ("Steele LLC"), a Connecticut limited
liability company. Mr. Steele also performs real estate consulting services for
the affiliates of certain stockholders of PCI.
GEORGE MAKOWSKI has been the Chief Operating Officer of PCI since January
1997. From August 1993 to January 1997, Mr. Makowski was Vice President of
Marketing for Ameritech International, Inc. ("Ameritech"). During this time Mr.
Makowski also served as Sales and Marketing Director of Centertel, S.A., a
division of Ameritech. From 1986 to 1993, Mr. Makowski held various senior
management roles within Groupe Bull, S.A.
CHERYL ANNE CHASE has served as Executive Vice President of PCI since April
1991, Secretary of PCI since April 1992, and was a Director of PCI from January
1990 to March 1996. Ms. Chase has been Director, Executive Vice President,
Secretary and General Counsel of David T. Chase Enterprises, Inc. since March
1990. Ms. Chase also serves as Director, Executive Vice President and Secretary
of Chase Polish Enterprises, Inc., D.T. Chase Enterprises, Inc. and DNI Corp.
She has also served as Executive Vice President and Secretary of PCI Programming
since July 1996 and has been on the Supervisory Board of PTK-Warsaw since
October 1993.
JOHN S. FRELAS has been the Chief Financial Officer of PCI since September
1996 and the Treasurer of PCI since December 1996. Mr. Frelas has been the
Treasurer of PCI Programming, Inc. since December 1996. From 1995 to 1996, Mr.
Frelas was the Chief Financial Officer of Eurofund Management Polska. During
1995, he served as a consultant to the Polish-American Enterprise Fund. From
1972 to 1994, Mr. Frelas worked for PepsiCo Foods International and certain of
its subsidiaries, most recently as a Corporate Planning Manager for Hostess
Frito-Lay Canada during 1994 and as a Corporate Controller for Wedel from 1992
to 1993.
PRZEMYSLAW A. SZMYT has served as General Counsel and Vice President of the
Company since February 1997. From September 1995 to February 1997, Mr. Szmyt was
Director for Poland of MeesPierson
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EurAmerica, an investment banking firm and affiliate of MeesPierson N.V., a
Dutch merchant bank. From early 1992 to August 1995, Mr. Szmyt was a senior
associate at Soltysinski Kawecki & Szlezak in Warsaw. Mr. Szmyt served on the
Management Board of Telewizyjna Korporacja Partycypacyjna S.A., a holding
company of Canal+ Polska. From November 1995 to July 1996, Mr. Szmyt served as
Director of the Management Board of MeesPierson EurAmerica Sp. z o.o.
MAREK SOWA has served as Director of Corporate Development of PCI since
January 1997 and has also served as Vice President of Poltelkeb since March
1996. From August 1994 until May 1996, Mr. Sowa served as Corporate Development
Manager of PTK, S.A. Mr. Sowa also served on the Supervisory Board of ETV since
June 1996 and on the Management Boards of PTK, S.A. from April 1995 to August
1996, PTK-Warsaw from April 1995 to September 1996 and PTK-Lublin from April
1995 to May 1996. Mr. Sowa served as Vice President of PTK-Szczecin from May
1995 to June 1996, Chairman of PTK-Szczecin's Supervisory Board from June 1996
through August 1996 and as Vice President of the Management Board of ETV from
July 1995 to June 1996. Mr. Sowa received his M.B.A. from the University of
Illinois at Urbana-Champaign and the University of Warsaw in 1994. From 1991 to
1992 Mr. Sowa served as International Acquisitions Manager at Arfilm-Plus, an
independent film distribution company. From 1987 to 1990, Mr. Sowa served as an
associate producer for the CBS News Warsaw Bureau.
GILBERT L. TASH has served as a Vice President of PCI since October 1996.
From June 1993 to May 1996 Mr. Tash was Managing Director of PCBV. Mr. Tash has
been employed by PTK, S.A. in various capacities since September 1990, and has
served as Vice President of the Management Board of PTK, S.A. since May 1992.
Mr. Tash also has served as the Vice President of the Management Board of
PTK-Warsaw since October 1993, the President of the Supervisory Board of
PTK-Ryntronik since August 1996, and the Vice President of the Management Board
of PTK-Krakow since October 1993. Mr. Tash served as an Executive Vice President
of Times Mirror Cable Television from 1971 to 1989, where he had supervisory
responsibilities for the financial and technical management of cable television
system construction projects.
JOHN P. REDDING has served as a Vice President of PCI since April 1996 and
Vice President of PCI Programming since December 1996. Mr. Redding also has
served as Vice President of D.T. Chase Enterprises, Inc. since April 1996 and
since January 1990, Mr. Redding served as Senior Vice President of David T.
Chase Enterprises, Inc.
ANDRZEJ MURAS has been Executive Vice President of Corporate Development
for PTK, S.A. since September 1989 and an Executive Vice President of PTK-Warsaw
since January 1996. Prior to January 1990, Mr. Muras was Chief Executive Officer
of POLTEL, a programming source for state-owned Polish television channels TVP 1
and TVP 2. From 1961 to 1989, Mr. Muras served as Managing Director and also
held other positions at the Polish State Television and Radio Department.
MICHAEL J. HOULEHAN has been Chief Executive Officer of PCI Programming
since December 1996. Mr. Houlehan served as Executive Vice President of PCI
Programming from October 1996 to December 1996. Mr. Houlehan has been Director
of Corporate Development for PCI since October 1994. Mr. Houlehan was a Managing
Director of Potomac Pacific, Ltd., a strategic financial services firm, from
1989 to 1994. From 1981 to 1989, he served as a Vice President at First
Interstate Bancorp, where he specialized in corporate finance and international
merchant banking.
BOARD OF DIRECTORS
PCI's Amended and Restated Certificate of Incorporation (the "Certificate
of Incorporation") provides that five individuals shall comprise the Board of
Directors. All of the current members of the Board of Directors were elected
pursuant to the Shareholders' Agreement. Under the Shareholders' Agreement, the
ECO Group has the right to designate two directors, and PIH, Mr. Freedman and
Steele LLC (collectively, the "Chase Group") have the right to designate the
remaining three directors, one of whom shall be selected, if approved by the ECO
Group, to serve as the Chief Executive Officer of PCI. Pursuant to a voting
agreement between PIH, Mr. Freedman and Steele LLC and the Cheryl Anne Chase
Marital Trust (the "Voting Agreement"), all designations to be made by the Chase
Group are made by David T. Chase. David T. Chase, Arnold L. Chase and Robert E.
Fowler, III have been designated as Directors by the Chase Group, Mr. Fowler was
designated as Chief Executive Officer by the Chase Group and was accepted as
such by the
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ECO Group, and Messrs. Lanphere and Swirski have been designated as Directors by
the ECO Group. See "Certain Relationships and Related
Transactions -- Shareholders' Agreement" and "Certain Relationships and Related
Transactions -- Voting Agreement."
The By-Laws of PCI (the "By-Laws") provide that, in the absence of their
earlier resignation or removal, all Directors will serve until the next annual
meeting of shareholders (held the second Wednesday of August of each year)
following their election. The By-Laws provide that directors may resign or may
be removed (with or without cause) by the vote of stockholders representing at
least 61% of the total outstanding voting power. The By-Laws further provide
that, except as otherwise required by the laws of the State of New York or the
Certificate of Incorporation, vacancies in the Board of Directors shall be
filled by the vote of stockholders representing at least 61% of the total
outstanding voting power.
The By-Laws provide that a majority of the entire board, determined without
respect to vacancies, constitutes a quorum of the Board of Directors. The
By-Laws further provide that the act of a majority of all of the Directors
present at a meeting for which there is a quorum shall be the act of the Board
of Directors, except as otherwise provided in the By-Laws, in the Certificate of
Incorporation or by the New York Business Corporation Law. Without limiting the
generality of the foregoing sentence, the By-Laws provide that the affirmative
action of four Directors shall be required to approve certain transactions
including the Company's annual budget, related party transactions and certain
extraordinary transactions. There are no standing committees of the Board of
Directors.
The By-Laws provide for an annual meeting of the Board of Directors
immediately following the annual meeting of the shareholders of PCI. Special
meetings of the Board of Directors may be called by the Chief Executive Officer,
a Vice President or any two directors then in office.
ITEMS REQUIRING SUPERMAJORITY VOTE UNDER THE CERTIFICATE OF INCORPORATION
The following actions require (i) the affirmative vote of at least four
directors, followed by the affirmative vote of the percentage of issued and
outstanding capital stock entitled to vote thereon at a meeting of the
shareholders as required under the New York Business Corporation Law ("NYBCL"),
if such action is required to be submitted to the shareholders under the NYBCL,
or (ii) if any such action is not approved by at least four directors, then any
such action will require the affirmative vote of at least 61% of the total
voting power of the capital stock issued and outstanding and entitled to vote
thereon, provided however that if board approval of such action is required
under the NYBCL, the action will also require the approval of the Board of
Directors at a special meeting of the Board of Directors (and for no purposes
other than the approval of actions taken pursuant to this subsection (ii)) for
which two-fifths of the total number of directors constitutes a quorum.
A. A fundamental change in the business of the Company or any
subsidiary;
B. The adoption of, and approval of any modification to, the annual
budget of the Company for each fiscal year;
C. An expenditure, not accounted for in the budget during any fiscal
year, in excess of $5 million;
D. A merger or other business combination or the sale, lease, transfer
or other disposition of all or any material portion of the assets;
E. Certain encumbrances;
F. Related-party transactions;
G. The issuance by the Company of third-party debt which causes the
aggregate of all third party debt to exceed $25 million;
H. Certain issuances of capital stock;
I. The declaration of dividends or other distributions;
J. The repurchase or optional redemption of any capital;
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K. The dissolution or liquidation or voluntary winding-up of the
Company;
L. Amending the Company's Certificate of Incorporation or By-Laws;
M. The giving of certain guarantees or indemnities;
N. The election or removal of the Chief Executive Officer or the
Chairman of the Board;
O. Entering into or modifying a material employment contract;
P. A change in the auditors or fiscal year-end of the Company;
Q. Settling or resolving tax claims in excess of $250,000;
R. Commencement, prosecution or compromise of material litigation or
arbitration proceedings; and
S. Taking steps to wind-up, dissolve or voluntarily seek the
protection of bankruptcy laws.
REMUNERATION OF DIRECTORS
Directors receive no compensation for attending meetings of the Board of
Directors or for serving as a director. Pursuant to the By-Laws, however,
Directors are entitled to receive reasonable reimbursement of expenses
incidental to attendance at such meetings.
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EXECUTIVE COMPENSATION
The following table sets forth certain information regarding all
compensation awarded to, earned by or paid to the Company's Chief Executive
Officer and each of the other four most highly compensated executive officers at
the Company for services rendered in all capacities to the Company for the last
three fiscal years, to the extent that those officers were in the employ of the
Company. No disclosure has been provided for any executive officer whose total
annual salary and bonus did not exceed $100,000 per annum. Columns relating to
long-term compensation have been omitted from the table as the Company did not
have capital stock-related award plans and there has been no compensation
arising from long-term incentive plans during the years reflected in the table.
SUMMARY COMPENSATION TABLE
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
ALL OTHER
SALARY BONUS OTHER ANNUAL COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) COMPENSATION ($)
- ----------------------------------- ---- ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Robert E. Fowler................... 1996 66,000(a) 66,000(a) -- --
Chief Executive Officer and 1995 66,000(a) 66,000(a) -- --
Director 1994 66,000(a) 66,000(a) -- --
Richard B. Steele.................. 1996 356,000(a) 250,000(a) 5,000(c) --
President 1995 356,000(a) -- 7,500(c) --
1994 358,000(a)(b) -- 7,500(b)(c) --
Arnold L. Chase(d)................. 1996 300,000(a)
Director 1995 250,000(a) -- -- 86,000(e)
1994 250,000(a) -- -- 75,000(e)
Gilbert L. Tash.................... 1996 120,000 -- 25,200(f) 6,790(e)
Vice President 1995 120,000 45,000 25,200(f) --
1994 120,000 43,400 25,200(f) --
Michael J. Houlehan................ 1996 150,000 25,000 24,000(f) --
Chief Executive Officer 1995 150,000 25,000 24,000(f) --
of PCI Programming 1994 31,731(g) -- -- --
John S. Frelas..................... 1996 46,153(h) -- -- --
Chief Financial Officer 1995 -- -- -- --
1994 -- -- -- --
</TABLE>
- ---------------
(a) Represents only that portion of annual compensation attributable to services
performed on behalf of the Company. Additional compensation may have been
provided by companies that are affiliated with PCI and beneficially owned by
the Chase Family for services rendered to those companies.
(b) Represents amounts paid by David T. Chase Enterprises, Inc., an affiliate of
PCI.
(c) Represents portion of 401k plan paid pursuant to a matching contribution.
(d) Prior to being named to the Board of Directors of PCI in December 1996,
Arnold Chase was Co-Chairman of the Board of Directors of PCI from April
1991 to March 1996 and President of PCI from October 1992 to March 1996.
(e) Represents interest on accumulated deferred compensation.
(f) Represents housing allowance.
(g) Represents compensation for partial year of service beginning in October
1994.
(h) Represents compensation for partial year of service beginning in September
1996.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with each of Messrs. Fowler, Steele,
Makowski, Frelas, Szmyt, Sowa, Tash, Muras and Houlehan.
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Mr. Fowler has entered into a three year employment agreement with PCI
effective as of January 1, 1997. Pursuant to such agreement, Mr. Fowler serves
as the Chief Executive Officer of PCI. Mr. Fowler receives a base salary of
$325,000, allowances for relocation, living expenses for a one time cost of
approximately $100,000, plus a travel allowance of approximately $30,000 per
annum and a guaranteed annual bonus of $175,000 in the first year of his
employment and unspecified incentive bonuses thereafter. He is eligible for an
additional bonus of $250,000 upon the signing of the employment agreement. Mr.
Fowler may terminate the agreement at any time upon three month's written
notice, and the Company may terminate the agreement at any time upon one month
written notice (with an obligation to pay Mr. Fowler an additional two months
salary). In addition, PCI may terminate the agreement immediately without
further obligation to Mr. Fowler for cause (as defined in the employment
agreement). The employment agreement also provides that Mr. Fowler is granted a
non-transferable option to purchase 1,286 shares of PCI's Common Stock at a
price of $3,707 per share, subject to the terms and conditions of a stock option
agreement. Options to purchase 515 shares of Common Stock will vest upon the
execution of the stock option agreement and options to purchase 257 shares of
Common Stock vest on December 31 of each of the following three years, beginning
on December 31, 1997. The options vest immediately upon an initial public
offering (as defined in the stock option agreement) or upon a change of control
(as defined in the Indenture). PCI has a right of first refusal with respect to
the shares underlying the options.
Mr. Steele entered into an employment agreement with PCBV effective as of
January 1, 1993 through December 31, 1997, which agreement was assigned to PCI
pursuant to an agreement between PCI and PCBV dated as of March 20, 1996.
Pursuant to such agreement, Mr. Steele agreed to serve as a Managing Director of
PCBV, and receives an annual salary of $200,000 and certain additional deferred
compensation of approximately $150,000 per year. The agreement may be terminated
by Mr. Steele or PCI upon 90 days written notice. In addition, PCI may terminate
the agreement immediately without further obligation to Mr. Steele for cause (as
defined in the employment agreement). PCI has agreed to grant Mr. Steele a
$250,000 bonus upon the successful completion of the offering of the Notes and a
$200,000 bonus upon the successful completion of an initial public offering of
common stock of PCI.
Mr. Makowski entered into a five-year employment agreement with PCI
commencing on January 21, 1997. Pursuant to such agreement, Mr. Makowski serves
as the Chief Operating Officer of PCI. Mr. Makowski receives a base salary of
$156,000, allowances for living, family travel and education for his children of
approximately $105,000 per annum and annual incentive bonuses of up to $60,000
if certain mutually agreed objectives are met. Mr. Makowski's initial year bonus
of $60,000 is guaranteed. He is also eligible for an additional bonus of
$175,000 for the successful completion of an initial public offering of common
stock of PCI. Mr. Makowski or PCI may terminate the agreement at any time upon
six month's written notice. In addition, PCI may terminate the agreement
immediately without further obligation to Mr. Makowski for cause (as defined in
the employment agreement). The employment agreement also provides that Mr.
Makowski will be granted a non-transferable option to purchase 385 shares of
PCI's Common Stock at a price of $3,708.08 per share, subject to the terms and
conditions of a stock option agreement, which options vest ratably over a
three-year period. Subject to certain conditions, PCI has a right to repurchase
the options and, if exercised, the Common Stock, upon termination of the
agreement at the greater of (i) 85% of the fair market value thereof (as defined
in the agreement) or (ii) prices mutually established in the agreement.
Mr. Frelas entered into a five-year employment agreement with PCI
commencing on September 1, 1996. Pursuant to such agreement, Mr. Frelas serves
as the Chief Financial Officer of PCI. Mr. Frelas was named Treasurer of PCI in
December 1996. Mr. Frelas receives a base salary of $150,000, allowances for
living and travel of approximately $40,000 per annum and annual incentive
bonuses of up to $50,000 if certain mutually agreed objectives are met. He is
also eligible for additional bonuses of $350,000 for the successful completion
of an initial public offering and $50,000 for the successful completion of a
bank line of credit of $75 million or more. Mr. Frelas or PCI may terminate the
agreement at any time upon six month's written notice. In addition, PCI may
terminate the agreement immediately without further obligation to Mr. Frelas for
cause (as defined in the employment agreement). The employment agreement also
provides that Mr. Frelas will be granted a non-transferable option to purchase
241 shares of PCI's Common Stock at a price of $1,991.70 per
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share, subject to the terms and conditions of a stock option agreement, which
options vest ratably over a five-year period. Subject to certain conditions, PCI
has a right to repurchase the options and, if exercised, the Common Stock, upon
termination of the agreement at the greater of (i) 85% of the fair market value
thereof (as defined in the agreement) or (ii) prices mutually established in the
agreement.
Mr. Szmyt entered into a three year employment agreement with PCI effective
as of February 7, 1997. Mr. Szmyt was named General Counsel and Vice President
of PCI. Mr. Szmyt receives an annual salary of $160,000. He is eligible to
receive an annual performance-based bonus of $40,000 per year, which bonus is
guaranteed in 1997. Mr. Szmyt is eligible for an additional bonus of $70,000
upon the successful completion of an initial public offering of Common Stock of
PCI. PCI may terminate the contract at any time upon four month's written
notice. Notwithstanding such right, PCI may terminate the contract without
further obligation for cause (as defined in the agreement).
Mr. Sowa entered into a three year employment agreement with PCI effective
as of January 1, 1997. Mr. Sowa was named Director of Corporate Development of
PCI. Mr. Sowa receives an annual salary of $64,000, and is eligible to receive
an annual performance-based bonus of up to $32,000 per year. Mr. Sowa may
terminate his employment with the Company at any time without notice and PCI may
terminate the contract at any time upon four month's written notice.
Notwithstanding such right, PCI may terminate the contract without further
obligation for cause (as defined in the agreement).
Mr. Tash entered into an employment agreement with an unlimited term with
PCI on September 25, 1991. Pursuant to such agreement, Mr. Tash serves as a Vice
President of PCI. Under the terms of the employment agreement PCI agreed to pay
Mr. Tash an annual salary of $130,000 plus certain enumerated relocation and
living expenses and Mr. Tash was eligible to receive a performance-based bonus
of up to $30,000 per year based on terms to be mutually agreed upon by Mr. Tash
and PCI. PCI may terminate the contract at any time upon three month's written
notice. In January 1992, Mr. Tash agreed that his 1991 incentive bonus would
equal $57,500, $7,500 of which would be payable in one lump sum payment on or
before December 31, 1992 and the balance of which would be payable during 1992
in equal biweekly installments. PCI and Mr. Tash entered into a deferred
compensation agreement on April 18, 1995. Pursuant to the deferred compensation
agreement, Mr. Tash irrevocably elected to defer his 1994 bonus of $43,400 until
the earlier of: (1) Mr. Tash's severance of employment from PCI or its
affiliates; (2) April 18, 1997, or (3) the execution of a written agreement,
signed by the parties, terminating the deferred compensation agreement.
Certain executives of affiliated companies also have entered into
employment contracts.
Mr. Muras entered into a two-year employment agreement with PTK-Warsaw
commencing on January 1, 1996. Pursuant to that agreement, he became an
Executive Vice President of Corporate Development of PTK-Warsaw. Mr. Muras
receives an annual salary of $88,800 and is eligible to receive a
performance-based bonus of up to $60,000 per year based on his achievements as
established by the Chairman of the General Assembly of Shareholders of
PTK-Warsaw. PTK-Warsaw may terminate the contract at any time upon six month's
written notice. Mr. Muras may terminate the contract at any time upon three
months written notice. Notwithstanding such right, PTK-Warsaw may terminate the
contract effective immediately without further obligation for cause (as defined
in the agreement). PTK-Warsaw also may terminate the contract immediately upon
written notice in the case of an acquisition and/or merger resulting in a change
of the ultimate ownership exercising control (direct or indirect) to other than
those controlling PTK-Warsaw as of January 1, 1996, in which event Mr. Muras
will be entitled to a severance of six month's salary payable over a six month
period. In addition, in the event that the contract is not renewed, PTK-Warsaw
has agreed to pay Mr. Muras a severance of six month's salary payable over a six
month period as compensation for his role in organizing PTK-Warsaw.
Mr. Houlehan entered into an employment agreement with PCBV on October 7,
1994. The employment agreement provided for an initial three to six month period
during which Mr. Houlehan would function as a consultant. Pursuant to that
agreement, Mr. Houlehan was named Director of Corporate Development of
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<PAGE> 80
PTK, S.A. and in December 1996 was named Chief Executive Officer of PCI
Programming. PCBV agreed to pay Mr. Houlehan an annual salary of $150,000 plus a
housing allowance and the use of a company automobile. Mr. Houlehan was eligible
for incentive compensation of up to $60,000 in the first year of his employment
and up to $120,000 during the second year thereof. The employment agreement was
assigned to PCI in 1994. The employment agreement states that Mr. Houlehan is
employed at will and that the provisions of his employment agreement are
governed by the employee manual for Chase Enterprises, Inc.; therefore, Mr.
Houlehan's employment may be terminated by either party with or without cause at
any time. Mr. Houlehan's employment agreement was amended on July 10, 1996 to
provide for a $25,000 bonus, payable immediately, as well as an agreement for up
to $50,000 of additional incentive compensation.
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's capital stock as of April 1, 1997 by (i) each person
known by PCI to own beneficially 5% or more of any class of PCI's voting stock,
(ii) each director and executive officer of the Company, and (iii) all directors
and executive officers of the Company as a group. All percentages in this
section were calculated on the basis of outstanding securities plus securities
deemed outstanding under Rule 13d-3 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
<TABLE>
<CAPTION>
SHARES PERCENTAGE OF PERCENTAGE
OF SERIES B SERIES B OF
SHARES OF PERCENTAGE OF PREFERRED PREFERRED VOTING
NAME OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK STOCK STOCK POWER
- ------------------------------------- ------------ ------------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
FIVE PERCENT STOCKHOLDERS:
Polish Investments Holding L.P.
One Commercial Plaza
Hartford, CT 06103................. 10,303 52.94% -- -- 42.35%
ECO Holdings III Limited
Partnership(a)
c/o Advent International Corp.
101 Federal Street
Boston, MA 02110................... 4,662 23.95 2,500 100.00 39.15(b)
Steele LLC(c)
19 Warren Terrace
Longmeadow, MA 01106............... 1,429 7.34 -- -- 5.87
Roger M. Freedman
One Commercial Plaza
Hartford, CT 06103................. 1,221 6.27 -- -- 5.02
Cheryl Anne Chase Marital Trust
One Commercial Plaza
Hartford, CT 06103................. 733 3.76 -- -- 3.01
DIRECTORS AND EXECUTIVE OFFICERS:
David T. Chase(d).................... 13,686 70.32 -- -- 56.26
Robert E. Fowler, III(e)............. 515 2.64 -- -- 2.11
Arnold L. Chase...................... -- -- -- -- --
Scott A. Lanphere.................... -- -- -- -- --
Jerzy Z. Swirski..................... -- -- -- -- --
Richard B. Steele(f)................. 1,429 7.34 -- -- 5.87
George Makowski(f)................... -- -- -- -- --
Cheryl Anne Chase(g)................. 11,036 56.70 -- -- 45.36
John S. Frelas(h).................... -- -- -- -- --
Przemyslaw Szmyt..................... -- -- -- -- --
Marek Sowa........................... -- -- -- -- --
Gilbert L. Tash...................... -- -- -- -- --
John P. Redding...................... -- -- -- -- --
Andrzej Muras........................ -- -- -- -- --
Michael J. Houlehan.................. -- -- -- -- --
------ ----- ----- --- -----
ALL DIRECTORS AND OFFICERS AS A GROUP
(15 PERSONS):(f)................... 14,201 72.96% -- -- 58.38%
</TABLE>
- ---------------
(a) The general partner of ECO is Advent.
(b) Such shares of Series B Preferred Stock are currently convertible into 4,862
shares of Common Stock and vote with the Common Stock on an as if converted
basis.
(c) Includes 1,429 shares of Common Stock owned by Steele LLC which may be
deemed to be beneficially owned by Mr. Steele.
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(d) Includes (i) 10,303 shares of Common Stock owned by PIH which may be deemed
to be beneficially owned by the Chase Family, which includes Mr. Chase, and
Mr. Chase has an irrevocable proxy to vote such shares in his sole
discretion pursuant to the Voting Agreement; (ii) 1,221 shares of Common
Stock owned by Mr. Freedman with respect to which Mr. Chase has an
irrevocable proxy to vote in his sole discretion with respect to all the
shares of Common Stock held of record by Mr. Freedman pursuant to the Voting
Agreement; (iii) 733 shares of Common Stock owned by the Cheryl Anne Chase
Marital Trust with respect to which Mr. Chase has an irrevocable proxy to
vote in his sole discretion with respect to all the shares of Common Stock
held of record by the Cheryl Anne Chase Marital Trust pursuant to the Voting
Agreement; and (iv) 1,429 shares of Common Stock owned by Steele LLC with
respect to which Mr. Chase has an irrevocable proxy to vote in his sole
discretion pursuant to the Voting Agreement (the shares of Common Stock
owned by PIH, Mr. Freedman and Steele LLC voted by Mr. Chase pursuant to the
Voting Agreement are collectively referred to as the "Voting Agreement
Shares").
(e) During 1997, Mr. Fowler was granted options to purchase 1,286 shares of
Common Stock, of which 515 are exercisable within 60 days of the date of
this Prospectus.
(f) During 1997 Mr. Makowski was granted options to purchase 385 shares of
Common Stock, none of which are exercisable within 60 days of the date of
this Prospectus.
(g) Includes 10,303 shares of Common Stock owned by PIH which may be deemed to
be beneficially owned by the Chase Family and 733 shares of Common Stock
owned by the Cheryl Anne Chase Marital Trust. Ms. Chase disclaims beneficial
ownership in the shares owned by PIH, by the Cheryl Anne Chase Marital Trust
and by other members of the Chase Family.
(h) Mr. Frelas has been granted options to purchase 241 shares of Common Stock,
none of which are exercisable within 60 days of the date of this Prospectus.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN RELATIONSHIPS
David T. Chase is the father of Arnold L. Chase and Cheryl Anne Chase. No
other family relationship exists between any of the directors and executive
officers of PCI.
CAPITAL CONTRIBUTIONS AND SHAREHOLDER LOANS
On March 29, 1996, PCI consummated a Stock Purchase Agreement with ECO (the
"ECO Stock Purchase Agreement"), pursuant to which ECO contributed an aggregate
of $65 million to PCI in exchange for 4,662 shares of Common Stock, 4,000 shares
of Series A Preferred Stock and 2,500 shares of Series B Preferred Stock.
Simultaneously, PIH purchased 2,000 shares of Series C Preferred Stock and 812
shares of Common Stock from PCI for aggregate consideration of approximately $17
million. A portion of the proceeds from these transactions were loaned by PCI to
a subsidiary of PCI which used such funds to repay approximately $55 million of
debt that such subsidiary owed to Chase American Corporation, which is owned by
the Chase Family.
As part of the ECO Stock Purchase Agreement, D.T. Chase Enterprises, Inc.
("D.T. Chase"), ECO, PIH and PCI entered into an Option Agreement giving PCI the
right to purchase all of D.T. Chase's interest in ProCable. On March 29, 1996,
PCI exercised the option and entered into a Share Purchase Agreement with D.T.
Chase pursuant to which PCI purchased D.T. Chase's 33% interest in ProCable for
approximately $5,900.
REDEMPTION OF SERIES D PREFERRED STOCK
In connection with the recapitalization of the Issuer that occurred
simultaneously with Advent's investment of $65 million in PCI, on March 29, 1996
PCI redeemed 1,151 shares of Series D Preferred Stock, which represented all of
the issued and outstanding shares of Series D Preferred Stock, for approximately
$8.5 million. All of the shares of Series D Preferred Stock were held by PIH,
which is beneficially owned by the Chase Family.
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RYNTRONIK
In December 1994, PCBV entered into an agreement with the sole proprietor
of PPHEI-Ryntronik, whereby the sole proprietor agreed to contribute in-kind all
of his cable television assets into PTK-Ryntronik, and PCI agreed to contribute
additional capital into PTK-Ryntronik. In exchange for their contributions, the
sole proprietor received 51% of the share capital of PTK-Ryntronik and PCBV
received 49% of the share capital. The sole proprietor's in-kind contribution of
cable television assets to PTK-Ryntronik was consummated in February 1996. The
Company also owns convertible debt that, if converted, would bring its ownership
of PTK-Ryntronik to approximately 76% as of December 31, 1996. In October 1996,
PCI and the sole proprietor entered into a share sale agreement by virtue of
which PCI agreed to purchase all remaining shares (which at that time
represented 51%) of PTK-Ryntronik for $9 million. The closing of the sale was
postponed due to certain legal constraints limiting the transferability of
shares which were acquired in exchange for in-kind contributions. On March 4,
1997, the Company and the sole proprietor entered into an addendum and an annex
to the addendum to the share sale agreement. The addendum and annex provide for
an acceleration of the Company's acquisition of the sole proprietor's interest
in PTK-Ryntronik. In the addendum and annex, the Company and the sole proprietor
agreed to transform PTK-Ryntronik into a limited liability company, at which
time the sole proprietor has agreed to transfer all shares of PTK-Ryntronik to
PCI or its nominee. The Company agreed to pay the sole proprietor $700,000
within three days of the signing of the addendum, $1,000,000 on March 28, 1997
and $1,750,000 upon the transfer of his shares to the Company or its nominee. A
portion of the proceeds of the offering of the Notes may be used to pay for the
acquisition of such shares. In addition, Poltelkeb subscribed and became the
owner of 4.5% of the capital stock of PTK-Ryntronik.
SHAREHOLDERS' AGREEMENT
The following is a summary of the shareholders' agreement (the
"Shareholders' Agreement") entered into by and among ECO, Roger M. Freedman,
PIH, Steele LLC and PCI on March 29, 1996. The Cheryl Anne Chase Marital Trust,
which received its shares from Mr. Freedman, signed an accession agreement on
November 22, 1996. The following summary does not purport to be complete, and it
is qualified in its entirety by reference to the Shareholders' Agreement, which
is filed as an exhibit to the Registration Statement of which this Prospectus is
a part, copies of which are available upon request from PCI. Parties to the
Shareholders' Agreement, other than PCI, are hereinafter referred to as the
"Shareholders."
In connection with the ECO Stock Purchase Agreement, ECO, Mr. Freedman,
PIH, Steele LLC and PCI entered into the Shareholders' Agreement to govern the
conduct of the business of PCI and relations among the Shareholders. The
Shareholders' Agreement provides that another shareholder, The AESOP Fund, L.P.
("AESOP"), has certain rights and obligations that will take effect if and when
AESOP signs the Shareholders' Agreement. As of the date hereof, AESOP had not
signed the Shareholders' Agreement.
PCI has a five-member Board of Directors. Under the Shareholders'
Agreement, the ECO Group has the right to designate two directors, and the Chase
Group has the right to designate a Chief Executive Officer acceptable to the ECO
Group, who is a member of the board of directors, as well as the remaining two
directors. Pursuant to the Shareholders' Agreement, the "ECO Group" consists of
ECO, any limited partner of ECO to whom ECO permissibly transfers shares of
stock of PCI ("Shares"), and any Affiliate (as hereinafter defined) of the
foregoing. The ECO Group chooses the ECO Group Representative, who currently is
Scott Lanphere, a director of PCI. Pursuant to the Shareholders' Agreement, the
Chase Group choose the Chase Group Representative. Pursuant to the Voting
Agreement, PIH, Mr. Freedman, and Steele LLC have chosen David T. Chase, PCI's
Chairman, as the Chase Group Representative. See "--Voting Agreement."
The Shareholders' Agreement also contains several restrictions on the
Shareholders' ability to transfer their Shares. Any Shareholder may transfer
Shares to an Affiliate; members of the Chase Group may transfer Shares to other
members of the Chase Group; and ECO may transfer Shares to its limited partners.
Under the Shareholders' Agreement, "Affiliate" means a person or entity that is
any one or more of the following: (a) in relation to any person or entity,
another person or entity that controls, is controlled by or is under common
control with such person or entity; (b) in relation to any partnership, any of
its partners who controls the partnership; (c) in relation to any Shareholder
which holds Shares as trustee, the beneficial owner of those Shares or a trustee
for the same beneficial owner; (d) in relation to any Shareholder, a person
which holds
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Shares as trustee pursuant to a grantor trust in which that Shareholder is the
sole beneficiary; (e) in relation to any individual, certain family members; and
(f) in relation to ECO, any company, partnership or fund which is under the
management of the Advent network or any Affiliate of any such company,
partnership or fund. Prior to an initial public offering of at least 20% of
PCI's common stock, Shareholders may only transfer Shares to Qualified Persons
(as hereinafter defined) and only under certain restrictions. The term
"Qualified Person" means any person or entity (i) that does not engage in any of
the businesses of telephony, telecommunications, programming or cable television
in any city in Poland where PCI or any direct or indirect subsidiary of PCI
engages in that line of business, (ii) whose ownership of Shares would not cause
PCI to lose, or fail to obtain, or result in a limitation of, a license, permit,
certificate, deed or approval material to the operations of PCI and its
subsidiaries, and (iii) the transfer of Shares to whom would not require PCI to
become a reporting company pursuant to Section 12 of the Exchange Act. If any
Shareholder wishes to sell less than 50% of its Shares of any class, or if Mr.
Freedman or Steele LLC (or AESOP, if and when it becomes a party to the
Shareholders' Agreement) wishes to sell all or any portion of their Shares of
any class, then certain other Shareholders have rights of first negotiation with
respect to the Shares offered by the Shareholder wishing to sell. If ECO or PIH
wishes to sell 50% or more of its Shares of any class to a Qualified Person, the
Shareholder wishing to sell must procure an offer from that Qualified Person to
purchase on the same terms for all the outstanding Shares of all the Applicable
Stock (as hereinafter defined); and certain other Shareholders have a right of
first refusal on all such Shares before the Qualified Person may purchase them.
The term "Applicable Stock" means, with respect to an offer for the Common Stock
and/or Series B Preferred Stock, the Common Stock and the Series B Preferred
Stock; and with respect to an offer for Series A Preferred Stock and/or Series C
Preferred Stock, the Series A Preferred Stock and the Series C Preferred Stock.
In the event that a third-party offers to purchase all of the outstanding
stock of PCI and holders of 61% of voting securities of PCI vote to accept the
offer to sell their shares to the third party, all of the Shareholders are
required to accept the offer. If a third-party purchaser offers to purchase all
or substantially all of the assets of PCI and the Board of Directors approves
said sale, the Shareholders are required to consummate the sale.
The Shareholders' Agreement also contains a buy-sell provision which is
available to the ECO Group and the Chase Group if (i) an item requiring
supermajority vote under PCI's Certificate of Incorporation is voted against by
the Board of Directors upon submission and re-submission by the same group, (ii)
there is no quorum at two successive meetings of the Board of Directors and the
absence of quorum is caused by the directors of the same group, (iii) PCI fails
to redeem any series of preferred stock on the date set for mandatory redemption
under the Certificate of Incorporation, (iv) PCI fails to comply with certain
obligations under, or waives certain rights or refuses to accept certain
benefits under, the ECO Stock Purchase Agreement, or (v) either shareholder
group fails to use its best efforts to ensure that the drag-down provisions
described below become effective. Subject to the satisfaction of certain
procedural requirements, the buy-sell provision allows the group entitled to
exercise the buy-sell option (the "Initiating Group") to place a valuation on
PCI and value all classes of securities held by the responding group (the
"Responding Group"). Then, the Responding Group may elect either to sell all of
its Shares to the Initiating Group at a price derived from the Initiating
Group's valuation of PCI, or to require the Initiating Group to purchase all of
the Responding Group's Shares at the price derived from the Initiating Group's
valuation of PCI.
The Shareholders' Agreement also contains restrictions on the rights of
Shareholders to pledge, hypothecate or otherwise encumber their Shares.
The Shareholders' Agreement also provides that on or about March 29, 2001,
the Shareholders will retain an investment bank to evaluate the sale,
refinancing, public offering or other alternative to maximizing the value of the
Common Stock. If an investment bankers is not retained by PCI or PCI has not
otherwise adopted a plan for maximizing the value of the Common Stock by March
29, 2002, the Shareholders Agreement requires the Shareholders to hire an
investment bank to secure a purchaser for PCI.
In the drag-down provisions of the Shareholders' Agreement, the
Shareholders agreed that they would take all actions necessary or desirable,
including the use of their voting power, to cause certain changes to the
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constituent documents, management structures, and decision-making processes of
PCI's subsidiaries and those of PCBV.
In addition, the Shareholders' Agreement requires that any transferee of
shares held by any of the parties to the Shareholders' Agreement sign an
accession agreement pursuant to which the transferee shall be bound to the terms
of the Shareholders' Agreement.
The Shareholders' Agreement contains covenants against competition that
limit the ability of the Shareholders and of certain other persons and entities
connected with the Shareholders to engage in certain kinds of business in
Poland.
The Shareholders' Agreement remains effective until the earlier of the
following events: (i) Shareholders holding at least 61% of the total voting
power agree to terminate the Shareholders' Agreement, (ii) an initial public
offering of at least 20% of PCI's common stock, or (iii) the date on which no
party to the Shareholders' Agreement holds any Shares.
PCI REGISTRATION RIGHTS AGREEMENT
Also in connection with the Advent Stock Purchase Agreement, PCI entered
into a registration rights agreement (the "Shareholder Registration Rights
Agreement") with PIH, ECO, Mr. Freedman, Steele LLC and AESOP (in the event that
it executes the Shareholder Registration Rights Agreement) (collectively, the
"Rightsholders"). Pursuant to the Shareholder Registration Rights Agreement, PIH
and ECO will, after March 29, 1999, have the right under certain circumstances
to demand that PCI register their shares of Common Stock under the Securities
Act. After March 29, 2001, PIH and ECO will have the right to demand that PCI
register their shares of Common Stock in a shelf registration under Rule 415 of
the Securities Act. In addition, if PCI proposes to register any of its
securities under the Securities Act (other than registrations in connection with
employee stock ownership plans, offerings of debt securities and certain shelf
registrations), all of the Rightsholders will have the right, until March 29,
2004, to have their shares of Common Stock be included in such registration. The
registration rights described above expire on March 29, 2004 and are subject to
certain limitations, including limitations on the number of shares of Common
Stock to be included by the Rightsholders in particular registrations and on the
number of demand registrations that can be required by PIH and ECO.
PCBV SHAREHOLDERS' AGREEMENT
PCI holds 92.3% of the issued and outstanding capital stock of PCBV which
owns 100% of the issued and outstanding capital stock of each of PTK-Krakow,
PTK-Warsaw, and 49% of the issued and outstanding capital stock of
PTK-Ryntronik, as well as approximately 98% of the issued and outstanding
capital stock of PTK, S.A.
The following is a summary of the shareholders' agreement (the "PCBV
Shareholders' Agreement") entered into by and among Frank N. Cooper, Reece
Communications, Inc., Rutter-Dunn Communications, Inc., and Poland Cablevision
U.S.A., Inc. (collectively, the "Minority Shareholders"), PCI, and PCBV on March
8, 1990, as amended. The following summary does not purport to be complete, and
it is qualified in its entirety by reference to the PCBV Shareholders'
Agreement. The parties to the PCBV Shareholders' Agreement other than PCBV are
hereinafter referred to as the "PCBV Shareholders." Shares of the capital stock
of PCBV are hereinafter referred to as "PCBV Shares."
The PCBV Shareholders' Agreement protects shareholdings of each Minority
Shareholder from dilution, by requiring that the PCBV Shares of each Minority
Shareholder must continue to represent a constant percentage of the total equity
in PCBV and of the total votes to be cast by the PCBV Shareholders on any
subject, regardless of changes to the capital structure of PCBV and regardless
of any additional equity funds that may be contributed to PCBV by PCI.
The PCBV Shareholders' Agreement contains restrictions on the PCBV
Shareholders' ability to sell, pledge, hypothecate or otherwise transfer or
encumber their PCBV Shares. In addition, PCBV Shareholders have the right of
first refusal to purchase PCBV Shares upon the death of an individual PCBV
Shareholder,
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and upon the liquidation, dissolution or other termination of a corporate PCBV
Shareholder. Furthermore, PCI has the right of first refusal to purchase PCBV
Shares from Minority Shareholders, and the Minority Shareholders have the right
of first refusal to purchase PCBV Shares from PCI, before such shares can be
sold to a third party.
The PCBV Shareholders' Agreement includes certain limitations on payments
that can be paid by PCBV to the PCBV Shareholders. If the managing board of PCBV
solicits and receives loans from any of the PCBV Shareholders, the loans cannot
bear interest at a rate exceeding 10% per annum.
Under the PCBV Shareholders' Agreement, PCI has the option to purchase the
PCBV Shares owned by the Minority Shareholders upon the satisfaction of certain
conditions. These conditions involve the number of subscribers obtained by PTK,
S.A. in nine specified cities in Poland. On each occasion when the subscriber
count in one of these specified cities reaches the number prescribed in the PCBV
Shareholders' Agreement, one-ninth of the Minority Shareholders' PCBV Shares
become available for purchase by PCI for a period of approximately 60 to 90
days. The option periods have expired with respect to a number of the specified
cities.
The PCBV Shareholders' Agreement also includes covenants against
competition that limit the ability of each PCBV Shareholder to engage directly
or indirectly in any aspect of the cable television business in Poland for a
period ending ten years after such PCBV Shareholder ceases to be a PCBV
Shareholder. PCI has direct or indirect ownership interests in a number of
entities that engage in certain aspects of the cable television business in
Poland. See "Prospectus Summary -- Current Organizational Structure." Under the
PCBV Shareholders' Agreement, the Minority Shareholders have a claim against
7.7% of the profits and equity of such entities and, under a supplemental
agreement, PCI has agreed to share the profits of these entities with the
Minority Shareholders on a pro rata basis. In addition, PCI is negotiating to
buy, and has made an offer to buy, the outstanding PCBV Shares held by the
Minority Shareholders. See "Use of Proceeds."
VOTING AGREEMENT
Pursuant to the Voting Agreement among PIH, Mr. Freedman and Steele LLC
dated as of March 29, 1996, David Chase received an irrevocable proxy to vote
all of the 13,686 Voting Agreement Shares on all corporate actions. The Cheryl
Anne Chase Marital Trust, which received its shares from Mr. Freedman, signed an
accession agreement on November 22, 1996. Pursuant to the Voting Agreement, Mr.
Chase was appointed as the Chase Group Representative (as defined in the
Shareholders' Agreement). The Voting Agreement also contains restrictions on the
transferability of Voting Agreement Shares subject to the irrevocable proxy
during the term of the Voting Agreement.
SERVICE AGREEMENTS
PCI has entered into service agreements with PCBV and other of its direct
and indirect subsidiaries (the "Service Agreements"), including Poltelkab,
PTK-Telkat, PTK-Szczecin, PTK-Lublin, ETV, PTK, S.A., PTK-Ryntronik, PTK-Warsaw,
and PTK-Krakow pursuant to which PCI provides various services, including
administrative, technical, managerial, financial, operational and marketing
services to each of the subsidiaries and PCBV serves as PCI's agent. PCI also
entered into a service agreement, dated August 31, 1995, with PCBV and ETV,
whereby PCBV is the principal service provider and PCI acts as agent to PCBV
(the "ETV Service Agreement"). The services provided under these agreements are
intended to enable the subsidiaries to construct, develop, operate and manage
cable television systems throughout Poland. Except for the ETV Service
Agreement, which requires ETV to pay $18,740 per calendar quarter to PCBV, the
Service Agreements provide that the subsidiaries will each pay to PCI or PCBV,
as the case may be, a fee of $10,000 per calendar quarter for performing general
administrative services, and a commercially reasonable rate for legal, financial
and other specific professional services. With the exception of the ETV Service
Agreement, if a subsidiary is obligated to pay fees to PCI pursuant to a
management agreement (described below), any fee payable under the Service
Agreements is waived. The Service Agreements also typically require the
subsidiaries to reimburse PCBV for any reasonable out-of-pocket expenses
incurred by PCBV or PCI, acting as agent for PCBV, including salaries and
benefits, housing allowances, travel expenses, and equipment supply
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or other goods costs. The agreements expire on December 31, 1998, but will
automatically be extended for successive one-year periods unless a party gives
notice on or before January 31, in which case the agreement will terminate at
the end of the calendar year during which such notice was provided.
MANAGEMENT AGREEMENTS
PCI has entered into management agreements with Poltelkab, PTK-Telkat,
PTK-Szczecin, PTK-Lublin, ETV, PTK, S.A., PTK-Ryntronik, PTK-Warsaw, and
PTK-Krakow. The agreements typically provide that the subsidiary will pay to PCI
an annual consulting fee of $320,000 when and to the extent that the
subsidiary's net income exceeds zero and in exchange for organizational and
consulting services rendered by PCI. Telkat pays to PCI an annual consulting fee
of only $160,000. The management agreements also provide for an initial term
ending as of the end of the calendar year during which they became effective,
and provide for successive renewals for one-year periods unless the agreement is
terminated in writing with at least thirty days notice by either party.
CORPORATE OVERHEAD ALLOCATION AGREEMENT
PCI has entered into a Corporate Overhead Allocation Agreement, dated
January 1, 1996 (the "Allocation Agreement"), with PTK, S.A., PTK-Warsaw,
PTK-Ryntronik, PTK-Krakow, PTK-Szczecin, PTK-Lublin, ETV, PTK-Telkat and
Poltelkab (collectively the "PTK Companies"), and PCBV. The Allocation Agreement
provides that costs incurred by PCI or PCBV, acting as PCI's agent, with regard
to the Service Agreements and as otherwise requested by the PTK Companies shall
be allocated and charged to particular PTK Companies in the event they are
directly attributable to such subsidiaries, and shall otherwise be allocated
equally among each of the PTK Companies. With regard to services rendered and
costs incurred by subsidiaries for the benefit of some or all of the PTK
Companies, which include costs associated with maintaining a central office in
Warsaw, legal expenses, expenses relating to governmental relationships and
approvals, programming services, accounting, management information systems
services, and salaries associated with personnel whose duties clearly benefit
other PTK Companies, the Allocation Agreement provides that such expenses shall
be allocated between by the PTK Companies. The Allocation Agreement terminates
on December 31, 1998, but is automatically renewed for successive one-year
periods unless at least thirty days written notice of termination is provided by
PCI or PCBV or any subsidiary, with respect to itself.
DESCRIPTION OF INDEBTEDNESS
CREDIT AGREEMENT WITH THE AMERICAN BANK IN POLAND, S.A.
In August 1996, PCI entered into a credit agreement establishing a
revolving loan facility (the "1996 Facility") which allows PCI to borrow up to a
maximum principal amount of $6.5 million in multiple disbursements on or before
December 31, 1998. As of December 31, 1996 approximately $550,000 was
outstanding under the 1996 Facility. As of the date hereof, there is no amount
outstanding under the facility. The Company will be able to utilize this
facility for future borrowings (subject to the limitations in the Indenture with
regard to incurrence of additional indebtedness).
In addition to an arrangement fee of approximately $50,000 and an annual
charge of 0.25% of the undrawn funds, PCI is required to pay interest on any
outstanding principal amount under the 1996 Facility at a rate equal to the
three-month LIBOR on the date of disbursement plus 3%. The outstanding principal
amount under the 1996 Facility and accrued interest thereon amount is due in
full on August 20, 1999. As of December 31, 1996, the interest rate on this loan
equaled 8.60%. Acceleration of repayment of amounts outstanding under the 1996
Facility may be triggered by certain conditions of default, which include
customary terms associated with revolving loan facilities. In the event of a
default, PCI shall pay an additional penalty of 15% per annum on the outstanding
principal amount under the 1996 Facility.
Amounts outstanding under the 1996 Facility are secured by promissory notes
en blanc from PTK-Warsaw, PTK-Krakow, PTK-Lublin, and pledges of up to all of
the shares of PTK-Warsaw and PTK-Krakow owned by PCBV and all of the shares of
PTK-Lublin owned by Poltelkab.
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INTER-COMPANY INDEBTEDNESS
PCI has entered into a series of grid notes pursuant to which, as of
December 31, 1996, it had loaned approximately $107.9 million to PCBV, $2.8
million to PTK-Szczecin, $0.2 million to PTK-Lublin and $3.6 million to
Poltelkab (the "Grid Notes"). The Grid Note between PCI and PCBV is a revolving
credit facility which calls for the borrower to pay 10% interest, payable
semi-annually, on the outstanding principal amount and contain standard events
of default for related-party indebtedness. The Grid Note between PCI and PCBV
matures before October 31, 2003. The Grid Note between PCI and PTK-Szczecin, the
Grid Note between PCI and PTK-Lublin and the Grid Note between PCI and Poltelkab
are revolving credit facilities on which 10% interest compounds monthly and
which mature on June 30, 1999.
PCBV, in turn, entered into a series of 10% grid notes pursuant to which,
as of December 31, 1996, PCBV had loaned approximately $78 million to PTK S.A.,
PTK-Warsaw, PTK-Ryntronik and PTK-Krakow (the "PCBV Grid Notes"). The PCBV Grid
Notes are revolving credit facilities which call for the borrower to pay
interest of 10% per annum, payable monthly, on the outstanding principal amount
and contain standard events of default for related-party indebtedness. One of
these PCBV Grid Notes becomes due on June 10, 1998 and the other is due on
demand. The PCBV Grid Notes between PCBV and PTK-Ryntronik, PTK-Warsaw and
PTK-Krakow all become due on June 30, 1999.
The Issuer pledged to the Trustee for the benefit of the holders of the
Notes, the Pledged Debt which consisted of Grid Notes issued by PCBV of a
minimum aggregate principal amount, together with cash at the Issuer, equal to
110% of the outstanding principal amount of the Notes and that, in the
aggregate, provide cash collateral or bear interest and provide for principal
repayments, as the case may be, in amounts sufficient to pay interest on the
Notes.
DESCRIPTION OF THE NOTES
The Exchange Notes offered hereby are issued under an indenture dated as of
October 31, 1996 (the "Indenture") between PCI, as issuer, and State Street bank
and Trust Company, as trustee (the "Trustee"). The Exchange Notes will evidence
the same debt as the Old Notes (which they replace) and will be issued under,
and be entitled to the benefits of, the Indenture, which also authorized the
issuance of the Old Notes, such that both series will be treated as a single
class of debt securities under the Indenture. Upon the issuance of the Exchange
Notes, if any, or the effectiveness of the Shelf Registration Statement, the
Indenture will be subject to and governed by the Trust Indenture Act. The
following summary of certain provisions of the Indenture does not purport to be
complete and is subject to, and qualified in its entirety by reference to, the
provisions of the Indenture, including the definitions of certain terms
contained therein and those terms made part of the Indenture by reference to the
Trust Indenture Act. For definitions of certain capitalized terms used in this
summary, see "-- Certain Definitions."
GENERAL
The Notes are senior obligations of PCI limited to $130 million aggregate
principal amount. The Notes will mature on November 1, 2003. Each Note bears
interest at the rate set forth on the cover page hereof from October 31, 1996 or
from the most recent interest payment date to which interest has been paid or
duly provided for, payable in cash on May 1, 1997 and semiannually thereafter on
May 1 and November 1 in each year (each, an "Interest Payment Date") until the
principal thereof is paid or duly provided for to the Person in whose name the
Note (or any predecessor Note) is registered at the close of business on the
April 15 or October 15 preceding such interest payment date. The Exchange Notes
issued in exchange for Old Notes will accrue interest from the later of October
31, 1996, the Issue Date, or the last day interest was paid on the Old Notes.
Holders whose Old Notes are accepted for exchange will be deemed to have waived
the right to receive any accrued but unpaid interest on the Old Notes. Interest
is computed on the basis of a 360-day year comprised of twelve 30-day months.
The circumstances under which the interest rate may increase from the rate set
forth on the front cover hereof are described below under "Exchange Offer;
Registration Rights."
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Principal of (premium, if any, on) and interest on the Notes is payable,
and the Notes are exchangeable and transferable, at the office or agency of PCI
in The City of New York maintained for such purposes (which initially will be
the office of the Trustee); provided, however, that payment of interest may be
made at the option of PCI by check mailed to the address of the Person entitled
thereto as shown on the security register. (Sections 301, 305 and 1002) The
Notes are issued only in fully registered form without coupons and only in
denominations of $1,000 and any integral multiple thereof. (Section 302) No
service charge will be made for any registration of transfer or exchange or
redemption of Notes, but PCI may require payment in certain circumstances of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection therewith. (Section 305)
RANKING
The indebtedness of PCI evidenced by the Notes ranks senior in right of
payment to all indebtedness of PCI subordinated to the Notes and pari passu in
right of payment with all other existing and future unsubordinated indebtedness
of PCI.
PCI is a holding company with limited assets and no business operations of
its own. PCI operates its business through its subsidiaries. Any right of PCI
and its creditors, including holders of the Notes, to participate in the assets
of any of PCI's subsidiaries upon any liquidation or administration of any such
subsidiary will be subject to the prior claims of the subsidiary's creditors,
including trade creditors. PCI has pledged to the Trustee for the benefit of the
holders of Notes the Pledged Debt issued by PCBV, of a minimum aggregate
principal amount, together with cash and cash equivalents of PCI, equal to at
least 110% of the outstanding principal amount of the Notes and that, in the
aggregate, provide cash collateral or bear interest and provide for principal
repayments, as the case may be, in amounts sufficient to pay interest on the
Notes. The assets of PCBV consist principally of capital stock of its
subsidiaries and intercompany notes from such subsidiaries. The Pledged Debt may
not be amended or pledged to any person other than the Trustee for the benefit
of the holders of the Notes. The Indenture, however, does not contain any
specific covenant prohibiting PCI or PCBV from amending, waiving any rights
under, pledging or terminating any intercompany notes other than the Pledged
Debt. For a discussion of certain adverse consequences of PCI being a holding
company and of the terms of certain existing and potential future indebtedness
of PCI and its subsidiaries, see "Risk Factors -- Holding Company Structure."
SINKING FUND
The Notes are not entitled to the benefit of any sinking fund.
REDEMPTION
At any time or from time to time prior to November 1, 1999 PCI may redeem
up to a maximum of 33% of the initially outstanding aggregate principal amount
of the Notes with some or all of the net proceeds of one or more Public Equity
Offerings at a redemption price equal to 109.875% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of redemption
(subject to the right of holders of record on relevant record dates to receive
interest due on relevant interest payment dates); provided that immediately
after giving effect to such redemption, at least $87 million aggregate principal
amount of the Notes remains outstanding.
In addition, (a) upon the occurrence of a Change of Control, each holder of
Notes has the right to require that PCI purchase such holder's Notes, in whole
or in part in integral multiples of $1,000, at a purchase price in cash in an
amount equal to 101% of the principal amount of such Notes, plus accrued and
unpaid interest, if any, to the date of purchase (subject to the right of
holders of record on relevant record dates to receive interest due on relevant
interest payment dates), and (b) upon the occurrence of an Asset Sale, PCI may
be obligated to make an offer to purchase all or a portion of the outstanding
Notes at a price of 100% of the principal amount of such Notes, together with
accrued and unpaid interest, if any, to the date of redemption (subject to the
right of holders of record on relevant record dates to receive interest due on
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relevant interest payment dates). See "-- Certain Covenants -- Purchase of Notes
upon a Change of Control" and "-- Limitation on Sale of Assets," respectively.
If less than all the Notes are to be redeemed, the particular Notes to be
redeemed will be selected not more than 60 days prior to the redemption date by
the Trustee by such method as the Trustee shall deem fair and appropriate;
provided, however, that no such partial redemption will reduce the principal
amount of a Note not redeemed to less than $1,000. Notice of redemption will be
mailed, first-class postage prepaid, at least 30 but not more than 60 days
before the redemption date to each holder of Notes to be redeemed at its
registered address. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note will state the portion of the principal
amount thereof to be redeemed. A new Note in a principal amount equal to the
unredeemed portion thereof will be issued in the name of the holder thereof upon
cancellation of the original Note. On and after the redemption date, interest
will cease to accrue on Notes or portions thereof called for redemption and
accepted for payment. (Sections 1104, 1105, 1107 and 1108)
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Additional Indebtedness. PCI will not, and will not permit
any Subsidiary, directly or indirectly, to create, incur, assume, issue,
guarantee or in any manner become directly or indirectly liable for or with
respect to, contingently or otherwise, the payment of (collectively, to "incur")
any Indebtedness (including any Acquired Indebtedness), except for Permitted
Indebtedness; provided that (a) PCI will be permitted to incur Indebtedness and
(b) any Subsidiary will be permitted to incur Acquired Indebtedness, if, in
either case, after giving pro forma effect to such incurrence (including the
application of the net proceeds therefrom), the ratio of (x) Total Consolidated
Indebtedness outstanding as of the date of such incurrence to (y) Annualized Pro
Forma Consolidated Operating Cash Flow would be greater than zero and less than
or equal to 6.0 to 1.
Limitation on Restricted Payments. PCI will not make, and will not permit
any Subsidiary to make, directly or indirectly, any Restricted Payment unless:
(a) no Default shall have occurred and be continuing at the time of or
after giving effect to such Restricted Payment;
(b) immediately after giving effect to such Restricted Payment, PCI
would be able to incur at least $1.00 of Indebtedness (other than Permitted
Indebtedness) under the proviso of the covenant "Limitation on Additional
Indebtedness"; and
(c) immediately after giving effect to such Restricted Payment, the
aggregate amount of all Restricted Payments declared or made on or after
the Issue Date would not exceed an amount equal to the sum of (i) the
difference between (x) the Cumulative Available Cash Flow determined at the
time of such Restricted Payment and (y) the product of (1) 1.5 and (2) the
cumulative Consolidated Interest Expense of PCI 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 PCI are
available preceding the date of such Restricted Payment (or if such
difference shall be a negative number, minus 100% of such number), plus
(ii) the aggregate Net Cash Proceeds received by PCI either (x) as capital
contributions to PCI after the Issue Date or (y) from the issue or sale
(other than to a Subsidiary) of Capital Stock of PCI (other than Redeemable
Capital Stock) on or after the Issue Date, excluding in the case of each of
the preceding subclauses (x) and (y) any Net Cash Proceeds that are,
promptly following receipt, invested in accordance with clause (b), (c) or
(f) of the next following paragraph, plus (iii) the aggregate Net Cash
Proceeds received by PCI from the issuance (other than to a Subsidiary) on
or after the Issue Date of its Capital Stock (other than Redeemable Capital
Stock) upon the conversion of, or exchange for, Indebtedness of PCI issued
after the Issue Date, plus (iv) in the case of the disposition or repayment
of any Investment constituting a Restricted Payment made after the Issue
Date (other than in the case contemplated by clause (v) hereof) 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
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of such Investment, plus (v) in the case of Investments made in any Person
other than a Subsidiary, the total amount of such Investments constituting
Restricted Payments if and when such Person becomes a Subsidiary less any
amounts previously credited pursuant to clause (iv).
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 provisions of this covenant prohibit (a) the payment of any dividend or
other distribution within 60 days after the date of declaration thereof if at
such date of declaration such payment complied with the provisions of the
Indenture; (b) so long as no Default shall have occurred and be continuing, the
purchase, redemption, retirement or other acquisition of any shares of Capital
Stock of PCI in exchange for, or out of the net cash proceeds of the
substantially concurrent issue and sale (other than to a Subsidiary) of, shares
of Capital Stock of PCI (other than Redeemable Capital Stock); (c) so long as no
Default shall have occurred and be continuing, the purchase, redemption,
retirement, defeasance or other acquisition of Subordinated Indebtedness made by
exchange for, or out of the net cash proceeds of, a substantially concurrent
issue or sale (other than to a Subsidiary) of (i) Capital Stock (other than
Redeemable Capital Stock) of PCI or (ii) other Subordinated Indebtedness having
no stated maturity for the payment of principal thereof prior to the 180th day
after the Stated Maturity of the Notes; (d) so long as no Default shall have
occurred and be continuing, Investments by PCI or any Subsidiary in a Person
(other than a Subsidiary) that operates or has been formed to operate a
Cable/Telecommunications Business or that holds a license to operate a
Cable/Telecommunications Business in an amount not to exceed $10 million (or, if
non-U.S Dollar denominated, the U.S. Dollar Equivalent thereof) at any one time
outstanding; (e) the extension by PCI and the Subsidiaries of trade credit to
Unrestricted Subsidiaries, represented by accounts receivable, extended on usual
and customary terms in the ordinary course of business; (f) Investments in
Unrestricted Subsidiaries promptly made with the proceeds of a substantially
concurrent (i) capital contribution to PCI or (ii) issue or sale of Capital
Stock (other than Redeemable Capital Stock) of PCI; (g) so long as no Default
shall have occurred and be continuing, Investments by PCI or any Subsidiary in
any Person (including any Management Company or any Unrestricted Subsidiary)
that produces or has been formed to produce television programming or operates a
business reasonably related thereto in an amount not to exceed $5 million (or,
if non-U.S. Dollar denominated, the U.S. Dollar Equivalent thereof) in any year
and not to exceed $15 million (or, if non-U.S. Dollar denominated, the U.S.
Dollar Equivalent thereof) at any one time outstanding; (h) Use of Proceeds
Payments; and (i) payments made pursuant to the Shareholder Registration Rights
Agreement.
In determining the amount of Restricted Payments permissible under this
covenant, amounts expended pursuant to clauses (a), (d) and (g) above shall be
included as Restricted Payments.
Limitation on Issuances and Sales of Capital Stock of Subsidiaries. (a)
PCI (i) will not permit any Subsidiary to issue any Capital Stock (other than to
PCI or a Subsidiary) and (ii) will not permit any Person (other than PCI, an
Authorized Prior Owner or a Subsidiary) to own any Capital Stock of any
Subsidiary; provided, however, that this covenant shall not prohibit (w) the
issuance and sale of all, but not less than all, of the issued and outstanding
Capital Stock of any Subsidiary in compliance with the other provisions of the
Indenture, (x) issuances of Capital Stock by a non-Wholly Owned Subsidiary if,
after giving effect to such issuance, PCI or any other Subsidiary maintains its
percentage ownership of such non-Wholly Owned Subsidiary, (y) the ownership by
directors of directors' qualifying shares or the ownership by foreign nationals
of Capital Stock of any Subsidiary, to the extent mandated by applicable law or
(z) the issuance of Capital Stock of any Subsidiary in connection with a
Cable/Telecommunications Acquisition.
(b) PCI will not permit the direct or indirect ownership of PCI or any
Subsidiary in the Capital Stock of any Management Company to fall below the
maximum ownership percentage permitted by applicable law; provided that any such
increase in such ownership of the Capital Stock of any Management Company
required by any such change in applicable law shall not be required to be
completed prior to 365 days from the effective date of such change in applicable
law; provided further that PCI and the Subsidiaries may sell all, but not less
than all, of their Capital Stock of any Management Company in accordance with
the provisions of the "Limitation on Sale of Assets" covenant.
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Limitation on Transactions with Affiliates. (a) PCI will not, and will not
permit any Subsidiary to, directly or indirectly, enter into or suffer to exist
any transaction or series of related transactions (including, without
limitation, the sale, purchase, exchange or lease of assets, property or
services) with, or for the benefit of, any Affiliate of PCI (other than PCI or a
Majority Owned Subsidiary) unless (i) such transaction or series of related
transactions is on terms that are no less favorable to PCI or such Subsidiary,
as the case may be, than those that could have been obtained in an arm's-length
transaction with unrelated third parties who are not Affiliates, (ii) with
respect to any transaction or series of related transactions involving aggregate
consideration equal to or greater than $5 million, PCI shall have delivered an
officers' certificate to the Trustee certifying that such transaction or series
of related transactions complies with clause (i) above and such transaction or
series of related transactions has been approved by a majority of the Directors
of the Board of Directors of PCI, or PCI has obtained a written opinion from a
nationally recognized investment banking firm to the effect that such
transaction or series of related transactions is fair to PCI or such Subsidiary,
as the case may be, from a financial point of view and (iii) with respect to any
transaction or series of related transactions including aggregate consideration
in excess of $10 million, PCI shall have delivered an officers' certificate to
the Trustee certifying that such transaction or series of related transactions
complies with clause (i) above and such transaction or series of related
transactions has been approved by a majority of the Disinterested Directors of
the Board of Directors, or in the event no members of the Board of Directors of
PCI are Disinterested Directors with respect to any transaction or series of
transactions included in this clause (iii), PCI shall obtain an opinion from a
nationally recognized investment banking firm as described above; provided,
however that this provision will not restrict (1) any transaction by PCI or any
Subsidiary with an Affiliate directly related to the purchase, sale or
distribution of products in the ordinary course of business, including, without
limitation, transactions related to the purchase, sale or distribution of
programming, (2) PCI from paying reasonable and customary regular compensation
and fees to directors of PCI or any Subsidiary who are not employees of PCI or
any Subsidiary, (3) the payment of compensation (including stock options and
other incentive compensation) to officers and other employees the terms of which
are approved by the Board, (4) any transactions pursuant to a Management
Agreement, (5) PCI or any Subsidiary from making any Restricted Payment in
compliance with the "Limitation on Restricted Payments" covenant or (6) (x)
transactions pursuant to any Management Contract, Overhead Agreement or Service
Agreement that is entered into prior to the Issue Date and is listed in an
exhibit to the Indenture or the Ryntronik Agreement; (y) transactions pursuant
to any Management Contract, Overhead Agreement or Service Agreement that is
entered into after the Issue Date and has substantially similar terms as, and is
no less favorable to PCI or any Subsidiary than, the Management Contracts,
Overhead Agreements or Service Agreements, as the case may be, listed in the
exhibit to the Indenture.
(b) PCI will not, and will not permit any Subsidiary to, amend, modify, or
in any way alter the terms of any Management Agreement, Management Contract,
Overhead Agreement or Service Agreement or the Ryntronik Agreement in a manner
materially adverse to PCI other than (i) by adding new Subsidiaries to a
Management Agreement, (ii) amendments, modifications or alterations required by
applicable law, (iii) amendments, modifications or alterations made to increase
PCI's control over, or interest in, any Management Company or (iv) amendments,
modifications or alterations that are approved by a majority of the
Disinterested Directors of the Board of Directors of PCI.
Limitation on Liens. PCI will not, and will not permit any Subsidiary to,
directly or indirectly, create, incur, assume or suffer to exist any Lien of any
kind, except for Permitted Liens, on or with respect to any of its property or
assets, whether owned at the date of the Indenture or thereafter acquired, or
any income, profits or proceeds therefrom, or assign or otherwise convey any
right to receive income thereon, unless (x) in the case of any Lien securing
Subordinated Indebtedness, the Notes are secured by a Lien on such property,
assets or proceeds that is senior in priority to such Lien and (y) in the case
of any other Lien, the Notes are equally and ratably secured.
Limitation on Issuances of Guarantees of Indebtedness by
Subsidiaries. (a) PCI will not permit any Subsidiary, directly or indirectly,
to guarantee, assume or in any other manner become liable with respect to any
Indebtedness of PCI unless such Subsidiary simultaneously executes and delivers
a supplemental indenture providing for the guarantee of payment of the Notes by
such Subsidiary on a basis senior to any
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guarantee of Subordinated Indebtedness or at least pari passu with any guarantee
of Pari Passu Indebtedness; provided that this paragraph (a) shall not be
applicable to (i) any guarantee of any Subsidiary that existed at the time such
Person became a Subsidiary or (ii) any guarantee of any Subsidiary of Senior
Bank Indebtedness.
(b) Notwithstanding the foregoing, any guarantee of the Notes created
pursuant to the provisions described in the foregoing paragraph (a) 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 who is not
an Affiliate of PCI, of all of PCI's Capital Stock in, or all or substantially
all the assets of, such Subsidiary (which sale, exchange or transfer is not
prohibited by the Indenture) or (ii) the release by the holders of the
Indebtedness of PCI described in the preceding paragraph of their guarantee by
such Subsidiary (including any deemed release upon payment in full of all
obligations under such Indebtedness, except by or as a result of payment under
such guarantee), at a time when (A) no other Indebtedness of PCI has been
guaranteed by such Subsidiary or (B) the holders of all such other Indebtedness
which is guaranteed by such Subsidiary also release their guarantee by such
Subsidiary (including any deemed release upon payment in full of all obligations
under such Indebtedness).
Purchase of Notes upon a Change of Control. If a Change of Control shall
occur at any time, then each holder of Notes shall have the right to require
that PCI purchase such holder's Notes, in whole or in part in integral multiples
of $1,000, at a purchase price (the "Change of Control Purchase Price") in cash
in an amount equal to 101% of the principal amount of such Notes, plus accrued
and unpaid interest, if any, to the date of purchase (the "Change of Control
Purchase Date"), pursuant to the offer described below (the "Change of Control
Offer") and the other procedures set forth in the Indenture.
Within 30 days following any Change of Control, PCI shall notify the
Trustee thereof and give written notice of such Change of Control to each holder
of Notes by first-class mail, postage prepaid, at the address of such holder
appearing in the security register, stating, among other things, (a) the
purchase price and the purchase date, which shall be a Business Day no earlier
than 30 days nor later than 60 days from the date such notice is mailed, or such
later date as is necessary to comply with requirements under the Exchange Act;
(b) that any Note not tendered will continue to accrue interest; (c) that,
unless PCI defaults in the payment of the purchase price, any Notes accepted for
payment pursuant to the Change of Control Offer shall cease to accrue interest
after the Change of Control Purchase Date; and (d) certain other procedures that
a holder of Notes must follow to accept a Change of Control Offer or to withdraw
such acceptance. (Section 1016)
If a Change of Control Offer is made, there can be no assurance that PCI
will have available funds sufficient to pay the Change of Control Purchase Price
for all of the Notes that might be delivered by holders of the Notes seeking to
accept the Change of Control Offer. The failure of PCI to make or consummate the
Change of Control Offer or pay the Change of Control Purchase Price when due
would result in an Event of Default and would give the Trustee and the holders
of the Notes the rights described under "Events of Default."
One of the events which constitutes a Change of Control under the Indenture
is the disposition of "all or substantially all" of PCI's assets. This term has
not been interpreted under New York law (which is the governing law of the
Indenture) to represent a specific quantitative test. As a consequence, in the
event holders of the Notes elect to require PCI to purchase the Notes and PCI
elects to contest such election, there can be no assurance as to how a court
interpreting New York law would interpret the phrase.
The existence of a holder's right to require PCI to purchase such holder's
Notes upon a Change of Control may deter a third party from acquiring PCI in a
transaction which constitutes a Change of Control.
The definition of "Change of Control" in the Indenture is limited in scope.
The provisions of the Indenture may not afford holders of Notes the right to
require PCI to purchase such Notes in the event of a highly leveraged
transaction or certain transactions with PCI's management or its affiliates,
including a reorganization, restructuring, merger or similar transaction
involving PCI (including, in certain circumstances, an acquisition of PCI by
management or its affiliates) that may adversely affect holders of the Notes, if
such transaction is not a transaction defined as a Change of Control. See
"--Certain Definitions" for the definition
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of "Change of Control." A transaction involving PCI's management or its
affiliates, or a transaction involving a recapitalization of PCI, would result
in a Change of Control if it is the type of transaction specified by such
definition.
PCI will comply with the applicable tender offer rules including Rule 14e-l
under the Exchange Act, and any other applicable securities laws and regulations
in connection with a Change of Control Offer. (Section 1016)
PCI will not enter into any agreement that would prohibit PCI from making a
Change of Control Offer to purchase the Notes or if such Change of Control Offer
is made, to pay for the Notes tendered for purchase. (Section 1016)
Limitation on Sale of Assets. (a) PCI will not, and will not permit any
Subsidiary to, directly or indirectly, engage in any Asset Sale unless (i) the
consideration received by PCI or such Subsidiary for such Asset Sale is not less
than the Fair Market Value of the shares or assets sold (as determined by the
Board of Directors of PCI, whose determination shall be conclusive and evidenced
by a Board Resolution) and (ii) the consideration received by PCI or the
relevant Subsidiary in respect of such Asset Sale consists of at least 85% cash
or Cash Equivalents.
(b) If PCI or any Subsidiary engages in an Asset Sale, PCI may use the Net
Cash Proceeds thereof, within 12 months after the later of such Asset Sale or
the receipt of such Net Cash Proceeds, (i) to permanently repay or prepay any
then outstanding Senior Bank Indebtedness of PCI or a Subsidiary, (ii) to invest
in any one or more business, capital expenditure or other tangible asset of PCI
or any Subsidiary, in each case, engaged, used or useful in a
Cable/Telecommunications Business of PCI and its Subsidiaries (or enter into a
legally binding agreement to do so) or (iii) to invest in properties or assets
that replace the properties and assets that are the subject to such Asset Sale
(or enter into a legally binding agreement to do so). If any such legally
binding agreement to invest such Net Cash Proceeds is terminated, then PCI may,
within 90 days of such termination or within 12 months of such Asset Sale,
whichever is later, apply or invest such Net Cash Proceeds as provided in clause
(ii) or (iii) (without regard to the parenthetical contained in clauses (ii) or
(iii)) above. The amount of such Net Cash Proceeds not so used as set forth
above in this paragraph (b) constitutes "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds $10,000,000, PCI
shall, within 30 business days, make an offer to purchase (an "Excess Proceeds
Offer") from all holders of Notes, on a pro rata basis, in accordance with the
procedures set forth below, the maximum principal amount (expressed as a
multiple of $1,000) of Notes that may be purchased with the Excess Proceeds. The
offer price as to each Note shall be payable in cash in an amount equal to 100%
of the principal amount of such Note plus accrued and unpaid interest, if any
(the "Offered Price"), to the date such Excess Proceeds Offer is consummated
(the "Offer Date"). To the extent that the aggregate principal amount of Notes
tendered pursuant to an Excess Proceeds Offer is less than the Excess Proceeds
relating thereto, PCI may use such additional Excess Proceeds for general
corporate purposes. If the aggregate principal amount of Notes validly tendered
and not withdrawn by holders thereof exceeds the Excess Proceeds, Notes to be
purchased will be selected on a pro rata basis. Upon completion of such offer to
purchase, the amount of Excess Proceeds shall be reset to zero. (Section 1017)
(d) If PCI becomes obligated to make an Offer pursuant to clause (c) above,
the Notes shall be purchased by PCI, at the option of the holder thereof, in
whole or in part in integral multiples of $1,000, on a date that is not earlier
than 30 days and not later than 60 days from the date the notice is given to
holders, or such later date as may be necessary for PCI to comply with the
requirements under the Exchange Act, subject to proration in the event the
amount of Excess Proceeds is less than the aggregate Offered Price of all Notes
tendered.
(e) PCI will comply with the applicable tender offer rules, including Rule
14e-1 under the Exchange Act, in connection with an Excess Proceeds Offer.
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries. PCI will not, and will not permit any Subsidiary to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective any
encumbrance or restriction of any kind on the ability of any Subsidiary to (a)
pay dividends, in
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cash or otherwise, or make any other distributions on or in respect of its
Capital Stock, (b) pay any Indebtedness owed to PCI or any other Subsidiary, (c)
make Investments in PCI or any other Subsidiary, (d) transfer any of its
properties or assets to PCI or any other Subsidiary or (e) guarantee any
Indebtedness of PCI or any other Subsidiary, except in all such cases for such
encumbrances or restrictions existing under or by reason of (i) any agreement or
instrument in effect on the date of the Indenture and listed on Schedule A
attached to the Indenture, (ii) applicable law or regulation (including
corporate governance provisions required by applicable law and regulations of
the National Bank of Poland), (iii) customary non-assignment provisions of any
lease governing a leasehold interest of PCI or any Subsidiary, (iv) any
agreement or other instrument of a Person acquired by PCI or any Subsidiary in
existence at the time of such acquisition (but not created in contemplation
thereof), which encumbrance or restriction is not applicable to any Person, or
the properties or assets of any Person, other than the Person, or the property
or assets of the Person, so acquired, (v) any mortgage or other Lien on real
property acquired or improved by PCI or any Subsidiary after the date of the
Indenture that prohibit transfers of the type described in (d) above with
respect to such real property, (vi) with respect to a Subsidiary, imposed
pursuant to an agreement that has been entered into for the sale or disposition
of all or substantially all of PCI's Capital Stock in, or substantially all the
assets of, such Subsidiary, (vii) the refinancing of Indebtedness incurred under
the agreements listed on Schedule A attached to the Indenture or described in
clause (v) above, so long as such encumbrances or restrictions are no less
favorable in any material respect to PCI or any Subsidiary than those contained
in the respective agreement as in effect on the date of the Indenture, (viii)
any such customary encumbrance or restriction contained in a security document
creating a Lien permitted under the Indenture to the extent relating to the
property or asset subject to such Lien, (ix) any agreement or instrument
governing or relating to Senior Bank Indebtedness (an "Indebtedness Instrument")
if such encumbrance or restriction applies only (x) to amounts which at any
point in time (other than during such periods as are described in the following
clause (y)) (1) exceed amounts due and payable (or which are to become due and
payable within 30 days) in respect of the Notes or the Indenture for interest,
premium and principal (after giving effect to any realization by PCI under any
applicable Currency Agreement), or (2) if paid, would result in an event
described in the following clause (y) of this sentence, or (y) during the
pendency of any event that causes, permits or, after notice or lapse of time,
would cause or permit the holder(s) of the Senior Bank Indebtedness governed by
the Indebtedness Instrument to declare any such Indebtedness to be immediately
due and payable or require cash collateralization or cash cover for such
Indebtedness for so long as such cash collateralization or cash cover has not
been provided, or (x) arising or agreed to in the ordinary course of business,
not relating to any Indebtedness and that do not individually, or together with
all such encumbrances or restrictions, detract from the value of property or
assets of PCI or any Subsidiary in any manner material to PCI or any Subsidiary.
Limitation on Investments in Unrestricted Subsidiaries. PCI will not make,
and will not permit any of its Subsidiaries to make, any Investments in
Unrestricted Subsidiaries if, at the time thereof, the aggregate amount of such
Investments would exceed the amount of Restricted Payments then permitted to be
made pursuant to the "Limitation on Restricted Payments" covenant. Any
Investments in Unrestricted Subsidiaries permitted to be made pursuant to this
covenant (a) will be treated as the making of a Restricted Payment in
calculating the amount of Restricted Payments made by PCI or a Subsidiary and
(b) may be made in cash or property (if made in property, the Fair Market Value
thereof as determined by the Board of Directors of PCI (whose determination
shall be conclusive and evidenced by a Board Resolution) shall be deemed to be
the amount of such Investment for the purpose of clause (a)).
Limitation on Lines of Business. PCI will not, and will not permit any
Subsidiary of PCI to, engage in any business other than the
Cable/Telecommunications Business. In addition, PCI will not transfer, and will
not permit any Subsidiary to transfer, to any Person (other than PCI or any
Subsidiary) (a) any of the licenses, permits or authorizations used in the
Cable/Telecommunications Business of PCI and its Subsidiaries on the Issue Date
or (b) any material portion of the property and equipment of PCI or any
Subsidiary used in the territories covered by the Cable/Telecommunications
Business of PCI and the Subsidiaries as it exists on the Issue Date; provided
that Company and the Subsidiaries may make Asset Sales in compliance with the
"Limitation on Sale of Assets" covenant and pledge property and assets to the
extent permitted under the "Limitation on Liens" covenant.
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Provision of Financial Statements and Reports. (a) Prior to the
consummation of the Exchange Offer or the effectiveness of a Shelf Registration
Statement, PCI will make available, upon request, to any holder of Notes or
prospective purchasers of Notes the information specified in Rule 144A(d)(4)
under the Securities Act, unless PCI furnishes information to the Commission
pursuant to Section 13 or 15(d) of the Securities Act.
(b) After the consummation of the Exchange Offer or the effectiveness of a
Shelf Registration Statement, PCI will file on a timely basis with the
Commission, to the extent such filings are accepted by the Commission and
whether or not PCI has a class of securities registered under the Exchange Act,
the annual reports, quarterly reports and other documents that PCI would be
required to file if it were subject to Section 13 or 15 of the Exchange Act. PCI
will also be required (a) to file with the Trustee, and provide to each holder
of Notes, without cost to such holder, copies of such reports and documents
within 15 days after the date on which PCI files such reports and documents with
the Commission or the date on which PCI would be required to file such reports
and documents if PCI were so required, and (b) if filing such reports and
documents with the Commission is not accepted by the Commission or is prohibited
under the Exchange Act, to supply at PCI's cost copies of such reports and
documents to any prospective holder of Notes promptly upon written request.
CONSOLIDATION, MERGER AND SALE OF ASSETS
PCI will not in a single transaction or a series of related transactions
consolidate with or merge with or into any other Person or sell, assign, convey,
transfer, lease or otherwise dispose of all or substantially all of its
properties and assets as an entirety to any Person or Persons, and PCI will not
permit any Subsidiary to enter into any such transaction, or series of
transactions, if such transaction or series of transactions, in the aggregate,
would result in the sale, assignment, conveyance, transfer, lease or other
disposition of all or substantially all of the properties and assets of PCI and
its Subsidiaries on a consolidated basis to any Person or Persons, unless: (a)
either (i) PCI shall be the surviving corporation or (ii) the Person (if other
than PCI) formed by such consolidation or into which PCI or PCI and its
Subsidiaries is merged or the Person which acquires by sale, conveyance,
transfer, lease or other disposition, all or substantially all of the properties
and assets of PCI or PCI and its Subsidiaries, as the case may be, (the
"Surviving Entity") (x) shall be a corporation organized and validly existing
under the laws of the United States of America, any state thereof or the
District of Columbia and (y) shall expressly assume, by an indenture
supplemental to the Indenture executed and delivered to the Trustee, in form
satisfactory to the Trustee, PCI's obligations for the due and punctual payment
of the principal of (or premium, if any, on) and interest on all the Notes and
the performance and observance of every covenant of the Indenture on the part of
PCI to be performed or observed; (b) immediately before and after giving effect
to such transaction or series of transactions on a pro forma basis (and treating
any obligation of PCI or any Subsidiary in connection with or as a result of
such transaction as having been incurred at the time of such transaction), no
Default or Event of Default shall have occurred and be continuing; (c)
immediately before and immediately after giving effect to such transaction or
series of transactions on a pro forma basis (on the assumption that the
transaction or series of transactions occurred on the first day of the latest
fiscal quarter for which consolidated financial statements of PCI are available
prior to the consummation of such transaction or series of transactions with the
appropriate adjustments with respect to the transaction or series of
transactions being included in such pro forma calculation), PCI (or the
Surviving Entity if PCI is not the continuing obligor under the Indenture) could
incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) under the proviso to the "Limitation on Additional Indebtedness"
covenant; (d) if any of the property or assets of PCI or any of its Subsidiaries
would thereupon become subject to any Lien, the provisions of the "Limitation on
Liens" covenant are complied with; and (e) PCI or the Surviving Entity shall
have delivered to the Trustee an Officers' Certificate and an opinion of
counsel, each stating that such consolidation, merger, sale, assignment,
conveyance, transfer, lease or other disposition and such supplemental indenture
comply with the terms of the Indenture. (Section 801) Notwithstanding the
foregoing, the provisions of subsection (c) above shall not apply to the merger
of PCI with and into a wholly owned Delaware Subsidiary prior to March 1, 1997
for the sole purpose of changing its jurisdiction of incorporation from New York
to Delaware.
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Upon any consolidation or merger, or any sale, assignment, conveyance,
transfer, lease or other disposition of all of substantially all of the
properties and assets of PCI in accordance with the immediately preceding
paragraph in which PCI is not the continuing obligor under the Indenture, the
Surviving Entity shall succeed to, and be substituted for, and may exercise
every right and power of, PCI under the Indenture, with the same effect as if
such successor had been named as PCI therein. When a successor assumes all the
obligations of its predecessor under the Indenture and the Notes, the
predecessor shall be released from those obligations; provided that in the case
of a transfer by lease, the predecessor shall not be released from the payment
of principal and interest on the Notes.
EVENTS OF DEFAULT
The following constitute "Events of Default" under the Indenture:
(a) default in the payment of any interest on any Note when it becomes
due and payable and continuance of such default for a period of 30 days;
(b) default in the payment of the principal of or premium, if any, on
any Note at its Maturity;
(c) default in the performance, or breach, of the provisions described
in "Consolidation, Merger and Sale of Assets," the failure to make or
consummate a Change of Control offer in accordance with the provisions of
the "Purchase of Notes upon a Change of Control" covenant or the failure to
make or consummate an Excess Proceeds Offer in accordance with the
provisions of the "Limitation on Sale of Assets" covenant;
(d) default in the performance, or breach, of any covenant or
agreement of PCI contained in the Indenture (other than a default in the
performance, or breach, of a covenant or warranty which is specifically
dealt with elsewhere in the Indenture) and continuance of such default or
breach for a period of 30 days after written notice shall have been given
to PCI by the Trustee or to PCI and the Trustee by the holders of at least
25% in aggregate principal amount of the Notes then outstanding;
(e) (i) one or more defaults in the payment of principal of or
premium, if any, on Indebtedness of PCI or any Significant Subsidiary
aggregating $5 million or more, when the same becomes due and payable at
the stated maturity thereof, and such default or defaults shall have
continued after any applicable grace period and shall not have been cured
or waived or (ii) Indebtedness of PCI or any Significant Subsidiary
aggregating $5 million or more shall have been accelerated or otherwise
declared due and payable, or required to be prepaid or repurchased (other
than by regularly scheduled required prepayment) prior to the stated
maturity thereof;
(f) any holder or holders (or any Person acting on any such holder's
behalf) of any Indebtedness in excess of $5 million in the aggregate of PCI
or any Significant Subsidiary shall, subsequent to the occurrence of a
default with respect to such Indebtedness, notify the Trustee of the
intended sale or disposition of any assets of PCI or any Subsidiary that
have been pledged to or for the benefit of such Person to secure such
Indebtedness or shall commence proceedings, or take action to retain in
satisfaction of any such Indebtedness, or to collect on, seize, dispose of
or apply, any such assets of PCI or any Subsidiary pursuant to the terms of
any agreement or instrument evidencing any such Indebtedness of PCI or any
Subsidiary or in accordance with applicable law;
(g) one or more final judgments, orders or decrees of any court or
regulatory agency shall be rendered against PCI or any Significant
Subsidiary or their respective properties for the payment of money, either
individually or in an aggregate amount, in excess of $5 million and either
(i) an enforcement proceeding shall have been commenced by any creditor
upon such judgment or order or (ii) there shall have been a period of 30
consecutive days during which a stay of enforcement of such judgment or
order, by reason of a pending appeal or otherwise, was not in effect; or
(h) the occurrence of certain events of bankruptcy, insolvency or
reorganization with respect to PCI or any Significant Subsidiary; and
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(i) breach by PCI of any material representation or warranty set forth
in the Pledge Agreement, or default by PCI in the performance of any
covenant set forth in the Pledge Agreement, or repudiation by PCI of its
obligations under the Pledge Agreement or the unenforceability of any
material provision of the Pledge Agreement for any reason.
If an Event of Default (other than an Event of Default arising from an
event of bankruptcy, insolvency or reorganization with respect to PCI or any
Significant Subsidiary) shall occur and be continuing, the Trustee or the
holders of not less than 25% in aggregate principal amount of the Notes then
outstanding, by written notice to PCI (and to the Trustee if such notice is
given by the holders), may, and the Trustee upon the written request of such
holders, shall declare the principal of, premium, if any, and accrued interest
on all of the outstanding Notes immediately due and payable, and upon any such
declaration all such amounts payable in respect of the Notes shall become
immediately due and payable. If an Event of Default arising from an event of
bankruptcy, insolvency or reorganization with respect to PCI or any Significant
Subsidiary occurs and is continuing, then the principal of, premium, if any, and
accrued interest on all of the outstanding Notes shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any holder of Notes. (Section 502)
At any time after a declaration of acceleration under the Indenture, but
before a judgment or decree for payment of the money due has been obtained by
the Trustee, the holders of a majority in aggregate principal amount of the
outstanding Notes, by written notice to PCI and the Trustee, may rescind such
declaration and its consequences if (a) PCI has paid or deposited with the
Trustee a sum sufficient to pay (i) all overdue interest on all outstanding
Notes, (ii) all unpaid principal of and premium, if any, on any outstanding
Notes that have become due otherwise than by such declaration of acceleration
and interest thereon at the rate borne by the Notes, (iii) to the extent that
payment of such interest is lawful, interest upon overdue interest and overdue
principal at the rate borne by the Notes, (iv) all sums paid or advanced by the
Trustee under the Indenture and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel and (b) all
Events of Default, other than the non-payment of amounts of principal of,
premium, if any, or interest on the Notes that has become due solely by such
declaration of acceleration, have been cured or waived. No such rescission shall
affect any subsequent default or impair any right consequent thereon. (Section
502)
The holders of not less than a majority in aggregate principal amount of
the outstanding Notes may, on behalf of the holders of all the Notes, waive any
past defaults under the Indenture, except a default in the payment of the
principal of, premium, if any, or interest on any Note, or in respect of a
covenant or provision which under the Indenture cannot be modified or amended
without the consent of the holder of each Note outstanding. (Section 513)
If a Default or an Event of Default occurs and is continuing and is known
to the Trustee, the Trustee will mail to each holder of the Notes notice of the
Default or Event of Default within 30 days after the occurrence thereof. Except
in the case of a Default or an Event of Default in payment of principal of,
premium, if any, or interest on any Notes, the Trustee may withhold the notice
to the holders of such Notes if a committee of its trust officers in good faith
determines that withholding the notice is in the interests of the holders of the
Notes. (Section 601)
PCI is required to furnish to the Trustee annual and quarterly statements
as to the performance by PCI of its obligations under the Indenture and as to
any default in such performance. PCI is also required to notify the Trustee
within five business days of the occurrence of any Default.
The Trust Indenture Act contains limitations on the rights of the Trustee,
should it become a creditor of PCI, to obtain payment of claims in certain cases
or to realize on certain property received by it in respect of any such claims,
as security or otherwise. The Trustee is permitted to engage in other
transactions; provided that if it acquired any conflicting interest, it must
eliminate such conflict upon the occurrence of an Event of Default or else
resign.
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DEFEASANCE OR COVENANT DEFEASANCE OF THE INDENTURE
PCI may, at its option and at any time, elect to have the obligations of
PCI upon the Notes discharged with respect to the outstanding Notes
("defeasance"). Such defeasance means that PCI will be deemed to have paid and
discharged the entire Indebtedness represented by the outstanding Notes and to
have satisfied all its other obligations under such Notes and the Indenture
insofar as such Notes are concerned, except for (a) the rights of holders of
outstanding Notes to receive payments in respect of the principal of (and
premium, if any, on) and interest on such Notes when such payments are due, (b)
PCI's obligations to issue temporary Notes, register the transfer or exchange of
any Notes, replace mutilated, destroyed, lost or stolen Notes, maintain an
office or agency for payments in respect of the Notes and segregate and hold
such payments in trust, (c) the rights, powers, trusts, duties and immunities of
the Trustee and (d) the defeasance provisions of the Indenture. In addition, PCI
may, at its option and at any time, elect to have the obligations of PCI
released with respect to certain covenants set forth in the Indenture, and any
omission to comply with such obligations shall not constitute a Default or an
Event of Default with respect to the Notes ("covenant defeasance"). (Section
1301, 1302 and 1303)
In order to exercise either defeasance or covenant defeasance, (a) PCI must
irrevocably deposit or cause to be deposited with the Trustee, as trust funds in
trust, specifically pledged as security for, and dedicated solely to, the
benefit of the holders of the Notes, cash in United States dollars, or U.S.
Government Obligations (as defined in the Indenture), or a combination thereof,
in such amounts as will be sufficient, in the opinion of a nationally recognized
firm of independent public accountants, or a nationally recognized investment
banking firm, to pay and discharge the principal of, premium, if any, and
interest on the outstanding Notes on the Stated Maturity (or upon redemption, if
applicable) of such principal, premium, if any, or installment of interest; (b)
no Default or Event of Default with respect to the Notes will have occurred and
be continuing on the date of such deposit or, insofar as an event of bankruptcy
under clause (h) of "Events of Default" above is concerned, at any time during
the period ending on the 91st day after the date of such deposit; (c) such
defeasance or covenant defeasance shall not result in a breach or violation of,
or constitute a default under any material agreement or instrument (other than
the Indenture) to which PCI is a party or by which it is bound; (d) in the case
of defeasance, PCI shall have delivered to the Trustee an Opinion of Counsel in
the United States stating that PCI has received from, or there has been
published by, the Internal Revenue Service a ruling, or since the effective date
of the Registration Statement, there has been a change in applicable federal
income tax law, in either case to the effect that, and based thereon such
opinion shall confirm that, the holders of the outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such defeasance and will be subject to federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if such
defeasance had not occurred; (e) in the case of covenant defeasance, PCI shall
have delivered to the Trustee an Opinion of Counsel in the United States to the
effect that the holders of the Notes outstanding will not recognize income, gain
or loss for federal income tax purposes as a result of such covenant defeasance
and will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such covenant
defeasance had not occurred; (f) in the case of defeasance or covenant
defeasance, PCI shall have delivered to the Trustee an Opinion of Counsel in the
United States to the effect that after the 91st day following the deposit or
after the date such opinion is delivered, the trust funds will not be subject to
the effect of any applicable bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally; (g) PCI shall have delivered to the
Trustee an Officers' Certificate stating that the deposit was not made by PCI
with the intent of preferring the holders of the Notes over the other creditors
of PCI with the intent of hindering, delaying or defrauding creditors of PCI;
and (h) PCI shall have delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that all conditions precedent provided for
relating to either the defeasance or the covenant defeasance, as the case may
be, have been complied with. (Section 1304)
SATISFACTION AND DISCHARGE
The Indenture will cease to be of further effect (except as to surviving
rights of registration of transfer or exchange of the Notes as expressly
provided for in the Indenture) and the Trustee, at the expense of PCI, will
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execute proper instruments acknowledging satisfaction and discharge of the
Indenture when (a) either (i) all the Notes theretofore authenticated and
delivered (other than destroyed, lost or stolen Notes which have been replaced
or paid) have been delivered to the Trustee for cancellation or (ii) all Notes
not theretofore delivered to the Trustee for cancellation (x) have become due
and payable, (y) will become due and payable at their Stated Maturity within one
year or (z) are to be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of redemption by the
Trustee in the name, and at the expense, of PCI, and PCI has irrevocably
deposited or caused to be deposited with the Trustee as trust funds in trust for
such purpose an amount sufficient to pay and discharge the entire Indebtedness
on such Notes not theretofore delivered to the Trustee for cancellation, for
principal of, premium, if any, and interest on the Notes to the date of such
deposit (in the case of Notes which have become due and payable) or to the
Stated Maturity or Redemption Date, as the case may be; (b) PCI has paid or
caused to be paid all sums payable under the Indenture by PCI; and (c) PCI has
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel,
each stating that all conditions precedent provided in the Indenture relating to
the satisfaction and discharge of the Indenture have been complied with.
(Section 401)
AMENDMENTS AND WAIVERS
With certain exceptions, modifications and amendments of the Indenture may
be made by PCI and the Trustee with the consent of the holders of a majority in
aggregate outstanding principal amount of the Notes; provided, however, that no
such modification or amendment may, without the consent of the holder of each
outstanding Note affected thereby, (a) change the Stated Maturity of the
principal of, or any installment of interest on, any Note, or reduce the
principal amount thereof or the rate of interest thereon or any premium payable
upon the redemption thereof, or change the coin or currency in which any Note or
any premium or the interest thereon is payable, or impair the right to institute
suit for the enforcement of any such payment after the Stated Maturity thereof
(or, in the case of redemption, on or after the Redemption Date); (b) reduce the
percentage in principal amount of outstanding Notes, the consent of whose
holders is required for any waiver of compliance with certain provisions of, or
certain defaults and their consequences provided for under, the Indenture; (c)
modify any provisions described under "-- Amendments and Waivers" or "-- Events
of Default," except to increase the percentage of outstanding Notes required for
such actions or to provide that certain other provisions of the Indenture cannot
be modified or waived without the consent of the holder of each outstanding
Note; or (d) amend, change or modify the obligation of PCI to make and
consummate a Change of Control Offer in the event of a Change of Control or an
Excess Proceeds Offer in connection with any Asset Sale or modify any of the
provisions or definitions with respect thereto. (Section 902)
The holders of a majority in aggregate principal amount of the Notes
outstanding may waive compliance with certain restrictive covenants and
provisions of the Indenture. (Section 1021)
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. If an Event of Default has occurred and is continuing, the
Trustee will exercise such rights and powers vested in it under the Indenture
and 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, incorporated by
reference therein contain limitations on the rights of the Trustee thereunder,
should it become a creditor of PCI, to obtain payment of claims in certain cases
or to realize on certain property received by it in respect of any such claims,
as security or otherwise. The Trustee is permitted to engage in other
transactions; provided, however, that if it acquires any conflicting interest
(as defined) it must eliminate such conflict or resign.
GOVERNING LAW
The Indenture and the Notes are governed by, and shall be construed in
accordance with, the laws of the State of New York.
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EXCHANGE OFFER; REGISTRATION RIGHTS
PCI has entered into a registration rights agreement with the Initial
Purchaser (the "Registration Rights Agreement") pursuant to which PCI agreed,
for the benefit of the holders of the Old Notes, at PCI's cost, (a) to use its
best efforts to file the Exchange Offer Registration Statement of which this
Prospectus is a part within 90 days after the Issue Date (January 29, 1997) with
the Commission with respect to the Exchange Offer for the Exchange Notes, which
will have terms identical in all material respects to the Old Notes (except that
the Exchange Notes will not contain terms with respect to transfer restrictions
or interest rate increases as described below) and (b) to use its best efforts
to cause this Registration Statement to be declared effective under the
Securities Act by May 29, 1997. As soon as practicable, but in no event more
than one week, after this Registration Statement is declared effective, PCI will
offer to the holders of Old Notes who are not prohibited by any law or policy of
the Commission from participating in the Exchange Offer the opportunity to
exchange their Old Notes for the Exchange Notes. PCI will keep the Exchange
Offer open for not less than 30 calendar days (or longer if required by
applicable law) after the date notice of the Exchange Offer is mailed to the
holders of the Old Notes. For each Old Note surrendered to PCI pursuant to the
Exchange Offer, the holder of such Old Note will receive an Exchange Note having
a principal amount equal to that of the surrendered Old Note.
Based upon no-action letters issued by the staff of the Commission to third
parties, the Issuer believes that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by a holder thereof (other than any holder which is an
"affiliate" of the Issuer within the meaning of Rule 405 under the Securities
Act or a holder that is a broker-dealer who acquires Exchange Notes to resell
pursuant to Rule 144A or any other available exemption under the Securities
Act), without compliance with the registration and prospectus delivery
provisions of the Securities Act; provided that such Exchange Notes are acquired
in the ordinary course of such holders' business and such holder is not
participating, does not intent to participate, and has no arrangement with any
person to participate in the distribution of such Exchange Notes. However, the
Commission has not considered the Exchange Offer in the context of a no-action
letter and there can be no assurance that the staff of the Commission would make
a similar determination with respect to the Exchange Offer as in such other
circumstances. Holders of Old Notes wishing to accept the Exchange Offer must
represent to the Issuer that such conditions have been met. Each broker-dealer
that receives Exchange Notes for its own account pursuant to the Exchange Offer,
where it acquired the Old Notes exchanged for such Exchange Notes for its own
account as a result of market-making or other trading activities, must
acknowledge that it will deliver a prospectus in connection with the resale of
such Exchange Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Old Notes where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities. The Issuer
has agreed that, for a period of 180 days after the Expiration Date, it will
make this Prospectus available to any broker-dealer for use in connection with
any such resale. See "The Exchange Offer -- Resale of the Exchange Notes" and
"Plan of Distribution."
Each holder of the Old Notes (other than certain specified holders) who
wishes to exchange Old Notes for Exchange Notes in the Exchange Offer will be
required to represent that (a) it is not an affiliate of PCI, (b) any Exchange
Notes to be received by it will be acquired in the ordinary course of its
business and (c) at the time of commencement of the Exchange Offer, it has no
arrangement with any person to participate in the distribution (within the
meaning of the Securities Act) of the Exchange Notes. If the holder is not a
broker-dealer, it will be required to represent that it is not engaged in, and
does not intend to engage in, the distribution of the Exchange Notes. If the
holder is a broker-dealer (a "Participating Broker-Dealer") who acquired the
Notes for its own account as a result of market-making or other trading
activities, it will be required to acknowledge that it must deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such Exchange Notes. The Commission has taken the position that Participating
Broker-Dealers may fulfill their prospectus delivery requirements with respect
to the Exchange Notes (other
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than a resale of an unsold allotment from the original sale of the Old Notes)
with the prospectus contained in the Exchange Offer Registration Statement.
Under the Registration Rights Agreement, PCI is required to allow Participating
Broker-Dealers and other persons, if any, subject to similar prospectus delivery
requirements to use the prospectus contained in the Exchange Offer Registration
Statement in connection with the resale of such Exchange Notes.
In the event that (a) any changes in law or the applicable interpretations
of the staff of the Commission do not permit PCI to effect the Exchange Offer;
(b) if for any reason the Exchange Offer is not consummated by June 28, 1997;
(c) any holder of Notes notifies PCI within a specified time period that (i) due
to a change in law or Commission policy it is not entitled to participate in the
Exchange Offer, (ii) due to a change in law or Commission policy it may not
resell the Notes acquired by it in the Exchange Offer to the public without
delivering a prospectus and the prospectus contained in this Registration
Statement is not appropriate or available for such resales by such holder or
(iii) it is a broker-dealer and owns Notes acquired directly from PCI or an
affiliate of PCI; or (d) the holders of a majority of the Notes may not resell
the Notes acquired by them in the Exchange Offer to the public without
restriction under the Securities Act and without restriction under applicable
blue sky or state securities laws, PCI will, at its cost, as promptly as
practicable, file a Shelf Registration Statement covering resales of the Notes
by such holders who satisfy certain conditions relating to, among other things,
the provision of information in connection with the Shelf Registration
Statement. For purpose of the foregoing, the "Notes" means each Old Note until
(a) such Old Note has been exchanged for a freely transferable Exchange Note
upon consummation of the Exchange Offer, (b) such Old Note has been effectively
registered under the Securities Act and disposed of in accordance with the Shelf
Registration Statement or (c) such Old Note is sold to the public pursuant to
Rule 144(k) (or any similar provision, but not Rule 144A) under the Securities
Act. PCI will use its best efforts to cause the Shelf Registration Statement to
be declared effective under the Securities Act by July 28, 1997 and use its best
efforts to keep effective (except in certain limited periods) the Shelf
Registration Statement until three years after its effective date (or until one
year after such effective date if such Shelf Registration Statement is filed at
the request of the Initial Purchaser pursuant to clause (c)(iii) above). The
Company will, in the event of the filing of a Shelf Registration Statement,
provide to each holder of the Notes copies of the prospectus which is a part of
the Shelf Registration Statement, notify each such holder when the Shelf
Registration Statement for the Notes has become effective and take certain other
actions as are required to generally permit unrestricted resales of the Notes. A
holder of Notes that sells such Notes pursuant to the Shelf Registration
Statement generally will be required to be named as a selling securityholder in
the related prospectus and to deliver a prospectus to purchasers, will be
subject to certain of the civil liability provisions under the Securities Act in
connection with such sales and will be bound by the provisions of the
Registration Rights Agreement which are applicable to such a holder (including
certain indemnification obligations). In addition, each holder of the Notes will
be required to deliver information to be used in connection with the Shelf
Registration Statement and to provide comments on the Shelf Registration
Statement within the time periods set forth in the Registration Rights Agreement
in order to have their Notes included in the Shelf Registration Statement and to
benefit from the provisions regarding liquidated damages set forth in the
following paragraph.
In the event that either (a) the Exchange Offer Registration Statement is
not filed with the Commission on or prior to January 30, 1997, (b) the Exchange
Offer Registration Statement is not declared effective on or prior to May 29,
1997, (c) the Exchange Offer is not consummated on or prior to June 28, 1997,
or, as the case may be, a Shelf Registration Statement with respect to the Notes
is not declared effective on or prior to July 28, 1997 or (d) the Exchange Offer
Registration Statement or the Shelf Registration Statement is declared effective
but thereafter ceases to be effective or usable (except in certain limited
periods) (each such event referred to in clauses (a) through (d) above, a
"Registration Default"), then the interest rate borne by the Notes shall be
increased by an amount equal to one-half of one percent (0.5%) per annum, with
respect to the first 90-day period following such Registration Default. The
amount of such additional interest will increase by an additional one-half of
one percent (0.5%) per annum for each subsequent 90-day period until such
Registration Default has been cured, up to a maximum of one and one-half percent
(1.5%) per annum. Upon the cure of all applicable Registration Defaults, such
additional interest will cease to accrue.
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The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is filed as an exhibit to the Registration Statement
of which this Prospects is a part.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness of a Person (a) existing at the
time such Person becomes a Subsidiary or (b) assumed in connection with the
acquisition of assets from such Person, in each case, other than Indebtedness
incurred in connection with, or in contemplation of, such Person becoming a
Subsidiary or such acquisition; provided that, for purposes of the "Limitation
on Additional Indebtedness" covenant, such Indebtedness shall be deemed to be
incurred on the date of the related acquisition of assets from any Person or the
date the acquired Person becomes a Subsidiary.
"Affiliate" means, with respect to any specified Person, (a) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person or (b) any other Person that
owns, directly or indirectly, 5% or more of such specified Person's Voting Stock
or any executive officer or director of any such specified Person or other
Person or, with respect to any natural Person, any Person having a relationship
with such Person by blood, marriage or adoption not more remote than first
cousin. For the purposes of this definition, "control," when used with respect
to any specified Person, means the power to direct the management and policies
of such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Annualized Pro Forma Consolidated Operating Cash Flow" means Consolidated
Operating Cash Flow for the latest fiscal quarter for which consolidated
financial statements of PCI are available multiplied by four. For purposes of
calculating "Consolidated Operating Cash Flow" for any fiscal quarter for
purposes of this definition, (a) all Subsidiaries of PCI on the date of the
transaction giving rise to the need to calculate "Annualized Pro Forma
Consolidated Operating Cash Flow" (the "Transaction Date") shall be deemed to
have been Subsidiaries at all times during such fiscal quarter and (b) any
Unrestricted Subsidiary of PCI on the Transaction Date shall be deemed to have
been an Unrestricted Subsidiary at all times 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 PCI or a Subsidiary (including any Person who becomes
a 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" means (a) any 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 PCI or any
Subsidiary in any other Person, or any acquisition or purchase of Capital Stock
of any other Person by PCI or any Subsidiary, in either case pursuant to which
such Person shall become a Subsidiary or shall be merged with or into PCI or any
Subsidiary or (b) any acquisition by PCI or any Subsidiary of the assets of any
Person which constitute substantially all of an operating unit or line of
business of such person or which is otherwise outside of the ordinary course of
business.
"Asset Sale" means any direct or indirect sale, conveyance, transfer or
lease (that has the effect of a disposition and is not for security purposes) or
other disposition (that is not for security purposes) to any Person other than
PCI or a Subsidiary in one transaction or a series of related transactions, of
(a) any Capital Stock of any Subsidiary, (b) any material license or other
authorization of PCI or any Subsidiary pertaining to a Cable/Telecommunications
Business, (c) any assets of PCI or any Subsidiary which constitute substantially
all of an operating unit or line of business of PCI and its Subsidiaries or (d)
any other property or asset of PCI or any Subsidiary outside of the ordinary
course of business. For the purposes of this definition, the term
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"Asset Sale" shall not include (a) any disposition of properties and assets of
PCI that is governed under "Consolidation, Merger and Sale of Assets" above, (b)
sales of property or equipment that have become worn out, obsolete or damaged or
otherwise unsuitable for use in connection with the business of PCI or any
Subsidiary, as the case may be, (c) for purposes of the covenant "Limitation on
Sale of Assets," any sale, conveyance, transfer, lease or other disposition of
any property or asset, whether in one transaction or a series of related
transactions, either (i) involving assets with a Fair Market Value not in excess
of $500,000 (or, if non-U.S. Dollar denominated, the U.S. Dollar Equivalent
thereof) or (ii) as part of a Capitalized Lease Obligation and (d) any transfer
by PCI or a Subsidiary of property or equipment to a Person who is not an
Affiliate of PCI in exchange for property or equipment that has a fair market
value at least equal to the fair market value of the property or equipment so
transferred; provided that, in the event of a transfer described in this clause
(d), PCI shall deliver to the Trustee an officer's certificate certifying that
such exchange complies with this clause (d).
"Authorized Prior Owner" means any Person from whom PCI or any Subsidiary
made a Cable/Telecommunications Acquisition; provided that any such Person shall
be an Authorized Prior Owner only with respect to the business, assets or
properties acquired in such Cable/Telecommunications Acquisition.
"Average Life" means, as of the date of determination with respect to any
Indebtedness, the quotient obtained by dividing (a) the sum of the products of
(i) the number of years from the date of determination to the date or dates of
each successive scheduled principal payment (including, without limitation, any
sinking fund requirements) of such Indebtedness multiplied by (ii) the amount of
each such principal payment by (b) the sum of all such principal payments.
"Bankruptcy Law" means Title 11 of the United States Code, as amended, or
any similar United States federal or state law, or any similar law of any other
jurisdiction, relating to bankruptcy, insolvency, receivership, winding-up,
liquidation, reorganization or relief of debtors or any amendment to, succession
to or change in any such law.
"Cable/Telecommunications Acquisition" means an Asset Acquisition,
including, without limitation, the portion of the consideration paid for an
Asset Acquisition that is allocated to non-compete arrangements, of properties
or assets to be used in a Cable/Telecommunications Business or of the Capital
Stock of any Person that becomes a Subsidiary, provided such Person's assets and
properties consist principally of properties or assets that will be used in a
Cable/Telecommunications Business.
"Cable/Telecommunications Business" means any business operating a cable or
telephone or telecommunications system in the European Continent or any business
reasonably related thereto, including, without limitation, any business
conducted by PCI or any Subsidiary on the Issue Date and any video or music
programming, distribution, production or licensing business and any programming
guide or telephone directory business.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations, rights in or other equivalents
(however designated) of such Person's capital stock or other equity
participations, including partnership interests, whether general or limited, in
such Person, including any Preferred Stock, and any rights (other than debt
securities convertible into capital stock), warrants or options exchangeable for
or convertible into such capital stock, whether now outstanding or issued after
the date of the Indenture.
"Capitalized Lease Obligation" of any Person means any obligation of such
Person and its subsidiaries on a consolidated basis under a lease of (or other
agreement conveying the right to use) any property (whether real, personal or
mixed) that is required to be classified and accounted for as a capital lease
obligation under GAAP, and, for the purpose of the Indenture, the amount of such
obligation at any date shall be the capitalized amount thereof at such date,
determined in accordance with GAAP.
"Cash Equivalents" means (a) any evidence of Indebtedness with a maturity
of 180 days or less issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof (provided that
the full faith and credit of the United States of America is pledged in support
thereof);
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(b) certificates of deposit or acceptances with a maturity of 180 days or less
of any financial institution that is a member of the Federal Reserve System, in
each case having combined capital and surplus and undivided profits of not less
than $500,000,000; and (c) commercial paper with a maturity of 180 days or less
issued by a corporation that is not an Affiliate of PCI and is organized under
the laws of any state of the United States or the District of Columbia and rated
at least A-1 by S&P or at least P-l by Moody's.
"Change of Control" means 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), other than 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 outstanding Voting Stock of PCI; (b)
PCI consolidates with, or merges with or into another Person or 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
PCI, in any such event pursuant to a transaction in which the outstanding Voting
Stock of PCI is converted into or exchanged for cash, securities or other
property, other than any such transaction where (i) the outstanding Voting Stock
of PCI is not converted or exchanged at all (except to the extent necessary to
reflect a change in the jurisdiction of incorporation of PCI) or is converted
into or exchanged for (A) Voting Stock (other than Redeemable Capital Stock) of
the surviving or transferee corporation or (B) Voting Stock (other than
Redeemable Capital Stock) of the surviving or transferee corporation and cash,
securities and other property (other than Capital Stock of the Surviving Entity)
in an amount that could be paid by PCI as a Restricted Payment as described
under the "Limitation on Restricted Payments" covenant 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), other than 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 outstanding Voting Stock of the
surviving or transferee corporation; (c) during any consecutive two year period,
individuals who at the beginning of such period constituted the Board of
Directors of PCI (together with any new directors whose election to such Board
of Directors, or whose nomination for election by the stockholders of PCI, was
approved by a vote of 66 2/3% of the directors then still in office who were
either directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of PCI then in office; or (d) PCI is
liquidated or dissolved or a special resolution is passed by the shareholders of
PCI approving the plan of liquidation or dissolution other than in a transaction
which complies with the provisions described under "Consolidation, Merger and
Sales of Assets."
"Common Stock" means, with respect to any Person, any and all shares,
interests or other participations in, and other equivalents (however designated
and whether voting or nonvoting) of such Person's common stock or ordinary
shares, whether outstanding at the Issue Date, and includes, without limitation,
all series and classes of such common stock or ordinary shares.
"Consolidated Income Tax Expense" means, with respect to any period, the
provision for United States corporation, local, foreign and other income taxes
of PCI and the Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP.
"Consolidated Interest Expense" means, for any period, without duplication,
the sum of (a) the interest expense of PCI and its Subsidiaries for such period,
including, without limitation, (i) amortization of original issue discount, (ii)
the net cost of Interest Rate Agreements (including amortization of discounts),
(iii) the interest portion of any deferred payment obligation, (iv) accrued
interest, (v) the consolidated amount of any interest capitalized by PCI,
provided that such amount will be limited for purposes of this definition to the
amount that would have been obtained if such interest had been capitalized at
the interest rate for the Notes, and (vi) all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing, plus (b) the interest component of Capitalized Lease Obligations of
PCI and its Subsidiaries paid, accrued or scheduled to be paid or accrued during
such period, in each case as determined on a consolidated basis in accordance
with GAAP.
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"Consolidated Net Income" means, for any period, the consolidated net
income (or loss) of PCI and all Subsidiaries for such period as determined in
accordance with GAAP, adjusted by excluding, without duplication, (a) any net
after-tax extraordinary gains or losses (in each case less all fees and expenses
relating thereto), (b) any net after-tax gains or losses (in each case less all
fees and expenses relating thereto) attributable to asset dispositions other
than in the ordinary course of business, (c) the portion of net income (or loss)
of any Person (other than PCI or a Subsidiary), including Unrestricted
Subsidiaries, in which PCI or any Subsidiary has an ownership interest, except
to the extent of the amount of dividends or other distributions actually paid to
PCI or any Subsidiary in cash dividends or distributions during such period, (d)
net income (or loss) of any Person combined with PCI or any Subsidiary on a
"pooling of interests" basis attributable to any period prior to the date of
combination, (e) except with respect to any encumbrance or restriction described
in clause (ii) of the "Limitation on Dividends and Other Payment Restrictions"
covenant, the net income of any Subsidiary to the extent that the declaration or
payment of dividends or similar distributions by such Subsidiary is not at the
date of determination permitted, directly or indirectly, by operation of the
terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to such Subsidiary or its
stockholders and (f) any non-cash items of PCI and any Subsidiary (including
monetary corrections) increasing or decreasing Consolidated Net Income for such
period (other than items that will result or have resulted in the receipt or
payment of cash).
"Consolidated Operating Cash Flow" means, with respect to any period, the
Consolidated Net Income of PCI and its Subsidiaries for such period increased by
(in each case to the extent included in computing Consolidated Net Income) the
sum of (a) the Consolidated Income Tax Expense of PCI and its Subsidiaries
accrued according to GAAP for such period (other than taxes attributable to
extraordinary, unusual or non-recurring gains or losses); (b) Consolidated
Interest Expense for such period; (c) depreciation of PCI and its Subsidiaries
for such period and (d) amortization of PCI and its 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 provided that, if any Subsidiary is not a Wholly Owned Subsidiary,
Consolidated Operating Cash Flow shall be reduced (to the extent not otherwise
reduced in accordance with GAAP) by an amount equal to (i) the amount of
Consolidated Net Income attributable to such Subsidiary multiplied by (ii) the
quotient of (1) the number of shares of outstanding Common Stock of such
Subsidiary not owned on the last day of such period by PCI or any of its
Subsidiaries divided by (2) the total number of shares of outstanding Common
Stock of such Subsidiary on the last day of such period.
"Cumulative Available Cash Flow" means, 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 PCI 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" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement entered into by a Person
that is designed to protect such Person against fluctuations in currency values.
"Default" means any event that after notice or passage of time or both
would be an Event of Default.
"Disinterested Director" means, with respect to any transaction or series
of transactions in respect of which the Board of Directors is required to
deliver a resolution of the Board of Directors under the Indenture, a member of
the Board of Directors who does not have any material direct or indirect
financial interest in or with respect to such transaction or series of
transactions.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing
buyer.
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"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in effect in the United States on the Issue Date.
"guarantee" means, as applied to any obligation, (a) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (b) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit.
"Indebtedness" means with respect to any Person, without duplication, (a)
all liabilities of such Person for borrowed money (including overdrafts) or for
the deferred purchase price of property or services, excluding any trade
payables and other accrued current liabilities (including outstanding
disbursements) incurred in the ordinary course of business (whether or not
evidenced by a note), but including, without limitation, all obligations,
contingent or otherwise, of such Person in connection with any letters of credit
and acceptances issued under letter of credit facilities, acceptance facilities
or other similar facilities, (b) all obligations of such Person evidenced by
bonds, notes, debentures or other similar instruments, (c) all indebtedness of
such Person created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even if
the rights and remedies of the seller or lender under such agreement in the
event of default are limited to repossession or sale of such property), but
excluding trade accounts payable arising in the ordinary course of business, (d)
all Capitalized Lease Obligations of such Person, (e) all Indebtedness referred
to in (but not excluded from) the preceding clauses of other Persons and all
dividends of other Persons, the payment of which is secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien upon or with respect to property (including, without
limitation, accounts and contract rights) owned by such Person, even though such
Person has not assumed or become liable for the payment of such Indebtedness
(the amount of such obligation being deemed to be the lesser of the value of
such property or asset or the amount of the obligation so secured), (f) all
guarantees by such Person of Indebtedness referred to in this definition of any
other Person, (g) all Redeemable Capital Stock of such Person valued at the
greater of its voluntary or involuntary maximum fixed repurchase price plus
accrued and unpaid dividends and (h) any liability of such Person under or in
respect of Interest Rate Agreements or Currency Agreements. For purposes hereof,
the "maximum fixed repurchase price" of any Redeemable Capital Stock which does
not have a fixed repurchase price shall be calculated in accordance with the
terms of such Redeemable Capital Stock as if such Redeemable Capital Stock were
purchased on any date on which Indebtedness shall be required to be determined
pursuant to the Indenture, and if such price is based upon, or measured by, the
fair market value of such Redeemable Capital Stock, such fair market value shall
be determined in good faith by the board of directors of the issuer of such
Redeemable Capital Stock. For purposes of the covenants "Limitation on
Additional Indebtedness" and "Limitation on Restricted Payments" and the
definition of "Events of Default," in determining the principal amount of any
Indebtedness to be incurred by the Issuer or a Subsidiary or which is
outstanding at any date, (x) the principal amount of any Indebtedness which
provides that an amount less than the principal amount at maturity thereof shall
be due upon any declaration of acceleration thereof shall be the accreted value
thereof at the date of determination and (y) effect shall be given to the impact
of any Currency Agreement with respect to such Indebtedness.
"Interest Rate Agreements" means any interest rate protection agreements
and other types of interest rate hedging agreements or arrangements (including,
without limitation, interest rate swaps, caps, floors, collars and similar
agreements) designed to protect against or manage exposure to fluctuations in
interest rates in respect of Indebtedness.
"Investment" means, with respect to any Person, any direct or indirect
advance, loan or other extension of credit or capital contribution to (by means
of any transfer of cash or other property to others or any payment for property
or services for the account or use of others), or any purchase, acquisition or
ownership by such Person of any Capital Stock, bonds, notes, debentures or other
securities or evidences of Indebtedness issued or owned by any other Person and
all other items that would be classified as investments on a balance sheet
prepared in accordance with GAAP. In addition, the Fair Market Value of the net
assets of any Subsidiary at
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the time that such Subsidiary is designated an Unrestricted Subsidiary shall be
deemed to be an "Investment" made by PCI in such Unrestricted Subsidiary at such
time. "Investments" shall exclude extensions of trade credit on commercially
reasonable terms in accordance with normal trade practices.
"Issue Date" means the date of original issuance of the Notes.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation, assignment for security, claim, or
preference or priority or other encumbrance upon or with respect to any property
of any kind, real or personal, movable or immovable, now owned or hereafter
acquired. A Person shall be deemed to own subject to a Lien any property which
such Person has acquired or holds subject to the interest of a vendor or lessor
under any conditional sale agreement, capital lease or other title retention
agreement.
"Majority Owned Subsidiary" means a Subsidiary (a) at least 66.66% of the
outstanding Capital Stock of which is owned directly or indirectly by PCI or
PCBV and (b) no outstanding Capital Stock of which is owned, directly or
indirectly (except through PCI), by any shareholder or Affiliate of a
shareholder of PCI.
"Management Agreement" means (a) any agreement between a Subsidiary and a
Management Company pursuant to which the Management Company shall lease or
otherwise employ assets of the Subsidiary to operate a Cable/Telecommunications
Business and (b) any agreement or instrument governing Indebtedness of a
Management Company to PCI or a Subsidiary.
"Management Company" means any Person, a portion of whose Capital Stock is
held by PCI or a Subsidiary, that (i) holds or has applied for a license or
permit to operate a Cable/ Telecommunications Business in the Republic of Poland
and (ii) manages the operations of a Subsidiary pursuant to a Management
Agreement.
"Management Contract" means any agreement to which PCI or any Subsidiary
is a party pursuant to which, among other things, fees are paid to PCI or a
Subsidiary in exchange for organizational, consulting or similar services,
including, without limitation, the agreements listed on a schedule to the
Indenture under the subheading "Management Contracts."
"Maturity" means, with respect to any Note, the date on which any
principal of such Note becomes due and payable as therein or herein provided,
whether at the Stated Maturity with respect to such principal or by declaration
of acceleration, call for redemption or purchase or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the
proceeds thereof in the form of cash or Cash Equivalents including payments in
respect of deferred payment obligations or escrowed funds, but only when
received in the form of, or stock or other assets when disposed for, cash or
Cash Equivalents (except to the extent that such obligations are financed or
sold with recourse to PCI or any Subsidiary), net of (i) brokerage commissions
and other fees and expenses (including fees and expenses of legal counsel,
accountants, consultants and investment banks) related to such Asset Sale, (ii)
provisions for all taxes payable as a result of such Asset Sale, (iii) payments
made to retire Indebtedness where payment of such Indebtedness is secured by the
assets or properties the subject of such Asset Sale, (iv) amounts required to be
paid to any Person (other than PCI or any Subsidiary) owning a beneficial
interest in the assets subject to the Asset Sale and (v) appropriate amounts to
be provided by PCI or any Subsidiary, as the case may be, as a reserve required
in accordance with GAAP against any liabilities associated with such Asset Sale
and retained by PCI or any Subsidiary, as the case may be, after 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
reflected in an Officers' Certificate delivered to the Trustee and (b) with
respect to any capital contribution or issuance or sale of Capital Stock as
referred to under the "Limitation on Restricted Payments" covenant, the proceeds
of such capital contribution, issuance or sale in the form of cash or Cash
Equivalents, including payments in respect of deferred payment obligations when
received in the form of, or stock or other assets when disposed for, cash or
Cash Equivalents (except to the extent that such obligations are financed or
sold with recourse to PCI or any Subsidiary of
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PCI), net of attorney's fees, accountant's fees and brokerage, consultation,
underwriting and other fees and expenses actually incurred in connection with
such capital contribution, issuance or sale and net of taxes paid or payable as
a result thereof.
"Overhead Agreement" means any agreement to which PCI or any Subsidiary is
a party pursuant to which, among other things, costs are allocated among the
parties thereto, including, without limitation, the agreements listed on a
schedule to the Indenture under the subheading "Overhead Agreements."
"Pari passu Indebtedness" means Indebtedness of PCI that is pari passu in
right of payment to the Notes.
"Permitted Holders" means, as of the date of determination, (a) David T.
Chase, (b) the family members, estates and heirs of David T. Chase and any trust
or other investment vehicle for the benefit of any such persons or their
respective family members or heirs, (c) ECO and (d) Advent.
"Permitted Indebtedness" means any of the following:
(a) Indebtedness under the Notes (or any guarantee thereof) and the
Indenture;
(b) Indebtedness of PCI or any Subsidiary outstanding on the date of
the Indenture and listed on a schedule thereto;
(c) Indebtedness of PCI or any Subsidiary that is incurred after
October 31, 1997 to the extent the proceeds thereof or credit support are
used to finance or support a Cable/Telecommunications Acquisition or
working capital for, or to finance the construction of, the business or
network acquired, but only to the extent the aggregate principal amount of
Indebtedness incurred under this clause (c) does not exceed $30 million
(or, if non-U.S. Dollar denominated, the U.S. Dollar Equivalent thereof)
outstanding at any time;
(d) (i) Indebtedness of any Subsidiary owed to and held by PCI or a
Subsidiary and (ii) Indebtedness of PCI owed to and held by any Subsidiary
that is Subordinated Indebtedness; provided that an incurrence of
Indebtedness shall be deemed to have occurred upon (x) any sale or other
disposition (excluding assignments as security to financial institutions)
of any Indebtedness of PCI or Subsidiary referred to in this clause (d) to
a Person (other than PCI or a Subsidiary) or (y) any sale or other
disposition of Capital Stock of a Subsidiary which holds Indebtedness of
PCI or another Subsidiary such that such Subsidiary, in any such case,
ceases to be a Subsidiary;
(e) Obligations under any Interest Rate Agreement of PCI or any
Subsidiary to the extent relating to (i) Indebtedness of PCI or such
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 Additional Indebtedness" covenant), or (ii)
Indebtedness for which a lender has provided a commitment in an amount
reasonably anticipated to be incurred by PCI or a Subsidiary in the
following 12 months after such Interest Rate Agreement has been entered
into, but only to the extent that the notional principal amount of such
Interest Rate Agreement does not exceed the principal amount of the
Indebtedness (or Indebtedness subject to commitments) to which such
Interest Rate Agreement relates;
(f) Indebtedness of PCI or any Subsidiary under Currency Agreements to
the extent relating to (i) Indebtedness of PCI or a Subsidiary (which
Indebtedness is otherwise permitted to be incurred under the "Limitation on
Additional Indebtedness" covenant) or (ii) obligations to purchase assets,
properties or services incurred in the ordinary course of business of PCI
or any Subsidiary; provided that such Currency Agreements do not increase
the Indebtedness or other obligations of PCI and its Subsidiaries
outstanding other than as a result of fluctuations in foreign currency
exchange rates or by reason of fees, indemnities and compensation payable
thereunder;
(g) Indebtedness of PCI or any Subsidiary in respect of performance
bonds of PCI or any Subsidiary or surety bonds provided by PCI or any
Subsidiary incurred in the ordinary course of business in connection with
the construction or operation of a Cable/Telecommunications Business;
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(h) Indebtedness of PCI or any Subsidiary to the extent it represents
a replacement, renewal, refinancing or extension of outstanding
Indebtedness of PCI or of any Subsidiary incurred or outstanding pursuant
to clause (b) of this definition or the proviso of the covenant "Limitation
on Additional Indebtedness"; provided that (i) Indebtedness of PCI may not
be replaced, renewed, refinanced or extended to such extent under this
clause (i) with Indebtedness of any Subsidiary and (ii) any such
replacement, renewal, refinancing or extension (x) shall not result in a
lower Average Life of such Indebtedness as compared with the Indebtedness
being replaced, renewed, refinanced or extended, (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 of 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 (z) in the case of any replacement, renewal, refinancing or
extension by PCI of Pari Passu Indebtedness or Subordinated Indebtedness,
such new Indebtedness is made pari passu with or subordinate to the Notes,
at least to the same extent as the Indebtedness being replaced, renewed,
refinanced or extended; and
(i) in addition to the items referred to in clauses (a) through (h)
above, Indebtedness of PCI having an aggregate principal amount not to
exceed $15 million (or, if non-U.S. Dollar denominated, the U.S. Dollar
Equivalent thereof) at any time outstanding.
"Permitted Investments" means (a) Cash Equivalents; (b) Investments in
prepaid expenses, negotiable instruments held for collection and lease, utility
and workers' compensation, performance and other similar deposits; (c) loans and
advances to employees made in the ordinary course of business; (d) Interest Rate
Agreements and Currency Agreements; (e) bonds, notes, debentures or other
securities received as a result of Asset Sales permitted under the covenant
"Limitation on Sale of Assets," provided that PCI or the Subsidiaries, as the
case may be, have received at least 85% of the aggregate consideration therefrom
in cash or Cash Equivalents; and (f) Investments made in the ordinary course of
business as partial payment for constructing a network relating principally to a
Cable/ Telecommunications Business.
"Permitted Liens" means the following types of Liens:
(a) Liens on any property or assets of a Subsidiary granted in favor
of PCI or any Subsidiary;
(b) Liens securing the Notes;
(c) Liens securing Acquired Indebtedness created prior to (and not in
connection with or in contemplation of) the incurrence of such Indebtedness
by PCI or any Subsidiary; provided that such Lien does not extend to any
property or assets of PCI or any Subsidiary other than the assets acquired
in connection with the incurrence of such Acquired Indebtedness;
(d) statutory Liens of landlords and carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen or other like Liens arising in
the ordinary course of business of PCI or any Subsidiary and with respect
to amounts not yet delinquent or being contested in good faith by
appropriate proceeding;
(e) Liens for taxes, assessments, government charges or claims that
are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted;
(f) easements, rights-of-way, restrictions and other similar charges
or encumbrances not interfering in any material respect with the business
of PCI or any Subsidiary incurred in the ordinary course of business;
(g) Liens arising by reason of any judgment, decree or order of any
court so long as such Lien is adequately bonded and any appropriate legal
proceedings that may have been initiated for the review of such judgment,
decree or order shall not have been finally terminated or the period within
which such proceedings may be initiated shall not have expired;
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(h) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security;
(i) any extension, renewal or replacement, in whole or in part, of any
Lien described in the foregoing clauses (a) through (h); provided that any
such extension, renewal or replacement shall be no more restrictive in any
material respect than the Lien so extended, renewed or replaced and shall
not extend to any additional property or assets;
(j) any interest or title of a lessor under any Capitalized Lease
Obligation or seller under any Purchase Money Obligation;
(k) Liens securing Senior Bank Indebtedness;
(l) Liens in favor of Polish governmental fiscal authorities created
without the knowledge of and without fault on the part of PCI; and
(m) Liens existing on the date of Indenture and listed on a Schedule
thereto.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, S.A., Sp. z o.o.,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Stock" means, 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 Closing Date, and including, without limitation, all classes and series of
preferred or preference stock of such Person.
"Public Equity Offering" means an offer and sale of common stock (which is
Qualified Capital Stock) of PCI pursuant to a registration statement that has
been declared effective by the Commission pursuant to the Securities Act (other
than a registration statement on Form S-8 or otherwise relating to equity
securities issuable under any employee benefit plan of PCI).
"Purchase Money Obligations" means Indebtedness of PCI or any Subsidiary
(a) issued to finance or refinance the purchase or construction of any assets of
PCI or any Subsidiary or (b) secured by a Lien on any assets of PCI or any
Subsidiary where the lender's sole recourse is to the assets so encumbered, in
either case to the extent the purchase or construction prices for such assets
are or should be included in "addition to property, plant or equipment" in
accordance with GAAP.
"Qualified Capital Stock" of any person means any and all Capital Stock of
such person other than Redeemable Capital Stock.
"Redeemable Capital Stock" means any class or series of Capital Stock
that, either by its terms, by the terms of any security into which it is
convertible or exchangeable or by contract or otherwise, is, or upon the
happening of an event or passage of time would be, required to be redeemed prior
to the final Stated Maturity of the Notes or is redeemable at the option of the
holder thereof at any time prior to such final Stated Maturity, or is
convertible into or exchangeable for debt securities at any time prior to such
final Stated Maturity; provided, however, that Redeemable Capital Stock shall
not include any Common Stock the holder of which has a right to put to PCI upon
certain terminations of employment.
"Restricted Payment" means any of the following: (a) the declaration or
payment of any dividend or any other distribution on Capital Stock of PCI or any
payment made to the direct or indirect holders (in their capacities as such) of
Capital Stock of PCI (other than dividends or distributions payable solely in
Capital Stock (other than Redeemable Capital Stock) of PCI or in options,
warrants or other rights to purchase Capital Stock (other than Redeemable
Capital Stock) of PCI; (b) the purchase, redemption or other acquisition or
retirement for value of any Capital Stock of PCI (other than any such Capital
Stock owned by PCI or a Subsidiary) or any affiliate of PCI (other than any
Subsidiary of PCI); (c) the making of any principal payment on, or the
repurchase, redemption, defeasance or other acquisition or retirement for value
of, prior to any scheduled principal payment, sinking fund payment or maturity,
any Subordinated Indebtedness of PCI (other than any Subordinated Indebtedness
held by a Subsidiary); (d) the making of any
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Investment (other than a Permitted Investment) in any Person (other than an
Investment by a Subsidiary in PCI or an Investment by PCI or a Subsidiary in
either (i) a Subsidiary or (ii) a Person that becomes a Subsidiary as a result
of such Investment); (e) the creation or assumption of any guarantee of
Indebtedness of any Affiliate of PCI (other than (i) guarantees of any
Indebtedness of any Subsidiary by PCI or (ii) guarantees of the Notes by any
Subsidiary); or (f) the declaration or payment of any dividend or any other
distribution on any Capital Stock of any Subsidiary to any Person (other than
(a) dividends or distributions paid to PCI or a Subsidiary or (b) pro rata
dividends or distributions on Common Stock of Subsidiaries held by minority
stockholders, provided that such dividends or distributions do not in the
aggregate exceed the minority stockholders' pro rata share of such Subsidiaries'
net income from the first day of the fiscal quarter beginning immediately
following the Issue Date) or the purchase, redemption or other acquisition or
retirement for value of any Capital Stock of any Subsidiary held by any Person
(other than PCI or a Subsidiary).
"Ryntronik Agreement" means a series of agreements dated October 1996
between PCI, Poltelkab, and Richard Rynkiewicz, in the form existing on the
Issue Date, by which PCI and Poltelkab will acquire the remaining shares in
PTK-Ryntronik.
"Senior Bank Indebtedness" means Indebtedness of PCI or any Subsidiary
under any term loan or revolving credit facility (which may include any
guarantee, bonding or letter of credit facility) with a bank or other financial
institution which is not subordinated to any other Indebtedness of PCI or any
Subsidiary.
"Service Agreement" means any agreement to which PCI or any Subsidiary is
a party pursuant to which, among other things, PCI or a Subsidiary provides
various services, which may include administrative, technical, managerial,
financial, operational and marketing services, to the other party or parties
thereto, including, without limitation, the agreements listed on a schedule to
the Indenture under the subheading "Service Agreements."
"S&P" means Standard and Poor's Ratings Group, a division of McGraw-Hill,
Inc. and its successors.
"Shareholder Registration Rights Agreement" means the Registration Rights
Agreement dated March 29, 1996 among PIH, ECO, Mr. Freedman, Steele LLC and
AESOP (as such terms are defined herein) in the form existing on the Issue Date.
"Significant Subsidiary" means, at any particular time, any Subsidiary
that, together with the Subsidiaries of such Subsidiary (a) accounted for more
than 5% of the consolidated revenues of PCI and its Subsidiaries for their most
recently completed fiscal year or (b) is or are the owner(s) of more than 5% of
the consolidated assets of PCI and its Subsidiaries as at the end of such fiscal
year, all as calculated in accordance with GAAP and as shown on the consolidated
financial statements of PCI and its Subsidiaries for such fiscal year.
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is due
and payable, and, when used with respect to any other Indebtedness, means the
date specified in the instrument governing such Indebtedness as the fixed date
on which the principal of such Indebtedness, or any installment of interest
thereon, is due and payable.
"Subordinated Indebtedness" means Indebtedness of PCI that is expressly
subordinated in right of payment to the Notes.
"Subsidiary" means (a) any Person a majority of the equity ownership or
Voting Stock of which is at the time owned, directly or indirectly, by PCI or by
one or more other Subsidiaries or by PCI and one or more other Subsidiaries and
(b) Poltelkab or any other Management Company. Unrestricted Subsidiaries shall
not be included in the definition of Subsidiaries for any purposes of the
Indenture (except, as the context may otherwise require, for purposes of the
definition of "Unrestricted Subsidiary").
"Total Consolidated Indebtedness" means, at any date of determination, an
amount equal to the aggregate amount of all Indebtedness of PCI and its
Subsidiaries outstanding as of the date of determination.
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"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
"Unrestricted Subsidiary" means (a) any Subsidiary that at the time of
determination shall be an Unrestricted Subsidiary (as designated by the Board of
Directors of PCI, as provided below), (b) any Subsidiary of an Unrestricted
Subsidiary, (c) Poland Programming, Inc., and (d) ProCable, in the event that a
majority of the equity ownership or Voting Stock of ProCable is owned, directly
or indirectly, by PCI or by one or more other Subsidiaries or by PCI and one or
more other Subsidiaries. The Board of Directors of PCI, subject to the
foregoing, may designate any newly acquired or newly formed Subsidiary to be an
Unrestricted Subsidiary so long as (i) neither PCI nor any other Subsidiary is
directly or indirectly liable for any Indebtedness of such Subsidiary, (ii) no
default with respect to any Indebtedness of such Subsidiary would permit (upon
notice, lapse of time or otherwise) any holder of any other Indebtedness of PCI
or any other Subsidiary to declare a default on such other Indebtedness or cause
the payment thereof to be accelerated or payable prior to its stated maturity,
(iii) any Investment in such Subsidiary made as result of designating such
Subsidiary an Unrestricted Subsidiary will not violate the provisions of the
"Limitation on Investments in Unrestricted Subsidiaries" covenant, (iv) neither
PCI nor any other Subsidiary has a contract, agreement, arrangement,
understanding or obligation of any kind, whether written or oral, with such
Subsidiary other than those that might be obtained at the time from persons who
are not Affiliates of PCI and (v) neither PCI nor any other Subsidiary has any
obligation (1) to subscribe for additional shares of Capital Stock or other
equity interest in such Subsidiary or (2) to maintain or preserve such
Subsidiary's financial condition or to cause such Subsidiary to achieve certain
levels of operating results. Any such designation by the Board of Directors of
PCI shall be evidenced to the Trustee by filing a board resolution with the
Trustee giving effect to such designation. The Board of Directors of PCI may
designate any Unrestricted Subsidiary as a Subsidiary if immediately after
giving effect to such designation, there would be no Default or Event of Default
under the Indenture and PCI could incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) pursuant to the "Limitation on Additional
Indebtedness" covenant.
"U.S. Dollar Equivalent" means with respect to any monetary amount in a
currency other than U.S. Dollars, at any time for the determination thereof, the
amount of U.S. Dollars obtained by converting such foreign currency involved in
such computation into U.S. Dollars at the spot rate for the purchase of U.S.
Dollars with the applicable foreign currency as quoted by the National Bank of
Poland at approximately noon (New York City time) on the date two business days
prior to such determination.
"Use of Proceeds Payments" means (a) payments of up to approximately $17.0
million (or, if non-U.S. Dollar denominated, the U.S. Dollar Equivalent thereof)
to acquire certain minority interests in PCI and Subsidiaries that are held by
unaffiliated third parties, (b) payments of up to approximately $28.9 million
(or, if non-U.S. Dollar denominated, the U.S. Dollar equivalent thereof) to
consummate the Pending Acquisitions, (c) payments of up to approximately $15.0
million (or, if non-U.S., Dollar Denominated, the U.S. Dollar Equivalent
thereof) to repay existing third party indebtedness and (d) investments of up to
approximately $5.0 million (or if non-U.S. Dollar denominated, the U. S. Dollar
Equivalent thereof) in PCI Programming, Inc., in each case as described under
"Use of Proceeds."
"Voting Stock" means, with respect to any Person, any class or classes of
Capital Stock pursuant to which the holders thereof have the general voting
power under ordinary circumstances to elect at least a majority of the board of
directors, managers or trustees of such Person (irrespective of whether or not,
at the time, stock of any other class or classes shall have, or might have,
voting power by reason of the happening of any contingency).
"Wholly Owned" means, with respect to any Subsidiary, such Subsidiary if
all the outstanding Capital Stock of such Subsidiary (other than any directors'
qualifying shares) is owned directly by PCI or PCBV and one or more Wholly Owned
Subsidiaries.
BOOK ENTRY; DELIVERY AND FORM
The Old Notes offered and sold in reliance on Regulation S under the
Securities Act were initially represented by a single, permanent Global Note in
definitive, fully registered book-entry form (the "Regulation S Global Note")
and registered in the name of a nominee of DTC and deposited on behalf of the
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purchasers of the Old Notes represented thereby with a custodian for DTC for
credit to the respective accounts of the purchasers (or to such other accounts
as they may direct) at the Euroclear System ("Euroclear") or Cedel Bank, societe
anonyme ("Cedel"). Exchange Notes which will be issued in exchange for the Old
Notes represented by the Regulation S Global Note will be issued in the form of
one Global Note (the "Regulation S Global Exchange Note") and deposited with a
custodian for DTC for credit to the respective accounts of the purchasers (or
such other accounts as they may direct) at Euroclear or Cedel.
Old Notes offered and sold to "qualified institutional buyers" ("QIBs") in
reliance on Rule 144A under the Securities Act were represented by a single,
permanent Global Note in definitive, fully registered book-entry form (the "Rule
144A Global Note," and together with the Regulation S Global Note, the "Global
Notes") which were registered in the name of a nominee of DTC and deposited on
behalf of purchasers of the Old Notes represented thereby with a custodian for
DTC for credit to the respective accounts of the purchasers (or to such other
accounts as they may direct) at DTC. Exchange Notes which will be issued in
exchange for the Old Notes represented by the Rule 144A Global Note will be
issued in the form of one Global Note (the "Rule 144A Global Exchange Note," and
together with the Regulation S Global Exchange Note, the "Global Exchange
Notes") and deposited with a custodian for DTC for credit to the respective
accounts of the purchasers (or such other accounts as they may direct) at
Euroclear or Cedel.
Old Notes (a) originally purchased by or transferred to institutional
"accredited investors" who are not QIBs or (b) held by QIBs who elected to take
physical delivery of their certificates instead of holding their interest
through the Rule 144A Global Note (and which are thus ineligible to trade
through DTC) (collectively referred to herein as the "Non-Global Purchasers")
were issued in registered form ("Certificated Notes"). Upon the transfer of such
Certificated Notes to a QIB or in an offshore transaction under Rule 903 or 904
under Regulation S, such Certificated Notes will, unless the Global Note has
previously been exchanged in whole for Certificated Notes, be exchanged for an
interest in a Global Note upon delivery of appropriate certifications to the
Trustee. For a description of the restrictions on the transfer of Certificated
Notes and any interest in a Global Note, see "Notices to Investors."
The Global Exchange Notes. PCI expects that pursuant to procedures
established by DTC (a) upon deposit of the Global Exchange Notes, DTC or its
custodian will credit on its internal system portions of the Global Exchange
Notes which shall be comprised of the corresponding respective principal amount
of the Global Exchange Notes to the respective accounts of persons who have
accounts with such depositary and (b) ownership of the Exchange Notes will be
shown on, and the transfer of ownership thereof will be effected only through,
records maintained by DTC or its nominee (with respect to interests of
Participants (as defined below)) and the records of Participants (with respect
to interest of persons other than Participants). Such accounts initially will be
designated by or on behalf of the Exchange Agent and ownership of beneficial
interests in the Global Exchange Notes will be limited to persons who have
accounts with DTC ("Participants") or persons who hold interests through
Participants. QIBs may hold their interests in the Global Exchange Notes
directly through DTC if they are Participants in such system, or indirectly
through organizations which are Participants in such system.
Investors may hold their interests in the Regulation S Global Exchange Note
directly through Cedel or Euroclear, if they are participants in such systems,
or indirectly through organizations which are participants in such systems.
Investors may also hold such interests through organizations other than Cedel or
Euroclear that are Participants in the DTC system. Cedel and Euroclear will hold
such interests in the Regulation S Global Exchange Note on behalf of their
participants through customers' securities accounts in their respective names on
the books of their respective depositaries, which in turn will hold such
interests in the Regulation S Global Exchange Note in customers' securities
accounts in the depositaries' names on the books of DTC.
So long as DTC or its nominee is the registered owner or holder of any Old
Notes or Exchange Notes, DTC or such nominee will be considered the sole owner
or holder of the Notes represented by the Global Notes or the Global Exchange
Notes for all purposes under the Indenture and the Notes. No beneficial owner of
an interest in the Global Notes or the Global Exchange Notes will be able to
transfer such interest except in
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accordance with the applicable procedures of DTC, Euroclear and Cedel, in
addition to those provided for under the Indenture.
Payments of the principal of (or premium, if any, on) and interest on the
Global Notes or the Global Exchange Notes will be made to DTC or its nominee, as
the case may be, as the registered owner thereof. None of PCI, the Trustee or
any Paying Agent under the Indenture has any responsibility or liability for any
aspect of the records relating to, or payments made on account of, beneficial
ownership interests in the Global Exchange Notes or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests.
PCI expects that DTC or its nominee, upon receipt of any payment of the
principal of (or premium, if any, on) and interest on the Global Notes, will
credit Participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Exchange
Notes as shown on the records of DTC or its nominee. PCI also expects that
payments by Participants to owners of beneficial interests in the Global
Exchange Notes held through such Participants will be governed by standing
instructions and customary practice 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 accordance with
DTC rules and will be settled in immediately available funds. If a holder
requires physical delivery of a Certificated Note for any reason, including to
sell Notes to persons in states which require physical delivery of such
securities or to pledge such securities, such holder must transfer its interest
in the Global Exchange Notes in accordance with the normal procedures of DTC and
in accordance with the procedures set forth in the Indenture.
Transfers by an owner of a beneficial interest in the Rule 144A Global
Exchange Note to a transferee who takes delivery of such interest through the
Regulation S Global Exchange Note, whether before, on or after December 10,
1996, will be made only upon receipt by the Trustee of a certification to the
effect that such transfer is being made in accordance with Regulation S.
Transfers of Certificated Notes held by institutional "accredited investors" to
persons who will hold through the Rule 144A Global Exchange Note or the
Regulation S Global Exchange Note will be subject to certifications provided by
the Trustee.
Any beneficial interest in one Global Exchange Note that is transferred to
a person who takes delivery in the form of an interest in the other Global Note
will, upon transfer, cease to be an interest in such Global Exchange Note and
become an interest in another Global Note and, accordingly, will thereafter be
subject to all transfer restrictions, if any, and other procedures applicable to
beneficial interests in such other Global Note for as long as it remains such an
interest.
DTC has advised PCI that DTC will take any action permitted to be taken by
a holder of Notes (including the presentation of Notes for exchange as described
below) only at the direction of one or more Participants to whose account the
DTC interests in the Global Exchange Notes are credited and only in respect of
the aggregate principal amount of Exchange Notes as to which such Participant or
Participants has or have given such direction. However, if there is an Event of
Default under the Indenture, DTC will exchange the Global Exchange Notes for
Certificated Notes, which it will distribute to its Participants.
DTC has advised PCI as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "clearing agency" registered pursuant to the provision of
Section 17A of the Exchange Act. DTC was created to hold securities for its
Participants and facilitate the clearance and settlement of securities
transactions between Participants through electronic book-entry changes in
accounts of its Participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and certain other organizations.
Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participants").
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Although DTC, Euroclear and Cedel are expected to follow the foregoing
procedures in order to facilitate transfers of interests in the Global Exchange
Notes among Participants of DTC, Euroclear and Cedel, they are under no
obligation to follow such procedures, and such procedures may be discontinued at
any time. None of PCI, the Trustee or any Paying Agent has any responsibility
for the performance by DTC, Euroclear or Cedel or the Participants or Indirect
Participants of their respective obligations under the rules and procedures
governing their operations.
Certificated Notes. Interests in the Global Exchange Notes will be
exchangeable or transferable, as the case may be, for Certificated Notes if (i)
DTC notifies PCI that it is unwilling or unable to continue as depositary for
such Global Notes, or DTC ceases to be a "Clearing Agency" registered under the
Exchange Act, and a successor depositary is not appointed by PCI within 90 days,
or (ii) an Event of Default has occurred and is continuing with respect to such
Notes. Upon the occurrence of any of the events described in the preceding
sentence, PCI will cause the appropriate Certificated Notes to be delivered.
INCOME TAX CONSIDERATIONS
It is the opinion of Baker & McKenzie, counsel to the Issuer, that the
material United States federal income tax consequences to holders whose Old
Notes are exchanged for Exchange Notes in the Exchange Offer are as described
herein, subject to the limitations and qualifications set forth below. Because
the Exchange Notes will not be considered to differ materially either in kind or
in extent from the Old Notes, the exchange of the Old Notes for the Exchange
Notes pursuant to the Exchange Offer will not be treated as an "exchange" for
federal income tax purposes pursuant to Section 1001 of the United States
Internal Revenue Code of 1986, as amended (the "Code"). As a result, no material
United States federal income tax consequences will result to holders exchanging
Old Notes for Exchange Notes.
The foregoing opinion is based upon the current provisions of the Code,
applicable Treasury Regulations promulgated thereunder, judicial authority and
current administrative rulings and practice. Subsequent legislative, judicial or
administrative changes or interpretations could alter or modify the statements
or conclusions set forth herein, possibly with retroactive effect. Certain
holders (including insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, foreign corporations and individuals who are not
citizens or residents of the United States) may be subject to special rules not
discussed herein. AS A RESULT, EACH HOLDER OF OLD NOTES SHOULD CONSULT HIS OR
HER OWN TAX ADVISOR WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES OF
EXCHANGING HIS OR HER OLD NOTES FOR EXCHANGE NOTES, INCLUDING THE APPLICABILITY
AND EFFECT OF ANY UNITED STATES FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Old Notes where such Old Notes were acquired as a result of
market-making activities or other trading activities. The Issuer has agreed that
for a period of 180 days after the Expiration Date, it will make available a
prospectus meeting the requirements of the Securities Act to any broker-dealer
for use in connection with any such resale.
The Issuer will not receive any proceeds from any sale of Exchange Notes by
any broker-dealer. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such Exchange Notes. Any broker-dealer
that resells Exchange Notes that were received by it for its own
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account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
The Issuer has agreed to pay all expenses incident to the Issuer's
performance of, or compliance with, the Registration Rights Agreement and will
indemnify the holders (including any broker-dealers) and certain parties related
to the holders against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The validity of the Exchange Notes will be passed upon for the Issuer by
Baker & McKenzie, Washington, District of Columbia and New York, New York with
respect to matters of United States law. Certain United States federal income
tax matters will be passed upon for the Issuer by Baker & McKenzie, Washington,
District of Columbia.
EXPERTS
The consolidated financial statements and schedules of Poland
Communications, Inc. and Poland Cablevision (Netherlands) B.V. as of December
31, 1996 and 1995 and for each of the years in the three-year period ended
December 31, 1996, have been included herein in reliance upon the reports of
KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
115
<PAGE> 118
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
POLAND COMMUNICATIONS, INC.
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets........................................................... F-3
Consolidated Statements of Operations................................................. F-5
Consolidated Statements of Changes in Stockholders' Equity............................ F-6
Consolidated Statements of Cash Flows................................................. F-7
Notes to Consolidated Financial Statements............................................ F-8
POLAND CABLEVISION (NETHERLANDS) B.V.
Independent Auditors' Report.......................................................... F-19
Consolidated Balance Sheets........................................................... F-20
Consolidated Statements of Operations................................................. F-22
Consolidated Statements of Changes in Stockholders' Deficiency........................ F-23
Consolidated Statements of Cash Flows................................................. F-24
Notes to Consolidated Financial Statements............................................ F-25
</TABLE>
F-1
<PAGE> 119
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Poland Communications Inc.:
We have audited the accompanying consolidated balance sheets of Poland
Communications, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the years in the three-year period ended December 31,
1996. 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 audits.
We conducted our audits in accordance with U.S. generally accepted auditing
standards. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Poland
Communications, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996 in conformity with U.S. generally
accepted accounting principles.
KPMG Peat Marwick LLP
Hartford, Connecticut
March 26, 1997
F-2
<PAGE> 120
POLAND COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (note 7)................................... $ 68,483 $ 2,343
Investment securities (note 2)....................................... 25,115 --
Accounts receivable, net of allowances of $545 in 1996 and $510 in
1995.............................................................. 1,215 842
Due from affiliate (note 12)......................................... -- 1,699
Other current assets (note 5)........................................ 2,247 1,367
-------- --------
Total current assets......................................... 97,060 6,251
-------- --------
Investment in cable television systems, at cost (note 4):
Property, plant and equipment:
Cable television system assets.................................... 98,291 54,441
Construction in progress.......................................... 410 6,758
Vehicles.......................................................... 1,199 896
Other............................................................. 2,667 1,806
-------- --------
Total property, plant and equipment............................. 102,567 63,901
Less accumulated depreciation................................... (19,143) (11,581)
-------- --------
Net property, plant and equipment............................... 83,424 52,320
Inventories for construction......................................... 7,913 4,609
Intangibles, net............................................. 12,133 1,976
-------- --------
Net investment in cable television systems................... 103,470 58,905
-------- --------
Notes receivable from affiliates (note 12)............................. 8,491 --
Other investments (notes 3 and 14)..................................... 2,157 1,034
Other intangibles, net (note 4)........................................ 6,359 1,868
-------- --------
Total assets................................................. $217,537 $ 68,058
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 121
POLAND COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS, CONTINUED
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................................... $ 6,281 $ 1,675
Accrued interest (note 7)............................................ 2,175 --
Notes payable (note 7)............................................... -- 13,006
Deferred revenue..................................................... 1,102 1,233
Income taxes payable (note 6)........................................ 4,472 4,138
Other current liabilities (notes 5 and 8)............................ 2,175 3,382
-------- --------
Total current liabilities.................................... 16,205 23,434
Notes payable to affiliates (note 12).................................. -- 37,512
Notes payable (note 7)................................................. 130,074 8,887
-------- --------
Total liabilities............................................ 146,279 69,833
-------- --------
Minority interest...................................................... 5,255 (1,965)
Redeemable preferred stock (liquidation value $85,000) (8,500 shares
authorized, issued and outstanding) (note 10)........................ 36,265 --
Stockholders' equity (note 9):
Preferred stock (2,000 shares authorized, 985 shares outstanding).... -- 10,311
Common stock:
Common stock ($.01 par, 24,051 shares authorized, 18,948 shares
issued and outstanding).......................................... 1 --
Class A (no par value, 20,000 shares authorized, 10,037 shares
issued and outstanding).......................................... -- 4,992
Class B (no par value, 10,000 shares authorized, 1,000 shares
issued and outstanding).......................................... -- 1
Paid-in capital...................................................... 53,012 1,544
Cumulative translation adjustment.................................... (162) 599
Accumulated deficit.................................................. (23,113) (17,257)
-------- --------
Total stockholders' equity................................... 29,738 190
-------- --------
Commitments and contingencies (notes 12 and 13)........................ -- --
-------- --------
Total liabilities and stockholders' equity................... $217,537 $ 68,058
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 122
POLAND COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Cable television revenue..................................... $ 24,923 18,557 8,776
-------- ------- -------
Operating expenses:
Direct operating expenses.................................. 7,193 5,129 2,119
Selling, general and administrative........................ 9,289 4,684 2,818
Depreciation and amortization.............................. 11,354 5,199 3,459
-------- ------- -------
Total operating expenses........................... 27,836 15,012 8,396
-------- ------- -------
Operating income (loss)............................ (2,913) 3,545 380
Interest and investment income............................... 1,274 174 78
Interest expense............................................. (4,834) (4,373) (2,327)
Foreign currency translation loss............................ (761) (17) (27)
-------- ------- -------
Loss before income taxes and minority interest.......... (7,234) (671) (1,896)
Income tax expense (note 6).................................. (1,273) (600) (803)
Minority interest in subsidiary (income) loss................ 1,890 (18) 316
-------- ------- -------
Net loss................................................ $ (6,617) (1,289) (2,383)
======== ======= =======
Net loss per share...................................... $(312.89) (108.79) (203.81)
======== ======= =======
Weighted average number of common and common equivalent
shares outstanding......................................... 21,148 11,849 11,692
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 123
POLAND COMMUNICATIONS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FROM JANUARY 1, 1994 TO DECEMBER 31, 1996
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
CUMULATIVE
PREFERRED COMMON PAID-IN TRANSLATION ACCUMULATED
STOCK STOCK CAPITAL ADJUSTMENT DEFICIT TOTAL
--------- ------ ------- ----------- ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1994..... $ 8,500 4,381 3,355 643 (13,629) 3,250
Translation adjustment.... -- -- -- (27) 27 --
Net loss.................. -- -- -- -- (2,383) (2,383)
Stock dividend............ 1,811 -- (1,811) -- -- --
Issuance of stock...... -- 612 -- -- -- 612
------ ------ ------ ---- ------ ------
Balance December 31, 1994... 10,311 4,993 1,544 616 (15,985) 1,479
Translation adjustment.... -- -- -- (17) 17 --
Net loss.................. -- -- -- (1,289) (1,289)
------ ------ ------ ---- ------ ------
Balance December 31, 1995... 10,311 4,993 1,544 599 (17,257) 190
Translation adjustment.... -- -- -- (761) 761 --
Net loss.................. -- -- -- -- (6,617) (6,617)
Stock dividend............ 1,738 -- (1,738) -- -- --
Issuance of stock......... -- (4,992) 50,589 -- -- 45,597
Preferred stock
redemption............. (12,049) -- 3,549 -- -- (8,500)
Accretion of redeemable
preferred stock........ -- -- (932) -- -- (932)
------ ------ ------ ---- ------ ------
Balance December 31, 1996... $ -- 1 53,012 (162) (23,113) 29,738
====== ====== ====== ==== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 124
POLAND COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................... $ (6,617) (1,289) (2,383)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Minority interest in subsidiary income (loss)........... (1,890) 18 (316)
Depreciation and amortization........................... 11,354 5,199 3,459
Other................................................... 341 349 107
Interest expense added to notes payable to affiliates... -- 2,379 2,085
Changes in operating assets and liabilities:
Accounts receivable................................... (796) (785) 49
Other current assets.................................. (2,037) (343) (634)
Accounts payable...................................... 3,186 1,003 470
Income taxes payable.................................. 334 600 780
Accrued interest...................................... 2,175 -- --
Deferred revenue...................................... (131) 152 458
Other current liabilities............................. 193 (3,444) (2,476)
-------- ------- -------
Net cash provided by operating activities.......... 6,112 3,839 1,599
-------- ------- -------
Cash flows from investing activities:
Construction of cable television systems................... (25,372) (16,014) (11,695)
Purchase of other capital assets........................... (1,209) (701) (244)
Notes receivable from affiliate............................ (8,491) -- --
Other investments.......................................... (25,940) (1,207) (402)
Purchase of subsidiaries, net of cash received............. (13,849) (4,063) --
-------- ------- -------
Net cash used by investing activities................... (74,861) (21,985) (12,341)
-------- ------- -------
Cash flows from financing activities:
Net proceeds from issuance of stock........................ 72,501 -- --
Costs to obtain loans...................................... (6,513) (1,036) (1,144)
Proceeds from notes payable................................ 136,074 14,533 7,000
Repayment of notes payable................................. (27,893) -- --
Borrowings from (repayments to) affiliates................. (39,280) 4,499 6,830
-------- ------- -------
Net cash provided by financing activities.......... 134,889 17,996 12,686
-------- ------- -------
Net increase (decrease) in cash and cash
equivalents...................................... 66,140 (150) 1,944
Cash and cash equivalents at beginning of year............... 2,343 2,493 549
-------- ------- -------
Cash and cash equivalents at end of year..................... $ 68,483 2,343 2,493
======== ======= =======
Supplemental cash flow information:
Cash paid for interest.................................. $ 2,338 1,992 209
Cash paid for income taxes.............................. 1,184 -- --
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 125
POLAND COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
Reporting Equity
Poland Communications, Inc. ("PCI" or the "Company") wholly owns PCI
Programming, Inc. ("PCIP") and both are U.S. corporations. PCI owns 92.3% of the
capital stock of Poland Cablevision (Netherlands) B.V. ("PCBV"), a Netherlands
corporation and first-tier subsidiary of PCI. PCI and PCBV are holding companies
that hold controlling interest in a number of Polish cable television companies,
collectively referred to as the "PTK Companies". PCIP was established during
1996 to develop and invest in programming for the PTK Companies. All significant
assets and operating activities of the Company are located in Poland.
Principles of Consolidation
The consolidated financial statements include the financial statements of
PCI and its wholly owned and majority owned subsidiaries. Also consolidated are
two 49% owned subsidiaries for which the Company maintains control of operating
activities and has the ability to influence the appointment of members to the
Managing Boards. As discussed in Note 14, the Company has entered into an
agreement in 1997 with one of these subsidiaries (PTK-Ryntronik) to purchase the
remaining 51% ownership. All significant intercompany balances and transactions
have been eliminated in consolidation.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principals. Actual results could
differ from those estimates.
Revenue
Revenue is primarily derived from the sale of cable television services to
retail customers in Poland. Revenue is recognized on a monthly basis for basic
cable and other optional services. Installation fee revenue, for connection to
the Company's cable television systems, is recognized to the extent of direct
selling costs and the balance is deferred and amortized into income over two
years.
Taxation
Income taxes are accounted for under the asset and liability method.
Deferred 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 on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Foreign:
The PTK Companies are subject to corporate income taxes, value added tax
(VAT) and various local taxes within Poland, as well as import duties on
materials imported by them into Poland. Under Polish law, the PTK Companies are
exempt from import duties on certain in-kind capital contributions.
F-8
<PAGE> 126
POLAND COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The PTK Companies' income tax is calculated in accordance with Polish tax
regulations. Due to differences between accounting practices under Polish tax
regulations and those required by U.S. GAAP, certain income and expense items
are recognized in different periods for financial reporting purposes and income
tax reporting purposes which may result in deferred income tax assets and
liabilities.
U.S.:
The Company is subject to U.S. Federal taxation of its worldwide income.
The PTK Companies and PCBV are foreign corporations which are not expected to be
engaged in a trade or business within the U.S. or to derive income from U.S.
sources and accordingly, are not subject to U.S. income tax.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and other short term investments
with original maturities of less than three months.
Investment Securities
Investment securities consist of short term investments with original
maturities ranging from four to six months. In accordance with Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," ("SFAS No. 115"), the Company has classified all
securities as held to maturity. Securities held to maturity are limited to
securities for which the Company has the positive intent and the ability to hold
to maturity. Held to maturity securities are carried at amortized cost on the
balance sheet.
Investment in Cable Television Systems
The investment in the Company's cable television systems includes property,
plant and equipment used in the development and operation of the various cable
television systems. During the period of construction, plant costs and a portion
of design, development and related overhead costs are capitalized as a component
of the Company's investment in cable television systems. Subscriber related
costs and general and administrative expenses are charged to operations when
incurred. Depreciation is computed for financial reporting purposes using the
straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Cable television system assets.......................... 10 years
Vehicles................................................ 5 years
Other property, plant and equipment..................... 5 - 40 years
</TABLE>
Inventories for Construction
Inventories for construction are stated at the lower of cost, determined by
the average cost method, or net realizable value. Inventories are principally
related to work-in-progress in the various cable television systems.
Goodwill
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the expected
periods to be benefited, generally eight to ten years. The Company assesses the
recoverability of this intangible asset by determining whether the amortization
of the goodwill balance over its remaining life can be recovered through
undiscounted future operating cash flows of the acquired operation. The
assessment of the recoverability of goodwill will be impacted if estimated
future operating cash flows are not achieved.
F-9
<PAGE> 127
POLAND COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Intangibles
The Company has entered into agreements with the Polish telephone company
("TPSA"), for the use of underground telephone conduits for cable wiring. Costs
related to obtaining conduit and franchise agreements with housing cooperatives
and governmental authorities are capitalized and amortized generally over a
period of ten years. In the event the Company does not proceed to develop cable
systems within designated cities, costs previously capitalized will be charged
to expense.
Organization costs are capitalized and amortized over a five-year period
using the straight-line method. Costs incurred to obtain financing have been
deferred and amortized over the life of the loan using the straight-line method.
Foreign Currency Translation
Translation of the Polish foreign currency accounts into U.S. dollars has
been performed in accordance with SFAS No. 52 (Foreign Currency Translation).
This standard requires that entities operating in countries with economies
deemed to be highly inflationary translate all monetary assets and liabilities
into U.S. dollars at the exchange rate in effect at year end and non-monetary
assets and liabilities at historical or transaction date rates. Revenues and
expenses are translated at the average exchange rate over the reporting period.
Effective January 1, 1995, the Polish monetary denomination (old zloty) was
redenominated at a rate of 10,000 old zloty to one new zloty and one hundred old
zloty to one groszy. The new and old Polish zloty had an exchange rate of 2.875
PLN, 2.468 PLN and 24,372zl to one U.S. dollar at December 31, 1996, 1995 and
1994, respectively.
Computation of Net Loss per Share
The net loss per share computation is based on the weighted average number
of shares of common stock outstanding. The computation assumes conversion of all
outstanding Preferred Stock into 812 shares of common stock for 1995 and 1994,
and conversion of all outstanding Series B preferred stock into 4,862 shares of
common stock for 1996.
Fair Value of Financial Instruments
SFAS No. 107 (Disclosures about Fair Value of Financial Instruments)
requires the Company to make disclosures of fair value information of all
financial instruments, whether or not recognized on the consolidated balance
sheets for which it is practicable to estimate fair value.
The Company's financial instruments include cash, cash equivalents,
investment securities, accounts receivable, notes receivable from affiliates,
other current assets, other investments, accounts payable, other liabilities,
notes payable and redeemable preferred stock.
The carrying value of cash, cash equivalents, investment securities,
accounts receivable, other current assets, other investments, accounts payable,
and other liabilities on the accompanying consolidated balance sheets
approximates fair value due to the short maturity of these instruments.
The carrying value of the redeemable preferred stock has been determined
based upon the amount of future cash flows required discounted using the
Company's estimated borrowing rate for similar instruments.
The recorded balance of the Company's notes payable approximates their fair
values which have been estimated based on the current rates offered for debt of
the same type and maturity. It was not practicable to estimate the fair value of
notes receivable from affiliates due to the nature of these instruments, the
circumstances surrounding their issuance, and the absence of quoted market
prices for similar financial instruments.
F-10
<PAGE> 128
POLAND COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Impairment of Long-Lived Assets
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" on January 1, 1996. This statement requires
that long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value of
the assets. Adoption of this statement did not have an impact on the Company's
financial position, results of operations, or liquidity.
Advertising Costs
All advertising costs of the Company are expensed as incurred.
Reclassifications
Certain 1994 and 1995 amounts have been reclassified to conform to the 1996
presentation.
2. INVESTMENT SECURITIES
Investment securities consist of short-term corporate bonds with original
maturities ranging from four to six months. The Company has the ability and the
intent to hold these securities to maturity. As of December 31, 1996, the
aggregate securities balance consists of securities with an amortized cost of
$25,115,000, unrealized holding gains of $227,000, and a fair value of
$25,342,000. There were no investments securities as of December 31, 1995.
3. ACQUISITIONS
During 1995, the Company acquired four cable television companies for
aggregate consideration of $4,075,000. The acquisitions have been accounted for
as purchases with the purchase price allocated among the assets acquired based
upon their fair values at date of acquisition. The results of the acquired
companies have been included in the Company results since January 1, 1995. Had
the 1995 acquisitions occurred on January 1, 1994, the Company's pro forma
consolidated results for the year ended December 31, 1994 would have been as
follows:
<TABLE>
<CAPTION>
(UNAUDITED)
<S> <C>
Revenue................................................... $15,653
Loss before income taxes and minority interest............ (2,111)
Net loss.................................................. (2,598)
Net loss per share........................................ $(222.20)
</TABLE>
During 1996, the Company acquired substantially all of the cable television
system assets of twenty-six cable television companies for aggregate
consideration of approximately $15,600,000. The acquisitions have been accounted
for as purchases with the purchase price allocated among the assets acquired and
liabilities assumed based upon their fair values at date of acquisition and any
excess as goodwill. The results of the acquired companies have been included
with the Company's results since their dates of acquisition. Had the
F-11
<PAGE> 129
POLAND COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1996 acquisitions occurred on January 1, 1996 and January 1, 1995, the Company's
pro forma consolidated results for the years ended December 31, 1996 and 1995
would have been as follows:
<TABLE>
<CAPTION>
1996 1995
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
Revenue.............................................. $ 31,667 $ 26,247
Loss before income taxes and minority interest....... (6,720) (12)
Net loss............................................. (5,951) (522)
Net loss per share................................... $ (281.39) $ (44.05)
</TABLE>
During December 1996, the Company entered into a preliminary purchase
agreement for a cable television system operating in the Opole area and prepaid
the $1,400,000 purchase price, which is included in other investments in the
accompanying consolidated balance sheet at December 31, 1996. The agreement
provides that it becomes legally effective on the date of regulatory approval by
the Polish Office for Protection of Competition and Consumers ("Anti-Monopoly
Office").
4. INTANGIBLES
Intangible assets at December 31, 1996 and 1995 are carried at cost and
consist of the following (in thousands of dollars):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Conduit and franchise agreements......................... $ 5,391 $ 1,230
Goodwill................................................. 6,730 929
Deferred financing costs................................. 8,658 2,131
Organization costs....................................... 988 864
Other.................................................... 120 318
------- ------
21,887 5,472
Less accumulated amortization............................ (3,395) (1,628)
------- ------
Net intangible assets.................................... $18,492 $ 3,844
======= ======
</TABLE>
5. OTHER CURRENT ASSETS AND LIABILITIES
Included in other current assets is $1,203,000 and $593,000 of VAT
receivables as of December 31, 1996 and 1995, respectively.
Included in other current liabilities at December 31, 1996 and 1995 is a
liability of $352,000 and $89,000 for income taxes payable, respectively and
approximately $726,000 and $767,000 related to accrued programming fees.
F-12
<PAGE> 130
POLAND COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES
Income tax expense for the years ended December 31, 1996, 1995 and 1994 is
as follows (in thousands of dollars):
<TABLE>
<CAPTION>
1996 1995 1994
------ ---- ----
<S> <C> <C> <C>
U.S. Federal income taxes........................... $ 714 $587 $629
State income taxes.................................. 531 13 151
Foreign jurisdictions............................... 28 -- 23
------ ---- ----
Total current income taxes..................... 1,273 600 803
U.S. deferred income taxes.......................... -- -- --
------ ---- ----
Total income tax expense....................... $1,273 $600 $803
====== ==== ====
</TABLE>
Sources of loss before income taxes and minority interest from domestic and
foreign sources for the years ended December 31, 1996, 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Domestic (loss)............................... (2,602) (1,115) (1,117)
Foreign income (loss)......................... (4,632) 444 (779)
------ ------ ------
Total.................................... (7,234) (671) (1,896)
====== ====== ======
</TABLE>
Income tax expense for the years ended December 31, 1996, 1995 and 1994
differed from the amounts computed by applying the U.S. Federal statutory tax
rates to pretax income from operations as a result of the following (in
thousands of dollars):
<TABLE>
<CAPTION>
1996 1995 1994
------- ----- ------
<S> <C> <C> <C>
Computed "expected" Federal income tax
(benefit)...................................... $(2,460) $(228) $ (645)
State income taxes, net of Federal benefit....... 184 65 32
Permanent differences............................ 17 69 76
Change in valuation allowance.................... 3,504 667 1,317
Other............................................ 28 27 23
------- ----- ------
$ 1,273 $ 600 $ 803
======= ===== ======
</TABLE>
F-13
<PAGE> 131
POLAND COMMUNICATIONS, INC.
NOTES TO 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,
1996, 1995 and 1994 are presented below (in thousands of dollars):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Deferred tax assets:
Deferred compensation......................... $ 377 $ 213 $ 744
Polish net operating loss carryforward........ 2,015 977 492
Interest income............................... 1,867 1,164 792
Service revenue............................... 2,368 2,155 2,024
Accrued liabilities........................... 1,935 524 163
Other items................................... 104 72 223
------- ------- -------
Total gross deferred tax assets............... 8,666 5,105 4,438
Less valuation allowance...................... (8,609) (5,105) (4,438)
------- ------- -------
Net deferred tax assets....................... $ 57 $ -- $ --
======= ======= =======
Deferred tax liabilities:
Prepaid expenses.............................. $ (57) $ -- $
======= ======= =======
Total gross deferred tax liabilities.......... $ (57) $ -- $
======= ======= =======
</TABLE>
The effective income tax rate differs from the statutory U.S. Federal
income tax rate for 1996, 1995 and 1994 principally due to future deductible
items and losses from which U.S. or foreign tax benefits are currently not
expected to be realized. Due to uncertainties regarding their recoverability the
effect of these losses has been eliminated through the recording of a valuation
allowance. The valuation allowance for deferred tax assets as of January 1, 1994
was $3,121,000. The net changes in the valuation allowance for the years ended
December 31, 1996, 1995 and 1994 were increases of $3,504,000, $667,000, and
$1,116,000, respectively.
The Company had net operating loss carryforwards from foreign jurisdictions
of approximately $5,430,000, which will expire as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
FOREIGN
YEARS ENDING DECEMBER 31, JURISDICTIONS
----------------------------------------- -------------
<S> <C>
1997..................................... $ 3,537
1998..................................... 1,341
1999 and thereafter...................... 552
------
$ 5,430
======
</TABLE>
7. NOTES PAYABLE
The Company signed a $13,500,000 financing agreement with Overseas Private
Investment Corporation ("OPIC") of which $8,600,000 was outstanding at December
31, 1995. The loan was repaid in full including a $147,000 prepayment penalty
during 1996. Under terms of the financing agreement, the Company maintained a
restricted compensating cash balance of $983,000 at December 31, 1995.
In October 1995, the Company entered into an agreement with American Bank
in Poland S.A. for a Polish currency denominated revolving credit loan and a
U.S. dollar denominated promissory note, of which approximately $2,482,000 was
outstanding at December 31, 1995. These loans were repaid in full during 1996.
F-14
<PAGE> 132
POLAND COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During August 1995, the Company entered into a $10,000,000 loan agreement
with the Bank of Boston Connecticut which was subsequently repaid in February
1996.
In August 1996, the Company entered into a $6,500,000 revolving credit loan
agreement with American Bank in Poland, S.A. of which $550,000 was outstanding
at December 31, 1996. Funds are available under the credit agreement through
December 31, 1998 and interest is based on LIBOR plus 3% (8.60% in aggregate at
December 31, 1996) and is due quarterly. All advances under the loan must be
repaid by August 20, 1999.
During October 1996, the Company issued $130,000,000, 9.875% unsecured
Senior Notes that become due November 1, 2003. The Senior Notes are net of
$476,000 of unamortized discount at December 31, 1996. Interest is due
semi-annually commencing May 1, 1997 and the Company has accrued $2,175,000 of
interest expense for the year ended December 31, 1996. The Senior Notes include
certain covenants which include the limitation on additional indebtedness, the
limitation on restricted payments, the limitation on issuances of capital stock
of subsidiaries, the limitation on transactions with affiliates, the limitation
on liens, the limitation on issuances of guarantees of indebtedness by
subsidiaries, the purchase of Senior Notes upon a change of control, the
limitation on sale of assets, the limitation on dividends and other payment
restrictions affecting subsidiaries, the limitation on investments in
unrestricted subsidiaries and a limitation on lines of business. The Company is
in compliance with these covenants.
Interest expense relating to the above notes payable was $3,380,000,
$850,000 and $159,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
8. OTHER CURRENT LIABILITIES
The Company has compensation agreements with certain employees to defer a
portion of their annual bonus and salary. The deferred compensation liability
associated with these agreements was approximately $922,000 and $518,000 as of
December 31, 1996 and 1995, respectively. The deferred compensation expense
associated with these agreements was $357,000, $250,000 and $234,000 for the
years ended December 31, 1996, 1995 and 1994, respectively.
The Company entered into a repayment agreement with a supplier of cable
television system materials allowing the Company to repay amounts owed to the
supplier in consecutive monthly installments. The Company repaid the supplier in
full in April 1996 and had a balance of $1,004,000 outstanding at December 31,
1995.
9. STOCKHOLDERS' EQUITY
The Company had outstanding at December 31, 1995, 985 shares of Preferred
Stock, which was convertible into 812 shares of Class A common stock. The
Company had the option of redeeming the preferred stock in whole or in part from
January 1, 1996 through December 31, 2002. However, as discussed below, the
Preferred Stock was exchanged for new Series D Preferred Stock during March
1996.
During February 1996, the Company issued to certain shareholders an
additional 2,437 shares of Class A Common Stock in accordance with the
provisions of the Shareholder Agreement dated June 27, 1991. The shares were
issued at a nominal value of $.01 each. Also during February 1996, the Company
issued a stock dividend of 166 shares of Series A Preferred Stock to the
preferred stock shareholder.
During March 1996, the Company completed several transactions including
restating its certificate of incorporation, issuing new shares of stock,
redeeming preferred stock, and the repayment of affiliate debt.
The Restated Certificate of Incorporation of the Company authorized a new
class of $.01 par Common Stock, $1 par Series A Preferred Stock, $.01 par Series
B Preferred Stock, $.01 par Series C Preferred Stock, and $.01 par Series D
Preferred Stock. All Class A and Class B Common shares previously issued and
outstanding were exchanged for new Common Stock. All issued and outstanding
shares of Preferred Stock
F-15
<PAGE> 133
POLAND COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
were exchanged for new Series D Preferred Stock, which was subsequently redeemed
for $8,500,000. Only Common Stock and Series B Preferred Stock retain voting
rights and only holders of Common Stock are entitled to receive dividends. Each
Series of Preferred Stock has redemption provisions; the Series B Preferred
Stock is also convertible into Common Stock.
During March 1996, the Company issued 4,662 shares of Common Stock, 4,000
shares of Series A Preferred Stock, and 2,500 shares of Series B Preferred Stock
in exchange for $65,000,000; and 2,000 shares of Series C Preferred Stock and
812 shares of Common Stock were also issued in exchange for $17,029,000.
10. REDEEMABLE PREFERRED STOCK
The Series A, Series B and Series C Preferred Stock have a mandatory
redemption date of October 31, 2004. At the option of the Company, the Series A,
Series B and Series C Preferred Stock may be redeemed at any time in whole or in
part. The redemption price per share of the Series A, Series B and Series C
Preferred Stock is $10,000.
Prior to the mandatory redemption of the Series B Preferred Stock, the
holders of any shares of Series B Preferred Stock have the option to convert
their shares to 4,862 shares of Common Stock.
The Preferred Stock has been recorded at its mandatory redemption value on
October 31, 2004, discounted at 10 3/4% to December 31, 1996. The Company
periodically acretes from paid-in capital an amount that will provide for the
redemption value at October 31, 2004.
11. PENSION PLANS
The Company maintains a savings plan that is intended to meet the
requirements of a profit sharing plan under Sections 401(a) and 401(k) of the
Internal Revenue Code. The profit sharing plan covers substantially all U.S.
employees and provides for employee/participant contributions up to 10% of their
annual compensation and employer matching contributions of 100% of employee
contributions up to 5% of the employee's annual compensation subject to certain
vesting requirements and statutory limitations. The Company has funded its
matching obligation of $9,000, $11,000 and $0 under the profit sharing plan for
the years ended December 31, 1996, 1995 and 1994, respectively.
12. RELATED PARTY TRANSACTIONS
During the ordinary course of business, the Company enters into
transactions with entities under common control of the stockholders and
affiliated parties. When appropriate, outstanding balances bear interest until
settlement. The principal related party transactions are described below.
Due from Affiliate
Amounts due from affiliate primarily represented advances and payments made
on behalf of a shareholder of a PTK Company.
Notes Receivable from Affiliates
During 1996, the Company made $6,000,000 of non-interest bearing advances
to the 51% shareholder of one of the PTK Companies pursuant to an agreement for
the purchase of his interest in the PTK Company. These loans will offset the
purchase price upon the transfer of 95.5% of his 51% interest in the PTK
Company, The remaining interest will be held by another subsidiary in which the
Company owns a 49% interest.
The Company loaned $2,491,000 to Pro Cable Sp. z o.o., which is 33% owned
by PCI, in December 1996. Under terms of the demand note, interest shall accrue
at 10% per annum beginning January 1, 1997.
F-16
<PAGE> 134
POLAND COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Notes Payable to Affiliates
Notes payable to affiliates consisted of unsecured demand notes due to
Chase American Corporation, an affiliate of one of the shareholders of PCI.
Interest expense associated with these notes was $1,040,000, $3,284,000 and
$2,164,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
Programming
Pro Cable Sp. z o.o. provides programming to the PTK Companies. The Company
incurred programming fees from Pro Cable Sp. z o.o. of $412,000, $186,000 and
$91,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
Corporate Administration
During 1994 the Company reimbursed an affiliate of the shareholders of PCI
$75,000 per quarter for certain general overhead costs. In addition, legal and
financial services provided by the affiliate at the request of the Company are
reimbursed and are not material.
13. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases several offices and warehouses within Poland. The
Company also leases space within various telephone duct systems from TPSA that
expire at various times or provide for three to six month cancellation notices.
Minimum future lease commitments for the aforementioned leases is $894,000 for
the year ended December 31, 1997. Rent expense for the years ended December 31,
1996, 1995 and 1994 was $892,000, $711,000 and $299,000, respectively, related
to these leases.
The Company has entered into various lease agreements with TPSA. All of the
agreements provide that TPSA is the manager of the telephone duct system and
will lease space within the ducts to the Company for installation of cable and
equipment for the cable television systems. The lease agreements provide for
monthly lease payments that are adjusted quarterly or annually, except for the
Gdansk lease agreement which provides for an annual adjustment after the sixth
year which then remains fixed through the tenth year of the lease. Based upon
the lease rates currently in effect, the Company is charged approximately $1 to
$12 per month for each 100 meters of duct space utilized.
Programming Commitments
The Company has entered into programming agreements with its significant
programming suppliers. The programming agreements have terms which range from
one to five years and require that the payments for the programs be paid either
at a fixed amount or based upon the number of subscribers connected to the
system each month. For the years ended December 31, 1996, 1995 and 1994, the
Company incurred programming fees of approximately $1,758,000, $1,318,000, and
$681,000, respectively, pursuant to these agreements.
Some of the programming suppliers the Company entered into agreements with
are located outside of Poland. The categorization by the Polish tax authorities
of the payments to be paid under such agreements as a royalty rather than a
payment for services has yet to be determined. Should the payments made be
determined by Polish tax authorities to be royalties (license payments) rather
than payments for services, the PTK Companies making such payments would be
required to withhold and pay over to the Polish tax authorities certain portions
of such payments. The portions would vary depending upon the country of
residence of each programming supplier and the provisions of the international
tax treaty (if any) between such country and Poland. The maximum amount that
could be due is approximately $350,000. PCI has not
F-17
<PAGE> 135
POLAND COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
recorded any amounts related to this in the accompanying financial statements
due to the uncertainties involved.
Regulatory Approvals
The Company is in the process of obtaining permits from the Polish State
Agency for Radiocommunications ("PAR") for several of its cable television
systems. If these permits are not obtained, PAR could impose penalties such as
fines or in severe cases, revocation of all permits held by an operator or the
forfeiture of the operator's cable networks. Management of the Company does not
believe that these pending approvals result in a significant risk to the
Company.
One of the PTK Companies was not able to register several capital increases
that were filed in 1995, for an aggregate amount of PLN 2 million (approximately
$695,000 at the December 31, 1996 conversion rate). The capital increases were
rejected by the relevant Registration Court, and the court's decision was upheld
on appeal. Since the PTK Company received an in-kind contribution of equipment
in respect of the proposed capital increases, the non-recognition of the capital
increases by the Polish courts means that the contribution could be treated as
income in the hands of the PTK Company. As a result, part or all of the
contribution could be subject to corporate income tax of 40%. The PTK Company
had enough tax net operating loss in 1995 to offset any additional taxable
income resulting from an unfavorable treatment. The Company has not recorded any
amounts related to this in the accompanying financial statements due to the tax
net operating loss and uncertainties involved.
General Litigation
From time to time, the Company is subject to various claims and suits
arising out of the ordinary course of business. While the ultimate result of all
such matters is not presently determinable, based upon its current knowledge,
management does not expect that their resolution will have a material adverse
effect on the Company's consolidated financial position or results of
operations.
14. SUBSEQUENT EVENTS
The Company entered into agreements during 1996 to purchase during 1997
three cable television systems for approximately $1,900,000, of which $1,400,000
has been prepaid at December 31, 1996, and 66.57% of a cable television company
for approximately $18,500,000.
During 1996, the Company and PTK-Ryntronik (a 49% owned subsidiary) entered
an agreement to purchase in 1998 the remaining 51% ownership of PTK-Ryntronik
for $9,000,000. Pursuant to the agreement, the Company advanced $6,000,000 of
the purchase price as of December 31, 1996. On March 4, 1997, the Company
entered into an addendum to the agreement regarding the acceleration of the
Company's purchase of the remaining 51% ownership of PTK-Ryntronik. In the
addendum and annex, PCI agreed to transform PTK-Ryntronik into a limited
liability company, at which time the other shareholder will transfer all of its
shares of PTK-Ryntronik to PCI or its nominee. PCI agreed to pay the shareholder
$700,000 within three days of the signing of the addendum, $1,000,000 on March
28, 1997 and $1,750,000 upon the transfer of shares to PCI. In addition, another
subsidiary of PCI will be issued approximately 4% of the capital stock of
PTK-Ryntronik.
F-18
<PAGE> 136
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Poland Cablevision (Netherlands) B.V.:
We have audited the accompanying consolidated balance sheets of Poland
Cablevision (Netherlands) B.V. and subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of operations, changes in
stockholders' deficiency and cash flows for each of the years in the three-year
period ended December 31, 1996. 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 audits.
We conducted our audits in accordance with U.S. generally accepted auditing
standards. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Poland
Cablevision (Netherlands) B.V. and subsidiaries as of December 31, 1996 and
1995, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1996 in conformity with U.S.
generally accepted accounting principles.
KPMG Peat Marwick LLP
Hartford, Connecticut
March 26, 1997
F-19
<PAGE> 137
POLAND CABLEVISION (NETHERLANDS) B.V.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash (note 6)........................................................ $ 7,015 $ 2,278
Accounts receivable, net of allowances of $437 in 1996 and $510 in
1995.............................................................. 706 654
Due from affiliate (note 7).......................................... -- 1,660
Other current assets (note 4)........................................ 1,282 1,678
-------- --------
Total current assets......................................... 9,003 6,270
-------- --------
Investment in cable television systems, at cost (note 3):
Property, plant and equipment:
Cable television system assets.................................... 84,511 57,242
Construction in progress.......................................... 9 6,052
Vehicles.......................................................... 1,095 880
Other............................................................. 2,519 1,738
-------- --------
Total property, plant and equipment.......................... 88,134 65,912
Less accumulated depreciation................................ (18,779) (11,841)
-------- --------
Net property, plant and equipment............................ 69,355 54,071
Inventories for construction......................................... 4,974 4,503
Intangibles, net............................................. 10,534 4,307
-------- --------
Net investment in cable television systems................... 84,863 62,881
-------- --------
Other investments (note 2)............................................. 1,409 331
-------- --------
Total assets................................................. $ 95,275 $ 69,482
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-20
<PAGE> 138
POLAND CABLEVISION (NETHERLANDS) B.V.
CONSOLIDATED BALANCE SHEETS, CONTINUED
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable..................................................... $ 2,685 $ 2,931
Notes payable (note 6)............................................... -- 2,893
Deferred revenue..................................................... 823 1,133
Other current liabilities............................................ 9 210
-------- --------
Total current liabilities.................................... 3,517 7,167
Due to affiliate (note 7).............................................. 11,159 5,371
Notes payable to affiliates (note 7)................................... 107,891 67,587
Notes payable (note 6)................................................. -- 8,777
-------- --------
Total liabilities............................................ 122,567 88,902
Minority interest...................................................... 2,920 (1,200)
-------- --------
Stockholders' deficiency:
Capital stock par value ($2 par, 200,000 shares authorized,
issued and outstanding)........................................... 100 100
Cumulative translation adjustment.................................... (344) 594
Accumulated deficit.................................................. (29,968) (18,914)
-------- --------
Total stockholders' deficiency............................... (30,212) (18,220)
-------- --------
Commitments and contingencies (notes 7 and 8)..................... -- --
-------- --------
Total liabilities and stockholders' deficiency............... $ 95,275 $ 69,482
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-21
<PAGE> 139
POLAND CABLEVISION (NETHERLANDS) B.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cable television revenue................................... $ 22,882 $ 18,156 $ 8,776
--------- --------- ---------
Operating expenses:
Direct operating expenses................................ 6,427 4,986 2,119
Selling, general and administrative (note 7)............. 7,885 5,542 3,619
Depreciation and amortization............................ 10,569 5,229 3,308
--------- --------- ---------
Total operating expenses......................... 24,881 15,757 9,046
--------- --------- ---------
Operating income (loss).......................... (1,999) 2,399 (270)
Interest income............................................ 183 99 78
Interest expense........................................... (10,205) (6,534) (4,458)
Foreign currency translation loss.......................... (938) (22) (27)
--------- --------- ---------
Loss before income taxes and minority interest........ (12,959) (4,058) (4,677)
Income tax expense (note 5)................................ (21) -- (23)
Minority interest in subsidiary loss....................... 988 41 180
--------- --------- ---------
Net loss.............................................. $(11,992) $ (4,017) $ (4,520)
========= ========= =========
Net loss per share.................................... $ (59.96) $ (20.09) $ (22.60)
========= ========= =========
Weighted average number of capital shares outstanding...... 200,000 200,000 200,000
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-22
<PAGE> 140
POLAND CABLEVISION (NETHERLANDS) B.V.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY
FROM JANUARY 1, 1994 THROUGH DECEMBER 31, 1996
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
CUMULATIVE
CAPITAL STOCK TRANSLATION ACCUMULATED
PAR VALUE ADJUSTMENT DEFICIT TOTAL
------------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Balance January 1, 1994......................... $ 100 $ 643 $ (10,426) $ (9,683)
Translation adjustment........................ -- (27) 27 --
Net loss...................................... -- -- (4,520) (4,520)
---- ----- -------- --------
Balance December 31, 1994....................... 100 616 (14,919) (14,203)
Translation adjustment........................ -- (22) 22 --
Net loss...................................... -- -- (4,017) (4,017)
---- ----- -------- --------
Balance December 31, 1995....................... 100 594 (18,914) (18,220)
Translation adjustment........................ -- (938) 938 --
Net loss...................................... -- -- (11,992) (11,992)
---- ----- -------- --------
Balance December 31, 1996....................... $ 100 $ (344) $ (29,968) $(30,212)
==== ===== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-23
<PAGE> 141
POLAND CABLEVISION (NETHERLANDS) B.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................. $(11,992) $ (4,017) $ (4,520)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Minority interest in subsidiary loss.................. (988) (41) (180)
Depreciation and amortization......................... 10,569 5,229 3,308
Other................................................. (162) 356 107
Interest expense added to notes payable to
affiliates.......................................... 7,844 5,139 4,231
Changes in operating assets and liabilities:
Accounts receivable................................. (439) (723) 49
Other current assets................................ (166) (263) (573)
Accounts payable.................................... (246) 1,349 525
Deferred revenue.................................... (310) 52 458
Amounts due to affiliates........................... 8,589 (4,918) (1,664)
Other current liabilities........................... (201) (203) 24
------- ------- -------
Net cash provided by operating activities........ 12,498 1,960 1,765
------- ------- -------
Cash flows from investing activities:
Construction of cable television systems................. (19,925) (15,094) (11,695)
Purchase of other capital assets......................... (1,140) (694) (244)
Other investments........................................ 171 (1,686) (402)
Purchase of subsidiaries, net of cash received........... (7,657) (3,104) --
------- ------- -------
Net cash used by investing activities................. (28,551) (20,578) (12,341)
------- ------- -------
Cash flows from financing activities:
Costs to obtain loans.................................... -- (956) (1,142)
Proceeds from (repayment of) notes payable............... (11,670) 4,590 7,000
Borrowings from affiliates............................... 32,460 14,770 6,661
------- ------- -------
Net cash provided by financing activities........ 20,790 18,404 12,519
------- ------- -------
Net increase (decrease) in cash.................. 4,737 (214) 1,943
Cash at beginning of year.................................. 2,278 2,492 549
------- ------- -------
Cash at end of year........................................ $ 7,015 $ 2,278 $ 2,492
======= ======= =======
Supplemental cash flow information:
Cash paid for interest................................ $ 2,067 $ 1,120 $ 138
Cash paid for income taxes............................ 282 -- --
</TABLE>
See accompanying notes to consolidated financial statements.
F-24
<PAGE> 142
POLAND CABLEVISION (NETHERLANDS) B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
Reporting Entity
Poland Cablevision (Netherlands) B.V. ("PCBV" or the "Company"), a
Netherlands corporation, is a holding company that holds controlling interest in
a number of Polish cable television companies, collectively referred to as the
"PTK Companies". The Company is 92.3% owned by Poland Communications, Inc.
("PCI"). All significant assets and operating activities of the Company are
located in Poland.
Principles of Consolidation
The consolidated financial statements include the financial statements of
PCBV and its wholly owned and majority owned foreign subsidiaries. Also
consolidated is a 49% owned subsidiary for which the Company maintains control
of operating activities and has the right to control the appointment of members
to the Managing Board. All significant intercompany balances and transactions
have been eliminated in consolidation.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
Revenue
Revenue is primarily derived from the sale of cable television services to
retail customers in Poland. Revenue is recognized on a monthly basis for basic
cable and other optional services. Installation fee revenue, for connection to
the Company's cable television systems, is recognized to the extent of direct
selling costs and the balance is deferred and amortized into income over two
years.
Taxation
The Kingdom of the Netherlands generally imposed a corporate income tax at
a rate of 40% on the first 250,000 Dfl ($150,000) of income and 35% on income
thereafter. Effective July 1, 1994 only the first 100,000 Dfl ($60,000) is
subject to the 40% rate. The income tax treaty currently in force between the
Netherlands and the United States provides that the Netherlands may impose a
withholding tax at a maximum rate of 5% on dividends paid by PCBV to its
stockholders.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of assets and liabilities and their respective tax
bases using enacted tax rates expected to apply in the years in which temporary
differences are expected to be recovered or settled.
The PTK Companies are subject to corporate income taxes, value added tax
(VAT) and various local taxes within Poland, as well as import duties on
materials imported by them into Poland. Under Polish law, the PTK Companies are
exempt from import duties on certain in-kind capital contributions.
The PTK Companies' income tax is calculated in accordance with Polish tax
regulations. Due to differences between accounting practices under Polish tax
regulations and those required by U.S. GAAP, certain income and expense items
are recognized in different periods for financial reporting purposes and income
tax reporting purposes which may result in deferred income tax assets and
liabilities.
F-25
<PAGE> 143
POLAND CABLEVISION (NETHERLANDS) B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Investment in Cable Television Systems
The investment in the Company's cable television systems includes property,
plant and equipment used in the development and operation of the various cable
television systems. During the period of construction, plant costs and a portion
of design, development and related overhead costs are capitalized as a component
of the Company's investment in cable television systems. Subscriber related
costs and general and administrative expenses are charged to operations when
incurred. Depreciation is calculated for financial reporting purposes using the
straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Cable television system assets................................... 10 years
Vehicles......................................................... 5 years
Other property, plant and equipment.............................. 5-40 years
</TABLE>
Inventories for Construction
Inventories for construction are stated at the lower of cost, determined by
the average cost method, or net realizable value. Inventories are principally
related to work-in-progress in the various cable television systems.
Goodwill
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the expected
periods to be benefited, generally eight to ten years. The Company assesses the
recoverability of this intangible asset by determining whether the amortization
of the goodwill balance over its remaining life can be recovered through
undiscounted future operating cash flows of the acquired operation. The
assessment of the recoverability of goodwill will be impacted if estimated
future operating cash flows are not achieved.
The Company has entered into agreements with the Polish telephone company
("TPSA"), for the use of underground telephone conduits for cable wiring. Costs
related to obtaining conduit and franchise agreements with housing cooperatives
and governmental authorities are capitalized and amortized generally over a
period of ten years. In the event the Company does not proceed to develop cable
systems within designated cities, costs previously capitalized will be charged
to expense.
Organization costs are capitalized and amortized over a five-year period
using the straight-line method. Costs incurred to obtain financing have been
deferred and amortized over the life of the loan using the straight-line method.
Foreign Currency Translation
Translation of the Polish foreign currency accounts into U.S. dollars has
been performed in accordance with SFAS No. 52 (Foreign Currency Translation).
This standard requires that entities operating in countries with economies
deemed to be highly inflationary translate all monetary assets and liabilities
into U.S. dollars at the exchange rate in effect at year end and non-monetary
assets and liabilities at historical or transaction date rates. Revenues and
expenses are translated at the average exchange rate over the reporting period.
Effective January 1, 1995, the Polish monetary denomination (old zloty) was
redenominated at a rate of 10,000 old zloty to one new zloty and one hundred old
zloty to one groszy. The new and old Polish zloty had an exchange rate of 2.875
PLN, 2.468 PLN and 24,372zl to one U.S. dollar at December 31, 1996, 1995 and
1994, respectively.
Computation of Net Loss per Share
The net loss per share computation is based on the weighted average number
of shares of common stock outstanding.
F-26
<PAGE> 144
POLAND CABLEVISION (NETHERLANDS) B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Fair Value of Financial Instruments
SFAS No. 107 (Disclosures about Fair Value of Financial Instruments)
requires the Company to make disclosures of fair value information of all
financial instruments, whether or not recognized on the consolidated balance
sheets for which it is practicable to estimate fair value.
The Company's financial instruments include cash, accounts receivable,
other current assets, other investments, accounts payable, notes payable, and
due to affiliate. The carrying value of the cash, accounts receivable and
payable, the other current assets and other investments on the consolidated
balance sheets approximates fair value due to the short maturity of these
instruments.
It was not practicable to estimate the fair value of amounts due from
affiliates and notes payable to affiliates due to the nature of these
instruments, the circumstances surrounding their issuance, and the absence of
quoted market prices for similar financial instruments.
Impairment of Longed-Lived Assets
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of " on January 1, 1996. This statement
requires that long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value of
the assets. Adoption of this statement did not have an impact on the Company's
financial position, results of operations or liquidity.
Advertising Costs
All advertising costs of the Company are expensed as incurred.
Reclassifications
Certain 1994 and 1995 amounts have been reclassified to conform to the 1996
presentation.
2. ACQUISITIONS
During 1995, the Company acquired two cable television companies for
aggregate consideration of $3.2 million. The acquisition has been accounted for
as a purchase with the purchase price allocated among the assets acquired and
liabilities assumed based upon their fair values at date of acquisition. The
results of the acquired company have been included in the Company results since
January 1, 1995. Had the 1995 acquisition occurred on January 1, 1994, the
Company's pro forma consolidated results for the year ended December 31, 1994
would have been as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
-----------
<S> <C>
Revenue.................................................................. $14,783
Loss before income taxes and minority interest........................... (4,503)
Net loss................................................................. (4,346)
Net loss per share....................................................... $(21.73)
</TABLE>
During 1996, the Company acquired substantially all of the cable television
system assets of eighteen cable television companies for aggregate consideration
of approximately $9.4 million. The acquisitions have been accounted for as
purchases with the purchase price allocated among the assets acquired and
liabilities
F-27
<PAGE> 145
POLAND CABLEVISION (NETHERLANDS) B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
assumed based upon their fair values at date of acquisition and any excess as
goodwill. The results of the acquired companies have been included with the
Company since their dates of acquisition. Had the 1996 acquisitions occurred on
January 1, 1996 and January 1, 1995, the Company's pro forma consolidated
results for the years ended December 31, 1996 and 1995 would have been as
follows:
<TABLE>
<CAPTION>
1996 1995
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
Revenue........................................................ $ 27,168 $22,845
Loss before income taxes and minority interest................. (12,810) (3,830)
Net loss....................................................... (11,943) (4,070)
Net loss per share............................................. $ (59.71) $(20.35)
</TABLE>
During December 1996, the Company entered into a preliminary purchase
agreement for a cable television system operating in the Opole area and prepaid
the approximately $1.4 million purchase price, which is included in other
investments in the accompanying consolidated balance sheet at December 31, 1996.
The agreement provides that it becomes legally effective on the date of
regulatory approval by the Anti-Monopoly Office.
3. INTANGIBLES
Intangible assets at December 31, 1996 and 1995 are carried at cost and
consist of the following (in thousands of dollars):
<TABLE>
<CAPTION>
1996 1995
------- ------
<S> <C> <C>
Conduit and franchise agreements.................................. $ 4,418 $1,700
Goodwill.......................................................... 5,999 --
Deferred financing costs.......................................... 2,145 2,131
Organization costs................................................ 986 986
Other............................................................. 112 92
------- ------
13,660 4,909
Less accumulated amortization..................................... (3,126) (602)
------- ------
Net intangible assets............................................. $10,534 $4,307
======= ======
</TABLE>
4. OTHER CURRENT ASSETS
Included in other current assets is $822,000 and $584,000 of VAT
receivables as of December 31, 1996 and 1995, respectively.
5. INCOME TAXES
PCBV is required to file a separate Netherlands tax return which does not
reflect the operating results of the PTK Companies. Income tax expense for the
years ended December 31, 1996, 1995 and 1994 is as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
1996 1995 1994
--- --- ---
<S> <C> <C> <C>
Netherlands income tax expense................................... $ 9 $-- $23
Foreign jurisdictions............................................ 12 -- --
--- --- ---
Income tax expense............................................. $21 $-- $23
=== === ===
</TABLE>
F-28
<PAGE> 146
POLAND CABLEVISION (NETHERLANDS) B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Because there are no significant temporary differences between the
financial statement carrying values of the Company's assets and liabilities
compared to their respective tax bases, no provision for deferred taxes has been
included in the accompanying consolidated financial statements.
The significant item of the PTK Companies which gives rise to Polish
deferred tax assets at December 31, 1996 and 1995 is the taxable loss
carryforwards from prior years. Loss carryforwards can be offset against the PTK
Companies' taxable income and utilized at a rate of one-third per year in each
of the three years subsequent to the year of the loss. If there is no taxable
income in a given year during the carryforward period, the portion of the loss
carryforward to be utilized is permanently forfeited. The PTK Companies had net
operating loss carryforwards of approximately $4.2 million, which will expire as
follows (in thousands of dollars):
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
--------------------------------------------------------------------
<S> <C>
1997................................................................ $3,102
1998................................................................ 954
1999 and thereafter................................................. 192
------
$4,248
======
</TABLE>
Due to uncertainties regarding the recoverability of the Polish deferred
tax benefits, a 100% valuation allowance was recognized by the PTK Companies for
the deferred tax benefit at December 31, 1996 and 1995.
6. NOTES PAYABLE
The Company signed a $13,500,000 financing agreement with Overseas Private
Investment Corporation ("OPIC") of which $8,600,000 was outstanding at December
31, 1995. The loan was repaid in full including a $147,000 prepayment penalty
during 1996. Under terms of the financing agreement, the Company maintained a
restricted compensating cash balance of $983,000 at December 31, 1995.
In October 1995, the Company entered into an agreement with American Bank
in Poland S.A. for a Polish currency denominated revolving credit loan and a
U.S. dollar denominated promissory note, of which approximately $2,482,000 was
outstanding at December 31, 1995. These loans were repaid in full during 1996.
During 1995, the Company entered into a revolving credit loan with Bank
Polska Opieki S.A. of which approximately $588,000 was outstanding at December
31, 1995. This loan was repaid in full during 1996.
Interest expense relating to the above loans was $992,000, $654,000 and
$159,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
7. RELATED PARTY TRANSACTIONS
During the ordinary course of business, the Company enters into
transactions with entities under common control of the stockholders and
affiliated parties. When appropriate, outstanding balances bear interest until
settlement. The principal related party transactions are described below.
Due from Affiliate
Amounts due from affiliate primarily represent advances and payments made
on behalf of a shareholder of a PTK Company.
Notes Payable to Affiliates
Note payable to affiliates of $107,891,000 at December 31, 1996 consists of
an unsecured demand note and unpaid interest due to PCI. Notes payable to
affiliates of $67,587,000 at December 31, 1995 consist of
F-29
<PAGE> 147
POLAND CABLEVISION (NETHERLANDS) B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
unsecured demand notes and unpaid interest due to PCI and Chase American
Corporation ("CAC"), an affiliate of one of the shareholders of PCI. The CAC
loans were repaid during 1996. The notes bear interest at 10% per annum, and
represent advances and purchases on behalf of PCBV and the PTK Companies.
Interest expense of $7,844,000, $5,777,000 and $4,296,000 was incurred by
the Company in connection with these affiliate borrowings during the years ended
December 31, 1996, 1995 and 1994, respectively. Of this expense, $7,844,000,
$5,139,000 and $4,231,000 has been added to the loan balance for the years ended
December 31, 1996, 1995, and 1994, respectively.
PCI has agreed not to seek current repayment of the above referenced
affiliate loan and advances until the Company generates sufficient cash flow or
liquidity to support such repayments.
Due to Affiliate
Amounts due to affiliate of $11,159,000 and $5,371,000 at December 31, 1996
and 1995, respectively, are noninterest bearing and primarily represent amounts
owed to PCI for management fees, purchases and services received on or prior to
December 31, 1996 and 1995, respectively. Payment of management consulting fees
are contingent until such time as net income of the PTK Companies' is sufficient
to service the fee.
Service Agreement
The PTK Companies entered into five-year Service Agreements dated January
1, 1994 with PCBV and PCI in order to mitigate logistical and economic
constraints it was experiencing in obtaining and maintaining the necessary
supply of qualified personnel, materials and other services and products
required to achieve the PTK Companies' business objectives in Poland. The
Service Agreements replaced a similar agreement dated March 31, 1990 among PTK,
PCBV and PCI.
Pursuant to the Service Agreements, PCBV and PCI, as PCBV's agents, agreed
to provide services on behalf of the PTK Companies relating to technical,
managerial, supervisory, purchasing, operational, financial and administrative
functions required to develop and operate the cable television systems within
Poland. The PTK Companies reimburse PCBV and PCI for all costs incurred in
connection with providing these services. During 1994, the PTK Companies also
reimbursed David T. Chase Enterprises, Inc., an affiliate of the shareholders of
PCI, $75,000 per quarter for certain general overhead costs associated with
providing the services described above, including the costs of supplying phone
systems, office space, supplies and equipment, and computers. In addition, legal
and financial services requested are reimbursed and are not material.
Pursuant to SFAS No. 51, certain reimbursed overhead costs of $950,000 and
$942,000 at December 31, 1996 and 1995, respectively, have been capitalized and
are included in investment in cable television system assets. The remaining
overhead costs allocated to the Company of $1,162,000, $395,000 and $86,000
during the years ended December 31, 1996, 1995 and 1994, respectively, are
included in corporate administration and operating expenses.
Management Consulting Agreement
The PTK Companies entered into management consulting agreements with PCI to
recommend, advise, and consult the PTK Companies as to design, construction,
development, and operation of the cable television systems. Management
consulting fees charged to corporate administration expense were $1,520,000,
$1,280,000 and $1,280,000 for the years ended December 31, 1996, 1995 and 1994,
respectively. Payment of management consulting fees are contingent until such
time as net income of the PTK Companies' is sufficient to service the fee.
Contingent management consulting fees payable to PCI are reflected in amounts
due to affiliate in the accompanying consolidated balance sheets.
F-30
<PAGE> 148
POLAND CABLEVISION (NETHERLANDS) B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Programming
An affiliate of PCI provides programming to the PTK Companies. The Company
incurred programming fees from this affiliate of $412,000, $186,000 and $91,000
for the years ended December 31, 1996, 1995 and 1994, respectively.
8. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases several offices and warehouses within Poland. The
Company also leases space within various telephone duct systems from TPSA. The
TPSA leases expire at various times or provide for three to six month
cancellation notices. Minimum future lease commitments for the aforementioned
leases is $752,000 for the year ended December 31, 1997. Rent expense for the
years ended December 31, 1996, 1995 and 1994 was $738,000, $701,000 and $299,000
respectively, related to these leases.
The Company has entered into various lease agreements with TPSA. All of the
agreements provide that TPSA is the manager of the telephone duct system and
will lease space within the ducts to the Company for installation of cable and
equipment for the cable television systems. The lease agreements provide for
monthly lease payments that are adjusted quarterly or annually, except for the
Gdansk lease agreement which provides for an annual adjustment after the sixth
year which then remains fixed through the tenth year of the lease. Based upon
the lease rates currently in effect, the Company is charged approximately $2 to
$10 per month for each 100 meters of duct space utilized.
Programming Commitments
The Company has entered into programming agreements with its significant
programming suppliers. The programming agreements have terms which range from
one to five years and require that the payments for the programs paid either at
a fixed amount or based upon the number of subscribers connected to the system
each month. For the years ended December 31, 1996, 1995 and 1994, the Company
incurred programming fees of approximately $1,685,000, $1,298,000 and $681,000,
respectively, pursuant to these agreements.
Some of the programming suppliers the Company entered into agreement with
are located outside of Poland. The categorization by the Polish tax authorities
of the payments to be paid under such agreements as a royalty rather than a
payment for services has yet to be determined. Should the payments made be
determined by Polish tax authorities to be royalties (license payments) rather
than payments for services, the PTK Companies making such payments would be
required to withhold and pay over to the Polish tax authorities certain portions
of such payments. The portions would vary depending upon the country of
residence of each programming supplier and the provisions of the international
tax treaty (if any) between such country and Poland. The maximum amount that
could be due under these laws is approximately $350,000. PCBV has not recorded
any amounts related to this in the accompanying financial statements due to the
uncertainties involved.
Regulatory Approvals
The Company is in the process of obtaining permits from the Polish State
Agency for Radiocommunications ("PAR") for several of its cable television
systems. If these permits are not obtained, PAR could impose penalties such as
fines or in severe cases, revocation of all permits held by an operator or the
forfeiture of the operator's cable networks. Management of the Company does not
believe that these pending approvals result in a significant risk to the
Company.
One of the PTK Companies was not able to register several capital increases
that were filed in 1995, for an aggregate amount of PLN 2 million (approximately
$695,000 at the December 31, 1996 conversion rate). The capital increases were
rejected by the relevant Registration Court, and the court's decision was upheld
on appeal. Since the PTK Company received an in-kind contribution of equipment
in respect of the proposed
F-31
<PAGE> 149
POLAND CABLEVISION (NETHERLANDS) B.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
capital increases, the non-recognition of the capital increases by the Polish
courts means that the contribution could be treated as income in the hands of
the PTK Company. As a result, part or all of the contribution could be subject
to corporate income tax of 40%. The PTK Company had enough tax net operating
loss in 1995 to offset any additional taxable income resulting from an
unfavorable treatment. PCBV has not recorded any amounts related to this in the
accompanying financial statements due to the tax net operating loss and
uncertainties involved.
General Litigation
From time to time, the Company is subject to various claims and suits
arising out of the ordinary course of business. While the ultimate result of all
such matters is not presently determinable, based upon its current knowledge,
management does not expect that their resolution will have a material adverse
effect on the Company's consolidated financial position or results of
operations.
9. SUBSEQUENT EVENTS
The Company entered into agreements during 1996 to purchase two cable
television systems in 1997 for approximately $1.9 million, of which $1.4 million
had been prepaid at December 31, 1996.
F-32
<PAGE> 150
ANNEX A
GLOSSARY
ADDRESSABLE TECHNOLOGY: A technology which enables a cable television
operator to activate or deactivate, from the headend site or another central
location, the cable television services delivered to each customer.
BASIC PENETRATION RATE: The measurement of the take-up of cable services.
The penetration rate as of a given date is calculated by dividing the number of
the Company's basic and intermediate subscribers connected to a system on such
date by the total number of homes passed in such system.
BASIC SUBSCRIBERS: Subscribers receiving the Company's basic and
intermediate tier of cable television services.
BUILD-OUT: The process of digging, filling and covering underground
trenches in the streets which pass by the homes in a service area, constructing
wiring conduits within the trenches, laying cable in the conduits and installing
and connecting the necessary electronic equipment.
CABLE TELEVISION: A cable television network employs electromagnetic
transmission over coaxial and/or fiber-optic cable to transmit multiple channels
carrying images, sound and data between a central facility and individual
subscribers' television sets. Networks may allow one-way transmission (from a
headend to a residence and/or business) or two-way transmission (from a headend
to a residence and/or business with a data return path to the headend).
CENTRAL EUROPE: As used in this Prospectus, Central Europe refers to the
region comprised by Poland, the Czech Republic, the Slovak Republic, Austria and
Hungary.
CHURN RATE: The discontinuance of cable television service to a basic
subscriber, either voluntarily or involuntarily, commonly measured as a rate
from period to period. The Company calculates its churn rate by dividing the
number of disconnected basic cable television subscribers during a period by the
average number of basic subscribers during that period.
COAXIAL CABLE: Cable consisting of a central conductor surrounded by and
insulated from another conductor. It is the standard material used in
traditional cable systems. Signals are transmitted through it at different
frequencies, giving greater channel capacity than is possible with twisted pair
cable, but less channel capacity than is allowed by fiber-optic cable.
DISH: An antenna shaped like a dish used to receive line-of-sight
terrestrial signals or television signals from a satellite.
DTH (DIRECT-TO-HOME): A satellite multi-channel television service to
single dwellings, each served by a single satellite dish, as distinct from a
cable or SMATV system.
FIBER-TO-THE-FEEDER: Cable TV system design that incorporates fiber-optic
cable transmission of cable TV signals to a fiber-optic receiver which then
converts the fiber-optic signal to an analog signal carried over coaxial cable
to the subscriber's home.
FIBER-OPTIC CABLE: Cable made of glass fibers through which signals are
transmitted as pulses of light. Fiber-optic cable has the capacity to carry
enormous amounts of data and a large number of channels.
FOOTPRINT: The area on the earth's surface where the signals from a
specific satellite can be received.
HEADEND: The originating point of a signal in cable television systems
comprised of a collection of hardware, typically including satellite receivers,
modulators, amplifiers and video cassette playback machines. Signals, when
processed, are then combined for distribution within the cable network.
HOMES: The Company's estimate of the number of homes within its service
areas.
A-1
<PAGE> 151
HOMES PASSED: Homes which have active signals, are covered by contracts
with a co-op authority and can be connected to a cable distribution system
without further extension of the distribution network.
INTERACTIVE SERVICES: Cable-based services which both send signals to the
subscribers and utilize or require responses or other signals from the
subscriber. Typical interactive services include telephony, pay-on-demand,
shop-at-home, video games and ATM services. Interactive services can be more
easily provided with high-capacity hybrid fiber-optic/coaxial distribution
networks.
MMDS (MULTI-CHANNEL MULTI-POINT DISTRIBUTION SYSTEM): A one-way radio
transmission of television channels over microwave frequencies from a fixed
station transmitting to multiple receiving facilities located at fixed points.
MULTIPLE DWELLING UNIT (MDU): A housing estate, cooperative apartment
building or other residence consisting of multiple apartment units.
OVER-BUILD: The construction and operation of cable systems in the same
geographic location or area by more than one cable operator which compete for
the same subscribers.
PREMIUM SERVICE: Cable programming service available only for additional
subscription fees over and above fees for the basic service.
REVENUE PER SUBSCRIBER: Total revenue derived from a cable television
system during a given period divided by the system's average number of
subscribers for that period.
SMATV (SATELLITE MASTER ANTENNA TELEVISION): A television delivery system
to multiple dwelling units that utilizes one or more satellite dishes and a
distribution network linking MDUs.
STAR ARCHITECTURE: A design of cable plant in a cable television system
providing an independent path from an individual subscriber to the system
headends or another central control point, facilitating the provision of and
charging for separate tiers of programming, disconnection of non-paying
customers and the provision of addressable service.
TELEPHONY: The provision of telephone service.
TOTAL SUBSCRIBERS: The total number of households which receive the
Company's cable television services.
TUNERS: Electronic devices that connect to a subscriber's television set
to allow the set to receive channels in frequencies provided by cable
television.
A-2
<PAGE> 152
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THOSE TO WHICH
IT RELATES NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, ANY SECURITY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Cross Reference Sheet.................
Available Information................. 4
Prospectus Summary.................... 5
Summary Consolidated Financial Data... 13
Risk Factors.......................... 15
The Exchange Offer.................... 25
Exchange Rate Data.................... 32
Use of Proceeds....................... 32
Capitalization........................ 33
Selected Consolidated Financial
Data................................ 34
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 36
The Industry.......................... 42
Business.............................. 48
Regulation............................ 64
Management............................ 70
Executive Compensation................ 75
Principal Shareholders................ 79
Certain Relationships and Related
Transactions........................ 80
Description of Indebtedness........... 85
Description of the Notes.............. 86
Income Tax Considerations............. 114
Plan of Distribution.................. 114
Legal Matters......................... 115
Experts............................... 115
Index to Consolidated Financial
Statements.......................... F-1
Glossary.............................. A-1
</TABLE>
======================================================
======================================================
$130,000,000
POLAND
COMMUNICATIONS, INC.
9 7/8% SERIES B SENIOR NOTES
DUE 2003
---------------------------------
PROSPECTUS
---------------------------------
, 1997
======================================================
<PAGE> 153
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article IX of the Issuer's Certificate of Incorporation provides as
follows:
The personal liability of a director of the Company or its shareholders for
monetary damages for breach of duty as a director is limited to an amount not to
exceed the compensation received by the director for serving the Company during
the year of the violation if such breach did not (A) involve a knowing and
culpable violation of law by the director; (B) enable the director or an
Associate (as defined herein) to receive an improper personal economic gain; (C)
show a lack of good faith and a conscious disregard for the duty of the director
to the Company under circumstances in which the director was aware that his
conduct or omission created an unjustifiable risk of serious injury to the
Company; (D) constitute a sustained and unexcused pattern of inattention that
amounted to an abdication of the director's duty to the Company; or (E) create
liability under an applicable provision of the laws of the State of New York
which cannot be limited or made inapplicable. The term "Associate" of a director
means (i) any corporation or organization of which such person is an officer or
partner or is, directly or indirectly, the beneficial owner of ten percent or
more of any class of voting stock; (ii) any trust or other estate in which such
person has at least a ten percent beneficial interest or as to which such person
serves as trustee or in a similar fiduciary capacity; and (iii) any relative or
spouse of such person, or any relative of such spouse, who has the same home as
such person.
Article X of the Issuer's Certificate of Incorporation provides as follows:
Except as otherwise provided in the Company's Certificate of Incorporation
or in the laws of the State of New York, the Company is required to indemnify
any person made a party to any proceeding, other than an action by or in the
right of the Company, by reason of the fact that he, or the person whose legal
representative he is, is or was a shareholder, director, officer, employee or
agent of the Company, or any person who, although not a shareholder, director,
officer, employee or agent of the Company, is or was serving solely at the
request of the Company as a director, officer, partner, trustee, employee or
agent of another eligible enterprise (hereinafter an "Indemnifiable
Individual"), against judgments, fines, penalties, amounts paid in settlement
and reasonable expenses actually incurred by him, and the person whose legal
representative he is, in connection with such proceeding. The Company is not
required to indemnify any Indemnifiable Individual unless (1) such Indemnifiable
Individual was successful on the merits in the defense of any proceeding, or (2)
it is concluded that such Indemnifiable Individual acted in good faith and in a
manner he reasonably believed to be in the best interests of the Company, and
with respect to any criminal action or proceeding, that such Indemnifiable
Individual had no reasonable cause to believe his conduct was unlawful, or (3)
the court, on application by such Indemnifiable Individual, has determined that
in view of all circumstances such Indemnifiable Individual is fairly and
reasonably entitled to be indemnified, and then for such amount as the court
determines; except that, in connection with an alleged claim based upon his
purchase or sale of securities of the Company or another entity, which he serves
or served at the request of the Company, the Company will only indemnify such
Indemnifiable Individual after the court has determined, on application by such
Indemnifiable Individual, that in view of all the circumstances such
Indemnifiable Individual is fairly and reasonably entitled to be indemnified,
and then for such amount as the court determines. The termination of any
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent will not, of itself, create a presumption that the
Indemnifiable Individual did not act in good faith or in a manner which he did
not reasonably believe to be in the best interests of the Company or, with
respect to any criminal action or proceeding, that he had reasonable cause to
believe that his conduct was unlawful.
Except as otherwise provided in the Company's Certificate of Incorporation
or in the laws of the State of New York, the Company is required to indemnify
any person made a party to any proceeding, by or in the right of the Company, to
procure a judgment in its favor by reason of the fact that he, or the person
whose legal representative he is, is or was an Indemnifiable Individual, against
reasonable expenses actually incurred by him in connection with such proceeding
in relation to matters as to which such Indemnifiable Individual is finally
adjudged not to have breached his duty to the Company, or where the court, on
application by such
II-1
<PAGE> 154
Indemnifiable Individual, has determined that in view of all the circumstances
such person is fairly and reasonably entitled to be indemnified, and then for
such amount as the court determines. The Company will not so indemnify any such
Indemnifiable Individual for amounts paid to the Company, to a plaintiff or to
counsel for a plaintiff in settling or otherwise disposing of a proceeding which
is settled or otherwise disposed of without court approval.
To the extent that the indemnification provisions contained in the
Certificate of Incorporation are invalidated on any grounds by any court of
competent jurisdiction, then the Company will nevertheless indemnify each
Indemnifiable Individual as to expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement with respect to any action, suit or
proceeding to the fullest extent permitted by any applicable portion of the
indemnification provisions contained in the Certificate of Incorporation that
have not been invalidated, by the Business Company Law of New York or by any
other applicable law.
Section 721 of the New York Business Corporation Law (the "N.Y.B.C.L.")
provides that no indemnification may be made to or on behalf of any director or
officer of the Issuer if "a judgment or other final adjudication adverse to the
director or officer establishes that his acts were committed in bad faith or
were the result of active and deliberate dishonesty and were material to the
cause of action so adjudicated, or that he personally gained in fact a financial
profit or other advantage to which he was not legally entitled." Article X of
the Certificate of Incorporation includes the foregoing statutory language.
The rights granted under Article X of the Certificate of Incorporation are
in addition to, and are not exclusive of, any other rights to indemnification
and expenses to which any director or officer may otherwise be entitled. Under
the N.Y.B.C.L., a New York corporation may indemnify any director or officer who
is made or threatened to be made a party to an action by or in the right of such
corporation against "amounts paid in settlement and reasonable expenses,
including attorneys' fees," actually and necessarily incurred by him in
connection with the defense or settlement of such action, or in connection with
an appeal therein, if such director or officer acted, in good faith, for a
purpose which he reasonably believed to be in the best interests of the
corporation, except that no indemnification shall be made in respect of (1) a
threatened action, or a pending action which is settled or otherwise disposed
of, or (2) any claim, issue or matter as to which such director or officer shall
have been adjudged liable to the corporation, unless and only to the extent that
a court determines that the director or officer is fairly and reasonably
entitled to indemnity. A corporation may also indemnify directors and officers
who are parties to other actions or proceedings (including actions or
proceedings by or in the right of any other corporation or other enterprise
which the director or officer served at the request of the corporation) against
"judgments, fines, amounts paid in settlement and reasonable expenses, including
attorneys' fees," actually or necessarily incurred as a result of such actions
or proceedings, or any appeal therein, provided the director or officer acted,
in good faith, for a purpose which he reasonably believed to be in the best
interests of the corporation (or in the case of service to another corporation
or other enterprise at the request of such corporation, not opposed to the best
interests of such corporation) and, in criminal cases, that he also had no
reasonable cause to believe that his conduct was unlawful. Any indemnification
under the N.Y.B.C.L. may be made only if authorized in the specific case by
disinterested directors, or by the board of directors upon the opinion in
writing of independent legal counsel that indemnification is proper, or by the
shareholders, but even without such authorization, a court may order
indemnification in certain circumstances. Further, any director or officer who
is "successful, on the merits or otherwise," in the defense of an action or
proceeding is entitled to indemnification as a matter of right.
A New York corporation may generally purchase insurance, consistent with
the limitations of New York insurance law and regulatory supervision, to
indemnify the corporation for any obligation which it incurs as a result of the
indemnification of directors and officers under the provisions of the
N.Y.B.C.L., so long as no final adjudication has established that the directors'
or officers' acts of active and deliberate dishonesty were material to the cause
of action so adjudicated or that the directors or officers personally gained in
fact a financial profit or other advantage (N.Y.B.C.L. Section 726).
PCI has purchased directors and officers liability insurance which provides
coverage for losses from wrongful acts committed or alleged to have been
committed by any insured person, including coverage for claims arising out of
certain securities or SEC actions.
II-2
<PAGE> 155
ITEM 21. EXHIBITS AND FINANCIAL DATA SCHEDULES.
(a) The following is a complete list of Exhibits filed as part of this
Registration Statement, which are incorporated herein:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------------------------------------------------------------------
<C> <S>
1.1* Purchase Agreement dated October 24, 1996, between the Issuer and Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith, Incorporated.
3.1* Restated Certificate of Incorporation of the Issuer filed on March 27, 1996.
3.2* Certificate of Amendment of the Certificate of Incorporation of the Issuer filed
on October 23, 1996.
3.4 By-laws of the Issuer as amended through March 29, 1996.
4.1* Form of Note. (contained in Indenture filed as Exhibit 4.11)
4.2* Form of Exchange Note. (contained in Indenture filed as Exhibit 4.11)
4.3* Form of Regulation S Global Note. (contained in Indenture filed as Exhibit 4.11)
4.8* Form of Rule 144A Global Note. (contained in Indenture filed as Exhibit 4.11)
4.9* Form of Regulation S Global Exchange Note. (contained in Indenture filed as
Exhibit 4.11)
4.10* Form of Rule 144A Global Exchange Note. (contained in Indenture filed as Exhibit
4.11)
4.11* Indenture dated as of October 31, 1996 between the Issuer and State Street Bank
and Trust Company relating to the Company's 9 7/8% Senior Notes due 2003 and its
9 7/8% Series B Senior Notes due 2003.
5* Opinion of Baker & McKenzie with respect to the legality of the securities being
registered.
8 Opinion of Baker & McKenzie with respect to the certain tax matters.
9 Voting Agreement by and among Polish Investments Holding Limited Partnership,
Roger M. Freedman, Steele LLC, and David Chase dated as of March 29, 1996.
10.1* Registration Rights Agreement dated as of October 31, 1996 among the Issuer and
Merrill Lynch, Pierce, Fenner & Smith Incorporated.
10.2* Form of Management Agreement between Issuer and subsidiaries.
10.3* Form of Service Agreement among Issuer and subsidiaries.
10.4* Corporate Overhead Allocation Agreement among Issuer and subsidiaries.
10.5* Amendment to Service Agreement.
10.6* Side Letter regarding Service Agreement.
10.7+ Employment Agreement, dated as of January 1, 1997, between Poland Communications,
Inc. ("PCI") and Robert E. Fowler, III, including Stock Option Agreement.
10.8 Deferred Compensation Agreement, dated as of January 1, 1991, between Chase
International Corporation (merged into World Cable Communications, Inc. ("WCCI"),
now PCI) and Arnold L. Chase.
10.9 Employment Agreement, dated as of January 1, 1993, between Poland Cablevision
(Netherlands) B.V. ("PCBV") and Richard B. Steele, including Assignment and
Assumption Agreement, dated as of March 20, 1996, between PCBV and WCCI relating
to Richard B. Steele's Employment Agreement.
10.10 Employment Agreement, dated as of January --, 1997, between PCI and George
Makowski, including Stock Option Agreement.
10.11 Employment Agreement, dated as of September 1, 1996, between WCCI and John Frelas,
including Stock Option Agreement.
</TABLE>
II-3
<PAGE> 156
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------------------------------------------------------------------
<C> <S>
10.12 Form of Employment Agreement, dated as of February 7, 1997, between PCI and
Przemyslaw A. Szmyt.
10.13 Employment Agreement, dated as of January 1, 1997, between PCI and Marek Sowa.
10.14 Deferred Compensation Agreement, dated as of April 18, 1995, between WCCI and
Gilbert Tash, and Letters related to employment and compensation of Gilbert Tash.
10.15 Employment Agreement, dated as of January 1, 1996, between PTK-Warszawa S.A. and
Andrzej Muras.
10.16 Employment Agreement dated July 10, 1996, between WCCI and Michael Houlehan,
related to Bonuses for 1995 and 1996, Letter of Employment, dated October 7, 1994,
between PCBV and Michael J. Houlehan, and Assignment and Assumption Agreement,
dated as of October 7, 1994, between PCBV and WCCI relating to Michael Houlehan's
Letter of Employment.
11.1 Statement Regarding Calculation of Per Share Earnings.
21 List of subsidiaries of the Company.
23.1 Consent of KPMG Peat Marwick LLP with respect to PCI
23.2 Consent of KPMG Peat Marwick LLP with respect to PCBV
23.5* Consent of Baker & McKenzie (contained in Exhibit 5).
24* Power of Attorney (included on the signature page in Part II of this Registration
Statement).
25* Statement of Eligibility of State Street Bank and Trust Company; Form T-1.
27 Financial Data Schedule.
99.1* Letter of Transmittal relating to the Exchange Offer.
99.2* Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.
relating to the Exchange Offer.
99.3* Letter to Clients relating to the Exchange Offer.
99.4* Notice of Guaranteed Delivery relating to the Exchange Offer.
</TABLE>
- ---------------
* Previously filed
+ To be filed by amendment
(b) Financial Statement Schedules.
The following are included in Part II of this Registration Statement:
Schedule II -- Valuation and Qualifying Accounts
- Poland Communications, Inc.
- Poland Cablevision (Netherlands) B.V.
ITEM 22. UNDERTAKINGS.
(a) The undersigned Issuer hereby undertakes:
(1) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c) under the Securities Act of 1933, as amended
(the "Securities Act"), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form.
(2) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Securities Act and is used in
II-4
<PAGE> 157
connection with an offering of securities subject to Rule 415 under the
Securities Act, will be filed as a part of an amendment to the registration
statement and will not be used until such amendment is effective, and that,
for purposes of determining any liability under the Securities Act, each
such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(b) 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 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 the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceedings) 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 indemnification by it is against public policy
as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(c) The undersigned Issuer hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(d) The undersigned Issuer hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(e) The undersigned Issuer hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(f) The undersigned Issuer hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of Prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
II-5
<PAGE> 158
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Issuer pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed part of the registration
statement as of the time it was declared effective.
II-6
<PAGE> 159
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Pre-Effective Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in New York,
New York, on the 4th day of April, 1997.
POLAND COMMUNICATIONS, INC.
By: /s/ ROBERT E. FOWLER, III
------------------------------------
Robert E. Fowler, III
Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Pre-Effective Amendment to the Registration Statement has been signed by the
following persons in the capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ----------------------------------- -----------------
<C> <S> <C>
/s/ ROBERT E. FOWLER, III Chief Executive Officer and April 4, 1997
- ------------------------------------- Director (Principal Executive
Robert E. Fowler, III Officer)
* Chief Financial Officer (Principal April 4, 1997
- ------------------------------------- Financial and Principal
John S. Frelas Accounting Officer)
Chairman of the Board of Directors
- -------------------------------------
David T. Chase
* Director April 4, 1997
- -------------------------------------
Arnold L. Chase
* Director April 4, 1997
- -------------------------------------
Scott A. Lanphere
Director
- -------------------------------------
Jerry Z. Swirski
</TABLE>
- ---------------
* By power of attorney
<TABLE>
<C> <S> <C>
/s/ ROBERT E. FOWLER, III
- -------------------------------------
Robert E. Fowler, III
Attorney-in-Fact
</TABLE>
II-7
<PAGE> 160
SCHEDULE II
POLAND COMMUNICATIONS, INC.
VALUATION AND QUALIFYING ACCOUNTS
The following schedule presents the activity within the allowances for
losses for the years ended December 31, 1996, 1995, and 1994.
<TABLE>
<CAPTION>
TOTAL NET TOTAL
BEGINNING CHARGED TO WRITE- ENDING
BALANCE EXPENSE OFFS BALANCE
--------- ---------- ----- -------
<S> <C> <C> <C> <C>
Allowance for Credit Loss:
Years ended December 31:
1996............................................. $ 510 $549 $ 514 $ 545
==== ==== ==== ====
1995............................................. $ 132 $402 $ 24 $ 510
==== ==== ==== ====
1994............................................. $ 60 $ 93 $ 21 $ 132
==== ==== ==== ====
</TABLE>
<PAGE> 161
SCHEDULE II
POLAND CABLEVISION (NETHERLANDS) B.V.
VALUATION AND QUALIFYING ACCOUNTS
The following schedule presents the activity within the allowances for
losses for the years ended December 31, 1996, 1995, and 1994.
<TABLE>
<CAPTION>
TOTAL NET TOTAL
BEGINNING CHARGED TO WRITE- ENDING
BALANCE EXPENSE OFFS BALANCE
--------- ---------- ---- -------
<S> <C> <C> <C> <C>
Allowance for Credit Loss:
Years ended December 31:
1996................................................ $ 510 $387 $460 $ 437
==== ==== ==== ====
1995................................................ 132 402 24 510
==== ==== ==== ====
1994................................................ 60 93 21 132
==== ==== ==== ====
</TABLE>
<PAGE> 162
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------ ------------------------------------------------------------------------ ------------
<C> <S> <C>
1.1* Purchase Agreement dated October 24, 1996, between the Issuer and
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith,
Incorporated.
3.1* Restated Certificate of Incorporation of the Issuer filed on March 27,
1996.
3.2* Certificate of Amendment of the Certificate of Incorporation of the
Issuer filed on October 23, 1996.
3.4 By-laws of the Issuer as amended through March 29, 1996.
4.1* Form of Note. (contained in Indenture filed as Exhibit 4.11)
4.2* Form of Exchange Note. (contained in Indenture filed as Exhibit 4.11)
4.3* Form of Regulation S Global Note. (contained in Indenture filed as
Exhibit 4.11)
4.8* Form of Rule 144A Global Note. (contained in Indenture filed as Exhibit
4.11)
4.9* Form of Regulation S Global Exchange Note. (contained in Indenture filed
as Exhibit 4.11)
4.10* Form of Rule 144A Global Exchange Note. (contained in Indenture filed as
Exhibit 4.11)
4.11* Indenture dated as of October 31, 1996 between the Issuer and State
Street Bank and Trust Company relating to the Company's 9 7/8% Senior
Notes due 2003 and its 9 7/8% Series B Senior Notes due 2003.
5* Opinion of Baker & McKenzie with respect to the legality of the
securities being registered.
8 Opinion of Baker & McKenzie with respect to the certain tax matters.
9 Voting Agreement by and among Polish Investments Holding Limited
Partnership, Roger M. Freedman, Steele LLC, and David Chase dated as of
March 29, 1996.
10.1* Registration Rights Agreement dated as of October 31, 1996 among the
Issuer and Merrill Lynch, Pierce, Fenner & Smith Incorporated.
10.2* Form of Management Agreement between Issuer and subsidiaries.
10.3* Form of Service Agreement among Issuer and subsidiaries.
10.4* Corporate Overhead Allocation Agreement among Issuer and subsidiaries.
10.5* Amendment to Service Agreement.
10.6* Side Letter regarding Service Agreement.
10.7+ Employment Agreement, dated as of January 1, 1997, between Poland
Communications, Inc. ("PCI") and Robert E. Fowler, III, including Stock
Option Agreement.
10.8 Deferred Compensation Agreement, dated as of January 1, 1991, between
Chase International Corporation (merged into World Cable Communications,
Inc. ("WCCI"), now PCI) and Arnold L. Chase.
10.9 Employment Agreement, dated as of January 1, 1993, between Poland
Cablevision (Netherlands) B.V. ("PCBV") and Richard B. Steele, including
Assignment and Assumption Agreement, dated as of March 20, 1996, between
PCBV and WCCI relating to Richard B. Steele's Employment Agreement.
10.10 Employment Agreement, dated as of January --, 1997, between PCI and
George Makowski, including Stock Option Agreement.
10.11 Employment Agreement, dated as of September 1, 1996, between WCCI and
John Frelas, including Stock Option Agreement.
10.12 Form of Employment Agreement, dated as of February 7, 1997, between PCI
and Przemyslaw A. Szmyt.
</TABLE>
<PAGE> 163
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------ ------------------------------------------------------------------------ ------------
<C> <S> <C>
10.13 Employment Agreement, dated as of January 1, 1997, between PCI and Marek
Sowa.
10.14 Deferred Compensation Agreement, dated as of April 18, 1995, between
WCCI and Gilbert Tash, and Letters related to employment and
compensation of Gilbert Tash.
10.15 Employment Agreement, dated as of January 1, 1996, between PTK-Warszawa
S.A. and Andrzej Muras.
10.16 Employment Agreement dated July 10, 1996, between WCCI and Michael
Houlehan, related to Bonuses for 1995 and 1996, Letter of Employment,
dated October 7, 1994, between PCBV and Michael J. Houlehan, and
Assignment and Assumption Agreement, dated as of October 7, 1994,
between PCBV and WCCI relating to Michael Houlehan's Letter of
Employment.
11.1 Statement Regarding Calculation of Per Share Earnings.
21 List of subsidiaries of the Company.
23.1 Consent of KPMG Peat Marwick LLP with respect to PCI
23.2 Consent of KPMG Peat Marwick LLP with respect to PCBV
23.5* Consent of Baker & McKenzie (contained in Exhibit 5).
24* Power of Attorney (included on the signature page in Part II of this
Registration Statement).
25* Statement of Eligibility of State Street Bank and Trust Company; Form
T-1.
27 Financial Data Schedule.
99.1* Letter of Transmittal relating to the Exchange Offer.
99.2* Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other
Nominees. relating to the Exchange Offer.
99.3* Letter to Clients relating to the Exchange Offer.
99.4* Notice of Guaranteed Delivery relating to the Exchange Offer.
</TABLE>
- ---------------
* Previously filed
+ To be filed by amendment
<PAGE> 1
EXHIBIT 3.4
AMENDED AND RESTATED (a/o 3/29/96)
BY-LAWS
OF
WORLD CABLE COMMUNICATIONS, INC.
(A NEW YORK CORPORATION)
ARTICLE I
SHAREHOLDERS
Section 1.1. Annual Meeting. The annual meeting of shareholders for the
election of directors and the transaction of such other business as may properly
come before such meeting shall be held on the second Wednesday of August of each
year at such time and place, within or without the State of New York, as shall
be determined by resolution of the Board of Directors. If the day fixed for the
annual meeting is a legal holiday, such meeting shall be held on the next
succeeding business day. If the election of directors shall not be held on the
day designated herein for the annual meeting of shareholders, or at any
adjournment thereof, the Board of Directors shall cause such election to be held
at a special meeting of shareholders to be called as soon thereafter as is
convenient.
Section 1.2. Special Meetings. Special meetings of shareholders may be
called by the Board of Directors or the Chief Executive Officer and shall be
called by the Chief Executive Officer or the Secretary at the request in
writing, stating the purpose or purposes thereof, of holders of not less than
twenty percent of the Voting Power (as defined hereinafter). If the Chief
Executive Officer shall not, within fifteen (15) days after the receipt of such
shareholders' request, so call such meeting, such shareholders may call the
same. Special meetings of shareholders may be held at such time and place,
within or without the State of New York, as shall be determined by resolution of
the Board of Directors or as may be specified in the call of any such special
meeting. If not otherwise designated, the place of any special meeting shall be
the principal office of the Corporation in the County of Albany, State of New
York.
Section 1.3. Notice of Meetings and Adjourned Meetings. Written notice of
every meeting of shareholders, stating the place, date, time and purposes
thereof, shall, except when otherwise required by the Certificate of
Incorporation, as amended and restated from time to time, of the Corporation
(the "Certificate of Incorporation") or the laws of the State of New York, be
given at least 10 but not more than 50 days prior to such meeting to each
shareholder of record entitled to vote thereat, in the manner set forth in
Section 9.1 of these By-Laws, by or at the direction of the Chief Executive
Officer or the Secretary or the persons calling such meeting. Any meeting at
which a quorum of shareholders is present, in person or by proxy, may be
adjourned from time to time without notice, other than announcement at such
meeting, until its business shall be completed. At such adjourned meeting, any
business may be transacted which might have been transacted at the original
meeting. If the adjournment is for more than 30 days, or if after the
adjournment a new record date is fixed for the adjourned meeting, written notice
of the adjourned meeting shall be given to each shareholder of record entitled
to vote thereat as above provided.
Section 1.4. Quorum. The holders of a majority of the Voting Power (as
defined hereinafter), which holders may vote in person or be represented by
proxy, shall constitute a quorum at all meetings of the shareholders for the
transaction of business. For the purposes of these By-Laws, the term "Voting
Power" means, with respect to any shares of stock issued and outstanding and
entitled to vote at a meeting of the shareholders, the total number of votes
represented by such shares.
If, however, such quorum shall not be present or represented at any meeting
of the shareholders, the shareholders entitled to vote thereat, present in
person or represented by proxy, shall have the power to adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present or represented. At such adjourned meeting at which a
quorum shall be present or represented any business may be transacted which
might have been transacted at the meeting as originally
<PAGE> 2
notified. When a quorum is present at any meeting, the vote of the holders of a
majority of the Voting Power shall decide any question brought before such
meeting, unless the question is one upon which by express provision of the New
York Business Corporation Law or by express provision of the Certificate of
Incorporation a different vote is required, in which case such express provision
shall govern and control the decision of such question.
Section 1.5. Proxies. At every meeting of shareholders, each shareholder
having the right to vote thereat shall be entitled to vote in person or by
proxy. Such proxy shall be filed with the Secretary before or at the time of the
meeting. No proxy shall be valid after eleven months from its date, unless such
proxy provides for a longer period or limits its use to a particular meeting not
yet held. No proxy shall be valid after ten years from its date of execution,
unless such proxy is irrevocable, in which case such irrevocable proxy shall be
governed by the applicable provisions of the laws of the State of New York.
A shareholder may authorize another person or persons to act for such
shareholder as proxy (i) by executing a writing authorizing such person or
persons to act as such, which execution may be accomplished by such shareholder
or such shareholder's authorized officer, director, employee or agent signing
such writing or causing his or her signature to be affixed to such writing by
any reasonable means, including, but not limited to, facsimile signature, or
(ii) by transmitting or authorizing the transmission of a telegram, cablegram
wireless or other similar transmission (a "Transmission") to the person who will
be the holder of the proxy or to a proxy solicitation firm, proxy support
service organization or like agent duly authorized by the person who will be the
holder of the proxy to receive such Transmission; provided, however, that any
such Transmission must either set forth or be submitted with information from
which it can be determined that such Transmission was authorized by such
shareholder. The Secretary or such other person or persons as shall be appointed
from time to time by the Board of Directors shall examine Transmissions to
determine if they are valid. If it is determined that a Transmission is valid,
the person or persons making that determination shall specify the information
upon which such person or persons relied. Any copy, facsimile telecommunication
or other reliable reproduction of such a writing or such a Transmission may be
substituted or used in lieu of the original writing or Transmission for any and
all purposes for which the original writing or Transmission could be used;
provided, however, that such copy, facsimile telecommunication or other
reproduction shall be a complete reproduction of the entire original writing or
Transmission.
Section 1.6. Fixing Date for Determination of Shareholders of
Record. (a) In order that the Corporation may determine the shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, the Board of Directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing such record
date shall be adopted by the Board of Directors, and which record date shall not
be more than 50 nor less than 10 days before the date of such meeting. If no
such record date shall have been fixed by the Board of Directors, such record
date shall be at the close of business on the day next preceding the day on
which such notice is given or, if such notice is waived or is not required by
these By-Laws, at the close of business on the day next preceding the day on
which such meeting shall be held. A determination of shareholders of record
entitled to notice of or to vote at any meeting of shareholders shall apply to
any adjournment of such meeting; provided, however, that the Board of Directors
may fix a new record date for the adjourned meeting.
(b) In order that the Corporation may determine the shareholders entitled
to receive payment of any dividend or other distribution or any allotment of any
rights or the shareholders entitled to exercise any rights in respect of any
change, conversion or exchange of any capital stock, or for the purpose of any
other lawful action (other than as set forth in subsection (a)), the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing such record date shall be adopted by the Board
of Directors, and which record date shall not be more than 50 days prior to such
payment, allotment or other action. If no such record date shall have been
fixed, such record date shall be at the close of business on the day on which
the Board of Directors shall adopt the resolution relating to such payment,
allotment or other action.
Section 1.7. Shareholder List. The Secretary or any other officer who has
charge of the share transfer books of the Corporation shall prepare, at least 5
days before every meeting of shareholders, a complete list of
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the shareholders as of the record date entitled to vote at such meeting,
arranged in alphabetical order, and showing the address of each shareholder and
the number and class of shares registered in the name of each shareholder. Such
list shall be open to the examination of any shareholder during usual business
hours for a period of at least 5 days prior to such meeting, either at the
principal office of the Corporation or at the office or place of business of a
transfer agent in the State of New York, for any proper purpose in the interest
of the shareholder as such or of the corporation and not for speculative of
trading purposes or for any purpose inimical to the interest of the corporation
or of its shareholders. The list shall also be produced and kept at the time and
place of such meeting during the whole time thereof, and may be inspected for
any such proper purpose by any shareholder who is present. The original share
transfer book shall be prima facie evidence as to who are the shareholders
entitled to examine such list or other equivalent record.
Section 1.8. Voting of Shares by Certain Holders. Shares of capital stock
of the Corporation standing in the name of a deceased person, a minor, an
incompetent or a corporation declared bankrupt and entitled to vote may be voted
by an administrator, executor, guardian, conservator or trustee, as the case may
be, in person, by proxy, or by written consent, without transfer of such shares
into the name of the official so voting.
A shareholder whose shares of capital stock of the Corporation are pledged
shall be entitled to vote such shares unless on the transfer books of the
Corporation the pledgor has expressly empowered the pledgee to vote such shares,
in which case only the pledgee, or such pledgee's proxy, may represent such
shares and vote thereon.
Shares of capital stock of the Corporation, the voting rights of which are
held in escrow or in a voting trust, or the voting of which is directed or
controlled by a voting agreement, in each case pursuant to the terms of
agreement between or among shareholders, may be voted (in person, by proxy, or
by written consent) only by the person or entity having the right under such
agreement to vote such shares, without any transfer of such shares into the name
of the person or entity so voting being necessary.
Shares of capital stock of the Corporation belonging to the Corporation, or
to another corporation if a majority of the shares entitled to vote in the
election of directors of such other corporation shall be held by the
Corporation, shall not be voted at any meeting of shareholders and shall not be
counted in determining the total number of outstanding shares for the purpose of
determining whether a quorum is present. Nothing in this Section 1.8 shall be
construed to limit the right of the Corporation to vote shares of capital stock
of the Corporation held by it in a fiduciary capacity.
Section 1.9. Action Without Meeting. Any action required or permitted to
be taken at any annual or special meeting of stockholders, may be taken without
a meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of all
outstanding stock having the right to vote upon such action at a meeting at
which all the shares entitled to vote thereon were present and voted. In
addition, to the extent permitted by the Certificate of Incorporation or the law
of the State of New York, any action required or permitted to be taken at any
annual or special meeting of stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all the shares entitled to vote
thereon were present and voted, provided that prompt notice of such action shall
be given to those stockholders who have not so consented in writing to such
action without a meeting.
ARTICLE II
DIRECTORS
Section 2.1. General Powers. The business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors.
Section 2.2. Quorum. At all meetings of the Board of Directors, a majority
of the "entire board" shall constitute a quorum for the transaction of business.
If, however, such quorum shall not be present, the directors present thereat
shall have the power to adjourn the meeting from time to time, without notice
other
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than announcement at the meeting, until a quorum shall be present. Minutes shall
be maintained of all regular and special meetings, and copies of the minutes of
every meeting shall be furnished as soon as practicable to each director
regardless of whether or not the director was present at the meeting. For
purposes of these By-Laws, the "entire board" means the total number of
directors which the Corporation would have if there are no vacancies.
The act of a majority of all of the directors present at a meeting for
which there is a quorum shall be the act of the Board of Directors, except as
otherwise provided in these By-Laws, in the Certificate of Incorporation, or by
the New York Business Corporation Law. Without limiting the generality of the
foregoing sentence, with respect to actions specified in Article VIII of the
Certificate of Incorporation, an act of four directors shall be the act of the
Board of Directors.
Section 2.3. Resignation or Removal. Any director may resign by giving
written notice to the Board of Directors or the Chief Executive Officer. Any
such resignation shall take effect at the time of receipt of such notice or at
any later time specified therein; and, unless otherwise specified therein,
acceptance of such resignation shall not be necessary to make it effective.
Except as otherwise required by the laws of the State of New York or the
Certificate of Incorporation, any director may be removed, with or without
cause, by the affirmative vote or written consent of the holders of sixty-one
one-hundredths of the Voting Power.
Section 2.4. Vacancies. Except as otherwise required by the laws of the
State of New York or the Certificate of Incorporation, vacancies in the Board of
Directors shall be filled by the affirmative vote or written consent of the
holders of sixty-one one-hundredths of the Voting Power.
Section 2.5. Place of Meetings. Meetings of the Board of Directors may be
held at such places, within or without the State of New York, as the Board of
Directors may from time to time determine or as may be specified in the call of
any such meeting.
Section 2.6. Regular Meetings. A regular annual meeting of the Board of
Directors shall be held, without call or notice, immediately after and at the
same place as the annual meeting of shareholders, for the purpose of organizing
the Board of Directors, electing officers and transacting any other business
that may properly come before such meeting. Additional regular meetings of the
Board of Directors may be held without call or notice at such times as shall be
fixed by resolution of the Board of Directors.
Section 2.7. Special Meetings. Special meetings of the Board of Directors
may be called by the Chief Executive Officer, a Vice President or any two
directors then in office. Notice of each special meeting shall be made orally or
in writing by the Secretary to each director at least five days before such
meeting. Such notice shall set forth the date, time and place of such meeting
but need not, unless otherwise required by the laws of the State of New York,
state the purpose of such meeting.
Section 2.8. Telephonic Participation in Meetings. Members of the Board of
Directors may participate in a meeting of the Board of Directors through
conference telephone or similar communications equipment by means of which all
persons participating in such meeting can hear each other, and participation in
any meeting conducted pursuant to this Section 2.8 shall constitute presence in
person at such meeting.
Section 2.9. Action Without Meeting. Any action required or permitted to
be taken at any meeting of the Board of Directors may be taken without a meeting
if all members of the Board consent thereto in writing and such written consent
is filed with the minutes of proceedings of the Board.
Section 2.10. Compensation. Unless otherwise restricted by the Certificate
of Incorporation, the directors shall be paid their reasonable expenses, if any,
of attendance at each meeting of the Board of Directors. No such payment shall
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor.
Section 2.11. Presumption of Assent. Unless otherwise provided by the laws
of the State of New York, a director who is present at a meeting of the Board of
Directors at which action is taken on any corporate matter shall be presumed to
have assented to the action taken unless his or her dissent shall be entered in
the minutes of such meeting or unless he or she shall file his or her written
dissent to such action with the person acting as secretary of such meeting
before the adjournment thereof or shall forward such dissent by registered
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mail to the Secretary immediately after the adjournment of such meeting. Such
right to dissent shall not apply to a director who voted in favor of such
action.
Section 2.12. Presiding Officer. The presiding officer at any meeting of
the Board of Directors shall be the Chairman or, in his or her absence, the
Chief Executive Officer or, in his or her absence, any other director elected
chairman for the meeting by vote of two thirds of the directors present at such
meeting.
Section 2.13. Reliance upon Records. In performing his or her duties, a
director shall be entitled to rely on information, opinions, reports or
statements, including financial statements and other financial data, prepared or
presented by (1) one or more officers or employees of the Corporation whom the
director reasonably believes to be reliable and competent in the matters
presented, and (2) counsel, public accountants or other persons as to matters
which the director reasonably believes to be within such person's professional
or expert competence, but he or she shall not be considered to be acting in good
faith if he or she has knowledge concerning the matter in question that causes
such reliance to be unwarranted.
Section 2.14. Interested Directors. The presence of a director who is
directly or indirectly a party to a contract or transaction with the
Corporation, or between the Corporation and any other corporation, partnership,
association or other organization in which such director is a director, officer
or employee or has a financial interest, may be counted in determining whether a
quorum is present at any meeting of the Board of Directors at which such
contract or transaction is discussed or authorized, and such director may
participate in such meeting to the extent permitted by applicable law.
ARTICLE III
OFFICERS
Section 3.1. Number and Designation. The officers of the Corporation shall
be Chief Executive Officer, one or more Vice Presidents, a Secretary and a
Treasurer, and such other officers as may be elected or appointed by the Board
of Directors. Any two or more offices may be held by the same person unless the
Certificate of Incorporation or these By-Laws provide otherwise.
Section 3.2. Election and Term of Office. The officers of the Corporation
shall be elected annually by the Board of Directors at the first meeting of the
Board of Directors held after the election of directors. If the election of
officers shall not be held at such meeting, such election shall be held as soon
thereafter as may be convenient. Vacancies may be filled or new offices created
and filled at any meeting of the Board of Directors by the Board of Directors.
Each officer shall hold office until his or her successor shall have been duly
elected and shall have qualified or until his or her earlier death, resignation
or removal.
Section 3.3. Removal and Resignation. Any officer elected or appointed by
the Board of Directors may be removed by the Board of Directors whenever in its
judgment the best interests of the Corporation would be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed. Any officer may resign at any time by giving written notice to the
Board of Directors, the Chief Executive Officer or the Secretary. Any such
resignation shall take effect at the time of receipt of such notice or at any
later time specified therein; and, unless otherwise specified therein,
acceptance of such resignation shall not be necessary to make it effective.
Section 3.4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise may be filled by the Board
of Directors for the unexpired portion of the term.
Section 3.5. Chairman or Co-Chairmen. The Board of Directors, by vote of
four directors, or the shareholders, by a vote of sixty-one one-hundredths of
the Voting Power, may elect a member of the Board to be Chairman of the Board of
Directors. The Chairman of the Board of Directors, if so elected, shall preside
at all meetings of the Board of Directors, and he or she shall have and perform
such other duties as from time to time may be assigned to him by the Board of
Directors.
Section 3.6. Chief Executive Officer. The Chief Executive Officer shall
have overall supervisory powers in overseeing the business and affairs of the
Corporation, subject to the direction of the Chairman of the Board
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of Directors; shall be empowered to sign or countersign all certificates,
contracts or other instruments; and shall perform any and all duties assigned to
him by the Board of Directors or as are incident to the office of the Chief
Executive Officer of a corporation. The Chief Executive Officer shall in general
supervise and control all of the day-to-day business and affairs of the
Corporation and may execute, alone or with the Secretary or any other officer of
the Corporation authorized by the Board of Directors, any documents which the
Board of Directors has authorized to be executed or in the ordinary course of
business of the Corporation, except in cases where the execution thereof shall
be expressly delegated by the Board of Directors or by these By-Laws to some
other officer or agent of the Corporation, or shall be required by law to be
otherwise executed.
Section 3.7. The Vice Presidents. In the absence of the Chief Executive
Officer or in the event of his or her inability or refusal to act, the Vice
President (or in the event there shall be more than one Vice President, the Vice
Presidents in the order determined by the Board of Directors or, if there shall
have been no such determination, then in the order of their election) shall
perform the duties of the Chief Executive Officer and, when so acting, shall
have all the powers of and be subject to all the restrictions upon the Chief
Executive Officer. The Board of Directors may also designate certain Vice
Presidents as being in charge of designated divisions, facilities or functions
of the Corporation's business and add appropriate descriptions to their titles.
In addition, any Vice President shall perform such duties as from time to time
may be assigned to him or her by the Board of Directors.
Section 3.8. The Secretary. The Secretary shall (a) keep the minutes of
proceedings of the shareholders and of the Board of Directors in one or more
books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these By-Laws or as required by law; (c) be
custodian of the corporate records and of the seal of the Corporation; (d) affix
the seal of the Corporation or a facsimile thereof, or cause it to be affixed,
and, when so affixed, attest the seal by his or her signature, to all
certificates for shares of capital stock of the Corporation prior to the issue
thereof and to all other documents the execution of which on behalf of the
Corporation under its seal is duly authorized by the Board of Directors or
otherwise in accordance with the provisions of these ByLaws; (e) keep a register
of the post office address of each shareholder or director which shall be
furnished to the Secretary by such shareholder or director; (f) have general
charge of the stock transfer books of the Corporation; and (g) in general
perform all duties incident to the office of Secretary and such other duties as
from time to time may be assigned to him or her by the Chief Executive Officer
or the Board of Directors.
Section 3.9. The Treasurer. The Treasurer shall have charge and custody of
and be responsible for all funds and securities of the Corporation, receive and
give receipts for moneys due and payable to the Corporation from any source
whatsoever, deposit all such moneys in the name of the Corporation in such
banks, trust companies or other depositories as shall be selected in accordance
with the provisions of Article IV of these By-Laws, disburse the funds of the
Corporation as ordered by the Board of Directors or the Chief Executive Officer
or as otherwise required in the conduct of the business of the Corporation and
render to the Chief Executive Officer or the Board of Directors, upon request,
an accounting of all his or her transactions as Treasurer and a report on the
financial condition of the Corporation. The Treasurer shall in general perform
all the duties incident to the office of Treasurer and such other duties as from
time to time may be assigned to him or her by the Chief Executive Officer or the
Board of Directors. If required by the Board of Directors, the Treasurer shall
give a bond which shall be renewed regularly, in such sum and with such surety
or sureties as the Board of Directors shall determine, for the faithful
discharge of his or her duties and for the restoration to the Corporation, in
case of his or her death, resignation, retirement or removal from office, of all
books, papers, vouchers, money and other property of whatever kind in his or her
possession or under his or her control belonging to the Corporation.
Section 3.10. Assistant Treasurers and Secretaries. In the absence of the
Secretary or the Treasurer, as the case may be, or in the event of his or her
inability or refusal to act, the Assistant Secretaries and the Assistant
Treasurers, respectively, if any have been elected or appointed, in the order
determined by the Board of Directors (or if there shall have been no such
determination, then in the order of their election), shall perform the duties
and exercise the powers of the Secretary or the Treasurer, as the case may be.
In addition. the Assistant Secretaries and the Assistant Treasurers shall, in
general, perform such duties as may be assigned to them by the Chief Executive
Officer, the Secretary, the Treasurer or the Board of Directors. Each
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Assistant Treasurer shall, if required by the Board of Directors, give a bond
(which shall be renewed regularly), in such sum and with such surety or sureties
as the Board of Directors shall determine, for the faithful discharge of his or
her duties.
Section 3.11. Salaries. The salaries of the officers of the Corporation
shall be fixed from time to time by the Board of Directors. No officer shall be
prevented from receiving such salary by reason of the fact that he or she is
also a director of the Corporation.
ARTICLE IV
CONTRACTS, LOANS, CHECKS, AND DEPOSITS
Section 4.1. Contracts. Notwithstanding anything herein to the contrary,
the Board of Directors may, subject to any supermajority voting requirements in
the Certificate of Incorporation, authorize any officer or officers, or agent or
agents, to enter into any contract or execute and deliver any instrument in the
name of and on behalf of the Corporation, and such authority may be general or
confined to specific instances.
Section 4.2. Loans. No loans shall be contracted on behalf of the
Corporation and no evidences of indebtedness or security instruments shall be
issued in the name of the Corporation unless authorized by or pursuant to a
resolution adopted by the Board of Directors. Such authority may be general or
confined to specific instances.
Section 4.3. Checks, Drafts, Etc, All checks, drafts or other orders for
payment of money issued in the name of the Corporation shall be signed by such
officers, employees or agents of the Corporation as shall from time to time be
designated by the Board of Directors, the Chief Executive Officer or the
Treasurer.
Section 4.4. Deposits. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as shall be designated from time to
time by the Board of Directors, the Chief Executive Officer or the Treasurer;
and such officers may designate any type of depository arrangement (including,
but not limited to, depository arrangements resulting in net debits against the
Corporation) as may from time to time be offered or made available.
ARTICLE V
SHARE CERTIFICATES AND THEIR TRANSFER
Section 5.1. Share Certificates. Shares of capital stock of the
Corporation shall be represented by certificates which shall be in such form as
may be determined by the Board of Directors, shall be numbered and shall be
entered on the books of the Corporation as they are issued. Such certificates
shall comply with the requirements of the New York Business Corporation Law, or
any successor provision, and shall be signed by (a) the Chief Executive Officer
or a Vice President and by the Secretary or an Assistant Secretary or the
Treasurer or an Assistant Treasurer, or (b) any two officers of the Corporation
so authorized to sign by a resolution of the Board of Directors. If any share
certificate shall be manually signed by a transfer agent, transfer clerk acting
on behalf of the Corporation or registrar, the signature of any officer of the
Corporation may be a facsimile. In case any such officer whose facsimile
signature has been used on any such share certificate shall cease to be such
officer, whether because of death, resignation, removal or otherwise, before
such share certificate shall have been delivered by the Corporation, such share
certificate may nevertheless be delivered by the Corporation as though the
person whose facsimile signature has been used thereon had not ceased to be such
officer.
Section 5.2. Lost, Stolen or Destroyed Certificates. The Board of
Directors in individual cases, or by general resolution or by delegation to the
transfer agent for the Corporation, may direct that a new share certificate or
certificates for shares of capital stock of the Corporation be issued in place
of any share certificate or certificates theretofore issued by the Corporation
claimed to have been lost, stolen or destroyed, upon the filing of an affidavit
to that effect by the person claiming such loss, theft or destruction. When
authorizing
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such an issuance of a new share certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to such issuance,
require the owner of such lost, stolen or destroyed share certificate or
certificates to advertise the case in such manner as the Corporation shall
require and/or to give the Corporation a bond in such sum as it may direct as
indemnity against any claim that may be made against the Corporation with
respect to the share certificate or certificates claimed to have been lost,
stolen or destroyed.
Section 5.3. Transfers of Shares. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares of capital stock
of the Corporation duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer or, if the relevant certificate
for shares of capital stock of the Corporation is claimed to have been lost,
stolen or destroyed, upon compliance with the provisions of Section 5.2 of these
By-Laws, and upon payment of applicable taxes with respect to such transfer, and
in compliance with any restrictions on transfer applicable to such share
certificate or the shares represented thereby of which the Corporation shall
have notice and subject to such rules and regulations as the Board of Directors
may from time to time deem advisable concerning the transfer and registration of
share certificates for shares of capital stock of the Corporation, the
Corporation shall issue a new share certificate or certificates for such shares
to the person entitled thereto, cancel the old share certificate and record the
transaction upon its books. Transfers of shares shall be made only on the books
of the Corporation by the registered holder thereof or by such holder's attorney
or successor duly authorized as evidenced by documents filed with the Secretary
or transfer agent of the Corporation. Whenever any transfer of shares of capital
stock of the Corporation shall be made for collateral security, and not
absolutely, it shall be so expressed in the entry of transfer if, when the share
certificate or certificates representing such shares are presented to the
Corporation for transfer, both the transferor and transferee request the
Corporation to do so.
Section 5.4. Shareholders of Record. The Corporation shall be entitled to
treat the holder of record of any share of capital stock of the Corporation as
the holder thereof and shall not be bound to recognize any equitable or other
claim to or interest in such share on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of the State of New York.
ARTICLE VI
GENERAL PROVISIONS
Section 6.1. Fiscal Year. The fiscal year of the Corporation shall be the
calendar year, unless otherwise specified by the Board of Directors.
Section 6.2. Seal. The corporate seal of the Corporation shall have
inscribed thereon the name of the Corporation and the words "SEAL" and "NEW
YORK"; and it shall otherwise be in the form approved by the Board of Directors.
Such seal may be used by causing it, or a facsimile thereof, to be impressed or
affixed or otherwise reproduced.
ARTICLE VII
OFFICES
Section 7.1. Principal Office. The principal office of the Corporation
shall be in the County of Albany, State of New York, or such other place as the
Board of Directors may from time to time designate.
Section 7.2. Other Offices. The Corporation may have offices at such other
places, both within or without the State of New York, as shall be determined
from time to time by the Board of Directors or as the business of the
Corporation may require.
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ARTICLE VIII
INSURANCE
Section 8.1. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against any liability asserted against
him or her and incurred by him or her in any such capacity, or arising out of
his or her status as such.
ARTICLE IX
NOTICES
Section 9.1. Manner of Notice. Except as otherwise provided by law,
whenever under the provisions of the laws of the State of New York, the
Certificate of Incorporation or these By-Laws notice is required to be given to
any shareholder or director, such notice may be given by personal delivery or by
depositing it, in a sealed envelope, in the United States mail, air mail or
first class, postage prepaid, addressed to such shareholder, director or member
either at the address of such shareholder, director or member as it appears on
the books of the Corporation or, in the case of such a director or member, at
his or her business address; and such notice shall be deemed to be given at the
time when it is thus personally delivered or deposited, as the case may be. Such
requirement for notice shall also be deemed satisfied, except in the case of
shareholder meetings with respect to which written notice is required by law, if
actual notice is received orally or by other writing by the person entitled
thereto as far in advance of the event with respect to which notice is being
given as the minimum notice period required by the laws of the State of New York
or these By-Laws. Notwithstanding any provision of this Section 9.1 to the
contrary, any shareholder or director may, by written request provided to the
Secretary of the Corporation, require that notice to such shareholder or
director shall be made exclusively by personal delivery or certified mail,
return receipt requested, and to require that such notice shall be made to such
shareholder or director at two separate addresses (and that, with respect to
either or both of such separate address, such notice be in care of a specific
person).
Section 9.2. Computation of Notice Period. In computing the period of time
of any notice required or permitted to be given by law, or under the provisions
of the Certificate of Incorporation or By-Laws or of a resolution of
shareholders or directors, the day on which the notice is given shall be
excluded, and the day on which the matter noticed is to occur shall be included,
in the absence of a contrary provision.
Section 9.3. Waiver of Notice. Whenever any notice is required to be given
under any provision of the laws of the State of New York, the Certificate of
Incorporation or these By-Laws, a written waiver thereof, signed by the person
or persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to such notice. Attendance by a person at a
meeting shall constitute a waiver of notice of such meeting, except when such
person attends such meeting for the express purpose of objecting, prior to or at
the commencement of such meeting, to the transaction of any business because
such meeting has not been lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of
shareholders or the Board of Directors need be specified in any written waiver
of notice unless so required by the laws of the State of New York, the
Certificate of Incorporation or these By-Laws.
ARTICLE X
DIVIDENDS
The Board of Directors may from time to time declare, and the Corporation
may pay, dividends, in cash, in property or in shares of capital stock of the
Corporation, on its outstanding shares of capital stock in the manner and upon
the terms and conditions provided by law and by the Certificate of
Incorporation.
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ARTICLE XI
AMENDMENTS
Except to the extent otherwise provided in the Certificate of Incorporation
or these By-Laws, these By-Laws shall be subject to alteration, amendment or
repeal, and new By-Laws may be adopted (i) by the affirmative vote of the
holders of not less than sixty-one one-hundredths of the Voting Power or (ii) by
the affirmative vote of not less than four directors.
10
<PAGE> 1
EXHIBIT 8
[BAKER & McKENZIE LETTERHEAD]
April 4, 1997
Poland Communications, Inc.
One Commercial Plaza
Hartford, CT 06103-3585
Dear Sirs:
We have acted as special United States federal income tax counsel to
Poland Communications, Inc. (the "Company") in connection with the exchange by
the Company of its 9 7/8% Series B Senior Notes due 2003 for any and all of its
outstanding 9 7/8% Senior Notes due 2003 (the "Exchange Offer") pursuant to the
Prospectus dated April 4, 1997 (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 Exchange Offer.
On the basis of the foregoing, and assuming that all relevant documents
have been, or will be, validly authorised, executed and delivered by all the
relevant parties, we are of the opinion that, under present United States
federal income tax laws, the statements in the Prospectus under the caption
"Income Tax Considerations," insofar as such statements purport to summarize
federal laws of the United States referred to therein, fairly summarise such
provisions.
The foregoing is based on the United States Internal Revenue Code of
1986, as amended, regulations thereunder, and administrative pronouncements and
judicial decisions relating thereto, all as of the date hereof. Subsequent
developments could have a material effect on this opinion.
Very truly yours,
/s/ BAKER & McKENZIE
------------------------
BAKER & McKENZIE
TOD/JOD
<PAGE> 1
EXHIBIT 9
VOTING AGREEMENT
THIS VOTING AGREEMENT (this "Agreement") dated as of March 29, 1996, is
being entered into by and among Polish Investments Holding Limited Partnership
("PIHLP"), Roger M. Freedman ("RMF"), Steele LLC ("Steele," and together with
PIHLP and RMF, the "Shareholders") and David Chase, as the Chase Group
Representative.
WITNESSETH
WHEREAS, the Shareholders are parties to that certain Shareholders'
Agreement (the "Shareholders' Agreement") which provides, among other things,
for the appointment of a Chase Group Representative to act as the designated
representative of the Shareholders; and
WHEREAS, the Shareholders, pursuant to the terms of the Shareholders'
Agreement, desire to appoint David Chase as the initial Chase Group
Representative and to confer on him certain powers and duties as set forth
herein.
NOW, THEREFORE, in consideration of the mutual covenants and obligations
set forth in this Agreement, the parties hereto hereby agree as follows:
1. Effective Date of Agreement; Definitions
1.1 Effective Date of Agreement. This Agreement shall become
effective (the "Effective Date") upon execution of the Shareholders'
Agreement; provided, however, that this Agreement shall not become
effective unless the Shareholders' Agreement is executed on or before July
1, 1996.
1.2 Definitions. For purposes of this Agreement, the following terms
shall have the meanings set forth below:
(a) "Chase Group Representative" shall mean David Chase and any
person who becomes a successor Chase Group Representative pursuant to
Section 5.1 hereof.
(b) "Company" shall mean World Cable Communications, Inc., a New
York corporation.
(c) "Non-Voting Shares" shall mean shares of the Company's Series C
Preferred Stock, par value $.01 per share, as constituted at the date of
the Shareholders' Agreement, plus all securities hereinafter
attributable to such shares or received or receivable in respect thereof
by way of stock splits or stock dividends,recapitalization or
liquidation of the Company or merger or consolidation of the Company
with any other corporation or organization.
(d) "Shareholders" shall have the meaning set forth in the first
paragraph of this Agreement and shall include any transferee of the
Shareholders permitted by this Agreement. PIHLP, RMF and Steele and any
permitted transferee of the same shall be individually referred to
herein as a "Shareholder."
(e) "Shareholders' Agreement" shall mean that certain Shareholders'
Agreement by and among the Shareholders, the Company, ECO Holdings III
Limited Partnership, and the AESOP Fund, L.P.
(f) "Shares" shall mean all Voting Shares and all Non-Voting Shares
held by any Shareholder.
(g) "Voting Shares" shall mean shares of the Company's Common
Stock, par value $.01 per share, held at any time by any Shareholder,
plus all voting securities hereinafter attributable to such shares or
received or receivable in respect thereof by way of stock splits or
stock dividends, recapitalization or liquidation of the Company or
merger or consolidation of the Company with any other corporation or
organization.
1
<PAGE> 2
2. TERM OF AGREEMENT
This Agreement shall become effective upon the Effective Date specified in
Section 1.1 hereof and shall terminate upon the first to occur of the following
events: (a) the written consent of all Shareholders, (b) the termination of the
Shareholders' Agreement in accordance with its terms, or (c) the failure of the
Shareholders to appoint a successor Chase Group Representative in accordance
with Section 5.1(a) hereof within sixty (60) days of the date on which the
previous Chase Group Representative ceases, for whatever reason, to act as the
Chase Group Representative. This Agreement shall terminate as to any Shareholder
if such Shareholder ceases to be a "Shareholder" for purposes of Section 1.28 of
the Shareholders' Agreement or ceases to be a member of the "Chase Group"
pursuant to the Shareholders' Agreement.
3. VOTING PROVISIONS
3.1 Grant of Proxy. Each Shareholder grants to the Chase Group
Representative an irrevocable proxy, pursuant to the provisions of Section 609
of the New York Business Corporation Law, coupled with an interest, to vote such
Shareholders' Voting Shares as the Chase Group Representative shall in his sole
discretion determine, for the election of directors and on all other matters
which may be presented at any meeting or require the consent of stockholders of
the Company. The Chase Group Representative agrees to notify each Shareholder
(if such Shareholder is not an officer of the Company or otherwise present at
the meeting) of any exercise of such voting right (including copies of the
applicable resolutions) on behalf of such Shareholder within a reasonable period
of time after such vote is taken. Notwithstanding the foregoing, upon the
transfer of any Voting Shares (other than a transfer described in Section 4.2
hereof), such proxy shall terminate and be of no further force and effect with
respect to the Voting Shares so transferred.
3.2 Rights under Shareholders' Agreement. Each Shareholder hereby makes,
constitutes and appoints the Chase Group Representative as its attorney-in-fact
for the limited purpose of performing all acts and executing all documents,
instruments, agreements, notices or certificates the Chase Group Representative
may deem necessary or desirable in all matters relating to the rights and
obligations of each Shareholder under the Shareholders' Agreement.
4. TRANSFER OF SHARES
4.1 Transfer of Shares Generally. During the term of this Agreement, no
Shareholder shall make any transfer of any Shares except for transfers permitted
by the Shareholders' Agreement.
4.2 Condition on Transfer. Any proposed transfer by any Shareholder
pursuant to Section 3.7(i) of the Shareholders' Agreement shall be conditioned
on such transferee executing and delivering to the Chase Group Representative an
agreement in form and substance satisfactory to the Chase Group Representative
pursuant to which the transferee agrees to be bound by the terms of this
Agreement.
5. THE CHASE GROUP REPRESENTATIVE
5.1 The Chase Group Representative. David Chase hereby accepts and agrees
to act as the initial Chase Group Representative in accordance with the terms of
this Agreement.
5.2 Successor Chase Group Representative.
(a) The Chase Group Representative may at any time resign by
delivering to each Shareholder a written resignation, to take effect thirty
(30) days thereafter. Upon the resignation of the Chase Group
Representative or upon the failure of the Chase Group Representative to
serve as Chase Group Representative because of death or incapacity of the
Chase Group Representative, or otherwise, the Shareholders shall, by
written consent of Shareholders holding more than fifty percent (50%) of
the Voting Shares held by the Shareholders, appoint a successor Chase Group
Representative.
(b) The Shareholders may at any time, by written consent of Shareholders
holding more than fifty percent (50%) of the Voting Shares held by the
Shareholders, remove the then-current Chase Group Representative and appoint a
successor Chase Group Representative.
2
<PAGE> 3
(c) Any successor Chase Group Representative appointed pursuant to the
terms and conditions of this Agreement shall have all the rights granted to the
Chase Group Representative named herein and all references herein to the Chase
Group Representative shall include not only the Chase Group Representative named
herein, but also any successor Chase Group Representative.
5.3 Compensation. The Chase Group Representative shall serve at all times
without compensation.
5.4 Indemnification. The Shareholders, jointly and severally, hereby agree
to assume liability for and do hereby indemnify, protect, save and keep harmless
the Chase Group Representative, and its successors, assigns, agents and servants
from and against any and all liabilities, obligations, losses, damages,
penalties, taxes, claims, actions, suits, costs, expenses or disbursements
(including legal fees and expenses) of any kind and nature whatsoever
(collectively, "Claims") which may be imposed upon, incurred by or asserted
against the Chase Group Representative in connection with this Agreement;
provided, however, that the Chase Group Representative shall not be entitled to
indemnification under this Section 5.4 with respect to Claims which are the
result of gross negligence or willful misconduct of the Chase Group
Representative. The indemnities contained in this Section 5.4 shall survive the
termination of this Agreement.
6. LEGENDS ON SHARES; FILING OF AGREEMENT
6.1 Legend on Shares. All certificates representing Shares shall bear the
following legend: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
A VOTING AGREEMENT ON FILE AT THE OFFICES OF THE CORPORATION."
6.2 Filing of Agreement. Copies of this Agreement, and of each amendment,
modification, supplement or addendum hereto, shall be filed in the principal
office of the Company.
7. MISCELLANEOUS
7.1 Notice Provisions. All notices or communications required to be given
by any person pursuant to this Agreement shall be effected in writing either by
personal delivery or by registered or certified mail, postage prepaid with
return receipt requested to address indicated under such party's signature
hereto. Any person may designate a different address to which notices or other
communications must thereafter be addressed by giving written notice of the
different address to each Shareholder and the Chase Group Representative.
7.2 Amendment of Agreement. The provision of this Agreement may be amended
only by written consent of all Shareholders and, if his obligations or rights
hereunder would be affected thereby, the Chase Group Representative.
7.3 Interpretation of Agreement. This Agreement shall be construed in its
entirety, with no emphasis or meaning being given to the headings or captions
utilized in this Agreement or the placement of the various provisions.
7.4 Entire Agreement. This Agreement and the Shareholders' Agreement
supersede any and all other agreement, either oral or in writing, between the
parties with respect to the subject matter of this Agreement and the
Shareholder's Agreement.
7.5 Severability of Provisions. Each provision of this Agreement is
intended to be severable. If any term or provision is declared to be illegal or
invalid for any reason, such illegality or invalidity shall not effect the
validity or enforceability or any other provision of Agreement.
7.6 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
7.7 Execution in Counterparts. This Agreement and any amendments hereto
may be executed in any number of counterparts with the same effect as if all of
the parties had signed the same document.
3
<PAGE> 4
IN WITNESS WHEREOF, the undersigned have executed this Voting Agreement as
of the date first above written.
POLISH INVESTMENTS HOLDING L.P.
By: Chase Polish Enterprises, Inc.,
its general partner
By: /s/ ROBERT E. FOWLER, III
------------------------------------
Robert E. Fowler, III
Vice President
Address
c/o World Cable Communications, Inc.
One Commercial Plaza
Hartford, Connecticut 06103
Fax: 860/293-4297
Attn: Cheryl Chase Freedman
/s/ ROGER M. FREEDMAN
--------------------------------------
Roger M. Freedman
Address
c/o World Cable Communications, Inc.
One Commercial Plaza
Hartford, Connecticut 06103
Fax: 860/293-4297
Attn: Cheryl Chase Freedman
STEELE LLC
By: /s/ RICHARD B. STEELE
------------------------------------
Richard B. Steele
Managing Member
Address
c/o Steele LLC
19 Warren Terrace
Longmeadow, Massachusetts 01106
Fax: 413/567-5160
Attn: Richard B. Steele, Managing
Member
4
<PAGE> 5
/s/ DAVID CHASE
--------------------------------------
David Chase, Chase Group
Representative
Address
c/o Chase Polish Enterprises, Inc.
One Commercial Plaza
Hartford, Connecticut 06103
Fax: 860/293-4297
Attn: Cheryl Chase Freedman
5
<PAGE> 1
EXHIBIT 10.8
DEFERRED COMPENSATION AGREEMENT
THIS AGREEMENT is made and entered into as of the 1st day of January, 1991,
by and between CHASE INTERNATIONAL CORPORATION, a corporation organized under
the laws of the State of Delaware with its principal office and place of
business in Hartford, Connecticut (hereinafter called the "Employer") and ARNOLD
L. CHASE, a resident of West Hartford, Connecticut (hereinafter called the
"Employee");
W I T N E S S E T H:
WHEREAS, the Employee desires to defer receipt of his salary and any
bonuses earned from the Employer after the date hereof and until otherwise
specified in this Agreement; and
WHEREAS, the Employer desires to defer the payment of such compensation to
the Employee and is willing to assist the Employee in the deferral of such
compensation by entering into this Agreement;
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth, the Employer and Employee agree as follows:
1. Deferred Compensation. Employee hereby irrevocably elects to defer the
receipt by him of all salary and any bonuses earned by him subsequent to the
date hereof until the earliest of such dates as are provided in paragraph 4
hereof. The Employer hereby agrees to pay the amounts of such Deferred
Compensation to the Employee, together with any increases thereon as provided in
paragraph 3 hereof, at the earliest of such dates as are provided in paragraph 4
hereof. Notwithstanding the aforesaid, to the extent that the Employee becomes
liable for Federal Social Security ("FICA") taxes or Federal Unemployment
("FUTA") taxes with respect to such Deferred Compensation, the Employer shall
pay to the Employee currently, from the amounts of compensation which would
otherwise be deferred hereunder, an amount of compensation which, after federal
income taxes are paid with respect to such amounts. would allow the Employee to
satisfy his liability for said FICA and FUTA taxes.
2. Deferred Compensation Account. Employer shall maintain on its books and
records a Deferred Compensation Account to record its liability for future
payments of Deferred Compensation and any increases thereon which may be
required pursuant to paragraph 3 below. Employer shall not be required, however,
to segregate or earmark any of its assets (or the benefit of Employee or, in the
event of his death, the Employee's spouse, estate or any other beneficiary. The
amount reflected in said Deferred Compensation Employer's general corporate
purposes and shall be available to Employer's general creditors. The amount
reflected in said Deferred Compensation Account shall not be subject in any
manner to anticipation, alienation, transfer or assignment by Employee or his
spouse, estate or any beneficiary, and any attempt to anticipate, alienate or
transfer or assign the same shall be void. Neither Employee nor his spouse,
estate or any other beneficiary may assert any right or claim by reason of this
Agreement against any specific asset of the Employer. Employee's right of
payment pursuant to this Agreement shall only be a contractual right against
Employer for the amount reflected in the Deferred Compensation Account with
respect to such Employee. Nothing contained in this Agreement, and no action
taken pursuant to the provisions hereof, shall create or be construed to create
a trust of any kind or a fiduciary relationship between Employer and Employee or
any other person.
3. Increases in Deferred Compensation. In consideration of the Employee's
election and agreement to defer the receipt of his compensation as provided
herein, the Employer agrees to credit the Employee's Deferred Compensation
Account (as maintained in accordance with paragraph 2 above) with additional
amounts of compensation at the rate of ten percent (10%) per annum for the
length of time that such Deferred Compensation amounts remain unpaid. Such
increases shall be calculated from the date such compensation would otherwise
have been paid to the Employee absent this Agreement until the date such amounts
of Deferred Compensation are actually paid, provided, however that increases
shall be credited on Deferred Compensation amounts only and shall not be
credited on prior increases made pursuant to this paragraph 3. Such increased
amounts of compensation shall be deferred in accordance with this Agreement and
shall be paid as provided in paragraph 4 below.
<PAGE> 2
4. Payment of Deferred Compensation. This Agreement shall continue in
force until the first to occur of: (1) the Employee's severance of employment,
(2) a substantial diminishment of the employment responsibilities of the
Employee, or (3) the written agreement, signed by the parties, terminating this
agreement. At such time, this Agreement shall terminate and the entire amount
then constituting the Employee's Deferred Compensation Account, including any
increases required to be credited thereon by reason of paragraph 3 above, shall
be paid to the Employee. If the severance of employment of the Employee occurs
by reason of his death, payment shall be paid to the beneficiary designated by
the Employee to receive such payment, or if none, to the Employee's spouse, if
any, or if none to the Employee's estate.
5. General Provisions.
(a) This Agreement may be amended or modified only by a written
agreement duly executed by the parties hereto and no agreement other than
one in writing executed by the parties hereto shall be binding on the
parties.
(b) Nothing contained herein shall be interpreted to impose any
obligation on Employer to continue the employment of Employee.
(c) This Agreement may be simultaneously executed in counterparts,
each of which shall be deemed to be an original but which together shall
constitute but one and the same instrument.
(d) This Agreement shall be governed by and construed in accordance
with the laws of the State of Connecticut. Employer and Employee hereby
agree to submit to the jurisdiction of the state and federal courts located
in Connecticut for the resolution of any dispute that may arise under this
Agreement.
IN WITNESS WHEREOF, Employer, by its duly authorized representative, and
Employee have executed this Agreement as of the day and year first written
above.
EMPLOYER:
CHASE INTERNATIONAL CORPORATION
By /s/ CHERYL CHASE FREEDMAN
------------------------------------
Name: Cheryl Chase Freedman
Title: Executive Vice President
WITNESS:
[Signed but illegible]
- --------------------------------------
[Signed but illegible]
- --------------------------------------
EMPLOYEE:
/s/ ARNOLD L. CHASE
--------------------------------------
Arnold L. Chase
WITNESS:
[Signed but illegible]
- --------------------------------------
[Signed but illegible]
- --------------------------------------
2
<PAGE> 3
WORLD CABLE COMMUNICATIONS, INC.
DEFERRED COMPENSATION SCHEDULE
FOR THE YEAR ENDING DECEMBER 31, 1993
12-MAR-96
<TABLE>
<CAPTION>
ARNOLD L CHASE
PAYMENT PAYMENT ------------------------ MONTHLY EXP MONTHLY EXP
PERIOD DATE COMP ADD COMP GRAND TOTAL COMP INTEREST
- ------- ------------ ----------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
FORWARD @
12/31/92 486,933.76 72,719.18 559,652.94
1 07-Jan-93 496,945.14 952.29 570,616.61
2 21-Jan-93 506,164.52 2,912.18 581,795.88 19,230.76 2,912.18
3 04-Feb-93 515,799.90 4,945.83 593,464.91
4 18-Feb-93 525,395.28 7,053.25 605,167.71 19,230.70 4,141.07
5 04-Mar-93 535,010.66 9,234.43 616,964.27 --
6 18-Mar-93 544,626.04 11,489.37 628,834.59 19,230.76 4,436.12
7 01-Apr-93 554,241.42 13,818.07 640,778.67
8 15-Apr-93 563,856.80 16,220.54 652,796.52 19,230.76 4,731.17
9 29-Apr-93 573,472.18 18,696.76 664,888.12
10 13-May-93 583,087.56 21,246.75 677,053.49
11 27-May-93 592,702.94 23,870.50 689,292.62 28,846.14 7,649.96
12 10-Jun-93 602,318.32 26,568.01 701,605.51
13 24-Jun-93 611,933.70 29,339.29 713,992.17 19,230.76 5,468.79
14 08-Jul-93 621,549.08 32,184.32 726,452.58
15 22-Jul-93 631,164.46 35,103.12 738,986.76 19,230.76 5,763.83
16 05-Aug-93 640,779.84 38,095.68 751,594.70
17 19-Aug-93 650,395.22 41,162.00 764,276.40 19,230.76 6,058.88
18 02-Sep-93 660,010.60 44,302.08 777,031.86
19 16-Sep-93 669,625.98 47,515.93 789,861.09
20 30-Sep-93 679,241.36 50,803.53 802,764.07 28,846.14 9,641.53
21 14-Oct-93 688,856.74 54,164.90 815,740.82
22 28-Oct-93 698,472.12 57,600.03 828,791.33 19,230.76 6,796.50
23 11-Nov-93 708,087.50 61,108.92 841,915.60
24 25-Nov-93 717,702.68 64,691.57 855,113.63 19,230.76 7,091.54
25 09-Dec-93 727,318.26 68,347.99 868,385.43
26 23-Dec-93 730,022.64 71,402.21 874,144.03
31-Dec-93 730,022.64 73,002.26 875,744.08 12,319.76 8,310.69
--------- --------
243,088.88 73,002.26
559,652.94 --
---------
802,741.82
=========
</TABLE>
3
<PAGE> 4
WORLD CABLE COMMUNICATIONS, INC.
DEFERRED COMPENSATION SCHEDULE
FOR THE YEAR ENDING DECEMBER 31, 1993
12-MAR-96
<TABLE>
<CAPTION>
ARNOLD L CHASE
PAYMENT PAYMENT ------------------------ MONTHLY EXP MONTHLY EXP
PERIOD DATE COMP ADD COMP GRAND TOTAL COMP INTEREST
- ------- ----------- ----------- --------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
FORWARD @ 12/31/93 730,022.64 145.721.44 875,744.08
1 06-Jan-94 739,638.02 1,200.04 886,559.50
2 20-Jan-94 749,253.40 4,037.00 899,011.64 19,230.76 4,037.00
3 03-Feb-94 758,868.78 6,910.85 911,501.07
4 17-Feb-94 768,484.16 9,821.58 924,027.18 19,230.76 5,784.58
5 03-Mar-94 778,099.54 12,769.19 936,590.17
6 17-Mar-94 787,714.92 15,753.69 949,190.05 19,230.76 5,932.11
7 31-Mar-94 797,330.30 18,775.06 961,826.80
8 14-Apr-94 806,945.68 21,833.31 974,500.43 19,230.76 6,079.62
9 28-Apr-94 816,561.06 24,928.44 987,210.94
10 12-May-94 826,176.44 28,060.46 999,958.34
11 26-May-94 835,791.82 31,229.36 1,012,742.62 28,846.14 9,396.05
12 09-Jun-94 845,407.20 34,435.13 1,025,563.77
13 23-Jun-94 855,022.58 37,677.79 1,038,421.81 19,230.76 6,448.43
14 07-Jul-94 864,637.96 40,957.33 1,051,316.73
15 21-Jul-94 874,253.34 44,273.55 1,064,248.33 19,230.76 6,595.76
16 04-Aug-94 883,868.72 47,627.05 1,077,217.21
17 18-Aug-94 893,484.10 51,017.23 1.090,222.77 19,230.76 6,743.68
18 01-Sep-94 903,099.48 54,444.29 1,103,265.21
19 15-Sep-94 912,714.86 57,908.24 1,116,344.54
20 29-Sep-94 922,330.24 61,409.96 1,129,461.64 28,846.14 10,392.73
21 13-Oct-94 931,945.82 64,969.76 1,142,636.82
22 27-Oct-94 941,561.00 68,521.35 1,155,803.79 19,230.76 7,111.39
23 10-Nov-94 951,176.36 72,132.82 1,169,030.64
24 24-Nov-94 960,791.76 75,781.17 1,182,294.37 19,230.76 7,259.82
25 08-Dec-94 960,154.08 79,466.39 1,185,341.91
26 22-Dec-94 969,769.46 83,149.18 1,198,640.08
31-Dec-94 969,769.46 85,540.39 1,201,031.29 8,977.70 9,759.22
---------- ---------
239,746.82 8,540.99
875,744.08
----------
1,115,490.90
==========
</TABLE>
4
<PAGE> 5
WORLD CABLE COMMUNICATIONS, INC.
DEFERRED COMPENSATION SCHEDULE
FOR THE YEAR ENDING DECEMBER 31, 1995
05-FEB-96
<TABLE>
<CAPTION>
ARNOLD L. CHASE
----------------------------
PAYMENT PAYMENT ADD COMP MONTHLY EXP MONTHLY EXP
PERIOD DATE COMP INTEREST GRAND TOTAL COMP INTEREST
- -------- ----------- ------------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Forward @ 12/31/94 969,769.46 231,261.83 1.201,031.29
1....... 05-Jan-95 979,384.84 1,328.45 1,211,975.12
2....... 19-Jan-95 989,000.22 5,085.00 1,225,347.05 19,230.76 5,085.00
3....... 02-Feb-95 998,615.60 8,878.42 1,236,755.85
4....... 16-Feb-95 1,008,230.98 12,708.73 1,252,201.54 19,230.76 7,623.73
5....... 02-Mar-95 1,017,846.36 16,575.92 1,265,684.11
6....... 16-Mar-95 1,027,461.74 20,479.98 1,279,203.55
7....... 30- Mar-95 1,037,077.12 24,420.93 1,292,759.88 28,846.14 11,712.20
8....... 13-Apr-95 1,046,692.50 28,398.76 1,306,353.09
9....... 27-Apr-95 1,056,307.88 32,413.47 1,319,963.18 19,230.76 7,992.54
10...... 11-May-95 1,065,923.26 36,465.07 1,333,650.16
11...... 25-May-95 1,075,538.64 40,553.54 1,347,354.01 19,230.76 8,140.07
12...... 08-Jun-95 1,085,154.02 44,678.89 1,361,094.74
13...... 22-Jun-95 1,094,769.40 48,841.13 1,374,872.36 19,230.76 8,287.59
14...... 06-Jul-95 1,104,384.78 53,040.24 1,388,686.85
15...... 20-Jul-95 1,114,000.16 57,276.24 1,402,538.23 19,230.76 8,435.11
16...... 03-Aug-95 1,123,815.54 61,549.12 1,416,426.49
17...... 17-Aug-95 1,133,230.92 65,858.87 1.430,351.62
18...... 31-Aug-95 1,142,846.30 70,205.51 1,444,313.84 28,846.14 12,929.27
19...... 14-Sep-95 1,152.461.68 74,589.03 1,458,312.54
20...... 28-Sep-95 1,162,077.06 79,009.43 1,472,348.32 19,230.76 8,803.92
21...... 12-Oct-95 1,171,692.44 83.466,72 1,468,420.99
22...... 26-Oct-95 1,181,307.82 87,960.88 1,500,530.53 19,230.76 8,951.45
23...... 09-Nov-95 1,190,923.20 92,491.92 1,514,676.95
24...... 23-Nov-95 1,200,538.58 97,059.85 1,528,860.26 19,230.76 9,098.97
25...... 07-Dec-95 1,199,849.24 101,664.65 1,532,775.72
26...... 21-Dec-95 1,209,464.62 106,266.81 1,546,993.26
31-Dec-95 1,209,464.42 109,580.42 1,550,306.87 8,925.64 12,520.57
------------ ----------
239,694.96 109,580.42
1,201,031.29
------------
1,440,726.25
============
</TABLE>
5
<PAGE> 1
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of and effective as of January 1, 1993,
between RICHARD B. STEELE ("Executive") and POLAND CABLEVISION (NETHERLANDS)
B.V., a Netherlands corporation ("Employer").
Executive has been employed by Employer since January 1, 1993. Executive
and Employer desire to memorialize the terms of Executive's employment for the
period from January 1, 1993 through December 31, 1997.
In consideration of the premises and the mutual covenants hereinafter set
forth, the parties hereto hereby agree as follows:
1. EMPLOYMENT OF EXECUTIVE
Employer hereby agrees to employ Executive and Executive hereby agrees to
be and remain in the employ of Employer upon the terms and conditions
hereinafter set forth.
2. EMPLOYMENT PERIOD
The term of Executive's employment under this Agreement (the "Employment
Period") commenced on January 1, 1993 (the "Commencement Date") and shall
continue through December 31, 1997 (the "Expiration Date") unless earlier
terminated pursuant to Section 5.
3. DUTIES AND RESPONSIBILITIES
3.1 General. During the Employment Period, Executive shall serve as
Managing Director of Employer and, subject to Section 3.2, shall devote
substantially his full attention and expend his best efforts, energies and
skills to the business of Employer and Polska Telewisja Kablowa B.A., a Polish
corporation ("PTK"), and all corporations, associations, companies,
partnerships, joint ventures, firms and other enterprises controlled by Employer
or PTK ("Subsidiaries"). During the Employment Period, Executive shall report to
the Board of Directors of Employer and such persons as may be designated by the
Board of Directors from time to time.
3.2 Other Activities. Employer acknowledges and agrees that during the
Employment Period Executive may engage in the following other business
activities, and that his engagement in such activities and devotion of a
reasonable amount of his professional time to such activities shall not
constitute a breach of this Agreement: (i) providing management and consulting
services to Rainbow Springs Limited, D.T. Chase Enterprises, Inc. ("Chase
Enterprises") and affiliates of Rainbow Springs Limited and Chase Enterprises,
and (ii) providing management and other services to Executive's direct and
indirect real estate investments in Woodside Plantation, South Carolina and in
Philadelphia, Pennsylvania. Executive shall use reasonable efforts to coordinate
the other activities described in this Section 3.2 to avoid interference with
the proper discharge of his responsibilities under this Agreement.
4. COMPENSATION AND RELATED MATTERS
4.1 Salary. For all services rendered and required to be rendered by, and
in consideration of the covenants of and restrictions imposed on, Executive
under this Agreement, Executive shall be paid during and with respect to the
Employment Period, and Executive agrees to accept, an annual base salary (the
"Base Salary") of Two Hundred Thousand Dollars ($200,000).
Such annual Base Salary shall be payable in equal installments no less
often than monthly.
4.2. Deferred Compensation. In addition to his Base Salary, Executive
shall be entitled to deferred compensation (the "Deferred Compensation") as
follows: (i) as of December 31, 1994, Executive has earned unfunded Deferred
Compensation of $316,000 for his services in 1993 and 1994 which amount was
deemed to be earned ratably each month from January 1, 1993 and (ii) Executive
will earn additional unfunded Deferred Compensation at the rate of U.S.$256,000
per annum commencing January 1, 1995, which amount shall be earned ratably each
month from January 1, 1995 until the earlier of the Expiration Date or the date
of the
<PAGE> 2
termination of Executive's employment with Employer for any reason. Deferred
Compensation shall accrue no interest thereon until January 1, 1998, at which
time all accrued and unpaid Deferred Compensation shall be deemed to accrue
interest at a variable rate equal to the Prime Rate (as defined below)
compounded monthly. For purposes of this Agreement, the term "Prime Rate" shall
mean the Prime Rate as published in the Wall Street Journal from time to time
(or if such rate ceases to be published, the rate announced from time to time by
Citibank N.A. or its successor from time to time as its prime rate or
equivalent, or if such bank ceases to exist without a successor or such bank or
its successor ceases to announce such rate, the Prime Rate shall be an
equivalent rate agreed to by the parties). Employer shall pay Executive all
accrued Deferred Compensation and the interest deemed earned thereon on the
tenth anniversary of the Commencement Date; provided, however, that in the event
that Executive's employment with Employer is terminated by either party, with or
without cause, effective prior to the Expiration Date, Employer shall pay
Executive all accrued Deferred Compensation and the interest deemed earned
thereon on the first anniversary of the termination of Executive's employment
with Employer. Employer may not prepay all or any portion of Executive's
Deferred Compensation without Executive's consent.
4.3 Office; Travel; Expense Reimbursement. Employer shall provide
Executive with suitable office space and a secretary in Hartford, Connecticut.
It is anticipated that Executive will be required to make frequent business
trips, particularly to Poland, to discharge his responsibilities hereunder.
Employer shall reimburse Executive for all business expenses reasonably incurred
by him in the performance of his duties under this Agreement upon his
presentation of signed, itemized accounts of such expenditures all in accordance
with Employer's procedures and policies as adopted and in effect from time to
time and applicable to its employees of comparable status. All business air
travel shall be in business class. Without limiting the foregoing, all of
Executive's expenses for lodging and meals while working for Employer away from
home at any location other than Hartford, Connecticut shall be paid by Employer.
4.4 Vacations. Executive shall be entitled to vacations consistent with
Employer's practices in respect thereof (but not less than four weeks per
annum), which vacations shall be taken at such time or times as shall not
unreasonably interfere with Executive's performance of his duties under this
Agreement.
4.5 Other Benefits. During the Employment Period, Employer shall provide
Executive with health, life, disability and other insurance benefits and other
fringe benefits comparable to those received by Executive while he was employed
by Chase Enterprises.
4.6 Currency. Except as otherwise expressly provided herein, all amounts
payable to Executive pursuant to this Agreement shall be paid in U.S. Dollars.
5. TERMINATION OF EMPLOYMENT PERIOD
5.1 Termination Without Cause. Employer or Executive may, by notice to the
other at any time during the Employment Period, terminate the Employment Period
without cause. The effective date of termination shall be the date specified in
such notice, which date shall be not less than 90 days nor more than 180 days
after the date on which such notice is given.
5.2 By Employer; Cause. Employer may, at any time during the Employment
Period by notice to Executive, terminate the Employment Period "for cause"
effective immediately, such notice shall specify the cause for termination. For
the purposes hereof, "for cause" means:
(i) a material breach by Executive of any provision of this Agreement
that Executive fails to remedy or cease within 30 days after notice thereof
to Executive;
(ii) any conduct, action or behavior by Executive that has a material
adverse effect on the reputation of Employer; or
(iii) the commission by Executive of an act involving moral turpitude
or dishonesty in connection with Executive's employment hereunder or the
commission by Executive of a misdemeanor or a felony involving moral
turpitude or dishonesty, whether or not in connection with his employment
hereunder, as evidenced by his conviction therefor (including a plea of
nolo contendere therefor)).
2
<PAGE> 3
5.3 By Executive; Good Reason. Executive may, at any time during the
Employment Period by notice to Employer, terminate the Employment Period for
"good reason" effective immediately. For the purpose hereof, "good reason"
means:
(i) a material adverse change in the duties or responsibilities of
Executive that Employer fails to remedy within 30 days after notice thereof
to Employer;
(ii) the failure to pay in a timely manner any compensation due to
Executive hereunder within 10 days after notice from Executive; or
(iii) a material breach by Employer of any provision of this Agreement
that Employer fails to remedy or cease within 30 days after notice thereof
to Employer.
5.4 Death. The Employment Period shall end on the date of Executive's
death.
6. TERMINATION COMPENSATION
6.1 Termination Without Cause or For Good Reason; Expiration.
(a) If the Employment Period is terminated effective before the Expiration
Date either by Employer under Section 5.1 or by Executive under Section 5.3
(excluding, in any event, termination by reason of Executive's disability),
then, Employer will continue to pay Executive the Base Salary and provide
Executive with health and other insurance benefits for him and his family
through the latest of (i) the effective date of termination, or (ii) if the
Employment Period is terminated by Employer pursuant to Section 5.1, 180 days
after notice of such termination is given to Executive by Employer, or (iii) if
the Employment Period is properly terminated by Executive pursuant to Section
5.3, 180 days after notice of such termination is given to Employer by
Executive.
(b) In the event that the Employment Period is terminated prior to the
Expiration Date for any reason whatsoever, then the Deferred Compensation
(including the interest deemed accrued thereon) shall accrue through the
effective date of the termination of the Employment Period and shall be payable
in full on the first anniversary of the effective date of such termination.
6.2 No Other Termination Compensation. Executive shall not, except as set
forth in Section 6.1, be entitled to compensation following termination of the
Employment Period.
6.3 Time of Payment. Any payment of Executive's Base Salary required to be
made pursuant to this Section 6 following the termination of the Employment
Period shall be made at the same time such payment would have been payable had
the Employment Period not so terminated.
7. EXCLUSIVITY OF SERVICES, CONFIDENTIAL INFORMATION AND RESTRICTIVE
COVENANTS
7.1 Exclusivity of Services and Restrictions. During the Employment Period
and for a further period of two years after Executive is no longer employed by
Employer or PTK or any of their Subsidiaries, Executive shall not, directly or
indirectly, do any of the following: (a) be or become interested in or
associated with (as an officer, director, stockholder, partner, consultant,
employee, agent or otherwise) any business that is then, or which then proposes
to compete with the business conducted in Poland by Employer or PTK or any of
their Subsidiaries; provided, that the foregoing shall not restrict Executive
from the ownership, solely as an investment, of securities of any of the
foregoing if such ownership is (i) not as a controlling person of such company,
(ii) not as a member of a group that controls such company, and (iii) not as a
direct or indirect beneficial owner of 5% or more of any class of securities of
such company; or (b) induce or seek to influence any employee of (or consultant
to) Employer or PTK or any of their Subsidiaries to leave its employ (or
terminate such consultancy) or to become financially interested in a similar
business; or (c) aid a competitor of Employer or PTK or any of their
subsidiaries in any attempt to hire a person who shall have been employed by, or
who was a consultant to, Employer, PTK or any of their Subsidiaries within the
two-year period preceding the date of any such aid.
3
<PAGE> 4
7.2 Confidential Information. Executive shall not at any time, whether
during the Employment Period of thereafter, disclose or use (except in the
course of his employment hereunder and in furtherance of the business of
Employer or PTK or any of their subsidiaries, or as required by applicable law)
any confidential information, trade secrets or proprietary data (including,
without limitation, customer and supplier lists and the identity of and any
information relating to any customer or supplier) of Employer or PTK or any of
their Subsidiaries.
7.3 Injunction. Notwithstanding any other provisions of this Agreement,
Executive acknowledges and agrees that in the event of a violation or threatened
violation of any of the provisions of this Section 7, Employer shall have no
adequate remedy at law and shall therefore be entitled to enforce each such
provision by temporary or permanent injunctive or mandatory relief obtained in
any court of competent jurisdiction without the necessity of providing damage or
posting any bond or other security, and without prejudice to any other remedies
that may be available at law or in equity.
7.4 Notice. Notwithstanding anything to the contrary in this Agreement
(and without limiting anything hereinabove provided), if, during the Employment
Period, Executive obtains other employment or engages in his own business or
otherwise engages in any business activities for his own benefit or account,
Executive shall immediately notify Employer of the same, identifying his
employer and disclosing his business activity.
8. MISCELLANEOUS
8.1 Notices. Any notice, consent or authorization required or permitted to
be given pursuant to this Agreement shall be in writing and sent to the party
for or to whom intended, at the address of such party set forth below, by
registered or certified mail (if available), postage paid, or at such other
address as either party shall designate by notice given to the other in the
manner provided herein.
If to Employer:
Poland Cablevision (Netherlands) B.V.
c/o Chase Enterprises
One Commercial Plaza
Hartford, CT 06103
Attention: Arnold L. Chase, Director
with a copy to:
Cheryl Chase Freedman, Esq.
D.T. Chase Enterprises, Inc.
One Commercial Plaza
Hartford, CT 06103
If to Executive:
Richard B. Steele
19 Warren Terrace
Longmeadow, MA 01106
8.2 Taxes. The Employer is authorized to withhold (from any compensation
or benefits payable hereunder to Executive) such amounts for income tax, social
security, unemployment compensation and other taxes as shall be necessary or
appropriate in the reasonable judgment of Employer to comply with applicable
laws and regulations.
8.3 Governing Law. This Agreement is being entered into in, and shall be
governed by and construed and enforced in accordance with the laws of, the State
of Connecticut applicable to agreements made and to be performed therein.
8.4 Prior Employment. Executive represents to Employer that Executive is
not a party to or bound by any agreement, understanding or restriction that
would or may be breached by Executive's execution and full performance of this
Agreement or would delay the commencement of the Employment Period hereunder.
4
<PAGE> 5
Executive expressly undertakes and agrees that he will do nothing in furtherance
of this Agreement or his duties hereunder that will violate any obligations he
may have to any prior employer (or will impose upon Employer or PTK any
liability to any prior employer) and that he has complied with all requirements
of notice applicable to the termination of any prior employment.
8.5 Headings. All descriptive headings in this Agreement are inserted for
convenience only and shall be disregarded in construing or applying any
provision of this Agreement.
8.6 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
8.7 Severability. If any provision of this Agreement, or part thereof, is
held to be unenforceable, the remainder of such provision of this Agreement, and
the remainder of this Agreement, as the case may be, shall nevertheless remain
in full force and effect.
8.8 Entire Agreement and Representations. This Agreement contains the
entire agreement and understanding between Employer and Executive with respect
to the subject matter hereof. No representations or warranties of any kind or
nature relating to Employer or PTK or their respective businesses, or relating
to Employer's or PTK's assets, liabilities, operations, future plans or
prospects have been made by or on behalf of Employer to Executive. This
Agreement supersedes any prior agreement between the parties relating to the
subject matter hereof.
8.9 Arbitration of Disputes. Any controversy or claim arising out of or
relating to this contract, or the breach thereof, shall be settled by
arbitration in Hartford, Connecticut in accordance with the Commercial
Arbitration Rules of the American Arbitration Association, and judgment upon the
award rendered by the arbitrator may be entered in any court having jurisdiction
thereof; provided, however, that nothing herein shall impair Employer's ability
to seek or obtain temporary or permanent injunctive relief for any actual or
threatened breach by Executive of Section 7 hereof from any court of competent
jurisdiction.
8.10 Consent to Jurisdiction. Each of the parties hereto consents to
service of process, and consents to be sued, in the State of Connecticut, and
further consents to the jurisdiction of the courts of the State of Connecticut
and the United States District Court for the District of Connecticut, for the
purpose of any suit, action, or other proceeding arising hereunder, and
expressly waives any and all objections he or it, as the case may be, may have
to venue in any such courts.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
POLAND CABLEVISION (NETHERLENDS) B.V.
By: /s/ CHERYL CHASE FREEDMAN
------------------------------------
Cheryl Chase Freedman
Managing Director
/s/ RICHARD B. STEELE
--------------------------------------
Richard B. Steele
5
<PAGE> 6
ASSIGNMENT AND ASSUMPTION AGREEMENT ("Agreement") effective as of March 20,
1996, between Poland Cablevision (Netherlands) B.V. ("PCBV") and World Cable
Communications, Inc. ("WCCI").
For the consideration of One ($1.00) dollar, and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
agree as follows:
ARTICLE 1 THE PARTIES
SECTION 1.1 ASSIGNOR
(a) PCBV is a limited liability company organized and existing under the
laws of the country of the Netherlands with an address of c/o Chase Enterprises,
One Commercial Plaza, Hartford, Connecticut 06103.
(b) PCBV is referred to in this instrument as the "Assignor".
SECTION 1.2 ASSIGNEE
(a) WCCI is a New York corporation. It has an office c/o Chase Enterprises,
One Commercial Plaza, Hartford, Connecticut 06103. It is the majority
shareholder in PCBV.
(b) WCCI is referred to in this instrument as the "Assignee".
ARTICLE 2 WHAT IS BEING ASSIGNED
SECTION 2.1 THE ASSIGNED DOCUMENT
(a) The assigned document is an Employment Agreement dated as of January 1,
1993 relating to the employment of Richard B. Steele ("Employee") by Assignor
(the "Employment Letter").
ARTICLE 3 THE ASSIGNMENT
SECTION 3.1 THE ASSIGNMENT
Assignor assigns all of its right, title and interest as employer in the
Employment Letter to Assignee. This assignment is necessary in connection with a
contemplated transaction between Assignee and Advent International/ECO Holdings
III Limited Partnership.
SECTION 3.2 THE ASSUMPTION
Assignee assumes and agrees to perform all the obligations and
responsibilities of Assignor as employer under the Employment Letter and agrees
to be bound by all the provisions of the Employment Letter.
ARTICLE 4 GENERAL CLAUSES
SECTION 4.1 HEIRS AND SUCCESSORS
This assignment and assumption are binding upon Assignor and Assignee, and
their respective heirs, successors, executors, administrators, personal
representatives and assigns.
SECTION 4.2 SINGULAR AND PLURAL
The singular includes the plural and the plural includes the singular.
1
<PAGE> 7
SECTION 4.3 CAPTIONS AND HEADINGS
The captions and headings throughout this instrument are for convenience or
reference only, and the words therein shall in no way be held or deemed to
refine, limit, describe, explain, modify, amplify or add to the interpretation,
construction, or meaning of any provision of or the scope or intent of this
instrument, nor in any way affect this instrument.
SECTION 4.4 COUNTERPARTS
This instrument may be executed in several counterparts but the
counterparts shall constitute but one and the same instrument.
SECTION 4.5 INTERPRETATION
This instrument shall be construed in accordance with the laws of the State
of Connecticut. In the event that any provision of this instrument shall be
found unenforceable or invalid, the same shall not affect the remaining
provisions of this instrument.
To signify agreement with the foregoing, the parties have executed this
instrument as of the date first above written.
Signed, sealed and delivered
in the presence of:
<TABLE>
<S> <C>
WITNESS: ASSIGNOR:
POLAND CABLEVISION (NETHERLANDS)
/s/ [SIGNED BUT ILLEGIBLE] B.V.
- ------------------------------------------ By: /s/ [SIGNED BUT ILLEGIBLE]
-----------------------------------------
/s/ [SIGNED BUT ILLEGIBLE] Richard B. Steele
- ------------------------------------------ Its: Managing Director
/s/ [SIGNED BUT ILLEGIBLE] ASSIGNEE:
- ------------------------------------------
WORLD CABLE COMMUNICATIONS, INC.
/s/ [SIGNED BUT ILLEGIBLE]
- ------------------------------------------ By: /s/ [SIGNED BUT ILLEGIBLE]
-----------------------------------------
Its: Vice President
</TABLE>
2
<PAGE> 1
EXHIBIT 10.10
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is made as of the
day of January, 1997, by and between George Makowski, a UK citizen ("Employee"),
and Poland Communications, Inc., a New York corporation ("PCI" or the
"Company").
WITNESSETH:
WHEREAS, Employee desires to serve as Chief Operating Officer of the
Company, and the Company desires to employ Employee as Chief Operating Officer,
and Employee and the Company desire to embody in this Agreement the terms and
conditions under which Employee shall be employed;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Employee and the Company,
intending to be legally bound hereby, AGREE AS FOLLOWS:
1. DEFINITIONS
For the purposes of this agreement, the following definitions shall apply:
a. "Affiliate" of the Company shall mean any other Person controlling,
controlled by, or under common control with the Company.
b. "Associated Company" of the Company shall mean any Affiliate of the
Company or any Subsidiary.
c. The "Business" means: (i) providing cable television services anywhere
in Poland; (ii) providing programming in a city in Poland where the Company or
any Associated Company provides programming; and (iii) providing local-loop
telephony in a city in Poland where the Company or any Associated Company
provides telephony.
d. The "Company" shall mean Poland Communications, Inc., a New York
corporation.
e. "Dollars" and "$" each mean the lawful currency of the United States of
America.
f. "Effective Date" shall mean the date first above written.
g. "Employee" shall mean George Makowski.
h. "Initial Public Offering" means the closing of an underwritten public
offering of shares of common stock of PCI to be listed on the New York Stock
Exchange or the American Stock Exchange, or to be quoted on the National
Association of Securities Dealers Automated Quotation System or the National
Market System of the National Association of Securities Dealers pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
covering the offer and sale of at least twenty percent (20%) of the common stock
of PCI outstanding immediately after such closing.
i. "Person" shall mean a natural person, a juridical person of any kind, a
partnership, a corporation, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization or other entity, or a governmental
entity or any department, agency or political subdivision thereof.
j. "Subsidiary" shall mean each Person, in which the Company, at the time
as of which such determination is being made, owns, directly or indirectly, any
of the outstanding voting securities or equity interests.
2. EMPLOYMENT, DUTIES AND RESPONSIBILITIES
a. Performance of Job Duties. Employee shall serve as the Chief Operating
Officer of the Company and shall perform such services and duties with respect
to the Company and Associated Companies as may be
<PAGE> 2
assigned to him, in such locations as the Company may direct, subject to the
general supervision of the Chief Executive Officer and the Board of Directors of
the Company. Employee shall have general supervision over the Sales and
Marketing Departments of the Company and the General Managers of the Company's
operating Subsidiaries in Poland. Employee shall devote all of his skill, time,
attention, and best efforts to furthering the Company's businesses, affairs,
interests and welfare.
b. Appointment to Management Board or Supervisory Board. The parties
contemplate that Employee will be appointed to the Management Board or
Supervisory Board of one or more Associated Companies with respect to certain
duties and responsibilities to be carried out in Poland. The compensation
arrangements in connection with such appointment(s) shall be the subject of a
separate agreement between Employee and each such Associated Company.
c. Compliance with Laws. Employee agrees to comply with all federal,
state, local, and foreign laws, and to comply with all of the Company's rules,
regulations, and policies in force during his employment, as well as with all
the rules, regulations and policies prescribed for all Associated Companies for
whom or with respect to the business of which he performs services during the
term of this Agreement.
d. Location. Employee shall live and work in Warsaw, Poland (his principal
place of employment) but shall travel to the United Kingdom, the United States,
the Netherlands or such other location(s) as necessary to fulfill his duties as
described in Section 2(a).
3. TERM OF AGREEMENT
This Agreement shall go into effect as of the Effective Date and shall
terminate on the fifth anniversary of the Effective Date, unless terminated
earlier as provided in Section 8.
4. COMPENSATION
As compensation and consideration for the performance by Employee of his
obligations under this Agreement, Employee shall be entitled to the following:
a. Base Salary. During the term of this Agreement, the Company shall pay
to Employee a base annual salary (the "Base Salary") totaling Thirteen Thousand
Dollars (U.S. $13,000) per month, less any compensation paid to Employee
pursuant to any separate agreement entered into as contemplated by Section 2(b)
above. This Base Salary may be increased by the Company in its sole discretion.
The Base Salary shall be paid in installments payable every second week.
b. Eligibility for Initial Bonus. The Company shall pay Employee a
guaranteed bonus of Sixty Thousand Dollars ($60,000) thirty (30) days after the
first anniversary of the Effective Date regardless of whether Employee is
employed by the Company on that date.
c. Eligibility for Annual Bonus. On the second anniversary and each
subsequent anniversary of this Agreement, Employee shall be eligible for the
award of an annual bonus of up to Sixty Thousand Dollars ($60,000). The
performance criteria for such annual bonus shall be determined on a yearly basis
by agreement between Employee and the Company.
d. Eligibility for Bonus upon Initial Public Offering. PCI shall pay
Employee a bonus of One Hundred Seventy Five Thousand Dollars ($175,000) if an
Initial Public Offering is successfully concluded before this Agreement is
terminated.
e. Stock Options and Repurchase.
(1) Employee shall be granted a non-transferable option to purchase
three hundred and eighty-five (385) shares of the Company's common stock,
$0.01 par value per share, upon the terms and conditions of a stock option
agreement substantially in the form of Exhibit A, at a price of Three
Thousand Seven Hundred and Eight Dollars and Eight Cents ($3,708.08) per
share. The option to purchase seventy-seven (77) of these shares will vest
each year on the anniversary date of the Effective Date beginning with the
first anniversary of the Effective Date; provided that no portion of such
option shall vest after the
2
<PAGE> 3
date (the "Cut-Off Date") that is the earlier of (i) the date that this
Agreement is terminated and (ii) the date on which the Company sends
Employee a notice referred to in Section 8(b); and provided further that
all unvested options shall vest on the date of an Initial Public Offering.
(2) No option granted to Employee pursuant to this Section 4(e) may be
exercised later than the tenth anniversary of the Effective Date.
(3) If this Agreement is terminated pursuant to any of Sections 8(a),
8(b), or 8(c), Employee shall have only sixty (60) days after the date of
termination to exercise the option granted under this Section 4(e) with
respect to that portion of the option that has vested as of the Cut-Off
Date, and Employee shall have no right to exercise the option with respect
to that portion of the option that has not then vested.
(4) If this Agreement is terminated pursuant to Section 8(a) or 8(b),
the Company shall be entitled (but not obligated) to repurchase the option
and, if the option has been exercised in whole or part, the common stock
issued as a result of such exercise, at a price as set forth on Exhibit B
to this Agreement. The Company may exercise its repurchase rights only
within 60 days following the date of termination, except that with respect
to shares of common stock issued on or after the Cut-Off Date, the Company
may exercise its repurchase rights only within 60 days following such
issuance.
(5) If this Agreement is terminated pursuant to Section 8(c), the
Company shall be entitled to repurchase the option and, if exercised in
whole or part, the common stock issued as a result of such exercise, at the
greater of (i) 85% of the fair market value thereof (determined in
accordance with Section 4(e)(6)), and (ii) the price as set forth on
Exhibit B to this Agreement. The Company may exercise its repurchase rights
only within 60 days following the date of termination, except that with
respect to shares of common stock issued on or after the Cut-Off Date, the
Company may exercise its repurchase rights only within 60 days following
such issuance.
(6) For purposes of determining the fair market value of the option
and/or the common stock issued as a result of such exercise, if Employee
and the Company cannot agree on a fair market value within thirty (30) days
after the Company proposes a value to Employee, the Company shall appoint
an appraiser reasonably acceptable to Employee, and the appraiser's
valuation shall be final and binding on both parties. The appraiser's costs
and fees shall be shared equally between Employee and the Company provided
however that Employee's share of such costs shall not exceed $50,000.
(7) For as long as Employee is an employee of the Company or an
Associated Company, Employee shall be prohibited from transferring any
shares of the Company's common stock that he acquires through whole or
partial exercise of the option granted by this Section 4(e) to any Person
other than the Company. At any time when Employee is not such an employee,
the Company shall have a right of first refusal with respect to any or all
shares of the Company's common stock that Employee acquires through whole
or partial exercise of the option granted by this Section 4(e), and
Employee shall not transfer any such shares to a third party without first
offering to the Company the opportunity, exercisable for at least 15 days,
to purchase such shares at the same or better price and terms as may be
offered to Employee by such third party.
(8) If Employee ceases to be an employee of the Company or any
Associated Company at any time on or after the third anniversary of the
Effective Date, the Company may within sixty (60) days of the date Employee
ceases to be an employee of the Company or Associated Company require
Employee to sell to it any or all shares that Employee has acquired through
whole or partial exercise of the option granted by this Section 4(e) at a
price equal to 90% of the fair market value thereof (determined in
accordance with Section 4(e)(6)).
(9) The provisions of this Section 4(e) shall survive termination of
this Agreement.
f. Allowances. The Company shall provide Employee with allowances for an
apartment, a car, personal/family travel and education, each as set forth on
Exhibit C.
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<PAGE> 4
g. Expenses. The Company shall reimburse Employee for reasonable
out-of-pocket expenses incurred by Employee in connection with the business of
the Company and in performance of his duties under this Agreement, upon his
presentation to the Company of an itemized accounting of such expenses with
reasonable supporting data, subject, however, to the Company's policies relating
to business-related expenses as in effect from time to time.
h. Additional Employee Benefits and Perquisites. In addition to the
foregoing, Employee shall receive certain benefits and perquisites of current
Company employees, as may be reasonably determined from time to time by the
Company, including but not limited to:
(1) Benefits. During the term of this Agreement, Employee and his
spouse and children shall be eligible to participate in such life
insurance, disability, health, dental, and major medical insurance benefits
as set forth on Exhibit D.
(2) Vacation. Employee shall be entitled to twenty-six (26) days of
paid vacation during each calendar year. Employee shall also be entitled to
all paid holidays given by the Company to its executives.
i. Deduction and Withholding. All compensation and other benefits to or on
behalf of Employee pursuant to this Agreement shall be subject to such
deductions and withholding as may be agreed to by Employee or required by
applicable law.
5. CONFIDENTIALITY
a. Confidentiality. Employee acknowledges that during the course of his
employment with the Company he will, from time to time, be invested with
confidential information (including without limitation) trade secrets relating
to, inter alia, the business practices, technology, products, business plans,
marketing, financial information and plans, and research activities of the
Company, Associated Companies, and customers and suppliers of the foregoing.
Employee hereby agrees to keep all such information confidential, regardless
whether documents containing such information are marked as confidential, if he
has been told, or should reasonably know or expect, that such information is
confidential. Employee also agrees that he will not, except as required in the
conduct of Company business, or as authorized in writing by the Company,
publish, disclose or make use of any such information or knowledge unless and
until such information or knowledge shall have ceased to be secret or
confidential without his fault.
b. Exclusive Property. Employee confirms that all confidential information
is the exclusive property of the Company. All business records, papers and other
documents kept or made by Employee relating to the business of the Company or an
Associated Company shall be and remain the property of the Company or the
Associated Company. Upon the termination of his employment with the Company or
upon the request of the Company at any time, Employee shall promptly deliver to
the Company, and shall retain no copies of, any written materials, records and
documents made by Employee or coming into his possession concerning the business
or affairs of the Company or an Associated Company other than personal notes or
correspondence of Employee not containing proprietary information relating to
such business or affairs.
c. Inventions, Rights to Improvements. Employee hereby sells, transfers
and assigns to the Company any right, title and interest in any and all
inventions, improvements, discoveries, and ideas (whether or not patentable or
copyrightable) (collectively the "Inventions") which Employee may make or
conceive while acting in his capacity as an employee of the Company during the
term of this Agreement, and which relate to or are applicable to any phase of
the Company's and the Associated Companies' businesses. Employee hereby agrees
to communicate promptly and disclose to the Company all information, details and
data pertaining to the aforementioned Inventions and to execute any documents
and do any act reasonably necessary to perform Employee's duties under this
Section 5(c). Employee also affirms that if any such Inventions shall be deemed
confidential by the Company, he will not disclose any such Inventions without
prior written authorization from a majority of the members of the Company's
Board of Directors.
d. Survival of Section. The provisions of this Section 5 shall survive the
termination of this Agreement for any reason whatsoever.
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<PAGE> 5
6. EXCLUSIVITY/NON-COMPETITION
a. Exclusivity/No Competing Employment. For the term of this Agreement and
a period of one (1) year following the later of (i) expiration or earlier
termination of this Agreement or (ii) the date Employee is no longer employed by
the Company or any Associated Company (the "Restricted Period"), Employee shall
not directly or indirectly compete with the Company or any Associated Company,
and he shall not directly or indirectly own an interest in, manage, operate,
join, control, perform services for, lend money to, render financial or other
assistance to, participate in, or be connected with, as an officer, employee,
partner, stockholder, consultant or otherwise, any individual, partnership,
firm, corporation or other business organization or entity that at such time is
engaged in the Business.
b. No Interference. During the Restricted Period, Employee shall not,
whether for his own account or for the account of any other individual,
partnership, firm, corporation or other business organization, intentionally
solicit, endeavor to entice away from the Company or an Associated Company, or
otherwise interfere with the relationship of the Company or an Associated
Company with any person who is employed by the Company or an Associated Company,
or any person or entity who is, or was within the twelve-month period
immediately preceding, a customer or client of the Company or an Associated
Company.
c. Stock Ownership. Nothing in this Agreement shall prohibit Employee from
acquiring or holding any securities of any company listed on a national
securities exchange or quoted on the automated quotation system of the National
Association of Securities Dealers, Inc., provided that at any time during the
Restricted Period Employee and members of his immediate family do not own more
than five percent (5%) of any voting securities of any company engaged in the
Business.
d. Territorial Scope. The prohibitions in Sections 6(a) and 6(b) shall
apply to Poland and any other place where the Company or any subsidiary is doing
business on the first day of the Restricted Period excluding the UK P Belgium.
e. Survival of Section. The provisions of this Section 6 shall survive the
termination of this Agreement for any reason whatsoever.
7. REMEDIES
a. Arbitration. The Parties agree, expressly renouncing any other forum
for the resolution of disputes, that except as provided in Section 7(b), any
disputes arising out of, relating to, or arising in connection with this
Agreement or arising out of, relating to, or arising in connection with
Employee's employment, shall be finally settled by arbitration in accordance
with the Rules of Conciliation and Arbitration of the International Chamber of
Commerce (except insofar as those rules are modified by the terms of this
Section 7). The arbitration will be held in London, England; and it shall be
held as promptly as possible at such time as the arbitration tribunal may
determine. The arbitration will be held in the English language. The
arbitrator(s) shall state the reasons upon which the award is based. Judgment
upon the arbitration award may be entered in any court of competent jurisdiction
(including without limitation the courts of the United States, any country where
the Company or any Associated Company is engaged in business, and the respective
political subdivisions of each of the foregoing), or application may be made to
any such court for a judicial acceptance of the award and an order of
enforcement, as the case may be. If any Party employs an attorney or commences
legal or arbitral proceedings to enforce the provisions of this Agreement, the
prevailing Party shall be entitled (unless the relevant tribunal decides
otherwise) to recover from the other, reasonable costs incurred in connection
with such enforcement, including but not limited to, attorney's fees and costs
of investigation and litigation/arbitration. Except as otherwise specifically
provided in this Section 7, no Party shall institute any action or proceeding
against any other Party in any court with respect to any dispute which is or
could be the subject of a claim or proceeding pursuant to this Section 7.
b. Equitable Remedies. Employee hereby acknowledges that breaches of
Sections 5 or 6 of this Agreement may result in material irreparable injury to
the Company for which there is no adequate remedy at law, that it will not be
possible to measure damages for such breaches, and that in the event of such a
breach or threat thereof the Company shall be entitled (notwithstanding the
provisions of Section 7(a)) to seek and
5
<PAGE> 6
obtain a temporary restraining order, a preliminary injunction, a permanent
injunction or other equitable relief restraining Employee from engaging in
activities prohibited by this Agreement. Employee further acknowledges that in
the event of such a breach or threat thereof the Company shall be entitled to
obtain such other or further relief as may be required to specifically enforce
any of the covenants of this Agreement. Employee hereby agrees and consents that
such injunctive or other relief may be sought in any court of competent
jurisdiction, including, without limitation, any court in the nation, state
and/or political subdivision thereof in which such violation may occur, at the
election of the Company. Employee agrees to and hereby does submit to in
personam jurisdiction before each and every such court for that purpose.
c. Suspension of Payments. Employee hereby acknowledges that should an
alleged breach by Employee of Sections 5 or 6 of this Agreement occur, the
Company is entitled to suspend any payments due to Employee during litigation of
any action it may bring against Employee for injunctive and/or monetary relief.
d. Remedies not Exclusive. The remedies of this Section shall be
cumulative and not exclusive, and shall be in addition to any other remedy which
the Company may have.
e. Survival of Remedies. This Section 7 shall survive the termination of
this Agreement for any reason whatsoever.
8. TERMINATION OF EMPLOYMENT
This Agreement and Employee's employment hereunder may be terminated
without any breach of this Agreement under the following conditions:
a. Termination by Employer. Employee may terminate this Agreement, with or
without cause, by sending written notice thereof at least six (6) months in
advance of the date of his proposed termination.
b. Termination by the Company for Cause. The Company may terminate the
Agreement and Employee's employment for Cause prior to the expiration of this
Agreement as provided in this Section 8(b). If the Cause is susceptible of
remedy by Employee, then the Company shall first deliver to Employee written
notice of such Cause; and if Employee has not remedied the Cause within thirty
(30) days after receipt of that notice, the Company may terminate this agreement
forthwith thereafter by written notice effective immediately. If the Cause is
not susceptible of remedy by Employee, then the Company may terminate this
agreement forthwith by written notice effective immediately. If the Company
terminates Employee's employment for Cause, Employee shall not be entitled to
any compensation or benefits after the effective date of his termination. For
purposes of this Section 8(b) "Cause" shall mean (1) dishonesty or fraud
resulting in damage to the business of the Company or any of its Associated
Companies; (2) embezzlement or theft of assets of the Company or any of its
Associated Companies; (3) competing with the Company or aiding a competitor of
the Company or any of its Associated Companies to the detriment of the Company
or any of its Associated Companies; (4) a substantial breach of this Agreement;
(5) conduct of an illegal or criminal nature under the laws of the United
States, the United Kingdom, Poland, or any political subdivision thereof (except
for minor traffic offenses); (6) conduct or activities that, as determined by
the Company in the reasonable exercise of its prudent business judgment, is
injurious to the reputation or affairs of the Company or any Associated Company;
(7) violation, as determined by the Company in the reasonable exercise of its
discretion, of any applicable policies and procedures set forth in the Chase
Enterprises Personnel Policy Manual or any successor document; or (8) any other
willful misconduct by Employee which, as determined by the Company in the
reasonable exercise of its discretion, is materially injurious to the Company,
monetarily or otherwise.
c. Termination by the Company without Cause. Notwithstanding the
provisions of Section 8(b) above, the Company may terminate this Agreement and
Employee's employment upon six (6) months' written notice without cause.
d. Later Employment With Successor in Interest of Company. Employee shall
not be deemed to have been terminated under this Agreement if he is offered
employment on substantially the same or better terms by any Associated Company,
provided however that with respect to the location of Employee's principal place
of employment with any such Associated Company, a location on the European
continent shall be considered
6
<PAGE> 7
the "same or better terms" and a location outside the European continent will
not be so considered; by any successor in interest or assign of the Company; or
by any purchaser of substantially all of the Company's assets.
e. Death. Notwithstanding anything to the contrary herein contained,
Employee's employment and this Agreement shall terminate upon his death or his
inability due to disability to perform the essential functions of his position
for a continuous period of sixty (60) days; provided, however, that the
provisions of Section 4(e) regarding vesting and exercise of the option and
regarding transferability and rights of first refusal with respect to stock
obtained through exercise of the option shall survive termination of this
Agreement and be binding upon the executors, administrators, heirs and
successors of Employee.
f. Delivery of Material. Employee agrees that upon the termination of this
Agreement he will deliver to the Company all documents, papers, materials and
other property of the Company relating to its affairs which may then be in his
possession or under his control.
9. NOTICES
a. All notices required to be given under the terms of this Agreement or
which any of the Parties may desire to give hereunder shall be in writing and
delivered personally or sent by express delivery, by facsimile, or by registered
or certified mail with proof of receipt, postage and expenses prepaid and with
return receipt requested, addressed as follows:
If to the Company:
Poland Communications, Inc.
One Commercial Plaza
Hartford, Connecticut 06103
U.S.A.
Facsimile: (860) 293-4297
Attention: Robert E. Fowler, III, Chief Executive Officer
Cheryl Chase, General Counsel
With a copy to:
Marc R. Paul
Baker & McKenzie
815 Connecticut Avenue
Washington, D.C. 20006
U.S.A.
Facsimile: (202) 452-7074
If to Employee:
George Makowski
Facsimile:
b. Notice given in accordance with this Section 9 shall be deemed to have
been given when delivered personally, or when received if sent via express
delivery, facsimile, or registered or certified mail, postage prepaid and return
receipt requested.
c. Any party may change its address for notices by communicating its new
address in writing to the other party.
10. MISCELLANEOUS
a. Agreement is Non-Assignable. This Agreement is a personal service
contract and shall not be assignable by Employee or by the Company, except that
the Company may assign this Agreement to an
7
<PAGE> 8
Associated Company or any Person that succeeds to the Company's rights and
liabilities by merger, sale of assets as a going concern, or consolidation with
the Company.
b. Binding Effect. All rights and obligations and agreements of the
parties under this Agreement shall be binding upon and enforceable against, and
inure to the benefit of the parties and their personal representatives, heirs,
legatees and devises, and any Person succeeding by operation of law to their
rights under this Agreement, except that such personal representatives, heirs,
legatees, devises and other persons shall have no obligation to perform
Employee's duties described in Section 2 hereof.
c. Further Assurances. Employee and the Company, as the case may be, shall
execute and deliver such further instruments and do such further acts and things
as may be required to carry out the terms or conditions of this Agreement or as
may be consistent with the intent and purpose of this Agreement.
d. Rights of Third Parties. Nothing in this Agreement, expressed or
implied, is intended to confer upon any person other than the parties hereto any
rights or remedies under or by reason of this Agreement (except that any option
which has vested in Employee as of the date of his death, as well as any accrued
but unpaid compensation as of the date of his death, shall pass to his estate on
death, subject to the limitations on exercise of the option contained in this
Agreement).
e. Effect of Waiver. A waiver of, or failure to exercise, any rights
provided for in this Agreement, in any respect, shall not be deemed a waiver of
any further or future rights hereunder. Except for rights which must be
exercised within a specified time period under this Agreement, no rights herein
shall be considered as waived, whether intentionally or not, unless waived in a
writing signed by the party to be charged with the waiver.
f. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York applicable to contracts made
and performed in that jurisdiction, without regard to the principles of
conflicts of laws.
g. Amendments. This Agreement may not be changed or amended orally, but
only by an agreement in writing signed by all parties hereto.
h. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be an original, and such counterparts shall together
constitute but one and the same instrument.
i. Severability. If a court of competent jurisdiction declares that any
term or provision of this Agreement is invalid or unenforceable, then:
(1) the remaining terms and provisions hereof shall be unimpaired, and
(2) the invalid or unenforceable term or provision shall be deemed
replaced by a term or provision that is valid and enforceable and that
comes closest to expressing the intention of the invalid or unenforceable
term or provision.
j. No Conflicts. Employee represents and warrants that he is not prevented
by any other employment agreement, arrangement, contract, understanding, court
order or otherwise, which in any way directly or indirectly conflicts, is
inconsistent with, or restricts or prohibits him from fully performing the
duties of the Employment, in accordance with the terms and conditions of this
Agreement.
k. Entire Agreement. This Agreement supersedes all prior agreements, oral
or written, between the parties hereto with respect to the employment of
Employee by the Company. This Agreement contains the entire agreement of the
parties with respect to the employment of Employee by the Company, and the
parties shall not be bound by any terms, conditions, statements, covenants,
representations or warranties, oral or written, not herein contained.
l. Employee Acknowledgment. EMPLOYEE REPRESENTS THAT HE HAS HAD AMPLE
OPPORTUNITY TO REVIEW THIS AGREEMENT AND EMPLOYEE ACKNOWLEDGES THAT HE
UNDERSTANDS THAT IT CONTAINS IMPORTANT CONDITIONS OF THE EMPLOYMENT
8
<PAGE> 9
AND THAT IT EXPLAINS POSSIBLE CONSEQUENCES, BOTH FINANCIAL AND LEGAL, IF
EMPLOYEE BREACHES THE AGREEMENT.
IN WITNESS WHEREOF, the parties have executed this Executive Employment
Agreement effective as of the date first above written.
Poland Communications, Inc., a
New York corporation
By: /s/ ROBERT E. FOWLER
------------------------------------
Robert E. Fowler, III
Chief Executive Officer
Employee
/s/ GEORGE MAKOWSKI
--------------------------------------
George Makowski
9
<PAGE> 10
EXHIBIT A
FORM OF STOCK OPTION AGREEMENT
10
<PAGE> 11
EXHIBIT B
<TABLE>
<CAPTION>
DATE OF TERMINATION OF AGREEMENT PER SHARE PER OPTION
- ----------------------------------------------------------------------- --------- ----------
<S> <C> <C>
On or After First But Before Second Anniversary........................ 3,904.16 196.08
On or After Second But Before Third Anniversary........................ 4,100.24 392.16
On or After Third But Before Fourth Anniversary........................ 4,296.32 588.24
On or After Fourth But Before Fifth Anniversary........................ 4,492.39 784.31
</TABLE>
11
<PAGE> 12
EXHIBIT C
Apartment Allowance: An amount not to exceed $5,000 per month.
Car Allowance: An amount not to exceed $1,300 per month.
Personal/Family Travel Allowance: Round-trip business class airfare between
Poland and the U.K. for Employee and his spouse and children, two times per
annum.
Educational Allowance for Employee's children: Not to exceed an aggregate
of $30,000 per annum.
Each of the above shall be payable monthly in advance during the term of
this agreement.
12
<PAGE> 13
EXHIBIT D
Life Insurance policy of $750,000 value.
Pension of $7,800 per annum.
Health Care: Company shall pay the cost of access to a medical clinic of
high standard (ABC medicover type or similar) and international medical
insurance coverage.
13
<PAGE> 14
STOCK OPTION AGREEMENT BETWEEN
GEORGE MAKOWSKI AND POLAND COMMUNICATIONS, INC.
This STOCK OPTION AGREEMENT ("Option Agreement") is made effective as of
January , 1997 (the "Effective Date"), by and between George Makowski
("Makowski") and Poland Communications, Inc., a New York corporation ("PCI" or
the "Company").
1. Grant of Option and Option Period.
a. The Company hereby grants Makowski an option (the "Option") to purchase
three hundred and eighty-five (385) shares (the "Shares") of the Company's
common stock (the "Common Stock"), with a par value of $0.01 per share, pursuant
to the terms and conditions set forth in this Option Agreement. The exercise
price for the Option (the "Exercise Price") shall be Three Thousand Seven
Hundred and Eight Dollars and Eight Cents ($3,708.08) per share.
b. The option to purchase seventy-seven (77) of these Shares will vest each
year on the anniversary date of the Effective Date beginning with the first
anniversary of the Effective Date, provided, however, that all unvested options
shall vest on the date of an Initial Public Offering (as hereinafter defined),
and provided further that no portion of such option shall vest after the date
(the "Cut-Off Date") that is earlier of (i) the date that the Executive
Employment Agreement (as described in Section 14 of this Agreement) is
terminated and (ii) the date on which the Company sends Makowski a notice
referred to in Section 8(b) of the Executive Employment Agreement. For purposes
of this Agreement, "Initial Public Offering" means the closing of an
underwritten public offering of shares of common stock of PCI to be listed on
the New York Stock Exchange, the London Stock Exchange, the Warsaw Stock
Exchange or the American Stock Exchange, or to be quoted on the National
Association of Securities Dealers Automated Quotation System or the National
Market System of the National Association of Securities Dealers pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
covering the offer and sale of at least twenty percent (20%) of the common stock
of PCI outstanding immediately after such closing.
c. If Makowski's employment with the Company is terminated for any reason,
Makowski shall have only sixty (60) days after the Cut-Off Date to exercise that
portion of the Option that has vested as of the Cut-Off Date, and Makowski shall
have no right to exercise any portion of the Option that has not then vested.
d. Notwithstanding any other provision of this Option Agreement, the Option
shall expire and be of no further force or effect with respect to any Shares on
the earlier to occur of (i) the tenth anniversary of the Effective Date, or (ii)
sixty days after the date that Makowski ceases to be an employee of the Company
for any reason whatsoever (including but not limited to Makowski's death,
disability, voluntary termination or involuntary termination).
e. Each exercise of the Option shall reduce, by an equal number, the total
number of shares of Company Common Stock that may thereafter be purchased by
Makowski under the Option.
2. Manner of Exercise. Subject to the conditions and restrictions contained in
Section 3 below, the Option shall be exercised by delivering written notice of
exercise to the Secretary of the Company. Such notice shall be irrevocable and
must be accompanied by payment in cash, banker's draft or such other form of
consideration as the Company may approve, and a signed Subscription Agreement
satisfactory in form and substance to the Company.
3. Non-transferability. Neither this Option nor any interest therein may be
sold, pledged, assigned, hypothecated, transferred or disposed of in any manner
(other than by will or by the laws of descent and distribution during the option
period described in Section 1). This Option is not assignable by operation of
law or subject to execution, attachment or similar process. During Makowski's
lifetime, the Option can only be exercised by Makowski. Any attempted sale,
pledge, assignment, hypothecation or other transfer of the Option or any
interest therein contrary to the provisions hereof, or the levy of any
execution, attachment or similar process upon the Option or any interest therein
shall be null and void and without force or effect. No transfer of the Option by
will or by the laws of descent and distribution shall be effective to bind the
Company unless the Company shall have been furnished written notice thereof and
an authenticated copy of the will and/or
<PAGE> 15
such other evidence as the Company may deem necessary to establish the validity
of the transfer and the acceptance by the transferee or transferees of the terms
and conditions of the Option. The terms of the Option transferred by will or by
the laws of descent and distribution shall be binding upon the executors,
administrators, heirs and successors of Makowski.
4. Adjustment in the Event of Change in Stock. In the event of any change
in the outstanding Common Stock of the Company due to stock dividends,
recapitalizations, reorganizations, mergers, consolidations, split-ups, or
exchange of shares, the number and kind of the Shares and/or the purchase price
per Share will be appropriately adjusted, upwards or downwards, consistent with
such change. The reasonable determination of the Company regarding any
adjustment will be final and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of the Shares.
5. Restrictions on Transfer of the Shares.
a. For as long as Makowski is an employee of the Company or any Associated
Company (as that term is used in the Executive Employment Agreement that is
described in Section 14 of this Agreement), Makowski shall not transfer any
Shares to any person or entity other than PCI.
b. After Makowski is no longer an employee of the Company or any Associated
Company Makowski shall not sell, encumber, pledge, transfer, hypothecate, assign
or otherwise dispose of any of the Shares until Makowski shall have first
offered to sell such Shares to the Company (the "Offer") in accordance with the
following provisions.
c. The Offer made pursuant to Subsection (b) above shall be in writing, and
shall state that Makowski offers to sell to the Company a specified number of
the Shares owned by Makowski. For every Offer of the Shares pursuant to
Subsection (b) above, the Company shall have a period of fifteen (15) days from
the time of receiving the Offer to accept it; such acceptance shall be in
writing and shall be sent to Makowski.
d. The purchase price of any of the Shares sold pursuant to the provisions
of Subsection (b) above shall be equal to the price offered to Makowski for such
shares by a bona fide third party purchaser, as evidenced by a written offer to
purchase executed by such third party. The purchase price shall be paid to
Makowski in cash within fifteen (15) days of the Company's acceptance of the
Offer. If any of the Shares which are offered for purchase pursuant to the
provisions of Subsection (c) above are not accepted for purchase by the Company
within the time limitations described in Subsection (c), Makowski may transfer
such shares to such bona fide third party purchaser in accordance with the terms
of such purchaser's offer to purchase referred to in this Subsection (d).
e. As a condition to the transfer of any of the Shares issued pursuant to
this Option Agreement, the Company may require an opinion of counsel,
satisfactory to the Company, to the effect that such transfer will not be in
violation of the Securities Act of 1933, as amended (such Act, or any similar
Federal statute then in effect, being hereinafter referred to as the "Act"), or
any other applicable securities laws, rules or regulations, or that such
transfer has been registered under Federal and all other applicable securities
laws.
f. Unless and until the Company has received a legal opinion regarding
saleability of the Shares that is satisfactory to the Company, all certificates
evidencing any of the Shares, whether upon initial issuance or any transfer
thereof, shall bear the following legends:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY
OTHER SECURITIES LAWS, AND THEREFORE CANNOT BE SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR ASSIGNED UNLESS THEY ARE REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND UNDER ALL OTHER APPLICABLE
SECURITIES LAWS, OR UNLESS AN EXEMPTION THEREFROM IS AVAILABLE.
THIS CERTIFICATE IS TRANSFERABLE ONLY UPON COMPLIANCE WITH THE
PROVISIONS OF THAT CERTAIN STOCK OPTION AGREEMENT, EFFECTIVE AS OF
2
<PAGE> 16
JANUARY , 1997, BETWEEN GEORGE MAKOWSKI AND POLAND COMMUNICATIONS,
INC., A COPY OF WHICH IS ON FILE IN THE OFFICE OF THE SECRETARY OF
POLAND COMMUNICATIONS, INC.
6. No Stock Rights. Makowski shall not be entitled to vote, be deemed the
holder of any Shares, have the right to receive dividends with respect to any
Shares, or otherwise have any of the rights of a stockholder of the Company with
respect to any Shares, unless and until Makowski has exercised the Option with
respect to such Shares in accordance with the terms and conditions of this
Option Agreement.
7. Reservation and Issuance of Shares.
a. The Company will at all times have authorized, and reserve and keep
available, free from preemptive rights, for the purpose of enabling it to
satisfy any obligation to issue the number of shares of Common Stock deliverable
upon exercise of the Option.
b. The Company covenants that all Shares will, upon issuance in accordance
with the terms of this Agreement, be duly authorized, fully paid and
non-assessable.
8. Representations and Warranties of Makowski.
In order to induce the Company to accept this Option Agreement, Makowski
hereby represents and warrants to the Company as follows:
a. Makowski has received no solicitation or general advertisement
concerning the Company, but rather has become knowledgeable regarding the
business of the Company through personal interaction with employees of the
Company;
b. Makowski confirms that no representations or warranties have been made
to Makowski regarding the Company and that Makowski has not relied upon any
representation or warranty in making or confirming this Option Agreement.
c. Makowski has the ability to bear the economic investment, and can afford
a complete loss of his investment, with respect to the Option and to the Shares.
d. Makowski, either by himself or together with his purchaser
representative, has sufficient knowledge and experience in financial and
business matters so as to be capable of evaluating the merits and risks of his
investment in the Option and in the Shares.
e. Makowski is accepting the Option, and will be purchasing the Shares, for
investment purposes, for Makowski's own account and not with a view to, or for
sale in connection with, the distribution thereof.
f. Makowski is familiar with the nature of, and the risks attending,
investments in securities such as the Option and the Shares, and he has
determined that the acceptance of the Option and the purchase of the Shares is
and will be consistent with his investment objectives.
g. Makowski has been advised and understands that an investment in the
Option and in the Shares is speculative and involves a high degree of risk.
h. Makowski has no reason to anticipate any change in his personal
circumstances, financial or otherwise, which may cause or require sale or
distribution by him of all or any part of the Option or the Shares.
i. Makowski confirms that he has been given an opportunity to make any
inquiries of the Company and its representatives that he desires to make.
j. Makowski is at least twenty-one (21) years of age.
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<PAGE> 17
k. Makowski is aware of and understands the following:
i. The business of the Company and the risks inherent in that
business;
ii. That no federal or state agency has made a finding or
determination as to the advisability or fairness of an investment in the
Option or in the Shares or any recommendation or endorsement of the Option
or of the Shares;
iii. That the Option and the Shares have not been registered for sale
under the Securities Act of 1933, as amended, or under any state "Blue Sky
Law"; and
iv. That there are substantial restrictions on the transferability of
the Option and of the Shares; there is no public market, and there will not
necessarily be any public market, for the Option or the Shares in the
United States; Makowski will not be able to avail himself of the provisions
of Rule 144 adopted by the Securities and Exchange Commission under the
Securities Act of 1933, as amended, unless all of the conditions of Rule
144 are met, and accordingly, Makowski may have to hold the Option and the
Shares and bear the economic risk of this investment for an indefinite
period.
l. If in the future Makowski desires to offer or dispose of the Option or
any of the Shares or any interest therein, he will do so only in compliance with
applicable securities laws and this Option Agreement.
m. Makowski understands and agrees that the Company has no obligation to
complete any public or private offering and sale of its common stock to other
investors, and that the Company shall have no liability to Makowski if it cannot
complete any such offering and sale upon terms which, in the Company's sole
discretion, are favorable to the Company.
n. Makowski acknowledges that there may be restrictions under the
securities laws of the jurisdiction(s) in which he resides on the sale of the
shares he obtains on exercise of the options, and that he should seek legal
assistance before proceeding with the purchase or sale of said shares.
Makowski agrees that the representations and warranties of Makowski set
forth in this Section 8 shall survive the exercise of the Option and the
termination or expiration of this Option Agreement.
9. Governing Law.
This Option Agreement shall be construed in accordance with and governed by
the laws of the State of New York without regard to the principles of conflicts
of laws or choice of law. .
10. Benefit.
This Option Agreement shall be binding upon the Company, Makowski, their
heirs, executors, administrators, legal representatives, successors, and
permitted assigns, and Makowski in furtherance thereof may execute a will
directing Makowski's executor to perform this Option Agreement and to execute
all documents necessary to effectuate the purposes of this Option Agreement, but
the failure to execute such a will shall not affect the rights of the Company or
the obligations of Makowski's estate as provided in this Option Agreement.
Nothing in this Option Agreement, expressed or implied, is intended to confer
upon any person, other than the parties hereto, any rights or remedies under or
by reason of this Option Agreement.
11. Specific Performance.
a. The parties to this Option Agreement hereby agree that an award of
damages alone is inadequate to remedy a breach of the terms of this Option
Agreement and that specific performance, injunctive relief or other equitable
remedy is the only way by which the intent of this Option Agreement may be
adequately realized upon breach by one or more of the parties. Such remedy
shall, however, be cumulative and not exclusive, and shall be in addition to any
other remedy which the parties may have.
b. In furtherance of and not in limitation of the foregoing, should any
dispute arise concerning a sale, purchase, encumbrance, pledge, transfer,
hypothecation, assignment or other disposition of the Option or any of the
Shares which is alleged to contravene the provisions of this Option Agreement,
an injunction may be issued restraining any such transaction pending the
determination of such controversy.
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<PAGE> 18
12. Waiver.
Failure to insist upon strict compliance with any of the terms, covenants
or conditions of this Option Agreement shall not be deemed a waiver of such
terms, covenants or conditions, nor shall any waiver or relinquishment of any
right or power hereunder at any one time or more times be deemed a waiver or
relinquishment of such right or power at any other time or times.
13. Notice.
All notices required to be given under the terms of this Agreement or which
any of the Parties may desire to give hereunder shall be in writing and
delivered personally or sent by express delivery, by facsimile, or by registered
or certified mail with proof of receipt, postage and expenses prepaid and with
return receipt requested, addressed as follows:
If to the Company:
Poland Communications, Inc.
One Commercial Plaza
Hartford, Connecticut 06103
U.S.A.
Facsimile: (860) 293-4297
Attention: Robert E. Fowler, III, Chief Executive Officer
Cheryl Chase, General Counsel
With a copy to:
Marc R. Paul
Baker & McKenzie
815 Connecticut Avenue
Washington, D.C. 20006
U.S.A.
Facsimile: (202) 452-7074
If to Makowski:
George Makowski
Facsimile:
b. Notice given in accordance with this Section 13 shall be deemed to have
been given when delivered personally, or when received if sent via express
delivery, facsimile, or registered or certified mail, postage prepaid and return
receipt requested.
c. Any party may change its address for notices by communicating its new
address in writing to the other party.
14. Entire Agreement.
This Option Agreement is subject to that certain between Makowski and the
Company of even date herewith (the "Executive Employment Agreement"), and in the
event of a conflict between them, the provisions of the Executive Employment
Agreement shall prevail. Except as provided in the foregoing sentence, this
Option Agreement constitutes the entire agreement between the parties hereto
with respect to the subject matter hereof and may be amended only by a writing
executed by all of the parties.
15. Severability.
The invalidity or unenforceability of any provision of this Option
Agreement shall in no way affect the validity or enforceability of any other
provision hereof.
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<PAGE> 19
16. Headings.
The headings to the sections of this Option Agreement are used for
reference only and are not to be construed as limiting or extending the
provisions hereof.
17. Counterparts.
This Option Agreement may be executed in any number of counterparts, each
of which shall be considered an original but all of which shall constitute the
Option Agreement by and among the parties.
IN WITNESS WHEREOF, the undersigned have executed this Option Agreement
effective as of the date first above written.
Poland Communications, Inc., a
New York corporation
/s/ ROBERT E. FOWLER, III
--------------------------------------
By: Robert E. Fowler, III
Its: Chief Executive Officer
/s/ GEORGE MAKOWSKI
--------------------------------------
Mr. George Makowski
6
<PAGE> 1
EXHIBIT 10.11
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is made as of the 1st
day of September, 1996, by and between John Frelas ("Frelas"), and World Cable
Communications, Inc., a New York corporation ("WCCI" or the "Company").
WITNESSETH:
WHEREAS, Frelas desires to serve as Chief Financial Officer of the Company,
and the Company desires to employ Frelas as Chief Financial Officer, and Frelas
and the Company desire to embody in this Agreement the terms and conditions
under which Frelas shall be employed;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Frelas and the Company, intending
to be legally bound hereby, AGREE AS FOLLOWS:
1. DEFINITIONS
For the purposes of this agreement, the following definitions shall apply:
a. "Affiliate" of the Company shall mean any other Person controlling,
controlled by, or under common control with the Company.
b. "Associated Company" of the Company shall mean any Affiliate of the
Company or any Subsidiary.
c. "Bank Financing" shall mean the closing of a financing arrangement under
which WCCI borrows or obtains the ability to borrow at least $75 million in
principal amount from a single financial institution or a syndicate of financial
institutions.
d. The "Company" shall mean World Cable Communications, Inc., a New York
corporation.
e. "Debt Offering" shall mean the closing of an underwritten offering of
debt securities of WCCI pursuant to Rule 144A under the Securities Act of 1933,
as amended, covering the offer and sale of at least $100 million in principal
amount of such securities.
f. "Dollars" and "$" each mean the lawful currency of the United States of
America.
g. "Effective Date" shall mean the date first above written.
h. "Frelas" shall mean John Frelas.
i. "Initial Public Offering" means the closing of an underwritten public
offering of shares of common stock of WCCI to be listed on the New York Stock
Exchange or the American Stock Exchange, or to be quoted on the National
Association of Securities Dealers Automated Quotation System or the National
Market System of the National Association of Securities Dealers pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
covering the offer and sale of at least twenty percent (20%) of the common stock
of WCCI outstanding immediately after such closing.
j. "Person" shall mean a natural person, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization or other entity, or a governmental entity or any department, agency
or political subdivision thereof.
k. "Subsidiary" shall mean each corporation, partnership, joint venture or
other entity in which WCCI, at the time as of which such determination is being
made, owns, directly or indirectly, any of the outstanding voting securities or
equity interests.
<PAGE> 2
2. EMPLOYMENT, DUTIES AND RESPONSIBILITIES
a. Performance of Job Duties. Frelas shall serve as the Chief Financial
Officer of the Company and shall perform such services and duties with respect
to the Company and Associated Companies as may be assigned to him, in such
locations as the Company may direct, subject to the general supervision of the
Chief Executive Officer and the Board of Directors of the Company. Frelas shall
devote all of his skill, time, attention, and best efforts to furthering the
Company's businesses, affairs, interests and welfare.
b. Appointment to Management Board or Supervisory Board. The parties
contemplate that Frelas will be appointed to the Management Board or Supervisory
Board of one or more Associated Companies with respect to certain duties and
responsibilities to be carried out in Poland. The compensation arrangements in
connection with such appointment(s) shall be the subject of a separate agreement
between Frelas and each such Associated Company.
c. Compliance with Laws. Frelas agrees to comply with all federal, state,
local, and foreign laws, and to comply with all of the Company's rules,
regulations, and policies in force during his employment, as well as with all
the rules, regulations and policies prescribed for all Associated Companies for
whom or with respect to the business of which he performs services during the
term of this Agreement.
3. TERM OF AGREEMENT
This Agreement shall go into effect as of the Effective Date and shall
terminate on the fifth anniversary of the Effective Date, unless terminated
earlier as provided in Section 8.
4. COMPENSATION
As compensation and consideration for the performance by Frelas of his
obligations under this Agreement, Frelas shall be entitled to the following:
a. Base Salary. During the term of this Agreement, the Company shall pay
to Frelas a base annual salary (the "Base Salary") totaling One Hundred and
Fifty Thousand Dollars (U.S. $150,000) less any compensation paid to Frelas
pursuant to any separate agreement entered into as contemplated by Section 2(b)
above. This Base Salary may be increased by the Company in its sole discretion.
The Base Salary shall be paid in installments payable every second week.
b. Eligibility for Annual Bonus. Frelas shall be eligible for an annual
bonus of up to Fifty Thousand Dollars ($50,000). The performance criteria for
such annual bonus shall be determined on a yearly basis by agreement between
Frelas and the Company.
c. Eligibility for Initial Bonus. WCCI shall pay Frelas a bonus of Fifty
Thousand Dollars ($50,000) if a Debt Offering and a Bank Financing are both
successfully concluded on or before the earlier of (i) March 31, 1997, and (ii)
the date this Agreement is terminated.
d. Eligibility for Bonus upon Initial Public Offering. WCCI shall pay
Frelas a bonus of Three Hundred Fifty Thousand Dollars ($350,000) if an Initial
Public Offering is successfully concluded before this Agreement is terminated.
e. Stock Options and Repurchase.
(1) Frelas shall be granted a non-transferable option to purchase 241
shares of WCCI common stock, $0.01 par value per share, upon the terms and
conditions of a stock option agreement substantially in the form of Exhibit
A, at a price of $1,991.70 per share. The option to purchase forty-eight
(48) of these shares will vest each year on the anniversary date of the
Effective Date beginning with the first anniversary of the Effective Date,
provided, however, that the option to purchase forty-nine (49) of these
shares will vest on the fifth anniversary of the Effective Date), and
provided further that no portion of such option shall vest after the date
(the "Cut-Off Date") that is the earlier of (i) the date that this
Agreement is terminated and (ii) the date on which the Company sends Frelas
a notice referred to in Section 8(b).
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<PAGE> 3
(2) No option granted to Frelas pursuant to this Section 4(e) may be
exercised later than the tenth anniversary of the Effective Date.
(3) If this Agreement is terminated pursuant to any of Sections 8(a),
8(b), or 8(c), Frelas shall have only sixty (60) days after the date of
termination to exercise the option granted under this Section 4(e) with
respect to that portion of the option that has vested as of the Cut-Off
Date, and Frelas shall have no right to exercise the option with respect to
that portion of the option that has not then vested.
(4) If this Agreement is terminated pursuant to Section 8(a) or 8(b),
WCCI shall be entitled (but not obligated) to repurchase the option and, if
the option has been exercised in whole or part, the common stock issued as
a result of such exercise, at a price as set forth on Exhibit B to this
Agreement, in the case of the option and stock issued before the date of
termination only within sixty (60) days of the date of termination, and in
the case of stock issued after the Cut-Off Date only within sixty (60) days
of such issuance.
(5) If this Agreement is terminated pursuant to Section 8(c) WCCI
shall be entitled to repurchase the option and, if exercised in whole or
part, the common stock issued as a result of such exercise, at the greater
of (i) 85% of the fair market value thereof (determined in accordance with
Section 4(e)(6)), and (ii) the price as set forth on Exhibit B to this
Agreement, in the case of the option and stock issued before the date of
termination only within sixty (60) days of the date of termination, and in
the case of stock issued after the Cut-Off Date only within sixty (60) days
of such issuance.
(6) For purposes of determining the fair market value of the option
and/or the common stock issued as a result of such exercise, if Frelas and
the Company cannot agree on a fair market value within thirty (30) days
after the Company proposes a value to Frelas, the Company shall appoint an
appraiser reasonably acceptable to Frelas, and the appraiser's valuation
shall be final and binding on both parties. The appraiser's costs and fees
shall be shared equally between Frelas and the Company.
(7) For as long as Frelas is an employee of the Company or an
Associated Company, Frelas shall be prohibited from transferring any shares
of WCCI common stock that he acquires through whole or partial exercise of
the option granted by this Section 4(e) to any Person other than the
Company. At any time when Frelas is not such an employee, the Company shall
have a right of first refusal with respect to any or all shares of WCCI
common stock that Frelas acquires through whole or partial exercise of the
option granted by this Section 4(e), and Frelas shall not transfer any such
shares to a third party without first offering to the Company the
opportunity, exercisable for at least 15 days, to purchase such shares at
the same or better price and terms as may be offered to Frelas by such
third party.
(8) If Frelas ceases to be an employee of the Company or any
Associated Company at any time following the fifth anniversary of the
Effective Date, the Company may within sixty (60) days of the date Frelas
ceases to be an employee of the Company or Associated Company require
Frelas to sell to it any or all shares that Frelas has acquired through
whole or partial exercise of the option granted by this Section 4(e) at a
price equal to 90% of the fair market value thereof (determined in
accordance with Section 4(e)(6)).
(9) The provisions of this Section 4(e) shall survive termination of
this Agreement.
f. Allowances. The Company shall provide Frelas with an apartment
allowance, use of a company car, and a personal travel allowances, each as set
forth on Exhibit C.
g. Expenses. The Company shall reimburse Frelas for reasonable
out-of-pocket expenses incurred by Frelas in connection with the business of the
Company and in performance of his duties under this Agreement, upon his
presentation to the Company of an itemized accounting of such expenses with
reasonable supporting data, subject, however, to the Company's policies relating
to business-related expenses as in effect from time to time.
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<PAGE> 4
h. Additional Employee Benefits and Perquisites. In addition to the
foregoing, Frelas shall receive certain benefits and perquisites of current
Company employees, as may be determined from time to time by the Company,
including but not limited to:
(1) Benefits. During the term of this Agreement, Frelas shall be
eligible to participate in such life insurance, disability, health, dental,
and major medical insurance benefits as may be maintained from time to time
for the benefit of the employees of the Company, in each case to the extent
and in the manner available to other executive officers of the Company, as
well as in such pension and such other employee benefit plans and programs
as the Company may, in its sole to discretion, offer to Frelas. Frelas's
participation in each such benefit, plan or program shall be subject to the
terms and provisions of such plan or program, provided, however, that with
respect to any benefit plan adopted by the Company that bases the benefits
available under such plan to the compensation received by Frelas, such
benefits shall be calculated on the basis and to the extent of Frelas's
Base Salary.
(2) Vacation. Frelas shall be entitled to 20 days of paid vacation
during each calendar year. Frelas shall also be entitled to all paid
holidays given by the Company to its executives.
i. Deduction and Withholding. All compensation and other benefits to or on
behalf of Frelas pursuant to this Agreement shall be subject to such deductions
and withholding as may be agreed to by Frelas or required by applicable law.
5. CONFIDENTIALITY
a. Confidentiality. Frelas acknowledges that during the course of his
employment with the Company he will, from time to time, be invested with
confidential information (including without limitation) trade secrets relating
to, inter alia, the business practices, technology, products, business plans,
marketing, financial information and plans, and research activities of the
Company, Associated Companies, and customers and suppliers of the foregoing.
Frelas hereby agrees to keep all such information confidential, regardless
whether documents containing such information are marked as confidential, if he
has been told, or should reasonably know or expect, that such information is
confidential. Frelas also agrees that he will not, except as required in the
conduct of Company business, or as authorized in writing by the Company,
publish, disclose or make use of any such information or knowledge unless and
until such information or knowledge shall have ceased to be secret or
confidential without his fault.
b. Exclusive Property. Frelas confirms that all confidential information
is the exclusive property of the Company. All business records, papers and other
documents kept or made by Frelas relating to the business of the Company or an
Associated Company shall be and remain the property of the Company or the
Associated Company. Upon the termination of his employment with the Company or
upon the request of the Company at any time, Frelas shall promptly deliver to
the Company, and shall retain no copies of, any written materials, records and
documents made by Frelas or coming into his possession concerning the business
or affairs of the Company or an Associated Company other than personal notes or
correspondence of Frelas not containing proprietary information relating to such
business or affairs.
c. Inventions, Rights to Improvements. Frelas hereby sells, transfers and
assigns to the Company any right, title and interest in any and all inventions,
improvements, discoveries, and ideas (whether or not patentable or
copyrightable) (collectively the "Inventions") which Frelas may make or conceive
while acting in his capacity as an employee of the Company during the term of
this Agreement, and which relate to or are applicable to any phase of the
Company's and the Associated Companies' businesses. Frelas hereby agrees to
communicate promptly and disclose to the Company all information, details and
data pertaining to the aforementioned Inventions and to execute any documents
and do any act reasonably necessary to perform Frelas's duties under this
Section 5(c). Frelas also affirms that if any such Inventions shall be deemed
confidential by the Company, he will not disclose any such Inventions without
prior written authorization from a majority of the members of the Company's
Board of Directors.
d. Survival of Section. The provisions of this Section 5 shall survive the
termination of this Agreement for any reason whatsoever.
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<PAGE> 5
6. EXCLUSIVITY/NON-COMPETITION
a. Exclusivity/No Competing Employment. For the term of this Agreement and
a period of one (1) year following the later of (i) expiration or earlier
termination of this Agreement or (ii) the date Frelas is no longer employed by
the Company or any Associated Company (the "Restricted Period"), Frelas shall
not directly or indirectly compete with the Company or any Associated Company,
and he shall not directly or indirectly own an interest in, manage, operate,
join, control, perform services for, lend money to, render financial or other
assistance to, participate in, or be connected with, as an officer, employee,
partner, stockholder, consultant or otherwise, any individual, partnership,
firm, corporation or other business organization or entity that at such time is
engaged in the same type of business as the Company or any Associated Company.
b. No Interference. During the Restricted Period, Frelas shall not,
whether for his own account or for the account of any other individual,
partnership, firm, corporation or other business organization, intentionally
solicit, endeavor to entice away from the Company or an Associated Company, or
otherwise interfere with the relationship of the Company or an Associated
Company with any person who is employed by the Company or an Associated Company,
or any person or entity who is, or was within the twelve-month period
immediately preceding, a customer or client of the Company or an Associated
Company.
c. Stock Ownership. Nothing in this Agreement shall prohibit Frelas from
acquiring or holding any securities of any company listed on a national
securities exchange or quoted on the automated quotation system of the National
Association of Securities Dealers, Inc., provided that at any time during the
Restricted Period Frelas and members of his immediate family do not own more
than five percent (5%) of any voting securities of any company engaged in the
same type of business as the Company.
d. Territorial Scope. The prohibitions in Sections 6(a) and 6(b) shall
apply to Poland and any other place where the Company or any Associated Company
is doing business on the first day of the Restricted Period.
e. Survival of Section. The provisions of this Section 6 shall survive the
termination of this Agreement for any reason whatsoever.
7. REMEDIES
a. Arbitration. The Parties agree, expressly renouncing any other forum
for the resolution of disputes, that except as provided in Section 7(b), any
disputes arising out of, relating to, or arising in connection with this
Agreement or arising out of, relating to, or arising in connection with Frelas'
employment, shall be finally settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association (except
insofar as those rules are modified by the terms of this Section 7). The
arbitration will be held in Hartford, Connecticut; and it shall be held as
promptly as possible at such time as the arbitration tribunal may determine. The
arbitration will be held in the English language. The arbitrator(s) shall state
the reasons upon which the award is based. Judgment upon the arbitration award
may be entered in any court of competent jurisdiction (including without
limitation the courts of the United States, any country where the Company or any
Associated Company is engaged in business, and the respective political
subdivisions of each of the foregoing), or application may be made to any such
court for a judicial acceptance of the award and an order of enforcement, as the
case may be. If any Party employs an attorney or commences legal or arbitral
proceedings to enforce the provisions of this Agreement, the prevailing Party
shall be entitled (unless the relevant tribunal decides otherwise) to recover
from the other, reasonable costs incurred in connection with such enforcement,
including but not limited to, attorney's fees and costs of investigation and
litigation/arbitration. Except as otherwise specifically provided in this
Section 7, no Party shall institute any action or proceeding against any other
Party in any court with respect to any dispute which is or could be the subject
of a claim or proceeding pursuant to this Section 7.
b. Equitable Remedies. Frelas hereby acknowledges that breaches of
Sections 5 or 6 of this Agreement may result in material irreparable injury to
the Company for which there is no adequate remedy at law, that it will not be
possible to measure damages for such breaches, and that in the event of such a
breach or threat
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<PAGE> 6
thereof the Company shall be entitled (notwithstanding the provisions of Section
7(a)) to seek and obtain a temporary restraining order, a preliminary
injunction, a permanent injunction or other equitable relief restraining Frelas
from engaging in activities prohibited by this Agreement. Frelas further
acknowledges that in the event of such a breach or threat thereof the Company
shall be entitled to obtain such other or further relief as may be required to
specifically enforce any of the covenants of this Agreement. Frelas hereby
agrees and consents that such injunctive or other relief may be sought in any
state or federal court of competent jurisdiction in the County of Hartford,
State of Connecticut, or in the nation, state and/or political subdivision
thereof in which such violation may occur, or in any other court having
jurisdiction, at the election of the Company. Frelas agrees to and hereby does
submit to in persona jurisdiction before each and every such court for that
purpose.
c. Suspension of Payments. Frelas hereby acknowledges that should an
alleged breach of Sections 5 or 6 of this Agreement occur, the Company is
entitled to suspend any payments due to Frelas during litigation of any action
it may bring against Frelas for injunctive and/or monetary relief.
d. Remedies not Exclusive. The remedies of this Section shall be
cumulative and not exclusive, and shall be in addition to any other remedy which
the Company may have.
e. Survival of Remedies. This Section 7 shall survive the termination of
this Agreement for any reason whatsoever.
8. TERMINATION OF EMPLOYMENT
This Agreement and Frelas's employment hereunder may be terminated without
any breach of this Agreement under the following conditions:
a. Termination by Frelas. Frelas may terminate this Agreement, with or
without cause, by sending written notice thereof at least six (6) months in
advance of the date of his proposed termination.
b. Termination by the Company for Cause. The Company may terminate the
Agreement and Frelas's employment for Cause prior to the expiration of this
Agreement as provided in this Section 8(b). If the Cause is susceptible of
remedy by Frelas, then the Company shall first deliver to Frelas written notice
of such Cause; and if Frelas has not remedied the Cause within thirty (30) days
after receipt of that notice, the Company may terminate this agreement forthwith
thereafter by written notice effective immediately. If the Cause is not
susceptible of remedy by Frelas, then the Company may terminate this agreement
forthwith by written notice effective immediately. If the Company terminates
Frelas's employment for Cause, Frelas shall not be entitled to any compensation
or benefits after the effective date of his termination. For purposes of this
Section 8(c) "Cause" shall mean (1) dishonesty or fraud resulting in damage to
the business of the Company or any of its Associated Companies; (2) embezzlement
or theft of assets of the Company or any of its Associated Companies; (3)
competing with the Company or aiding a competitor of the Company or any of its
Associated Companies to the detriment of the Company or any of its Associated
Companies; (4) a substantial breach of this Agreement; (5) conduct of an illegal
or criminal nature under the laws of the United States, Poland, or any political
subdivision thereof; (6) conduct or activities that, as determined by the
Company in the reasonable exercise of its discretion, is injurious to the
reputation or affairs of the Company or any Associated Company; (7) violation,
as determined by the Company in the reasonable exercise of its discretion, of
any applicable polices and procedures set forth in the Chase Enterprises
Personnel Policy Manual; or (8) any other willful misconduct by Frelas which, as
determined by the Company in the reasonable exercise of its discretion, is
materially injurious to the Company, monetarily or otherwise.
c. Termination by the Company without Cause. Notwithstanding the
provisions of Section 8(b) above, the Company may terminate this Agreement and
Frelas's employment upon six (6) months' written notice without cause.
d. Later Employment With Successor in Interest of Company. Frelas shall
not be deemed to have been terminated under this Agreement if he is offered
employment on substantially the same or better terms by any Associated Company,
by any successor in interest or assign of the Company, or by any purchaser of
substantially all of the Company's assets.
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<PAGE> 7
e. Death. Notwithstanding anything to the contrary herein contained,
Frelas's employment and this Agreement shall terminate upon his death or his
inability due to disability to perform the essential functions of his position
for a continuous period of sixty (60) days; provided, however, that the
provisions of Section 4(e) regarding vesting and exercise of the option and
regarding transferability and rights of first refusal with respect to stock
obtained through exercise of the option shall survive termination of this
Agreement and be binding upon the executors, administrators, heirs and
successors of Frelas.
f. Delivery of Material. Frelas agrees that upon the termination of this
Agreement he will deliver to the Company all documents, papers, materials and
other property of the Company relating to its affairs which may then be in his
possession or under his control.
9. NOTICES
a. All notices required to be given under the terms of this Agreement or
which any of the Parties may desire to give hereunder shall be in writing and
delivered personally or sent by express delivery, by facsimile, or by registered
or certified mail with proof of receipt, postage and expenses prepaid and with
return receipt requested, addressed as follows:
If to the Company:
World Cable Communications, Inc.
One Commercial Plaza
Hartford, Connecticut 06103
U.S.A.
Facsimile: (860) 293-4297
Attention: Cheryl Chase, General Counsel
With a copy to:
Marc R. Paul
Baker & McKenzie
815 Connecticut Avenue
Washington, D.C. 20006
U.S.A.
Facsimile: (202) 452-7074
If to Frelas:
John S. Frelas
2713 Ashridge Place
Oakville, Ontario
Canada L6J 7K3
Facsimile: (905) 829-2738
b. Notice given in accordance with this Section 9 shall be deemed to have
been given when delivered personally, or when received if sent via express
delivery, facsimile, or registered or certified mail, postage prepaid and return
receipt requested.
c. Any party may change its address for notices by communicating its new
address in writing to the other party.
10. MISCELLANEOUS
a. Agreement is Non-Assignable. This Agreement is a personal service
contract and shall not be assignable by Frelas or by the Company, except that
the Company may assign this Agreement to an Associated Company or a Person which
succeeds to the Company's rights and liabilities by merger, sale of assets as a
going concern, or consolidation with the Company.
7
<PAGE> 8
b. Binding Effect. All rights and obligations and agreements of the
parties under this Agreement shall be binding upon and enforceable against, and
inure to the benefit of the parties and their personal representatives, heirs,
legatees and devises, and any Person succeeding by operation of law to their
rights under this Agreement, except that such personal representatives, heirs,
legatees, devises and other persons shall have no obligation to perform Frelas's
duties described in Section 2 hereof.
c. Further Assurances. Frelas and the Company, as the case may be, shall
execute and deliver such further instruments and do such further acts and things
as may be required to carry out the terms or conditions of this Agreement or as
may be consistent with the intent and purpose of this Agreement.
d. Rights of Third Parties. Nothing in this Agreement, expressed or
implied, is intended to confer upon any person other than the parties hereto any
rights or remedies under or by reason of this Agreement (except that any option
which has vested in Frelas as of the date of his death, as well as any accrued
but unpaid compensation as of the date of his death, shall pass to his estate on
death, subject to the limitations on exercise of the option contained in this
Agreement).
e. Effect of Waiver. A waiver of, or failure to exercise, any rights
provided for in this Agreement, in any respect, shall not be deemed a waiver of
any further or future rights hereunder. Except for rights which must be
exercised within a specified time period under this Agreement, no rights herein
shall be considered as waived, whether intentionally or not, unless waived in a
writing signed by the party to be charged with the waiver.
f. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Connecticut applicable to contracts
made and performed in that jurisdiction, without regard to the principles of
conflicts of laws.
g. Amendments. This Agreement may not be changed or amended orally, but
only by an agreement in writing signed by all parties hereto.
h. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be an original, and such counterparts shall together
constitute but one and the same instrument.
i. Severability. If a court of competent jurisdiction declares that any
term or provision of this Agreement is invalid or unenforceable, then:
(1) the remaining terms and provisions hereof shall be unimpaired, and
(2) the invalid or unenforceable term or provision shall be deemed
replaced by a term or provision that is valid and enforceable and that
comes closest to expressing the intention of the invalid or unenforceable
term or provision.
j. No Conflicts. Frelas represents and warrants that he is not prevented
by any other employment agreement, arrangement, contract, understanding, court
order or otherwise, which in any way directly or indirectly conflicts, is
inconsistent with, or restricts or prohibits him from fully performing the
duties of the Employment, in accordance with the terms and conditions of this
Agreement.
k. Entire Agreement. This Agreement supersedes all prior agreements, oral
or written, between the parties hereto with respect to the employment of Frelas
by the Company. This Agreement contains the entire agreement of the parties with
respect to the employment of Frelas by the Company, and the parties shall not be
bound by any terms, conditions, statements, covenants, representations or
warranties, oral or written, not herein contained.
l. Employee Acknowledgment. FRELAS REPRESENTS THAT HE HAS HAD AMPLE
OPPORTUNITY TO REVIEW THIS AGREEMENT AND FRELAS ACKNOWLEDGES THAT HE UNDERSTANDS
THAT IT CONTAINS IMPORTANT CONDITIONS OF THE EMPLOYMENT AND THAT IT EXPLAINS
POSSIBLE CONSEQUENCES, BOTH FINANCIAL AND LEGAL, IF FRELAS BREACHES THE
AGREEMENT.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties have executed this Executive Employment
Agreement effective as of the date first above written.
World Cable Communications, Inc., a
New York corporation
By: /s/ RICHARD B. STEELE
------------------------------------
Richard B. Steele
Chief Executive Officer
/s/ JOHN FRELAS
--------------------------------------
Mr. John Frelas
9
<PAGE> 10
EXHIBIT A
10
<PAGE> 11
EXHIBIT B
<TABLE>
<CAPTION>
PER
DATE OF TERMINATION OF AGREEMENT PER SHARE OPTION
- ------------------------------------------------------------------------ --------- ---------
<S> <C> <C>
Prior to First Anniversary of Effective Date ("Anniversary")............ $2,199.17 $ 208.00
On or After First But Before Second Anniversary......................... $2,406.64 $ 414.94
On or After Second But Before Third Anniversary......................... $2,614.11 $ 622.41
On or After Third But Before Fourth Anniversary......................... $2,821.58 $ 829.88
On or After Fourth But Before Fifth Anniversary......................... $3,029.05 $1,037.35
</TABLE>
11
<PAGE> 12
EXHIBIT C
Apartment Allowance: A reasonable monthly allowance, determined mutually by
the parties, not expected to exceed $2,000 per month.
Car Allowance: The Company will make available to Frelas a car with
insurance and operating expenses to be at the Company's expense.
Personal Home Leave/Travel Allowance: Up to $15,000 per year to be used by
Frelas or immediate family members.
12
<PAGE> 13
STOCK OPTION AGREEMENT BETWEEN
JOHN FRELAS AND WORLD CABLE COMMUNICATIONS, INC.
This STOCK OPTION AGREEMENT ("Option Agreement") is made effective as of
September 1, 1996 (the "Effective Date"), by and between John Frelas ("Frelas")
and World Cable Communications, Inc., a New York corporation ("WCCI" or the
"Company").
1. Grant of Option and Option Period.
a. The Company hereby grants Frelas an option (the "Option") to purchase
two hundred forty-one (241) shares (the "Shares") of the Company's common stock
(the "Common Stock"), with a par value of $0.01 per share, pursuant to the terms
and conditions set forth in this Option Agreement. The exercise price for the
Option (the "Exercise Price") shall be One Thousand, Nine Hundred and Ninety-One
Dollars and Seventy Cents ($1,991.70) per Share.
b. The option to purchase forty-eight (48) of these Shares will vest each
year on the anniversary date of the Effective Date beginning with the first
anniversary of the Effective Date, provided, however, that the option to
purchase forty-nine (49) of these Shares will vest on the fifth anniversary of
the Effective Date), and provided further that no portion of such option shall
vest after the date (the "Cut-Off Date") that is earlier of (i) the date that
the Executive Employment Agreement (as described in Section 14 of this
Agreement) is terminated and (ii) the date on which the Company sends Frelas a
notice referred to in Section 8(b) of the Executive Employment Agreement.
c. If Frelas's employment with the Company is terminated for any reason,
Frelas shall have only sixty (60) days after the Cut-Off Date to exercise that
portion of the Option that has vested as of the Cut-Off Date, and Frelas shall
have no right to exercise any portion of the Option that has not then vested.
d. Notwithstanding any other provision of this Option Agreement, the Option
shall expire and be of no further force or effect with respect to any Shares on
the earlier to occur of (i) the tenth anniversary of the Effective Date, or (ii)
sixty days after the date that Frelas ceases to be an employee of the Company
for any reason whatsoever (including but not limited to Frelas's death,
disability, voluntary termination or involuntary termination).
e. Each exercise of the Option shall reduce, by an equal number, the total
number of shares of Company Common Stock that may thereafter be purchased by
Frelas under the Option.
2. Manner of Exercise. Subject to the conditions and restrictions
contained in Section 3 below, the Option shall be exercised by delivering
written notice of exercise to the Secretary of the Company. Such notice shall be
irrevocable and must be accompanied by payment in cash or such other form of
consideration as the Company may approve, and a signed Subscription Agreement
satisfactory in form and substance to the Company.
3. Non-transferability. Neither this Option nor any interest therein may
be sold, pledged, assigned, hypothecated, transferred or disposed of in any
manner (other than by will or by the laws of descent and distribution during the
option period described in Section 1). This Option is not assignable by
operation of law or subject to execution, attachment or similar process. During
Frelas's lifetime, the Option can only be exercised by Frelas. Any attempted
sale, pledge, assignment, hypothecation or other transfer of the Option or any
interest therein contrary to the provisions hereof, or the levy of any
execution, attachment or similar process upon the Option or any interest therein
shall be null and void and without force or effect. No transfer of the Option by
will or by the laws of descent and distribution shall be effective to bind the
Company unless the Company shall have been furnished written notice thereof and
an authenticated copy of the will and/or such other evidence as the Company may
deem necessary to establish the validity of the transfer and the acceptance by
the transferee or transferees of the terms and conditions of the Option. The
terms of the Option transferred by will or by the laws of descent and
distribution shall be binding upon the executors, administrators, heirs and
successors of Frelas.
4. Adjustment in the Event of Change in Stock. In the event of any change
in the outstanding Common Stock of the Company due to stock dividends,
recapitalizations, reorganizations, mergers, consolidations, split-
<PAGE> 14
ups, or exchange of shares, the number and kind of the Shares and the purchase
price per Share will be appropriately adjusted, upwards or downwards, consistent
with such change. The reasonable determination of the Company regarding any
adjustment will be final and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of the Shares.
5. Restrictions on Transfer of the Shares.
a. For as long as Frelas is an employee of the Company or any Associated
Company (as that term is used in the Executive Employment Agreement that is
described in Section 14 of this Agreement), Frelas shall not transfer any Shares
to any person or entity other than WCCI.
b. After Frelas is no longer an employee of the Company or any Associated
Company Frelas shall not sell, encumber, pledge, transfer, hypothecate, assign
or otherwise dispose of any of the Shares until Frelas shall have first offered
to sell such Shares to the Company (the "Offer") in accordance with the
following provisions.
c. The Offer made pursuant to Subsection (b) above shall be in writing, and
shall state that Frelas offers to sell to the Company a specified number of the
Shares owned by Frelas. For every Offer of the Shares pursuant to Subsection (b)
above, the Company shall have a period of at least fifteen (15) days from the
time of receiving the Offer to accept it; such acceptance shall be in writing
and shall be sent to Frelas.
d. The purchase price of any of the Shares sold pursuant to the provisions
of Subsection (b) above shall be equal to the price offered to Frelas for such
shares by a bona fide third party purchaser, as evidenced by a written offer to
purchase executed by such third party. The purchase price shall be paid to
Frelas in cash within fifteen (15) days of the Company's acceptance of the
Offer. If any of the Shares which are offered for purchase pursuant to the
provisions of Subsection (c) above are not accepted for purchase by the Company
within the time limitations described in Subsection (b), Frelas may transfer
such shares to such bona fide third party purchaser in accordance with the terms
of such purchaser's offer to purchase referred to in this Subsection (d).
e. As a condition to the transfer of any of the Shares issued pursuant to
this Option Agreement, the Company may require an opinion of counsel,
satisfactory to the Company, to the effect that such transfer will not be in
violation of the Securities Act of 1933, as amended (such Act, or any similar
Federal statute than in effect, being hereinafter referred to as the "Act"), or
any other applicable securities laws, rules or regulations, or that such
transfer has been registered under Federal and all other applicable securities
laws.
f. Unless and until the Company has received a legal opinion regarding
saleability of the Shares that is satisfactory to the Company, all certificates
evidencing any of the Shares, whether upon initial issuance or any transfer
thereof, shall bear the following legends:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY
OTHER SECURITIES LAWS, AND THEREFORE CANNOT BE SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR ASSIGNED UNLESS THEY ARE REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND UNDER ALL OTHER APPLICABLE
SECURITIES LAWS, OR UNLESS AN EXEMPTION THEREFROM IS AVAILABLE.
THIS CERTIFICATE IS TRANSFERABLE ONLY UPON COMPLIANCE WITH THE
PROVISIONS OF THAT CERTAIN STOCK OPTION AGREEMENT, EFFECTIVE AS OF
, 1996, BETWEEN JOHN FRELAS AND WORLD CABLE
COMMUNICATIONS, INC., A COPY OF WHICH IS ON FILE IN THE OFFICE OF THE
SECRETARY OF WORLD CABLE COMMUNICATIONS, INC.
6. No Stock Rights. Frelas shall not be entitled to vote, be deemed the
holder of any Shares, have the right to receive dividends with respect to any
Shares, or otherwise have any of the rights of a stockholder of the
2
<PAGE> 15
Company with respect to any Shares, unless and until Frelas has exercised the
Option with respect to such Shares in accordance with the terms and conditions
of this Option Agreement.
7. Reservation and Issuance of Shares.
a. The Company will at all times have authorized, and reserve and keep
available, free from preemptive rights, for the purpose of enabling it to
satisfy any obligation to issue the number of shares of Common Stock deliverable
upon exercise of the Option.
b. The Company covenants that all Shares will, upon issuance in accordance
with the terms of this Agreement, be duly authorized, fully paid and
non-assessable.
8. Representations and Warranties of Frelas.
In order to induce the Company to accept this Option Agreement, Frelas
hereby represents and warrants to the Company as follows:
a. Frelas has received no solicitation or general advertisement concerning
the Company, but rather has become knowledgeable regarding the business of the
Company through personal interaction with employees of the Company;
b. Frelas confirms that no representations or warranties have been made to
Frelas regarding the Company and that Frelas has not relied upon any
representation or warranty in making or confirming this Option Agreement.
c. Frelas has the ability to bear the economic investment, and can afford a
complete loss of his investment, with respect to the Option and to the Shares.
d. Frelas, either by himself or together with his purchaser representative,
has sufficient knowledge and experience in financial and business matters so as
to be capable of evaluating the merits and risks of his investment in the Option
and in the Shares.
e. Frelas is accepting the Option, and will be purchasing the Shares, for
investment purposes, for Frelas's own account and not with a view to, or for
sale in connection with, the distribution thereof.
f. Frelas is familiar with the nature of, and the risks attending,
investments in securities such as the Option and the Shares, and he has
determined that the acceptance of the Option and the purchase of the Shares is
and will be consistent with his investment objectives.
g. Frelas has been advised and understands that an investment in the Option
and in the Shares is speculative and involves a high degree of risk.
h. Frelas has no reason to anticipate any change in his personal
circumstances, financial or otherwise, which may cause or require sale or
distribution by him of all or any part of the Option or the Shares.
i. Frelas confirms that he has been given an opportunity to make any
inquiries of the Company and its representatives that he desires to make.
j. Frelas is at least twenty-one (21) years of age.
k. Frelas is aware of and understands the following:
i. The business of the Company and the risks inherent in that
business;
ii. That no federal or state agency has made a finding or
determination as to the advisability or fairness of an investment in the
Option or in the Shares or any recommendation or endorsement of the Option
or of the Shares;
iii. That the Option and the Shares have not been registered for sale
under the Securities Act of 1933, as amended, or under any state "Blue Sky
Law"; and
iv. That there are substantial restrictions on the transferability of
the Option and of the Shares; there is no public market, and there will not
necessarily be any public market, for the Option or the Shares in
3
<PAGE> 16
the United States; Frelas will not be able to avail himself of the
provisions of Rule 144 adopted by the Securities and Exchange Commission
under the Securities Act of 1933, as amended, unless all of the conditions
of Rule 144 are met, and accordingly, Frelas may have to hold the Option
and the Shares and bear the economic risk of this investment for an
indefinite period.
l. If in the future Frelas desires to offer or dispose of the Option or any
of the Shares or any interest therein, he will do so only in compliance with
applicable securities laws and this Option Agreement.
m. Frelas understands and agrees that the Company has no obligation to
complete any public or private offering and sale of its common stock to other
investors, and that the Company shall have no liability to Frelas if it cannot
complete any such offering and sale upon terms which, in the Company's sole
discretion, are favorable to the Company.
n. Frelas acknowledges that there may be restrictions under the securities
laws of Ontario and/or Connecticut on the sale of the shares he obtains on
exercise of the options, and that he should seek legal assistance before
proceeding with the purchase or sale of said shares.
Frelas agrees that the representations and warranties of Frelas set forth
in this Section 8 shall survive the exercise of the Option and the termination
or expiration of this Option Agreement.
9. Governing Law.
This Option Agreement shall be construed in accordance with and governed by
the laws of the State of Delaware without regard to the principles of conflicts
of laws or choice of law.
10. Benefit.
This Option Agreement shall be binding upon the Company, Frelas, their
heirs, executors, administrators, legal representatives, successors, and
permitted assigns, and Frelas in furtherance thereof may execute a will
directing Frelas's executor to perform this Option Agreement and to execute all
documents necessary to effectuate the purposes of this Option Agreement, but the
failure to execute such a will shall not affect the rights of the Company or the
obligations of Frelas's estate as provided in this Option Agreement. Nothing in
this Option Agreement, expressed or implied, is intended to confer upon any
person, other than the parties hereto, any rights or remedies under or by reason
of this Option Agreement.
11. Specific Performance.
a. The parties to this Option Agreement hereby agree that an award of
damages alone is inadequate to remedy a breach of the terms of this Option
Agreement and that specific performance, injunctive relief or other equitable
remedy is the only way by which the intent of this Option Agreement may be
adequately realized upon breach by one or more of the parties. Such remedy
shall, however, be cumulative and not exclusive, and shall be in addition to any
other remedy which the parties may have.
b. In furtherance of and not in limitation of the foregoing, should any
dispute arise concerning a sale, purchase, encumbrance, pledge, transfer,
hypothecation, assignment or other disposition of the Option or any of the
Shares which is alleged to contravene the provisions of this Option Agreement,
an injunction may be issued restraining any such transaction pending the
determination of such controversy.
12. Waiver.
Failure to insist upon strict compliance with any of the terms, covenants
or conditions of this Option Agreement shall not be deemed a waiver of such
terms, covenants or conditions, nor shall any waiver or relinquishment of any
right or power hereunder at any one time or more times be deemed a waiver or
relinquishment of such right or power at any other time or times.
4
<PAGE> 17
13. Notice.
a. All notices required to be given under the terms of this Agreement or
which any of the Parties may desire to give hereunder shall be in writing and
delivered personally or sent by express delivery, by facsimile, or by registered
or certified mail with proof of receipt, postage and expenses prepaid and with
return receipt requested, addressed as follows:
If to the Company:
World Cable Communications, Inc.
One Commercial Plaza
Hartford, Connecticut 06103
U.S.A.
Facsimile: (860) 293-4297
Attention: Cheryl Chase, General Counsel
With a copy to:
Marc R. Paul
Baker & McKenzie
815 Connecticut Avenue
Washington, D.C. 20006
U.S.A.
Facsimile: (202) 452-7074
If to Frelas:
John S. Frelas
2713 Ashridge Place
Oakville, Ontario
Canada L6J 7K3
Facsimile: (905) 829-2738
b. Notice given in accordance with this Section 13 shall be deemed to have
been given when delivered personally, or when received if sent via express
delivery, facsimile, or registered or certified mail, postage prepaid and return
receipt requested.
c. Any party may change its address for notices by communicating its new
address in writing to the other party.
14. Entire Agreement.
This Option Agreement is subject to that certain between Frelas and the
Company of even date herewith (the "Executive Employment Agreement"), and in the
event of a conflict between them, the provisions of the Executive Employment
Agreement shall prevail. Except as provided in the foregoing sentence, this
Option Agreement constitutes the entire agreement between the parties hereto
with respect to the subject matter hereof and may be amended only by a writing
executed by all of the parties.
15. Severability.
The invalidity or unenforceability of any provision of this Option
Agreement shall in no way affect the validity or enforceability of any other
provision hereof.
16. Headings.
The headings to the sections of this Option Agreement are used for
reference only and are not to be construed as limiting or extending the
provisions hereof.
5
<PAGE> 18
17. Counterparts.
This Option Agreement may be executed in any number of counterparts, each
of which shall be considered an original but all of which shall constitute the
Option Agreement by and among the parties.
IN WITNESS WHEREOF, the undersigned have executed this Option Agreement
effective as of the date first above written.
World Cable Communications, Inc., a
New York corporation
By: /s/ RICHARD B. STEELE
------------------------------------
Richard B. Steele
Chief Executive Officer
/s/ JOHN FRELAS
--------------------------------------
Mr. John Frelas
6
<PAGE> 1
EXHIBIT 10.12
POLAND COMMUNICATIONS, INC.
ONE COMMERCIAL PLAZA
HARTFORD, CONNECTICUT
06103-3585 U.S.A.
STRICTLY PRIVATE AND CONFIDENTIAL
EFFECTIVE AS OF FEBRUARY 7, 1997
Mr. Przemyslaw A. Szmyt
05-830 Nadarzyn, Poland
Orzechowa St. # 3
This contract sets forth the understanding between you and Poland
Communications, Inc. (hereinafter, together with its Polish subsidiaries and
affiliates collectively referred to as the "Company") with respect to your
employment with the Company.
I. TITLE/SALARY EMPLOYMENT INFORMATION.
A. Your employment with the Company will be for a 3 year period commencing
January 1, 1997. During that period you may be expected to continue your current
employment and/or enter into additional employment agreements with one or more
of the Company's affiliates.
B. You shall hold the position of General Counsel and Vice President.
C. Your base gross remuneration shall amount to 160,000 U.S. Dollars (one
hundred and sixty thousand) annually (hereinafter referred to as the "Base
Salary"), paid either directly by Poland Communications Inc. and/or one or more
of its affiliates. The Base Salary shall be paid in 12 equal monthly
installments on the last working day of each calendar month.
If part of your Base Salary is paid in Polish Zloty, that part shall be
calculated in accordance with the average rate of exchange of U.S. Dollars
announced by the National Bank of Poland in the daily Rzeczpospolita on the last
working day immediately preceding the relevant salary payment.
The amount of your Base Salary will be subject to annual performance
evaluation in January of each year.
D. In addition to your salary, you shall be eligible to receive an annual
bonus of 40,000 US Dollars (forty thousand) ("Bonus"). Your first Bonus shall be
paid on the first anniversary of the commencement of your employment with the
Company, irrespective of any financial results of the Company. The criteria to
receive next Bonuses shall be determined by the Chief Executive Officer of the
Company.
The Bonus, except for your first bonus which shall be paid on February 7,
1998, shall be paid out until the end of April of the following year after
drawing up the balance sheet of the Company. In the event the contract is not
renewed, your Bonus for the last period applicable shall be paid out within one
month from the last day of your employment with the Company.
You shall not be eligible for any Bonus if you leave voluntarily or are
terminated for cause, as defined in Section II(B) herein, prior to the end of
the period for which the Bonus is applicable.
E. In addition, as soon as practicable following a successful completion of
an initial public offering of the Company shares, you shall receive a Management
Incentive Award in the amount of 70,000 (seventy thousand) US Dollars.
F. You shall be eligible for participation in a stock option plan for the
Company's executives, contingent upon implementation of such a plan by the
Company.
<PAGE> 2
G. You shall be eligible for participation in such life insurance,
disability, health and other medical insurance benefits as applicable to other
senior officers of the Company.
H. You will be provided with an automobile for your business and personal
use, in accordance with the Company's policy in this regard.
I. Your professional development is important to the Company. It is
expected that you will be required to travel outside Poland in connection with
your duties and that you will have the opportunity to attend at least one
industry/business event outside Poland each year of your contract.
J. You shall accrue vacation pursuant to the laws of the country of Poland.
K. The location of your office shall be in Warsaw.
II. TERM AND TERMINATION OF EMPLOYMENT.
A. The term of this contract shall be for three (3) years commencing as of
February 7, 1997. However, and except as set forth in Section II(B) below, the
Company may terminate your employment upon four (4) month's written notice at
any time during the term.
B. Notwithstanding Section II(A) above, the Company may terminate your
employment at any time, without further obligation of any kind or nature, in the
event that:
(i) The Company determines in its reasonable judgment that you are
engaging or have engaged in conduct or activities injurious to the
reputation and/or affairs of the Company; or
(ii) That you are convicted for activity of a criminal or illegal
nature under the laws of the Country of Poland; and/or
(iii) The Company determines that you have violated any substantive
policies and procedures of the Company, or any substantive personnel,
financial or other policies and procedures established by the Company;
and/or
(iv) You have violated the Conflict of Interest policy of the Company
as referenced in Section V of this contract.
Subsections (i) through (iv) above shall be considered "termination
for cause."
III. TRADE SECRETS AND CONFIDENTIAL INFORMATION; NON-COMPETITION.
During the term of your employment, you will acquire knowledge of
confidential and proprietary information regarding, among other things, the
Company's present and future operations, its customers and suppliers, pricing
and bidding strategies, and the methods used by the Company and its employees.
Therefore, you hereby agree to the following:
A. During your employment and after your employment ends with the Company
you will hold in a fiduciary capacity for the benefit of the Company, and shall
not directly or indirectly use or disclose any Trade Secret, as defined
hereinafter, that you may acquire during the term of your employment by the
Company for so long as such information remains a Trade Secret. The term "TRADE
SECRET" as used in this contract shall mean information including, but not
limited to, technical or non-technical data, a formula, a pattern, a
compilation, a program, a device, a method, a technique, a drawing, a process,
financial data, financial plans, product plans or a list of actual or potential
customers or suppliers which:
(1) derives economic value, actual or potential from not being
generally known to, and not being readily ascertainable by proper means by,
other persons who can obtain economic value from its disclosure or use; and
(2) is the subject of reasonable efforts by the Company to maintain
its confidentiality.
B. In addition to the foregoing and not in limitation thereof, you agree
that, during your employment with the Company and for a period of two (2) years
after your termination/separation from the Company, you will hold in a fiduciary
capacity for the benefit of the Company, and shall not directly or indirectly
use or disclose, any Confidential or Proprietary information, as defined
hereinafter, that you may have acquired
2
<PAGE> 3
(whether or not developed or compiled by you and whether or not you were
authorized to have access to such information) during the term of, in the course
of or as a result of your employment by the Company. The term "Confidential or
Proprietary Information" as used in this contract means any secret, confidential
or proprietary information of the Company not otherwise included in the
definition of "TRADE SECRET" above. The term "Confidential and Proprietary
Information" does not include information that has become generally available to
the public by the act of one who has the right to disclose such information
without violating any right of the client to which such information pertains.
C. You agree that for a period of twelve (12) months after
termination/separation of your employment you will not hire or attempt to hire
for any purpose whatsoever (whether as an employee, consultant, adviser,
independent contractor or otherwise) any employee of the Company or any
affiliate thereof or any person who was an employee of the Company or any
affiliate thereof at any time during the one year period prior to the
termination of your employment.
D. You agree that for a period of twelve (12) months after
termination/separation of your employment you will not, directly or indirectly,
for any purpose whatsoever (whether as employee, consultant, advisor,
independent contractor or otherwise) engage in or solicit the same or
substantially similar business conducted by the Company i.e. the establishment
(including the installation and marketing) of cable television or in any area in
the country of Poland where the Company and its affiliates have established or
are in the process of establishing cable television construction or operations
as of the date of your termination. As compensation for potential income lost as
a result of this provision, within one month from termination/separation of your
employment you will receive a one-time payment from the Company in the amount
that will equal the value of Company automobile in your use at the time of
termination/separation.
You agree and acknowledge that, if a violation of any covenant contained in
this Section III occurs or is threatened, such violation or threatened violation
will cause irreparable injury to the Company, that the remedy at law for any
such violation or threatened violation will be inadequate and that the Company
shall be entitled to appropriate equitable relief.
The covenants contained in this Section shall inure to the benefit of the
Company, any successor of it and every subsidiary and affiliate.
IV. REASONABLE RESTRICTIONS.
You agree and acknowledge that, to the extent required by law, the
covenants specified in Section III contain reasonable limitations as to time,
geographical area and scope of activities to be restricted and that such
covenants do not impose a greater restraint on you than is necessary to protect
the good will, confidential information and other legitimate business interests
of the Company.
V. COMPANY POLICIES: CONFLICT OF INTEREST.
You agree to execute and abide by the Company's Conflict of Interest and
Integrity Policy attached to this contract as Schedule A and made a part of this
contract.
VI. RIGHTS TO MATERIALS.
All records, files, memorandum, reports, drawings, documents, and the like
(together with all copies thereof) relating to the business of the Company,
which you will use or prepare or come into contact within the course of, or as a
result of, your employment shall, as between the parties hereto, remain the sole
property of the Company. Upon your termination/separation from the Company you
shall return all such materials to the Company and agree that you shall not
thereafter cause removal of such materials from the premises of the Company.
VII. MISCELLANEOUS PROVISIONS.
A. This contract contains the entire understanding of the parties with
respect to the subject matter contained herein and replaces any prior
understandings, whether written or oral. This contract may not be
3
<PAGE> 4
modified or amended in any way unless in writing and signed by you and the Chief
Executive Officer of the Company.
B. You and the Company agree that this contract and the terms and
conditions of your employment shall be governed by the laws of the State of New
York. You and the Company agree to submit to the exclusive jurisdiction of the
courts of the State of New York for any dispute arising out of your employment
or termination of this contract.
C. If any portion of this contract is deemed invalid or unenforceable, such
determination shall not effect the validity or enforceability of the remaining
provisions of the Agreement.
D. This contract shall be terminated automatically upon and coincidentally
with your death, except for the rights and obligations of either party accrued
up to your death.
If you are in agreement with the provisions of this contract, please sign
in the space provided below. Please retain one fully executed copy for your
records.
Poland Communications, Inc.
By:
------------------------------------
Robert E. Fowler, III
Chief Executive Officer
Date:
- --------------------------------------------------
I, Przemyslaw Szmyt, acknowledge that I have received this contract and I
agree to the terms and information contained herein.
By:
---------------------------------
Date:
- --------------------------------------------------
4
<PAGE> 5
SCHEDULE A
CONFLICT OF INTEREST AND INTEGRITY POLICY
A. All employees of the Company must conduct their business and personal
affairs with such ethics and integrity that no conflict of interest with the
Company's business, real or implied, can be construed. A conflict of interest
shall be deemed to exist if an employee or an Affiliate (as defined in (F)
below) of the employee has any interest (including, but not limited to equity
ownership, interest arrangement, commission, gift, etc.) direct or indirect, in
a client, supplier, contractor, or other principal dealing with the Company or
its affiliates, and that interest is of such extent or nature that it might
reasonably be perceived by management to affect or tend to affect the employee's
judgment or decisions exercised on behalf of the Company.
B. An employee or any Affiliate of the employee shall not personally or on
behalf of the Company receive or be involved with any kickbacks, bribes,
gratuities, reciprocal arrangements or other improper or illegal arrangements,
or benefit personally from any rebates or discounts, with any other
organizations and personnel conducting or soliciting, currently or
prospectively, the business with the Company and its affiliates.
C. It is the Company's policy to comply with the Foreign Corrupt Practices
Act or any other similar law or regulation affecting the Company's business
which prohibits bribes, kickbacks, or any other type of illegal and unethical
business dealings. An employee of the Company shall abide by and shall not
violate any such laws or regulations and agree to conduct him/herself in
accordance with such laws. More specifically, an employee or any Affiliate of an
employee shall not permit or be involved in any direct or indirect pay, award,
commission, or other compensation to any person or organization for purposes of
improperly or illegally inducing action of any kind whatsoever.
D. Where any questionable outside business activity is contemplated, an
employee must obtain prior Company approval.
E. Any violation of this policy shall subject an employee to immediate
termination for cause.
F. For purposes of this policy, Affiliate shall include, but not be limited
to, any relative by blood or by marriage or any entity in which the employee or
any such relative may have any financial, voting, controlling and/or management
interest.
ACKNOWLEDGEMENT & REPRESENTATION OF EMPLOYEE
As an employee of the Company, I acknowledge that I have read and
understand the Company Conflict of Interest Policy, and represent that I will
abide by the terms of the Policy.
By:
-------------------------------- -----------------------------------
Przemyslaw Szmyt Date
5
<PAGE> 1
EXHIBIT 10.13
POLAND COMMUNICATIONS, INC.
One Commercial Plaza
Hartford, Connecticut
06103-3585 U.S.A.
STRICTLY PRIVATE AND CONFIDENTIAL
EFFECTIVE AS OF JANUARY 1, 1997
Mr. Marek Sowa
Dzika 19/23 m. 38
00-172 Warszawa, Poland
This contract sets forth the understanding between you and Poland
Communications, Inc. (hereinafter, together with its Polish subsidiaries and
affiliates, collectively referred to as the "Company") with respect to your
employment with the Company.
1. TITLE/SALARY EMPLOYMENT INFORMATION
A. Your employment with the Company will be for a 3 year period commencing
January 1, 1997. During that period you may be expected to continue your current
employment with one of the Company's affiliates, and/or enter into additional
employment agreements with one or more of the Company's affiliates.
B. You shall hold the position of Director of Corporate Development with
respect to the cable systems constructed, acquired and operated by the Company
and its affiliates.
C. Your base gross remuneration shall amount to 64,200 U.S. Dollars
annually (hereinafter referred to as the "Base Salary"), paid either directly by
Poland Communications Inc. and/or one or more of its affiliates. The Base Salary
shall be paid in 12 equal monthly installments of 5,350 U.S. Dollars each on the
last working day of each calendar month.
If part of your Base Salary is paid in Polish Zloty, that part shall be
calculated in accordance with the average rate of exchange of U.S. Dollars
announced by the National Bank of Poland in the daily Rzeczpospolita on the last
working day immediately preceding the relevant salary payment.
The amount of your Base Salary will be subject to annual performance
evaluation in January of each year.
D. In addition to your salary, you shall be eligible to receive an annual
bonus of up to 50% (fifty per cent) of the Base Salary ("Bonus"). The criteria
to receive a Bonus or a portion thereof shall be determined by the Chief
Executive Officer of the Company.
The Bonus shall be paid out until the end of April of the following year
after drawing up the balance sheet of the Company. In the event the contract is
not renewed, your Bonus for the last period applicable shall be paid out within
one month from the last day of your employment with the Company.
You shall not be eligible for any Bonus is you leave voluntarily or are
terminated for cause, as defined in Section II(B) herein, prior to the end of
the period for which the Bonus is applicable.
E. In addition to your Base salary and Bonus, you shall be eligible for
participation in a stock option plan for the Company's executives, contingent
upon implementation of such a plan by the Company.
F. You will be provided with an automobile for your business and personal
use. Commencing January of 1997 the Company will provide you with an Opel Vectra
2.0 (with A/C) or similar vehicle.
G. Your professional development is important to the Company. It is
expected that you will be required to travel outside Poland in connection with
your duties and that you will have the opportunity to attend at least one
industry/business event outside Poland each year of your contract.
<PAGE> 2
H. You shall accrue vacation pursuant to the laws of the country of Poland.
I. The location of your office shall be in Warsaw.
II. TERM AND TERMINATION OF EMPLOYMENT
A. The term of this contract shall be for three (3) years commencing as of
January 1, 1997. However, and except as set forth in Section II(B) below, the
Company may terminate your employment upon four (4) month's written notice at
any time during the term.
B. Notwithstanding Section II(A) above, the Company may terminate your
employment at any time, without further obligation of any kind or nature, in the
event that:
(i) The Company determines in its reasonable judgment that you are
engaging or have engaged in conduct or activities injurious to the
reputation and/or affairs of the Company; and/or
(ii) That you are convicted for activity of a criminal or illegal
nature under the laws of the Country of Poland; and/or
(iii) The Company determines that you have violated any substantive
policies and procedures of the Company, or any substantive personnel,
financial or other policies and procedures established by the Company;
and/or
(iv) You have violated the Conflict of Interest policy of the Company
as referenced in Section V of this contract.
Subsections (i) through (iv) above shall be considered "termination
for cause".
III. TRADE SECRETS AND CONFIDENTIAL INFORMATION; NON-COMPETITION.
During the term of your employment, you will acquire knowledge of
confidential and proprietary information regarding, among other things, the
Company's present and future operations, its customers and suppliers, pricing
and bidding strategies, and the methods used by the Company and its employees.
Therefore, you hereby agree to the following:
A. During your employment and after your employment ends with the Company
you will hold in a fiduciary capacity for the benefit of the Company, and shall
not directly or indirectly use or disclose any Trade Secret, as defined
hereinafter, that you may acquire during the term of your employment by the
Company for so long as such information remains a Trade Secret. The term "TRADE
SECRET" as used in this contract shall mean information including, but not
limited to, technical or non-technical data, a formula, a pattern, a
compilation, a program, a device, a method, a technique, a drawing, a process,
financial data, financial plans, product plans or a list of actual or potential
customers or suppliers which:
(1) derives economic value, actual or potential from not being
generally known to, and not being readily ascertainable by proper means by,
other persons who can obtain economic value from its disclosure or use; and
(2) is the subject of reasonable efforts by the Company to maintain
its confidentiality.
B. In addition to the foregoing and not in limitation thereof, you agree
that, during your employment with the Company and for a period of two (2) years
after your termination/separation from the Company, you will hold in a fiduciary
capacity for the benefit of the Company, and shall not directly or indirectly
use or disclose, any Confidential or Proprietary information, as defined
hereinafter, that you may have acquired (whether or not developed or compiled by
you and whether or not you were authorized to have access to such Information)
during the term of, in the course of or as a result of your employment by the
Company. The term "Confidential or Proprietary Information" as used in this
contract means any secret, confidential or proprietary information of the
Company not otherwise included in the definition of "TRADE SECRET" above. The
term "Confidential and Proprietary Information" does not include information
that has become generally available to the public by the act of one who has the
right to disclose such information without violating any right of the client to
which such information pertains.
2
<PAGE> 3
C. You agree that for a period of twelve (12) months after
termination/separation of your employment you will not hire or attempt to hire
for any purpose whatsoever (whether as an employee, consultant, adviser,
independent contractor or otherwise) any employee of the Company or any
affiliate thereof or any person who was an employee of the Company or any
affiliate thereof at any time during the one year period prior to the
termination of your employment.
D. You agree that for a period of twelve (12) months after
termination/separation of your employment you will not, directly or indirectly,
for any purpose whatsoever (whether as employee, consultant, advisor,
independent contractor or otherwise) engage in or solicit the same or
substantially similar business conducted by the Company i.e. the establishment
(including the installation and marketing) of cable television or in any area in
the country of Poland where the Company and its affiliates have established or
are in the process of establishing cable television construction or operations
as of the date of your termination. As compensation for potential income lost as
a result of this provision, within one month from termination/separation of your
employment you will receive a one-time payment from the Company in the amount
that will equal the value of Company automobile in your use at the time of
termination/separation.
You agree and acknowledge that, if a violation of any covenant contained in
this Section III occurs or is threatened, such violation or threatened violation
will cause irreparable injury to the Company, that the remedy at law for any
such violation or threatened violation will be inadequate and that the Company
shall be entitled to appropriate equitable relief.
The covenants contained in this Section shall inure to the benefit of the
Company, any successor of it and every subsidiary and affiliate.
IV. REASONABLE RESTRICTIONS.
You agree and acknowledge that, to the extent required by law, the
covenants specified in Section III contain reasonable limitations as to time,
geographical area and scope of activities to be restricted and that such
covenants do not impose a greater restraint on you than is necessary to protect
the good will, confidential information and other legitimate business interests
of the Company.
V. COMPANY POLICIES: CONFLICT OF INTEREST.
You agree to execute and abide by the Company's Conflict of Interest and
Integrity Policy attached to this contract as Schedule A and made a part of this
contract.
VI. RIGHTS TO MATERIALS.
All records, files, memorandum, reports, drawings, documents, and the like
(together with all copies thereof) relating to the business of the Company,
which you will use or prepare or come into contact within the course of, or as a
result of, your employment shall, as between the parties hereto, remain the sole
property of the Company. Upon your termination/separation from the Company you
shall return all such materials to the Company and agree that you shall not
thereafter cause removal of such materials from the premises of the Company.
VII. COMPLETE AGREEMENT; RELEASE.
A. This contract contains the entire understanding of the parties with
respect to the subject matter contained herein and replaces any prior
understandings, whether written or oral, subject to execution of payments by the
Company as specified in Section VII(C) herein. This contract may not be modified
or amended in any way unless in writing and signed by you and the Chief
Executive Officer of the Company.
B. This contract is in settlement of any and all prior claims you may have
arising out of your employment with the Company or its predecessors up to the
Effective Date. In consideration for this contract, you agree to unconditionally
release the Company, its subsidiaries, divisions, affiliates and their
shareholders, director, officers, employees and agents, from any and all claims,
demands or causes of action of any kind or nature that may have arisen up
through the date you sign acceptance of this letter, including, but not limited
to any claims
3
<PAGE> 4
for wages, incentives or benefits of any kind or nature; claims under local,
state or country law, statutes, regulations or ordinances; any other claims
based on any other local state or country law, statute or regulation in Poland;
any claim based on contract, express or implied; or any claim based in tort. You
acknowledge that all prior bonus or other amounts in excess of your base salary
that you have received satisfy any past claims for bonus or other compensation.
C. Based on prior employment agreements and understandings between you and
the Company, you shall receive the following amounts as compensation for
services rendered:
Ten thousand (10,000) U.S. Dollars as your 1996 annual bonus, to be
paid out by the end of April 1997.
Ten thousand (10,000) U.S. Dollars as compensation for your role in
the successful completion of the offering of senior notes by the Company,
to be paid out by the end of February 1997.
Two thousand and four hundred (2,400) U.S. Dollars as deferred portion
of your 1995 annual bonus, to be paid out by the end of March 1997.
VIII. MISCELLANEOUS PROVISIONS
A. You and the Company agree that this contract and the terms and
conditions of your employment shall be governed by the laws of the State of New
York. You and the Company agree to submit to the exclusive jurisdiction of the
courts of the State of New York for any disputes arising out of your employment
of termination of this contract.
B. If any portion of this contract is deemed invalid or unenforceable, such
determination shall not effect the validity or enforceability of the remaining
provisions of the Agreement.
C. This contract shall be terminated automatically upon the coincidentally
with your death, except for the rights and obligations of either party accrued
up to your death.
If you are in agreement with the provisions of this contract, please sign
in the space provided below. Please retain one fully executed copy for your
records.
Poland Communications, Inc.
By: /s/ ROBERT E. FOWLER III
------------------------------------
Robert E. Fowler III
Chief Executive Officer
Date: February 20, 1997
I, Marek Sowa, acknowledge that I have received this contract and I agree
to the terms and information contained herein.
By: /s/ MAREK SOWA
------------------------------------
Date: February 20, 1997
4
<PAGE> 5
SCHEDULE A
CONFLICT OF INTEREST AND INTEGRITY POLICY
A. All employees of the Company must conduct their business and personal
affairs with such ethics and integrity that no conflict of interest with the
Company's business, real or implied, can be construed. A conflict of interest
shall be deemed to exist if an employee or an Affiliate (as defined in (F)
below) of the employee has any interest (including, but not limited to equity
ownership, interest arrangement, commission, gift, etc.) direct or indirect, in
a client, supplier, contractor, or other principal dealing with the Company or
its affiliates, and that interest is of such extent or nature that it might
reasonably be perceived by management to affect or tend to affect the employee's
judgment or decisions exercised on behalf of the Company.
B. An employee or any Affiliate of the employee shall not personally or on
behalf of the Company receive or be involved with any kickbacks, bribes,
gratuities, reciprocal arrangements or other improper or illegal arrangements,
or benefit personally from any rebates or discounts, with any other
organizations and personnel conducting or soliciting, currently or
prospectively, the business with the Company and its affiliates.
C. It is the Company's policy to comply with the Foreign Corrupt Practices
Act or any other similar law or regulation affecting the Company's business
which prohibits bribes, kickbacks, or any other type of illegal and unethical
business dealings. An employee of the Company shall abide by and shall not
violate any such laws or regulations and agree to conduct him/herself in
accordance with such laws. More specifically, an employee or any Affiliate of an
employee shall not permit or be involved in any direct or indirect pay, award,
commission, or other compensation to any person or organization for purposes of
improperly or illegally inducing action of any kind whatsoever.
D. Where any questionable outside business activity is contemplated, an
employee must obtain prior Company approval.
E. Any violation of this policy shall subject an employee to immediate
termination for cause.
F. For purposes of this policy, Affiliate shall include, but not be limited
to, any relative by blood or by marriage or any entity in which the employee or
any such relative may have any financial, voting, controlling and/or management
interest.
ACKNOWLEDGEMENT & REPRESENTATION OF EMPLOYEE
As an employee of the Company, I acknowledge that I have read and
understand the Company Conflict of Interest Policy, and represent that I will
abide by the terms of this Policy.
By: /s/ Marek Sowa February 20, 1997
- ----------------------------- --------------------
Marek Sowa Date
5
<PAGE> 1
EXHIBIT 10.14
DEFERRED COMPENSATION AGREEMENT
THIS AGREEMENT is made and entered into as of the 18th day of April, 1995,
by and between WORLD CABLE COMMUNICATIONS, INC. a corporation organized under
the laws of the State of New York with a principal place of business in
Hartford, Connecticut (hereinafter called "WCCI") and GILBERT TASH, (hereinafter
called "TASH");
WITNESSETH:
WHEREAS, TASH desires to defer receipt of a portion of his salary and any
bonus earned from WCCI during 1994 until otherwise specified in this Agreement;
and
WHEREAS, WCCI desires to defer the payment of such compensation to TASH and
is willing to assist TASH in the deferral of such compensation by entering into
this Agreement;
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth, WCCI and TASH agree as follows:
1. Deferred Compensation. TASH hereby irrevocably elects to defer the
receipt by his bonus of $43,400 earned in 1994 until the earliest of such date
as are provided in paragraph 3 hereof. WCCI hereby agrees to pay the amounts of
such Deferred Compensation to TASH, at the earliest of such dates as are
provided in paragraph 3 hereof. Notwithstanding the aforesaid, to the extent
that TASH becomes liable for United States or foreign payroll taxes including
but not limited to Federal Social Security ("FICA") taxes or Federal
Unemployment ("FUTA") taxes with respect to such Deferred Compensation, WCCI
shall pay to TASH currently, from the amounts of compensation which would
otherwise be deferred hereunder, an amount of compensation which, after U.S.
federal or foreign income taxes are paid with respect to such amounts, would
allow TASH to satisfy his liability for said payroll taxes.
2. Deferred Compensation Account. WCCI shall maintain on its books and
records a Deferred Compensation Account to record its liability for future
payments of Deferred Compensation. WCCI shall not be required, however, to
segregate or earmark any of its assets for the benefit of TASH or, in the event
of his death, TASH's spouse, estate or any other beneficiary. The amount
reflected in said Deferred Compensation shall be available for WCCI's general
corporate purposes and shall be available to WCCI's general creditors. Neither
TASH nor his spouse, estate or any other beneficiary may assert any right or
claim by reason of this Agreement against any specific asset or WCCI. TASH's
right of payment pursuant to this Agreement shall only be a contractual right
against WCCI for the amount reflected in the Deferred Compensation Account with
respect to TASH. Nothing contained in this Agreement, and no action taken
pursuant to the provisions hereof, shall create or be construed to create a
trust of any kind or a fiduciary relationship between WCCI and TASH or any other
person.
3. Payment of Deferred Compensation. This Agreement shall continue in
force until the first to occur of: (1) TASH's severance of employment from WCCI
or its affiliates, (2) two years from the date of this agreement, or (3) the
written agreement, signed by the parties, terminating this Agreement. At such
time, this Agreement shall terminate and the entire amount then constituting
TASH's Deferred Compensation Account shall be due and payable to TASH. If the
severance of employment of TASH occurs by reason of his death, payment shall be
made to the beneficiary designated by TASH to receive such payment, or if none,
to TASH's spouse, if any, or if none to TASH's estate.
4. General Provisions.
(a) This Agreement may be amended or modified only by a written
agreement duly executed by the parties hereto and no agreement other than
one in writing executed by the parties hereto shall be binding on the
parties.
<PAGE> 2
(b) Either party has the right to assign this Agreement, provided such
assignee agrees to abide by and be bound by the terms and conditions set
forth herein.
(c) Nothing contained herein shall be interpreted to impose any
obligation on WCCI or its affiliates to continue the employment of TASH, or
to otherwise modify TASH's status as an Employee at will.
(d) This Agreement may be simultaneously executed in counterparts,
each of which shall be deemed to be an original but which together shall
constitute but one and the same instrument.
(e) This Agreement shall be governed by and construed in accordance
with the laws of the State of Connecticut. WCCI and TASH hereby agree to
submit to the jurisdiction of the state and federal courts located in
Connecticut for the resolution of any dispute that may arise under this
Agreement.
IN WITNESS WHEREOF, WCCI, by its duly authorized representative, and TASH
have executed this Agreement as of the day and year first written above.
WITNESS: WORLD CABLE COMMUNICATIONS, INC.
/s/ GREGORY GRUSSE
- -------------------------------
/s/ DARRA DASILVA By /s/ R. STEELE
- -------------------------------- ------------------------------------
Name: Richard B. Steele
Title: Vice President
/s/ GILBERT P. TASH
-------------------------------------
WITNESS: Gilbert Tash
/s/ ERDEN B. TASH
- --------------------------------
- --------------------------------
2
<PAGE> 3
GILBERT L. TASH
SENIOR VICE PRESIDENT OF ENGINEERING
UL. CZYZEWSKIEGO 40, 80-336 GDANSK,
POLAND
TEL 48 58 52-08-11 FAX 48 58 52-31-23
HOME TEL 48 58 22-01-85 FAX 48 58 22-36-67
[LOGO]
- --------------------------------------------------------------------------------
To: Rick Steele
Date: June 8, 1993
Fax:
Subj: Gil Tash's Relocation to Warsaw
I have located a house in Warsaw that is approximately equal to the one
that I live in, in Gdynia. The monthly lease is $1,800 per month, in Warsaw
versus $650 per month, in Gdynia. I will relocate on July 1, 1993.
The following expenses will be incurred as a result of the relocation.
- Estimated cost to move furniture and personal effects. 25,000,000 PLZ.
($1,500).
- Housing allowance at $1,000 per month. Allowed for in my agreement
letter.
- An advance to cover one year lease payment $21,600. I will reimburse the
company $9,600 at $800 per month if that is acceptable. If I can
negotiate a six month lease, I will.
I will close this deal on June 25, 1993, if you find the deal acceptable.
/s/ RICHARD B. STEELE
--------------------------------------
<PAGE> 4
[LOGO]
PETER L. JONES
Wiceprezes
September 25, 1991
Mr. Gilbert Tash
909 Calle Nuevo
San Clemente, Ca 92672
Dear Gil,
Again, let me say how glad I am that you have agreed to join our team here
in Poland. I know all our staff in Warsaw, Gdansk and Katowice welcome the
opportunity to work with you.
You will be employed by Chase International, Hartford Ct. and seconded to
Polska Telewizja Kablowa and will be assigned to our Coporate [sic] Staff as Sr
Vice President of Engineering. Your salary will be $120,000 per year and you
will have the opportunity to earn an additional $30,000 in the form of an annual
bonus, the terms of which you and I will separately agree. Reasonable moving
expenses to move your personal effects to Poland will be paid by the company, as
a result of approved quotations. Should you choose not to bring any household
goods to Poland the Company will pay you a one time amount of $4500.
Should you be required to reside in Warsaw the company will pay one half of
your household rental costs up to a total monthly rental of $2000. A Company
vehicle will be provided for your business use and you will be afforded three
weeks paid vacation per year. Two round trip business class tickets for you,
your wife and your son Rusty to Los Angeles will be provided per year. Should
the company wish to terminate your services prior to the end of this contract
you will be given three months notice and your expenses to relocate to the
United States will be provided by the company. I understand that you will be
arriving in Poland on September 25, 1991, and the company will provide 30 days
of temporary accommodation while you look for a permanent residence.
Again, Welcome aboard.
/s/ PETER L. JONES
--------------------------------------
Peter L. Jones, V.P.
Polska Telewizja Kablowa
Plus six months severance [handwritten]
Replaced by new agreement Sep. 25/91
[handwritten]
---------------------------------------------------------------------------
POLSKA TELEWIZJA KABLOWA S.A. ul. Niedzwiedzia 10, 02-737 Warszawa
tel. 43-32-73, 43-49-14, fax 43-49-14
<PAGE> 5
POLAND CABLEVISION (NETHERLANDS) B.V.
ONE COMMERCIAL PLAZA
HARTFORD, CT 06103
April 17, 1994
Mr. Gilbert Tash
303 EANC San Juan
San Clemente, CA 92672
RE: 1994 Incentive Compensation
Dear Gil:
As we discussed in Warsaw this past week, this letter will confirm that
your 1994 potential bonus award is $80,000 and the criteria to be utilized in
determining your 1994 bonus is attached as Schedule A.
Your performance is critical for the Company to achieve its 1994 goals, and
I hope that this bonus program will provide the incentive for, and ultimately
recognition of, superior achievement in 1994.
Very Truly Yours,
/s/ RICHARD STEELE
Richard Steele
Managing Director
cc: A. Chase
<PAGE> 6
GIL TASH
1994 BONUS CRITERIA
I. BONUS CRITERIA
The bonus amount to be received by employee shall be determined by
multiplying the bonus potential by the award percentage, which is determined by
the weightings set forth below:
<TABLE>
<S> <C> <C>
FINANCIAL
Revenues versus Budget for each system.*..................................... 5.0%
Operating Expenses versus Budget for each system.*........................... 5.0
Net Operating Income versus Budget for each system.*......................... 15.0
Net Operating Margin as a percentage of total revenues versus Budget for each
system.*................................................................... 5.0
Other financial attributes, including accuracy and timeliness of financial
reporting and receivables management....................................... 5.0
---
Total................................................................... 35.0%
MARKETING
Overall penetration rate versus Budget for each system.*..................... 2.0
ReMarket subscribers as a percentage of disconnects versus Budget (all
systems)................................................................... 2.0
Number of subscribers acquired versus Budget for each system.*............... 6.0
Overall marketing effort, system promotion and sales of new services/tiers
(all systems.)............................................................. 2.0
---
Total................................................................... 12.0
CONSTRUCTION
Cost per home passed versus Budget for each system.**........................ 5.0
Cost per subscriber versus Budget for each system.**......................... 5.0
Timeliness of construction versus Budget for horizontal plant and homes
passed for each system.**.................................................. 5.0
Development of Polish staff and systems...................................... 5.0
Purchasing/In-kind capital contributions..................................... 5.0
Development of MMDS system(s) (timing and cost versus budget)................ 5.0
---
Total................................................................... 30.0
CORPORATE DEVELOPMENT
Acquisition, rebuilding or initial design of new cable systems in a cost
effective and profitable manner............................................ 5.0
TPSA joint venture construction and telephone opportunities.................. 5.0
Financing.................................................................... 5.0
---
Total................................................................... 15.0
GENERAL PERFORMANCE
Working effectively with Polish staff........................................ 2.0
Development of Polish staff.................................................. 2.0
Timeliness and accuracy of financial statements.............................. 2.0
Preparation of 1994 Budget................................................... 2.0
---
Total................................................................... 8.0
-----
Grand Total........................................................ 100.0%
=====
</TABLE>
<PAGE> 7
Where applicable, the award percentage shall be determined by the following
formula if a numerical calculation versus budget is applicable:
<TABLE>
<CAPTION>
% OF AWARD
% OF BUDGET PERCENTAGE
---------------------------------------------------------------- ----------
<S> <C>
80........................................................... 40
90........................................................... 75
100........................................................... 100
110........................................................... 110
</TABLE>
If a numerical calculation is not possible, a subjective judgment will be
made by Arnold Chase and Richard Steele.
- ---------------
* Weightings for Gdansk system will be twice the weighting for each other
system. For example, if total available is 5%, Warsaw will be 1%, Krakow 1%,
Katowice 1%, and Gdansk 2%.
** Weightings will be equal between systems, i.e., Warsaw, Gdansk, Krakow and
Katowice all at same percentage.
<PAGE> 8
WORLD CABLE COMMUNICATIONS, INC.
C/O CHASE ENTERPRISES
ONE COMMERCIAL PLAZA
HARTFORD, CONNECTICUT 06103
Effective as of January 1, 1992
HAND DELIVERED
- -----------------------
Mr. Gilbert Tash
Re: World Cable Communications, Inc.
Amendment to Employment Letter Agreement
dated September 25, 1991
Dear Gil:
This letter amends the letter dated September 25, 1991, from Peter Jones
(the "Letter") regarding your employment with World Cable Communications, Inc.
("WCCI").
1. Notwithstanding anything to the contrary in the Letter, effective
January 1, 1992, and throughout 1992, your total annual compensation (salary,
incentive compensation and living expenses) is set forth as follows:
a. Your annual salary shall be in the amount of Fifty-Four Thousand
Four Hundred Dollars ($54,400.00), payable to you in the regular payroll
cycle in arrears.
b. You shall be given an annual allowance for reasonable living
expenses in the amount of Twenty Five Thousand Two Hundred Dollars
($25,200.00). This amount may be paid to you with the regular payroll
cycle, by payment of the appropriate expenses submitted by you directly to
WCCI or other schedule to be mutually agreed upon, although it will be your
responsibility to maintain appropriate documentation.
c. We agree that you have earned an incentive compensation payment for
the year 1991 in the amount of Fifty Seven Thousand Five Hundred Dollars
($57,500.00) payable as follows:
(i) Fifty Thousand Dollars ($50,000.00) payable in 1992 in equal
biweekly payments in arrears;
(ii) Seven Thousand Five Hundred Dollars ($7,500.00) payable in one
or more lump sum payments on or before December 31, 1992.
d. You shall be eligible to receive an annual incentive compensation
payment, payable in the year subsequent to which it was earned, of up to
Eighty Thousand Dollars ($80,000.00) as follows:
(i) Fifty Thousand Dollars ($50,000.00) shall be payable in equal
biweekly payments in arrears with the normal payroll cycle, conditioned
upon your continued employment with WCCI; and
(ii) The amount and timing of the remainder (up to Thirty Thousands
Dollars ($30,000.00)) shall be paid in WCCI's reasonable discretion,
considering your performance and the performance of Polska Telewizja
Kablowa, S.A. ("PTK").
2. For years subsequent to 1992, your total annual compensation shall be as
follows:
a. Your annual salary shall be in the amount of Fifty-Four Thousand
Four Hundred Dollars ($54,400.00).
b. You shall be given an annual allowance for reasonable living
expenses in the amount of Twenty-Five Thousand Two Hundred Dollars
($25,200.00). This amount may be paid to you with the regular
<PAGE> 9
payroll cycle, by payment of appropriate expenses submitted by you directly
to WCCI or other schedule to be mutually agreed upon, although it will be
your responsibility to maintain appropriate documentation.
c. You shall be eligible to receive an annual incentive compensation
payment, payable in the year subsequent to which it was earned, of up to
Eighty Thousand Dollars ($80,000.00) as follows:
(i) Fifty Thousand Dollars ($50,000.00) shall be payable in equal
biweekly payments in arrears with the normal payroll cycle, conditioned
upon your continued employment with WCCI; and
(ii) The amount and timing of the remainder (up to Thirty Thousand
Dollars ($30,000.00)) shall be paid in WCCI's reasonable discretion,
considering your performance and the performance of PTK.
3. Any benefits for which you are eligible under WCCI's policies and
procedures shall be based upon your annual salary, living expenses and the
portion of your incentive compensation payment described in Section 1.c(i)
and/or 2.c(i).
4. With respect to scheduling vacation time, WCCI and you shall make every
effort to schedule vacation time in connection with business trips approved by
WCCI.
5. Unless otherwise modified herein, all other terms and conditions of the
letter shall continue in full force and effect.
Please indicate your understanding and acceptance of the terms set forth
herein by signing in the space provided below. Please return one fully executed
original to my attention.
Very truly yours,
WORLD CABLE COMMUNICATIONS, INC.
By: /s/ Richard B. Steele
------------------------------------
Richard B. Steele
Its Vice President
cc: Cheryl Chase Freedman, Esq.
Arnold L. Chase
Lissa Newman
ACKNOWLEDGED AND ACCEPTED
/s/ Gilbert Tash
-------------------------------------------------------------
Gilbert Tash
<PAGE> 1
EXHIBIT 10.15
POLSKA TEIEWIZJA KABLOWA -- WARSZAWA, S.A.
UL. KONSTRUKORSKA 6
02-673 WARSZAWA, POLAND
EFFECTIVE AS OF JANUARY 1, 1996
MR. ANDRZEJ MURAS
05-126 NIEPRET
OSIEDLE GRABINA
UL. MODRZEWIOWA 6
WARSZAWA
This contract sets forth the understanding between you and PTK -Warszawa
S.A. (hereinafter referred to as the "Company") with respect to your employment
at the Company.
1. TITLE/SALARY EMPLOYMENT INFORMATION.
A. Your employment with the Company will be for a 2 year period commencing
January 1, 1996.
B. You shall hold the position of an Executive Vice President with respect
to the cable systems constructed and operated by the Company and its affiliates
(hereinafter referred to as the Company). Your title, duties and rights shall be
set forth by the Chairman of the General Meeting of Shareholders and are subject
to change at the Chairman's discretion.
C. You shall earn a monthly salary, paid in Polish zloty equal to the USD
equivalent of Seven Thousand Four Hundred Dollars ($7,400.00).
Your salary shall be adjusted as set forth in Schedule A.
D. In addition to your salary, you are eligible to receive a bonus of up to
an equivalent of Fifty Thousand ($60,000.00) U.S. Dollars ("Bonus") . The
criteria to receive a Bonus or a portion thereof is set forth on Schedule A to
this contract and, for the following year, shall be established by the Chairman
of the General Assembly of Shareholders by the end of the preceding year. The
Bonus shall be subject to the overall performance of the Company.
The bonus shall be paid out until the end of April of the following year
after drawing up the balance sheet of the Company.
You shall not be eligible for any Bonus if you leave voluntarily or are
terminated for cause, as defined in Section II B herein, prior to the end of the
period for which the Bonus is applicable.
The location of your office shall be in Warsaw.
E. You shall accrue vacation pursuant to the laws of the country of Poland.
You agree that you shall either 1) utilize all vacation time accruing
during that particular year (which vacation time may not be carried over to the
following year) or 2) in the event that all vacation time for a certain year is
not utilized, a portion of the Bonus, if any, to which you are entitled to be
paid in a given year shall be first allocated to the payment of any accrued but
unused vacation time earned in the previous year. You agree that such payment
fulfills the Company's obligations with respect to any such accrued vacation
time and you agree to release the Company from any liability arising out of or
in connection with such unused vacation time.
F. You will be provided with an automobile for your business and personal
use. The conditions of such use shall be conditioned by the policies of the
Company and prescribed by the President of the Company.
G. You will be eligible for medical benefits under the Chase Enterprises
Medical Plan, as amended from time to time at the discretion of Chase
Enterprises.
<PAGE> 2
II. TERM AND TERMINATION OF EMPLOYMENT.
A. The term of this contract shall be for two (2) years commencing as of
January 1, 1996. However, and except as set forth in Section II (B) and (C)
below, the Company may terminate your employment upon six (6) month's written
notice at any time during the term.
B. Notwithstanding Section 11(A) above, the Company may terminate your
employment at any time, without further obligation of any kind or nature, in the
event that:
(i) The Company determines in its reasonable judgment that you are
engaging or have engaged in conduct or activities injurious to the
reputation and/or affairs of the Company; or
(ii) That you are convicted for activity of a criminal or illegal
nature under the laws of the Country of Poland; or
(iii) The Company determines that you have violated any substantive
policies and procedures of the Company, or any substantive personnel,
financial or other policies and procedures established by the Company; or
(iv) The Company determines that you have demonstrated poor or
inadequate performance and has provided you with prior written warning; or
(v) You have violated the Conflict of Interest policy of the Company
as referenced in Section V of this contract.
Subsections (i) through (v) above shall he considered "termination for
cause".
C. Notwithstanding Section (A) above, the Company may terminate your
employment, immediately upon written notice, in case of an acquisition and/or
merger, resulting in a change of the ultimate ownership exercising control
(direct or indirect) over the Company to other than those controlling the
Company as of the effective day of this contract, in accordance with the
following provisions:
(i) In the event of termination of your employment by the Company or
its legal successor and such termination is not pursuant to Section II (B)
of this contract, the Company or its legal successor will pay you the
amount equal to six (6) months salary to be paid by continuing your salary
for a six (6) month period alter your termination.
(ii) You acknowledge that the provisions of this Section II (C) apply only
in the event of a merger or acquisition of the Company resulting in a change of
entities or individuals exercising control over the Company.
D. If the Company or its legal successor elects not to continue this
contract beyond the expiration date according to the same terms and conditions
as contained herein, the Company or its legal successor shall pay you an amount
equal to six (6) months salary, to be paid by continuing to pay your salary over
a six (6) month period following the expiration of your contract, as
compensation for your role in organizing the Company and securing the permits
and licenses necessary to operate in Poland. This payment shall be made so long
as, during the six (6) month period following the expiration of your contract,
you agree to make yourself available on an as needed basis to provide
consultation, advice and services relating to the Company's organization and
business.
III. TRADE SECRETS AND CONFIDENTIAL INFORMATION; NON-COMPETITION.
During the term of your employment, you will acquire knowledge of
confidential and proprietary information regarding, among other things, the
Company's present and future operations, its customers and suppliers, pricing
and bidding strategies, and the methods used by the Company and its employees.
Therefore, you hereby agree to the following:
A. During your employment and after your employment ends with the Company
you will hold in a fiduciary capacity for the benefit of the Company, and shall
not directly or indirectly we or disclose any Trade Secret, as defined
hereinafter, that you may acquire during the term of your employment by the
Company for
2
<PAGE> 3
so long as such information remains a Trade Secret. The term "TRADE SECRET" as
used in this contract shall mean information including, but not limited to,
technical or non-technical data, a formula, a pattern, a compilation, a program,
a device, a method, a technique, a drawing, a process, financial data, financial
plans, product plans or a list of actual or potential customers or suppliers
which:
(1) derives economic value, actual or potential from not being
generally known to, and not being readily ascertainable by proper means by,
other persons who can obtain economic value from its disclosure or use; and
(2) is the subject of reasonable efforts by the Company to maintain
its confidentiality.
B. In addition to the foregoing and not in limitation thereof, you agree
that, during your employment with the Company and for a period of two (2) years
after your termination/separation from the Company, you will hold in a fiduciary
capacity for the benefit of the Company, and shall not directly or indirectly
use or disclose, any Confidential or Proprietary information, as defined
hereinafter, that you may have acquired (whether or not developed or compiled by
you and whether or not you were authorized to have access to such Information)
during the term of, in the course of or as a result of your employment by the
Company. The term "Confidential or Proprietary Information" as used in this
contract means any secret, confidential or proprietary information of the
Company not otherwise included in the definition of "TRADE SECRET" above. The
term "Confidential and Proprietary Information" does not include information
that has become generally available to the public by the act of one who has the
right to disclose such information without violating any right of the client to
which such information pertains.
C. You agree that for a period of twelve (12) months after
termination/separation of your employment you will not hire or attempt to hire
for any purpose whatsoever (whether as an employee, consultant, adviser,
independent contractor or otherwise) any employee of the Company or any
affiliate thereof or any person who was an employee of the Company or any
affiliate thereof at any time during the one year period prior to the
termination of your employment.
D. You agree that for a period of twelve (12) months after
termination/separation of your employment you will not, directly or indirectly,
for any purpose whatsoever (whether as employee, consultant, advisor,
independent contractor or otherwise) engage in or solicit the same or
substantially similar business conducted by the Company i.e. the establishment
(including the installation and marketing) of cable television or in any area in
the country of Poland where the Company and its affiliates have established or
are in the process of establishing cable television construction or operations
as of the date of your termination.
You agree and acknowledge that, if a violation of any covenant contained in
this Section III occurs or is threatened, such violation or threatened violation
will cause irreparable injury to the Company, that the remedy at law for any
such violation or threatened violation will be inadequate and that the Company
shall be entitled to appropriate equitable relief.
The covenants contained in this Section shall inure to the benefit of the
Company, any successor of it and every subsidiary and affiliate.
IV. REASONABLE RESTRICTIONS.
You agree and acknowledge that, to the extent required by law, the
covenants specified in Section III contain reasonable limitations as to time,
geographical area and scope of activities to be restricted and that such
covenants do not impose a greater restraint on you than is necessary to protect
the good will, confidential information and other legitimate business interests
of the Company.
V. COMPANY POLICIES: CONFLICT OF INTEREST.
You agree to execute and abide by the Company's Conflict of Interest and
Integrity Policy attached to this contract as Schedule B and made a part of this
contract.
3
<PAGE> 4
VI. RIGHTS TO MATERIALS.
All records, files, memorandum, reports, drawings, documents, and the like
(together with all copies thereof) relating to the business of the Company,
which you will use or prepare or come into contact within the course of, or as a
result of, your employment shall, as between the parties hereto, remain the sole
property of the Company. Upon your termination/separation from the Company you
shall return all such materials to the Company and agree that you shall not
thereafter cause removal of such materials from the premises of the Company.
VII. COMPLETE AGREEMENT; RELEASE.
A. This contract contains the entire understanding of the parties with
respect to the subject matter contained herein and replaces any prior
understandings, whether written or oral. This contract may not be modified or
amended in any way unless in writing and signed by you and the Chairman of the
General Meeting of Shareholders.
B. This contract is in settlement of any and all prior claims you may have
arising out of your employment with the Company or its predecessors up to the
Effective Date. In consideration for this contract, you agree to unconditionally
release the Company, its subsidiaries, divisions, affiliates and their
shareholders, director, officers, employees and agents, from any and all claims,
demands or causes of action of any kind or nature that may have arisen up
through the date you sign acceptance of this letter, including, but not limited
to any claims for wages, accrued vacation, incentives or benefits of any kind or
nature; claims under local, state or country law, statutes, regulations or
ordinances; any other claims based on any other local state or country law,
statute or regulation in Poland; any claim based on contract, express or
implied; or any claims based in tort. You acknowledge that all prior bonus or
other amounts in excess of your base salary that you have received satisfy any
past claims for bonus or other compensation, including payments for accrued but
unused vacation.
VIII. MISCELLANEOUS PROVISIONS.
A. You and the Company agree that this contract and the terms and
conditions of your employment shall be governed by the laws of the Country of
Poland. You and the Company agree to submit to the exclusive jurisdiction of the
courts of the Country of Poland for any disputes arising out of your employment
or termination of this contract.
B. If any portion of this contract is deemed invalid or unenforceable, such
determination shall not effect the validity or enforceability of the remaining
provisions of the Agreement.
C. This contract shall be terminated automatically upon and coincidentally
with your death, except for the rights and obligations of either party accrued
up to your death.
If you are in agreement with the provisions of this contract, please sign
in the space provided below. Please retain one fully executed copy for your
records.
Polska Telewizja Kablowa -- Warszawa, S.A.
By: /s/ [signature illegible]
--------------------------------------------------
Chairman of the General Meeting of the Shareholders
Date:
--------------------------------------------------
I, Andrzej Muras acknowledge that I have received this contract and to the terms
and information contained therein.
4
<PAGE> 5
By /s/ ANDRZEJ MURAS
-------------------------------------------------
Andrzej Muras
Date 20.05.96
----------------------------------------------------
5
<PAGE> 6
SCHEDULE A
1996 SALARY ADJUSTMENT & BONUS CRITERIA
SALARY INCREASE/INFLATION ADJUSTMENT
Salary to be paid in Polish zloty but determined by multiplying a constant,
predetermined monthly salary denominated in USD times the average Polish
zloty/USD exchange rate determined by the National Bank of Poland on the first
day of the applicable month.
BONUS CRITERIA:
<TABLE>
<S> <C>
FINANCIAL
Revenues versus Budget.................................................... 5.00%
New Operating Income versus Budget........................................ 15.00%
Other Financial Attributes................................................ 5.00%
------
TOTAL............................................................. 25.00%
======
MARKETING
Overall Penetration Rate versus Budget.................................... 5.00%
Number Of Subscribers acquired versus Budget................................ 10.00%
Overall marketing effort (Tiers, etc.)...................................... 5.00%
------
Total............................................................. 20.00%
======
CONSTRUCTION
Cost per Home Passed versus Budget........................................ 5.00%
# Homes Passed Constructed versus Budget.................................. 10.00%
------
TOTAL............................................................. 15.00%
======
GENERAL PERFORMANCE
Corporate Legal Compliance -- Coop, PAR License, KRRiT Registration,
Conduit Agreements, Legal contract summaries and management............ 10.00%
Franchise Relations/Coop Approvals........................................ 10.00%
Acquisitions & Corporate Development........................................ 15.00%
General Evaluation.......................................................... 5.00%
------
TOTAL............................................................. 40.00%
======
GRAND TOTAL....................................................... 100.00%
</TABLE>
CONFLICT OF INTEREST AND INTEGRITY POLICY
A. All employees of the Company must conduct their business and personal
affairs with such ethics and integrity that no conflict of interest with the
Company's business, real or implied, can be construed. A conflict of interest
shall be deemed to exist if an employee or an Affiliate (as defined in (F)
below) of the employee has any interest (including, but not limited to equity
ownership, interest arrangement, commission, gift, etc.) direct or indirect, in
a client, supplier, contractor, or other principal dealing with the Company or
its affiliates, and that interest is of such extent or nature that it might
reasonably be perceived by management to affect or tend to affect the employee's
judgment or decisions exercised on behalf of the Company.
B. An employee or any Affiliate of the employee shall not personally or on
behalf of the Company receive or be involved with any kickbacks, bribes,
gratuities, reciprocal arrangements or other improper or illegal arrangements,
or benefit personally from any rebates or discounts, with any other
organizations and personnel conducting or soliciting, currently or
prospectively, the business with the Company and its affiliates,
<PAGE> 7
C. It is the Company's policy to comply with the Foreign Corrupt Practices
Act or any other similar law or regulation affecting the Company's business
which prohibits bribes, kickbacks, or any other type of illegal and unethical
business dealings. An employee of the Company shall abide by and shall not
violate any such laws or regulations and agree to conduct him/herself in
accordance with such laws. More specifically, an employee or any Affiliate of an
employee shall not permit or be involved in any direct or indirect pay, award,
commission, or other compensation to any person or organization for purposes of
improperly or illegally inducing action of any kind whatsoever.
D. Where any questionable outside business activity is contemplated, an
employee must obtain prior Company approval.
E. Any violation of this policy shall subject an employee to immediate
termination for cause.
F. For purposes of this policy, Affiliate shall include, but not be limited
to, any relative by blood or by marriage or any entity in which the employee or
any such relative may have any financial, voting, controlling and/or management
interest.
ACKNOWLEDGEMENT & REPRESENTATION OF EMPLOYEE
As an employee of the Company, I acknowledge that I have read and
understand the Company Conflict of Interest Policy, and represent that I will
abide by the terms of the Policy.
<TABLE>
<C> <S>
By: /s/ Andrzej Muras 20.05.96
- ----------------------------------------------- ------------------------------
Andrzej Muras Date
</TABLE>
<PAGE> 1
EXHIBIT 10.16
WORLD CABLE COMMUNICATIONS, INC.
ONE COMMERCIAL PLAZA
HARTFORD, CT 06103
Telephone (860) 549-1674 general
(560) 2934228 direct
(860) 2934370 fax
July 10, 1996
Mr. Michael Houlehan
Polska TeIewizja Kablowa
ul. Konstructorska 6
02-673 Warsaw
RE: Employment Agreement with World Cable Communications, Inc,
("WCCI" or the "Company")
Bonuses for 1995 and 1996
Dear Mike:
This will confirm our earlier discussions concerning your 1993 and 1996
bonuses.
1. You will be paid a bonus in the amount of $25,000 immediately.
2. You are eligible to receive a bonus in the amount of $10,000 which will
be paid to you upon satisfactory completion by each of the FIX cable
television systems of the compliance package you have prepared (a copy
of the summary of this package is attached). This bonus will be paid
$5,000 upon completion by all PTK Systems of the compliance package as
of June 30, 1996 and an additional $5,000 for the September 30, 1996
package.
3. You are eligible to receive a bonus in the amount of $10,000 which will
be paid to you upon your timely and satisfactory completion of the new
programming venture (satellite project) business plan and its
presentation to the WCCI Board of Directors. This plan is expected to be
substantially completed by September 1, 1996.
4. You are eligible to receive an additional $10,000 bonus which will be
paid to you upon the securing by WCCI or its affiliates of approximately
$10,000,000 in loans from local polish financing sources. You will earn
this bonus for your efforts in securing this financing within
approximately the next month to two months. These loans are expected to
be used by WCCI to bridge any short-term financing needs between now and
this fall when the company expects to close on a larger credit facility.
5. You will be eligible to earn an additional bonus of up to $20,000 to be
determined at the Company's sole discretion based upon your general
contribution to the Company's performance for 1996 The amount of this
bonus will be determined at the completion of your second anniversary of
your employment with the Company in November 1996.
<PAGE> 2
I believe this letter accurately describes all of the bonus related issues
we have discussed and is a satisfactory resolution for both you and the WCCI
Board of Directors. Please indicate your agreement with this plan in the space
below.
Very truly yours,
/s/ RICHARD B. STEELE
--------------------------------------
Richard B. Steele
Chief Executive Officer
Accepted and Agreed By:
/s/ MICHAEL HOULEHAN
-------------------------------------------------------------
Michael Houlehan
<PAGE> 3
POLAND CABLEVISION (NETHERLANDS) B.V.
ONE COMMERCIAL PLAZA, 24TH FLOOR
HARTFORD, CT 06103
OCTOBER 7, 1994
FAX (202) 362-6713
Mr. Michael J. Houlehan
Managing Director
Potomac Pacific Ltd.
4411 Klingle St., NW
Washington, DC 20016
Re: Position with Poland Cablevision (Netherlands) B.V. ("PCBV" or the
"Company")
Dear Mike:
This letter will summarize and confirm the recent conversations we have had
concerning your employment/engagement by PCBV in connection with its majority
owned Polish subsidiary, Polska Telewizja Kablowa, S.A. and its affiliates
("PTK").
Recognizing the international nature of this assignment, and Poland's
status as a developing, Eastern European country, we will view the initial three
to six months of our relationship as a consulting period. At the end of such
consulting period, we will determine the form of relationship to be continued,
including that of full time employment. The important terms of your employment
would be as follows:
Position: Director Corporate Development, with the exact title to be
agreed upon, but with a status similar to Managing Director, although without
full authority to bind PCBV.
Location: Warsaw, Poland corporate offices and other company locations in
Poland.
Responsibilities: As you are aware, the potential to be realized by PTK is
highly dependent upon management's ability to hire, train and motivate a Polish
management staff. Your primary responsibilities will be to develop a strategic
planning function at the Company and to assist Polish management in implementing
this plan, particularly in the areas of programming, marketing and acquisitions
(identification of suitable candidates, negotiations, due diligence and
integration into PTK's strategic plan). You will also be an active participant
in financing activities and the exploration of telephony and other business
options in Poland.
Salary: $12,500 per month, plus housing allowance and use of a company
automobile.
Incentive Compensation: The primary aim of Incentive Compensation is to
provide the availability of additional compensation over a Salary, and to
recognize that your responsibilities will have a non-quantifiable element
(strategic and management development) and a quantifiable element (financing,
sale, or similar transaction). Accordingly, you will be eligible to receive
Incentive Compensation in two forms -- Bonus and Specific Performance
Compensation.
(A). Bonus: You will be eligible to earn an incentive bonus of
approximately twenty to forty percent (20-40%) of your annual salary after
the first year of your employment and forty to eighty percent (40-80%) each
year thereafter. You will be eligible to receive a Bonus commencing with
the consulting period. These percentages are guidelines and will not
strictly limit or cap the bonus which may be awarded, determined at the
Company's sole discretion, and based upon your performance and that of the
Company.
(B). Specific Performance Compensation: Within sixty (60) days of
your engagement with PCBV, we will mutually agree, in writing, on
compensation related to achievement of specific transactions and/or
operating objectives, including placement of debt/equity; operating goals
including NOI, ROE, Basic Subscribers at target dates; and public equity
issue and joint venture events.
<PAGE> 4
Additional Provisions: The terms of your employment will be governed by
the terms of the Chase Enterprises Employment Manual, including employment at
will provisions and benefits as described below:
- Housing allowance (as previously mentioned);
- Tax adjustment to offset any adverse effects as a result of employment in
Poland, including tax preparation expense:
- Company provided automobile;
- Medical, dental and life insurance benefits; and
- 401-k plan, with matching.
Mike, please confirm that this outline reflects our understanding. We are
all excited about PTK's future, and we believe that with your assistance we can
build a very successful, world class entertainment and information organization
in Poland.
Very truly yours,
/s/ Richard B. Steele
------------------------------------
Richard B. Steele
Managing Director,
Poland Cablevision
(Netherlands) B.V.
/s/ Michael J. Houlehan
- ------------------------------------
Acceptance
<PAGE> 5
ASSIGNMENT AND ASSUMPTION AGREEMENT ("Agreement") effective as of October
7, 1994, between Poland Cablevision (Netherlands) B.V. ("PCBV") and World Cable
Communications, Inc. ("WCCI").
For the consideration of One ($1.00) dollar, and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
agree as follows:
ARTICLE 1 THE PARTIES
SECTION 1.1 ASSIGNOR
(a) PCBV is a limited liability company organized and existing under the
laws of the country of the Netherlands with an address of c/o Chase Enterprises,
One Commercial Plaza, Hartford, Connecticut 06103.
(b) PCBV is referred to in this instrument as the "Assignor".
SECTION 1.2 ASSIGNEE
(a) WCCI is a New York corporation. It has an office c/o Chase Enterprises,
One Commercial Plaza, Hartford, Connecticut 06103. It is the majority
shareholder in PCBV.
(b) WCCI is referred to in this instrument as the "Assignee".
ARTICLE 2 WHAT IS BEING ASSIGNED
SECTION 2.1 THE ASSIGNED DOCUMENT
(a) The assigned document is a certain letter of employment dated October
7, 1994 relating to the employment of Michael J. Houlehan ("Employee") by
Assignor (the "Employment Letter").
ARTICLE 3 THE ASSIGNMENT
SECTION 3.1 THE ASSIGNMENT
Assignor assigns all of its right, title and interest as employer in the
Employment Letter to Assignee.
SECTION 3.2 THE ASSUMPTION
Assignee assumes and agrees to perform all the obligations and
responsibilities of Assignor as employer under the Employment Letter and agrees
to be bound by all the provisions of the Employment Letter.
ARTICLE 4 INDEMNIFICATION
SECTION 4.1 INDEMNIFICATION
Assignee indemnifies and agrees to hold Assignee harmless from and against
any and all claims made, suits commenced or judgments entered arising out of or
in connection with the Employment Letter, and its employment of Employee without
recourse to Assignor.
ARTICLE 5 GENERAL CLAUSES
SECTION 5.1 HEIRS AND SUCCESSORS
This assignment and assumption are binding upon Assignor and Assignee, and
their respective heirs, successors, executors, administrators, personal
representatives and assigns.
1
<PAGE> 6
SECTION 5.2 SINGULAR AND PLURAL
The singular includes the plural and the plural includes the singular.
SECTION 5.3 CAPTIONS AND HEADINGS
The captions and headings throughout this instrument are for convenience or
reference only, and the words therein shall in no way be held or deemed to
refine, limit, describe, explain, modify, amplify or add to the interpretation,
construction, or meaning of any provision of or the scope or intent of this
instrument, nor in any way affect this instrument.
SECTION 5.4 COUNTERPARTS
This instrument may be executed in several counterparts but the
counterparts shall constitute but one and the same instrument.
SECTION 5.5 INTERPRETATION
This instrument shall be construed in accordance with the laws of the State
of Connecticut. In the event that any provision of this instrument shall be
found unenforceable or invalid, the same shall not affect the remaining
provisions of this instrument.
To signify agreement with the foregoing, the parties have executed this
instrument as of the date first above written.
Signed, sealed and delivered in the presence of:
<TABLE>
<S> <C>
WITNESS: ASSIGNOR:
POLAND CABLEVISION (NETHERLANDS)
B.V.
/s/ [SIGNED BUT ILLEGIBLE] By: /s/ RICHARD B. STEELE
- ------------------------------------------ -----------------------------------------
Richard B. Steele
/s/ [SIGNED BUT ILLEGIBLE] Its: Managing Director
- ------------------------------------------
ASSIGNEE:
WORLD CABLE COMMUNICATIONS, INC.
/s/ [SIGNED BUT ILLEGIBLE] By: /s/ RICHARD B. STEELE
- ------------------------------------------ -----------------------------------------
Richard B. Steele
/s/ [SIGNED BUT ILLEGIBLE] Its: Vice President
- ------------------------------------------
</TABLE>
2
<PAGE> 1
EXHIBIT 11.1
POLAND COMMUNICATIONS, INC.
For the years ended December 31, 1996, 1995, and 1994
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1996 December 31, 1995 December 31, 1994
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net Loss (6,617) (1,289) (2,383)
======= ======= =======
Weighted average number of shares outstanding 17,271 11,037 10,880
Weighted average shares of convertible preferred stock 3,877 812 812
------- ------- -------
Weighted average number of common and common equivalent shares 21,148 11,849 11,692
======= ======= =======
Net loss per share (312.89) (108.79) (203.81)
======= ======= =======
Page 1
</TABLE>
<PAGE> 1
EXHIBIT 21
LIST OF THE SUBSIDIARIES OF THE COMPANY
<TABLE>
<S> <C>
Poland Cablevision (Netherlands) B.V........................................... Netherlands
Polska Telewizja Kablowa S.A................................................... Poland
Polska Telewizja Kablowa -- Warszawa S.A....................................... Poland
Polska Telewizja Kablowa -- Krakow S.A......................................... Poland
Polska Telewizja Kablowa -- Ryntronik S.A...................................... Poland
Polska Telewizja Kablowa -- Lublin S.A......................................... Poland
Polska Telewizja Kablowa -- Szczecin Sp. z o.o. ............................... Poland
Poltelkab Sp. z o.o............................................................ Poland
TV SAT Ursus Sp. z o.o. ....................................................... Poland
TV KABEL Sp. z o.o. ........................................................... Poland
Telkat Sp. z o.o. ............................................................. Poland
ETV Sp. z o.o. ................................................................ Poland
Kolor Sat Sp. z o.o. .......................................................... Poland
Opolskie TT S.A................................................................ Poland
Czestochowska.................................................................. Poland
Szczecinska TK Sp. z o.o. ..................................................... Poland
Otwocka TK Sp. z o.o. ......................................................... Poland
ProCable Sp. z o.o. ........................................................... Poland
Polskie Media S.A. ............................................................ Poland
Ground Zero Media Sp. z o.o. .................................................. Poland
PCI Programming, Inc........................................................... Delaware
</TABLE>
<PAGE> 1
EXHIBIT 23.1
THE BOARD OF DIRECTORS
POLAND COMMUNICATIONS, INC.:
The audits referred to in our report dated March 26, 1997, included the related
financial statement schedule as of December 31, 1996, and for each of the years
in the three-year period ended December 31, 1996, included in the registration
statement. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" and "Selected Consolidated Financial Data" in
the prospectus.
/s/ KPMG PEAT MARWICK LLP
Hartford, Connecticut
April 3, 1997
<PAGE> 1
EXHIBIT 23.2
The Board of Directors
Poland Cablevision (Netherlands) B.V.
The audits referred to in our report dated March 26, 1997, included the related
financial statement schedule as of December 31, 1996, and for each of the years
in the three-year period ended December 31, 1996, included in the registration
statement. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
Hartford, Connecticut
April 3, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 68,483
<SECURITIES> 25,115
<RECEIVABLES> 1,760
<ALLOWANCES> 545
<INVENTORY> 7,913
<CURRENT-ASSETS> 97,060
<PP&E> 102,567
<DEPRECIATION> (19,143)
<TOTAL-ASSETS> 217,537
<CURRENT-LIABILITIES> 18,205
<BONDS> 130,704
36,265
0
<COMMON> 1
<OTHER-SE> 29,737
<TOTAL-LIABILITY-AND-EQUITY> 217,537
<SALES> 0
<TOTAL-REVENUES> 24,923
<CGS> 0
<TOTAL-COSTS> 27,813
<OTHER-EXPENSES> 761
<LOSS-PROVISION> 23
<INTEREST-EXPENSE> 4,834
<INCOME-PRETAX> (7,234)
<INCOME-TAX> (1,273)
<INCOME-CONTINUING> (2,913)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,617)
<EPS-PRIMARY> (312.89)
<EPS-DILUTED> 0
</TABLE>
